Document of The World Bank · Project Team Leader: Vera Dugandzic Gloria La Cava ICR Team Leader: Vera Dugandzic ICR Primary Author: Janis Bernstein . iii F. Results Framework Analysis

Document of The World Bank

Report No: ICR00001583

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-72830)

ON A

LOAN

IN THE AMOUNT OF EURO 35.0 MILLION (US$ 45.68 MILLION EQUIVALENT)

TO THE

REPUBLIC OF CROATIA

FOR A

SOCIAL AND ECONOMIC RECOVERY PROJECT

September 26, 2011

Sustainable Development Department Central Europe and the Baltic Countries Unit Europe and Central Asia Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective June 21, 2011) Currency Unit = Croatia Kuna (HRK)

HRK 1.00 = US$0.19496 US$1.00 = HRK 5.1293

FISCAL YEAR

ABBREVIATIONS AND ACRONYMS

ASSC Areas of Special State Concern MIS Management Information System CARDS Community Assistance for Reconstruction,

Development and Stabilization MoF Ministry of Finance

CAS Country Assistance Strategy MRDFWM Ministry of Regional Development, Forestry and Water Management

CBO Community-based Organization MSTTD Ministry of Sea, Tourism, Transport and Development

CBRD Croatian Bank for Reconstruction and Development

MTR Mid-term Review

CCU Country Coordination Unit NC New Cooperative CPS Country Partnership Strategy NGO Non-governmental Organization CROMAC Croatian Mine Action Centre NMAP National Mine Action Plan CSERP Croatia Social and Economic Recovery

Project NPV Net Present Value

EC European Commission OM Operational Manual ERR Economic Rate of Return PAAN Pre-Accession Assistance Needs EU European Union PAD Project Appraisal Document FM Financial Management PCU Project Coordination Unit FMS Financial Management System PDO Project Development Objective FRR Financial Rate of Return PHARE EU Fund for Assistance to Central and

Eastern European Countries in their preparation for joining the EU

GDP Gross Domestic Product PMU Project Management Unit RCU Regional Coordination Unit HAMAG Croatian Agency for Small Business ROP Regional Operational Program HRK Croatian Kuna SCI Small Community Infrastructure IBRD International Bank for Reconstruction and

Development SME Small and Medium Enterprise

ICR Implementation Completion Report UNHCR United Nations High Commissioner for Refugees

IDA International Development Association VAT Value Added Tax ISR Implementation Status and Results Report M&E Monitoring and Evaluation

Vice President: Philippe Le Houerou

Country Director: Peter Harrold

Acting Sector Manager: Carolyn Turk

Project Team Leader: Vera Dugandzic

ICR Team Leader: Janis Bernstein

CROATIA Social and Economic Recovery Project

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design ................................................................... 12. Key Factors Affecting Implementation and Outcomes ................................................................. 63. Assessment of Outcomes .............................................................................................................. 104. Assessment of Risk to Development Outcome ............................................................................. 185. Assessment of Bank and Borrower Performance ......................................................................... 196. Lessons Learned ........................................................................................................................... 217. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ............................... 22Annex 1. Project Costs and Financing .............................................................................................. 23Annex 2. Project Components ......................................................................................................... 24Annex 3. Outputs by Component .................................................................................................... 30Annex 4. Economic and Financial Analysis .................................................................................... 37Annex 5. Bank Lending and Implementation Support/Supervision Processes ................................ 46Annex 6. Beneficiary Survey Results .............................................................................................. 48Annex 7. Stakeholder Workshop Report and Results ...................................................................... 54Annex 8. Summary of Borrower's ICR and/or Comments on Draft ICR ........................................ 55Annex 9. Comments of Cofinanciers and Other Partners/Stakeholders ......................................... 69Annex 10. List of Supporting Documents ....................................................................................... 70MAP IBRD No.33698 ...................................................................................................................... 71

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A. Basic Information

Country: Croatia Project Name: Social & Economic Recovery Project

Project ID: P076730 L/C/TF Number(s): IBRD-72830

ICR Date: 09/29/2011 ICR Type: Core ICR

Lending Instrument: SIL Borrower: GOVERNMENT OF CROATIA

Original Total Commitment:

USD 45.68M Disbursed Amount: USD 47.85M

Revised Amount: USD 45.54M

Environmental Category: F

Implementing Agencies: Ministry of Regional Development, Forestry, and Water Management

Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 07/09/2002 Effectiveness: 09/30/2005 09/30/2005

Appraisal: 11/18/2004 Restructuring(s):

07/14/2009 02/19/2010 07/12/2010 07/13/2010

Approval: 03/29/2005 Mid-term Review: 03/31/2008 05/12/2008

Closing: 06/30/2009 12/31/2010 C. Ratings Summary C.1 Performance Rating by ICR

Outcomes: Moderately Satisfactory

Risk to Development Outcome: Moderate

Bank Performance: Moderately Satisfactory

Borrower Performance: Moderately Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Moderately Satisfactory Government: Moderately Satisfactory

Quality of Supervision: Moderately SatisfactoryImplementing Agency/Agencies:

Satisfactory

Overall Bank Performance:

Moderately SatisfactoryOverall Borrower Performance:

Moderately Satisfactory

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C.3 Quality at Entry and Implementation Performance Indicators

Implementation Performance

Indicators QAG Assessments (if

any) Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

Yes Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Satisfactory

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

General agriculture, fishing and forestry sector 23 23

General industry and trade sector 23 23

General public administration sector 32 32

Other social services 22 22

Theme Code (as % of total Bank financing)

Conflict prevention and post-conflict reconstruction 29 29

Micro, Small and Medium Enterprise support 14 14

Participation and civic engagement 14 14

Regional integration 14 14

Rural non-farm income generation 29 29 E. Bank Staff

Positions At ICR At Approval

Vice President: Philippe H. Le Houerou Shigeo Katsu

Country Director: Peter C. Harrold Anand K. Seth

Acting Sector Manager: Carolyn Turk Maninder S. Gill

Project Team Leader: Vera Dugandzic Gloria La Cava

ICR Team Leader: Vera Dugandzic

ICR Primary Author: Janis Bernstein

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F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) Support the economic and social revitalization of disadvantaged and war-affected areas as a way to increase social cohesion. Revised Project Development Objectives (as approved by original approving authority) Indicator 1: Number of jobs created through project activities and subprojects; Indicator 2: Total additional Revenue generated through grant-supported subprojects for SMEs/Coops; and Indicator 3: Number of direct project beneficiaries including inter-ethnic, vulnerable, and war-effected. (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Number of jobs created through project activities and subprojects Value quantitative or Qualitative)

0 0 1,000 1,359

Date achieved 03/29/2005 05/02/2005 07/14/2009 12/15/2010 Comments (incl. % achievement)

The end target indicator was surpassed by 36 percent

Indicator 2 : Total additional Revenue generated through grant-supported subprojects for SMEs/Coops

Value quantitative or Qualitative)

0 NA 100,000,000 81,286,112 HRK


While the end of project revenue target was not met due to the financial crisis, this is about 82% of the target and still a very substantial achievement under the circumstances.

Indicator 3 : Number of direct project beneficiaries including inter-ethnic, vulnerable, and war-effected

Value quantitative or Qualitative)

0 0 86,000 84,173


84,000 beneficiaries residing in the ASSC concern were reached: 98 percent of the target.

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(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Number of beneficiaries of social inclusion subprojects Value (quantitative or Qualitative)

0 NA 45,000 41,639


The actual number of beneficiaries, all of which were considered vulnerable, was 93 percent of the target.

Indicator 2 : Percentage of local stakeholders expressing satisfaction with infrastructure subprojects

Value (quantitative or Qualitative)

0 80% 95% 100%


69 small infrastructure sub-projects were completed and the satisfaction rate by the beneficiaries was 100 percent.

Indicator 3 : Number of jobs created through grant-supported subprojects for SMEs/Coops Value (quantitative or Qualitative)

0 NA 500 661


The number of jobs exceeded the target by 32 percent.

Indicator 4 : Number of SME/Coop grants successfully implemented Value (quantitative or Qualitative)

0 NA 240 211


The number of grants was 88 percent of the target. Due to the financial crisis, some of the SMEs could not meet the pre-requirements for obtaining the complementary financing from private banks.

Indicator 5 : Average additional revenue generated per SME/Coop Value (quantitative or Qualitative)

0 NA 370,000 HRK 385,242 HRK


The average additional revenue exceeded the target by 4%.

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Indicator 6 : Number of small community infrastructure subprojects completed Value (quantitative or Qualitative)

0 NA 67 69


The number exceeded the target by three percent.

Indicator 7 : Square meters (m2) of land cleared of landmines Value (quantitative or Qualitative)

0 NA 12,000,000 (m2)

12,185,445 (m2)


The actual amount of land cleared exceeded the target by 1.5 percent.

Indicator 8 : Percentage of trained government staff using new skills learned through the CSERP Project


0 NA 90% 90%


The target was fully achieved equivalent to 675 of the total number of trained staff (750) reporting active use of upgraded skills.

Indicator 9 : Number of individuals, including civil society members and local self government staff, trained through CSERP supported activities


0 NA 600 750


The target for this indicator was exceeded by 25 percent.

Indicator 10 : Number of social inclusion subprojects successfully implemented Value (quantitative or Qualitative)

0 NA 120 125


The target was exceeded by 4 percent.

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G. Ratings of Project Performance in ISRs

No. Date ISR Archived

DO IP Actual

Disbursements (USD millions)

1 04/25/2005 Satisfactory Satisfactory 0.00 2 11/15/2005 Unsatisfactory Unsatisfactory 0.00 3 02/11/2006 Unsatisfactory Unsatisfactory 0.00 4 06/10/2006 Unsatisfactory Unsatisfactory 0.00 5 10/17/2006 Moderately Unsatisfactory Moderately Unsatisfactory 4.49 6 10/30/2006 Moderately Satisfactory Moderately Satisfactory 4.49 7 08/16/2007 Moderately Satisfactory Moderately Satisfactory 4.49 8 12/26/2007 Moderately Satisfactory Moderately Satisfactory 4.49 9 06/20/2008 Moderately Satisfactory Moderately Satisfactory 5.89

10 12/29/2008 Satisfactory Satisfactory 20.43 11 05/01/2009 Satisfactory Satisfactory 28.91 12 07/31/2009 Satisfactory Satisfactory 31.97 13 11/21/2009 Satisfactory Satisfactory 39.39 14 06/29/2010 Satisfactory Satisfactory 45.91 15 03/08/2011 Satisfactory Satisfactory 48.00

H. Restructuring (if any)

Restructuring Date(s)

Board Approved

PDO Change

ISR Ratings at Restructuring

Amount Disbursed at

Restructuring in USD millions

Reason for Restructuring & Key Changes Made

DO IP

07/14/2009 N S S 31.97

The first order restructuring involved: changes in the project outcome indicators; reallocation of Euro 1.5 million; extension of loan closing date to June 30, 2010 to facilitate completion of project and increase project's chances for fully achieving PDO. Reallocating the Euro 1.5 million to the economic revitalization grants would allow a larger number of beneficiaries to carry out sub projects targeted for economic revitalization.

02/19/2010 N S S 45.91 Reallocation of loan funds and extension of loan closing date.

07/12/2010 N S S 45.91 Reallocation of loan funds. 07/13/2010 N S S 45.91 Extension of loan closing date.

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I. Disbursement Profile

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1. Project Context, Development Objectives and Design

1.1 Context at Appraisal 1. Country and sector issues Country and sector background. In the beginning of 2000, five years after the hostilities ended, war affected areas in Croatia continued to suffer from lack of social cohesion and inadequate economic recovery. Both the national government and international donors focused on emergency relief and physical reconstruction of damaged housing and infrastructure. Local administrations from the war-torn parts of the country, referred to as Areas of Special State Concern (ASSC), were weak and had insufficient funds to support the affected communities. The establishment of ASSC through the 1996 Law on Areas of Special State Concern was motivated by the need for physical reconstruction and economic development in war-torn areas, and for enabling the return and reintegration of internally displaced persons and refugees. In 2002, the legal definition of ASSC was modified to include other areas such as those with certain structural difficulties, the border and mountainous parts of the country, and mined areas. A World Bank Post Conflict Fund Grant launched in late 2000 was among the first operations to pilot regional development and community-based approaches to assist in the recovery of ASSC, and to serve as a bridge between short-term relief efforts and medium-term social and economic development. Financing from the grant was also used to establish a dialogue with the European Union (EU) in conjunction with a Regional Development Vision workshop in two counties, Šibenik-Knin and Zadar. Following the workshop, the EU Community Assistance for Reconstruction, Development, and Stabilization (CARDS) program began to support the preparation of Regional Operational Programs (ROPs) in these two pilot counties, and later in other parts of Croatia. Following two evaluations of the Post Conflict Fund Grant demonstrating positive results, the Government of Croatia, with Bank assistance, initiated the design of the Croatia Social and Economic Recovery Project (CSERP) which would build on the lessons of the grant. In June 2004, as project preparation proceeded, the European Commission (EC) designated Croatia as a candidate country for EU accession and scheduled negotiations to begin in early 2005. In July 2004, the Government adopted the Pre-Accession Assistance Needs (PAAN) coordinated by the Ministry of European Integration. Among other topics, the PAAN document analyzes the country’s sector needs and priorities for foreign assistance. These included: (a) initiating economic development programs in the ASSC through, for example, SME and employment support; and development of family farms; as well as (b) design and implementation of alternative models for providing improved access to social services. The PAAN also stated that the Government would also develop the necessary capacity and mechanisms for effective use and absorption of EU structural funds. At appraisal, the project’s design was fully consistent with the priorities of the PAAN and the objectives of both the previous and proposed FY05-08 CAS. The project strategically

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targeted the ASSC and aimed to reduce regional development disparities and to strengthen social cohesion. CSERP also was designed to help strengthen the capacity of public institutions and local self government to generate project proposals for EU financing. Rationale for Bank Involvement. The Bank would build on its comparative advantage as the leading donor since the mid-1990s for complex multi-sectoral projects aimed at reconstruction of war-affected countries in South East Europe. These included three projects in Croatia: the Emergency Reconstruction Project (closed in December 1999), Emergency Transport and Mine Clearing Project (closed in December 2001), and the Reconstruction Project for Eastern Slavonia, Baranja, and Western Srijem (closed in June 1998). Because the Bank also had piloted the means for bridging the gap between short-term relief and longer-term regional development through the Post-Conflict Fund Grant, and had been supporting the process of EU accession, it was considered well placed to link post-war reconstruction and EU accession in Croatia.

1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The PDO was to support the economic and social revitalization of disadvantaged and war-affected areas as a way to increase social cohesion. The original main outcome indicators to measure progress towards achieving the PDO were:

percentage of community investment subprojects with participation of inter-ethnic and war affected groups; and

increase over time of inter-municipal and inter-county subprojects as defined by absolute numbers of projects.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The PDO was not revised. As implementation progressed, however, both the Bank and client recognized the inherent difficulties in capturing project results through the outcome indicators. Thus, as part of a project restructuring approved in June 2009, the results framework was revised to improve the outcome indicators so as to allow the Bank and Borrower to adequately measure progress in meeting the PDO. The original outcome indicators were replaced by three new ones: (a) number of jobs created through project activities and subprojects; (b) additional revenue generated by grant-supported subprojects for SMEs and cooperatives; and (c) number of direct project beneficiaries, including inter-ethnic, vulnerable, and war-affected. The first two indicators would determine the extent to which the project supported economic revitalization for the beneficiaries. The third indicator would determine how many people living in the ASSC received the benefits of the project investments. Although this indicator specifically mentions three categories of beneficiaries, determining the numbers of beneficiaries in each category presented challenges. It was not meaningful to report on the number of war-affected beneficiaries because all of the direct project beneficiaries living in the ASSC were by definition war-affected. Although beneficiaries may have belonged to various ethnic groups, there was both official and household reluctance to report on ethnic background. Most beneficiaries were reported as Croatian nationals and not disaggregated according to ethnicity. However, it was possible to report

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on the number of vulnerable beneficiaries through the social inclusion subprojects designed to address the needs of specific vulnerable sub-groups. 1.4 Main Beneficiaries The PAD identifies the following as the primary target group for CSERP assistance: war-affected groups (persons who remained, settlers, returnees, and internally displaced persons), which still confront barriers to their social and economic integration; and (ii) local administrations. Among the war-affected, the PAD highlights young people, unemployed, women, and other vulnerable individuals. It also identifies central, regional, and local institutions responsible for participatory regional development planning and absorption of pre-accession funds as another target group.

1.5 Original Components (as approved)

The project had four components, which remained the same throughout implementation: (a) Community Investment; (b) Demining; (c) Institutional Development; and (d) Project Management (see Annex 2 for a more detailed description):

Component 1-Community Investment (total €36.50m/ IBRD €23.0m). This component financed works, goods, and services for three types of demand-driven subprojects: social inclusion, economic revitalization, and small community infrastructure.

(a) Social Inclusion Subprojects aimed to improve access primarily to vulnerable to community-based services and activities. Subprojects would include: (i) youth centers and non-formal education programs; (ii) psycho-social support to vulnerable groups, especially for families of ex-combatants, displaced people, women and children suffering from domestic violence, and rural women's self-support groups; (iii) legal counseling; (iv) multimedia, communication, and cultural centers; (v) parents-school association programs; (vi) programs to support the disabled; and (vii) capacity building and institutional development for local government (county and municipal levels), civil society, and personnel responsible for delivering social integration services.

(b) Economic Revitalization Subprojects supported a wide range of economic

activities throughout the ASSC communities. They would contribute to increased opportunities for small businesses and cooperatives, and would enhance social cohesion by creating a more secure base for community revitalization. Three types of activities were envisaged: (i) building the productive capacity of existing cooperatives and SMEs, (ii) supporting the start-up of new co-operatives, and (iii) capacity-building for co-operative development and SME support services.

