Document of The World Bank ONA PROPOSED CREDIT THE REPUBLIC OF THE GAMBIA FOR A GATEWAY PROJECT GATEWAY PROGRAM

Transcription

1 Document of The World Bank Report No: GM PROJECT APPRAISAL DOCUMENT ONA PROPOSED CREDIT IN THE AMOUNT OF SDR 12.4 MILLION (US$16 MILLION EQUIVALENT) TO THE REPUBLIC OF THE GAMBIA FOR A GATEWAY PROJECT IN SUPPORT OF THE FIRST PHASE OF THE GATEWAY PROGRAM December 20, 2001 Transport Sector Country Department 14 Africa Region

2 CURRENCY EQUIVALENTS (Exchange Rate Effective October 2001) Currency Unit = Dalasi (GMD) I GMD = US$ US$1 = 16.7 GMD FISCAL YEAR January 1st -- December 31 ABBREVIATIONS AND ACRONYMS CAS CED DOSFEA DOSTIE EIA ESMP EMP EPZ ERSO FEZ GAMTEL GCAA GDA GIA GIPFZA GOG GPA ICR IECC IPC NEA PSD PIU TA Vice President: Country Director: Sector Manager: Task Manager: Country Assistance Strategy Customs and Excise Department Department of State for Finance and Economic Affairs Department of State for Trade, Industry and Employment Environmental Impact Assessment Environmental and Social Management Plan Environmental Management Plan Export Processing Zone Economic Reform Support Operation Free Economic Zone Gambia Telecommunications Company Gambia Civil Aviation Authority Gambia Divestiture Agency Gambia International Airlines Gambia Investment Promotion & Free Zones Agency Government of The Gambia Gambia Ports Authority Implementation Completion Report International Express Carriers' Conference Investment Promotion Center National Environment Agency Private Sector Development Project Implementation Unit Technical Assistance Callisto Madavo John McIntire Maryvonne Plessis-Fraissard Michel Audige

3 THE GAMBIA GATEWAY PROJECT CONTENTS Page A. Program Purpose and Project Development Objective 2 1. Program purpose and program phasing 2 2. Project development objective 2 3. Key performance indicators 3 B. Strategic Context 3 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 3 2. Main sector issues and Government strategy 4 3. Sector issues to be addressed by the project and strategic choices 8 4. Program description and performance triggers for subsequent loans 11 C. Program and Project Description Summary Project components Key policy and institutional reforms supported by the project Benefits and target population Institutional and implementation arrangements 16 D. Project Rationale Project alternatives considered and reasons for rejection Major related projects financed by the Bank and other development agencies Lessons learned and reflected in the project design Indications of borrower commitment and ownership Value added of Bank support in this project 20 E. Summary Project Analysis Economic Financial Technical Institutional Environmental Social Safeguard Policies 27 F. Sustainability and Risks Sustainability Critical risks Possible controversial aspects 29 G. Main Credit Conditions Effectiveness Condition Other 30 H. Readiness for Implementation 30 I. Compliance with Bank Policies 31

4 Annexes Annex 1: Project Design Summary 32 Annex 2: Detailed Project Description 37 Annex 3: Estimated Project Costs 43 Annex 4: Cost Benefit Analysis Summary 44 Annex 5: Financial Summary - Project Components by Year 51 Annex 6: Procurement and Disbursement Arrangements 53 Annex 7: Project Processing Schedule 63 Annex 8: Documents in the Project File 64 Annex 9: Statement of Loans and Credits 65 Annex 10: Country at a Glance 67 Annex 11: Letter of Strategic Development Policy 69 Annex 12: Social and Environmental Analysis 73 Annex 13: Implementation Schedule 80 Annex 14: GIPFZA budget forecasts MAP: IBRD iv

5 THE GAMBIA GATEWAY PROJECT Project Appraisal Document Africa Regional Office AFTTR Date: December 20, 2001 Team Leader: Michel Audige Country Manager/Director: John Mclntire Sector Manager/Director: Maryvonne Plessis-Fraissard Project ID: P Sector(s): MT - Trade Policy Reform Lending Instrument: Theme(s): Private Sector Adaptable Program Lending (APL) Poverty Targeted Intervention: N Program Financing Data Estimated APL Indicative Financing Plan Implementation Period Borrower (Bank FY) IDA Others Total Commitme Closing US$ m % US$ m US$ m nt Date Date _ APL 1 Loan/ Credit /30/ /30/2007 Government of The Gambia APL 2 Loan/ Credit Total [ ] Loan [X] Credit (] Grant [ Guarantee [ ] Other: For LoansiCreditslOthers: Amount (US$m): Proposed Terms (IDA): Standard Credit Grace period (years): 10 Years to maturity: 40 Commitment fee: 0.5% Service charge: 0.75% Financing Plan (US$m): Local Foreign Total Source BORROWER IDA Total: Borrower: GOV. OF THE GAMBIA Responsible agency: DOSTIE Department of State for Trade, Industry and Employment Address: Independence Drive, Banjul, The Gambia Contact Person: Yusupha Kah, Permanent Secretary, DOSTIE Tel: (220) Fax: (220) pstiegqanet.gm Estimated disbursements (Bank FYIUS$m): FY Annual Cumulative Project implementation period: 5 years Expected effectiveness date: 04/30/2002 Expected closing date: 04/30/2007

6 A. Program Purpose and Project Development Objective 1. Program purpose and program phasing: The Gambia Gateway Project (hereafter referred to as "the Project") intends to enable The Gambia to establish itself as a globally competitive export and processing center. The Project is a key component of the Government's strategy - as stated in its Letter of Strategic Development Policy - for achieving broad-based, export-oriented, and sustained growth (see Section B). The Program will be implemented in phases through an Adaptable Program Lending (APL) instrument. This lending instrument was selected for the following reasons: (i) the clear need to progressively build a capacity in The Gambia for trade promotion; (ii) the phased sequence of the investment part of the project; and (iii) the long-term commitment of the Government to implementing the Gateway Project. The APL will be implemented in two phases: Phase 1 (APL1) will lay the physical and operational foundations for establishing The Gambia as a credible player in the world trade arena. This will be accomplished by creating a favorable business environment, promoting private investment, and by launching an operational Free Zone (FZ) adjacent to the airport. At the same time, this phase will develop a long-term marketing and operational strategy that will reinforce FZ activities with the country's economy and exploit its comparative advantage. Phase 2 (APL2) will consolidate the FZ functions and financing, and secure managerial and financial autonomy for The Gambia Investment and Free Zones Agency (GIPFZA). This phase will also deepen the production linkages of the FZ with the local economy, and continue the pursuit of The Gambia's competitiveness in the global market, thereby extending and sustaining the Project's income and employment benefits. Phase 2 will focus particularly on the population living along the Gambia River by improving river navigation. This allows the transportation of horticultural and agricultural products into other potential Free Zones, which may develop under the terms of the Free Zone Act of Phase 2 will also concentrate on roads and rural transport in order to facilitate exchange of goods and products between agricultural production centers and the potential additional Free Zones. However, the Project will finance the development of only one Free Trade Zone - that of the airport 2. Project development objective: (see Annex 1) The development goal of Phase 1 is to lay the foundation for expanded private investment export-oriented production and employment, through the establishment of the Free Zone and an improved institutional environment. This objective will be achieved by: * Establishing a self-sustaining Gambia Investment Promotion and Free Zone Agency (GIPFZA) * Marketing and facilitating local and foreign investments in well-targeted economic sectors * Developing a 10 ha. pilot Free Zone (FZ) at the airport * Promoting privately financed and operated FZ-related businesses, including teleport services 2

7 * Helping the government to implement its divestiture strategy * Mitigating any social and/or environmental impacts that could result from project implementation * Preparing the APL 2, including a better interface between the FZs and the population along the Gambia River. This goal will also be achieved by supporting on-going efforts from donors in the following fields: * Building business and technical skills among private and public sector actors * Facilitating administrative procedures for private enterprise creation, investment, and operations in tourism, trade services, and agriculture sub-sectors * Modernizing ports and airport services and streamlining customs clearance procedures. 3. Key performance indicators: (see Annex 1) The following performance indicators will measure achievement of the Project's development objectives: Private investment promotion * The number of licenses delivered by GIPFZA during the period * Creating at least twenty new firms by 2006 Export-oriented production * Achieving annual ton and value targets for the FZs Employment creation * Creating at least 4,000 - direct and indirect - new jobs by 2006 Improved institutional environment * Reducing average process time to create new enterprises to four weeks * Reducing average customs clearance time for FZ-related cargoes to one day B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: IDA/R Date of latest CAS discussion: 09/10/98 The Gambia badly needs projects that fight poverty by creating employment. The Gambia Gateway Project complements the Bank's other programs that focus on capacity building, health, and education by creating employment through new economic activities and private sector development. Although the Gateway Project is a "high case" lending scenario project, it is a cornerstone in the overall strategy to alleviate poverty and attain sustainable growth levels. The Project is fully consistent with IDA's Country Assistance Strategy (CAS) for The Gambia, which defines poverty reduction as its central goal. Within its overall strategic objective of 3

8 poverty reduction, the CAS defines a two-pronged strategy: (i) more rapid, broad-based, exportoriented sustained growth; and (ii) social sustainability. There are four operational sub-areas under the first strategic area: (a) macro-economic stability, (b) private sector development, (c) supporting infrastructure, and (d) rural development. In its analysis of economic opportunities, the CAS underlines The Gambia's latent comparative advantage as a potential "Gateway" center for transshipment and export processing in West Africa. In December 2000, the IDA Board of Directors discussed the Gambia Interim Poverty Reduction Strategy Paper (I-PRSP; IDA/SECM ), and declared jointly with the IMF Board that the Government had become eligible for participation in the Enhanced Heavily Indebted Poor Country (HIPC) Initiative. The full PRSP is expected in Spring 2002; one year into its implementation a progress report will be the trigger to reach the HIPC completion point. The Gateway Project cuts across the CAS's four operational sub-areas for export-oriented, sustained growth, with particular emphasis on private sector development and supporting infrastructure. The Project will also touch on rural development issues, since it will focus on strengthening linkages with potential export markets of agricultural products. The proposed Project is considered a cornerstone of the CAS, which includes a mix of macroeconomic reforms and programs that nurture the development of the private sector. It will be complemented by, among others, (i) the proposed Economic Reform Support Operation (ERSO) to support domestic debt reduction, trade liberalization, the broadening of the divestiture program, and the management of public expenditures; (ii) the recently approved Capacity-Building for Economic Management Project (CBEMP), which strengthens institutions involved with revenue and customs and income taxes; (iii) the Energy and Water Infrastructure Project, which pilots rural infrastructure services; and (iv) the Rural Sector Support Project, which provides services in support of expanded production of high-value agricultural products for tourist and export markets. 2. Main sector issues and Government strategy: Macroeconomic setting From 1986 to 1993, The Gambia had a well-managed economy, establishing a solid track record on policy reforms aimed at stabilization. However, a series of adverse external shocks between led to an economic slowdown and loss of per capita income. The reinforced border control by Senegal in 1993, the CFA franc devaluation in 1994, and the political uncertainty in the aftermath of the July 1994 military coup significantly damaged the re-export trade in The Gambia, the main source of foreign exchange and government revenues, and affected private sector confidence in investing in The Gambia. The completion of presidential and legislative elections in 1997 considerably reduced the country's political isolation and improved its economic prospects. The Government took a number of measures to restore economic stability and began to normalize relations with donors. GDP growth in 1999 amounted to 5.6 percent after several years of stagnation. On March 31, 1998, IDA's Board approved its first credit to the country (health sector) after a hiatus of four years. On June 29, 1998, the IMF Board approved a PRGF program. 4

9 Given a population growth rate of about 3 percent per annum, the 5 percent average annual GDP growth during the last decade has not been enough to significantly reduce poverty levels. It is estimated that an annual GDP growth rate of 8-10 percent would be required for a significant poverty reduction. In order to achieve the level of economic activity needed to reach the targeted growth rate, The Gambia must consciously develop and consolidate its "competitive advantages" and cater to export markets. Potentialfor export-oriented growth The Gambian economy has long been primed by the re-export trade, groundnut exports, and tourist industry. On average, the re-export sector has accounted for about 15 percent of GDP, 20 percent of fiscal revenue, and 85 percent of all exports. The country has traditionally been a magnet for traders in the immediate sub-region for re-exported commodities, as well as for nontraditional exports. The Port of Banjul has served as an entrepot for re-export to peripheral countries for a limited number of products, such as textiles, vehicle, rice, tea, and sugar. The Gambia is a member of the Economic Community of West African States (ECOWAS), which should increasingly facilitate intra-regional trade. It has reciprocal trade agreements with the United Kingdom and Senegal. Because of its least-developed- country status, The Gambia has preferential access to markets because of the Generalized System of Preference (GSP) and the special provisions under various Uruguay Round Agreements. Its relative proximity to major regional markets of Europe and North America offers a major comparative advantage over East Africa for exports to these markets. The Gambia is one of only three LDCs certified by the European Union to export its fish products to Europe. The Gambia's tourist industry has been the fastest growing sector in the economy. With limited state support, the industry has grown at an average rate of 4 percent per annum and has been a significant source of national income (12 percent of GDP). The country has a wide range of historical and natural tourist attractions. The number of tourists in 2000 is estimated to have been 125,000, mainly from Germany, Scandinavia and the UK, with growing potential from Eastern Europe and "roots-based" tourists from the U.S. market. This is complemented by a steady flow of visitors throughout the year for business and international organizations attending conferences. A comprehensive review of The Gambia's potential for export-oriented growth was carried out in 1994, and was recently updated by International Development Ireland, Ltd., Jebel Ali Free Zone Authority, and Sahel Invest Management International ("Consulting Services for the Gambia Free Zone Development Strategy," July 2000). This strategy noted that the agribusiness (primarily fish and agricultural products) and the tourism sectors have the potential for generating long-term exports and foreign exchange earnings. The Gambia is also well positioned to build on its traditional trading and tourist activities to exploit new markets related to telecommunications and spin-off "cluster" developments. Although the private sector is small, it is growing and has the potential to expand rapidly. The strategy also noted that, although The Gambia should build on its traditional role as a regional center for trade and services, it cannot continue to depend heavily on transit trade. This is because the application of 5

10 WTO rules will progressively reduce the income potential from regional duties, which the country now collects through re-export trade transactions. The strategy presents a clear vision for export-based growth in which The Gambia sets up an environment conducive to building internationally competitive clusters around the economy's key strengths: (i) the tourism industry; (ii) the trade and services economy; and (iii) agribusiness. Focused development of tourism will provide a catalyst for spin-off competitive and value-added industries. It will also promote the development of the airport, critical air-links, and therefore support the growth of The Gambia as an international trade and business center. The Gambia can also reduce its current dependency on re-export services and capitalize on emerging value-added markets, such as telecommunications and "teleport" services, for both developed and regional markets. The proposed strategy will also stimulate local industries with export potential, such as fish, fresh vegetables, and flowers. Finally, with the establishment of a favorable business environment and dependable infrastructure, future opportunities exist for minor processing, electronics assembly, and break bulk operations. Although European countries - namely, UK, Germany, and the Netherlands - constitute the main target markets for The Gambia, the development of its trade will be beneficial at the regional level, allowing neighboring countries - Senegal, Mali, and Guinea - to export part of their production through the Gambian Gateway. The development of tourism and re-export activities will also provide an opportunity for entrepreneurs in neighboring countries to promote handicraft and traditional garments. The Gateway will also pave the way for an increased partnership between The Gambia and Senegal in the maritime transport sector, since a major part of Gambian trade will have to be channeled through the international port of Dakar to benefit from improved shipping services to and from Europe. Key constraints and challenges The Gambia faces the same challenges as most African countries in attracting private investment and trade - namely, the perceived lack of a stable and investor-friendly environment; limited access to markets and resources; and poor and expensive infrastructure services. Some of these constraints are summarized below. Institutional framework for trade promotion. Previous initiatives in promoting private investment were limited in scope because of the weak institutional capacity and limited budgets in the two responsible governmental agencies - Departments of State for Trade Industry and Employment (DOSTIE), and for Finance and Economic Affairs (DOSFEA). Although updated in June 1999, the Gambia Government Investment Policy was inadequate because it did not provide incentives for investment. These issues have now been addressed in the Gambia Investment Promotion and Free Zones Acts of 2001, which have established the Gambia Investment Promotion and Free Zone Agency (GIPFZA) and provided incentives for private investments. As stated in the Acts, the objectives of the GIPFZA are to promote The Gambia as a trade Gateway and investment haven and to (i) provide an attractive business environment and incentives for business activity in Gambia; (ii) be a "one-stop-shop" for investors; (iii) attract, promote, and facilitate investments; and (iv) advise the Government on investment policy and related matters. 6

11 Financial sector. Financial sector interest in commercial or investment ventures is limited and offers few products and services. Commercial banks give priority to short-term trade finance and short-term treasury bills. Private sector development in this environment is difficult. Considerable efforts are needed to reduce interest rates and strengthen the judicial system, especially in terms of collateral recovery, in order to create opportunities for long-term investments. The prospects of broadening the scope of investments allowed by law for the social security fund, and creating long-term bond markets should be explored to make longterm financing available for private sector development. Private sector development. The private sector in The Gambia is very thin and mostly limited to informal trading. As noted above, this informal sector has limited long-term growth potential because of the current trends of WTO regulations. Since 1994, the tourist industry has been hampered by the lack of a strategy to attract new and up-scale tourist markets. In addition, only a few tour operators have dominated this industry. Public services. The competitiveness and performance of the public sector has been generally poor, with public enterprises benefiting from their monopolistic position and their imposition of high tariffs. This is particularly true for the National Telecommunication company (Gamtel), the National Water and Electricity Company (NAVWEC), and the Gambia Port Authority (GPA). The customs services fall short of the international standards, and current clearance procedures - although better than in neighboring countries - are cumbersome. Government strategy Overall vision and strategy. The Gambia Incorporated Vision 2020 and the Government Policy Framework Paper (PFP) for the period outlined visions of transforming the country from one of the least developed countries in Sub-Saharan Africa into a middle-income country with a vibrant private sector open to the world. This goal would be attained by expanding and deepening a fast-growing tourism sector, increasing productivity and diversification in agriculture and manufacturing, and developing internationally linked services - in particular, a Free Zone based on an improved port and airport and a modern financial center. The strategy is to be implemented on three fronts: Public sector reform The Government strategy for the public sector focuses on: * Improving the structure of government revenue and expenditure, enabling a reduction in domestic debt and import tariffs * Strengthening the institutional capacity of the public administration * Reforming public administration to foster good governance and efficiency in providing public services * Supporting public enterprise reform and divestiture * Reforming the energy sector. 7

