Louis Rene Peter Larose Executive Director

Transcription

1 Botswana Burundi Eritrea Ethiopia Gambia, The A GROUP I CONSTITUENCY Africa Group I Constituency Annual Report FY15 Interim IBRD, Report IDA, IFC and MIGA April 2015 Kenya Lesotho Liberia Malawi Mozambique Namibia Rwanda Seychelles Sierra Leone Somalia South Sudan Sudan Swaziland Tanzania Uganda Zambia Zimbabwe Louis Rene Peter Larose Executive Director

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3 Table of Contents FOREWORD BY THE EXECUTIVE DIRECTOR... IV EXECUTIVE SUMMARY... IX CHAPTER ECONOMIC DEVELOPMENTS AND PROSPECTS Overview Global Economic Performance Economic Performance in High Income Countries Economic Performance in Developing Countries Economic Performance in Africa Group 1 Constituency Countries The Medium Term Outlook CHAPTER WORLD BANK GROUP OPERATIONS Overview IBRD Lending Operations IDA Lending Operations IFC Operations MIGA Operations CHAPTER SELECTED POLICY ISSUES AND UPDATES Review of the World Bank Environmental and Social Safeguards Policies Update on the Proposed World Bank Group Procurement Framework The 2015 Voice Reform Update on Global Infrastructure Facility Update on Diversity and Inclusion CHAPTER CONSTITUENCY ISSUES Highlights of Ninth Statutory Meeting of the Africa Group 1 Constituency i

4 TABLES PAGE 1.1 The Global Economic Performance and Outlook Real GDP Growth in High Income Countries Real GDP Growth in Developing Countries Selected Indicators for Sub-Saharan Africa Real GDP Growth Rates in Africa Group 1 Constituency IBRD and IDA Commitments by Region IBRD Commitments by Region IBRD Gross Disbursements by Region IDA Commitments by Region IDA Gross Disbursements by Region IFC Commitments by Region IFC Approvals by Region IFC Disbursements by Region MIGA Operations - First Half of FY MIGA Portfolio by Region - First Half of FY MIGA Portfolio by Sector - First Half of FY Constituency Governance Structure 39 FIGURES 1.1 Energy Prices Base Metals Precious Metals Real GDP Growth in Developing Countries Real GDP Growth for Sub-Saharan Africa Projected Foregone 2015 GDP due to Ebola Africa Group 1 Constituency GDP Growth Rates 13 BOXES 1 A Focus on West Africa: Economic Impact of the Ebola Outbreak 11 ANNEXES Annex 1 Organization Chart of the World Bank effective January 1, Annex 2 IFC Organization Chart effective November, Annex 3 MIGA Organization Chart effective February 11, Annex 4 Development Committee Member Statement October Annex 5 Development Committee Communiqué October Annex 6 Rotation Schedule for Constituency Chairmanship 52 Annex 7 Rotation Schedule for Constituency Panel 53 Annex 8 Rotation Schedule for Constituency Representation on the Development 54 Committee Annex 9 Rotation Schedule for Executive Director and Alternate Executive Director 55 ii

5 Acronyms AC AFG1 CPF D&I DTC ECA ESS FDI FY GC GCI GDP GIF GMR IBRD IDA IFC LAC MDGs MENA MIGA ODA OECD SA SCD SCI SME SSA UN US WBG WDR Advisory Council Africa Group 1 Constituency Country Partnership Framework Diversity and Inclusion Developing and Transition Countries Europe and Central Asia Environmental and Social Safeguards Foreign Direct Investment Fiscal Year Governing Council General Capital Increase Gross Domestic Product Global Infrastructure Facility Global Monitoring Report International Bank for Reconstruction and Development International Development Association International Finance Corporation Latin American and Caribbean Millennium Development Goals Middle East and North Africa Multilateral Investment Guarantee Agency Official Development Assistance Organization of the Economic Co-operation and Development South Asia Systematic Country Diagnostic Selective Capital Increase Small and Medium Enterprise Sub-Saharan Africa United Nations United States World Bank Group World Development Report iii

6 Foreword by the Executive Director I am pleased to present the FY2015 Interim Report, the first in my tenure as Executive Director for Africa Group 1 Constituency at the World Bank Group (WBG). I take this opportunity to express my appreciation to Honorable Governors and Alternate Governors for entrusting me with the responsibility of representing our countries at the Executive Boards of the WBG. I will rely on your support and guidance for the duration of my tenure. This Interim Report comes at a confluence of notable landmarks on the timeline of the global development agenda. We stand on the eve of the deadline for the attainment of the Millennium Development Goals (MDGs) that were set in 2000 and are peaking into the Post-2015 era of ambitious successor goals. The world is preparing for the upcoming important international conferences on Financing for Development in Ethiopia in July 2015 and on Climate Change to be held in France in December At the WBG, the newly configured Global Practices are settling down and are expected to improve the quality and delivery of service to client countries. At the same time, the WBG continues the process of reviewing its Environmental and Social Safeguards Framework and its Procurement System both of which will have far-reaching implications for the WBG s engagement with client countries, including those in our Constituency. As we prepare to enter the Post-2015 era, the external environment continues to evolve. The global economy has regained some momentum since the financial crisis, but vulnerabilities remain in the Euro Area and Latin America. The world seems to be at the tail end of the super-cycle in commodity prices that had supported economic growth in developing countries. The resultant pressure on fiscal positions and currencies of several countries in our Constituency has been exacerbated by a strengthening US dollar. An historical decline in energy prices has acted as a double-edged sword by providing reprieve for oil importing countries and significant strain for oil exporting countries. In summary, over the medium-term, developing countries will pursue their development goals in a global context that will be different from that of the MDG era. They will have to contend with lower commodity prices, tighter financial conditions, increased geopolitical risks, fragility, as well as climatic and public health emergencies. Attaining the twin goals of reducing global extreme poverty to three percent by 2030 and promoting shared prosperity will be a challenge under these circumstances. In fact, WBG projections show that the twin goals can only be achieved under a scenario of much higher growth, particularly in South Asia and Sub-Saharan Africa where most of the over one billion poor people reside. Against this background, a key challenge for developing countries will be to prevent a reverse in the social and economic gains attained thus far by protecting the key drivers of economic development. Though this will mean different things for different countries, a central part of any plan will entail protecting growth, making this growth inclusive and continuing investments in physical and human capital formation even as the changing circumstances make a calling on countries fiscal positions. It may also entail adopting policies that promote labor intensive activities and the establishment of well-designed social safety nets for the vulnerable. iv

7 The WBG has undertaken bold reforms with the view to better meet the needs of its client countries under these changing circumstances. Following the adoption of the corporate twin goals and the WBG Strategy in 2013 and the establishment of Global Practices in 2014, a new country model was introduced in January 2015, in which a Country Strategy Framework (CPF) and Systematic Country Diagnostic (SCD) replaced the Country Partnership Strategy. The new framework is designed to be more flexible and is expected to allow the WBG to better identify salient idiosyncratic risks prior to its engagement with client countries. The WBG s private sector arm, the International Finance Corporation (IFC), has begun to increase its presence in Sub-Saharan Africa, with a special focus on Fragile and Conflict Affected States (FCSs). The Multilateral Investment Guarantee Agency (MIGA), the WBG s insurance arm, is also ramping up its efforts to leverage private sector investment and create more jobs and economic opportunities for the poor. Further, the WBG has taken measures to increase its financial capacity, while the record IDA 17 replenishment of US$52 billion has provided more scope of lending to countries in our Constituency. Notwithstanding the renewed focus of the WBG to better serve its client countries, much more needs to be done. In this regard, the work program of my Office over the next year and half will center on strengthening the partnership between the WBG and Constituency countries. We will continue to remind Management that the twin goals can only become a reality if the challenges in SSA are addressed and its many opportunities are seized. Also, that the success of the Change Process will ultimately be determined by the developmental impact of WBG operations in our Constituency countries, whereby flexibility and efficiency, should be the new approach. As regards, the growing demand for development financing, our Office will extend our call for IBRD lending to IDA countries and better leveraging of IDA s balance sheet. Our work program will also focus on advocating for improvements in the timeliness of WBG delivery in its procurement process and response to crisis situations. Further, we will continue to advocate for the resolution of long standing concerns such as the quality of the WBG portfolio in SSA and the need to build a strong pipeline of projects and programs, including regional initiatives. We shall voice out the need to find a lasting resolution to debt situations of some countries in our Constituency. Lastly, Governors can rest assured that, despite this ambitious work program, our Office will remain resolute on its insistence that the WBG steps up its effort to recruit well qualified talent from SSA, as it works to meet its Diversity and Inclusion targets at all levels of the Institution. It is my view that with the guidance of Constituency Governors and through a collaborative effort of the WBG and other development partners, the private sector, various stakeholders and indeed our fellow citizens, that our Constituency countries could begin the Post-2015 era with a greater ability to attain our developmental goals. This Report gives updates on the global economic developments and the operational performance of the WBG up to the period ending December It also provides highlights of some of the reform efforts earlier alluded to. It is my hope that Honorable Governors will find this Report informative. Louis Rene Peter Larose Executive Director v