(c) Small Community Infrastructure Subprojects aimed at improving the living

conditions of communities by expanding access to services and public utilities through rehabilitation of small-scale social and economic infrastructure. They would contribute to social cohesion and economic revitalization by involving communities in identifying local priorities and implementing the rehabilitation of

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small community and economic infrastructure such as health and cultural facilities, markets, feeder roads, small bridges, water supply, irrigation and drainage systems, reforestation, and liquid waste treatment.

Component 2 – Demining (total €17.0m/IBRD €8.50m). This component financed goods and services for mine removal on a demand-driven basis, involving two types of activities: (a) provision of equipment to Croatian Mine Action Centre (CROMAC) to help reinforce their capacity, and (b) physical demining activities within ASSC. The component was seen as critical to and closely linked with the Community Investment component as land mine risk was often a constraint to provision of basic local services and infrastructure, and restoration of livelihoods for local population including returnees.

Component 3 – Institutional Development (total €3.5m/IBRD €2.5m). This component financed consultants, equipment, and goods for building capacity for central, regional, and local authorities. It would support regional development approaches by central and local administrations for/within the ASSC, and establish participatory and technically sound practices in territorial planning, decision-making, and implementation in line with EU principles. Activities would include: (a) capacity building at the central level; (b) development of five county Regional Operational Programs (ROPs); and (c) training and technical assistance for municipalities and organizations initiating subproject preparation. Component 4 – Program Management (total €3.0m/IBRD €1.0m). This component financed coordination inputs such as financial management, procurement, beneficiary outreach, technical support, and monitoring and evaluation. It covered incremental operating costs, goods, technical assistance, and training.

1.6 Revised Components The components were not revised.

1.7 Other significant changes There were no changes in the project design, scope, or scale. During the latter part of project implementation, however, there were the following changes. Change in Implementation Arrangements. As part of the government’s restructuring in early 2008, the management of the project was transferred from the Ministry of Sea, Tourism, Transport and Development (MSTTD) to the Ministry of Regional Development, Forestry and Water Management (MRDFWM). Major Revisions to the Operational Manual. Early in project implementation, based on follow-up discussion with EU counterparts, a strategic decision was taken to revise the operational manual to fully align subproject application procedures with requirements that beneficiaries would face when applying for pre and post-accession EU funding. An intensive collaborative process ensued among the client and Bank teams to integrate both global and EU approaches to subproject evaluation and appraisals, and to harmonize the capacity building needed by localities and non-governmental beneficiaries. The process also enhanced the role of regional selection committees to strengthen both stakeholder participation and the governance and oversight of project selection.

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Change in Results Framework. The original two outcome indicators were eliminated because both proved to be difficult to measure and not well tailored to capturing the contribution of project activities to achieving the PDO. With regard to the first indicator, data on inter-ethnic participation was difficult to obtain given the lack of official statistics disaggregated according to ethnicity and beneficiary reluctance to report formally on their ethnicity. With regard to the second indicator, the first few calls for proposals revealed that few applications were inter-county or even inter-municipal. Except for the demining component, most subprojects were small demand-driven activities. The funding ceiling for sub-projects needed to be considerably higher to create incentives for complex inter-municipal cost sharing arrangements for long-term operational and maintenance. During a first order project restructuring on July 14, 2009, three new indicators were selected to better capture the contribution of the subprojects to social and economic recovery in the ASSC: (a) number of jobs created through project activities and subprojects; (b) additional revenue generated by grant-supported subprojects for SMEs and cooperatives; and (c) number of direct project beneficiaries, including inter-ethnic, vulnerable, and war-affected. Project Extensions. The project’s original closing date of June 30, 2009 was extended three times. Due to the initial slow start to project implementation, in December 2008, the Borrower requested a one year extension to allow sufficient time for successful completion of approved subprojects, full utilization of available loan proceeds, and achievement of the PDO. The Bank agreed to a phased and conditional extension. The first phase extension to January 15, 2010 was granted almost immediately on the basis of the project’s performance having significantly improved since mid-term; strong ownership on the part of the new implementing ministry MRDFWM; and recognition that these important changes had substantially improved the likelihood that the project could fully achieve its PDO with additional time. The Bank also indicated that it would consider a second six-month extension if the Borrower met the following conditions by June 15, 2009: (i) continued satisfactory project performance; (ii) completion of an independent technical audit confirming the satisfactory quality of civil works; and (iii) adoption of a revised results framework including revised PDO outcome indicators. The Borrower met these conditions, and on July 14, 2009 the Bank’s Board approved the first order restructuring that included the second six-month extension to June 30, 2010. In June 2010, the Borrower requested another six-month extension to finalize the ongoing Community Investment sub-projects and to finalize the project’s planned beneficiary assessment. On June 29, 2010, the Bank approved the extension to December 31, 2010.

Funding Reallocations. There were four reallocations of loan proceeds, resulting in the transfer of funds originally to be used for operating costs or consultant services and training, to other important project components (grants, de-mining equipment). The Funds were not needed for the purpose for which they were originally intended because (a) other donors were already providing easy access to funds to be used for capacity building, and (b) local authorities did not need assistance in preparing subproject proposals.

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2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry Project preparation responded directly to the social and economic needs of the ASSC. The design benefitted from (a) the experience gained from the implementation and two evaluations of the Post Conflict Fund Grant which successfully applied demand-driven mechanisms for social and economic revitalization with territorial cohesion; (b) the EU CARDS experience in Regional Operational Programs (ROPs) and in SME and cooperative development; (c) the experience with the Government of Croatia’s policies and investments designed to promote socioeconomic development; (d) international best practice in cooperative and SME development; and (e) the findings of a Territorial, Socio-Economic, and Institutional Assessment carried out during project preparation. The design of the Demining component built on the lessons learned from two previous Bank-financed projects in Croatia, the Emergency Transport and Mine Clearing Project and the Emergency Reconstruction Project. The participatory processes carried out during project preparation and design were appropriate for a demand-driven project with collaboration among national, regional, and local stakeholders. Preparation involved extensive consultations with a wide range of actors; during the pre-appraisal and appraisal missions, for example, a pre-appraisal consultative workshop was held with approximately 50 county and local authorities to discuss the project's concept, scope, and proposed institutional arrangements. The Bank and Borrower considered alternative designs (rural credit, support only to large previously state-owned facilities, and a traditional “social fund” approach) that were justifiably rejected. The chosen design was best for building local capacity for implementation of pre and post-accession EU-supported operational programs, and for supporting local cooperatives and SMEs facing constraints on access to credit. The decision to finance capacity building for regional development in ASSC was forward-looking given Croatia’s status as an EU candidate country. Because both the Bank and the Borrower recognized that the demand-driven nature of the project would require a bottom-up approach, the Operational Manual (OM) detailed measures to ensure local participation throughout the subproject cycle, and incorporated multi-stakeholder Regional Approval Committees. Subproject selection procedures included calls for proposals and weighted selection criteria to encourage inclusion of disadvantaged groups in both economic and social subprojects. To guarantee “buy in" from beneficiaries, as learned during implementation of the Post-Conflict Fund Grant, the OM also specifies requirements for beneficiary contributions. Project implementation was coordinated by the PCU and involved multiple partners that ultimately strengthened project performance. They included: (a) UNCHR which provided key information on potential beneficiaries and supported the subproject selection process by serving as observers in the regional approval committees for the selection of grantees; (b) CROMAC, which implemented the de-mining component; and (c) three Regional Coordination Units (RCUs), which were responsible for promoting and then supervising

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and monitoring implementation of project components in their respective regions (the 3 RCUs covered all 13 counties included in the ASSC). A County Coordinator (CC) was hired for each of the 13 counties and was responsible for community outreach and beneficiary support. They provided a crucial interface between the PCU/RCUs and beneficiaries throughout the subproject cycle. The project design was consistent with the Bank’s safeguard policies. In terms of environmental impact, the project was classified as Category F (Financial Intermediary Assessment) and triggered OP 4.12 (Involuntary Resettlement) so that a resettlement policy framework would be in place in the event any of the investments involved land acquisition. The PAD also realistically appraised most risks the project would face, and incorporated appropriate risk reduction measures. Notwithstanding the above, the design had some weaknesses. Among them, the original PDO was not well articulated and the results framework did not include outcome indicators that could be realistically measured. Another weakness that ultimately undermined the effective project monitoring and evaluation was the lack of baseline data.

2.2 Implementation

Overall project implementation. The €35 million loan for the CSERP was approved by the World Bank Board on March 29, 2005, and became effective on September 30, 2005. The project closed on December 31, 2010 with disbursement of 99.7%. Project performance under the MSTTD lagged during the early years of implementation due to several factors: delays in hiring full-time PCU staff, changes in the project director, delays in establishing a monitoring and evaluation (M&E) framework and building adequate capacity for a properly functioning MIS, the time needed to raise awareness about the project in the ASSC so that a pipeline of eligible subprojects could be developed (this would be expected for any demand-driven project where subprojects could not be identified prior to implementation), and some procurement deviations from the loan agreement. Other less significant factors included the need to provide guidance to the PCU on how to be more proactive in using the loan, and delays associated with improving the OM (for example, early in 2006, it was agreed that the OM should be revised to incorporate relevant EU modules and more stringent procedures for ensuring transparency in sub-project selection). Another factor affecting the pace of implementation was that the ministry staff involved in project preparation was not part of the team that initiated project implementation. Thus, all of the capacity-building during project preparation had to be repeated for the new team. The combination of these factors led to the project having disbursed only 12% of the available funds after 2.5 years of implementation. However, given the demand-driven, participatory nature of the project, it would not have been realistic to expect considerably higher disbursement rates after two years, even if some of these factors did not exist. Mid-term review. The MTR took place during the period May 12-21, 2008, just before MRDFWM officially assumed responsibility for the project. The Bank team worked

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closely with MRDFWM to implement the critical steps needed to enhance project performance: streamlining implementation of the demining component, clarifying financial management and disbursement arrangements to be more responsive to subproject needs, and developing realistic implementation time-lines and disbursement projections. Progress was being made in the implementation of social inclusion and small community infrastructure sub-projects, but was expected to accelerate once the MRDFWM acted on the following MTR recommendations:

Significantly increase disbursement. The Bank’s expected that once the PCU

understood that the Community Grants were eligible to be financed 100% from loan proceeds (as long as the overall financing for project investments did not exceed 85%), disbursement would increase by 40% by December 31, 2008.

Appoint a full-time project director. The Bank recognized Government’s strong support but urged the MRDFWM to appoint a new full-time PCU Director.

Meet the newly agreed timelines and set benchmarks. These would aim at accelerating implementation of all project components.

Revise composition of the Project Steering Committee and National Approval Committee. Both committees had principal roles in the economic revitalization subprojects and would need to reflect MRDFWM leadership.

After the MTR, changes in project management had a dramatic impact on project performance. In June 2008, the project was officially transferred from the MSTTD to the MRDFWM. The subsequent appointment of a new full-time PCU Director, who remained in her position until project closing, also had a positive impact. As noted in the December 20, 2008 ISR, all recommendations made during the MTR were addressed in a fully satisfactory manner, and disbursement rose to 42%, higher than anticipated. Project restructuring and extension. As discussed in section 1.7, the project was restructured four times and the closing date was extended three times.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization Design. Although an M&E framework was developed at appraisal, it was the weakest part of project design. The original outcome indicators and the inter-ethnic aspect of one of the revised indicators could not be used for measuring progress in meeting the PDO given the challenges outlined previously. Moreover a formal baseline was never established, nor was the MIS system fully operational. This would later complicate the task of fully capturing project results. Implementation. Despite efforts on the part of the Bank team to support M&E, it was not assigned priority by the Borrower until late 2008. Moreover, until relatively late in the project implementation period, the original outcome indicators would not be used for measuring progress in meeting the PDO due to several factors. First, by the time CSERP became effective, social integration for members of war-affected minority groups had progressed in some parts of the ASSC. As project implementation proceeded, the RCU M&E staff reported that beneficiaries were reluctant to identify their ethnicity, a factor that prevented monitoring of the original indicators or full disaggregation of one of the revised

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indicators. Second, the project tended to highlight support for improving economic conditions in ASSC communities. Another factor was that most of the RCU M&E specialists did not have the necessary expertise in M&E and relied on the leadership from the central PCU which itself lacked adequate M&E capacity until a suitably qualified expert was hired in 2008 following a staffing change. The system also was affected by ongoing changes in the central M&E staff. Despite pressure exerted by the Bank team during the project’s early years to prompt the PCU to intensify its efforts to revise the results framework and define meaningful monitoring indicators, it was not until the PCU hired the M&E specialist in 2008 that the Bank and PCU agreed on new outcome indicators, and the PCU and RCUs proceeded with data collection. The revision of the outcome indicators also followed the main recommendation of the FY2009 Joint Portfolio Review that the Borrower should improve the outcome indicators as one of the steps needed to improve quantification of the project’s results. Nonetheless, the absence of a properly functioning MIS did not allow the central M&E staff to assemble and evaluate trends and results. Utilization. Although the revised outcome indicators significantly improved the project’s results framework, their introduction came too late to fully meet expectations for ongoing project evaluation. Nonetheless, by project completion, the PCU was able to collect adequate regional and subproject level data to assess the project’s progress in meeting its targets by component. The data collection strategy included extensive field visits to beneficiaries as part of both project monitoring and supervision, and a beneficiary assessment (involving both qualitative and quantitative methods) was completed in September 2010 to supplement the M&E data gathering.

2.4 Safeguard and Fiduciary Compliance

Supervision missions routinely monitored project fiduciary compliance. The project’s FM arrangements had been rated Unsatisfactory or Marginally Unsatisfactory during the early years of project implementation, and the Bank team and the Borrower agreed on an action plan to improve their FM arrangements. By August 2007, the FM rating was upgraded to Moderately Satisfactory, but deficiencies continued until July 2009 when the rating was upgraded to Moderately Satisfactory, and later to Satisfactory. The ratings for procurement were the same as those for FM. Throughout project implementation, the PCU procurement staff benefitted from the ongoing support from the Bank’s procurement specialist based in the field office as they enhanced their knowledge of Bank procedures, and increased the PCU’s overall capacity to support beneficiaries on procurement. The team fielded periodic reviews of the implementation of OP 4.01 (Environmental Assessment), including one safeguard review that specifically focused on the demining component. With regard to the latter, however, the review found that while existing regulations on demining works are well defined and implemented, the Government had not yet passed legislation on handling waste from destroyed mines. The team could have advanced this issue with the relevant authorities to agree on acceptable procedures for residue waste management.

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Although OP 4.12 (Involuntary Resettlement) was triggered, project implementation ultimately did not involve land acquisition or restrict access. The team checked numerous infrastructure and demining subprojects and confirmed that none of the subprojects visited involved land acquisition and noted that there were no cases or complaints related to land acquisition brought to the attention of the Bank.

2.5 Post-completion Operation/Next Phase As noted in the PAD, to ensure that CSERP would have a sustained impact, the project was structured to be entirely implemented through existing ministerial and local governmental structures. It was envisioned that the PCU and its RCUs would become part of the MSTTD’s Directorate for Regional Development, and staff to be hired would eventually be incorporated into the civil service or county and municipal administration. At the time of project closing, most staff from the PCU and the original project team had been incorporated into either MSTTD or MRDFWM. This has facilitated a transfer of knowledge from the project to these ministries on how to set up the institutional framework for bottom-up implementation of local demand-driven investments in a post-project, pre and post EU accession context. To ensure sustainable O&M arrangements, all grant proposals were required to describe how the proposed services, facilities, and infrastructure would be maintained after project closing. The technical audit carried out in June 2009 confirmed that these arrangements were being implemented as planned. Annex 4 presents a sample of completed social inclusion subprojects that were initiated in 2009 and continue to provide community services post project support. Moreover, all of the SMEs assisted by the project were still operating and generating income at project closing. Also at the time of project closing, there were a large number of subprojects in the pipeline that could not be funded due to a lack of funds and time. For example, only every seventh request for small community infrastructure sub-project could be financed. Given the strong pipeline and demand, the Government of Croatia has been able to secure funding to support completion of additional community investment subprojects.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation The project was and continues to be relevant to the country context as suggested by its consistency with the CAS at the time of project approval and the FY09-FY12 Country Partnership Strategy (CPS). According to UNCHR, moreover, returnees continue to need assistance in business development and social integration. While medium-sized enterprises currently may be in a stronger position to obtain financing than small enterprises and agricultural cooperatives, grant support for business development had a strong and catalytic effect across all SMEs, and successful applicants were able to use project grants to leverage additional funding and increase average annual revenues. By project closing,

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the MRDFWM had expressed strong interest in a follow-up project, as did all counties and municipalities that had participated in CSERP. The goal of the FY09-FY12 CPS is to support: (a) the completion of Croatia’s EU accession process, (b) the rapid convergence of its income level with that of current EU member states in a fiscally, socially, and environmentally sustainable fashion, and (c) establishment of a decent quality of life for Croatia’s citizens. Among other areas of support, the Bank is continuing to assign priority to strengthening private sector-led growth and accelerating convergence with the EU. Thus, CSERP’s objectives and emphasis on preparing the country for EU accession remain appropriate for the current CPS. Similarly, the project’s objectives, design, and implementation continue to be relevant to the needs of the Government in meeting EU requirements for pre-accession and structural funds.

3.2 Achievement of Project Development Objectives The project achieved its PDO to support the economic revitalization of disadvantaged and war-affected areas as a way to increase social cohesion. CSERP facilitated the integration of refugees and displaced persons, and improved the overall climate regarding refugees, returnees, settlers, and the domiciled population, and improving access to social services for vulnerable populations. Although the project objective is broad, which made measuring results difficult, the achievement of the PDO is based on the following. Most project targets were essentially reached or surpassed. As shown below, there were 84,173 direct beneficiaries (98% of the target) residing in the ASSC, all of whom were war-affected; 51,106 of this total were considered vulnerable (women and children, disabled, elderly, and unemployed). The project generated 1,359 new jobs (36% more than restructured target) and the SMEs and cooperatives under the Economic Revitalization subcomponent generated €11 million in additional revenue (82% of the restructured target). Additional details are presented in Annex 3.