12 Private sector promotion The Government strategy for the private sector concentrates on: * Deepening structural reforms to encourage private sector development and attract foreign investment * Enhancing the incentive system for the development of the private sector * Streamlining business regulations and improving the legal and judicial environment for economic activities * Modernizing legislation affecting corporations, contracts, partnerships, and business registration * Improving the Customs & Excise Department and reducing - in both number and level - the multitude of existing tariffs * Strengthening the financial sector with stronger norms for the commercial banks, and developing new rural credit institutions and linkages to the regional stock market. Reputation. Underpinning this development strategy is a concerted effort to establish a positive image within the international trade and export community. Given the future limitations on reexport activities, the approach will be to favor diversification and help bring about a new set of comparative advantages. These comparative advantages will focus on "niche" value-added activities that link The Gambia's economic potential for global market opportunities, and that provide lasting income and employment benefits. This requires a long-term perspective to lay a solid foundation for future growth, and will involve three fundamental objectives: (i) the establishment of The Gambia as a reliable center for communications services, through the creation of a "teleport"; (ii) the development of tourism-related "clusters" that exploit spin-offs from a more focused tourism expansion strategy; and (iii) the attraction of investments in lowcost manufacturing for regional markets. 3. Sector issues to be addressed by the project and strategic choices: In order to improve the performance of its key parastatals, the Government signed six Memoranda of Understanding at end-march 1998 with major public companies in transport, energy, water, and telecommunications. The Project will therefore include a dedicated technical assistance component to carry out an independent assessment of the sub-sectors mentioned above, except for NAWEC, which is currently being assessed. As a follow-up of the independent assessment, the Project will assist the divestiture agency to carry out the Government strategy, including the mobilization of consultants to prepare and conclude privatization transactions publicly and openly. In addition, to safeguard public interest after the completion of the divestiture program, the Project will also provide assistance to respond to capacity building and training needs of the multi-sector regulatory agency. After extensive consultation with all stakeholders, both public and private, the Government prepared the Gambia Divestiture Act 2001, which was approved by the National Assembly and the President in March A divestiture agency has been created with the following duties: (i) plan, manage, and implement the State's divestiture program in respect to public enterprises and public interest; (ii) develop criteria for selecting public interests to be divested; (iii) be responsible for preparing public enterprises and public interest for divestiture; (iv) ensure consistency in procedures for divestiture; and (v) evaluate all State divestitures. 8

13 The Gambia Gateway Project is a key component in the Govermnent's drive to reshape its economy based on an outward-looking and export-oriented strategy. As the first phase in this endeavor, the Project will address several key issues to lay the groundwork for future consolidation and expansion. These will be based on several guiding principles: (i) the need to have a long-term vision and constantly update strategy, and establish credibility and competitiveness in the international marketplace; (ii) the critical importance of the participation of the private sector in the establishment of the Free Zones, (iii) the complementary and facilitating role of the public sector, and (iv) the development of the local private sector, as well as the strengthening of local capacity to meet international trade standards. A summary of the main issues addressed by the Project and the strategic choices at hand follows. Building institutional capacity to promote private sector development The development and pursuit of a long-term competitive strategy requires an independent agency designed for this purpose. To this end, the Project will support the establishment of the Gambia Investment Promotion and Free Zone Agency (GIPFZA). The establishment of GIPFZA was a precondition for project appraisal. Over the long term, GIPFZA will need to be financially self-sustaining. However, since it is a new entity and its role will be to generate revenue through private investment in the FZ, this will not be possible at first. Therefore, during Phase 1, its operating costs will be supported by the Project, with a requirement that it becomes financially self-sufficient at the end of this phase. Improving energy and telecommunication services The Project, in close coordination with the proposed Bank FY03 Energy Infrastructure project, will support the Government in opening the energy sector to private participation. Competition will be promoted between energy services providers within the Free Zones, including independent power producers. Technical assistance will be provided under the Project to implement "build-operate-transfer" schemes (BOTs). In order to enable the development of teleport activities within the Free Zones, the Project will support the Government in setting up a new institutional framework, ensuring competition among telecommunication services providers within the Free Zones. Improving transport services Under the proposed Government Divestiture Program, the private sector will participate in port operations, particularly in container handling operations, and maintenance services, while the Gambia Port Authority (GPA) will assume the role of a "landlord" port authority with the responsibility of monitoring and regulating the participation of the private sector in infrastructure investments and in operations. The Project will provide technical expertise to build capacity in this regard. The Project will help improve the competitiveness of port and airport services to approach internationally acceptable levels of operational efficiency. For this purpose, it will assist in (i) separating commercial services from regulatory functions, i.e., shifting from a "service" port 9

14 to a "landlord" port scheme; (ii) opening cargo handling services to private competition; (iii) contracting out warehousing and auxiliary activities, such as security and maintenance, to the private sector; and (iv) concessioning airport management to the private sector. Trade and transport facilitation The key to private sector-led export growth lies in creating an efficient trade infrastructure and achieving low-cost, frequent, and reliable transport to end markets. This involves assuring ontime deliveries and adequate equipment maintenance services, which can be accomplished by creating strong backward linkages to raw material and production sources, to packaging, and to on-time shipping. Competitive access to multiple-end markets via diverse distribution channels is also essential. One way to improve a country's competitiveness in international trade is to increase the quality of international transport while minimizing associated costs. In addition, it is essential to reduce transaction costs by adapting commercial practices to international standards and by removing unnecessary trade barriers within the economic, social, and political context of that country. There is therefore a need for trade facilitation, which involves removing barriers through simplification, standardization, and harmonization of procedures, information flows, and documentation. The Project will include a sub-component dealing with facilitation, using the World Bank/IECC (International Express Carriers' Conference) Facilitation Audit Methodology (as described in Trade and Transport Facilitation - An Audit Methodology by John Raven, 2000). This audit will examine and evaluate obstacles to cross-frontier movement of a routine consigmnent and its associated payment. Experience shows that customs form the hard core of most procedural problems. In many countries, operational inefficiency and outdated regulations are aggravated and perpetuated by dishonesty. Customs reforms The development of Free Zones will require more efficient customs services. The Project will assist the Customs & Excise Department (CED) to become a facilitator, rather than a source of red tape, through the reorganization of their services, enhancement of their procedures, and improving efficiency within the Free Zone's context. Under the proposed Project, the Customs & Excise Department will develop and implement a far-reaching program of re-engineering its corporate structure. The program will ensure that customs transactions are computerized, making it less reliant on human interventions. Processes and procedures will be re-engineered to bring the quality of customs services up to international standards. In particular, the Project will provide support for: * Streamlining customs procedures and reducing clearance time for both export and import cargo * Reviewing the current legislation to determine necessary amendments and revisions * Designing a modern information management system * Establishing a valuation database in compliance with the WTO valuation code and risk management systems 10

15 * Training and capacity building on facilitation procedures designed specifically for Free Zone enterprises * Initiating a multi-year work program designed to achieve, in the medium termn, an ISO 9000 certification. The first step in accomplishing this will be implementing a management audit based on the principles of Quality Management Systems (QMS). The QMS principles are internationally accepted and can be certified using International Standards Organization certification procedures (ISO 9000). By implementing the QMS audit recommendations at the Customs and Excise Department, and eventually obtaining certification, The Gambia will reassure potential investors of the viability of doing business in the country. Improving the financial andjudicial environment Two issues not directly addressed by the Project, but critical to its success, are (i) the high interest lending rate and poor access of the private sector to credit, and (ii) the reform of the judicial system, especially regarding the collateral recovery system. The first issue is being addressed through the on-going macro stabilization program supported under a PRGF with the IMF, and the second through the UNDP-financed National Program. Export guarantees or private sector finance Based on Bank experience in similar projects, the management of these financial instruments would be difficult in the Gambian environment, and run counter to the principal of establishing long-term financial credibility for international investors. The Project therefore does not include export guarantee schemes nor special facilities to finance new enterprises. The impact of the Project on the development of the local private sector will result mainly from the capacity building activities. To this end, consulting services will be recruited to assist the GIPFZA to achieve market development and long-term competitiveness through market surveys and by identifying Free Zone developers and/or operators. Technical assistance will also provide onthe-job training for future Zone operators, and will target skills for effectively competing in the international market place. These would include quality management and control processes, ISO certification concepts, and information management about US and European markets' access regulations for products originating from the ACP countries. 4. Program description and performance triggers for subsequent loans: The Project has been designed under an Adaptable Program Lending (APL) structure that will be implemented in two phases: APL 1 will establish the institutional and physical foundations for achieving an export-oriented growth strategy. This will include building the capacity for The Gambia to achieve a competitive position in the global trade and export community. It will have five components: (i) Physical Investment for a Free Zone at the airport; (ii) Establishment of an Investment Promotion and Free Zone Agency (GIPFZA); (iii) Support to the Gambia Divestiture Agency; 11

16 (iv) Capacity-building; and (v) Project Management and Environmental and Social Management Plan. APL 2 will consolidate the FZ functions and financing, and deepen the production linkages with the local economy. It will emphasize maintaining and continuously improving The Gambia's competitive position in the global markets and maximizing its income and employment benefits over time. Performance indicators The outcome of the Project at the end of Phase I will be assessed using the following indicators: (i) number of licenses delivered by GIPFZA during the period ; (ii) creating at least 20 new firms by 2006; (iii) achieving annual ton and value targets for the Free Zones; (iv) creating at least 4,000 - direct and indirect - new jobs by 2006; (v) reducing the average process time of creating new enterprises to four weeks; and (vi) reducing the average customs clearance time for Free Zone-related cargos to one day. The timeframe for the expected progress of the performance indicators is detailed in the table below: Key performance indicators Number of licenses Number of new firms created Job creations cumulated (direct and indirect) Average process time to create a new enterprise 6 weeks 5 weeks 4 weeks 4 weeks 4 weeks 5. Average clearance time 2 days 2 days 2 days I day 1 day 6. Tonnage and value from FZs Statistics Statistics Statistics Statistics Statistics Triggers for APL 2 The performance triggers for passing from APL 1 to APL 2 reflect the basic development objective and expected outcomes of the first phase, which emphasizes laying a solid foundation for sustainable future growth through concrete market-based achievements, and attaining selffinancing of GIPFZA and environmentally and socially sound development. They are: 1. Implementation of APL1, including full compliance with Environmental and Social Management Plan (ESMP), assessed as satisfactory by IDA, based on the project outcome. 2. GOG divestiture plans for public enterprises related to transport and telecommunication, listed under Tracks I and II, are implemented. 3. Phase I of the Trade and Transport Audit recommendations implemented. 12

17 4. Phase I of the Customs & Excise Department Quality Audit recommendations implemented. 5. At least 20 firms created under incentives and status of the Gambia Investment Promotion and Free Zones Acts At least 4,000 direct or indirect jobs created through the Gambia Investment Promotion and Free Zones Acts GIPFZA operating costs covered by its revenues. In regard to triggers 3 and 4, two audits will be carried out in the areas of trade and transport and customs respectively. The action plan resulting from these audits will constitute Phase I referred to in triggers 3 and 4, to be implemented within a three-year period. For triggers 5 and 6, the Association shall consider 80 percent compliance as fully satisfactory. C. Program and Project Description Summary 1. Project components: (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): Indicative Bank- % of Costs % of financing Bank- Components Sector (US$M) Total (US$M) financing A. Physical Investment for a new Free Zone at the airport Trade B. Establishment of GIPFZA Trade C. Support to the Gambia Divestiture Institutional Agency Development D. Capacity-Building Institutional Development E. Project Management and ESMP Other Environment Reimbursement of PPFs Contingencies Total Project Costs _ Total Financing Required Component A: Physical investmentfor a new Free Zone at the airport (US$5.35 million) This component will establish the physical infrastructure necessary for an operational Free Zone (FZ) at the airport. It includes (i) infrastructure to enable the Free Zone at the airport, including common users facilities and utilities; and (ii) consulting services for supervising works. Component B: Establishment of an Investment Promotion and Free Zone Agency - (US$5.10 million) GIPFZA This component will establish the GIPFZA as a self-sustaining entity that manages the FZs and promotes trade and investment. It will include (i) operational support to GIPFZA; (ii) technical assistance; (iii) consulting services to complete and implement marketing plans and market surveys; (iv) consulting services for investment promotion; and (v) studies (River-Free Zones 13

18 Interface, a Trade & Transport facilitation survey, a Quality Management Systems (QMS) Audit for the Customs & Excise Department). Component C: Support to The Gambia Divestiture Agency (US$1.80 million) This component supports the Government agenda for privatization. It will include (i) technical assistance to support the Government Divestiture Program; (ii) divestiture safeguarding and monitoring; and (iii) divestiture consensus building through national and international campaigns. Component D: Capacity building (US$1.23 million) This component includes training activities for both the public and the private sectors directly involved in investment and Free Zone-related businesses. Training will include quality management and control processes, the ISO certification concept, and information about US and European markets' access regulations for products originating from ACP countries. This component also includes training for GDA as well as capacity building for the multi-sector regulatory agency. Component E: Project Management and Social/Environmental Management (US$0.94 million) This component includes funds for (i) overall project management; and (ii) environmental studies and mitigation measures. The latter have been spelled out in an Environmental and Social Management Plan (ESMP), which involves two basic activities: * Periodic environmental and social assessments to ensure environmental and social sustainability of the Project-funded and of Free Zone developments in general. The ESMP includes standard requirements and processes for project screening, consultation, assessment, mitigation, and monitoring of projects and investments made within the Free Zone jurisdictions. Where applicable, these will result in industry and activity-specific environmental management plans (EMPs). The Project will also fund an annual assessment and update of the ESMP, which will enable GIPFZA and NEA to oversee environmental and social management related to Free Zone operations and development (see paragraph 7.2 below). * Environmental mitigation measures will include: (i) mitigation measures funded under the Project related to the development of the airport Free Zone site, and eventually other Free Zone sites developed under the Free Zones Act of 2001, but not directly financed by the Project; and (ii) industry and site-specific mitigation measures related to the installations within the Free Zones. For the latter, the basic principle will be the "polluter pays" for environmental and social impact mitigation, and the Project will focus on strengthening the capacity of GIPFZA and NEA to implement standard screening, monitoring, and enforcement procedures (as described in paragraph 7.2 and Annex 12). 14

19 Reimbursement of PPFs (US$1.85 million) During project preparation, the following activities have been financed: (i) consulting services for The Gambia Free Zones Development Strategy; (ii) consulting services for the Free Zones detailed engineering study; and (iii) study tours in Ireland and Dubai/Mauritius. 2. Key policy and institutional reforms supported by the project: The Project will support several crucial institutional reforns and address institutional capacity constraints in governmental agencies that deal with exporters and investors. Creation of an independent and self-financing Investment Promotion and Free Zone Management Agency The Gambia Investment Promotion and Free Zones Act 2001 was prepared and finalized during the preparation phase of the Project. The Act officially creates the Gambia Investment Promotion and Free Zones Agency (GIPFZA) as a body corporate with perpetual succession and a common seal, which shall be capable in its corporate name of suing and being sued and doing or performing all such other things or acts necessary for the proper performance of its function. The GIPFZA will not only regulate Free Zones-related activities but will also act as a "one-stopshop" agency in charge of promoting investment in other key sectors, such as tourism, agribusiness, and services. The Board of Directors comprises eight members from the private and public sector, and is currently chaired by the manager of a private consulting firm. The Project will provide technical assistance and training for the newly created GIPFZA and finance its operating expenditures during the first years while its cash flow is negative. The financial self-sustainability of GIPFZA is one of the four proposed triggers to launch APL2. Increasing private sector participation in transport, energy and telecommunication services The Project will provide support to the Government strategy of increasing private sector participation in services, especially in the port and the airport. It will help the Government to shift the Gambia Ports Authority from a "service" to a "landlord" port with a greater involvement of the private sector in all industrial and commercial services, such as port cargo handling. The Project will also support the Government in carrying out its strategy of "liberalized skies" and assist in the reform of the Gambia Civil Aviation Authority (GCAA) to assume its role as a regulator of air transport, while private sector will be in charge of operations. The Project will help open the energy and telecommunications sectors to competition by offering international interests opportunities to invest in those activities. Support to the Government will be channeled through the component dedicated to the Gambia Divestiture Agency (see details in Annex 2). Transforming the Customs & Excise Department The Project will provide technical assistance and other support to modemize the Customs & Excise Department (CED). This will be done mainly through a management audit of current administrative procedures and the preparation of a strategic business plan. Using Quality Management System (QMS) principles, the audit and business plan will focus on establishing the CED's role as a trade facilitator, and on implementing required changes in regulations, 15

20 operational procedures, and human resources to achieve the CED's revised role. The advantage of this approach is that the QMS instituted at CED is certifiable by a third party under ISO 9000, which is internationally recognized. Once this certification is obtained, it will be extremely valuable in reassuring potential investors that efficient and transparent procedures exist in The Gambia, and will reinforce the country's efforts to become competitive in world markets. 3. Benefits and target population: The proposed Project will contribute to The Gambia's objective of sustainable poverty reduction by achieving greater private foreign and domestic investment. The Project will benefit three target groups: the local population, the private sector, and the GOG. The local population will benefit from more job opportunities in Banjul's area, as well as improved skills and mobility within the labor force. By addressing key policies and building institutional capacity, the Project will lay the groundwork for rapid and sustained economic growth that will benefit a broad spectrum of the Gambian population. The private sector will benefit from (i) the removal of major institutional and procedural constraints that hamper its activities and development; and (ii) a more supportive environment for investment, including new incentives, new economic activities, lower transaction costs, more training opportunities, and the availability of ready sites for export processing industries. For the GOG, the Project is expected to attract a flow of Foreign Direct Investment that will create direct and indirect new jobs, as well as transfer technology and know-how. 4. Institutional and implementation arrangements: Project coordination In order to provide strategic guidance to implementation agencies during the life of the Project, a Project Coordination Committee (PCC) will be set up. The PCC will include (i) the Permanent Secretary of DOSTIE; (ii) the Permanent Secretary of DOSFEA; (iii) the Chief Executive of GIPFZA; and (iv) the Chief Executive of the GDA. The administrative secretariat of the PCC will be assigned to a project coordinator placed under DOSTIE. The procurement functions will be delegated to each of the implementation agencies. All the financial management functions of the Project will be carried out by GIPFZA, while the project coordinator role will be limited to the general administration of the Project - e.g., monitoring the implementation plan and reporting. The project coordinator, who will be appointed by DOSTIE, will ensure overall project coordination and reporting to IDA. Project implementation GIPFZA will be in charge of implementing all components related to the Free Zones and infrastructure development in the new Free Zone at the airport. In addition, it will be responsible for all studies and training activities related to the Free Zones. The Gambia Divestiture Agency (GDA) will be in charge of implementing the technical assistance and training component related to the implementation of the Government Divestiture Program. 16