8 Executive Director and Alternate Executive Director Mr. Louis Rene Peter Larose Executive Director SEYCHELLES Mr. Andrew Ndaamunhu Bvumbe Alternate Executive Director ZIMBABWE vi

9 Advisors and Senior Advisors to Executive Director Wilson T. Banda Senior Advisor Malawi Sheku Bangura Senior Advisor Sierra Leone Anthony Barclay Senior Advisor Liberia Chris Hoveka Senior Advisor Namibia Solome Lumala Senior Advisor Uganda Felleke Mammo Senior Advisor Ethiopia Dismas Baransaka Advisor Burundi Antonio Fernando Advisor Mozambique Chola Milambo Advisor Zambia Allan Ncube Advisor Zimbabwe vii Edouard Ngirente Advisor Rwanda

10 Administrative Staff Mohammed Ahmed Program Assistant Sudan Lozi Sapele Program Assistant Zambia Wubalech Mekonnen Senior Executive Assistant Ethiopia viii

11 Executive Summary The global economy continued on a path of recovery in 2014 and expanded by 2.6 percent, up from 2.5 percent in This outturn reflected a pickup in momentum in the United States and a slowdown in emerging market economies, especially China. Weaker demand in emerging economies and a structural shift in the supply of crude oil caused a decline in the price for most internationally traded commodities, particularly crude oil. Growth in Sub-Saharan Africa (SSA) remained robust at 4.5 percent in 2014, though expansion in several of the region s economies moderated on account of the lower commodity prices and demand, weak flows of foreign direct investment and supply side constraints. Further, the outbreak of Ebola in Guinea, Liberia and Sierra Leone had severe disruptive effects. Countering these factors were strong public investment in infrastructure, increased agriculture output and buoyant performance of the services sectors. Over the medium-term, the global economic growth is projected to strengthen as recovery takes hold in high income countries and developing countries grow steadily. Growth in SSA is projected to remain robust, though softer commodity prices are expected to result in fiscal and foreign exchange pressures in some countries. The World Bank projects global growth to rise from 3.0 percent in 2015 to 3.2 percent by 2017, while growth for SSA is projected to rise from 4.6 percent to 5.4 percent over the same period. Performance of the World Bank Group (WBG) remained on track during the first half of FY15. The combined commitments of the International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA) were US$20.2 billion in the first half of FY15, up from US$13.4 billion in the corresponding period of FY14. Commitments to SSA increased slightly to US$3.7 billion, from US$3.4 billion, reflecting increments by IBRD. SSA remained the largest beneficiary of IDA resources, accounting for 54 percent of total commitments. IBRD Disbursements to SSA were lower at US$4.1 billion in the first half of FY15, compared to US$4.5 billion in the corresponding period of FY14. The activities of the International Finance Corporation (IFC) in support of private sector development had a mixed trend in the first half of FY15. Commitments fell to US$5.1 billion from US$5.2 billion in the corresponding period of FY14, with East Asia and Pacific and SSA regions recording the largest decreases. Total Approvals, on the other hand, increased to US$6.2 billion from US$5.0 billion, though approvals for SSA fell. Total Disbursements increased to US$5.3 billion from $4.5 billion, with SSA recording an increase. The Multilateral Investment Guarantee Agency (MIGA), which insures projects against political risks, supported 18 new projects with a gross issuance value of $1.1 billion in the first half of FY15, compared to 11 projects valued at $1.7 billion during the same period of FY14. Five (5) of these projects, with a value of $67.0 million, were executed in our Constituency. MIGA s portfolio in Africa was the second largest in its overall portfolio at $12.4 billion in FY15. ix

12 As part of its broader reform agenda, the WBG made progress in several areas of reform in FY15. Specifically, the World Bank continued to make progress in the review of its Environmental and Social Safeguard (ESS) Framework and Procurement policies. Also, in FY15 the Global Infrastructure Facility (GIF) was established, while some progress was recorded in the Diversity and Inclusion (D&I) agenda. Over a six-month worldwide consultation exercise that ended on March 1, 2015, the World Bank held meetings in some of our Constituency countries, namely Burundi, Ethiopia, Kenya, and Tanzania to receive views on its proposed ESS Framework. The position of the African Caucus on the proposed ESS framework, as expressed in the 2014 Memorandum of African Governors to the WBG President, is that the proposed policy on Indigenous Peoples was not suitable for the circumstances of African countries. Following the closure of the first phase of the consultation process, Management will collate and review the various submissions and prepare a new draft. According to the timeline for reform, which includes internal reviews and clearance by the Executive Board, the new ESS Framework is scheduled to come into effect in FY16. As regards the Procurement Policy Framework, the review is in its second phase in which feedback from various stakeholder on a draft policy document is being considered. The revised procurement framework is expected to be characterized by clear lines of accountability, enhanced clarity and explicit guidance to suit the modern, complex and diverse operating environment. Further, the framework is expected to align with international best practice. The new Framework will be finalized in FY15, while the new policy is expected to take effect in FY16 after approval by the Executive Board. The WBG established the Global Infrastructure Facility (GIF) in FY15, as part of its effort to mobilize private and institutional capital for investments in infrastructure. The GIF will provide support in project design, preparations and transactions to ensure that bankable infrastructure projects are brought to the market. In its pilot stage ( ), the GIF will only support projects in selected subsectors of energy, water and sanitation, transport and telecommunications. As regards, the agenda to improve Diversity and Inclusion (D&I) within in the WBG, progress remains slow. The share of staff from SSA and the Caribbean at professional level and above is still below the target of 12.5 percent, at about 11.5 percent. In response, Senior Management of the WBG signed a statement of commitment to D&I in December 2014 and agreed on a WBG D&I Compact, through which more than 100 additional staff from these regions will be recruited over the next two years. As regards SSA in particular, the WBG launched a fellowship program targeted at talented African Ph.D. candidates and set up a Diversity Talent Desk to support outreach to various African educational and research institutions. x

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15 Chapter 1 Economic Developments and Prospects Global Economic Performance Economic Performance in High Income Countries Economic Performance in Developing Countries Africa Group I Constituency Countries Medium Term Outlook

16 Chapter 1 Economic Developments and Prospects 1.1 Overview This chapter highlights the economic developments of 2014 and outlines the medium term economic outlook in the various regions of the world. 1.2 Global Economic Performance The global economy grew by 2.6 percent in 2014, up from 2.5 percent in This outturn was largely due to a pickup in the recovery of high income economies, led by momentum in the United States (US). Growth in developing countries was robust but lower than in 2013, mainly due to slower growth in emerging market economies, especially China (Table 1.1). Growth in high income countries rose to 1.8 percent in 2014, from 1.4 percent in US economic growth gained a strong footing on account of healthier labor and housing markets, accommodative monetary policy, and the easing of fiscal consolidation. The Euro Area growth turned positive, but remained tepid as countries continued to grapple with post-crisis effects and spillovers from geopolitical tensions over eastern Ukraine. As a result, the Euro Area grew by 0.8 percent in 2014, up from contractions of 0.4 percent and 0.7 percent in 2013 and 2012, respectively. In contrast, the Japanese economy lost steam against a backdrop of bold policy reforms and grew by 0.2 percent in 2014, down from 1.5 percent in In developing countries, aggregate output growth slowed down to 4.4 percent from 4.9 percent in 2013, led by a deceleration of growth in China. There were spillover effects for economies with close trade ties with the Asian economic powerhouse. Growth slowed significantly in South America, mainly due to poor performance in Brazil a major trading partner with China. Growth in Eastern Europe slowed owing to the geopolitical tensions that arose over eastern Ukraine. In contrast, economies in South Asia (SA) and Sub-Saharan Africa (SSA) outperformed their 2013 outturns. Growth in South Asia was led by a rebound in India, while growth in Sub-Saharan Africa was driven by public investments in infrastructure and robust performance of the services sectors. Inflation remained moderate worldwide, partly reflecting persistent output gaps in most regions. Inflation in high income countries fell below most countries targets, raising concerns among policymakers, especially in the Euro Area, about the threat of entrenched deflationary expectations and lower private consumption. Inflation in other regions remained low, with the exception of Latin America and Caribbean (LAC) and the Middle East and North Africa (MENA), where currency depreciation and supply side rigidities placed upward pressure on inflation. A sharp drop in the price of crude oil in the second half of 2014, contributed to lower production and transportation costs for both high income and developing countries and is expected to dampen inflation in