Outcome Indicator Target Actual Number of jobs created through project activities and subprojects

1,000 1,359

Additional revenue generated by SME and Cooperatives

100,000,000 HRK

81,286,112 HRK

Number of direct project beneficiaries, including inter-ethnic, vulnerable, war-affected

86,000 84,173 Vulnerable: 51,106

War-Affected: 84,173 Implementation of the three sub-components under the Community Investment Component supported social and economic revitalization, and increased social cohesion. Under the following three main sub-components, 405 sub-projects were successfully completed and had a significant role in improving social cohesion throughout the ASSC.

(a) Social Inclusion. Under this subcomponent, 125 subprojects were completed which exceeded the target of 120. These subprojects enabled beneficiary groups to, inter alia: participate in community organizations and undertake decision making

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on priority services for vulnerable and war affected citizens; pursue training in areas that would increase their employability; expand access to pre-school, after school educational activities, libraries, and other community-based services. In many cases, these subprojects also provided new jobs in the affected communities (see Social Inclusion table in annex 3). Among the 41,639 beneficiaries of this sub-component, 21,703 were children and youth, 24,873 were elderly and disabled, and 4,530 were unemployed.

(b) Community Infrastructure. A total of 69 subprojects were completed compared to

the target of 60, and beneficiaries were able to improve access to a range of municipal services, such as improved roads, sewage and water supply systems. Not surprisingly the majority of applicants were municipal governments themselves, interested in expanding and upgrading local economic infrastructure as well as enhancing local conditions and creating a foundation for social and economic recovery. Twenty-two projects involved municipal and county cooperation in providing social services.

(c) Economic Revitalization. The grants provided under this sub-component (211

subprojects were completed and 240 was the target) produced three main categories of benefits to the beneficiaries and surrounding communities. First, the grants helped many enterprises to jumpstart economic recovery, thus offering continued employment to their staff and creation of 661 new jobs which allowed families to remain in their ASSC communities and continue to pursue an improved quality of life. Among the completed subprojects, 151 were for existing cooperatives and SMEs, and 60 supported new cooperatives.

The main sectors for the SME support were: agro-industries and food processing, construction related materials and services, metal products, wood products, and transport services. SME grants totaled €15.10 million and the value of grant was €100,000 per subproject on average. On average, grant financing accounted for about 17% (ranging from 10% to the maximum of 27%) of total project financing; the beneficiaries contributed about 25 % from own resources, and the balance of around 58% came largely from commercial bank loans.

The vast majority of the new cooperatives were engaged in agriculture or farm related activities. Grants totaled € 2.60 million for a total of 60 subprojects for an average value of grant of about €43,300 per subproject. Grant financing accounted for about 50% (ranging from 20% to a maximum of 85%) of total project costs, the balance coming from the beneficiaries’ own resources or from commercial bank loans.

On average, the additional sales revenue generated per SME/Coop was 385,242 HRK during the project period; overall, the project generated additional revenue of about 81,286,112 HRK. In some cases, the subprojects provided incremental employment at a time when total employment in the area was declining due to layoffs by large industrial units. Second, the grants had indirect impacts by

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increasing revenues and jobs for the grantees’ suppliers and customers through the linkage effects through purchases from suppliers and sales to consumers. These effects were particularly noticeable in the case of farming and agro-industries as well as construction-related and service industries. Third, the grants had an important role in leveraging additional investment. While this figure could not be confirmed, the PCU reported that ER grants helped to leverage an additional 1 billion HRK (€130 million).

Beneficiaries of the Community Investment grants expressed satisfaction with the project’s impact on their lives. The box below illustrates some of the reactions of beneficiaries of the Community Investment component during the September 2010 beneficiary assessment when asked to describe how the project affected them and their communities.

Project-financed demining increased the amount of safe land that could be accessed, a pre-condition for social and economic development and strengthening of social cohesion. Under this component, 12.185,445 square kilometers of agricultural land (102 percent of the target) were demined and made available for cultivation. The international demining specialist who supervised this component in September 2009 noted that all of the demining operations met or exceeded the highest international technical standards and all formal national requirements. According to CROMAC, the demining activities carried out during the period 2008-2010 dramatically improved safety in some municipalities. For example, the mine suspected area on the border between Hungary and Croatia was reduced by more than 50% due to a combination of CSERP subprojects, donor funds, and the State Budget. Because the project also financed needed equipment to allow CROMAC to fulfill its monitoring, quality assurance, and public warning responsibilities, the number of civilian casualties declined from 12 in year 2005 to 3 in 2010. The successfully completed de-mining subprojects also allowed those living near the affected areas to benefit from

Social Inclusion Subprojects "In this project, we employed a social worker, a psychiatrist, and a psychologist, all of which helped us to improve the quality of our services and our relationship with the local community." Female, 47 “We provided facilities to people in rural areas to take care of the elderly which make up 25% of our population.” Male, 42 Community Infrastructure Subprojects “The project was more than successful. Now, we have one of the most beautiful buildings in the area occupied almost every day with activities. There is always something happening here on weekends, and we plan to carry out lectures and presentations here because it is a really nice space now.” Male, 56“ “The project’s contribution is that the youth now have a special place in which to work, meet, be inspired, exchange knowledge, develop new projects, and spend their free time in a constructive manner." Male, 62 Economic Revitalization Subprojects “New people were hired and we kept the existing workplaces, especially noteworthy in a time of economic crisis. We also increased production by 20-30%. With the new funds received, we equipped this facility which increased production and made us more competitive on the market.” Male, 46 “The project yielded excellent results. The company “Protein” is working very well; it’s expanding, employing local inhabitants, and having a positive influence on the entire community.” Male 45

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other project-financed investments in community infrastructure and economic revitalization. Beneficiaries of the Demining Component expressed full satisfaction with its role in generating jobs and increasing security and incomes. The box below presents the beneficiaries’ views during the BA. Good results were achieved under the Institutional Development Component. Although less than the expected number of staff was trained, some 5,000 national and local officials Good results were achieved under the Institutional Development Component. Although less than the expected number of staff was trained, some 750 national and local officials and civil society representatives were trained in such areas as procurement, project design, and project management. The project also increased the capacity of local self government for successful absorption of future structural and cohesion funds. Regional Operational Programs were developed for four counties; the fifth one for Split-Dalmatia County was funded and developed using its own resources. By requiring EU application procedures, the project was instrumental in building capacity of beneficiaries for applying for EU grants in the future, and civil society representatives were trained in such areas as procurement, project design, and project management. The beneficiary assessment (BA) concluded that the project was implemented successfully. The full range of stakeholders participating in the BA indicated that the project: (a) was adequately presented to the public; (b) had impacts encompassing a wide spectrum of beneficiaries and spreading throughout entire local communities; and (c) led to numerous initiatives aimed at improving living conditions in local communities, improvements in ASSC standard of living, and visible and measurable improvements in the material and psychological impacts on the quality of life of citizens in ASSC. Among respondents in the quantitative survey, 93% were very satisfied with CSERP assistance and technical support. Data collected from a sample of enterprises further confirm the importance of the project to SME income and employment growth during the project period (see Annex 4).

3.3 Efficiency Economic and financial analyses, including ex-ante estimation of economic and financial rates of return (ERR and FRR) and net present value (NPV), were not carried out at appraisal in view of the nature of the project investments which were community-based and demand-driven, and thus could not be identified up front. However, an analysis with the limited data and evidence available at the writing of the ICR indicate that the project had strong economic and financial benefits and subproject implementation was efficient. With regard to the social inclusion subcomponents, quantitative measures of impacts were not feasible given the social services nature of the subprojects. The main benefits were in the form of an increase in physical and mental welfare, health and well-being, and security,

"The project had a marked positive influence on the inhabitants, especially in terms of agriculture. Now they have jobs and a source of income which also keep young people in villages. People help each other and interpersonal relations are bettered." Male, 30 "I consider the project a success because we have reduced the amount of the land suspected of having mines and people have their land back and can earn their living." Male, 54

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which are difficult to quantify. Investments under the small community infrastructure were cost-efficient, and this was confirmed by an independent technical audit carried out in June 2009 which found that civil works carried out conformed to both unit cost estimates and applicable technical construction standards for similar investments in Croatia. The Economic Revitalization subcomponent resulted in substantial benefits to the beneficiaries and surrounding communities. However, in keeping with the Bank’s experience in post-completion economic and financial assessments of similar multi-beneficiary (enterprises, cooperatives, communities) projects involving mostly private sector entities, ex-post estimates of ERR, FRR, NPV, or other quantitative measures of efficiency are not practical or applicable. Nonetheless, as discussed in section 3.2 (c) and Annex 3, the grants to SMEs and new cooperatives produced direct impacts. In the case of SMEs, an average subproject investment of €100,000 (512,930 HRK) helped SMEs to leverage resources that enabled them to increase average annual revenues in terms of increased sales revenues (to €75,106 or 385,242 HRK) within the first year after expansion, and expand revenues dynamically over time. A total of 661 additional jobs were created; an average of 3 new jobs per subproject grant (and €33,000 or 169,267 HRK in grant financing per sustainable new job created under the subcomponent). In a sample of 84 subprojects (see table in Annex 4), on average, the grants helped to generate 20 percent increase in revenues during the project period. This subcomponent also had indirect impacts on increasing revenues and jobs for their suppliers and customers through the linkage effects of purchases and sales. The following is just one example of the impact of the grants from the beneficiary perspective. In addition to the above, it should be noted that most of the SME and cooperative subproject beneficiaries are in the private sector and have substantial personal stakes in the subprojects through their equity contributions and collateral commitments to commercial banks for loans obtained. While the Bank loan and Government funds disbursed under the project financed grants only, the grants themselves were only a part of the overall financing for each subproject, particularly for SMEs and new cooperatives (NCs). For SMEs, grants financed about 17% of subproject costs; about 25% came from the owner’s equity funds, and the balance of over 50% from commercial bank loans. For NCs, the share of grants was an average of 50% of the overall subproject cost, and many used the grant to leverage very significant commercial bank loans (see Annex 4 for details). The ability of the SMEs/NCs to repay the commercial bank loans depends upon the success of

Increase production of trout and fish-based delicatessen products. The “Gacka” fish farm is organized as a self-contained closed-system fish farm with its own spawning of domesticated California trout and local brook trout, and production of these species for ranching natural waterways and for consumption. Today, this is a state-of-the-art facility covering approximately 6.5 ha located at the source of the Sinačka Pučina (tributary of the Gacka river), supplying fresh water to the fish farm, and using water that is among the purest in Europe. The investment encompassed the fish pond purchase and its reconstruction, construction of facilities, purchase of the necessary equipment, and obtaining an export registration number for the EU and USA for farming and processing facilities. The subproject resulted in increasing production capacity from 150 to 300 tons of trout per year with a 50% increase in employment. With a total project investment of 3,715,353.00 HRK (including a CSERP grant of 970,000.00 HRK), the subproject resulted in enlargement of the ponds, employment of 12 new staff, and introduction of new operating systems.

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the subproject as a whole, and this created a strong incentive for the SMEs/NCs to ensure the success of the subprojects, given the risk to their collateral. Further, grantees were required to expend at least 50% of the cost of the overall project before they could receive grant funds. Thus, the SMEs/NCs have strong incentives to achieve adequate financial returns from the subprojects. With regard to the Demining component, the actual and potential benefits of the project activities are described earlier and in Annex 4. From the perspective of cost-efficiency, the project-financed demining activities were undertaken in conjunction with the overall demining program in Croatia for which their cost-efficiency (in terms of annual cost per km2 of mined area cleared) has progressively improved over the period 2005 to 2010. Finally, the project results were achieved with only 60% of the agreed Borrower co- financing or €15 million out of the €25 million commitment. Some of the shortfall can be explained in terms of fiscal constraints during the financial crisis (about €6 million), the remaining €4 million constitutes the approximate amount that would have been disbursed to the 39 SMEs that ultimately failed to secure complementary commercial bank financing once lending requirements tightened (assuming an average grant of €100,000). A total of €1.5 million of the €3.5 million estimated to be required for Institutional Development during appraisal was reallocated to support SMEs and new cooperatives, once the localities with support from the community coordinators and RCUs demonstrated capacity to develop adequate proposals. These reallocated funds were ultimately included in the €4 million not disbursed under the ER subcomponent, and explains why only 37% of the appraisal estimate was disbursed on Institutional Development.

3.4 Justification of Overall Outcome Rating Rating: Moderately Satisfactory The overall outcome rating of Moderately Satisfactory is based on the project’s achieving the PDO and its contribution to building local capacity to access EU funding that can help realize the economic potential of the ASSC. While not all targets were reached, most were met and/or exceeded, and significant knowledge was transferred to stakeholders at all levels. The following are additional factors contributing to the MS rating.

(a) The main stakeholders, particularly the beneficiaries of the Community Investment grants; local and regional authorities; ministries (MSTTD, MRDFWM, MOF); and UNCHR all view this project as having been successful because it improved social and economic conditions in the ACCS and the overall climate for refugees, returnees, settlers, and the domiciled population. These views were confirmed by: (i) the 2010 BA (93% of survey respondents were very satisfied with CSERP assistance), and (ii) the positive results of the 2010 survey carried out by the PCU to assess their own performance and to obtain feedback on the grant application procedures and effectiveness of the central PCU and RCUs.

(b) The grants provided to the SMEs helped to jump start new small businesses, and to provide timelier financing to existing enterprises than would otherwise be available through commercial banks. The SMEs and cooperatives generated EUR 11 million

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in additional income. In existing enterprises, the grants prevented loss of jobs; overall, the subcomponent created 661 new jobs.

(c) The Social Inclusion subprojects involved the largest possible number of inhabitants from socially endangered and vulnerable groups in the ASSC. Through the 125 subprojects, the project reached 41,639 beneficiaries; more than two thirds were directed specifically at children and youth, and the elderly. These subprojects also supported 4,530 unemployed workers and generated 628 jobs.

(d) The Community Infrastructure subcomponent financed new or improvements to community facilities and infrastructure; the 69 subprojects generated 70 new jobs.

(e) Implementation of the Demining Component established the preconditions for faster social and economic development and strengthening of social cohesion in ASSC. Coordinating the demining with improvements in community infrastructure also made the business environment more favorable for SMEs and proved essential for achieving broader benefits.

(f) CSERP implementation contributed to and supported the process of regional development by strengthening capacity for regional development planning at the local self-government level; increasing the quality and level of knowledge, motivation, and project cycle management skills; and establishing inter-regional cooperation and development of specific projects for CSERP financing that would result in higher levels of social inclusion and economic development in the ASSC.

(g) Through the Institutional Strengthening component, the project supported training for 750 staff at the national, regional, and local level and they now have the necessary capacity to generate new project ideas and prepare project proposals for pre-accession funding. The majority of PCU staff have been absorbed by the MSTTD and are currently carrying out these functions.

(h) The objectives of CSERP continue to be relevant. SME development remains one of the main areas for economic growth. In ASSC, war-affected groups continue to need support to overcome destroyed or underdeveloped infrastructure, lack of business support services, and constrained access to financing and available credit lines, particularly for small agricultural producers and small enterprises.

3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development Some subcomponents had particularly positive impacts on gender. For example, the Small Community Infrastructure sub-component made it possible to involve 18,758 women in service provision. Under the Social Inclusion component, 421 women were employed through the subprojects, while another 14,511 were trained for various programs. The component also provided for social activities geared to about 24,000 elderly and disabled persons. Overall, CSERP was instrumental in improving the livelihoods of rural population in finding employment for 1,359 persons, of which 763 were women. (b) Institutional Change/Strengthening Project-supported technical assistance and training resulted in the following:

(a) Approximately 750 officials and civil society representatives now have capacity for strategic regional planning, cost management, project management, business planning, procurement, and project documentation.

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(b) With project staff trained at the central, regional, and local levels, and remaining in MRDFWM after project closure, the ministry has at its disposal 34 young skilled experts well acquainted with EU procedures and ready to take over implementation of EU pre-accession funds, presently, and after EU accession.

(c) At the local level, there are strengthened horizontal and vertical links to be used when planning regional development, and strengthened working relationships and coordination between counties and municipalities.

Other Unintended Outcomes and Impacts (positive or negative) The project had unintended outcomes that added value, including:

(a) Application of project’s participatory approach to non-project purposes. Local stakeholders, who received project-related training, applied their new skills in community-based project planning and design to non-project related activities (for example, in the municipality of Bilje, cooperatives, local government, businesses, and citizens cooperated in developing a local strategy for tourism development).

(b) Increased psychological satisfaction on the part of vulnerable groups. For example, in all home care assistance programs, the elderly expressed immense satisfaction with the services they received. Some participants reported an increase in creativity and satisfaction with life in general.

(c) Increased cooperation between sectors. For example, the Association Hepatos’ project, which informs and sensitizes local communities about viral hepatitis, followed the example of the project by involving collaboration of multidisciplinary bodies, associations, health organizations, and the media.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops The Borrower hired an independent social research firm to carry out a comprehensive beneficiary assessment (BA) using both quantitative and qualitative instruments. The main findings of the BA were that the project: (a) was implemented successfully, (b) was adequately presented to the public, (c) had positive impacts encompassing a wide spectrum of beneficiaries and spread to whole local communities, (d) led to numerous initiatives aimed at improving living conditions in local communities, (e) led to improvements in ASSC standard of living for all involved in the CSERP, and (f) led to visible and measurable improvements in the material and psychological impacts on the quality of life of citizens in ASSC. Among respondents in the quantitative survey, 93% were very satisfied with CSERP assistance and technical support. See Annex 6 for more details.