21 Bank supervision and M&E process IDA and GOC will jointly conduct semi-annual project reviews, with the implementing agency to review the implementation of all components, including the status of procurement and disbursement. A joint IDA-GOG mid-term review will monitor overall project execution, key project activities, the project implementation schedule, and supervision plans. They will also identify implementation issues and develop solutions. Following project completion, scheduled for October 2006, IDA and GOG will prepare an Implementation Completion Report (ICR). Consultants, contractors, and suppliers will be selected in accordance with Bank guidelines. The Bank will carry out regular supervision missions to assess the progress in project implementation. During implementation, a periodic review of the project monitoring indicators will be done, as well as a periodic evaluation of the triggers, with a view to a timely preparation of the second phase of the project (APL 2). D. Project Rationale 1. Project alternatives considered and reasons for rejection: Several project alternatives were considered: Alternative 1: Postpone the project One alternative would be to postpone the project because critical reforms are not yet fully adopted. In particular, the Government has still not detailed and implemented a comprehensive agenda to provide cheap and reliable energy and telecommunication services, critical to successful trade and investment. On the other hand, the Project is designed to be a catalyst for formulating and implementing these reforms, and further delay would mean lost time in entering a highly competitive and rapidly changing market, as well as losing employment and income benefits generated during the first phase. Alternative 2: Dedicated sector investment project The second alternative considered was a simple, stand-alone project aimed at creating employment. However, given the need to build capacity and the Government's long-term commitment to the Project, this approach is thought to be risky because it would not address the prerequisite of establishing The Gambia as a credible location for dependable trade and investment. Alternative 3: A gradual, long-term approach The Gateway Program feasibility study recommends a cautious and modest approach in the creation of the FZs, based on a realistic and practical strategy that coincides with The Gambia's potential comparative advantages. Based on this, the APL approach is preferred because it allows phased investments, institutional reforrn, and capacity building over a longer time frame. This deliberate and focused approach will minimize the Government's investment exposure, while sending positive signals to potential investors and maximizing leveraged private investment funds. 17

22 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned): Latest Supervision (PSR) Ratings Sector Issue Project (Bank-financed projects only) Implementation Development Bank-financed Progress (IP) Objective (DO) Environment Management Project closed - ICR overall S S Capacity Building assessment is satisfactory. [Report # Feb. 2001] Capacity Building for Economic Board on July 26, 2001 S S Management Other development agencies European Union Development Tourism development Department Africa Development Bank Coastal Zone Management Kuwait Fund Banjul-Airport highway UJNDP National Governance Program IPIDO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: The program design has been modeled on the experience of past similar projects financed by the Bank (Mauritius, Dominican Republic, and Ghana), as well as the experience gained in developing Export Processing Zones in countries like Senegal, Kenya, Cameroon, and Namibia. These experiences have pointed to a number of key lessons learned, which are summarized below. Importance of soundpolicy environment One of the most fundamental lessons learned is that private sector investment projects, including enclave undertakings such as Export Processing Zones, cannot develop to their full potential without sound sector policies. Many African Governments (Senegal, Cameroon) failed to implement Free Zones because of policy-related problems - such as, an unsafe business environment; cumbersome regulatory procedures; inefficient institutional structures; high cost of doing business because of poor infrastructure; labor market rigidities; and high minimum requirements for investment, employment, or infrastructure services (electricity, etc.). In the case of the Gambia, through an open dialogue with the Government, appropriate policies have been established to ensure the success of this project, e.g. The Gambia Investment Promotion Act 2001, The Gambia Free Zone Act 2001, and The Gambia Divestiture Act In addition, the Agency in charge of promoting investment and Free Zone - related businesses has been established as well in

23 Public-private partnerships Despite these problems, there are a few African EPZ/FPZ success stories, and a number of lessons emerge from their experiences. The more notable ones are (i) private sector EPZ development and management must be encouraged; (ii) private sector provision of infrastructure services should be encouraged; (iii) true public/private sector cooperation should be developed, and regulatory processes should be streamlined; and (iv) programs should have more competitive incentive packages without crippling provisions, such as minimum investment requirements. Building a favorable environment Based on these lessons, the Project will first concentrate on building a favorable environment for investment in general and Free Zone development in particular, and will favor private investments within the Free Zones. The proposed Project is only the first phase of a more ambitious program. It will therefore keep physical infrastructure investments well focused and relatively modest in the first stage in order to encourage private developers to finance subsequent stages. In addition, the Project will streamline regulatory processes for private investors through the creation of GIPFZA and the "one-stop shop" center. Building capacity and donor collaboration Institutional strengthening is widely recognized as the key to achieving sustainability. The record of institution and capacity building operations has improved in recent years because of greater participation in project preparation and a greater commitment and ownership of the Borrower. Nevertheless, The Gambia's institutional capacity is still weak, and in some cases the Government has been unable to implement its own policies. This situation has been exacerbated by the project-by-project approach followed by many donors, with each donor having its own reporting and monitoring requirements, thereby over-extending the scarce human resources in the public sector. The Project addresses these weaknesses by reinforcing the public and private sectors in their revised roles for promoting investment and export. Technical assistance and training of key staff in related governmental agencies will be a significant component of the Project, representing about one-third of the total amount of the credit. Once these roles are clearly defined, other donors can provide more effective assistance within a uniform institutional framework. 4. Indications of borrower commitment and ownership: Since 1994, the GOG has shown a constant and strong commitment to this Project by undertaking key institutional and infrastructure reforms (regulatory and legal framework, financial sector reform, trade issues, institutional support for the private sector, labor legislation, customs, public expenditures program, divestiture program, liberalization process, etc.). This commitment to the Gateway Project has been recently publicly reiterated by H.E. the President of the Republic in his State Opening of the National Assembly address, March 9, 2000 (Sessional paper No. 1 of 2000). 19

24 In addition, project design has been carried out using a participatory approach through various public seminars well attended by both private and public stakeholders. A one-day Trade Gateway stakeholders seminar was held in June 2000 that successfully brought together 125 people from both the public and private sectors. The findings of the draft final report, "Gambia Free Zone Development Strategy," prepared by International Development Ireland (IDI), were discussed and approved. In its final report dated July 2000, the consultant took into account all the key recommendations made during the seminar. The success of the Gateway Project will depend on the capacity of the Government to implement adequate sequencing of policies and actions that will enable and stimulate a vibrant private sector. The following table summarizes the policy commitments to date, as well as those remaining to be accomplished before effectiveness: Government Policy Commitments Accomplished to date To be accomplished Gambia Free Zones Act, 2001 Multi-sector Regulatory Act 2001 Gambia Investment Promotion Act 2001 Establishment of a Multi-sector Regulatory Agency Gambia Divestiture Act, 2001 Establishment of the GIPFZA 5. Value added of Bank support in this project: The Bank is uniquely placed to assist the Government in developing an export-oriented and "proprivate" economic environment. This is based on the experience within and outside the region, including the Ghana Trade Investment Gateway Project, Capacity Building Project For Private Sector in Cape Verde (IDA-financed), Port and Free Port Development Project in Mauritius, Industrial Free Zone Development Project in the Dominican Republic, and Private Investment and Export Development Project in Jamaica (IBRD-financed). The positive outcome of the on-going Ghana Investment and Trade Gateway Project demonstrates that Africa has the potential to attract Foreign Direct Investments through a welldesigned policy framework. The Bank's involvement in The Gambia would ensure coordination between trade sector reform and the overall economic program. The Gambia Gateway Program will be closely coordinated with the on-going Capacity Building for Economic Management Project (Credit No , approved by the Board on July 26, 2001). IFC and MIGA have been kept informed of Project preparation. IFC has been approached by the Project team, and is studying ways in which it can contribute in the form of investment. MIGA will be approached during project implementation to provide its guarantees and products to interested developers. These potential contributions relate to the infrastructure that will be developed by private developers and operators rather than to the components of the proposed credit. 20

25 E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4): Cost benefit NPV=US$9.65 million; ERR = 21.2 % (see Annex 4) The benefits expected from the Project are threefold: (i) increase in foreign exchange earnings; (ii) creation of new jobs; and (iii) transfer of technology and know-how. These benefits will contribute to higher levels of economic growth. (i) Foreign exchange earnings: Public discussion of FZs emphasizes foreign exchange earnings derived from the Zones, reflecting the presumption that these earnings are directly relevant to the host country's welfare. In fact, the foreign exchange earnings of foreign-owned firmns in the FZs merely constitute transactions between these firms and firms abroad. They therefore have marginally direct effects on the economic welfare of host country nationals, except for the money converted into domestic currency to be spent on wages and purchases from the local economy. On the other hand, the limited sale of Free Zone goods in the local market will save foreign currency up to 20 percent of the production, as per the GIPFZ Act of The host country will receive a net benefit from these purchases and sales, and these benefits have been quantified in the economic analysis to represent foreign exchange earnings by using value added of exports. (ii) Employment generation: It is estimated that about 1,000 direct jobs will be created from 20 firms within 5 years This assumption is reasonable and has been used as the base case scenario. In 15 years, it is estimated that about 3,000 direct jobs will be created in FZs. A secondary effect in indirect employment generation is expected, which will result in additional jobs from activities in the periphery of the FZs, estimated at three times the total jobs created in the FZs. (iii) Technology transfer: FZs usually involve labor-intensive production and thus promote appropriate technology development in the host country. This is probably the most important externality that comes with the presence of the FZs. In the long run, the "learning by doing mechanism" will have a catalytic effect, spurring gains in managerial practices and notions of quality control to local middle managers employed by the FZs firms. This is expected to increase productivity and efficiency in domestic firms that otherwise would not have improved without the influence of the FZs. 2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4) The financial evaluation of GIPFZA concludes that, at the end of its first five years of activity, the revenue of the agency will cover its operating costs with a probability of 97 percent. During the first five years of its operations, GIPFZA activities will need to be financially supported. To this end, the Project will provide funds to fill the gap between operating costs and revenues. The Project's contribution to GIPFZA's operating costs is expected to progressively decrease as GIPFZA raises its revenues. The level of coverage of the GIPFZA operating costs will decrease as follows: 98 percent in 2002, 70 percent in 2003, 45 percent in 2004, 20 percent in 2005, and 0 percent in 2006 when self-sustainability is achieved. The Project's overall contribution to 21

26 GIPFZA's operating costs will ultimately amount to 40 percent of the operating costs during the period - the balance being financed by the operating revenues of GIPFZA. In order to assess the uncertainty about future revenues of the GIPFZA, a sensitivity analysis using a risk management software has been carried out, taking into account assumptions about the following major parameters: (i) number of new licenses issued each project year; (ii) number of licenses delivered; (iii) number of hectares leased; and (iv) rates applied to licenses, and renting of space within the FZ. (see Annex 14 for details). Fiscal Impact: Tax holidays for Free Zone activities will concern only new activities that would not have come about without the Free Zones development. Therefore, it cannot be considered a decrease of the Government's fiscal revenue. 3. Technical: A detailed engineering design study for infrastructure to be financed under the Project was launched in October It includes architectural aspects, estimated costs and schedule for the works, as well as bidding documents. GIPFZA will clear engineering designs for further infrastructure to be financed and built by private investors. Technical assistance for each beneficiary group will be tailored to respond to an operational diagnostic carried out for each agency. These studies will articulate the agency's mission, in terms of dealing with foreign investors, the constraints it faces, and the action plan being recommended to address those constraints. 4. Institutional: The Project will address the institutional weaknesses of the past by creating an independent agency devoted not only to promoting trade, but also private investment. This dual role will provide an operational framework for linking investments in Gambia's export and tourism trade to the development of the local economy. 4.1 Executing agencies: Agency GIPFZA Divestiture Agency Responsibility This agency will be in charge of implementing all components related to the Free Zones and infrastructure development in these Zones, and will be also in charge of the studies and training activities related to the Free Zones. This agency will be in charge of implementing the technical assistance component related to the implementation of the Government's Divestiture Program, as well as part of the training activities included in the capacity building component. 22

27 4.2 Project management: A Project Coordination Committee (PCC) will coordinate the Project. The administrative secretariat of the PCC will be assigned to a project coordinator placed under DOSTIE. GIPFZA will be responsible for the overall financial management, while the project coordinator role will be limited to the general administration of the Project. 4.3 Procurement issues: The procurement functions will be delegated to each of the implementation agencies. The procurement issues that may negatively affect the ability of the two agencies to carry out the procurement process are (i) inadequate policies and procedures (regulations/codes); (ii) lack of procurement organization; (iii) insufficient procurement staff; and (iv) lack of overseer or adjudicator to assure that procurement is performed effectively. Measures to mitigate these issues have been taken in setting up the procurement processes for the Project, including the use of an independent agency to procure works on behalf of GIPFZA (Annex 6). 4.4 Financial management issues: The financial management assessment for the Gambia Gateway Project was conducted based on the Guidelines to Staff issued by the Financial Management Sector Board, dated June 30, The assessment intends to determine whether the entities responsible for the implementation of the Gambia Gateway Project have acceptable financial management arrangements as required by the Bank's policies, including the entities' systems of accounting, reporting, auditing, and internal controls. The financial management arrangements of The Gambia Gateway Project establish that the activities will be implemented essentially by two recently created entities: (i) The Gambia Investment Promotion and Free Zones Agency (GIPFZA); and (ii) The Gambia Divestiture Agency (GDA). Since most of the activities will be implemented by GIPFZA - and the activities to be implemented by GDA are limited in the number of contracts and mainly related to studies - it was agreed that GIPFZA will have responsibility for the Project's overall financial management. As such, it will be the financial management implementing entity for the whole project, including disbursement. GDA, on the other hand, will ensure the implementation function, including procurement, for its own activities. These arrangements aim at ensuring a simple financial management system that enables effective internal controls. GIPFZA is an autonomous legal entity, expected to become financially sustainable. This requires that the agency regularly monitor its financial situation to ensure that this goal is being met and take any corrective action necessary. The GIPFZA financial management system should therefore be able to generate this information; the assessment was careful to take this into account. A special account will be opened and managed by GIPFZA, the main implementing entity. Funds deposited in the special account will finance eligible expenditures for activities implemented both by GIPFZA and GDA. GDA will handle all procurement procedures and 23

28 implementation monitoring for the activities under its responsibility. GDA will also certify that the related goods and services are effectively delivered or rendered, and submit requests for payments, accompanied by all supporting documents, to GIPFZA for processing. A direct payment method will also be used. Replenishment applications for the special account will be submitted to IDA quarterly. The counterpart funds will be deposited in a project account also managed by GIPFZA. The flow of counterpart funds is similar to the one described above, except for the direct payment method, which is not applicable. A US$240,000 initial amount will be deposited in the project account with quarterly replenishments. Since GIPFZA is a new entity, created in March 2001, the following requirements were agreed upon as conditions of effectiveness: (i) the execution of a subsidiary agreement on behalf of the Borrower and GIPFZA; (ii) the appointment of an independent auditor for GIPFZA; (iii) the opening by the Borrower of the project account and the deposit therein of its initial contribution; (iv) the adoption of the PIM in a form and substance acceptable to the IDA; (v) GIPFZA's establishment of an accounting and financial management system satisfactory to the IDA; (vi) the finalization of the bidding documents for all goods, works, and services to be carried out in the first year of project implementation; and (vii) the enactment and passing into law of the Regulatory Agency Bill. Likewise, an agreement was reached on a time-bound action plan to implement these systems. 5. Environmental: Environmental Category: A (Full Assessment) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. An Environmental Impact Assessment (EIA) of the Gateway Project began in May 2000 under the auspices of the EIA Working Group of the Gateway Project Task Force. During the study, numerous field and office consultations took place. Specific consultations occurred to discuss the EIA Inception Report (July 4, 2000) and the Draft Final Report (September 28, 2000). The final EIA report was submitted in October 2000, along with a draft Environmental and Social Management Plan (ESMP). In order to present and discuss publicly these two documents, which were updated in May 2001, a consultative meeting was held at the Senegambia Beach Hotel on 26th June As a follow-up to the consultative meeting, a three-week public review process was launched in early July The documents were placed in all the administrative commissioners offices and municipalities, as well as at the National Assembly and the National Library. The NEA then collated the comments from the public and sent them to the consultants for their Final ESMP Report. The EIA treated five alternative FZ sites, but finally focused on the two sites chosen in the IDI/Jebel Ali Free Zone Authority Feasibility Study - the airport site and the Bund Road site for the port. However, the detailed engineering design and further environmental investigations revealed that the Bund Road site was unsuitable because (i) the soil and geotechnical characteristics make it prone to flooding and unsuitable to support buildings and warehouses at 24