17 The global economic outlook remains favorable, with a projection of further economic recovery in high income countries and steady growth in developing countries. This outlook is subject to a number of downward risks, however, including the impact of lower commodity prices, the tightening of conditions in the international financial markets, fragile demand in the Euro Area and Japan, uncertainties about the future of the euro and the effects of continued geopolitical tensions in Eastern Europe. On the upside, the recovery in the US and UK is expected to lend support to exports for their trading partners, while lower oil prices will be a boon for oil importers. Considering these downside and upside risks, the World Bank projects global growth to rise to 3.0 percent in 2015 from 2.6 percent in 2014, and further accelerate to 3.3 percent and 3.2 percent in 2016 and 2017, respectively. Table 1.1: The Global Economic Performance and Outlook (Percentage change from previous year except commodity prices and interest rates) e 2015 f 2016 f 2017 f Real GDP Growth 1 World High Income Countries Developing Countries World Trade Volume (GNFS 2 ) Manufactures Unit Export Value Inflation High Income Developing Countries Non-Oil Commodities Oil Price (US$ Per Barrel) Oil Price Interest Rates (Percent) US dollar, 6-Months Euro, 6-Months Source: World Bank Notes 1. Real Aggregate GDP growth rates calculated using constant 2010 dollars GDP weights. 2. GNFS = Goods and Non-Factor Services. 3. The unit value index of manufactured exports from major economies expressed in US dollars. 4. Average of spot price for Dubai, Brent and West Texas Intermediate. e = estimate; f = forecast. 2

18 1.3 Economic Performance in High Income Countries Economic growth in high income countries was characterized by divergent trends. The US and the United Kingdom (UK) registered growth rates above their pre-crisis levels, while Japan and other countries in the Euro Area struggled to record consistent recovery. Against this backdrop, high income countries are expected to continue on a slow path of recovery, with growth rising from 1.8 percent in 2014 to 2.2 percent in 2015 and 2.4 percent in 2016 (Table 1.2). The US economic performance continued to outpace that of other major high income countries in After posting less than expected growth in the first half of the year, due to bad weather conditions and a large decline in exports, the US economy regained its growth momentum and expanded by 2.4 percent from 2.2 percent in Growth was underpinned by an improving labor market, a healthier housing market, accommodative monetary policy, and the easing of fiscal consolidation. World Bank projections show that growth in the US will be robust and reach 3.2 percent in 2015, up from 2.4 percent in The UK economy grew by 2.6 percent in 2014 on account of a robust housing market and stronger business investment. World Bank projections show that growth will reach 2.9 percent in Inflation was significantly below the 2 percent target in 2014 and is expected to remain low until 2015, partly due to continued low oil prices. In contrast, the economies of the Euro Area and Japan recorded weaker growth in Growth in the Euro Area was estimated at 0.8 percent in 2014, with relatively strong growth in Ireland and Spain but tepid growth in other countries that continue to struggle with post-crisis challenges. Bank recapitalization efforts and deleveraging continued to constrain banking sector lending in some parts of the Euro Area. Financial fragmentation, high unemployment, structural rigidities, and continued fiscal challenges are likely to also dampen economic growth. However, better growth performance is expected in Ireland and Spain due to gains in cost competitiveness and strengthening of corporate balance sheets. World Bank projects growth in the Euro Area at 1.1 percent in 2015 and 1.6 percent in In Japan, growth took a dip in 2014, as the economy struggled to recover from a sales tax increase in April, while exports remained subdued despite a weak yen. The central bank announced additional monetary stimulus to bolster growth and prevent a slowdown in inflation. As a result, the World Bank projections indicate that the Japanese economy will rebound marginally to 1.2 percent in 2015 and to 1.6 percent in 2016, before decelerating to 1.2 percent in

19 Table 1.2: Real GDP Growth in High Income Countries (Percent change from previous year) e 2015 f 2016 f 2017 f All High Income Countries OECD Countries Euro Area Japan United States Non-OECD Countries Source: World Bank Notes: e = estimate; f = forecast 1.4 Economic Performance in Developing Countries Growth in developing countries eased in 2014 from 4.9 percent to 4.4 percent on account of a slowdown in emerging market economies. The slower than expected growth was due to export weakness, setbacks to confidence due to uncertainties arising from policies and electoral processes, social and labor tensions and slow structural reforms, as well as fiscal and monetary policy tightening. Growth in low-income countries on the other hand remained robust at 6 percent in 2014, driven by rising public investment, robust capital inflows and remittances, good harvests and improved security in some conflict affected countries. Over the medium term, growth in developing countries is expected to rebound to 4.8 percent in 2015 and strengthen to 5.3 percent in 2016 and 5.4 percent in 2017 (Table 1.3 and Figure 1.4). Commodity prices softened in 2014, and had divergent effects on the performance and outlook of the various categories of developing economies. A structural shift in the supply of crude oil on the market, following growth in US Shale production, and weakening global demand 4 culminated into an historical slide in the price of oil beginning in mid The twelve-month average price of oil in 2014 fell to US$96.2 per barrel, from US$104.1 per barrel in A decision in November by OPEC to maintain oil supplies at previous levels in the wake of increased supplies from the US gave little support to the oil price, extending the decline into 2015 (Figure 1.1). The impact on oil exporting economies has been severe, particularly for those with large trade and fiscal exposures and insufficient buffers to cushion the price shock. Further, the price shock uncovered inefficiencies that had been camouflaged by favorable prices. Venezuela, Nigeria, Angola, Iran and Iraq saw their exports receipts decline and foreign reserves come under pressure as a result of the drop in the price of oil. In contrast, Saudi Arabia, Kuwait and Qatar, which have both relatively healthy buffers and low breakeven production costs, showed more resilience under these circumstances. For oil importers, the drop in prices eased production and transportation costs and lowered inflationary pressures, though this was partly countered by a stronger US dollar. Prices of base metals, precious metals and energy trended downwards in tandem with softening

20 demand from China (figures 1.2 and 1.3). The medium term outlook on commodity prices points to lower prices in the context of sustained supplies in the oil market and a slowdown in economic activity in China. Adjusting to these external developments will be the leading challenge for the economic development of developing countries over the medium term. In East Asia and Pacific (EAP), growth slowed as the region s economies continued to cool off following an economic rally that saw several economies growing above their potential. Despite the drop in growth from 7.2 percent in 2013 to 6.9 percent in 2014, EAP remained the fastest growing region in the world. This realignment of growth to its potential was mainly due to domestic developments. In China, the government continued to implement measures to contain financial vulnerabilities, while instituting offsetting measures to taper the slowdown. As a result, economic growth decelerated to 7.4 percent in 2014 from 7.7 percent in Excluding China, the region s growth declined to 4.6 percent from 5.3 percent over the same period. The central banks of Indonesia, Malaysia, Mongolia and the Philippines raised policy rates during 2014 to ease price pressures and to contain credit growth. Conversely, authorities in China, Thailand, and Vietnam cut rates to support economic activity and stem deflationary risks as inflation rates declined sharply. Apart from Malaysia, where the structural deficit remained at over 3 percent of GDP, fiscal deficits in the region weakened. Robust demand for labor, strong remittances and buoyant capital markets supported consumption, countering the effect of slow investment growth. Table 1.3: Real GDP Growth in Developing Countries (Percent change from previous year) e 2015 f 2016 f 2017 f Developing Countries East Asia and Pacific China Europe and Central Asia Turkey Latin America and Caribbean Brazil Middle East and North Africa Egypt South Asia India Sub-Saharan Africa Nigeria Memo: All Developing Countries Excl. BRICs Source: World Bank Notes: e = estimate; f = forecast 5

21 In East and Central Asia (ECA) geopolitical events of the Ukraine conflict, spillovers of economic disruptions in Russia, weak demand from the Euro Area and slowing capital inflows weighed heavily on economic performance. In Russia, the economy slowed further to 0.7 percent in 2014 from 1.3 percent and 3.4 percent in the previous two years, mainly due to tensions with Ukraine, sanctions and falling crude oil prices. The ruble depreciated against the US dollar by 75 percent as sanctions cut access to international capital markets for Russian banks and corporates. While currency depreciation and rising public spending supported exports and industrial production towards the close of 2014, borrowing and rollover costs rose sharply while business confidence and investment sagged. Further, retaliatory sanctions by Russia exacerbated rising inflation, which in turn adversely affected household real income and spending. The performance in Ukraine was much grimmer, with an output contraction of 8.5 percent, 85 percent depreciation of the currency and a widening fiscal deficit. Figure 1.1 Figure 1.2 Commodity Prices The performance of Russia and Ukraine had telling effects on the neighboring countries due to their strong economic ties. Belarus, Kazakhstan, Uzbekistan, Tajikistan and the Kyrgyz Republic registered declines in their volumes of trade and remittances. Turkey was the bright spot in the region with economic growth of 3.1 percent in 2014, driven by government expenditure, export growth and capital flows diverted from Russia. These offset weaknesses in consumption and investment in Turkey. Figure 1.3 Growth in Latin America and the Caribbean (LAC) declined substantially to 0.8 percent in 2014, a third of the 2.5 percent achieved in 2013, due to declining commodity prices, slowdown of growth Source: World Bank 6