4. Assessment of Risk to Development Outcome Rating: Moderate There is a moderate risk that over time the local authorities may not have the necessary funds to pay staff and ensure the continued operation of new services and facilities supported by the Community Investment component. For the SMEs and new cooperatives (NCs), the sustainability risk is also assessed to be moderate. Given that most beneficiaries are in the private sector and the owners have substantial personal stakes in the subprojects through their equity contributions and bank loan collateral commitments, which account for about 75% of the subject costs, it is likely that the beneficiaries will have a strong incentive for successful operation of the subprojects (see section 3.3). For

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the SMEs, the main risks are exogenous (for example, deterioration in the macroeconomic environment, commercial bank’s liquidity situation) and cannot be assessed up front. For the NCs, the risk is higher because they must depend on continued technical and institutional support from the local and national level cooperative agencies. The capacity of these agencies to continue to provide these services in the future will depend on the extent of support they will obtain from the Government, including under EU schemes.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory The Bank’s performance in ensuring quality of entry was Moderately Satisfactory. The preparation team ensured that the design took into account the lessons learned from other post-conflict projects in Croatia and international experience as well as best practice in participatory approaches to project design and implementation. It also ensured that the proposed beneficiaries had ample opportunity to participate in project design through a social assessment and several multi-stakeholder consultations. Because the team recognized that the demand-driven nature of the project requires stakeholders to articulate their needs, they ensured that the project had adequate technical assistance for carrying out this function, and that the final OMs detailed measures for incorporating public participation and required subproject approval committees to include representatives from government, the private sector, and civil society. By taking into account past experience, the team also ensured that specific incentives were provided for inclusion of disadvantaged groups into both economic and social subprojects. To help guarantee "buy in" from beneficiaries, the Bank team also ensured that the OM specified requirements for beneficiary contributions. The performance of the Bank team was less strong in articulating the PDO and in designing project outcome indicators. (b) Quality of Supervision Rating: Moderately Satisfactory The Bank carried out regular supervision missions that included specialists in social inclusion, financial management, procurement, and safeguards. The team also included an international consultant to supervise implementation of the Economic Revitalization subcomponent, and fielded an international demining specialist to ensure that the quality of the works met both national and international standards. The team monitored closely the progress made throughout project implementation, worked closely with the Borrower in solving problems as they arose, and added an international M&E specialist to help improve the results framework. During the early years of implementation, when it was agreed to update the project OMs, the team ensured that they were revised so as to meet the requirements for EU pre-accession grant funds. Although the task team leader changed three times during project implementation, continuity among the team members was maintained. Moreover, there was a strong country office staff oversight on the project activities, and regular communication with the ministerial implementing unit and other partners. During the ICR mission, the national authorities and other organizations involved in the project expressed full satisfaction with the team.

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Notwithstanding the above, the quality of supervision could not be rated fully satisfactory due to two main factors. First, the changes in task team leaders contributed to project delays during the period immediately after the mid-term review. Second, during the 2009 restructuring, the team could have better articulated the third outcome indicator (number of direct project beneficiaries, including inter-ethnic, vulnerable, and war-affected). The team also could have initiated this restructuring earlier in the project implementation period. (c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory Overall Bank performance is rated Moderately Satisfactory on the basis of the quality of project design and overall diligence in working with the client throughout the project implementation period to resolve technical, operational, fiduciary, and staffing issues as well as to ensure sufficient time to allow implementation of subprojects. The Bank team was well appreciated by the client and all stakeholders. Commitment to the success of the project was maintained throughout project implementation as evidenced in the regular supervision missions and project reporting. The Bank’s performance was less strong with regard to the design and supervision of the M&E system.

5.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory Government performance refers to the Bank’s central government partners, the MSTTD, the MRDFWM, and CROMAC during project design and implementation. At this level, the performance of the Borrower is rated Moderately Satisfactory due to the delays in hiring a full time PCU and failure to address the Bank’s concerns during the early years of project implementation regarding the M&E system. (b) Implementing Agency or Agencies Performance Rating: Satisfactory Although the initial implementing agency performance was moderately satisfactory, the performance of the Project Director that assumed responsibility after mid-term produced a dramatic shift in the performance of the PCU, and the results were quick and remarkable. The excellent performance of the PCU during the period after the MTR was highlighted by most of the stakeholders interviewed during the ICR mission and is reflected in a limited quantitative survey carried out by the PCU to obtain input on its own performance during project implementation. Among other findings, 92% of respondents said that they were fully satisfied with the help provided by the CSERP team. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory Overall Borrower performance was rated Moderately Satisfactory on the basis of the productive collaboration between the Bank and Borrower during project design as well as the performance of the management and staff of the PCU both before and after it was transferred to the MRDFWM. Borrower performance did not receive a higher rating because it takes into account the delays during the early project implementation experience,

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and the fact that the Borrower did not respond to the Bank’s advice in a timely manner in setting up and implementing a fully functioning M&E system and MIS.

6. Lessons Learned Like most demand driven community-based investments, the project required about two years before substantial disbursements could be made. Because specific subprojects could not be known or prepared prior to loan effectiveness, and there was inherent uncertainty as to whether a selected beneficiary would meet all loan criteria and have the capacity to proceed in a timely manner, the implementation of this project with multiple components needed longer than four years for full implementation. Given the need to first raise large-scale awareness about the project, ensure that all potential beneficiaries understood the procedures that must be completed to prepare qualifying sub-projects, and then carry out a transparent sub-project selection process, it was unrealistic to expect substantial disbursements within the first two years of project implementation, or that the project could be fully implemented in four years. Combining the “top down” and “bottom up” approaches was effective for implementing this demand driven social development investment. Under this scheme, national authorities established the overarching strategic priorities for socioeconomic reconciliation which would guide development in the project areas and the specific funding envelope for each strategic priority. Regional and local stakeholders submitted proposals based on local needs that fit within the overarching strategic pillars. In this way, national priorities were aligned with the specific needs of the regions, local communities, and beneficiaries such as NGOs, SMEs, and cooperatives, and subproject implementation could proceed on the basis of shared ownership and cooperation. To facilitate the top-down/bottom integration to sub-project preparation and implementation, the project had three RCUs and CCs located in each of the 13 counties. This structure of horizontal and vertical links and responsibilities strengthened direct interface and support to beneficiaries and hence overall implementation. Grant financing is particularly useful to small enterprises when there are transitory constraints in the financial system. Small firms were facing especially severe liquidity constraints due to difficulties or delays in obtaining commercial bank financing and receiving timely payments from customers. The grants were particularly helpful in relieving transitory liquidity constraints and helping to leverage private funding for business expansion. Because the smaller enterprises had the most difficulty obtaining commercial bank financing during the financial crisis of 2008-2009, similar World Bank projects might consider assigning priority to cooperatives and small enterprises as was done in CSERP during the Second Call for Grant proposals. In a project where grant allocations will be made to applicants on a competitive basis, it is important to ensure that the selection takes into account that the applicant has the necessary permits and licenses. Under the First Call for Grant proposals, there were instances when an entity did not have all the necessary requirements for proceeding with project implementation. For example, there were delays in the Economic Revitalization subprojects related to problems obtaining necessary licenses and permits for SMEs and

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new cooperatives. Under the Second Call for Grant proposals, therefore, applicants were required to certify upfront that the requisite permits and licenses had been secured. Community-based, demand-driven subprojects are sustainable. After the subprojects were completed, field visits to numerous Social Inclusion, Community Infrastructure, and Economic Revitalization subprojects confirmed that the staff hired for subproject implementation remained on the respective payrolls, and the enterprises supported by the project continue to generate income. Monitoring and evaluation systems must be carefully designed to ensure that monitoring efforts can start early in the project implementation period and produce data that can be useful for assessing project outcomes and impacts. Although the project included adequate provisions for M&E, not all outcome indicators developed at appraisal and during implementation could be measured or monitored. Choosing appropriate indicators and implementing systems that allow project outcomes to be assessed during its life is a challenge that requires specialized expertise and full borrower commitment. For similar projects in the future, having a pipeline of subprojects prior to effectiveness would allow the Borrower and Bank to test the indicators early to ensure they were appropriate. In defining indicators in post-conflict situations, using indicators that require beneficiaries to identify their ethnicity often will not be appropriate. Due to the sensitivity of this issue and the reluctance of individuals to identify their ethnic backgrounds, particularly in areas experiencing a return of certain groups, Bank staff should not insist on using such indicators or expect them to be accurately measured as part of project monitoring. In a post-conflict situation, a demining component can be used strategically to unlock local economic potential and promote social cohesion. Although including the demining component increased the complexity of the project, it greatly contributed to the achievement of the PDO.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies The Borrower agrees with the assessment of the ICR and has no further comments or suggestions. Annex 8 presents a summary of their ICR. (b) Cofinanciers There are no cofinanciers. (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) See Annex 9 for the comments from UNHCR.

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Annex 1. Project Costs and Financing

(a) Project Cost by Component (in EURO1 Million equivalent)

Components Appraisal Estimate (EURO millions)

Actual/Latest Estimate (EURO

millions)

Percentage of Appraisal

Community Investment 36.50 30.35 83% Demining 17.00 15.54 91% Institutional Development 3.50 1.28 37% Project Management 3.00 3.26 108%

Total Baseline Cost 60.00

Physical Contingencies 0.00

0.00 0.00

Price Contingencies 0.00

0.00

0.00 Total Project Costs 0.00 0,00

Front-end fee PPF 0.00 0.00 0.00 Front-end fee IBRD 0.17 0.17

Total Financing Required 60.17 50.60 84.00

(b) Financing

Source of Funds Type of Cofinancing

Appraisal Estimate (EURO

millions)

Actual/Latest Estimate (EURO

millions)

Percentage of Appraisal

Borrower 25.00 15.00 60% International Bank for Reconstruction and Development 35.00 34.89 99.7%

1 Appraisal estimates were done in EURO and the loan was denominated in EURO. Thus, the figures above are in EURO for consistency.

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Annex 2. Project Components The project as originally designed had four main components: (a) Community Investment; (b) Demining; (c) Institutional Development; and (d) Project Management: Component 1 - Community Investment (total €36.50m/ IBRD €23.0m). Referred to in the PAD as “the heart of the CSERP,” this component was to fund works, goods, and services for demand-driven subprojects in Croatia’s ASSCs. Three general types of subprojects were envisaged: social inclusion, economic revitalization, and small community infrastructure.

(a) Social Inclusion Subprojects. These subprojects were intended to improve access by war-affected, disadvantaged, or vulnerable persons and other stakeholders in the ASSCs to community-based services, initiatives, and activities. Selected subprojects would be encouraged to: (a) increase the involvement of beneficiaries in the design and implementation of such programs through consultation and citizens fora; (b) increase the involvement of civil society in service delivery programs; (c) improve partnerships between local governments, civil society, and communities; and (d) strengthen the capacity of local government to promote community-based services according to a system of priorities and a better and more efficient allocation of resources. Grants would be provided to counties, municipalities, organized communities, groups, local organizations, or institutions such as kindergartens, schools, youth organizations, centers for the elderly, cultural centers, and libraries. Subprojects and activities to be implemented were to include: (i) youth centers and non-formal education programs through activities that promote reconciliation, cultural revitalization, and social and economic initiatives at the community level; (ii) psycho-social support to vulnerable groups, especially for families of ex-combatants, displaced people, women and children suffering from domestic violence, and women's self-support groups in rural areas; (iii) legal counseling for returnees and other vulnerable groups; (iv) multimedia, communication, and cultural centers; (v) parents-school association programs in ethnically divided communities, including training for teachers on issues of social cohesion and reconciliation; (vi) programs to support the disabled; and (vii) capacity building and institutional development for local government and civil society organizations and their personnel responsible for delivering social integration services. Social inclusion subprojects would cost between €15,000 and €100,000, with a minimum beneficiary contribution of 15% (10% under special circumstances).

(b) Economic Revitalization Subprojects. These subprojects would support the

development of farm and other income generating activities in local communities. They would contribute to increased opportunities for small businesses and cooperatives, and were expected to enhance social cohesion by creating a more secure base for community revitalization. Three types of economic revitalization activities were envisaged: (i) building the productive capacity of existing co-

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operatives and of SMEs, (ii) supporting the start-up of new co-operatives, and (iii) capacity-building for co-operative development and SME support services.

(i) Building the Productive Capacity of Existing Cooperatives and SMEs.

These would support existing cooperatives and SMEs by facilitating access to existing sources of funding by overcoming the constraints that prevented widespread use of such funds and by building up their capacity to prepare and implement bankable projects. Established SMEs and cooperatives would be able to apply for grant funding under a matching scheme. Financing would be provided through a combination of grants of up to 27% of the subproject cost with a maximum of €135,000. Recipients would be expected to provide 10% co-financing, in cash or in kind, from their own resources. For the remaining financing needs for the subproject, it was envisaged that most beneficiaries would obtain a loan from one of the credit-lines available for the ASSCs provided by commercial banks with Government support. Subprojects with a total investment value of up to €150,000 would be screened and selected by regional approval committees; larger subprojects would be approved by a national-level committee. Recipients who do not obtain loans would have to demonstrate other sources of financing.

Eligible subprojects would include expansion of productive activities in all economic sectors: agro-processing and agro-industry, new and innovative production technologies, business clusters and networks, and information technology projects. The selection criteria would favor subprojects that contribute to: job creation, increase in industrial, processing or agro-industrial output, improvement of the marketing environment, introduction of new or innovative technologies, and increased networking. Half of the grant would be provided up front at the beginning of the subproject, and would be used for machinery, equipment, and/or production inputs. Thus, the disbursement would normally be made directly to the supplier rather than to the grant recipient. The remaining grant funds would be used for capacity building and to support increasing the employment of specific target groups.

(ii) Supporting the Start-Up of New Cooperatives. This support would be based

on the established best practices in cooperative development in Croatia and internationally. It was to include provision of grant-funded start-up capital for newly established agriculture and non-agriculture cooperatives, coupled with technical assistance to encourage success. The project would also promote the introduction of secondary cooperatives and marketing chains to enable farming communities to achieve larger economies of scale.

According to the PAD, cooperatives in the project area that have been registered for less than 24 months would be allowed to apply for grants. Expenditures eligible for start-up capital grants would include: construction, reconstruction, or adaptation of premises, new machinery and equipment, and raw materials as well as other production inputs. Eligible subprojects would

26

include: new productive activities in agricultural, livestock, and agricultural fields (and niche markets such as organic food, rural tourism and others); partnerships and market linkages between multiple cooperatives, agro-processing; and the rehabilitation and repair or equipping of small and medium scale facilities which were functioning prior to the war. The grants’ lower ceiling would be €42,500; the higher ceiling would be €120,000, equal to a maximum CSERP financing of 85% of the total subproject cost (80% for projects over €100,000). Provision of such grants would require preparation of a suitable business plan and a beneficiary contribution in cash or in kind between 15- 20% of the total cost.

Capacity Building for Cooperative Development and SME Support Services. Technical assistance and capacity building for SMEs were to be demand-responsive, flexibly organized, and provide financing for: a business development program, increase in the performance and client orientation of existing business advisory services, and two technical assessments. The business development program would focus on building skills for subproject preparation and implementation, including capacity for developing feasible business plans and investment feasibility studies, and to provide SMEs with expert advice on business performance, such as commercial skills and production quality standards. Examples include: business and investment plan development, project preparation (e.g., needed for applying to a bank loan), market research, quality management systems, and enterprise reorganization. Capacity-building for co-operatives would provide standardized training and business development programs applicable to the needs of most cooperatives as well as services adapted to individual co-operatives. The purpose of these non-financial services would be to help cooperatives develop in terms of organization, management capabilities, and business capacities to enable them to borrow from commercial banks or existing credit lines. Cooperatives to be selected would be those with the greatest potential to make the best use of program support and where the resources and efforts would be multiplied, especially through the use of regional service providers, i.e., regional cooperative unions. Criteria for selecting cooperatives and groups would include: current rate of member participation and commitment as reflected by the number of members participating in group meetings, the amount of capital contributions, and the prospect of the cooperative or group becoming a financially and operationally viable unit. In contrast to the other types of subprojects, these activities would not receive grants. Rather, the capacity-building activities would be outsourced to firms, or in the case of cooperatives, to the Croatian Federation of Cooperatives.

(c) Small Community Infrastructure Subprojects. The objective of these subprojects

would be to improve the living conditions of communities by providing increased

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access to services and public utilities through rehabilitation of small scale social and economic infrastructure. They would contribute to the overall objective of social cohesion and economic revitalization by involving communities in identifying local priorities and implementing the rehabilitation of small community and economic infrastructure. In addition, they would contribute to facilitating cooperation between local governments, civil society, end beneficiaries, and the private sector. Recipients of grants for small community infrastructure would include decentralized governments and civic and business associations. Eligible subprojects would include social infrastructure, socio-economic infrastructure (provided that it responds to a collective need), and sanitation and environmental infrastructure. Possible infrastructure for rehabilitation under such subprojects would include: primary schools, health and cultural facilities, market places, feeder roads, small bridges, water supply, irrigation and drainage systems, reforestation, rubble clearing, and solid and liquid waste treatment. Such subprojects would be identified in a collaborative effort between municipal authorities and target beneficiaries with inputs from line ministries when applicable. The assistance for small community infrastructure projects would range between €50,000 and €200,000, with a minimum beneficiary contribution of 15% (10% in poorer communities).

The Community Investment subprojects were to be generated through outreach in the ASSCs to make the population aware of the project, encourage quality, and foster processes of local development planning. Subprojects were to be proposed and implemented by local and regional self-governments (municipalities, towns, and counties), co-operatives, small and medium enterprises (SMEs), public and private entities (such as schools and health centers) non-governmental organizations, and community-based organizations in the ASSCs. They would be selected on the basis of criteria focusing on the adequacy of subproject identification and needs, institutional and technical requirements, sustainability, quality of services, and consistency with the Regional Operational Plans (ROPs), where present, or with county and municipal priorities. Selection would be made by subproject approval committees; once selected, technical assistance would be made available to beneficiaries as needed to help ensure the success of subprojects. Subprojects were generally to be funded through grants. Recipients would be expected to provide a beneficiary contribution (in cash or in kind) of at least 10% (depending on the nature of the subproject). Criteria, guidelines, and procedures for subprojects were to be spelled out in the operational manual.