29 reasonable cost; and (ii) this is a potential "RAMSAR" site. Consequently, the Bund Road site has been dropped from the Project. During the operations phase, the environmental impacts will depend on the kinds of economic activities carried out in the FZ. Since these activities have not been defined, the EIA carried out a broad generic assessment of a range of activities, such as food and fish processing, electronics/assembly, cotton spinning, and wood furniture making. 5.2 What are the main features of the EMP and are they adequate? Although only EA related to both airport and Bund Road sites, the ESMP only focuses on the airport because the Bund Road site development has been dropped during project preparation for the reasons explained above. The revised ESMP includes a summary, in matrix format, of the environmental and social issues related to the development of the airport site and the mitigating measures. To facilitate implementation of the ESMP, the impacts and mitigation measure have been separated for (i) the construction phase; and (ii) the operations phase, and the responsibility for each measure has been clearly assigned. For the construction phase, there will be many common impacts and mitigation measures, which will be implemented through contract clauses. For the operations phase, a standard format and guidelines for completing activity-specific EIAs and EMPs has been defined. At minimum, the ESMP will provide sample guidelines from the World Bank Pollution Abatement Handbook on potential activities. 5.3 For Category A and B projects, timeline and status of EA: Date of receipt of final draft: 08/2001 Both the EA and ESMP have been published in The Gambia and at the Infoshop in September How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? The Gambian Government is strongly committed to protecting its environment. During the preparation phase of the Gateway Project, several workshops were held to present and discuss with all stakeholders the findings of the preparation studies. (See paragraph 5.1) 5.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environment? Do the indicators reflect the objectives and results of the EMP? The National Environment Agency (NEA) has been designated to monitor, in close coordination with the GIPFZA, the Project's overall impact on the environment. Central to this assignment is the safeguarding of environmental and social concerns. A Memorandum of Understanding will be signed between the NEA and GIPFZA to state clearly the role of NEA during the project processing cycle and the relationships of the agency with GIPFZA. This role will lie in assessing, 25

30 controlling, and enforcing that all activities related to the Gateway Project are environmentally and socially sound. To this effect, the NEA will require the capacity to review all proposed activities, assess all potential environmental and social impacts, liaise and coordinate with other authorities with responsibilities in the relevant areas and subjects, and issue specific measures to promoters of proposed activities to prevent or reduce negative impacts. Furthermore, it will require the capacity to monitor the effects of on-going activities and the effectiveness of the ESMP. Another basic principle in the ESMP is that of having the polluter pay for environmental and social degradation or problems the activities may cause. This includes not only the off-setting, remedying, or prevention of negative impacts but also to contribute to whatever is required to analyze, study, and monitor possible impacts on the natural and social environment. 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. The EA study indicated that there are no known squatter or relocation issues, nor are there any known threatened archeological or cultural resources in the project area. Other social issues, such as increased traffic and socially transmitted diseases, are considered minimal. The ESMP includes standard procedures to identify and mitigate any potential effects over and above those identified in the EA study. These include "chance find" procedures in respect to archeological or cultural resources, as well as procedures to deal with unforeseen resettlement needs. The main social benefits will include increased employment and revenue, as well as improved future earning power from training. Secondary effects will include stimulation of spin-off services and businesses, and the general uplifting of the local economy through forward and backward linkages. Improved infrastructure will also bring about improved housing and sanitation conditions for FZ workers. 6.2 Participatory Approach: How are key stakeholders participating in the project? The project preparation studies (feasibility study, engineering design, Environment Impact Assessment) have been supervised by a Project Task Force Committee housed in the DOSTIE that includes representatives from (i) governmental agencies (DOSTIE, NEA, GCAA, DOSFEA); (ii) public enterprises (GPA, GAMTEL); and (iii) the private sector (Chamber of Commerce, Jimpex). The task force has discussed and finalized the terms of reference for these studies, and has participated in the finalization of the project design, the contents of each project component, project phasing, financing, the triggers, and performance indicators. As part of project preparation, 120 participants from both the public and private sectors gathered at a first public seminar in April 1999 to present Government strategy towards the development of Free Zones in the Gambia. A second workshop was held in June 2000 to present the main findings of the updated feasibility study carried out in 1994 and to reach consensus on the Project's rationale and design. 26

31 Project design also integrates the concerns and prospects of the local and foreign private sector in The Gambia through several meetings of the Project Tearn with this sector during preparation missions. The Project will provide the infrastructure to facilitate investment and a competitive incentive package, as well as the reforms that will be implemented in the port and airport, and the creation of the one-stop shop will streamline trade and enterprise creation, thereby responding to the issues raised by investors. In regard to the investors' other concern - high interest rates - the Project will work in close coordination with the IMF Program. Finally, given the sensitive nature of environment in The Gambia, the Project has been designed in close coordination with both the National Environment Agency and the Department for Forestry and Natural Parks, and addresses the concerns of these departments. 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? See para. 5.4 above 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? As noted in 6.1, the ESMP has indicated that there are no major social issues associated with the development of the airport Free Zone site. Social development outcomes, mainly increased employment, will be implemented through the contractors, developers, and investors. Preferences for local employment are generally expressed in contract documents and agreements with the developers. 6.5 How will the project monitor performance in terms of social development outcomes? Social development outcomes, mainly increased employment, will be monitored through the Monitoring and Evaluation Program managed by GIPFZA. 7. Safeguard Policies: 7.1 Do any of the following safeguard policies apply to the project? Policy Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) Natural Habitats (OP 4.04, BP 4.04, GP 4.04) Forestry (OP 4.36, GP 4.36) Pest Management (OP 4.09) Cultural Property (OPN 11.03) Indigenous Peoples (OD 4.20) Involuntary Resettlement (OD 4.30) Safety of Dams (OP 4.37, BP 4.37) Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60)* Applicability Yes Yes No No No No No No No No 27

32 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. The ESMP was conceived on the basis of a close interaction of the implementing agency, GIPFZA, and the National Environmental Agency, NEA. The approach will be to mainstream within GIPFZA the basic procedures to ensure compliance with the applicable safeguards, with the technical collaboration and regulatory and enforcement support of the NEA. This will be implemented through a Memorandum of Understanding to clarify the specific arrangements regarding procedures, timeframes, and mutual requirements. In particular, it will frame the supervisory and control function of NEA in regard to the ESMP, while the implementation of the ESMP will lie with GIPFZA. In addition, the Department of Water Resources (DWR) will provide technical support to the NEA in the way of water quality monitoring. To this end, NEA and DWR will sign a Memorandum of Understanding. The NEA will play a critical role in guiding GIPFZA and individual promoters with environmental and social safeguards; in this sense, their role will also be one of service provided to developers. The Project, through technical assistance and training in environmental and social management, will assist both the NEA and GIPFZA to fulfill this role. F. Sustainability and Risks 1. Sustainability: The Project is expected to have a lasting impact on The Gambia's economic development by reducing the high cost of doing business and increasing The Gambia's competitiveness in global markets. It will do this through (i) the reform of the legislative, regulatory, and incentive systems in "front-line" areas; (ii) institutional strengthening and capacity building, including skills development in key areas; (iii) development of new instruments to increase availability of knowhow and financing, such as franchising and PPI; and (iv) country promotion and consensus building. Although the Free Zones could be built successfully and the capacity building objectives could be achieved, other problems beyond the scope of the Project could handicap the FZs from attaining commercial success, such as global economic recession, social unrest, etc. Hence, it is important to view this Project as one that removes constraints and creates leverage for the Government to implement reforms in related sectors, and its success should be evaluated on that basis. From the environmental point of view, the Project will incorporate the findings and proposed mitigation measures from the Environmental Impact Assessment Study and Environment and Social Management Plan as integral parts of its implementation program. To ensure the environmental sustainability of the Project, guidelines for developers and operators will be developed, and periodic environmental assessments and audits will be conducted for quality assurance. 28

33 The Project will be sustainable if: * The Government remains committed to its macroeconomic reforms to ensure macroeconomic stability, protecting investors from inflation, exchange rate, and interest rate risks. * The Government is able to implement its divestiture strategy. * The Government is able to create a friendly political environment to attract foreign investors and propose attractive incentives to find world renowned developers and operators for the Free Zones. * The institutionalization of a healthy public-private sector dialogue leads to mutual cooperation and partnership. 2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1): Risk Risk Rating Risk Mitigation Measure From Outputs to Objective Private sector investors do not respond to M A mid-term review will be conducted during the improved institutional framework and first phase to assess the responsiveness of incentives. investors and take corrective action. Political or administrative interference in H As specified in the Gambia Investment GIPFZA management. Promotion and Free Zones Act 2001, the Board of the GIPFZA includes three members (out of a total of seven) from the private sector. The Act also provides a clear statement of the GIPFZA duties and limits the role of Government in its management. Lack of commitment of the DOSFEA to S The proposed rating is justified by the potential modernize the Customs & Excise resistance to change that the Customs & Excise Administration. Department may demonstrate during project implementation. This possible resistance could be addressed through the on-going customs modernization program. Resistance to long-distance M The Gambia Investment Promotion and Free telecommunications liberalization for the teleport services. Zones Act 2001 formally authorizes telecommunication and information technology related services within Free Zones. From Components to Outputs Delays in project implementation due to M Training and technical assistance components are weak capacity. aiming to build the capacity of the public sector involved in the project implementation. GOG counterpart funds unavailable. M The contribution of the Government is limited to a maximum of 12 percent of the total project cost. Overall Risk Rating M Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk) 3. Possible Controversial Aspects: The extensive consultations done during project preparation confirmed that the Project does not present any significant controversial aspects. 29

34 G. Main Credit Conditions 1. Effectiveness Conditions: * The subsidiary agreement has been executed on behalf of the Borrower and GIPFZA. * The Borrower has caused GIPFZA to appoint an independent auditor, with qualifications and experience that are acceptable to the association. * The Borrower's project account has been opened and the initial contribution deposited. * The Borrower has adopted the Project Implementation Manual in a form and substance acceptable to the association. * The Borrower has caused GIPFZA to establish an accounting and financial management system satisfactory to the association. * The Borrower has finalized the bidding documents for all procurement of goods, works, and services to be carried out in the first year of the Project. * The Borrower has enacted and passed into law the Regulatory Agency Bill. 2. Other: [classify according to covenant types used in the Legal Agreements] Board conditions Government Private Sector Policy Letter signed. Other conditions: During project implementation * The Borrower shall appoint and maintain throughout project implementation, a project coordinator, with experience and terms of reference satisfactory to the association. * The Borrower shall cause NEA to enter into a MOU with GIPFZA, under terms and conditions that are satisfactory to the association, setting forth their respective roles in the environmental management of the Project. * GIPFZA and the Borrower shall apply the criteria, policies, procedures, and arrangements set out in the PIM and the ESMP. * GIPFZA and the Borrower shall maintain throughout the implementation of the Project, a PCC which shall be responsible for providing strategic advice on project implementation. H. Readiness for Implementation 0 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. [1 I.b)Not applicable The procurement documents for the first year's activities are complete and ready for the start of project implementation. H 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. O 4. The following items are lacking and are discussed under loan conditions (Section G): 30

35 1. Compliance with Bank Policies I1 1. This project complies with all applicable Bank policies. Cl 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. hel Audi Ma Pes is-fraissard omclntire am Leader Se crmar ager/director untry Manager/Director 31

36 Annex 1: Project Design Summary THE GAMBIA: GATEWAY PROJECT Hierarchy of Objectives Key Performance Indicators Data Collection Strategy Critical Assumptions Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission) Rapid, broad-based, Macroeconomic statistics Macro accounts 1. Efficient allocation export- oriented and on growth of GDP, Statistics from the of public resources to sustained growth exports and employment. DOSTIE social sectors. (Attachment 1II, p. 1, 2. Backward CAS, August 6, 1998) industrial linkages in rural areas Program Purpose: End-of-Program Indicators: Program reports: (from Purpose to Goal) To enable the Gambia to 1. Export earnings are 1. Macro Accounts 1. Steadfast establish itself as a increased by 10%. 2. GIPFZA annual commitment of GOG globally competitive (Baseline = $20 m) reports to private sector export and processing 2. Private investment 3. Government growth strategy center. share of GDP is increased statistics Phase 1: : Establish a by 8% 4. Detailed Trade favorable business (Baseline = $20 m). statistics environment and launch an operational Free Zone (FZ) Phase 2: Consolidate FZ functions and financing and deepen production linkages with local economy 32

37 Project Development Outcome / Impact Project reports: (from Objective to Objective: Indicators: Purpose) Lay the foundation for Private investment: 1. Government Transparent and expanded private I. The number of licenses statistics efficient judicial investment, export delivered by GIPFZA 2. Detailed trade system for oriented production and during the period statistics commercial issues. employment through the 2006: 5 licenses a year. Independent social establishment of Free 2. The creation of at least impact assessment Zones and an improved 20 new firms. 3. GIPFZA annual institutional environment. Export oriented reports production: 4. Independent 3. The achievement of Assessments annual ton and value targets for the FZs. Employment: 4. The creation of at least 4,000 direct and indirect new jobs. Institutional environment: 5. Average process time to create new enterprises is reduced to 4 weeks. 6. Average customs clearance time for FZ related cargoes is reduced to 1 day. Output from each Output Indicators: Project reports: (from Outputs to Component: Objective) Component A: Physical Operational FZ: Project Coordination Local and foreign Investment for a new A. 1 Key infrastructure at and GIPFZA annual private sector Free Zone at the airport: the Airport site is reports responds to improved An operational FZ is completed and equipped. institutional established at the airport. A.2 10 ha cumulated framework and surface lands leased for incentives. the period There is no political A.3 Establishment of or administrative privately-financed interference in teleport services. GIPFZA Foundation for future management. laid: Strong commitment A.4 FZ Master Plan is of the DOSFEA to completed. modernize the Customs Administration, and support from the Technical Divestiture Agency. 3

38 Component B: GIPFZA promotes trade: GIPFZA Reports Long distance Establishment of an B. I Market surveys and Periodical interviews telecommunications Investment Promotion Market Plan carried out. with operators and liberalized for the and Free Zone Agency B.2 Design of Interface developers. teleport services. (GIPFZA): The GIPFZA River Free Zones, progressively becomes a including engineenng self-sustaining entity and design, bidding effectively plays its role documents, economic and as promoter of trade and environmental studies. manager of the FZs. GIPFZA1 is selfsustaining: B.3 Management Plan for GIPFZA is completed and implemented. B.4 Annual GIPFZA turnover targets achieved. B.5 The GIPFZA operating costs are covered by its revenues in Improved support services: B.6 Quality management audit of Customs & Excise Department completed and recommendations are implemented. Component C.: Support to Privatization: Annual reports from the the Gambia Divestiture C.1 Divestiture of Track I GCAA, GIA, GPTCand Agency: Major Gambian Public Enterprises GPA companies are divested. (transport and telecom) are Independent assessment carried out. reports. C.2 Divestiture of Track II Public Enterprise are carried out. Component D: Capacity - Improved capacities: Project Coordination Building. Capacity of D. 1 Number of enterprises and GIPFZA annual stakeholders to promote, or entrepreneurs trained for reports. facilitate and engage in the period Initial training needs trade is strengthened. D.2 Number of staff trained assessments. Capacity of GDA to divest from: GIPFZA, GDA, and List of trainees. and regulate is also strengthened other public and private stakeholders. Independent training audits to assess skills D.3 Increased capabilities attained vis-a-vis initial as measured in training goals. audits. 34

39 Component E: Project and Coordination: Project Coordination and Environmental E. I Regular NEA Reports. Management: Project disbursements and proper Environmental components are coordinated accounting of project assessments, and social and components. Environmental environmental mitigation is Environmental Management Plans and effectively carried out. mitigation: EMP reports E.2 Environmental assessments completed and mitigation measures implemented Key Performance Hierarchy of Objectives Indicators Data Collection Strategy Critical Assumptions Project Components I Inputs: (budget for (from Components to Sub-components: each component) Project reports: Outputs) Component A: Physical A. US $ 5.3 million 1. Supervision missions, No significant delays in Investmentfor a new Free GIPFZA progress reports, the project Zone at the airport consultant's report, project implementation due to A. I FZ Infrastructure mid-term review local weak capacity and A.2 Common user facilities experience. and utilities GOG counterpart funds are available. Co-financing funds available for the onestop-shop building. Component B: B. US $5.1 million 2. Supervision missions, Establishment of an GIPFZA progress reports, Investment Promotion and consultant's report, project Free Zone mid-term review Agency(GIPFZA) B. I GIPFZA Operational Support B.2 Technical Assistance to GIPFZA B.3 Market Surveys and Marketing Plan B.4 Investment Promotion (consultancy) B.5 Studies Component C: Support to C. US $ 1.8 million 3. Supervision missions, the Gambia Divestiture GIPFZA progress reports, Agency consultant's report, project C. I Divestiture Support mid-term review C.2 Divestiture Safeguarding and Monitoring C.3 Divestiture Consensus Building 35

40 Component D: Capacity - D. US $1.2 million 4. Supervision missions, Building GIPFZA progress reports, D. 1 Training for consultant's report, project Stakeholders (GIPFZA) mid-term review D.2 GDA Capacity- Building D.3 Regulatory and institutional setup for Divestiture D.4 Training for the PCU Component E: Project and E. US $0.9 million 5. Supervision missions, Environmental Management GIPFZA progress reports, E. I Project Management consultant's report, project E.2 Environmental and mid-term review Social Management (GIPFZA) Contingencies F. US $ 1.9 million Reimbursement of PPFs G. US $1.9 million Total Proiect Cost US $18.1 million 36

41 Annex 2: Detailed Project Description THE GAMBIA: GATEWAY PROJECT By Component: Project Component I - US$5.35 million A. Physical Investment for a new Free Zone at the airport This component has only one sub-component: (A. 1) FZ infrastructure. A.l FZInfrastructure (US$ 5.35 million) This sub-component has five items: (i) Enabling works at the airport; (ii) Fencing and access roads; (iii) Common utilities (energy, water, telephone); (iv) Common users warehouse; and (v) Consulting services for supervision of works. (i) Enabling works at the airport. The enabling works will prepare the site for civil works. They include removing trees as well as leveling the soil at the site. (ii) Fencing and access roads. The fencing will delimit the Free Zone area and will allow customs to control the transfer of goods between the Free Zone, the port, the airport, and the local economy. The access roads will allow linkage of the GIPFZA headquarters with other buildings, such as warehouses. In addition, the roads ensure that the Free Zone is linked with the airport and the port to allow transportation of goods and products. (iii) Common utilities. This will include power, telephone, water, and sewage. The Project will finance the installation of these utilities inside the Free Zone and the connection of these utilities to the outside. (iv) Common users warehouse. The Project will finance a common user warehouse at the airport site. It will be used by the first operators that obtain their licenses to operate who do not want to build their own warehouses. The leasing rates proposed to those operators will be commercial. By building these warehouses, the Government will send a clear signal to private developers about its commitment to develop Free Zones, giving them an example to follow. (v) Consulting services for supervision of works. Consultants will be recruited to ensure adherence to international standards. Project Component 2 - US$5.10 million B. Establishment of an Investment Promotion and Free Zone Agency (GIPFZA) This component will contain the following sub-components: (B.1) GIPFZA operational support; (B.2) Technical assistance to GIPFZA; (B.3) Consulting services to complete and implement 37