22 in major trading partners and domestic tensions in some of the large economies. With the exclusion of the outlier year of 2009, this outturn was the lowest since the Argentine crisis of Notably, growth in South America decelerated sharply from 2.9 percent in 2013 to 0.2 percent in 2014, while that in Mexico and Central America collectively picked up to 2.4 percent in 2014 due to a US-induced growth. In the Caribbean, the Dominican Republic was largely responsible for the strong growth of 4.6 percent in In Brazil, the largest economy in the region, the protracted decline in commodity prices, weak growth in its major trading partners, severe droughts in agriculture areas, election uncertainty, and contracting investment contributed to the steep economic decline from 2.5 percent in 2013 to 0.1 percent in Argentina went into recession in the second half of 2014, following depressed business and consumer confidence. A default on international obligations on account of a fall out with some investors, caused a slowdown in capital inflows that limited its access to international foreign markets. Domestic activity was further hampered by restrictions meant to curtail import demand that made it difficult for firms to acquire capital and intermediary goods. Against a backdrop of a narrowing trade surplus, these factors combined to weaken the local currency and raise inflation to around 40 percent. As a result, and in spite of a bumper soy harvest, the Argentine economy contracted by 1.5 percent in 2014, from 2.9 percent in Growth in the MENA region recovered to 1.2 percent in 2014, from 0.5 percent in The pickup in growth was driven by an uptick in oil production and improved confidence in manufacturing and exports as political tensions eased in some countries. In the oil exporting countries, output was volatile though positive and recovered from -0.8 percent in 2013 to 0.3 percent in Fiscal performance, however, deteriorated due to lower oil production and declining prices. Oil importing countries on the other hand, recorded an average growth of 2.6 percent in The decline in oil prices gave these countries the opportunity to create fiscal space by restructuring petroleum subsidies. Economic growth in South Asia (SA) remained robust and rallied to 5.5 percent from 4.9 percent in The revival was led by a recovery in India, where growth was at 5.6 percent in 2014 compared to 5.0 percent in 2013 and 4.7 percent in Apart from Afghanistan, improved political stability supported growth in most of the countries in the Region. In Bangladesh, agriculture and services sectors picked up, making up for the losses in the industrial sector, as social unrest abated. In Sri Lanka, reconstruction activities since the end of the civil war in 2009 buoyed growth to an average of 7.5 percent. This was augmented by robust exports, strong foreign direct investment (FDI) and remittance flows in Political unrest in Pakistan in the second half of 2014 and the transition following presidential elections in Afghanistan weighed on activity in the two countries. Robust exports, strong flows of FDI and remittances, as well as declining oil import bills helped to narrow current account deficits, and offset huge trade deficits. The region also saw a rise in capital inflows as countries tapped into international bond markets and attracted foreign portfolio investments. 7

23 Figure 1.4: Real GDP Growth in Developing Countries (Percent change from previous year) All DCs East Asia and Pacific Europe and Central Asia Latin Middle East America and and N. Africa Caribbean Egypt South Asia Sub-Saharan Africa e 2015f 2016f 2017f Source: World Bank Table 1.4: Selected Indicators for Sub-Saharan Africa (Annual percentage changes unless otherwise indicated) Indicator e 2015 f 2016 f 2017 f Developing Countries SSA GDP growth GDP per capita (constant 2010 US$) Private consumption Public consumption Fixed investment Exports, GNFS Imports, GNFS Net exports, contribution to growth SSA GDP growth, excl. South Africa Current Account Balance (% of GDP) Fiscal Balance (% of GDP) Source: World Bank Note: e = estimate, f = forecast GNFS = Goods and Non-Factor Services 8

24 Growth was robust in Sub-Saharan Africa (SSA), though expansion in several economies moderated on account of weaker global demand, softening commodity prices and weak FDI flows, as well as supply side and infrastructure constrains. Countering these factors were strong public investment in infrastructure, increased agriculture output and buoyant performance of the services sectors. As a result, the region s economy grew by 4.5 percent, slightly higher than the 2013 performance and developing country average of 4.2 percent and 4.4 percent, respectively (Table 1.4 and Figure 1.5). While growth remained robust across the subcontinent, most countries recorded a dip in growth, with a few registering improvements over their 2013 performances. Growth in Nigeria was robust on account of strong growth in nonoil sectors. The South Africa economy, on the other hand, decelerated to 1.4 percent, from 1.9 percent in 2013, as it grappled with prolonged labor disputes that disrupted production in mining and manufacturing. Further, structural constraints in the energy sector held back growth, casting a shadow on its outlook of a gradual recovery. Growth was slower in Angola but remained robust at 4.4 percent from 6.8 percent in 2014, mainly due to lower oil production. The outbreak of Ebola in Guinea, Liberia and Sierra Leone had severe disruptive effects in these countries, with ripple effects in the tourism sectors of other countries (Box 1). South Sudan recorded some improvement in performance, following the resumption of oil exports in 2013, but was later disturbed by internal conflicts in two of the country s four oil producing regions. Output in Cote d Ivoire and Mali grew on account of improved political stability and a pickup in investments. Governments in SSA continued with the aggressive effort to bridge the infrastructure gap by investing in several sectors including ports, electricity and transport. This notwithstanding, fiscal performance for many countries improved, as expenditure cuts, higher revenues and lower international financing costs helped cushion budgets. Specifically, deficits narrowed on account of an increase in non-oil revenue (Nigeria), cuts in expenditure (Senegal) and higher revenue collections (Burkina Faso). In other countries, however, fiscal deficits widened on account of higher wage bills (Kenya and Zambia), decline in oil revenue (Angola) and higher expenditures (Mali, Niger and Uganda). Overall, fiscal deficits as a share of regional GDP declined to 2.5 percent 2014, from 2.9 percent in Inflation in SSA declined in 2014 to 7.6 percent from 8.6 percent in However, Ghana and Zambia, which registered significant currency depreciation in the first half of the year, saw a buildup in inflation in the second half. Nigeria saw an uptick in inflation due to insurgencies by the rebel group Boko Haram in the northeast of the country that disrupted regular food supply. Inflation, however, is expected to remain in single digits due the subduing effects of the fall in oil prices. 9

25 Figure 1.5: Real GDP Growth for Sub-Saharan Africa (Percent change from previous year) E 2014F 2015F 2016F 2017F All SSA GDP growth Developing Countries All SSA GDP growth, excl. South Africa Source: World Bank Notes: e = estimate; f = forecast. 10

26 Box 1: A Focus on West Africa: Economic Impact of the Ebola Outbreak The outbreak of Ebola in early 2014 severely disrupted economic activity in Guinea, Liberia and Sierra Leone (Figure 1.6). The effects of the outbreak cut across most sectors of the three neighboring countries, with trade and transportation sectors being the hardest hit, due to travel restrictions and border closures. There were also spillover effects, as global fear of the pandemic translated into a fall in tourist demand, even for African countries distant from the affected countries. The three countries at the epicenter of the crisis had to contend with debilitating shocks to macroeconomic stability and growth, and therefore revised their projections to take account of revenue shortfalls and reallocations of resources towards Ebola-related activities. In Guinea, economic growth slowed down to 0.5 percent in 2014 from 2.5 percent in 2013, mainly due to contractions in the trade and transport sectors. Though the mining and agriculture sectors exhibited some resilience in 2014, and are poised to grow in 2015, the overall economy is projected to contract by 0.2 percent. In Liberia, agriculture and manufacturing sectors were severely affected, while iron ore mining faced some disruptions and the suspension of expansion plans. The Liberian economy is estimated to have slowed down to 2.5 percent in 2014 from 8.7 percent in Similarly, the Sierra Leonean economy, which was the fastest growing in Sub-Saharan Africa in 2013 at 20.1 percent, is estimated to have slowed down to 4.0 percent in 2014, largely on account of disruptions to production and indefinite deferments of investment plans in several of the country s promising sectors. The iron ore mining sector buckled under the weight of a combination of Ebola-induced suspensions of operations in key mining projects and weakening iron ore prices. Projections for Sierra Leone are of a 2.0 percent contraction in output in 2015 and a slow recovery thereafter. Figure 1.6 Projected Foregone GDP 2015 due to Ebola ($'mn) $1,000.0 $920.0 $800.0 $600.0 $540.0 $400.0 $200.0 $180.0 $- Liberia Guinea Sierra Leone Source: World Bank 11