Component 2 – Demining (total €17.0m/ IBRD €8.50m). The Demining component would fund goods and services for demining. It would fund the removal of mines on a demand-driven basis and where the presence of mines would prevent the implementation of Community Investment subprojects. The Component would consist of two types of activities: (a) provision of equipment to CROMAC to help reinforce their capacity, and (b) coordination of specific demining activities. Three different contexts for demining were envisaged:

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(a) Demining linked to other subprojects. This would occur when a sub-project under the Community Investment Component required demining, such as a cooperative that needed to have mines cleared from its fields.

(b) Demining as specific local government subprojects proposed by local government units or community-based organizations.

(c) Demining linked to National Mine Action Plan (NMAP). This refers to demining activities/projects identified as critical by CROMAC and linked to the NMAP.

Once it was determined that the subprojects required demining, CROMAC would subcontract the demining activities out to private demining enterprises, supervise their work, verify that the area was free of mines, and issue official certification to that effect. CSERP would pay the demining enterprises, and CROMAC would not charge an administrative fee for managing this component. CROMAC also would carry out two other project-related activities at no charge to the project. First, once informed of the precise geographical areas of intervention of the project, CROMAC would give them top priority in the process of surveying, marking, and reducing (i.e., verifying that no mines are present) the areas of mine contamination. Second, CROMAC would give those areas priority in mine awareness and mine information programs. The Demining component was designed to incorporate information sharing and flows to facilitate planning between CROMAC, the PCU, and communities. The processes reflect international experience and best practices so as to eliminate bottlenecks in subproject implementation and to ensure that the demining investments are cost-effective. Component 3 – Institutional Development (total €3.5m/ IBRD €2.5m). This component would fund consultant services, equipment, and goods for capacity building for central, regional, and local authorities. The objective of the component was to support regional development approaches by central and local administrations for/within the ASSCs, establishing participatory and technically sound practices in territorial planning, decision-making, and implementation in line with EU principles. The component would provide: (a) capacity building at the central level; (b) financial support for the development of five county Regional Operational Programs (ROPs); and (c) support for local institutional development by providing training and technical assistance for municipalities and organizations that are initiating subproject preparation.

Central Level. At the central level, this component would provide capacity building for the technical staff of the Ministry of Sea, Tourism, Transport and Development (including the CSERP Central Coordination Unit and Regional Coordination Units) and other relevant ministries (for example, Agriculture and Economy) or institutes (for example, the Fund for Regional Development) directly involved in the ASSCs. At this level, institutional capacity would be enhanced for functions related to regional development policy implementation. The PCU would prepare and administer annual capacity building plans. The capacity building would include: hiring short term technical assistance in specific areas, training in regional training centers, study trips, and participation in seminars.

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Regional Operational Programs. This sub-component would support EU regional planning at the county level by financing five Regional Operational Program (ROPs) in line with EU methodologies in the following counties: Dubrovnik-Neretva, Virovitica-Podravina, Osijek-Baranja, Split-Dalmacija, and Bjelovar-Bilogora. The ROPs were to be completed by June 2006 and complement the 8 EU-funded ROPs. ROPs would be prepared according to the methodology established by the EU Delegation in Croatia. At the county level, PMUs would have responsibility for implementing the ROPs.

Local Level. At the local level, this component would enhance both horizontal and vertical linkages for regional development planning and would support greater connectivity among counties and municipalities. To this end, it would fund technical assistance and training for representatives of civil society and local government officials in regional development practices, including project cycle management and EU procedures. Three types of capacity building were envisaged:

Capacity Building for Civil Society. The purpose would be to build the

capacity of CBOs and NGOs to participate in and benefit from CSERP activities. The PCU would carry out detailed assessments of all concerned counties to identify civil society capacity building needs. In addition, any community group of organization may identify specific needs. On the basis of the identified needs, the PCU would then contract NGOs or firms to carry out training programs.

Reinforcement of County PMUs. This would support the PMU’s ability to implement projects and raise donor funds. The PMUs would be strengthened through the appointment of CSERP liaison persons in the PMUs who would work with the PCU to identify training needs. These needs would be addressed either by training modules delivered by the PCU or by contracting out training to firms or NGOs. Participation in study tours and workshops would also be possible.

Reinforcement of Local/Municipal Governments. The objective was to strengthen municipal capacity to support territorial cohesion and efficiency of administration. To this end, the PCU would conduct local/municipal capacity assessments which would inform the work of training teams to be established by firms or NGOs contracted under the project.

Component 4 – Program Management (total €3.0 m/ IBRD €1.0m). This component would fund financial management, procurement, beneficiary outreach, technical support, and monitoring and evaluation. Specifically, it would fund incremental operating costs (including some salaries), goods, technical assistance, and training.

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Annex 3. Outputs by Component Community Investment

Social Inclusion Sub-component (SI). Implementation of this sub-component was satisfactory and the end of project target was exceeded. Notably, 125 SI sub-projects were completed under the two Calls for Proposals compared to the target of 120, equivalent to 102% of the target. The total number of beneficiaries served under this sub-component is 41, 639, which compares favorably with the end of project target of 45,000. Among the sub-projects:

37 involved activities geared towards 21,703 children and youth 41 involved activities geared towards 24,873 elderly and disabled persons 13 involved activities geared towards 4,530 unemployed persons 34 involved activities aimed at simplifying access to social services in ASSC, i.e.

for the benefit of the entire local community 22 involved activities involved municipal and county cooperation in providing

social services.

Box 1 provides illustrations of the types of projects financed through the sub-component and the positive impacts. Table 1 provides additional data on the impacts of a larger sample of subprojects.

Small Community Infrastructure Sub-Component. This sub-component was satisfactorily implemented; 69 small community infrastructure sub-projects (the target was 60) were successfully completed, and 100 percent of beneficiaries reported satisfaction with the activities. Its objective was to improve living conditions for communities by ensuring better access to services and utilities through reconstruction of social and business infrastructure. Through this sub-component, the following were renovated:

14 primary schools, 1 music school, 9 kindergartens, 1 sewage system, 13 access roads, 8 community centers, 4 water supply systems, 1 market, 9 primary healthcare centers, and 9 other facilities.

Economic Revitalization Sub-Component (ER). The implementation of this subcomponent was satisfactory; 250 sub-projects were approved, and 211 of these were successfully completed, compared to the project target of 240 (88% of the target). Job creation under this sub-component was impressive, leading to the creation of 661 new jobs (110% of end target). Total additional revenues generated through the ER sub-projects were €11 million (HRK 81 million) through the support to SMEs and cooperatives. While the overall end of project revenue target was not met due to the financial crisis, €11 million is about 83% of the target, a very substantial achievement under the circumstances.

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Box 1: Sample Social Inclusion Subprojects

Organizing help in the home for elderly and disabled persons, Šibenik-Knin county, Kistanje municipality. According to the 2001 census, there were 3,038 permanent residents in the Kistanje municipality, and the elderly represented more than 70% of the population. Unfortunately, a large number of this population lived in unfavorable economic conditions, are of poor health, and are markedly isolated within the community, malnourished, and inadequately housed due to their low income. Especially vulnerable are older women and widows who live alone and without regular income, and are therefore unable to buy basic food and medicines. The project was aimed at providing in-home assistance for the elderly (for example, house cleaning, help with personal hygiene). The total value of the subproject was 645,190.00 kn (around €85.000), while the CSERP grant amounted to 510,000.00 kn. The project employed 9 staff and reached 127 persons. Computerization and staff training at the rehabilitation center “Fra Ante Sekelez,” Split-Dalmatia county, Vrilika municipality. The center provides care for persons with slight, moderate, and severe mental disabilities and persons with multiple impairments. Prior to the project, the center had very little IT equipment, which slowed the work flow as reflected in poor performance indicators. Due to the lack of IT equipment, the rehabilitation unit staff was unable to monitor tuition and other activities involving inmates in an organized manner. Also, most staff members were not accustomed to working with computers because they were not available at their work places. Prior to the grant, staff had access to only one computer that had been in use for 12 years. The project provided full IT support to the center and financed procurement and provision of IT equipment, training on interpersonal skills and knowledge, and state-of-the-art methods and skills in medical care. Every employee of the center was involved in the training. During the two years of project implementation, IT equipment was purchased and installed in the center. Rehabilitation of management software for public institutions was also purchased and installed. The project involved 113 employees and 180 users. The computer equipment financed by the subproject has considerably improved, facilitated, and speeded up their work. Day care and assistance in the home for the elderly and the disabled in rural areas, Dubrovnik-Neretva county, Dubrovačko primorje municipality. According to the 2001 census, 25.7% of inhabitants in the Dubrovačko primorje municipality are over the age of 65; the share of the same age group at the county level is 15.9%. Due to sparse population, distance between villages (4-5 km) and large surface area, it has been extremely difficult to provide health and social welfare services to this area. This subproject was carried out by the Dubrovačko primorje municipality in cooperation with the “Blage ruke” association. Subproject activities included purchases of: equipment needed in the day care unit for the elderly and the disabled; IT equipment; a vehicle for field work; blood pressure, sugar and fat measuring devices; and material used in the measuring process. The subproject encompassed 125 elderly and disabled individuals, coming from the wider area of the Dubrovačko primorje municipality. The instruments purchased made it possible to continue with activities aimed at helping the elderly and the disabled, most of whom live in single-person households. Preservation and promotion of the national heritage, cultural and artistic society “Hrastovička gora,” Sisak-Moslavina county, town of Petrinja. The main objective of the subproject was to increase social inclusion to improve quality of life. Another objective was to involve children in the process of preserving cultural heritage by purchasing folk costumes and musical instruments for the children's dance group, a tamburitza children's band, and a group of seniors (singers and dancers). The society has 30 permanent adult members and 40 children under 15 years of age, and its activities include dance and tamburitza sections and adult and children's groups. The society is led by two professionals, who are also inhabitants of Hrastovica. These activities will encourage socializing, strengthen the feeling of belonging to one's home area, and transfer the skills acquired to peers. The subproject will be continued by the Sisak-Moslavina county and the town of Petrinja.

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Table 1. Social Inclusion Component – Beneficiaries and Funding Sources

Name of Project/ Location

Brief Description

Year Started

Beneficiary Group

Number Beneficiaries

(baseline)

Number Beneficiaries

(end of project)

Number of Employees (baseline -

when project initially

completed/ operational

Number of employees–

(end of project)

Source of Funding

Association of persons with disability Slatina/Slatina

Center for support to disabled persons

2009 disabled 60 78 5 8 WB Loan/State Budget/ Other donors

Nursery School Suhopolje

Hallo, world! – English playroom

2009 children 40 36 1 4 WB Loan/State Budget/ Other donors

Sveti Rok- Institute of Public health Virovitica - Podravina County

Mobile team for prevention of drug abuse among school-children

2009 youth 900 1000 0 0 WB Loan/State Budget/ Other donors

Tompojevci Municipality

Children playrooms in Tompojevci, Nijemci, Tovarnik and Lovas

2009 children 400 526 3 6 WB Loan/State Budget/ Other donors

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Vukovar-Srijem County

Introduction of WEB-GIS System in the Vukovar-Srijem County

2009 all 100 150 1 3 WB Loan/State Budget/ Other donors

Nijemci Municipality

Wireless network TINTL


Home for Drug Addicts "Zajednica Susret"

Foundation of the future

2009 youth 25 22 4 6 WB Loan/State Budget/ Other donors

Dragalić Municipality

Revitalization of Dragalić Municipality and improvement of life quality for all the inhabitants


Cluster "Posavina - povrće"

Greenhouse of knowledge in Velika Kopanica

2009 unemployed 60 38 3 4 WB Loan/State Budget/ Other donors

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Box 2: Sample Small Community Infrastructure Subprojects

Building a livestock market, Lika-Senj county, Perušić municipality. The subproject was submitted by the Perušić municipality with its partners, the Lovinac municipality and the Lika-Senj county department of the Croatian Agricultural Extension Institute. The targeted group of beneficiaries was war-affected unemployed persons who are agricultural producers. The subproject was used to set up the livestock market, to build a business facility and to compile a database of agricultural producers. Upgrading and paving with asphalt the street, Šibenik-Knin county, town of Drniš. The project upgraded and paved the streets of the town of Drniš, thus ensuring better connectivity and improved access to services and public goods in the town and contributing to a more favorable living environment. A total of 7 streets were covered with asphalt – approximately 1 km of road. The subproject implementation has resulted in direct benefits for 280 members of targeted groups and in indirect benefits for all the inhabitants of the town of Drniš (3,332 inhabitants), as well as for all the inhabitants living in the area surrounding Drniš (14,647 inhabitants). Reconstruction of the Mečenčani district primary healthcare unit, Sisak-Moslavina county. The Sisak healthcare center subproject for the reconstruction of the district primary healthcare unit located in the village of Mečenčani, in the municipality of Donji Kukuruzari, provided access to primary healthcare for the entire population (over 2000 persons) of the wider municipality area, who live in the villages of Donja Velešnja, Gornja Velešnja, Donji and Gornji Kukuruzari, Donji and Gornji Bjelovac, Bjelovački Kostreši, Umetići, Knezovljani, Prevršac, Mečenčani, Borojevići, Lovča and Komogivina.

Reconstruction of the drinking water processing facility, Bjelovar-Bilogora county, town of Daruvar. This subproject improved drinking water quality to encourage people to remain living in the war-affected area as inhabitants. The area covered by the subproject has 22,500 inhabitants. The project provided for the dosage of the coagulant solution introduced by a pump into the flocculator to be automated, with the dosage intensity dependent on water condition. Unless community utility infrastructure is adequately maintained, no development can be expected in the area; thus, this project is considered to be very valuable. Reconstruction of the corridor and staircase in institution for professional rehabilitation, Bjelovar-Bilogora county. The subproject ensured adequate working conditions in the institution for professional rehabilitation of persons with disabilities. This workshop is one of four such workshops in the country, and the only one in the ASSC. The subproject objective was to ensure inclusion of persons with disabilities into the local community and facilitate their access and movement within the institution, especially for persons in wheelchairs. The organization “Suvenir Nova” is the only institution in a wider area employing persons with disabilities and offering them rehabilitation through work. The subproject was also designed to complement the efforts of this institution and Bjelovar-Bilogora County to raise awareness in the society and in the community that persons with disabilities are not a burden for society, and that such individuals should be approached with understanding, not pity.

Conversion of the old cinema hall, Brod-Posavina county, the town of Otok. The town of Otok did not have adequate premises to organize cultural and other social events. The inhabitants pointed out the problem themselves, when, organized in various associations, they regularly submitted requests to the town council to be provided with adequate premises for their activites. The town council was also aware of the problem, although it was unable to make adequate premises available due to shortage of funds and other priorities. There are more than 40 associations, covering every area of social activity, registered in the town and the most numerous is the town association of pensioners with over 1,000 members. The total gross surface area of the new facility is 612.30 m2.

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Box 3: Sample Economic Revitalization Sub-Component

Increase production of trout and fish-based delicatessen productsc. The “Gacka” fish farm is part of the company Leko d.o.o. Zagreb, branch Otočac. It is organized as a self-contained closed-system fish farm with its own spawning of domesticated California trout and local brook trout, and production of these species for the purpose of ranching natural waterways and for consumption. Today, this is a state-of-the-art facility with a surface area of approximately 6.5 ha located at the source of the karst river Sinačka Pučina (tributary of the Gacka river), supplying fresh water to the fish farm, and the water is ecologically, based on its physical and chemical parameters, among the purest waters in Europe. The investment encompassed the fish pond purchase and its reconstruction, construction of facilities, purchase of the necessary equipment, and obtaining export registration number for the EU and USA for farming and processing facilities. The subproject “Increasing Production of Trout and Fish Delicatessen” resulted in increasing production capacity from 150 to 300 tons of trout a year with a 50% increase in employment. The total project investment was 3,715,353.00 kn, and the CSERP grant was 970,000.00 kn. The subproject resulted in enlargement of the ponds, employment of 12 new staff, and introduction of HACCP and SSOP systems. Increase energy efficiency of the export-oriented wood product manufacturing cycle. Wood product manufacturing center Glina d.o.o. used the project to revitalize the wood processing industry in the Glina region and set up an export-oriented and competitive wood product manufacturing process. Increases in production-cycle energy efficiency resulted in savings on energy expenses and benefited the manufacturing process by increasing volumes of production and the company total revenue and profit. One of the key objectives was to offer full time jobs to professionally skilled workers. Of the total project investment of 2,431,819.18 kn, CSERP contributed 648,819.18 kn, which was used to build a transformer station TS10(20)/0,4kV, purchase electrical installation material and equipment, procure equipment to adapt the boiler plant for the use of biomass, and finance installation of equipment and works to adapt the boiler plant. The following project objectives were met: savings were made on energy expenses of at least 30 %, manufacturing volumes were increased by at least 30 %, and revenues and profits rose by at least 40 %. Instead of the 15 planned, 20 professionally skilled persons were employed by the subproject end; another 80 will be employed by the end of this project. Construction and refurbishment of production and warehousing facility. The grant was used by the company to purchase a machine, CNC Plazma TYP ZEVS 3,15 AHC, and to build a manufacturing and warehousing facility with surface area of 1,000 m2. The core activity of the company is production of ventilation systems with 70% of their revenues coming from exports. TEHNO FILTER d.o.o. employs young professionals and will be socially sensitive and responsible in their future operations and development. The company will use its current cooperation relationships (already in place with the company TOS Kneževo) to entice networking and professional cooperation among business entities and local self-government units in their industry, thus contributing to social cohesion, which is an important element of further economic and social development of the community. Tehno filter d.o.o. was awarded the yearly “Zlatna kuna” prize as the most successful small company in 2008. Manufacturing footwear with the PU sole injection technology. The subproject was used to purchase footwear production line using PU sole injection technology. The new production line will enable the manufacturer Borovo to introduce a new method of PU sole injection technology, a service that was earlier contracted from external suppliers. The new technology will enable the manufacturer to make shoe soles with a special anti-shock amortizing effect in the heel side. There are 15 workers on the new production line in each shift as well as assistant workers and technology specialists, and a total of 120 new jobs were created due to the new investment.