42 market surveys and a marketing plan; (B.4) Consulting services to promote investment; and (B.5) Various studies related to facilitating trade. B.I GIPFZA Operational Support ($1.4 million) In the years immediately following its creation, GIPFZA will most likely not have enough revenues from licensing fees and land leasing to cover its marketing and operational expenditures. In addition, GIPFZA will act as an implementing agency for the Project, which will probably result in a negative cash flow in the initial years. To enable GIPFZA to establish itself during this period, the Project will finance its operating costs during its first five years of operation. These operating costs will include: * Salaries and travel allowances of GIPFZA staff incurred in carrying out the Project, but excluding salaries of the Borrower's civil servants * Office supplies and rent * Utilities costs that include costs for power, telecommunications, and water * Fuel, vehicle maintenance * Insurance * Audits * Investment promotion expenses. Additional operational support will be provided through the hiring of a legal advisor and the development and maintenance of a website. B. 2 Technical assistance to GIPFZA ($1.8 million) A highly qualified consulting firm will provide GIPFZA with both short- and long-term technical assistance. Short-term assistance will mainly consist in helping GIPFZA to build its business plan, which will identify strategic directions for the GIPFZA over a seven-year period. This business plan will be accompanied by a financial analysis, which will estimate annual revenues and expenditures, and justify the choices and recommendations. It will also focus on the backward linkages between the Free Zones and the Gambian private sector. In the long run, the emphasis will be on transfer of "know-how" and assistance to GIPFZA management. B. 3 Market surveys and marketing plan ($0.3 million) The Project will finance market surveys that assess the needs of international investors, identify interested operators and developers, and propose tailored products to attract investment in The Gambia. Using the recommendations of the market surveys, the GIPFZA will design and implement an international marketing plan to promote The Gambia as a favorable place for investment through the Free Zones and incentive packages. As part of this endeavor, a brochure will be prepared and sent to targeted potential investors, followed by an intensive marketing campaign by mail, phone, or direct meetings. Visits will be organized for investors willing to visit the Free Zones. 38

43 B.4 Investment promotion-consultancy ($0. 7 million) The Project will finance consultants to help prepare promotional materials and fairs in The Gambia or abroad. B. 5 Studies ($0. 9 million) The Project will finance studies related to GIPFZA's missions. Design of the interface River - Free Zones. The idea of creating an interface between the Free Zones and the Gambia River was formnulated in the feasibility study as a way to create business opportunities for poor farmers upriver, by linking them through the river to the agro-products exporters of the Free Zones. On the other hand, it is unlikely that investors in this kind of business can be attracted during the first years of the Free Zones. Therefore, the first phase will carry out the economic/financial viability analysis as well as the engineering design study. Terms of reference for these studies will be prepared by the GIPFZA and approved by the Bank. Consultants will be selected following World Bank guidelines. Upon successful completion of the studies, implementation will be carried out during APL 2. Trade and facilitation survey. This audit will examine and evaluate obstacles to cross-frontier movement of a routine consignment and its associated payment. It will follow World Bank/IECC (International Express Carriers' Conference) Facilitation Audit Methodology as described in Trade & Transport Facilitation - An Audit Methodology by John Raven, Quality management systems audit at the Customs & Excise Department. Using quality management systems principals, the audit will focus on establishing the Customs & Excise Department's (CED) role as a trade facilitator, and propose changes in regulations, operational procedures, and human resources to achieve the CED's revised role. The QMS principles are internationally accepted and can be certified using International Standards Organization certification procedures (ISO 9000). Project Component 3 - US$1.80 million C. Support to the Gambia Divestiture Agency This component will support the Government's agenda for privatization. It will include three sub-components: (C. 1) Divestiture Program; (C.2) Divestiture safeguarding and monitoring; and (C.3) Divestiture consensus building. C. I GOG Divestiture Program ($1. 0 million) Under the Gambia Divestiture Act 2001, the Government has set the goal of divesting fifteen public enterprises (PEs). The enterprises fall into two categories, Track I and Track II enterprises. Track I enterprises are those of key importance to the economy. Track II enterprises are other Government equity investments that can be divested without the need of legislative or regulatory support (beyond a general requirement to try to ensure effective competition). 39

44 Activities to be financed under this sub-component would be related to (i) financial and technical assessment of Track I PEs in transport and telecommunication; (ii) divestiture of Track I PEs in the transport and telecommunications sectors; and (iii) Divestiture of Track II PEs. C 2 Divestiture safeguarding and monitoring ($0.3 million) To ensure effective implementation of the Divestiture Program, the Project will support divestiture safeguarding and monitoring activities. This will include design work to establish a retrenchment and social safety net framework, and an environmental audit of PEs to be divested. C.3 Divestiture consensus building ($0.5 million) The Project will finance the services of specialized communication consultants to design and implement the communication campaign, including dissemination of privatization investment opportunities at home and abroad. It will also contract out independent consultants to canry out qualitative research on public opinion on privatization in The Gambia. In addition, the development and maintenance of the GDA website will be funded. Project Component 4 - US$1.20 million D. Capacity Building This component will include the following items: (D.1) Training for stakeholders under the mentorship of GIPFZA; and (D.2) GDA capacity building. D. I Training for stakeholders ($ 0.4 million) The GIPFZA will be responsible for the following activities: * Granting licenses to operators and investors willing to invest in the Free Zones * Regulating activities and operations in the Free Zones * Promoting The Gambia as a preferred location for international investors * Helping local and foreign private investors in their application process through the one-stop shop. To accomplish these missions, the GIPFZA will need to strengthen its technical expertise in regulation, marketing, and management. Although key members of the agency will be competitively selected based on technical qualifications, the Project will provide targeted training to sharpen their capabilities to accomplish specialized tasks in a world-class competitive environtrent. Moreover, because customs procedures play one of the most important roles in the success of Free Zones, customs procedures and transactions may be computerized and streamlined, and management systems may be introduced, with ISO 9000 certification targeted for the medium term, following the QMS audit of CED. The Project will provide training funds for CED staff to eventually support these management reforms and assist the department to assume its new role. 40

45 Other public and private stakeholders may benefit from trainings if such needs arise during project implementation. The Project supervision and coordination unit will be housed in the DOSTIE. Implementation will rest within GIPFZA and GDA. Key staff of this Department of State and agencies will be trained in order to ensure adequate financial, procurement, disbursement, and management of the Project. D. 2 GDA Capacity building ($ 0.8 million) Capacity building and training of staff are at the core of GOG's strategy to develop local expertise and ensure the sustainability of reforms. The Project plans to sign a time-based service contract with a consulting firm, which will provide expertise to GDA as needed. Training will cover financial and business analysis, divestiture techniques, private participation in infrastructure, and public services. Training will also cover promoting privatization and World Bank procurement and financial management. The Project will finance special training/study tours for stakeholders and policy makers on specific program elements. Because of the importance of these enterprises to the economy, Divestiture of Track I PEs will require legislative support to facilitate transactions (e.g., preparation of sector legislation and regulations, and the setting up of a multi-sector regulatory institution). This sub-component will finance the set-up of this support. Project Component 5 - US$0.90 million E. Project and Environmental Management This component will include the following: (E. 1) Project management; and (E.2) Environmental and social management. E. I Project management ($0.2 million) This component will finance all costs related to project coordination in the DOSTIE. E. 2 Environmental and social management ($0.7 million) The proposed Project is rated Environmental Category A. In conformity with Bank guidelines, an Environmental Assessment has been canied out by the consulting company Ecolas, financed by the PHRD grant from Japan. The EA has identified environmental and social issues related to the FZ site and has recommended measures to be integrated into the Environment Management Plan. These will be implemented during the construction and operations phases of the airport site. Supplemental EA and resettlement plans will have to be undertaken for the River Free Zones, to be identified during APL 1, as well as for other Free Zones created under the provisions of The Gambia Free Zones Act Since many of the economic activities in the airport FZ are 41

46 yet to be identified, the periodic environmental and social assessments will also include activityspecific EMPs, as they are identified. This sub-component thus involves two activities: (a) Periodic environmental and social assessments. In order to ensure the environmental and social sustainability of the Project, an independent consulting firm will carry out annual audits. The consulting firm will identify and assess the importance of, and recommend environmental mitigation related to (i) all negative trends in pollution patterns caused by Free Zones development and operations, and (ii) all social effects of the development of the Free Zones. These recommendations will be an annual update of the ESMP for each FZ, and will be transmitted to the GIPFZA, which will establish and enforce environmental regulations and procedures within the Zones. (b) Environmental mitigation measures. The Project will fund environmental mitigation measures in the initial and annual ESMP updates, which will include (i) mitigation measures related to the development of the airport FZ site, and eventually the development of River Free Zones; and (ii) industry and site-specific mitigation measures related to the installations within the FZs. 42

47 Annex 3: Estimated Project Costs THE GAMBIA: GATEWAY PROJECT Local Foreign Total Project Cost By Component US $million US $million US $million A. Physical Investment for a new Free Zone at the airport B. Establishment of an Investment Promotion and Free Zone Agency (GIPFZA) C. Support to the Gambia Divestiture Agency (GDA) D. Capacity-Building E. Project and Environmental Management Reimbursement of PPFs Total Baseline Cost Physical Contingencies Price Contingencies Total Project Costs Total Financing Required Local Foreign Total Project Cost By Category US $million US $million US $million Civil Works Consultants Goods Training Operating Costs PPF Contingencies Total Project Costs Total Financing Required lidentifiable taxes and duties are 0 (US$m) and the total project cost, net of taxes, is (US$m). Therefore, the project cost sharing ratio is 88.25% of total project cost net of taxes 43

48 Annex 4: Cost Benefit Analysis Summary THE GAMBIA: GATEWAY PROJECT Background 1. The Free Zones (FZs) derive their competitive position from two main factors: (i) the quality of the service delivered; and (ii) the sectoral focus of the development. The Zones will offer facilities at competitive prices but, more so, will offer the best quality of personal service to potential investors in the region and worldwide. This service delivery will be enhanced by the sectoral focus adopted by the Zones, which will concentrate on four key areas: Promoting tourism Niche manufacturing for fresh food and agribusiness products Regional trade in West Africa International services. 2. Tourism is an important industry in The Gambia. Revenues from tourism contribute about 12 percent of GDP. Further development of the tourism industry will also support the development of the airport activities and critical air-links, and therefore support the growth of The Gambia as an international trade and business center. The industry will also strengthen the domestic food and agribusiness industries, which themselves can form the base of export manufacturing industries in the country. 3. The Free Zones will promote niche manufacturing industries, which will add value to products destined for the region and Europe, although a main goal is to stimulate industries that export products to developed markets. Food and horticulture are the key areas targeted here. 4. The Gambia is already a good trade and services center. The Zones will support the development and growth in trade services, although the strategy will also seek to use the trading business as a foundation for building value-added businesses. Another related goal is to shift the local services culture to one focused on international trade with developed and regional markets. 5. Teleport services would be a key support to the regional and international trade industry. These services are potentially profitable, since a small number of jobs and investments can generate a positive internal rate of return, and the accessible market is large and growing. Based on this, a private sector investor might be selected to provide such services. Summary of Benefits and Costs: 6. Three main benefits and two types of costs have been identified: Benefits: (i) Foreign exchange earnings/value added of exports. Public discussion of FZs places considerable stress on foreign exchange earnings derived from the Zones, reflecting the presumption that these earnings are directly relevant to the welfare of the host country. In fact, the foreign exchange earnings of foreign-owned firms in the FZs merely constitute transactions 44

49 between these finns and firms abroad. They therefore have marginally direct effects on the economic welfare of host country nationals, except for the money converted into domestic currency to be spent on wages and purchases from the local economy. On the other hand, the limited sale of Free Zone goods in the local market will save foreign currency up to 20 percent of the production, as per the GIPFZ Act The host country will receive a net benefit from these purchases and sales, and these benefits have been quantified in this economic analysis to represent foreign exchange earnings by using value added of exports. (ii) Employment generation. It is estimated that about 1,000 direct jobs will be created from 20 firms within 5 years This assumption is reasonable and has been used as the base case scenario. In 15 years, it is estimated that about 3,000 direct jobs will be created in FZs. A secondary effect is expected in employment generation that will create indirect jobs from activities in the periphery of the FZs. As a basis for this assumption, the following infonnation was collected during appraisal: - Radville Farm (export fresh fruit and vegetable to the UK market), direct jobs average 450 (500 and 700 at peak period - i.e., between September and May). Indirect jobs 1,500; - Prince Agro Oil (export of peanut oil and peanut cake), direct jobs 45 and indirect jobs 150. These indirect jobs have been estimated at three times the total jobs created in the FZs (see table below). Most governments' concern is to create jobs through the FZs, reflecting the view that the social benefits of creating additional jobs outweigh the costs. This implies that the wage received by a worker exceeds the opportunity cost of employment in the Zones. It is difficult to measure the relevant opportunity cost because wages in the Zones tend to be higher than comparable employment outside the Zones. This benefit was therefore not included in the cost-benefit analysis. Estimated jobs generation: 5 years 15 years Direct 1,000 3,000 Indirect 3,000 9,000 Total 4,000 12,000 (iii) Technology transfer. FZs usually involve labor-intensive production and thus promote technology in the host country. This is probably the most important externality that comes with the presence of the FZs. In the long run, the "learning by doing" mechanism will come into play through the "catalytic effect" that will prompt gains in managerial practices and notions of quality control among local middle managers employed by the FZs firms. This is expected to increase productivity and efficiency in domestic firms, which would otherwise have not improved without the influence of the FZs. This benefit is difficult to measure and thus was not included in the present cost-benefit analysis. 45

50 Costs: (i) Infrastructure costs: Public expenditures required to set up the Zones are a clear economic cost. Therefore, the off-site infrastructure investment costs will be included as the major costs for the FZs project. (ii) Administrative costs: The establishment, maintenance and administration of the Zones sites are all economic costs, and in principle should be evaluated at shadow prices. In the absence of data, the financial costs will be used. Main Assumptions: 7. Simple assumptions were necessary to carry out the economic analysis, and efforts were made not to overestimate social profitability of the FZs. The assumptions used in the analysis include: (i) The Government of The Gambia is committed to the Project and the continued improvement of the macroeconomic environment, including the implementation of its divestiture plan. (ii) The targeted markets (or market niche) remain open for export. (iii) Gross revenues in the tourism sector increase by 5 percent from 2002 to 2007 and 4 percent afterwards. (iv) The international freight rates and handling charges do not increase significantly to make exports unprofitable. (v) The export value added is estimated to be between percent of total value of export sales. (vi) The FZs firms will export between 80 and 100 percent of their production. (vii) The opportunity cost of capital is set at 12 percent, a rate frequently used in the region. Results of the cost-benefit analysis 8. The financial cost of the project is US$18 million, net of monetary depreciation and physical contingencies. The estimate of economic cost is US$16 million (about 10 percent less than the financial cost, based on the observations of similar projects in the sub-region). As indicated in the table below, the final economic results are represented by the net present value calculations. The results show that the overall project can be strongly justified in NPV and ERR. The cash flow was developed for the whole project and not per component. This was mainly because it is difficult to quantify the indirect benefits that would have been derived from the capacity building component. However, in order to take into account the significant resources expected to be diverted from other economic activities into the FZs, the benefits have been reduced by a factor of two-thirds. This reflects the social opportunity costs of these resources. These figures are, however, probably extremely conservative since many other benefits have not been quantified (see point 6 above). 46

51 Economic Analysis Summary (all fiaures in US$ millions) Financial Costs (w/t cont.) Economic Cost Net Economic Benefits Tourism Manufacturing and Agro-process Net Economic Benefits Benefits minus Costs Financial Costs (w/t cont.) Economic Cost _ Net Economic Benefits Tourism Manufacturing and Agro-process Net Economic Benefits EIRR = 21.2% Benefits minus Costs Based on these assumptions, the project benefit results in an ERR of 21.2 percent in the base case, with NPV of US$9.7 million, which compares favorably with the rates of return for successful FZs elsewhere. (The IRR on Penang FZ firms [Malaysia] is 28 percent, 26 percent in Indonesia, 23 percent in Shenzhen [China], 15 percent in Korea and -3 percent in Philippines. The ERR of Kenya FZ was 18 percent. Source: World Bank.) Sensitivity analysis / Switching values of critical items: 10. Sensitivity analysis was carried out with the following assumptions: - Tourism Growth Rate without project: normal distribution with a mean at 1 percent and a standard deviation of 1 percent. This reflects the potential for The Gambia to have a slow but steady development of its tourism industry. - Tourism Growth Rate during project: normal distribution with a mean at 5 percent and a standard deviation of 3 percent. 47

52 - Number of new FZ-related businesses each project year ~~~~~~~~~~~~~Z o > 0.1 ~~~~~~~~~~ , Now businesses in 2003 New businesses In 2004, 2005, 2006, 2007 Average Manufacturing Net Value per business: Normal distribution with a mean of $250,000 and a standard deviation of US$50,000 Manufacturing Growth Rate after the project (2008 onwards): Normal distribution with a mean of 8 percent and a standard deviation of 5 percent. This takes into account the uncertainty surrounding further development of Free Zones, as well as the internal growth of existing businesses. Based on these assumptions, 10,000 trials have been computed using the Monte-Carlo methodology. This computation has resulted in the following frequency chart: Foreast EIRR baseline It indicates that, with the assumptions 9,973 Trials Frequency Chart 113 Outliers made, there is a quasi certainty that the Project will have a positive EIRR ( ,, percent) and a 80.9 percent chance that the D0 1 l n Project turns out to have an EIRR of more.011 l than 10 percent. a. ~~~~~~~~~~Rank correlation coefficients (number.om ibll 11 l between and +1.00) also give an.1.1% 7.4% 15.8% 24.3% 32.7% interesting sense of what will be the key Certainty is0.85% rom 10.0% to +ntfity % factors in the success of the Project. In our simulation they are the following: Flo Caneluio ra* New businesses in New businesses in New businesses in New businesses in New businesses in Touism Growh Rate whxut prject 0.07 Touism Growth Rate with prqed 0.25 Average M3lurncuuing Net Value per business 0.43 lmuricturing GroAM Rate after the project