27 1.5 Economic Performance in Africa Group 1 Constituency Countries Output growth for the majority of countries in Africa Group 1 Constituency (AFG1) slowed down in Eleven countries outperformed the average SSA growth rate of 4.5 percent, down from twelve countries in the Growth rates ranged from 2.0 percent to 30.7 percent, compared to the previous range of percent to 20.1 percent (Table 1.5 and Figure 1.7). The fastest growing economies in 2014 were South Sudan (30.7 percent), Mozambique (7.2 percent), Tanzania (7.0 percent) and Ethiopia (6.7 percent). Table 1.5: Real GDP Growth Rates in Africa Group 1 Constituency (Percent change from previous year) e 2015 f 2016 f 2017 f ALL SSA Botswana Burundi* Eritrea Ethiopia Gambia, The Kenya Lesotho Liberia* Malawi Mozambique Namibia Rwanda Seychelles Sierra Leone South Sudan* Sudan Swaziland Tanzania Uganda Zambia Zimbabwe Source: World Bank and IMF Notes e = estimate; f = forecast * = IMF Staff estimates 12

28 Figure 1.7: Africa Group 1 Constituency GDP Growth Rates (%) All SSA South Sudan Mozambique Tanzania Ethiopia Zambia Uganda Rwanda Gambia, The Kenya Burundi Lesotho Botswana Malawi Namibia Sierra Leone Eritrea Zimbabwe Seychelles Sudan Liberia 2014e 2015f Source: World Bank and IMF Notes: e = estimates; f = forecast 1.6 The Medium Term Outlook Over the medium term, the global economy is expected to strengthen on account of steady growth in both high income and developing economies. Growth is expected to firm up in high income economies to 2.2 percent and 2.4 in 2015 and 2016, respectively, then slow down to 2.2 percent by The US economy is expected maintain robust growth, while recovery in the Euro Area will remain weak. Growth in developing countries is projected to be robust, gradually strengthening over the medium term in all regions, with the exception of the EAP region. Growth is expected to pick up to 4.8 percent in 2015, from 4.4 percent in 2014, and strengthen to 5.3 percent and 5.4 percent in 2016 and 2017, respectively. Three global developments will influence economic performance over the medium term. First, lower oil prices will have divergent effects for oil importers and exporters. As a consequence, the response by policymakers will be different depending on the expected impact of lower oil prices on output and inflation. Second, tepid growth in the Euro Area and uncertainties surrounding Greece s position in the economic block pose notable downside risks to growth. This is further compounded by the spillover of economic stress in Ukraine to other economies in Eastern Europe. Third, a tightening in global financial conditions, when US monetary authorities raise rates, accompanied by the US dollar appreciation will increase pressure on some developing countries currencies. Countering these factors will be continued 13

29 growth in the US and the pickup in activity in South Asia, especially in India. World Bank projections suggest that global inflation in 2015 will remain low in most regions. Inflation is expected to remain low in 2015 and 2016 despite the improving economic environment, partly due to lower oil prices and a strengthening of the US dollar. This outlook on inflation, combined with concerns about possible spillover effects of tepid growth in the Euro Area, may prompt the US monetary authorities to gradually tighten policy beginning in mid In the Euro Area, inflation is expected to rise but remain under two percent, even as recovery continues. Inflation in most developing countries is expected to be higher but will remain in single digits, with the aid of slower energy prices. Inflation, however, is expected to remain relatively high in LAC and MENA regions due to weaker external demand, currency weaknesses and political tensions. In EAP region, structural reforms, gradual withdrawal of US stimulus and continued measures to tighten credit will slow investment and dampen growth in China from 7.1 percent in 2015 to 6.9 percent by The pick-up in other countries will, however, offset this dampening effect. Therefore, growth in EAP is expected to ease to 6.7 percent in 2015 and remain at that level till In contrast, a pickup in investment is expected to drive economic growth in SA to 6.1 percent, 6.6 percent, and 6.8 percent in 2015, 2016 and 2017, respectively. Continued recovery in India will boost growth in the smaller economies in the region, which rely on India for official flows, remittances and tourism. Growth in ECA is expected to recover moderately, against the backdrop of gradual recovery in the Euro Area, lower energy prices and weaker trade for countries with strong ties to Russia and Ukraine. Economic expansion in the region will gradually strengthen to 3.0 percent, 3.6 percent and 4.0 percent in 2015, 2016 and 2017 respectively. Similarly, growth in the MENA region will steadily pick up to 2.5 percent, 3.8 percent and 4.0 percent in 2015, 2016 and 2017, respectively. A rebound in oil production among oil exporters and recovery among the oil importing countries will be the main drivers of the growth. Political uncertainty and security concerns will, however, continue to place major downside risks to this outlook. Output growth in LAC is projected to rise to 1.7 percent, 2.9 percent and 3.3 percent in 2015, 2016 and 2017, respectively. Rising export demand and strengthening investment will partly support this acceleration. The economic outlook for SSA remains favorable, though lower commodity prices and a possible tightening of financing conditions in the international financial markets present some threats to this outlook. Economies dependent on export of primary goods such as oil and base metals are expected to register a deterioration in net exports and fiscal performance. This will place local currencies and foreign reserves under pressure. Countries that built up buffers during the course of the super-surge in commodity prices will be better placed to adjust to the price change that is expected to prevail over the medium term. The region is expected to see a flattening in FDI on account of the slowdown in emerging markets and lower commodity prices. Countries affected by Ebola are expected to begin to recover after contracting in The South African economy is poised to register slow but steady growth over the medium term as labor relations improve and external demand 14

30 from the Euro Area firms. Energy bottlenecks will, however, continue to take a toll on economic growth. Inflation is expected to rise in Nigeria with the depreciation of the naira, but growth is projected to remain robust due to strong performance of the non-oil sectors. Growth in the East African economies of Ethiopia, Kenya, Tanzania, Uganda and Rwanda is expected to remain strong on account of robust public investment, recovery in agriculture and tourism, and robust consumption. Growth in SSA is projected at 4.6 percent in 2015, and at 4.9 percent and 5.1 percent in 2016 and 2017, respectively. The outlook for countries in Africa Group 1 Constituency remains favorable, despite the decline in commodity prices. Most countries in the Constituency are projected to register positive growth rates in Growth in some countries will, however, remain constrained by the aftereffects of the Ebola crisis, floods and fragility. 15

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33 Chapter 2 World Bank Group Operations IBRD Lending Operations IDA Lending Operations IFC Operations MIGA Operations

34 Chapter 2 World Bank Group Operations 2.1 Overview This chapter gives an account of the performance of the World Bank Group (WBG) operations during the financial year 2015 (FY15). WBG performance remained on track during the first half of FY15. Commitments for the entire Group rose by 34 percent, while Revenues were also 17 percent up compared to the same period in FY14. The pipeline for the rest of FY15 to June 2015 is also strong. IDA disbursements, which reflect implementation, are largely on track. The combined commitments 1 for IBRD and IDA during the first half of FY15 rose by 50.7 percent to US$20.2 billion over the first half of FY14 (Table 2.1). This was largely on account of increments in commitments to Europe and Central Asia, which rose to US$5.1 billion from US$0.3 billion in the corresponding period of FY14, and to East Asia and Pacific region, which rose to US$4.1 billion from US$2.7 billion in the first half of FY14. Table 2.1: IBRD and IDA Commitments by Region (US$ billion) Region First half FY14 First half FY15 Sub-Saharan Africa East Asia and Pacific Europe and Central Asia Latin America and Caribbean Middle East and North Africa South Asia Total Source: World Bank 2.2 IBRD Lending Operations IBRD commitments were significantly higher in the first half of FY15 than they were in the first half of FY14. This notwithstanding, total disbursements 2 were lower, mainly due to lower disbursements in EAP. Total IBRD commitments rose from US$6.9 billion in the first half of FY14 to US$ 14.4 billion in the first half of FY15 (Table 2.2). The largest share of IBRD commitments (35 percent) went to Europe and Central Asia, followed by East Asia and Pacific (25 percent) and Latin America and Caribbean regions. As stated in the 2014 Interim Report, IBRD commitments to Sub-Saharan Africa continued to be relatively small as most countries in the region are only eligible for IDA funding. The 1 Legal obligation to provide financial products to clients for Board approved projects Principal outflows from to clients for approved projects.