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Demining Component All demining activities were satisfactorily completed by June 30, 2010. During two calls for proposals, CROMAC received 866 requests and 420 were approved and implemented. The total area demined under the project is 12,185,445 m2 (102% of the target). This facilitated improved economic activity across the range of beneficiaries including: individual citizens; family farms; cooperatives; SMEs; associations; public institutions; local governments. The activities in this component were intended to provide the community with an opportunity to realize anticipated potential through investment subprojects without any risk from mine accidents. The financial means allocated in the framework of CSERP were intended for providing support to farmers and reconstruction of the existing infrastructure. This required demining of mine suspected areas. During project implementation, it was especially important to define mine suspected areas in ASSC in order to ensure safety and better working conditions for all interested parties: war-affected population, family businesses, local administration units, cooperative businesses, public institutions, organizations within the community, small and medium enterprises. As envisaged, the implementation of the component enabled the realization of preconditions for faster social and economic development and strengthening of social cohesion in ASSC. Institutional Development Component Implementation of the component is moderately satisfactory. Substantial amounts of funding from this component, deemed no longer necessary, were reallocated to the Econimic Revitalization Sub-Component. The last reallocation of €738,000 was made on July 13, 2010. Notwithstanding these reallocations, the results achieved under this component were significant, particuarly in the early part of project implementation when most of the institutional development activities were viewed as essential. About 5,000 representatives of central, regional, and local level officials as well as the civil society sector benefitted from the project’s capacity building and training activities. In addition to the above, staff in the PMU and sub-project managers highlighted their new knowledge and skills in project management, internet and computer (e.g., project managers in kindergartens Veliki Grđevac i Suhopolje reported that their computer skills were very low prior to the project), public procurement rules, and communicating with citizens. The PMU also noted that several of the PCU staff have found placement in other more senior level positions in other ministries/agencies.

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Annex 4. Economic and Financial Analysis

A brief assessment of project costs and benefits is provided in the following sections. In keeping with the general experience in the Bank with post-completion assessments for similar multi-beneficiary projects, ex-post estimates of ERR, FRR, and NPV have not been made for the project. The possibilities for carrying out alternative quantitative assessments, using other indicators of cost-benefit effectiveness, are limited by data constraints. The assessments below are therefore largely qualitative. However, where possible, data available from the M&E system are supplemented by data obtained on a sample basis during field visits to some of the project’s beneficiaries.

Community Investment Component

Social Inclusion and Small Community Infrastructure Subcomponents

The economic impacts of the Social Inclusion and Small Community Infrastructure subprojects are not easily quantifiable, but a qualitative indication is provided by the outputs realized from the subprojects (listed in Annex 3). Thus, the social inclusion subprojects improved access to community-based services and activities. The small community infrastructure subprojects helped to improve the living conditions of communities, including those that were un-served or under-served, by expanding access to services and public utilities through rehabilitation of small-scale social and economic infrastructure, including primary schools, health and cultural facilities, market places, feeder roads, small bridges, water supply, irrigation and drainage, and waste collection and disposal. A technical audit of these subprojects was carried out in June 2009 by an independent consultant engaged by the PCU. In regard to cost-effectiveness, the consultant’s report confirmed that: (a) subproject outputs were suitable in relation to the project objectives; (b) designs were generally appropriate with only some minor defects in some cases; (c) the construction work conformed to the designs and specifications; (d) the proposed O&M arrangements were acceptable; and (e) cost estimation guidelines were followed and the bid prices came in close to the cost estimates.

Economic Revitalization Subcomponent

Project Design Features. Economic revitalization subprojects were intended to support the development of farm and other income generation activities in local communities. The project was expected to contribute to increased opportunities for small businesses and cooperatives. These outcomes were expected to enhance social cohesion by creating a more secure base for community revitalization. Three types of economic revitalization activities were envisaged:

Building the productive capacity of existing cooperatives and of small and medium enterprises (SMEs)

Supporting the start-up of new cooperatives (NCs) Capacity-building for cooperative development and SME support services

The selection criteria were to favor subprojects that contributed to the following:

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Job creation Increase in industrial, processing, or agro-industrial output Improvement of the marketing environment Introduction of new or innovative technologies Increased networking

For eligible existing cooperatives and SMEs, grants from the Bank loan proceeds were to be made up to a maximum of 27% of total project cost with a maximum amount of €135,000 per subproject, with the beneficiary providing an equity contribution of at least 10%, the balance coming from other sources, including commercial bank loans. For new cooperatives, the grants could be made up to 80 - 85% of project cost with a maximum ceiling of €120,000.

Implementation Results. Under the ER component, a total of 250 contracts were signed for subprojects of which 39 were either cancelled or withdrawn; 211 subprojects were completed (against the end-of-project target of 240). Among the completed subprojects, 151 were for existing cooperatives and SMEs, and 60 supported new cooperatives. The main sectors for the SME subprojects were: agro-industries and food processing, construction related materials and services, metal products, wood products, and transport services. The vast majority of the new cooperatives were engaged in agriculture or farm related activities. With regard to subproject financing:

For existing cooperatives and SMEs

Grants totaled €15.10 million for a total of 151 subprojects for an average value of grant of €100,000 per subproject;

Grant financing accounted on average for about 17% (ranging from 10% to the maximum of 27%) of total project financing; the beneficiaries contributed about 25 % from own resources, and the balance of around 58% came largely from commercial bank loans;

For new cooperatives (NCs)

Grants totaled € 2.60 million for a total of 60 subprojects for an average value of grant of about €43,300 per subproject;

Grant financing accounted for about 50% (ranging from 20% to a maximum of 85%) of total project costs, the balance coming from the beneficiaries’ own resources or from commercial bank loans.

Economic Costs and Benefits. The subprojects were undertaken in the selected ASSC at a time when unemployment rates were higher and average incomes lower than the national averages. In this environment, in aggregate, the subprojects contributed to improving the employment and income situation in the participating ASSC not only through their direct incremental impacts on employment and incomes but, importantly, through their significant backward and forward linkage effects through purchases from suppliers and sales to customers. Linkage effects were particularly noticeable in the case of agro-industries, farming, construction-related, and service industries. In some cases, the

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subprojects provided incremental employment at a time when total employment in the concerned area was declining due to layoffs by large industrial units. A partial list of SME subprojects is given in the table attached to this Annex. Based on this sample, as shown in the table below, the annual revenues generated by the grants show an average increase of 20 percent during the project period. However, data limitations preclude a more detailed disaggregated analysis at the levels of subprojects, industrial sectors, or participating regions. However, at the aggregate level, based on the available data from the M&E system, the 211 subprojects’ direct incremental economic contributions were the following:

Additional employment of 661 jobs or an average of 3 jobs per subproject; this exceeded the revised target of 500 jobs at project completion that had been set at project restructuring in June 2009; and

Additional revenue of about €11 million (or 77% of the end-of-project target value).

These incremental impacts could possibly have been higher but were subject to a number of constraining factors:

Initial delays in the implementation of the ER component as a result of which, while procurement of goods and services was completed by the project completion date, not all the subprojects achieved the levels of intended operations or production; and

The adverse changes in the macro-economic environment due to the global financial crisis starting early 2009 and ongoing through 2010 which (i) affected operations through reduced demand for products or suppliers’ difficulties in timely deliveries, and (ii) resulted in decreased availability of commercial bank financing.

Demining Component

Funding provided for demining under the CSERP was about EUR 15.54 million which accounted for about 6% of the total funding for demining in Croatia in the period 2005 to 2010. A total of about 12.2 km2 were cleared under the project. Beneficiaries included a mix of entities: private and family businesses, cooperatives, SMEs, associations, public institutions, and local authorities. A majority (about 83%) of the demining interventions were for demining of agricultural land in line with the requests of the end users. Equipment purchased under the project enabled an improvement in the quality and intensity of on-site monitoring and enhanced safety and control for the inspection. The implementation of the demining component contributed to the increasing trend in demining performance in the period 2006 to 2009 as reflected in the annual area demined (from 25 km2 to nearly 40 km2) and annual number of mines destroyed (2,500 to 8,500). Concurrently, the number of civilian casualties per year declined from 12 in 2005 to 3 in 2010. With regard to cost-effectiveness, an indicator of the progressive cost efficiency over the period 2005 to 2010 is the declining trend in terms of cost per km2 of mined area. Prior to adjustment for annual price inflation, this declined from about HRK 8.4 per m2 in 2005 to about HRK 7.8 per m2 in 2010. The efficiency gains would be higher if adjusted for annual price inflation.

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Incremental Impact of Small and Medium Enterprises (Sample) Name of Grant

amount Number of employees Annual revenues Incremental

increase % Increase in Annual Revenue

enterprise (HRK 000)

(HRK 000)

Baseline End of project

Incremental Baseline End of project

Incremental

Metalni Ijev Metal industry 800 210 235 25 80,000 89,000 9,000 11.25%

Leko Trout farming 972 40 52 12 45,000 53,800 8,800 19.56%

Tim Topusko Metal industry 772 60 67 7 65,000 71,000 6,000 9.23%

Borovo Kozna Obujca

Footwear manufacture

800 200 304 104 75,000 110,000 35,000 46.67%

Chromos Svjetlost

Paints & varnishes

972 60 90 30 55,000 72,000 17,000 30.91%

Eko Velebit Environ. protection

972 10 31 21 1,800 3,600 1,800 100.00%

Krka Knin Metal industry 972 169 213 44 5,500 8,800 3,300 60.00%

Drvni Centar Glina

Wood industry

648.8 45 60 15 27,000 32,000 5,000 18.52%

Gamauf Wood industry

894 48 69 21 8,200 10,800 2,600 31.71%

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Filakov Food industry 972 3 14 11 2,000 5,000 3,000 150.00%

Tehno Filter Environ. protection

818.9 23 34 11 2,300 3,500 1,200 52.17%

Baretid Food industry 972 4 12 8 13,000 17,000 4,000 30.77%

Arator Agriculture 972 57 72 15 21,300 26,500 5,200 24.41%

Vinarija Grabovac

Agriculture 972 5 9 4 1,200 2,100 900 75.00%

Mini Klaonica Petrovac

Food industry 152.5 1 3 2 450 850 400 88.89%

Stolarija Lapcac

Furniture 146.2 3 5 2 1,100 1,400 300 27.27%

Dalmaturist Centar

Tourism 209.5 3 5 2 1,100 1,500 400 36.36%

Minigradnja Construction 972 62 62 0 30,629 33,000 2,371 7.74%

Faza Electrical 966 6 13 7 1,600 2,400 800 50.00%

Mesnice Grcic Meat industry 373.6 3 4 1 1,200 1,450 250 20.83%

Medita Metal industry 972 11 12 1 17,000 19,000 2,000 11.76%

Ivan I Tourism 972 4 5 1 800 1,500 700 87.50%

Puljic Food industry 540 8 9 1 1,700 2,100 400 23.53%

Vital Wood industry

201.6 8 10 2 2,500 2,800 300 12.00%

IM Commerce Wood industry

511.3 9 9 0 6,500 6,900 400 6.15%

Tomaic Commerce

Food industry 954.2 11 13 2 5,100 6,200 1,100 21.57%

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Jago Komerc Transport 972 23 23 0 11,800 14,200 2,400 20.34%

Drnis Commerce

Transport 810 43 43 0 35,200 39,500 4,300 12.22%

Karl Dietz Orthopedic 972 10 10 0 12,000 14,500 2,500 20.83%

Elmo Electrical 972 17 26 9 4,500 6,800 2,300 51.11%

Katavic Furniture 972 11 11 0 3,200 4,300 1,100 34.38%

Plemic Construction 971.7 11 11 0 15,300 16,500 1,200 7.84%

Spelic Construction 955 40 42 2 18,200 21,400 3,200 17.58%

Flagor Vulcanization 405 9 12 3 1,900 2,600 700 36.84%

PZ Mas Agriculture 220 3 5 2 2,300 3,100 800 34.78%

Slavijatrans Transportation 493.4 119 119 0 33,800 35,500 1,700 5.03%

P. Obrt Vanjek

Agriculture 63.5 1 1 0 260 430 170 65.38%

Protein Agriculture 267.8 44 46 2 36,900 41,300 4,400 11.92%

Kufner Food industry 415.5 1 3 2 700 1,350 650 92.86%

Eling Construction 972 11 11 0 1,700 2,200 500 29.41%

Cezareja Agriculture 510.3 8 9 1 40,500 43,300 2,800 6.91%

Toka Pan Promet

Tourism 908.4 6 8 2 1,800 3,200 1,400 77.78%

O. Vinarija Josic

Agriculture 684.7 12 24 12 35,000 44,500 9,500 27.14%

Elektromontaz Electrical 143 3 3 0 950 1,200 250 26.32%

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KIsilj Agriculture 399.7 9 9 0 6,200 7,400 1,200 19.35%

PZ Ornice Agriculture 837 6 6 0 2,400 3,100 700 29.17%

PZ Stocarska Agriculture 972 1 2 1 2,600 3,700 1,100 42.31%

Bor Plastika Environ. protection

972 20 20 0 6,700 7,800 1,100 16.42%

Bebrinka Agriculture 201 69 76 7 15,500 18,900 3,400 21.94%

PZ Napredak Agriculture 837 7 10 3 2,600 3,700 1,100 42.31%

Lucidus Construction 475.5 20 20 0 4,100 5,300 1,200 29.27%

PZ Nase Selo Agriculture 972 50 52 2 36,700 41,500 4,800 13.08%

Ergo Metal industry 377.9 33 34 1 13,900 15,800 1,900 13.67%

ers Agriculture 856.3 10 12 2 1,200 1,900 700 58.33%

Elba Construction 108 7 8 1 3,700 4,700 1,000 27.03%

Trim Projekt Metal industry 945 15 16 1 3,100 4,200 1,100 35.48%

MB D.o.o. Agriculture 338.5 1 1 0 650 1,100 450 69.23%

PZ Jankovci Agriculture 972 65 65 0 61,400 64,500 3,100 5.05%

Zlato Agriculture 185 2 3 1 1,200 1,600 400 33.33%

MS Promet Transport 909.4 3 8 5 2,200 3,400 1,200 54.55%

GIS Sinac Water bottling 237.4 5 5 0 800 1,100 300 37.50%

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Nileks Agriculture 972 14 20 6 10,500 14,600 4,100 39.05%

Zagrebprokro Viulcanization 972 12 14 2 16,000 19,600 3,600 22.50%

Flintstones Ornamental stone

270 3 3 0 380 570 190 50.00%

Exclusive Tours

Food industry 742.5 75 75 0 27,800 32,800 5,000 17.99%

Radnik Environ. protection

405.6 6 7 1 2,000 2,800 800 40.00%

Konavle Metal

Metal industry 900 6 6 0 3,900 4,800 900 23.08%

MZZ Branitelja

Agriculture 972 1 1 0 350 1,200 850 242.86%

Tusak Food industry 972 33 33 0 8,000 10,500 2,500 31.25%

Probis Metal industry 972 9 9 0 2,500 3,600 1,100 44.00%

PZ Sava Jasenovac

Agriculture 226.7 3 6 3 2,200 3,100 900 40.91%

Krajcer Transport 452.4 5 5 0 1,600 2,200 600 37.50%

Autopromet Transport 825.5 40 40 0 12,000 14,500 2,500 20.83%

Kordun Food industry 259 85 87 2 40,700 43,300 2,600 6.39%

Biscan Wood industry

972 5 5 0 3,200 4,100 900 28.13%

Sulog Food industry 961.2 3 3 0 2,500 4,600 2,100 84.00%

PZ Lovas Agriculture 875 5 6 1 23,500 26,400 2,900 12.34%

Agrobiv Agriculture 966.8 53 54 1 19,600 22,900 3,300 16.84%

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Instalacije Metal industry 970 18 18 0 2,500 3,300 800 32.00%

Furnir Otok Construction 972 2 3 1 600 1,600 1,000 166.67%

Citrus AgrIculture 729 8 9 1 1,800 2,500 700 38.89%

Elatio Construction 972 7 7 0 3,100 4,700 1,600 51.61%

Eko Gradnja Construction 953.8 170 171 1 31,500 35,600 4,100 13.02%

Enigma Food industry 844.2 6 6 0 990 1,500 510 51.52%

Elekta Metal industry 680.4 19 31 12 8,500 12,500 4,000 47.06%

Total 60,623 2,346 2,785 439 1,118,659 1,343,050 224,391 20.06%

Source: Project Coordination Unit Note: There was a total of 211 subprojects in this subcomponent; the above is a sample of 84.