53 It clearly indicates how important GIPFZA's performance will be during its first years, both in terms of attracting businesses and in attracting value-adding ones. 11. Teleport. As indicated in the IDI feasibility study, teleport would be a good niche industry for the Free Zone. But it has been decided not to incorporate revenues raised from this activity in the baseline economic analysis of the Project. Indeed, these revenues are highly uncertain, since they may rest on a single operator whose installation in The Gambia depends on a number of factors. However, based on the hypotheses made in the IDI report regarding potential development of teleport activities within the Free Zone, and considering the emphasis that the GIPFZA will probably put on finding a teleport operator, net revenue from this activity has been computed and integrated into the economic analysis. In addition to the above assumptions (Cf. point 10), it has been considered here that there is one chance out of two that a teleport operator will invest in The Gambia. The computation has then resulted in the following frequency chart: Forecast: EIRR 5,000 Trials Frequency Chart 19 Outliers Z,~~~~~~~~~~~~~~~~~~~~~~~~C oil L 00 03% 11.1% 21.8% 326% 43.4% Certainty is 92.58% from 10.0% to tinfinity % The Project naturally turns out to have a much more positive EIRR and a 92.6 percent chance of having an EIRR of more than 10 percent. Rank correlation coefficients again give an interesting view of what the key factors in the Project's success will be: Factor Correlation rank Teleport 0.63 New businesses in New businesses in New businesses in New businesses in New businesses in Tourism Growth Rate without project Tourism Growth Rate with project 0.15 Average Manufacturing Net Value per business 0.33 Manufacturing Growth Rate after the project

54 As already noted, teleport is by far the most important factor in the success of the Project: once attracted, teleport activities are expected to flourish in terms of revenue. As expected, the number of businesses created is also important, but less than the nature of the goods manufactured. Finally, the scope of the synergy with the tourism sector created by the investment promotion may turn out to be of key importance in the Project's success. Main Beneficiaries 12. The main beneficiaries of the Project include three broad target groups: Local population. The Project will lead to a reduction in unemployment by creating job opportunities and by improving the skills and mobility within the labor force. Private investors. Private foreign and domestic investors will benefit through fewer uncertainties and transaction costs associated with doing business in The Gambia, as well as the availability of ready sites for export processing industries and simplified trade procedures. Government of The Gambia. The Project is expected to attract a flow of foreign direct investment that will have a positive effect on the balance of payments. It will also help increase the capacity of government agencies that deal with the private sector. Conclusion 13. The general experience in other African countries with FZs has not been encouraging. This is mainly because of (i) frequent political instabilities (e.g., Togo); (ii) unstable macroeconomic environment; (iii) presence of strong labor unions in the Zone that distort the labor costs (e.g., Senegal); (iv) public sector management of the FZs (e.g., Kenya); and (v) cumbersome customs procedures (e.g., Senegal). However, the positive outcome of the on-going Ghana Investment and Trade Gateway Project demonstrates that Africa has the potential to attract Foreign Direct Investments through a well designed policy framework. In addition, The Gambia has a high probability of success because of its political stability, reasonably stable macroeconomic environment, availability of a cheap and large labor force with both skilled and semi-skilled workers, and a private developer to manage the FZs. The private developer is expected to bring along a critical mass of firms to operate in the FZs. The task that lays ahead for The Gambia's Government is to promote the Zones and increase awareness among foreign investors. 50

55 Annex 5: Financial Summary THE GAMBIA: GATEWAY PROJECT Project Components by Year (Base Costs) (US$ '000) Total A. Physical Investment for Free Economic Zone at the airport 1. FEZ Infrastructure Enabling works ,376.8 Fencing & access roads Common utilities ,475.2 Common users warehouse ,229.3 One Stop-shop building Consultant services for supervision of works Subtotal FEZ Infrastructure - 2, , , Equipment for one-stop shop Building _ Subtotal Physical Investment for Free Economic Zone at the airport - 2, , ,346.3 B. Establishement of an Investment Promotion and Free Zone Agency 1. GIPFZA Operational Support GIPFZA Operating Costs Legal advisor Investment Promotion (advertisements, fairs,...) Website development and Maintenance Office Equipment and Vehicles Subtotal GIPFZA Operational Support , Technical assistance to GIPFZA Consulting services for GIPFZA Business Plan Transfer of "know how' Assistance to GIPFZA managenent Management Information System Subtotal Technical assistance to GIPFZA , Market Surveys and Marketing Plan Market Surveys GIPFZA Marketing Plan Subtotal Market Surveys and Marketing Plan Investment Promotion (conailtancy) Studies Design of Interface River-Free Zone Trade & Facilitation Survey QMS Audit at Customs & Excise Department Subtotal Studies Subtotal Establishement of an Investment Promotion and Free Zone Agency , , , ,

56 C. Support to the Gambia Divestiture Agency 1. Divestiture Support Financial and Technical Assessments of track I PEs Divestiture of Track I PEs (transport and Telecom) Divestiture of Track II PEs Subtotal Divestiture Support Divestiture Safeguarding and Monitoring Retrenchment and Compensation Framework Environmental audit of Divested PEs Subtotal Divestiture Safeguarding and Monitoring Divestiture Consensus Building Domestic public consensus building International Privatization Investment Campaign Website development and Maintenance Subtotal Support to the Gambia Divestiture Agency ,803.4 D. Capacity Building 1. Training for Stakeholders (GIPFZA) Training Activities for the Public Sector Training Activities for the Private Sector Subtotal Training for Stakeholders (GIPFZA) GDA Capacity Building Privatization advisors Training on privatization, regilatory issues, sector policy reforms Training ofjudges in commercial and business laws Study Tours for stakeholders on specific program elements World Banles Project Management Subtotal Capacity Building ,234.7 E. Project and Environmental Management 1. Project Management Environmental and Social Management (GIPFZA) Periodic Environmental and Sodal assessments Enviromnent mitigation measures Subtotal Project and Environmental Management F. Reimbursement of PPF 1, ,850.0 Total BASELINE COSTS 2, , , , ,261.1 Physical Contingencies Subtotal Price Contingencies Total PROJECT COSTS 2, , , , ,124.4 Taxes Foreign Exchange 1, , , , ,

57 Procurement General Annex 6: Procurement and Disbursement Arrangements THE GAMBIA: GATEWAY PROJECT The last Country Procurement Assessment Review (CPAR) on The Gambia, carried out in 1998, concluded that policies and procedures governing public procurement in The Gambia needed further revisions. These findings remain valid. Presently, the Government, with the assistance of the World Bank, has embarked on a new reforn of the public procurement system of The Gambia to align it with international best practice. In general, The Gambia's procurement laws and regulations do not conflict with IDA Guidelines, and no special exceptions, permits, or licenses need to be specified in credit documents, since The Gambia procurement practices allow IDA procedures to take precedence over contrary provisions in local regulations. IDA-financed goods and civil works will be procured in accordance with the World Bank's Guidelines: Procurement under IBRD Loans and IDA Credits (January 1995, revised January and August 1997, September 1997, and January 1999). The World Bank's standard bidding documents and bid evaluation report will be used for international competitive bidding (ICB) as well as for national competitive bidding (NCB). National competitive bidding procedures advertised locally will be carried out in accordance with The Gambia's procurement laws and regulations acceptable to IDA, provided that (i) bidders are given enough time to submit bids (at least four weeks); (ii) bid evaluation and bidder qualifications are specified in the bidding documents; (iii) no domestic preference is granted to domestic manufacturers; (iv) eligible foreign firms are not precluded from the competitions; (v) awards will be made to the lowest evaluated bidder in accordance with predetermined and transparent methods; and (vi) bid evaluation reports will clearly state the reasons for rejecting any responsive bid. IDA-financed consulting services will be procured in accordance with the Guidelines for Selection and Employment of Consultants by World Bank Borrowers (January 1997, revised in September 1997 and January 1999). The Standard Request for Proposal (RFP) as developed by the Bank, as well as the sample form of Evaluation Report for the Selection of Consultants, will be used for consultant appointments. Simplified contracts will be used for short-term assignments - i.e., those not exceeding six months, carried by firms or individual consultants. Procurement implementation arrangements Each project component would be implemented by a designated agency that would be primarily responsible for the execution of project activities and for timely delivery of outputs as defined and agreed under the Project Implementation Plan. - GIPFZA will be responsible for all consulting services under Component 2, Component 4.1, and Component 5 with contributions and inputs from the Tenders Board. 53

58 - GDA will handle all consulting services under Component 3 and Component 4.2, with contributions and inputs from the Tenders Board. To avoid delays in the implementation of the Project, and given the limited procurement capacity of the implementing agencies, it was initially proposed to use the services of the local contract management agency (Gamworks), under a single-source delegated contract management agreement, to handle civil works and related consultant services on behalf of GIPFZA. However, at negotiations the Government expressed its desire to maintain the option of hiring a firm on a selective basis should the contract with Gamworks exceed $100,000. This firm would handle the civil works component on behalf of GIPFZA and provide procurement support to each of the implementing agencies. Given the volume of works and the number of consultant contracts envisaged under the Project, particularly in the first year of implementation, the core staff of this firm would include a procurement specialist with extensive knowledge of the World Bank's procurement procedures. The firm would work with each of the implementing agencies under the Project to ensure efficient and timely project execution through compliance with the procurement schedule agreed upon with the Bank. The procurement specialist would (i) update the procurement plan for the Project; (ii) monitor the progress of procurement; and (iii) help the implementing agencies with (a) preparing bidding documents and advertisements for goods and works contracts, and requests for consulting assignment proposals; and (b) bid opening and evaluation. The procurement specialist would also advise the implementing agencies on procedural matters. Procurement capacity assessment A procurement capacity assessment was carried out during the appraisal mission to assess the capacity of the implementing agencies (Gamworks, GIFZA, and GDA). Gamworks has an established experience of Bank procurement, and its capacity was found to be satisfactory (See report in Annex 4). However, given the Government's desire to maintain the option of hiring a firm on a selective basis if the contract with Gamworks does not materialize, the qualifications of this firm would also have to be satisfactory to IDA.. A limited assessment of the newly created GIFZA and GDA showed that these implementing entities needed assistance in the form of (i) training in procurement, especially in the new features of Bank procedures for selecting consultants; (ii) using consultants to assist in procurement; (iii) developing a Project Operation Manual (POM) that ensures adequate coverage of procurement. Advertising The draft General Procurement Notice (GPN) was prepared for the Project and will be finalized and published in Development Business after Board approval. The GPN would be updated yearly and should show all outstanding ICB for works and goods contracts, as well as for international consulting assignments. 54

59 Project Implementation Manual - procurement plan The Government prepared a draft Project Implementation Manual that includes detailed procurement procedures. The draft PIM has been reviewed by IDA and will be finalized before effectiveness. As part of the Project Implementation Manual, the Borrower has prepared a procurement plan. The plan includes relevant information on all goods, works, and service contracts to be carried out under the Project, as well as the timing of each milestone in the procurement process. The procurement schedule would be updated every six months and submitted to IDA. The procurement specialist would monitor the progress of procurement and implementation of each contract under the Project and would ensure effective and timely project execution. The Government gave assurance at the negotiations that it will (i) use the Bank's standard bidding documents for NCB, the standard Request for Proposals for the Selection of Consultants, and the standard Bid Evaluation Report; (ii) apply the procurement procedure and arrangement outlined in these documents; and (iii) update the procurement plan on a regular basis during the annual review with IDA, and compare target times and actual completion, and transmit it to IDA during implementation with all procurement-related documents; and (iv) during annual reviews carry out an assessment of the effectiveness of the bidding procedures and performance as they relate to project procurement experience, and propose for IDA's consideration any modifications to the current procedures that would accelerate procurement while maintaining compliance with the Bank's Procurement Guidelines and adequate contract awards and payments. The PCC will also follow up and monitor the procurement process carried out by the other agencies through the procurement plans. Procurement methods Table A summarized the methods to be used for the procurement described below, and the estimated amounts for each method. The threshold contract values for the use of each method are fixed in Table B. Civil works The project's main civil works component, totaling US$5.71 million, includes roads, buildings, and sewage. Contractors would be selected under international competitive bidding (ICB) procedures. The Bank's standard bidding document - Procurement of Works - would be used for the contracts. Goods and equipment To the extent possible and practicable, goods and equipment to be purchased under the Project would be combined into packages estimated to cost the equivalent of US$100,000 or more and would be procured under ICB procedures using IDA standard bidding documents. Contracts for goods available locally for an aggregate amount of US$100,000, with contracts of more than 55

60 US$30,000 each, would be procured through national competitive bidding (NCB), using procedures acceptable to IDA. Procurement for readily available off-the-shelf goods that cannot be grouped, or standard specifications commodities for individual contracts costing less than US$30,000 - not exceeding an aggregate amount of US$100,000 for the life of the Project - would be procured on the basis of quotations from at least three eligible national suppliers. If these goods are not available in the country, international shopping procedures would apply. Consulting services Selection and appointment of consultants for studies, technical assistance, promotion of the project activities, and support of project execution would be carried out in accordance with the guidelines: Use of Consultants by World Bank Borrowers, January 1997, revised in September 1997 and January 1999 (Consultant Guidelines). As a rule, consultant services would be procured through Quality and Cost Based Selection (QCBS) methodology. All consultancy assignments estimated to cost the equivalent of US$100,000 or more would be advertised in a national newspaper and in Development Business (IJNDB). In addition, the contracts may be advertised in an international newspaper or a technical magazine seeking "expressions of interest." In the case of assignments estimated at less than US$100,000, the assignment may be advertised nationally, and the shortlist may be made up entirely of national consultants, provided that at least three qualified national firms are available in the country, and foreign consultants who wish to participate are not excluded from consideration. Auditors would be selected using least-cost selection procedures. Consulting firms for assignments estimated to cost less than $50,000 may be hired using the Consultant's Qualification (CQ) method of selection. The selection of individual consultant services for small studies and other assignments will be based on a comparison of curriculum vitae in accordance with paragraphs 5.1 through 5.3 of the World Bank Guidelines for Selection and Employment of Consultants. The services to be provided for the contract management services on behalf of GIPFZA, estimated to cost less than US$100,000, will be carried out using single-source selection. For any contract above US$100,000, a competitive selection process will have to be used. Investment promotion The Project provides US$0.5 m for promoting investment, and the Borrower has prepared a program of promotional activities to be carried out under the Project. The program would indicate the nature of the promotional activity, the location, the timing, the method of procurement, and the estimated cost. The program would be submitted to IDA for review and clearance every six months. The procurement rules defined above for acquisition of goods and 56

61 equipment, as well as for consulting services, fully apply for any investment promotion-related activities. Training Training within the country and abroad, including twinning arrangements, would be carried out based on IDA approved programs, which would identify the nature of training, personnel to be trained, the duration of training, institutions where the training would be conducted, estimated cost of training, etc. Such programs would be submitted to IDA for review and clearance on an annual basis. The procurement rules defined above for consulting services fully apply for any training-related activity. Operational costs Operating costs include incremental operating costs incurred in project implementation, management, and supervision, including office supplies and rent, communication costs, utilities, fuel, vehicle maintenance, insurance, audits, investment promotion expenses, and salaries and travel allowance of GIPFZA staff incurred in carrying out the Project, but excluding salaries of the Borrower's civil servants. Prior review thresholds All works and goods contracts estimated to cost US$100,000 or more would be subject to IDA review of bidding documents, including draft contracts and technical specifications, prior to inviting bids. For consultancy contracts with firms with an estimated value of US$100,000 or more, the draft Request for Proposals (RFP) and the shortlist of consultants must be cleared by IDA prior to inviting proposals from consultants. In addition, the evaluation of technical proposals must be cleared with IDA before financial proposals of the qualifying firms are opened. With respect to each contract employing consulting firms estimated to cost the equivalent of US$50,000 or more but less than the equivalent of US$100,000, the procedures set forth in paragraphs 1, 2 (other than the second subparagraph of paragraph 2(a)) and 5 of Appendix I to the Consultant Guidelines) shall apply. Contracts for individual consultants with an estimated value of $50,000 or more will be subject to prior review by IDA. However, taking into account the limited experience of both GIPFZA, and GDA in procurement matters, the first three NCB contracts, as well as the first three contracts for the employment of consulting firms, will be subject to prior review by the Bank at each stage, with a view to assisting the two agencies in a proper use of World Bank procurement guidelines and standard bidding documents. 57

62 The TOR for all consulting assignments, regardless of value, and the selection of auditors would be subject to IDA's prior review. Procurement supervision and technical audit Contracts which are not subject to prior review would be selectively reviewed (1 out of 5) by the Bank during IDA supervision missions and would be governed by the procedures set forth in paragraph 4 of Appendix I to the Guidelines. The activities of the firm selected under the delegated contract management would be subject to annual technical audits in addition to the usual financial audits. Procurement methods (Table A) Table A: Project Costs by Procurement Arrangements (US$ million equivalent) Expenditure ategory ICBProcurement Methodl 1.BF Total Cost Expenditure Category ICB NCB Other 2 ToN.BF 1. Works (4.55) (0.00) (0.00) (0.00) (4.55) 2. Goods (0.00) (0.07) (0.07) (0.00) (0.14) 3. Services (0.00) (0.00) (7.58) (0.00) (7.58) 4. Training (0.00) (0.00) (0.60) _(0.00) (0.60) 5. Operating Costs (0.00) (0.00) (1.28) (0.00) (1.28) 6. Reimbursement of PPFs (0.00) (0.00) (1.85) (0.00) (1.85) Total (4.55) (0.07) (11.38) (0.00) (16.00) 1/ Figures in parenthesis are the amounts to be financed by the IDA Credit. All costs include contingencies. 2/ Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units. 58

63 Prior review thresholds (Table B) Table B: Thresholds for Procurement Methods and Prior Review 2 Contract Value Procurement Contracts Subject to Expenditure Category Threshold Method Prior Review (US$ thousands) (US$ millions) 1. Works 100,000 or more ICB All Goods 100,000 or more ICB , ,000 NCB First 3 contracts 0.05 <30,000 IS/NS Post review 3. Services Consultants a) Firms I00,000 or more QCBS (Int'l Advert.) All , ,000 QCBS (Nat'l Advert.) Post review <50,000 CQ Post review b) Individuals > 50,000 3 CVs Prior review 0.15 <50,000 3 CVs Post review Total value of contracts subject to prior review: Overall Procurement Risk Assessment Average Frequency of procurement supervision missions proposed: One every 6 months (includes special procurement supervision for post-review/audits) 2 Thresholds generally differ by country and project. Consult OD 'Review of Procurement Documentation" and contact the Regional Procurement Adviser for guidance. 59