35 demand for IBRD lending by SSA countries is therefore likely to increase over the medium term as more countries graduate to middle income status. IBRD disbursed US$11.7 billion in development credits and grants during the first half of FY15 (Table 2.3). These amounts were about US$1.0 billion below disbursements made during a comparable period in FY14, mainly due to a decline in Latin America and Caribbean region. Disbursements to SSA were lower at US$4.1 billion in the first half of FY15, compared to US$4.6 billion in the corresponding period of FY14. Table 2.2: IBRD Commitments by Region (US$ billion except where shown otherwise) Region First half Share (%) FY14 FY15 FY14 FY15 Sub-Saharan Africa East Asia and Pacific Europe and Central Asia Latin America and Caribbean Middle East and North Africa South Asia Total Source: World Bank Table 2.3: IBRD Gross Disbursements by Region (US$ billion except where shown otherwise) Region First half Share (%) FY14 FY15 FY14 FY15 Sub-Saharan Africa East Asia and Pacific Europe and Central Asia Latin America and Caribbean Middle East and North Africa South Asia Total Source: World Bank 20

36 2.3 IDA Lending Operations Total IDA commitments declined from US$6.5 billion in the first half of FY14 to US$5.8 billion in the corresponding period of FY15 (Table 2.4). IDA Commitments declined in most regions, with the largest decline of US$0.6 billion recorded in the South Asia region. Sub-Saharan Africa remained the largest beneficiary of IDA resources during the first half of FY15, accounting for 54 percent of total commitments. Although the share of South Asia decreased from 37 percent in the first half of FY14 to 31 percent in the first half of FY15, it still remained the second largest IDA beneficiary at 31.0 percent. In contrast to IDA commitments, gross disbursements rose from US$5.4 billion in the first half of FY14 to US$5.8 billion in the corresponding period in FY15 (Table 2.5). This increase mostly reflected an increase in disbursements to Sub-Saharan Africa region. Table 2.4: IDA Commitments by Region Region First half (US$ billion) Share (%) FY14 FY15 FY14 FY15 Sub-Saharan Africa East Asia and Pacific Europe and Central Asia Latin America and Caribbean Middle East and North Africa South Asia Total Source: World Bank Table 2.5: IDA Gross Disbursements by Region Region First half (US$ billion) Share (%) FY14 FY15 FY14 FY15 Sub-Saharan Africa East Asia and Pacific Europe and Central Asia Latin America and Caribbean Middle East and North Africa South Asia Total Source: World Bank 21

37 2.4 IFC Operations The activities of the International Finance Corporation (IFC) in support of private sector development had a mixed trend in the first half of FY15, compared to the same period in FY14. Commitments declined, but approvals 3 and disbursements increased. IFC commitments decreased by 1.2 percent from US$5.2 billion in the first half of FY14 to US$5.1 billion in the corresponding period of FY15 (Table 2.5). East Asia and Pacific region recorded the largest decrease, from US$988 million, followed by Sub-Saharan Africa, where commitments declined from US$995 million to US$809 million. Despite the drop in total commitments to Sub- Saharan Africa, the number of projects approved increased to 39 in the first half of FY15 from 32 in the corresponding period of FY14. Approvals during the first half of FY15 increased to US$6.2 billion from US$5.0 billion in the corresponding period of FY14 (Table 2.6). All the regions recorded increases, except South Asia and Sub-Saharan Africa regions where approvals decreased from US$904.0 million to US$858 million and from US$501 million to US$491 million, respectively. Total disbursements increased to US$5.3 billion in the first half of FY15 from US$4.5 billion during the first half of FY14. Disbursements to Sub- Saharan Africa region increased from US$443 million in the first half of FY14 to US$756 million in the first half of FY15 (Table 2.7). Table 2.6: IFC Commitments by Region Region First half (US$ million) Share (%) FY14 FY15 FY14 FY15 Sub-Saharan Africa East Asia and Pacific Europe and Central Asia Latin America and Caribbean 1,417 1, Middle East and North Africa South Asia World Total 5,180 5, Source: IFC 3 Authorization by Board/Management to proceed to Commitment in accordance with Official Procedures 22

38 Table 2.7: IFC Approval by Region Region First half (US$ million) Share (%) FY14 FY15 FY14 FY15 Sub-Saharan Africa East Asia and Pacific 923 1, Europe and Central Asia 989 1, Latin America and Caribbean 1,211 1, Middle East and North Africa South Asia World Total 4,982 6, Source: IFC Table 2.8: IFC Disbursements by Region Region First half (US$ million) Share (%) FY14 FY15 FY14 FY15 Sub-Saharan Africa East Asia and Pacific 1,121 1, Europe and Central Asia 1,315 1, Latin America and Caribbean Middle East and North Africa South Asia World Total 4,542 5, Source: IFC 2.5 MIGA Operations The Multilateral Investment Guarantee Agency (MIGA) facilitates foreign direct investments (FDI) into developing countries by providing political risk insurance and credit enhancement products to investors and lenders. The products include guarantees to cover non-honoring of sovereign financial obligations and financial obligations of state-owned enterprises. In the first half of FY15, MIGA supported 19 new projects with a gross issuance value of $1.1 billion, compared to 11 projects valued at $1.7 billion during the same period of FY14. Five (5) of these projects with a value of $67.0 million were executed in the Africa Group 1 Constituency. The beneficiary countries were Sierra Leone, Uganda (2 projects), Tanzania and Zambia. Ethiopia received an additional gross issuance value of $1.1 million for an existing project, bringing the total value of all projects in AFG1 to $68.1 million during the first half of FY2015. MIGA s exposure to insurance claims, excluding standby coverage, dropped from $8.7 billion enduring the first half of FY14 to $9.5 billion in 23

39 the first half of FY15. MIGA s portfolio in Africa was the second largest in its overall portfolio after ECA at $12.4 billion (25 percent) in FY15. The distribution of MIGA s portfolio by sectors shows that the infrastructure sector held the largest share in total exposure at 45.9 percent, followed by the financial sector at 31.6 percent. The mining sector held the least share at 0.9 percent, slightly above that of the agribusiness sector at 2.6 percent (Tables ). Table 2.9: MIGA Operations - First Half of FY15 Global First Half FY14 First Half FY15 Number of Guarantees Issued Number of Projects Supported* New Projects 9 9 Previously Supported 2 9 Amount of New Issuance, Gross (US$ billion) Sub-Saharan Africa Number of Guarantees Issued 6 5 Number of Projects Supported** 1 6 New Projects 1 2 Previously Supported 0 4 Amount of New Issuance, Gross (US$ billion) Source: MIGA *For FY15, includes 5 additions made to existing guarantees **For FY15, includes 2 additions made to existing guarantees Table 2.10: MIGA Portfolio by Region First Half of FY15 Host Region Name Gross Exposure (US$ million) Net Exposure (US$ million) % of Total Net Exposure Asia and the Pacific 1, Europe and Central Asia 4, , Latin America and the Caribbean 1, , Middle East and North Africa Sub-Saharan Africa 3, , Total 12, , Source: MIGA 24

40 Table 2.11: MIGA Portfolio by Sector First Half of FY15 Gross Exposure Net Exposure (US$ million) (US$ million) % of Total Net Exposure Agribusiness Financial 4, , Infrastructure 5, , Power 2, , Telecom Manufacturing Mining Oil and Gas Tourism/Retail/Services Total 12, , Source: MIGA 25

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43 Chapter 3 Selected Policy Issues and Updates Review on Environmental and Social Safeguards Update on Proposed WBG Procurement Reform The 2015 Voice Reform Update on Global Infrastructure Facility Update on Diversity and Inclusion

44 Chapter 3 Selected Policy Issues and Updates 3.1 Review of the World Bank Environmental and Social Safeguards Policies In October, 2012, the World Bank commenced the review process of its Environmental and Social Safeguard (ESS) Framework Policies, as part of a modernization effort within the Institution. The review provides an opportunity for the World Bank to build on the core principles of the existing safeguard policies; improve coverage of environmental and social risks; deliver better environmental and social outcomes in the projects and programs it supports; and help borrowers deliver sustainable results on the ground. To keep the framework suitable in the face of a changing environment, the Bank is reviewing these crucial policies to better address new development demands and challenges and to better meet the varied needs of borrowers. The proposals will address the needs of the Middle- Income Countries (MICs) with well-developed institutions and capacities, the Low-Income Countries (LICs) with weaker governance and institutions, and Fragile and Conflict-affected States (FCSs) where more tailored and coordinated interventions are required. The reform was also prompted by the findings of a 2010 evaluation of the safeguard policies conducted by the World Bank's Independent Evaluation Group (IEG). This evaluation, titled Safeguards and Sustainability Policies in a Changing World: An Independent Evaluation of World Bank Group Experience, provides the first comprehensive evaluation of the World Bank's safeguard policies since they were first formulated in The main objective of the review is to strengthen the effectiveness of the safeguard policies in order to enhance the development impact of the World Bank-supported projects and programs. World Bank Management anticipates that the review process will lead to the following: A Cohesive framework that will distinguish principles, policies, and procedures; Enhanced policy clarity and coherence; Clarity in objectives and desired outcomes; Improved synergy across policies; Consolidation of fragmented or duplicative policies; Streamlined guidance; and Better delineates roles and responsibilities of the World Bank and the borrower. In addition, a modernized ESS framework can serve as the basis of a renewed partnership between the World Bank and its borrowers a partnership rooted in a common commitment to environmental and social sustainability. Such partnerships would better leverage the increasing capacity of many borrowers to identify and manage environmental and social risks and impacts. Where a borrower lacks such capacity, 29