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Annex 5. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members

Names Title Unit Responsibility/Specialty

Lending Gloria La Cava Sr. Social Scientist MNSSO Co-TTL Mark C. Woodward Sustainable Development Leader EASPS Co-TTL Antonia G. Viyachka Procurement Specialist ECSO2 Procurement Paula F. Lytle Sr. Social Development Specialist AFTCS Social Development Pierre-Olivier Colleye Sr. Microfinance Specialist ECSSD Finance Vera Dugandzic Operations Officer ECSS4 Operations Officer Jacques Bure Consultant ECSSD Demining Irina Kichigina Senior Counsel LEGEC Lawyer Daria Goldstein Counsel LEGEC Lawyer Mohammed Nawaz Councel LEGEC Lawyer Andrina Ambrose Senior Finance Officer LOAG1 Finance Elmas Arisoy Senior Procurement Specialist ECAPS Procurement Antonia G. Viyachka Procurement Analyst ECSPS Procurement

Laura Foschi Microfinance Expert Banca Etica

Finance

Rita Klees Senior Environmental Specialist ECSSD Environmental Safeguards

Karin Shepardson Senior Operations Officer ECSSD Environment Radhika Srinivasan Senior Social Scientist ECSSD Social Safeguards Sylvie Tillier Agricultural Economist FAO Agriculture Natalia Cherevatova Senior Program Assistant ECCUA

Supervision/ICR Gloria La Cava Sr. Social Scientist MNSSO Co-TTL Mark C. Woodward Sustainable Development Leader EASPS Co-TTL Vera Dugandzic Operations Officer ECSS4 TTL Antonia G. Viyachka Procurement Specialist ECSO2 Procurement Keith W. McLean Senior Social Economist ECSS4 Social Dev. Economist Michael Gascoyne Sr. Resource Management Officer CFRPA Paula F. Lytle Sr. Social Development Specialist AFTCS Social Dev.& TTL Lamija Marijanovic Financial Management Specialist ECSO3 Fin. Management Mirela Mart Consultant ECSOQ Fin. Management Fabio Drago Consultant ECSSD EU Issues

Elvis Fraser Consultant ECSSD Monitoring and Evaluation

Kishore Nadkarni Consultant EASCS ER Component/ Economic Analysis

David Rowe Demining Expert/Consultant Irene Bomani Senior Program Assistant ECSSD Ljiljana Boranic Team Assistant ECCHR Valencia M. Copeland Program Assistant ECSSD Beaulah C. Noble Program Assistant ECSS4 Coral Bird Program Assistant ECSSD

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(b) Staff Time and Cost

Stage of Project Cycle Staff Time and Cost (Bank Budget Only)

No. of staff weeks USD Thousands (including travel and consultant costs)

Lending FY02 3 78.55 FY03 23 150.60 FY04 37 141.23 FY05 36 200.75 FY06 0.00 FY07 0.00 FY08 0.00

Total: 99 571.13

Supervision/ICR FY02 0.00 FY03 0.00 FY04 0.00 FY05 3 7.88 FY06 29 87.58 FY07 34 117.46 FY08 29 146.76 FY09 14 0.00

Total: 109 359.68

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Annex 6. Beneficiary Survey Results An independent social research firm carried out a beneficiary assessment (BA) in early 2010 to help determine the extent to which the project was meeting its objectives, how project beneficiaries perceived the project’s impact and sustainability, and lessons learned. The BA encompassed a quantitative survey with 281 respondents; in-depth interviews with project managers, representatives of local authorities, and beneficiaries; and focus group discussions with representatives of enterprise employees and beneficiaries of the Social Inclusion sub-projects. The BA covered the experience of 25 projects: 9 from Dalmatia and surrounding areas, 7 from Central Croatia, and 9 from the Slavonia region. The subprojects were selected on a random basis and included social inclusion, small community infrastructure, economic revitalization, and demining investments. The overall findings and conclusions of the BA were that the project was implemented successfully, was adequately presented to the public, had impacts encompassing a wide spectrum of beneficiaries and spreading to whole local communities, led to numerous initiatives aimed at improving living conditions in local communities, led to improvements in ASSC standard of living, and led to visible and measurable improvements in the material and psychological impacts on the quality of life of citizens in ASSC. According to the BA, some specific results of the projects are:

(a) Most employees and final beneficiaries were involved in the projects' planning and implementation (for example, in Kindergarten of Veliki Grđevac municipality, the project manager consulted staff and children about the selection and procurement of equipment and teaching materials)

(b) Projects strengthened companies and institutions in many ways:

(i) new workers were employed in all subprojects within the economic component) (ii) the number of goods and services increased (for example, the Primary School in

the town of Benkovac introduced a number of new extra-curricular activities for children)

(iii) the quality of goods and services increased (for example, the quality of shoes produced with a new technology in the shoe factory Borovo increased)

(iv) new quality standards were implemented (for example, Spiroflex Company Ltd. introduced new quality standards in the production of metal compensators)

(v) satisfaction of the workers was high in all subprojects (vi) work efficiency increased.

(c) Projects added value through:

(i) increased cooperation among people in the local community (for example, in the municipality Bilje, cooperatives, local government, businesses, citizens intensively cooperate and are making coordinated efforts to realize their strategy for tourism development)

(ii) improved infrastructure in the area

(iii) satisfaction resulting from the projects (for example, in all programs of assistance and home care, the elderly expressed immense satisfaction with the

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services they received, especially because they have got the feeling that someone cares about them and that they are still important to someone)

(d) Cooperation among sectoral actors increased (for example, in the Association Hepatos’ project of informing and sensitizing local communities about viral hepatitis, there has been multidisciplinary collaboration of various bodies, associations, and organizations, including media and health sectors)

(e) Everyone considered the quality of new products and services to be extremely high

(for example, in the therapeutic community Susret, new services for addicts have been introduced, with recruitment of new professional staff: occupational therapist, social worker, psychiatrist, and psychologist).

(f) People involved in the project do not perceive any obstacles in obtaining CSERP programs and funds, and there were no unexpected negative consequences.

(g) Cooperation between employees and project managers was evaluated very

positively, as well as cooperation between project managers and local authorities, the efficiency of county and regional coordination units, technical assistance from the CSERP team, and the Ministry.

(h) Staff in the PMU and sub-project managers highlighted their new knowledge and

skills gained in project management, the Bank’s procurement rules, and communicating with citizens, and some local authorities representatives learned first-hand the importance of communicating with citizens.

The following are some key findings and sample responses from project stakeholders. Project Managers. All project managers reported on the success of the subprojects and on having achieved their goals. Projects were mostly intended for all of the inhabitants of the places where they were implemented, with an emphasis on special groups: returnees, residents of rural areas, the unemployed, women, children and youth, the disabled, addicts and especially people with viral hepatitis. The subprojects employed the expected number of participants and volunteers as well as part-time workers. Managers reported new quality standards and workers' satisfaction with work conditions. Sample responses are:

“We reached our goals, we employed people who previously had difficulty in finding employment, women over 40 as gerontology nurses and our aid worker was a veteran" F,46 "The project was very successful because it ensured the availability of social and health services for the elderly in and around the town of Obrovac. Our target groups were people over 65 with a lower socio-economic status. We wanted to show them that someone cares about them." F, 63 "I consider the project a success because it helped inform the public about viral hepatitis and teach people about its prevention." F, 37 "Within this project, we have employed a social worker, a psychiatrist, and a psychologist, all of which helped us to improve the quality of our services and our relationship with the local community." F, 47

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Representatives of local authorities regard the project as a success and note particularly the satisfaction of special groups in the community. "We have given facilities to people in rural areas to take care of the elderly which make up 25% of our population" M, 42 "As a result of this project, the beneficiaries who are in touch with the civilian life are very different than before, much more prepared for this life which I believe would be impossible without help from the experts." M, 38 "The project had a very good influence on the day care centre - new employees and a greater level of satisfaction in parents." M, 50

Employees of institutions reported a high degree of satisfaction with the project especially because it gave them employment. Others felt an improvement in working conditions (equipment), and specific groups, such as the geronto-housekeepers, felt great satisfaction in helping the elderly and the disabled throughout all regions. There also was a very positive opinion on interdisciplinary cooperation among various associations. All employees who filled out the additional questionnaires noted that the projects had a great influence on their institutions. “The project was very successful and significant for the whole community, cross-sectoral cooperation has really increased, and mainly we improved cooperation with the Department of Public Health.” Male, 58

"We are happy because our situation is improved and someone in the family is working and we finally have money." Female, 46 "We, the teachers got better teaching materials which enable us to do our jobs better." Female, 30 "I have more money, and I am happier and more content. I decided to have a baby because I couldn't afford it before." Female, 40

Final beneficiaries emphasized positive changes in their quality of life. This category encompasses parents of the children attending the project-supported day care centres, the elderly, addicts in therapeutic communities, and people with viral hepatitis. The elderly agree that the project has improved their quality of life - for them having someone to take care of them and to talk to was the most important factor. Parents noted that their children were happy and learning through games in day care centres. Users related to the viral hepatitis project speak of a more informed public and feeling the burden of the illness's stigma to a lesser extent. Users of communities are happy with the services they received; around 90% of the people who filled out the questionnaires stated that their quality of life is increased along with the quality of services offered by institutions. "It had a great influence because we can attend foreign language classes here, we don't have to travel to Zadar and the children are in a familiar environment." Male, 32 "The woman who came every time I called her helped me a lot although she doesn't know me or my sons. I am alone in this house with the ghosts of the dead." Female, 80 "These stories motivated me to get treatment. The stigma is not as strong anymore." Male, 45

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Small Community Infrastructure All project Managers report on the success of the projects and on achieved goals. Most have specific projects for taking care of their environment. They consider the project had a great influence on the quality of the services they provide and on their satisfaction with work. Some managers report employing new personnel and added efficiency. The projects affected all inhabitants of the regions. Estimates of actual numbers vary. The institutions were useful to everyone for whom they were intended. "We have achieved our goals. When we reconstructed the roof, all residents came out to see it and all were thrilled." Male, 54 "The project was a success, the home was built and the inhabitants of Voćarica gained a meeting place." Male, 35 "The project contributed that the youth have a special place in which to work, meet and be inspired, exchange knowledge, develop new projects and spend their free time in a constructive manner." Male, 62

Representatives of local authorities also considered the projects to be a success. New facilities enabled all inhabitants, children, and youth to assemble and learn together. Residents of project communities concluded that they are satisfied. “We're all happy, the school was in bad condition but now everything is better." Male, 55 "This project was more than successful because we have gained a valuable meeting place for all members of our society." M, 56 "Number of employees increased which I think is important for every community." M, 55 "We got an adequate and hygienic space for the day care center which takes care of all of their needs." M, 39

Employees of the institutions from the project consider the project a success. Renewed facilities enabled better self-actualization through work. The quality of services and of life is increased among those who were employed because of the project. Employees of the institutions from the project perceive greater satisfaction of their users. Over 90% stated that the project had a great influence on their institution; 83% thinks the same about the project's influence on them personally, while 94% believe that the quality of their services is greatly increased. Around 80% believe that their institution was fortified (which was the main objective of this component). "Children are happier along with the employees, and the school is safer and more beautiful." Female, 56 "Well, my child can learn folk dancing here for free and I don't have to drive him anywhere. The project had a great impact on me." Male, 54 "The sanitary facilities were reconstructed, it was a dump before, it's beautiful now, the quality of life is better, it's satisfying and pleasant." Female, 50 "Besides the facilities, our children can learn dancing, singing and drawing which also improved our service to the inhabitants." Male, 55 "We are trainees and we were given the opportunity for gainful employment." Female, 30

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Final beneficiaries of this component were parents of children attending day care centre, users of healthcare, elderly and the disabled. The project made them feel better about their children safety. From interviews in can be concluded that the youth were given facilities for healthy socialising and creativity. This is also true for the disabled. Around 80% (from 32) state that the project had a great effect on their quality of life. "My personal benefit is to see my child attend school happily and with joy." Female, 43 "The mold was a big problem along with the fear of the roof collapsing while the children are in school. We feel much safer now." Male, 46 "After it was empty for 10 years and without any social activity, now there's a lot going on. We have folk dancing and sports, and the youth have various happenings, activities, and meetings." Male, 70 "We renewed the stairway, enabled access to the disabled, bought new machines and educated people most of whom we have hired." Male, 29

Economic Revitalization Managers of the economic projects report on the great success of the projects, profit increase, higher service quality, new workplaces, good cooperation with local and regional authorities, new quality standards and greater efficiency and contentment. Estimates of the number of people affected vary from a few dozen to a hundred thousand people (all inhabitants of the region). "I have given work to youth in Hrvace but others are planning this as well and I can advise them." M, 50 "Quite a few new people were hired and we kept the existing workplaces which is noteworthy especially in a time of economic crisis; we also increased production by 20-30%, and on the basis of new funds we're receiving, we equipped this facility which increased production and made us more competitive on the market." M, 46 "The project was a success because we increased production, got more equipment, opened more workplaces and improved organisation." F, 29 "We employed a great number of people from the area of special state care which has certainly improved their family and social life." F, 29

Representatives of local authorities also say the project was a success. They note that the local community recognised the benefit of this project, especially the unemployed and the veterans) who have gained employment thanks to it. "Employed people feel safer, their standard of living is improved and they can organise their lives within the framework of the municipality." M, 26 "Most of his employees are veterans whose jobs help them more with PTSS than being retired." M, 26 "Project yielded excellent results. The company "Protein" is working very well, it's expanding and employing local people which has a positive influence on the entire community." M, 45

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Employees of the companies in CSERP state the project was a success. Some of them gained employment because of it, they feel safer, companies' business is better and the quality of life is increased. They feel safer and are happy because they didn't have to leave their towns. Over 90% (from 56) feel that the quality of their services is greatly improved and that the project's influence on their company was great. Between 60 and 80% of the employees note a production increase, new workplaces, greater satisfaction and efficiency. 80.3% of the participants feel that the project affected them personally. "There's more money, the pay is secured and regular." M, 36 "There’s greater security and you feel much better if you have a job, especially if you have a family." M, 30 "Our working conditions are excellent which contributes to the health of the employees." F, 35 "I have more money and I'm happy I don't have to work out of town" M, 32

Demining The manager of the Croatian Mine Action Centre, which is in charge of the demining component, stated the project had multiple benefits. A great number of people were able to farm their land again. It influenced their and their families' lives for the better. There are possibilities for village and hunting tourism. In some places the surrounding areas reaped some of the benefits because the channels which go through larger areas were demined. "We estimate that around 1500 people benefitted from this project and 6000 if we take into consideration the broader community." M, 40 "There's an increase in security in local self management. We had demining requests from hunting associations. There are opportunities for hunting and village tourism. In the town of Skradin, roads were demined which enabled more traffic and safe passage for tourists and goods." M, 40 "The project was a definite success, 12 km2 were supposed to be demined and this goal was met." M, 40

Representatives of local authorities feel that this experience has increased the social cohesion of the inhabitants. "Implementation was a success, we reached our goal. It's not just about the roads but also about places where people live and can safely come back to." M, 42 "The project had a marked positive influence on the inhabitants, especially in terms of agriculture. Now they have jobs and a source of income which also keep young people in villages. People help each other and interpersonal relations are bettered." M, 30 "I consider the project a success because we have reduced the amount of the land suspect of mines and people have their land back and can earn their living." M, 54

Final beneficiaries (owners of demined land) are pleased because they can use their land again. "Everything was well, land by the road was demined so we could renew the road which leads to the farming zone." beneficiary, Skradin "It meant a lot to us when the land was demined because we could grow crops." M, 58

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Annex 7. Stakeholder Workshop Report and Results A stakeholder workshop was not carried out.

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Annex 8. Summary of Borrower's ICR and/or Comments on Draft ICR CSERP was a multi-sectoral project that focused on issues of sustainable development and reconstruction of war-affected and areas in the Republic of Croatia (RoC) falling below the average level of development in the country, referred to as the Areas of Special State Concern (ASSC). The Government of Croatia (GoC) and the World Bank signed on May 2, 2005 a Loan Agreement No 7283-HR, with a loan amount equal to €35 million. These funds have been used to partly finance the project whose implementation was the responsibility of the Ministry of Regional Development, Forestry, and Water Management (MRDFWM). The project was implemented in the 13 counties that constituted the ASSC (Vukovar-Srijem, Osijek-Baranja, Brod-Posavina, Požega-Slavonija, Virovitica-Podravina, Bjelovar-Bilogora, Sisak-Moslavina, Karlovac, Lika-Senj, Zadar, Šibenik-Knin, Split-Dalmatia and Dubrovnik-Neretva), providing support to the development of communities and business entities. From the date when the loan agreement was signed until the beginning of 2008, the project was implemented by the Ministry of Seas, Transport, Tourism, and Development (MSTTD), and in 2008, the MRDFWM assumed responsibility for project implementation. Prior to the transfer, the project had disbursed only 12% of the loan. During the first three months of implementation under MRDFWM management, disbursement rose to 37% of the total expected disbursement. On this basis of this good performance, the PCU requested and was granted an extension of the implementation period until June 30, 2010. This was done in two tranches of six months each, provided the project could meet the following conditions by June 15, 2009: (a) completion of the technical audit of the component supporting small community infrastructure and evidence of advancement, and (b) further achievements in project implementation. The project met both requirements earlier than planned, and the closing date was extended to June 30, 2010. The level of interest shown by bidders in tendering procedures was so great that the funds available were enough to finance only half of the economic revitalization subproject proposals assessed as excellent and only every second project in the area of small community infrastructure, while progress in funds withdrawal and satisfaction with performance in the field exceeded expectations. As the global economic crisis reached its peak in Croatia towards the end of 2009 and beginning of 2010, and due to the slowdown in funds withdrawal by the beneficiaries as well as stricter lending and performance guarantee conditions required by banks, MRDFWM requested another six-month extension of the project (until the end of 2010). The Bank accepted the reasons given and approved the new December 31, 2010 project closing date. Objective. The main objective of CSERP was to increase social cohesion and get economic recovery under way in ASSC by:

Financing activities aimed at increasing social inclusion of marginalized groups in

each of these areas (proposal were put forward and activities implemented by associations, public institutions and local and regional self-government units);

Financing business projects put forward by business entities located in these areas (cooperatives, small and medium-sized entrepreneurs), in order to revitalize and consolidate business activity and employment;

Financing projects of small community infrastructure in order to improve quality of life and coexistence in the areas of project implementation;

Strengthening institutional capacity at central, regional and local government level in order to encourage a proactive approach in the development of these areas;

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Demining areas of vital importance for project implementation within various CSERP subcomponents, which is also relevant for the purpose of increasing personal safety and coexistence in ASSC.