64 Disbursement Allocation of credit proceeds (Table C) Table C: Allocation of Credit Proceeds Expenditure Category Amount in US$ million Financing Percentage 1. Civil Works % of foreign costs 70% of local costs 2. Goods % of foreign costs 2. Goods % of local costs 3. Consultant Services % of local costs 4. Training % of foreign costs 70% of local costs 5. Operating Costs % of foreign costs 70% of local costs 6. Reimbursement of PPF % Unallocated 1.16 Total Project Costs Total Disbursement arrangements Method of disbursements While operating under traditional disbursement procedures, all disbursements will be fully documented at the time of submission of withdrawal applications, except for expenditures made against statement of expenditures (SOEs). The disbursement percentages shown in Table C take into account the prevailing tax rates in The Gambia to ensure that taxes are not financed by the association. Table C shows disbursements by category of expenditure and financing percentages. The overall project financial management system will include project management reporting capabilities. However, the staff s lack of previous experience in project management and implementation does not favor using the PMR-based disbursement method from the beginning of the Project. Therefore, quarterly PMR, including financial, procurement, and physical progress will be prepared as soon as the Project is effective. During an interim period of eighteen months, these PMR will be reviewed, and the financial management capacity will be strengthened. At the end of the interim period, it is expected that the Project will be capable of producing reliable PMR that could be used as a basis for disbursement. The capacity of the Project will be reassessed at the end of the interim period to confirm whether the PMR-based disbursement method can be used. In the meantime, the Project will follow traditional disbursements methods. 60

65 Use of statement of expenditures (SOEs) All replenishment or reimbursement applications will be fully documented, except for (i) contracts of less than US$100,000 for civil works and goods and consulting firms; (ii) contracts of less than US$50,000 for individual consultants; and (iii) all training programs and operating costs. GIPFZA will retain all supporting documentation and will make them available for review as requested by IDA supervision missions and project auditors. Special account allocation and procedures (i) Special account under traditional disbursement procedures. The Borrower will open a special account in the Central Bank of The Gambia for IDA's share of eligible expenditures. All IDA financed expenditures of less than the equivalent of US$100,000 would be paid from the special account. The authorized allocation would be US$1,000,000, representing about four months of disbursement. IDA would make an initial deposit of US$500,000 upon credit effectiveness. Further deposits by IDA would be made into this account against withdrawal applications supported by appropriate documents. Once payments through the special account will have totaled SDR4,000,000, the fully authorized amount will be paid. Disbursement of the IDA Credit would be fully documented. The Borrower will be required to replenish the special account on a monthly basis or more often when the total disbursed amounts to one-third of the initial deposit, whichever is soonest. (ii) Special account for withdrawal made on the basis of PMRs. Upon receipt of each application for withdrawal of an amount of the credit, the association shall, on behalf of the Borrower, withdraw from the credit account and deposit into the special account an amount equal to the lesser of (i) the amount so requested; and (ii) the amount which the association has determined, based on the PMR accompanying application, is required to be deposited in order to finance eligible expenditures during the six-month period following the date of such report - provided that the amount so deposited, when added to the amount indicated by said PMR to be remaining in the special account, shall not exceed the amount of US$1,500,000. Staffing The qualification and professional experience, as well the number of the staff at GIPFZA, are adequate. But given the lack of past experience in World Bank-financed projects, the staff require training in World Bank financial management policies and disbursement procedures. Accounting policies and procedures As already mentioned, the Project will not use the existing government accounting system. The project financial management system will be part of the GIPFZA system and will therefore be commercially oriented. At the time of the evaluation, GIPFZA accounting policies and procedures were not in place yet, given its new creation. However, the terms of reference for the development of the GIPFZA Project Implementation Manual (PIM) were agreed to at appraisal, and the manual's preparation, including accounting policies and procedures, is a condition of 61

66 credit effectiveness. The PIM, including a section on financial management, has already been drafted. External audit There is no overdue audit report for projects in the Bank's portfolio in The Gambia. The entity's annual financial statements are by law subject to audit by the Auditor General. In practice, the Auditor General subcontracts the audit to an independent audit firm. The PAD also specifies that the selection of an auditor for the audit of the entity's financial statements and the Project's accounts is a condition of effectiveness, and that the auditor and the terms of reference for the audit must be satisfactory to IDA. The Bank has already approved these terms of reference, and the selection of the auditor is a condition of credit effectiveness. Reporting and monitoring There will be two sets of financial reports: one for the Project and one for GIPFZA as an autonomous entity. As far as the Project is concerned, there will be quarterly project management reports and annual financial reports covering all activities financed under the Project regardless of the source of funding. The quarterly project management reports will cover financial management, procurement, and physical progress monitoring. The annual project financial statements will be subject to external audit. GIPFZA's financial reports will be prepared at least quarterly and annually. The quarterly reports will be mainly on budget implementation, whereas the annual reports will include a balance sheet and an income statement. The balance sheet will report on the financial viability of the entity, which is critical to its sustainability. The income statement will help appreciate the capacity of the entity to generate enough resources to cover at least its operating expenses and finance its required investments. GIPFZA's annual financial statements will be audited by independent external auditors. The terms of reference have already been agreed upon, and the selection of an auditor is a condition of credit effectiveness. Information system GIPFZA will be equipped with a computerized financial management system that will address both its own and the Project's needs. 62

67 Annex 7: Project Processing Schedule THE GAMBIA: GATEWAY PROJECT Project Schedule Planned Actual Time taken to prepare the project (months) 46 First Bank mission (identification) 01/07/ /07/1998 Appraisal mission departure 09/17/ /17/2001 Negotiations 10/02/ /09/2001 Planned Date of Effectiveness 04/30/2002 Prepared by: AFTTR Preparation assistance: The recipient received and used a Japan PHRD grant for US$250,000 (TF026331) to contract consulting services for the following project preparation activities: (i) developing the institutional framework for the Free Zone through well-focused technical assistance; (ii) carrying out an Environmental Assessment Study to address all potential project-related negative impacts; and (iii) designing an Environment and Social Management Plan (ESMP) to eliminate, offset, or reduce adverse environmental impacts. Bank staff who worked on the project included: Name Michel Audige Elizabeth Otubea-Adu Muthoni W. Kaniaru Wolfgang Chadab Irene Xenakis Ahmadou Moustapha Ndiaye Amadou Tidiane Toure, Bourama Diaite Andre Yves Prevost Hovsep Melkonian Shenhua Wang Chad Leechor Robin Sharma Hang N. Sundstrom Myriam Godinot, Vincent Malfere and Salim Bouzebouk Specialty Lead Ports Specialist Lead Counsel Operations Counsel Disbursement Officer Quality Lead Specialist Financial Management Specialist Procurement Specialists Senior Environmental Specialist Sr. Disbursement Officer Private Sector Specialist Senior Economist Private Sector Specialist Program Assistant ENPC Students 63

68 Annex 8: Documents in the Project File THE GAMBIA: GATEWAY PROJECT A. Project Implementation Plan Draft Project Implementation Plan Draft Procurement Plan B. Bank Staff Assessments All aide-memoires and BTOs of World Bank's mission: April 1999, May/June 2000, May/June Financial Management Assessment Report August C. Other Study by The Service Group/EC Harris, 1994 Consulting Services for The Gambia Free Zone Development Strategy, IDI Ltd., 2000 Environmental Impact Assessment Study, Ecolas, October 2000 Environmental and Social Management Plan, Ecolas, July 2001 Detailed Engineering and Project Design Study for the Gambia Free Zones Development Strategy, Garland Ormond International, 2001 Investment Promotion and Free Zones Act, 2001 Including electronic files 64

69 Closed Credits: 24 Annex 9: Statement of Loans and Credits THE GAMBIA: GATEWAY PROJECT THE GAMBIA - IBRD Loans and IDA Credits in the Operations Portfolio (As of 12/17/01) Active Credits Last PSR Supervision Rating Original Amount in US$ Millions Project Project Name Development Implementation Fiscal ID Obiectives Proaress Year IBRD IDA GRANT Cancel. Undisb. P CB for Economic Management P HIV/AIDS Rapid Response S S P Poverty Alleviation & Capacity Bldg. S S P Third Education Sector S S P Participatory Health, Population and Nutrition S U Overall Result Result IBRD/IDA * Total Disbursed (Active) of which has been repaid 0.00 Total Disbursed (Closed) of which has been repaid Total Disbursed (Active + Closed) of which has been repaid Total Undisbursed (Active) Total Undisbursed (Closed) 0.00 Total Undisbursed (Active + Closed) a. Intended disbursements to date minus actual disbursements to date as projected at appraisal. b. Following the FY94 Annual Review of Portfolio performance (ARPP), a letter based system was introduced (HS = highly Satisfactory, S = satisfactory, U = unsatisfactory, HU = highly unsatisfactory): see proposed Improvements in Project and Portfolio Performance Rating Methodology (SecM94-901), August 23, Note: Disbursement data is updated at the end of the first week of the month. 65

70 THE GAMBIA - Statement of IFC's Held and Disbursed Portfolio As of 07/31/01 (In US Dollar Millions) Held Disbursed FY Approval Company Loan Equity Quasi Participation Loan Equity Quasi Participation 1995/97 AEF KKF IlI/ AEF Lyefish 2/ AEF Ndebaan 3/ Total Portfolio: / AEF = African Enterprise Facility (poultry producer) 2/ AEF = African Enterprise Facility (commercial fishing) 3/ AEF = African Enterprise Facility (medical clinic) 66

71 Annex 10: Country at a Glance THE GAMBIA: GATEWAY PROJECT The Gambia at a glance 12/18101 Sub- POVERTY and SOCIAL The Saharan Low- r Gambia Afrlca Income Development diamond 2000 Population, mid-year (millions) Life expectancy GNI per capita (At/as method, US$J GNI (Atias method, USS billions) ,030 T Average annual growth Population (%) Labor force (%) GN per Gross prim ary Most recent estimate (latest year available, ) capita enrollment Poverty (% of population below national poverty line) Urban population (% of total population) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Child malnutrition (% of children under 5) 26 Access to improved water source Access to an improved water source (% of population) iliteracy (% of population age 15+) Gross primary enrollment (% of school-age population) 77 7B 96 - he Gambia Male Low-income group Female KEY ECONOMIC RATIOS and LONG-TERM TRENDS GDP (USS billions) Economic ratios' Gross domestic investment/gdp Trade Exports of goods and serviceslgdp Gross domestic savingslgdp Gross national savingslgdp Current account balance/gdp Domestic Investment Interest paymentslgdp savings TotaldebUGDP Total debt servicelexports Present value of debugdp Present value of debtlexports Indebtedness (average annual growth) GDP The Gambia GDP per capita Low-income group Exports of goods and services I STRUCTURE of the ECONOMY Growth of Investment and GDP (%) (% of GDP) so Agriculture Industry T. Manufacturing o Services Private consumption General government consumption GDI GDP Imports of goods and services (average annual growth) Growth of exports and Imports (%) Agriculture Industry Manufacturing _ Services Private consumption General government consumption Gross domestic investment Exports * Imports Imports of goods and services r3 Note: 2000 data are preliminary estimates. The diamonds show four key indicators in the country (in bold) compared with Its income-group average. If data are missing, the diamond will be incomplete 67

72 The Gambia PRICES and GOVERNMENT FINANCE IlatIon(%) Domestic pricesi (% change) 15 I Consumer prices _ Implicit GDP deflator Go"ernment finance 1 (% of GDP, includes current grants) o Current revenue Current budget balance GDP deflator e MCPl Overall surplus/deficit TRADE (USS millions) Export and import levels (US$ mill.) Total exports (fob) Groundnuts Fish Manufactures Total imports (cui) DC' Food Fuel and energy s50 CapRtal goods o - 1 Export price index (1995=100) Importprice index (1995=100), m Exports *Imports Terms of trade (1995=100) BALANCE of PAYMENTS (USS millions) Current account balance to GDP I%) Exports of goods and services Imports of goods and services Resource balance I Net income Net current transfers I I I Current account balance no Financing items (net) Changes in net reserves NIA NIA Memo: Reserves Including gold (USS millions) NIA Conversion rate (DEC, localuuss) EXTERNAL DEBT and RESOURCE FLOWS (USS millions) Composition of 2000 debt (USS mill.) Total debt outstanding and disbursed IBRD IDA E:75 Total debt service IBRO IDA f e:18 Composition of net resource flows Official grants Official creditors Prhvate creditors Foreign direct investment Portfolio equity C: 31 World Bank program Commitments A -IBRD E -Bilateral Disbursements B -IDA D -Other multilateral F -Private Principal repayments C -IMF G -Short-term Netfiows Interest payments Net transfers Development Economics

73 Annex 11: Letter of Strategic Development Policy THE GAMBIA: GATEWAY PROJECT Within the context of its reform programs to promote economic growth and poverty reduction, the Government of The Gambia adopted a medium-term economic and financial program (April, 1998 to March 31, 2001), supported under a three-year arrangement under the Enhanced Structural Adjustment Facility (ESAF), now Poverty Reduction and Growth Facility (PRGF), by the International Monetary Fund and World Bank. The Government is further committed to a series of structural reforms, including reform of external tariffs, improvement in the banking system and deepening of financial intermediation, public enterprise reform; and modernization of the legal and regulatory framework, including an appropriate incentive regime necessary for attaining private sector-led growth. Despite these achievements under the PRGF, the Government considers the development of the productive capacity of the economy a priority. This is in order to enhance The Gambia's competitiveness and to reinforce its position in light of increasing globalization and interdependence in the world economy. In this regard, strong emphasis will continue to be placed on the development of a vibrant private sector that is more responsive to the challenges of an internationally competitive business environment. The long-term development strategy of the Government is enshrined in The Gambia's Vision 2020 document, which aims at a political and socioeconomic transformation of The Gambia into a highly developed middle-income country by the year This is to be achieved through a well-disciplined and highly trained labor force and a vibrant private sector. The strategies for the implementation of the Vision have now been integrated into our national development programs in order to effectively monitor, review, and ensure implementation progress. Private sector development The Government of The Gambia has recognized the important and increasing role of the private sector in national development and therefore has accorded priority to the development of the private sector to enable it to play a more proactive role in the economy. A dynamic private sector offers better opportunities for generating employment, enhancing technological transfer, increasing private capital flows, diversifying economic activities, and increasing sources of Government income opportunities through taxes. In this regard, the Government has initiated and implemented a number of policy measures during the past six years aimed at capacity building and creation of a more enabling environment for the private sector. These policy measures, inter alia, included the development of a National Industrial Policy, establishment of a Trade Policy Framework and reduction of tariff bands to 4, development of a Competition Policy, establishment of commercial courts to expedite commercial cases, review of the labor laws and Dock Workers Scheme, and establishment of an Industrial Tribunal. Further liberalization of the economy was made by encouraging private foreign exchange bureaus, as well as the participation of the private sector, in the provision of GSM mobile 69

74 telephone services in the country. In addition, the Gambia Divestiture Agency (GDA) has recently been established by the Divestiture Act to implement Government's divestiture program in public enterprises, which will further enhance private sector participation in the economy. The Government acknowledges the increasing role of the Gambia Chamber of Commerce and Industry as an advocate for private sector development and also as an interface between Government and the private sector in our economic development. In this regard, the Government will continue to strengthen the capacity of the Chamber in order to be more effective and responsive to the challenges of the private sector and national economic development. This commitment has been demonstrated by the holding of the first Economic Summit, jointly organized by the Department of State for Trade, Industry and Employment and the Chamber, to discuss issues of greater importance to our economic development. The success of the summit has given rise to holding an Economic Forum annually and establishing a private sector foundation with the desired objectives of enhancing a common understanding on economic policies and programs of the Government. The Gambia Trade Gateway Project The Trade Gateway Project of the Government of the Gambia, initiated with the World Bank, has the policy objective of making The Gambia competitive in the global economy through the establishment of sustainable and competitive export-oriented enterprises and processing centers. The Gateway Project has the following objectives:. Establishing a self-sustaining Gambia Investment Promotion and Free Zones Agency (GIPFZA) * Marketing and facilitating local and foreign investments in well targeted economic sectors * Developing an eight-hectare pilot Free Zone (FEZ) at the airport, including a "one-stop shop" investment promotion center, and laying the foundation for a second thirty-hectare Free Zone area * Building business and technical skills among private and public sector actors * Promoting privately financed and operated FEZ-related businesses, including teleport services * Facilitating administrative procedures for private enterprises creation, investment, and operations in tourism, trade services, and agriculture sub-sectors * Assisting the Government to implement its divestiture strategy * Modernizing ports and airport services and streamlining customs clearance procedures. Mitigating any social and/or environmental impacts that could result from project implementation * Establishing a better interface between the FEZs and the population along the Gambia River in order to maximize efficient use of the river as a potential source of economic development. The overall objective of the Gateway Project is to actualize The Gambia Incorporated Vision 2020 of the Government, which aims at transforming the country from one of the least developed countries in Sub-Saharan Africa into a middle-income one with a vibrant private sector open to the world. 70