45 the World Bank could, working with other development partners, deliver tailored capacity and institution building programs to strengthen the capacity of borrower s institutions and systems African Caucus Position on the Proposed ESS The position of the African Caucus on the review was clearly articulated in the Khartoum Declaration issued at the 2014 African Caucus held in September, 2014 in Sudan. This position was subsequently expressed in the 2014 Memorandum of African Governors to the WBG President. In essence, the African Governors expressed the view that the review should ensure that the revised ESS framework fully benefits from, among others, consultations with governments and should respect national laws and constitutions. It should also take into account unique country circumstances and address concerns around contentious issues. Of particular concern to African Governors was the proposed Indigenous Peoples Policies, ESS7, which was considered to be divisive and not applicable to the circumstances of many African countries. The concerns mostly arise from the categorization of some ethnic groups by ESS7 as Indigenous People, which grants these groups special rights. This approach does not conform to the national constitutions of many African countries, where all citizens are considered Indigenous Peoples Africa Group I Constituency Engagement Over a six-month worldwide consultation exercise that ended on March 1, 2015, meetings were held in some of our Constituency countries, namely Burundi, Ethiopia, Kenya, and Tanzania. The meetings accorded an opportunity for our governments and other stakeholders to express their views on the proposed ESS framework. Internally, the Office of the Executive Director has continually engaged World Bank Management to convey the views of African Governors, particularly those relating to ESS7. In February 2015, the Office met with Management to reiterate these views and encouraged Management to propose an alternative version that respects the national laws and constitutions of the Constituency countries Next Steps in the Review Process Following the closure of the first phase of the consultation process on March 1, 2015, Management will collate and review the various submissions and prepare a new draft. Based on the timeline for review, the new ESS Framework is scheduled to come into effect in FY16 after internal reviews and clearance by the Executive Board. 3.2 Update on the Proposed World Bank Group Procurement Framework As part of the World Bank Group s (WBG) reform agenda and change process, the Institution s Procurement Policy Framework is under review. The process was initiated in February 2012, which marked the commencement of the first comprehensive review of the Procurement Policy since the World Bank was established. Previously the World Bank used a standard approach to its procurement in the form of Procurement Guidelines. The objective of this review process is to address deficiencies in the current Procurement Policy, with a view to strike an optimum balance between maintaining fiduciary assurance and 30

46 delivering positive outcomes in the context of the twin goals. Some of the major deficiencies are as follows: (i) inordinate delays in the No Objection process; (ii) lack of flexibility to address countryspecific issues in general and FCSs in particular; (iii) the reluctance to use country systems; and (iv) the use of an approach that does not involve well-calculated risks to achieve greater development impact. The revised Procurement Framework is expected to be characterized by clear lines of accountability, enhanced clarity and explicit guidance to suit the modern, complex and diverse operating environment. Further, the Framework shall be aligned with international best practice. The Proposed Procurement Framework is being formulated through a two-phased approach. The first phase comprised broad-based worldwide consultations, thematic background studies, internal World Bank reviews and an evaluation by the IEG. This phase determined and substantiated the rationale for the World Bank s Procurement Policy reforms and indicated the general directions of the reform process. The general directions suggest that the WBG Procurement Policy Framework should be guided by an approach that reflects complexity and diversity, value for money, and fit for purpose. The second phase began with a policy articulation process through which a draft policy document was produced and later cleared by the Executive Board in July Following this development, the Board cleared another global multistakeholder consultation process in August, 2014 with a view to getting additional inputs for policy articulation. Based on the agreed timeline, the new Framework will be finalized in FY15. The new policy is expected to take effect in FY16 after approval by the Executive Board at the end of FY The 2015 Voice Reform At the 2010 Spring Meetings, the Board of Governors agreed to conduct reviews of the shareholdings of IBRD and IFC every five years to give developing and transition countries (DTCs) more voice and representation in the governance of these institutions. They also noted that beginning with the subsequent shareholding review in 2015, a work program and a roadmap would be established to arrive at a benchmark for a dynamic formula that would reflect the 2010 principles agreed in Istanbul, Turkey, and then move towards an equitable voting structure, while protecting the voting power of smaller economies Context and background In 2008, the WBG embarked on a two-phase package of reforms designed to strengthen the voice and participation of DTCs, and to enhance the legitimacy, credibility and accountability of World Bank Group operations. Equitable participation of all DTCs would be achieved through progressive adjustment in voting rights and shareholding based on economic weight and responsibilities for development mandate and strengthening of voice and participation of small countries where the WBG plays an important financing and advisory role. With these guiding principles in place, the voice reform had three main dimensions: (i) voting power and shareholding; (ii) voice as effective representation at the Board of Executive 31

47 Directors; and (iii) voice as responsiveness to Developing and Transition Countries (DTCs) views on development Current Status of Subscriptions The first phase of the Voice Reform was approved by the Board of Governors in 2009 and led to an increase in developing countries shares in IBRD to 44.1 percent, which was achieved through increase in basic votes. The basic votes were effectively doubled to 5.6 percent of total votes to strengthen voting power of small countries. In addition, an exceptional allocation of unallocated World Bank shares was made to 16 DTCs so that their voting power was not diluted by the increase in basic votes. The second phase of the reforms, which was approved by the Board of Governors in 2010, increased the voting power of developing countries in IBRD to 47.2 percent. The IBRD 2010 shareholding realignment was carried out through Selective Capital Increase (SCI). The realignment was based on allocating shares to members in light of their economic weight, contribution to IDA, and development contribution from the Bank s Group clients, with measures to protect the voting power of the smallest members. As of February 10, 2015, a total of 110 countries still had outstanding subscriptions. Of these, 42 countries have requested an extension for one year (to March 16, 2016), and 46 countries have requested an extension for 2 years (to March 16, 2017) and 22 countries have completed their subscription requirements Next Steps in the Voice Reform Since the 2010 Review, both the global economy and the WBG have significantly changed. Economic weight data confirm that the stronger relative growth rates of DTCs have further increased their global economic weight. Donors have financed two successful IDA replenishments and DTCs have strengthened their contribution to IDA. These changes call for a further reviews in order to achieve a shareholding structure that reflects the changes that have taken place. 3.4 Update on Global Infrastructure Facility The Executive Board on March 19, 2015 approved the establishment of the Global Infrastructure Facility (GIF) to commence full operations in April The GIF serves as a global, open platform that facilitates the preparation and structuring of complex infrastructure projects through mobilization of private sector and institutional investor capital. The GIF operates according to the core principles of providing public goods, mobilizing the private sector, achieving value for money, promoting sustainability and inclusiveness, collaborating for best results and augmenting partners capacities. The activities of the GIF focus on providing support along the spectrum of design, preparation and transaction to ensure that wellstructured and bankable infrastructure projects are brought to market. By contributing to the global stock of high-quality projects, the GIF is expected to help develop infrastructure as an asset class, attractive to the full range of private investors that seek to diversify into long term assets in fast growing economies. GIF interventions seek to minimize overall project risk by ensuring that costs, benefits and risks are 32

48 well considered at each stage of the project preparation process. Under its partnership program, the GIF offers governments, multilateral development banks, private sector investors and financiers a new way to collaborate on complex projects that no single institution could handle on its own. The GIF platform provides comprehensive support by drawing on technical and advisory partners. The GIF partners fall into one or more of the following categories: Funding partners that provide financial contributions to the GIF partnership; Technical partners, such as the WBG and external partners, who provide specific technical advice; and Advisory partners, which are private investors or entities that represent the voice of private sector infrastructure finance such as pension funds, sovereign wealth funds, banks or other financial institutions and partners interested in participating in GIF-arranged credit enhancement structure. As regards its governance structure, the operations of the GIF are overseen by a Governing Council (GC). The GC supervises strategic programming, management of funds and the development of operational procedures and policies, and holds management accountable for delivering on the GIF objectives and for adhering to its principles. The GC comprises representatives of funding and technical partners and representatives of the beneficiary developing countries. There is also an Advisory Council (AC) that serves as a sounding board on the latest developments in infrastructure finance to inform the design of GIF interventions. It comprises all GIF partners and it is chaired by the Managing Director and Chief Finance Officer of the WBG. The GIF is administered by the WBG through the GIF Management Unit. The responsibilities of this Unit entail building the facility, leading consultations and the capitalization process, managing and allocating the resources of GIF, assuring quality of GIF project design and providing coordinating support as projects progress. The first three years of GIF operations, , constitute a pilot phase to test the GIF concept, activities and partnership framework. Seed funding for the pilot phase includes an initial capitalization of US$80 to US$100 million over this period which has been pooled together from partners. The WBG provided US$15 million in seed capital in September 2014 from an IBRD surplus to this seed capital. The initial level of resources is targeted at between eight to ten interventions during the pilot phase. This level of activity is expected to enable the model to be tested over a sufficient range of project sectors, geographies and country environments. The list of eligible sector may be expanded during or subsequent to the pilot phase. However at this initial stage, the GIF can only support projects across the following sectors and sub-sectors: Energy: electricity transmission or distribution, natural gas transmission or distribution; Water and sanitation: water supply, wastewater and sewerage, irrigation and drainage, solid waste management; Transport: airports, ports, railways, mass transit, highways; and Telecommunications: landlines, undersea cable. 33