75 This development strategy is to be attained by expanding and deepening a fast-growing tourism sector, increasing productivity and diversification in agriculture and manufacturing, and developing internationally linked services, based on improved port and airport facilities and a modern financial center. The strategy will focus on public sector reforms, private sector promotion, and creation of a positive image within the international trade and export community. It is anticipated that with the attainment of the above objectives and strategies, the Gateway Project will make significant contributions to our economic development through increased employment and income earning opportunities, as well as increased infrastructure and services, and hence will spell a long-term prospect for socioeconomic development and prosperity for The Gambia. Gambia Investment Promotion and Free Zones Agency (GIPFZA) The Government of the Gambia has recently established the Gambia Investment Promotion and Free Zones Agency (GIPFZA) under the Trade Gateway Project. The agency, which is to be selffinancing, is responsible for private sector development in the country. The agency serves as a "one-stop shop" for investors by providing them services as follows: * Providing information about investment opportunities and the incentive package for investors * Supporting and guiding investors in their registration and establishment procedures * Assisting investors in securing permission, exemption, authorization, license, land or any other thing required for establishing and operating a business enterprise * Advising investors on the preparation of project proposals * Assisting investors in the identification of partnerships and joint ventures * Providing after care services to ensure sustainability of businesses * Advising on suitable technology * Assisting in accessing training opportunities. Gambia Divestiture Agency (GDA) In order to reduce Government intervention in the provision of services and to enhance private sector participation in the economy, the Gambia Divesture Agency has recently been established to implement the Government's divestiture program in relation to public enterprises, and in particular the following major enterprises: Under the Trade Gateway Project, the GDA will be provided technical assistance not only to undertake an independent assessment of the public enterprises slated for divestiture but also the divestiture of other Governrnent investments, so as to implement the Government's divestiture program in an efficient and transparent manner. Given the mandate to promote investments in the country, the GIPFZA will cooperate with all institutions that have an important role and a shared responsibility for private investments in the country. The GPA and the GCAA will continue to complement the efforts of GIPFZA in export development and will be provided assistance under the Project to improve their operational efficiency with emphasis on opening their services to the private sector in order to achieve international competitiveness for The Gambia. The GDA will further reinforce GIPFZA within the context of the Government's divestiture program for public enterprises. 71

76 The preservation of our environment is high on our national development agenda, and all efforts will be made to ensure that the industrial development of the Gambia is consistent with our existing environmental management and preservation program. In this regard, an Environmental Impact Assessment of the project and an Environmental and Social Management Plan have been prepared by Government. Notices have already been placed in public places, including Divisional Commissioners' offices in the country, for the public to contest against any potential environmental mitigation under the project. GIPFZA will continue to collaborate with the National Environment Agency to ensure compliance with environmental standards for all developments under the project. A Memorandum of Understanding between GIPFZA and NEA has been signed for this purpose. In order to better coordinate the activities of the project, the Government has put in place a Project Coordination Unit under the Department of State for Trade, Industry and Employment, and a Coordinating Committee comprising the Departments of State for Trade, Industry and Employment (DOSTIE) and Finance and Economic Affairs (DOSFEA), GDA, and GIPFZA. Signed by Hon. Musa H. Sillah, Secretary of State, Department of State for Trade, Industry and Employment December 12,

77 Annex 12: Environmental/Social Assessment and Management THE GAMBIA: GATEWAY PROJECT A. Overview 1. Background. One of the poorest countries in Africa, The Gambia faces the same challenges as most African countries trying to attract private investment and trade - namely, the perceived lack of a stable and investor-friendly environment, limited access to markets and resources, and poor and expensive infrastructure services. The Government strategy, consistent with its long-term development program formulated in the Vision 2020 document, addresses these issues through the restructuring of the public sector and the stimulation of the private sector. 2. Government's strategy for the public sector focuses on (i) improving the structure of government revenue and expenditure and, thereby, reducing domestic debt and import tariffs; (ii) strengthening the institutional capacity of the public administration; (iii) reforming public administration to foster good governance and efficiency in providing public services; (iv) resuming public enterprise reform; and (v) reforming the energy sector. 3. Government's strategy for the private sector consists of (i) resuming and deepening structural reforms tailored to encourage private sector development, attract foreign investment, and facilitate economic diversification; (ii) streamlining business regulations and improving the legal and judicial environment for economic activities, including the investment incentive system (The Gambia Investment Promotion and Free Zones Acts of 2000); and (iii) deepening financial intermediation and upgrading the banking system and its regulatory and prudential framework. B. Gateway Project 4. Proposed Project. The purpose of the Gateway Project is to enable The Gambia to establish itself as a globally competitive export and processing center. It will therefore help the Government of The Gambia to implement some of its strategies by (i) helping to establish a world-class business climate and increase Foreign Direct Investment in The Gambia; (ii) improving the competitiveness of trade-related services (port, airport, customs, and services providers); (iii) attracting new private activities through the implementation of a Free Zone development strategy in the area of Banjul; and (iv) fostering existing private sector activities. This project is phased, and its first stage ( ) assemble the physical and institutional foundations for establishing The Gambia as a credible player in the world trade arena by building a favorable business environment and launching an operational Free Zone (FZ). 5. Project description. The project has five components: Component A.- Physical investment for a new Free Zone at the airport will establish the physical infrastructure needed for an operational Free Zone (FZ) at the airport. 73

78 Component B. Establishment of an Investment Promotion and Free Zone Agency will support the newly created Gambia Investment Promotion and Free Zone Authority (GIPFZA) as a selfsustaining entity that manages the FZs and promotes trade and investment. Component C. Support to The Gambia Divestiture Agency will support the Government's agenda for privatization through the Gambia Divestiture Agency. Component D: Capacity building includes training activities for both the public and private sectors directly involved in Investment and Free Zone-related businesses, in the divestiture process, or in the regulation of divested enterprises. Component E: Project management and social/environmental management includes funds for (i) overall project management; and (ii) environmental studies and mitigation measures. C. Environmental Assessment 6. Study. Evaluation of environmental issues has been an integral part of planning and design studies undertaken by the Government of The Gambia to support identification, preparation, implementation, and operation of the Project. The Gateway Task Force, in charge of project preparation, has begun preparing an Environmental Assessment (EA), with the assistance of the international consulting firm ECOLAS, including an Environmental and Social Management Plan (ESMP). Although the Environmental Assessment final report was available in October 2000, it was decided that the ESMP needed improvements to better address the World Bank's and NEA's concerns, and a revised ESMP was produced in July Policy and legislative framework. The Environmental Assessment and Environmental and Social Mitigation Plan have been prepared in compliance with the requirements of (i) the Government of The Gambia, including the procedures of the National Environment Agency, and (ii) the procedures of the World Bank, including Operational Directive 4.01, "Environmental Assessment." 8. Environmental Assessment. A detailed Environmental Assessment in compliance with the provisions of OD 4.01 for a Category A project has been prepared. It includes an analysis of planning and design alternatives, development of an environmental mitigation and monitoring plan, and extensive public consultation. During the preparation process, the proposed enabling works at the Bund Road Site near the port of Banjul that were initially part of Component 1 were dropped, because otherwise this would have meant (i) adverse impacts in a site proposed for a RAMSAR designation; and (ii) uneconomic engineering to cope with unsuitable soil geotechnical characteristics and the flood-prone feature of the area. The Environmental Assessment focused more on activities under Component 1 because of large civil works, and only indirectly on Component Participatory approach. Extensive consultations were made during the redaction of both EA and ESMP. Consultations brought in Government agencies, including the National Environment Agency, local communities, and nongovernmental agencies. Noteworthy in the consultation process were two stakeholders' seminars. The first one was held in June 2000 to present and discuss the first findings of the Environmental Assessment. In addition, in order to 74

79 present and discuss publicly the two documents, a consultative meeting was held at the Senegambia Beach Hotel on 26th June, As a follow-up to the consultative meeting, a three-week public review process was launched in early July, The documents were placed in all the administrative commissioners' offices and municipalities, as well at the National Assembly and the National Library. NEA then collated the public comments and sent them to the consultants for their final ESMP report. 10. Potential environmental impacts. The Environmental Assessment found that the greatest potential environmental impacts will occur during the operational phase. Impact screening included the following: (i) Construction impacts. Temporary impacts from the construction phase of the proposed Project include: (i) noise and dust from construction activities; (ii) terrestrial wildlife disturbance and flora deterioration from clearing the site; (iii) minor impact on freshwater aquatic life; (iv) minor conflict in land use; and (v) transport congestion. (ii) Operational impacts. The potential operational impacts associated with the Project include all impacts that can be expected from industrial activities: (a) air quality deterioration; (b) surface, ground, and sea water pollution; (c) increased water scarcity; (d) waste production; (e) noise; (f) impacts on terrestrial wildlife and flora and freshwater aquatic life; (g) land use changes; (h) transport; and (i) socioeconomic effects. 11. Analysis of alternatives. Five alternative sites considered for implementation of the Project were studied for environmental and social impacts in the EA - the airport site, Bund Road, Denton Bridge, Kuloro, and Sukuta. From this assessment and the development of the TGP, two sites have emerged as priority sites for implementation: Bund Road and the airport. These two sites have been examined exhaustively, without, however, excluding the three alternative sites. Many of the impact assessment analysis, prevention, mitigation, and monitoring measures could apply to these sites as well. Apart from moderate effects on habitat and wildlife, solid waste production, and noise, the airport site appeared to be a suitable place for FZ development. The assessment shows minor effects in the other environmental compartments identified above, while a significant improvement of the social and economic conditions of local communities may be expected. Notwithstanding its potential designation as a RAMSAR site (Cf. paragraph 8), the Bund Road site would be a suitable alternative for FZ development at a short distance from the city and port of Banjul, since this location would not involve compensating or resettling private owners or converting a critical natural habitat. In regard to environmental development at Denton Bridge, the Environmental Assessment concluded that this would be the most negative of all because of inadmissible effects on the coast ecosystem. Both Kuloro and Sukuta sites may rightly be considered suitable reservation sites for future development, and their rejection is mainly based on socioeconomic considerations, including the absence of basic infrastructure at Kuloro. D. Environmental and Social Management Plan 12. Environmental and Social Management Plan. As part of the EA, the consultants and Project Task Force have prepared an Environmental and Social Management Plan (ESMP) in consultation with the National Environment Agency. For the reason explained above, it only 75

80 focuses on development of the airport site. Regulating, monitoring, and enforcing requires the presence of a clear reference frame to assess activities and their impacts. NEA should identify the additional needs, propose detailed regulation, and ensure its implementation. Another basic principle in the ESMP is having the polluter pay for pollution, or the environmental and social degradation or problems the activities may cause. This includes not only the off-setting, remedying, or prevention of negative impacts, but also to contribute to analyzing, studying, and monitoring impacts on the natural and social environment. Mitigation actions would focus on environmental supervision of the construction contractors and institutional set-up to assess and monitor environmental impacts of FZ-settled enterprises. The ESMP exhaustively details its key mitigation activities in a matrix format on pages 39 to 49 of the ESMP. (i) Construction phase. Measures to reduce potential construction phase impacts will be implemented through provisions in design and construction tenders, consideration of these issues in the construction process, and performance monitoring. Mitigation measures include (a) control of air quality impacts, especially dust; (b) actions to control noise from construction activities; (c) erosion and water management; (d) landscaping of the zone to reduce its visual impact; and (e) clear guidelines for disposing waste materials. (ii) Operation phase. The Project ESMP addresses major concerns through (a) the implementation of the waste management plan; (b) the creation of a 200m wide buffer zone between the industrial sites and residential areas; (c) the prevention of spills; (d) the provision of waste water treatment; and (e) quality control and permits issuance. In addition, because of the high uncertainty surrounding the type and scale of companies to settle in the FZ, a clear framework has been elaborated to screen proposals from industrial developers (Chart 1). Promoter submits proposed activity to NEA for environmental and social screening I NEA Assesses whether the proposed activity is sufficiently covered by the TGP EIA and ESMP in terms of environmental and social safeguarding requirements NEA and promoter agree on specific mitigation and monitoring planl NEA imposes additional EIA and EMP Promoter implements ESMP for the specific activity Promoter implements additional EIA and prepares EMP for the specific activity NAcontrols mitigatio and monitoring Chart 1. ESMP Flow. The term promoter' refers to the instance undertaking the specific activity, such as DOSTIE or a private investor 76

81 13. Additional Environmental Impact Assessment and Environmental Management Plan for specific activities. In case the proposed activity has a potentially significant negative environmental or social impacts not (sufficiently) covered by the Project ESMP, the NEA will require the promoter to carry out an additional assessment of the environmental and social impacts, and to prepare an additional EMP for the proposed activity according to the NEA requirements. The flow Chart 2 shows the different phases and corresponding activities to be undertaken in preparing any additional EIA and EMP. The additional EIA and EMP will focus on elements that are new and not part of the Project EA. Based on World Bank's guidelines, a precise description of what the EIA report should include is given on pages 29 to 35 of the Project ESMP. 14. Environmental Monitoring Plan. The NEA, in close cooperation with GIPFZA, would supervise the Environmental Monitoring Plan implementation of the ESMP, with the timely assistance of environmental consultants. Environmental monitoring would be done by the different agencies and government services in charge during the construction and operation phases to check the accuracy of the impact analysis, evaluate effectiveness of mitigation measures, and respond to unanticipated environmental impacts. A matrix on pages 56 to 66 of the ESMP details parameters of concern and their analysis methodology. 15. Estimated cost for the ESMP. The consultants, in coordination with the NEA, have prepared cost estimates for implementation of the ESMP. The costs for implementation of the environmental elements of the mitigation plan during the construction phases have been included in the cost estimates for these activities. The promoter - DOSTIE/GIPFZA - or the private investor will bear the cost of the implementation of the ESMP. Notwithstanding the above and based on the ESMP financial plan (page 77 of the report), the Project provides funding for (i) periodic Environmental Assessments (Component E2, item 1: US$380,000); (ii) mitigation measures (Component E2, item 2: US$320,000); (iii) technical training for monitoring and mitigation; and (iv) EIA training as part of the GIPFZA-managed training package (Component DI, item 1: US$150,000). 16. Integration of the GP EA with the Project objectives. The ESMP was conceived on the basis of a close interaction between the promoting agency, GIPFZA, and the environment agency, NEA, at all stages of the Project. All stages of project implementation should build on a consensus between GIPFZA and NEA, and the safeguarding of the natural and social environment should be addressed at all stages of project development. As mentioned above, the implementation of the ESMP must not become a burden for genuine environmentally and socially sound projects or activities. The NEA is to guide GIPFZA and individual promoters on environmental and social safeguarding in project-related activities; NEA's position should be one of service provided to the developers. The NEA should work out together with DOSTIE/GIPFZA operational procedures and guidelines for the implementation of the ESMP. These should be rigid in regard to the quality requirements for the environmental and social assessment and management process, but flexible and service-oriented for the timing. In this way, the environmental and social safeguarding should not significantly delay the implementation of development or investment activities. A specific agreement should be worked out, limiting the time for initial review of proposed activities and investments at the Project site 77

82 by NEA to no more than three weeks. Any further delay may be crucial to maintaining the competitiveness of the Gambia Gateway Project. E. Reporting and supervision 17. Reporting. As an element of Project reporting requirements, GIPFZA would prepare routine reports about progress in implementing activities related to environment included under the ESMP, and activities for policy study and training. The reports should contain information on consultant performance, status of actions, and expenditures, and should identify issues requiring resolution. As necessary, supplemental reports with greater detail than the routine reports would also be prepared on these topics. 18. Project supervision. The supervision plan for the proposed Project would include participation of World Bank environmental staff, or appropriately qualified consultants, in major missions to review progress in implementing the ESMP and EMPs. The performance of GIPFZA, cooperating Government agencies, consulting engineers, and construction contractors in the implementation of these activities under the Project would be a standard element of Project supervision reports and included in the Mid-Term Review and the Implementation Completion Report. 78

83 0. ~~~~~~~~~~~~~~~~~~~fl 0 I~~~~~~~~~~~~~~~5 E v~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~c oz I~~~~~~~~~~~~~~z >~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ E 0~~~~ dd%, C14~0~ F D

84 Annex 13: Supervision and Implementation Schedules THE GAMBIA: GATEWAY PROJECT IDA Supervision Plan Mission Launching mission Semi-annual misison Semi-annual mission Semi-annual misison Semi-annual mission Semi-annual misison Mid-Term review Semi-annual misison Semi-annual mission Semi-annual misison Completion mission Timing Skills required Jun-02 Task Team Leader (TTL) Private Sector Specialist Environment Specialist Procurement Specialist Financial Specialist Dec-02 Task Team Leader (TTL) Procurement Specialist Private Sector Specialist Jun-03 Task Team Leader (TTL) Financial Specialist Environment Specialist Dec-03 Task Team Leader (TTL) Procurement Specialist Private Sector Specialist Jun-04 Task Team Leader (TTL) Financial Specialist Environment Specialist Dec-04 Task Team Leader (TTL) Procurement Specialist Private Sector Specialist Mar-05 Task Team Leader (TTL) Financial Specialist Private Sector Specialist Financial Specialist Environment Specialist Dec-05 Task Team Leader (TTL) Procurement Specialist Private Sector Specialist Jun-06 Task Team Leader (TTL) Financial Specialist Environment Specialist Dec-06 Task Team Leader (TTL) Procurement Specialist Private Sector Specialist Jun-07 Task Team Leader (TTL) Financial Specialist I _ Environment Specialist 80

85 A Physical InvesTent for a new Free Zone at the airport 1. FZ Infrastructure Enabling works Fencing & access roads Comrnon utilities Implementation Schedule r T2y3y4 ~ ~ 3 Cormrmon users warehouse LI L U Consultant services for supervision of mrks Subtotal FZ Infrasftuture 2. Equipment for one-stop shop Building _ II2 B. Establishemernt of an InvesbTo Promrotion and Free Zorne Agency 1. GIPFZA Operational Support GIPFZA Operating Costs Legal advisor Investmnwt Promotion (advertisements, fairs,...)t Website development and Maintenance OfFce Equipment and Vehides Pl IE I Ii Subtotal GPFZA Operational Support lflil 2. Technical assistance to GIPFZA Consulting servioes for GIPFZA Business Plan Transfer of ' Inow hoaw" Assistanoe to GI PFZA managerrent I I Managerment Infrmiation System m SubtotalTechnical assistance to GlPE4 :Zl 3. M Surveys arket and Marketing Plan Market Surveys GIPFZA Marketing Plan r rmr Subtotat Abr1ret Surveys and hbrketrng Plan 4. Investment Promotion (consultancy) 5. Studies Design of Interface River-Free Zone Trade & Fadlitation Survey IMS Audit at Custons & Excise Department Subtota Studiss 1 1 C. Support to the Gannbia Divestiture Agency 1, Divestiture Supporwt Fnancial andtechnicalassessrnentoftrack I Pes (Transport and Telecom) Divestiture of Track I Pes Divestiture of Track II PEs Subtotal Divefftum Support 2. Divestiture Safeguarding and Mrnitormng Ret ench grient and Compensation Frainerkg Environmental audit of Divested PEs Subtotl Divestture Safeguarding and Monitoring 3. Divestiture Consensus Building Domestic public consensus building Intemational Privatization Investment Carpaign Website developnent and Maintenance Subtotal Divestiture Consensus Building II_ I 81