49 During the pilot phase, the GIF will support projects with regional or global public good characteristics that are: Trade-enabling projects that facilitate or enhance interconnectivity and trade; and /or Climate-smart projects that lower carbon-emissions, encourage energy and/or carbon efficiency in the provision of infrastructure services and/or strengthen climate resilience. A Project may refer to the development, rehabilitation or expansion of a standalone infrastructure facility, series of interlinked assets that together address an identified infrastructure delivery objective or a coordinated program of investment in multiple infrastructure assets. The GIF can support projects that will be primarily implemented by private-operated entities under a public private partnership modality, or by public sector entities operating on a commercial basis. The infrastructure project must provide a public service to multiple users, have a strong potential to achieve financial viability and sustainability, and attract long term private capital. commitment in December 2014 and agreed on a D&I Compact. They made a commitment to recruit more than 100 additional staff from SSA and the Caribbean by FY17. They also committed to recruit additional managers from these regions in order to raise their share of managers from 10.8 percent to 12.5 percent. As regards to SSA in particular, the WBG has also instituted additional measures to identify and recruit staff from this region. The African Region Vice Presidency of the World Bank launched a fellowship program targeted at talented African Ph.D. candidates. Under this program successful candidates would spend six months working in various units across the WBG. Candidates that perform well stand a chance to be offered regular positions in the WBG. In addition, a Diversity Talent Desk was created to support outreach and recruitment efforts. So far, the talent desk has reached out to various African educational and research institutions. While these efforts are commendable, African Executive Directors and Governors are encouraged to continue to call on the WBG to meet its commitment on D&I targets. 3.5 Update on Diversity and Inclusion The WBG has had diversity and inclusion (D&I) targets and indicators since 1998 and has revised them over time to reflect progress and priorities. One such targets is to increase and maintain the share of staff from Sub-Saharan Africa (SSA) and the Caribbean at professional level and above to 12.5 percent. Although progress in meeting this target has been slow, a slight improvement was recently achieved with this share increasing to 11.5 percent in September Recognizing the slow progress, Senior Management of the WBG signed a statement of 34

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51 Chapter 4 Constituency Issues Highlights of Statutory Constituency Meetings 36

52 Chapter 4 Constituency Issues 4.1 Highlights of Ninth Statutory Meeting of the Africa Group 1 Constituency The Africa Group 1 Constituency Rules and Procedures as approved in 2010, stipulate that the Constituency shall meet bi-annually to deliberate on issues of common interest and map out modalities for ensuring that these issues are factored in the broad policy and operational agenda of the WBG. Accordingly, the Constituency held its Ninth Statutory Meeting on October 9, 2014 in Washington D.C., USA on the margins of the Annual Meetings of the WBG and the IMF. The following are highlights of the reports considered, issues discussed and decisions taken Formal Membership of Somalia The Constituency officially welcomed the Federal Republic of Somalia as its newest member, following its participation in the elections of the Executive Directors for The Constituency had represented Somalia's interests with the WBG in an informal basis since The Annual Report of the Executive Director on the Developments in the World Bank Group during FY The Executive Director s Annual Report for FY14 highlighted global economic developments and prospects, performance of WBG operations and gave an update on Selected Policy Issues. The Report also summarized key developments in the Constituency including an update on the Voice Reform, Voting Power and Capital Subscriptions, and highlights of the Eighth Statutory Meeting of the Constituency and the African Caucus Meeting for The Governors noted the WBG forecasts, which pointed to a year of slow global economic growth and downside risks arising from weak performance in the Euro Area, geopolitical tensions in Eastern Europe and the Middle East and slowdown in China. They also noted that the decline in commodity prices would have an adverse impact on trade balances and growth prospects in some countries and that although SSA had been a bright spot for growth in developing countries, the Ebola crisis posed serious downside risks to growth prospects. Governors noted with concern that out of the IBRD commitments of US$18.6 billion in FY14, only US$0.42 billion had gone to SSA. Similarly, they noted with concern that the US$10.2 billion in IDA funds committed to SSA was below the target of 50 percent. The funds committed stood at 46 percent. Governors acknowledged the new IDA17 Implementation Policies, including the changes in IDA financing terms, the allocation system, the regional program, and the provision for arrears clearance. They also noted the flexibility in the use of country allocations and the commitment to disclose country allocations to country 37

53 authorities. Governors welcomed the use of the IDA17 Crisis Response Window (CRW) for the Ebola Emergency Operations in West Africa and looked forward to further discussions on IDA s sustainability and governance Consideration of the Constituency Statement to the Development Committee Governors endorsed the proposed Development Committee Member Statement for the Constituency (Annex 4). In their Statement, Governors called upon the international development community to ramp up support for country efforts to promote shared prosperity. Noting the lags in attaining the MDGs relating to primary education, basic sanitation, and infant, child and maternal mortality, the statement urged development partners, including the World Bank Group, to join efforts with developing countries to accelerate progress and to ensure that the post-2015 framework adequately captures the unfinished agenda. The statement noted the heightened focus on the Green Growth agenda and requested development partners to provide support to assist Constituency countries institute actions on the environmental front, without compromising their efforts on other pressing development issues. It also noted that Official Development Assistance (ODA) remained a significant source of development financing, especially for the poorest countries. Governors, therefore, called upon the WBG to work with Constituency countries and other development partners to find and develop innovative financing mechanisms and promote access to affordable finance for Small and Medium-size Enterprises (SMEs). Furthermore, the statement reiterated the observation that improved service delivery would be the benchmark for successful execution of the Change Process in the WBG. As regards the outbreak of the Ebola Virus in West Africa, Governors recognized WBG support and urged Management to coordinate global efforts, play a leading role in mobilizing additional resources, explore ways to stop the spread of the disease, determine the root causes and assist economic recovery efforts in the affected countries Constituency Strategic Issues The Meeting noted that the Constituency would need to continue to focus on ways to improve countries engagement with the WBG, specifically on voice, representation and diversity and differentiated products and maximized resource flow to its heterogeneous membership. The Meeting appreciated the efforts of the Development Committee (DC) Member Committee and the process for articulating the DC Member Statement, and undertook to ensure that the Statement continues to focus on the agenda setting matters for the WBG and keeps members abreast of the position of the Constituency on key issues that preoccupy the Annual and Spring Meetings. The Meeting also noted the need to continue to advocate for region-wide interests in transformative energy infrastructure, agricultural productivity, industrialization, arrears clearance and debt relief for remaining HIPC and non-hipc Initiative beneficiaries and diversity. The Meeting also observed that the Constituency Rules would be due for review in 2015 since they would have been in use for five years. 38

54 4.1.5 Constituency Representation on the WBG Board and Constituency Governance In line with the Africa Group 1 Constituency Rules and Schedule of Rotation, the Governors noted the following representation on the WBG Executive Boards and Constituency governance structures for the period November 2014 to October Dr. Louis Rene Peter Larose of the Republic of Seychelles was elected as the new Executive Director to represent the Africa Group 1 Constituency at the Executive Boards of the WBG for the period November 2014 to October Governors also endorsed the appointment of Mr. Andrew Ndaamunhu Bvumbe of the Republic of Zimbabwe as the Alternate Executive Director for the Africa Group 1 Constituency for the same period. As regards governance structures in the Constituency, Governors endorsed the responsibilities outlined in Table 4.1. Table 4.1: Constituency Governance Structure Constituency Chair Ethiopia Vice Chair The Gambia Constituency Panel Chair Ethiopia Vice Chair Gambia, The Member Lesotho Member Zambia Member South Sudan Development Committee Representative Uganda Alternate Tanzania Associate Namibia Associate Mozambique Associate Zimbabwe Associate Sierra Leone IDA Borrower Representatives Representative Kenya Representative To be determined* Notes: *As determined under Rule IV (9) of the Constituency Rule Guidelines and Procedures, October

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