Project Organization. CSERP was the first project to be implemented in this sector by combining the “bottom up” and “top down” approaches (that is, establishing horizontal and vertical links in terms of responsibility and implementation by means of a system of regional coordination units and county coordinators) which has proved to be an advantage during subproject implementation. The project has three regional offices and 13 county coordinators in each of the counties in ASSC:

Region 1 – Coastal Croatia, with the office in Zadar and with project implementation monitoring responsibilites for the counties of Lika-Senj, Zadar, Split-Dalmatia, Šibenik-Knin and Dubrovnik-Neretva.

Region 2 – Central Croatia, with the office in Petrinja and with project implementation monitoring responsibilities for the counties of Sisak-Moslavina, Bjelovar-Bilogora and Karlovac, and

Region 3 - Panonian Croatia, with the office in Osijek and with project implementation monitoring responsibilities for the counties of Osijek-Baranja, Vukovar-Srijem, Virovitica-Podravina, Požega-Slavonija and Brod-Posavina.

Management Structure. The project’s operating manuals defines the project’s management structure. The operating manual also defines implementing guidelines and procedures to be followed when implementing the project through the processes of identification, preparation, selection, procurement, subproject implementation management and monitoring, technical assistance, training, and other related activities. The operating manual was the tool used by the CSERP staff, Project Coordination Unit (PCU), Regional Coordination Units (RCU), County Coordination Units (CCU), local communities, implementing agencies, local self-government units, and other relevant agencies. Accompanying documents, files, and forms needed in the process of implementation and management are an integral part of operating manuals. A manual defines guidelines for the management of allocated funds, technical management, activity monitoring and evaluation, and procurement and service contracting.

The top down approach was the responsibility of the implementing ministry together with the inter-ministerial steering committee, the National committee for subprojects’ selection, and the PCU in Zagreb (central level), while the bottom up approach was in the hands of regional project implementation units, regional committees for selection of projects for financing and county coordinators, in cooperation with grant beneficiaries. The project was implemented by a team of 34 university graduates: economists, agronomists, IT engineers, ecologists, journalists, civil and mechanical engineers, who have been trained and are fully prepared to apply the guidelines of the European Commission and to implement projects using EU funds. Subproject Selection Criteria and Decision-Making. The decision-making system set up to select subprojects for financing was a transparent one and was separated from implementation. Project proposals received needed first to undergo administrative check, then, independent assessors evaluated and assessed sub-projects that passed administrative check, and then underwent selection procedure by the regional committees and national level committee in case of sub-projects with value above €300.000 (i.e. requiring a CSERP contribution between €81.001 and € 135.000). An additional level of transparency in the system was ensured by monitors (UN agency staff of UNHCR and UNDP) who had an observer status during selection procedure at the regional level.

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The project team was completely excluded from the project selection system and was expected to act initially as a technical support unit only. However, it took over the role of the main actor in the process of implementation only after the process of project selection for financing had been completed. For the purpose of ranking, priority setting, and project selection, CSERP developed a system of points whereby proposals were analyzed for their relevance in terms of their impact on recovery and community inclusion. Every relevant procedure is described in operating manuals for project implementation. The manuals also defined the responsibilities, decision-making actors, implementing units, together with activities to be carried out and guidelines on the flow of communication within the project. Project Components Component 1: Community Investment This component was the backbone of the project, consisting of three subcomponents: social inclusion, small community infrastructure, and economic revitalization. Its objectives were to:

assist central and local administrative bodies in defining an all-encompassing and homogenous approach to the development of their county and the area of special state concern (ASSC),

create an open connection between the above-mentioned approach, regional operating programs (ROP) and future regional development strategies,

establish participatory and technically sound practices in regional and local physical planning, decision-making and implementation.

Social Inclusion Subcomponent The social inclusion subcomponent was designed to support integration and better inclusion of socially vulnerable groups into social activities, better partnership between local governments (roughly one third of subprojects relies on cooperation between municipalities and/or counties), increased civil society involvement (NGOs), and increased beneficiary involvement in generating and implementing projects, all for the purpose of increasing social cohesion. Given the importance of social component of the project and the need to involve the largest possible number of inhabitants from socially endangered and vulnerable groups in project activities, this subcomponent financed:

127 subprojects, 2 cancelled subprojects due to non-observation of guidelines 41,639 inhabitants in ASSC, direct project beneficiaries 37 subprojects involving activities geared towards 21,703 children and youth 41 subprojects involving activities geared towards 24,873 elderly and disabled

persons 13 subprojects involving activities geared towards 4,530 unemployed persons 34 subprojects involving activities aimed at simplifying access to social services

in ASSC, i.e. for the benefit of the entire local community 22 subprojects involving activities based on municipality and county cooperation

in providing social services 421 woman employed through SI subprojects; 14,511 women trained for various

programs Small Community Infrastructure Subcomponent

The objective of this subcomponent was to improve living conditions for communities by

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ensuring better access to services and utilities through reconstruction of social and business infrastructure. A total of 70 subprojects were financed through the subcomponent small community infrastructure; 69 of these subprojects were successfully completed, and 1 subproject was cancelled due to non-observation of guidelines. The following were renovated:

14 primary schools, 1 music school, 9 kindergartens, 1 sewage system, 13 access roads, 8 community centers, 4 water supply systems, 1 market and 9 primary healthcare centers and 9 other facilities.

A particularly successful aspect of the subcomponent was the recognition of small projects. Larger ones normally were assigned higher level of importance in the process of evaluation so that in many smaller local self-government units, there was still the need to support smaller projects because they are not seen as priorities by other sources of financing (e.g., EIB) and thus it much harder to realize them. It is also important to mention that this subcomponent made it possible for 36 women to find employment, while 18,758 women were involved in service provision during project implementation. Economic Revitalization Subcomponent The objective of this subcomponent was to create new jobs, increase manufacturing, processing or agricultural production; improve marketing environment; and introduce new or innovative technologies. The primary objective was to channel finance towards economic activity in subprojects that would generate permanent employment for persons living in ASSC. The secondary objective was to support subprojects that, in addition to meeting the primary goal, would also encourage, develop, or create products (services) related to renewable sources of energy (solar, geothermal, wind), and use of secondary raw materials (recycling) from natural materials (pellets and the like). CSERP supported the following types of activities within the economic revitalization component: (a) building new production capacity for existing cooperatives, small and medium enterprises and crafts; and (b) supporting establishment of new cooperatives. Project beneficiaries in the economic revitalization component are existing SMEs, crafts, and cooperatives as well as newly established cooperatives. For this subcomponent, the CSERP established cooperation and partnership with the Croatian Bank for Reconstruction and Development (CBRD), commercial banks, and HAMAG. The project carried out two rounds of public bidding for existing small and medium-sized companies, crafts and existing cooperatives, and one for newly established cooperatives:

Of 250 subprojects accepted for financing, 211 were completed successfully with grants going to business people to be used for various projects.

Total investment in the business sector in ASSC spurred by grants, exceeded 1 million HRK, i.e. over EURO131 million.

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643 new jobs in all business sectors were created, of which 306 jobs went to women.

Synergy effects of increased turnover and investment as a consequence of incentives provided by the project enabled numerous business entities to outgrow their local market and turn from small into medium-sized companies, from local players to exporting companies or important market players, as the subprojects enabled them to obtain standards of excellence ISO 9001 and 14001 and they became regionally competitive and developed the potential to compete in the EU market.

Most co-financed subprojects were related to agricultural production. Most new jobs were created by financing projects in processing industry. Encouragement of establishment of clusters, important for the future of regional

competitiveness, as they provide a framework for strategic activity, aimed at realizing shared visions, missions and objectives of all the cluster members, in our case, agricultural produce processing entities.

Teaching small and medium-sized entrepreneurs to prepare a business plan and budget to ensure that the guidelines are followed, employees are motivated, activities are coordinated, achievements assessed and business performance actively managed.

Budgeting enabled to introduce the concept of controlling in business operations, as it is one of the most important instruments in ensuring transparency of operations. Monitoring actual performance against plans and analyzing deviations showed on many occasions both to us and the business entity which direction the entity has taken and whether it is the direction it wants to take.

Component 2: Demining The activities in this component were intended to provide the community with an opportunity to realize anticipated potential through investment subprojects without any risk from mine accidents. What we expected has finally been realized; implementation of the subcomponent enabled the realization of preconditions for faster social and economic development and strengthening of social cohesion in the ASSC. As a precondition for the economic recovery and revival of economic subjects in new entrepreneurial zones, this type of operation will have one of the main roles in the future. The Croatian Mine Action Center (CROMAC) was responsible for implementing this subcomponent, including procurement of demining operations and supervision of the contractors' activities. All demining operations were demand-driven and were specified at the local or regional level, in line with priorities. CROMAC concludes the contracts on the execution of demining operations with private demining companies and performs monitoring over their activities, verifies if the area has been cleared from mines, and issues official certificates. . The main achievement of this component was the improved access to production capacities, infrastructure, and housing as well as improved citizen safety. Due to the extremely good co-operation with CROMAC, the component achieved much success and enabled the development of economic subjects in entrepreneurial zones (e.g. Entrepreneurial zone Logorište near Karlovac, Entrepreneurial zone Ićevo near Skradin) and fulfilled its purpose in terms of development stimulation. Through this component, 12.185.445 m2 (12,2 km2) have been demined according to the following types of users:

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Actual entity - 4.425.985 m2 Family business - 10.412 m2 Cooperative business - 200.000 m2 Small and medium enterprises - 111.944 m2 Associations - 150.774 m2 Public institutions - 205.970 m2 Local administration - 5.652.429 m2 Others - 1.427931 m2

Component 4: Project Management This component played its role perfectly by providing support to other components through: financial management, procurement, and monitoring and evaluation. The component was also used to finance certain ancillary operating costs, goods, technical assistance, and training for the PCU and its regional offices. With regard to management, it is important to recognize the efforts made by the PCU with its own resources to better demonstrate the successful implementation of the entire project and specific subprojects in order to gain better insight into its own work and identify strong and weak points in the process of project implementation by using the following: self-assessment; information bulleting; and participation in workshops, professional gatherings and fairs, where successes in project implementation were presented. Financial Management Financial management of the project in 2010 was fully successful, according to the experts at the previous implementing body (MSTTI) and the section for budgeting, finances, and accounting at the MRDFWM. All actions related to the financial part of the implementation were routinely carried out, and all of the relevant data was received along with all of the relevant documentation. Financing Structure. For financing CSERP, a total of €60 million was made available, out of which €35 million from the loan and €25 million would come from the state budget. The total value of the project was €59.936 million. The total amount of €34,738,505.73 was disbursed from the Loan and €14,616,557.41 was disbursed from the State Budget. Safety Mechanisms. As the safety and insurance instrument for the donor at the time of payment of each grant, every grant recipient was obliged to bring bank guarantees or other means of insuring the grant. This was recorded in the financial monitoring of contracts. In case the grant recipient spent funds in breach of contract terms, the financial instruments were activated. Only two such cases took place, the Municipality of Donji lapac and Women's association of Vukovar. Financial Reporting and Monitoring. Reporting pertaining to payments was made in accordance with the financial manual with the aim of assessing the execution and achievements of the project based on the analysis and information provided. During project implementation, the PCU kept the World Bank and the Ministry of Finance informed through quarterly and monthly reports, executed through FMS modules connected to the UGOSIT program for contract management, where all financial situations are recorded and monitored. The last quarterly report was made for Oct 1-Dec 31, 2010.

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The PCU continues to have an obligation to produce and deliver to the World Bank the report on all payments made during project closure. Auditing. During the project implementation period, financial management was controlled by the state authorities and international auditors. International auditing was carried out on the basis of a contract by the firm “Audit“ d.o.o. No audits included any remarks on the financial actions and implementation of the project; they were all positive. Procurement The legal basis for implementing CSERP is the Law on Loan Contract 7283-HR. Preparation and implementation of procurement for the Project for each contract financed from loan funds is conducted according to “Guidelines: Procurement Under IBRD Loans and IDA Credits,” and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers.” The Bank's standard forms of tender documentation were used, as well as the bid evaluation reports and contract outline. During implementation, the project used the following materials: Manual (updated in accordance with the May 2004 revised Procurement and Consultant Guidelines) for Conducting Very Small-Value Procurement Under World Bank/IDA Small Grants, Loans and Credits, September 2005; four Working Manuals made for each Project component separately; as well as the Financial Manual of the Project. Both the Working Manuals and the Financial Manual were revised during project implementation, with the World Bank’s approval and according to the needs of project implementation activities in different stages. They have been updated during 2006 and accepted by the World Bank in November 2006. The procurement plan was constantly updated during project implementation so as to add new activities to individual Project components in accordance with the changing situations and needs. During the entire project period, the execution of the Procurement plan for goods, works, and services were monitored by activities and by individual Project components. Also during project implementation, grant awards for individual social inclusion, small community infrastructure, and economic revitalization subprojects were monitored and checked throughout each step of the procurement procedure (goods, works, and services) before contract signing, the signing of the contract, contract implementation, financial reporting and final subproject closure. Procurement activities were monitored by the central unit staff in Zagreb, with assistance from the staff in regional offices in Zadar, Petrinja, and Osijek, and with support of the county coordinators. The staff members conducting the subproject procurements were given daily consulting, technical, and other support in order to implement the procurement procedure, contracting, and procurement contract implementation on subprojects as efficiently as possible. For each procurement procedure, a committee was appointed, the appropriate procurement and selection method was applied, the contract was signed and implemented, the report was signed, and the payment was conducted as foreseen in the contract. For all subproject contracts paid fully or partly from grants, the procurement was conducted according to the World Bank’s Guidelines; for the other contracts paid from the grant beneficiary funds, the procurement was implemented according to Croatian Law on Public Procurement.

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Within the economic revitalization component, grant beneficiaries prepared and conducted needed activities, which represented the first stage of subproject implementation. Performing these activities was a prerequisite for financial realization of the grant. The Project staff reviewed all of these activities and concluded that the conditions for grant payment to beneficiaries were fulfilled and the payment was subsequently made. Subprojects were further monitored until all of the grant funds had been spent. Subprojects which successfully used their own required funds, as well as the grants, were closed. They justified the investment and proved their ability of successful and independent continuation of the subproject in the same or increased scale of investment in the future period. During the Project implementation, there were no substantially inefficient suppliers or consultants, and no disagreements that could have led to suppliers’ complaints, contact cancellations, legal arbitrage, or other legal consequences. All potential smaller problems, if they arose during the implementation, were successfully dealt with, with approval by the World Bank and to the satisfaction of all parties involved. Some individual subprojects were not in position to invest the minimum required amount of their own funds, which was a prerequisite for receiving the grant. Such grant awarding contracts were cancelled, without causing any financial or legal consequences for any of the parties involved. Monitoring and Evaluation Since the very early stages of the project the M&E section encountered various obstacles and has struggled with the need to overcome and adapt to various occurrences as they happened. These include lack of established baseline values, an inadequate MIS system, and personnel issues. In the latter stages of the project implementation, most of the challenges were met while the lack of an adequate information system persisted, along with the lack of baseline figures. Despite the challenges presented, the M&E system was adapted to the realities in the field as well as at the PCU and has been producing results. In terms of lessons learned, any future CSERP (should there be one) should consider the above mentioned issues and revise the procedures and data collection plan to ensure a steady and reliable data flow towards the PCU. Self-Assessment

Self-assessment is one of the methods used to measure the performance (i.e., strengths and weaknesses) of a team. We decided to apply it, recognizing the team’s capacity to assess itself and using the capacity currently available through EU assistance projects, together with the questionnaire and the standardized SWOT analysis form. Soon after MRDFWM took over management of CSERP, it was decided to use the same organizational structure to implement future projects financed from the EU structural and cohesion funds. Thus, the PCU started working with a group of experts in establishing a future regional competitiveness implementing body. Mr. Kevin Prigmore, Finance and Implementation Expert, reviewed the management and procedures of CSERP’s financing and implementing system for the purpose of checking their alignment with the EU structural and cohesion funds requirements as well as their procedures and regulations to detect weaknesses in the project management. Overall, his findings confirmed that CSERP was well managed and had adequate staff and a satisfactory project management structure. The processes used were similar to those used by structural and cohesion funds in terms of

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the establishment of regional offices, public tendering procedures, independent audits, supervision missions, financial management, and an independent decision-making system, all of which ensures full transparency of the system. In order to improve the organization and future activities in this or other similar projects, we applied a questionnaire-based survey as a means to collect and analyze information. The findings showed us where we are and what we need to do in implementing the then ongoing project and possible future ones. The self-assessment was also used as a basis for the definition of references to apply to the survey if carried out later with the project beneficiaries. The findings were presented to the representatives of the World Bank during their regular supervision mission in the summer of 2009 as an illustration of operational independence achieved by the PCU. A pilot questionnaire was distributed to CSERP grant beneficiaries in the Bjelovar-Bilogora county because other counties were not included in the process at this stage. The key objective of the pilot questionnaire definition, distribution and subsequent analysis was to find out about new development initiatives and to identify problems or limitations in the process of CSERP implementation. The analysis has provided us with feedback on how to improve the project implementation and how to present the project and what it brings to local communities in order to consider the impact it has made on them and everybody else living in the area. Feedback obtained through this analysis of CSERP by its beneficiaries, provided us with responses that are crucial in the process of selecting methods and modes of co-financing and defining priorities in future development programs. The analysis also enabled us to see not only weaknesses and errors but also advantages of the project. The following are some of the main findings based on responses received in the survey:

Over 70% of beneficiaries/bidders in the CSERP project think that tendering procedures were clear and acceptable and that deadlines for bid submission were reasonable.

Almost 50% of beneficiaries say that local self-government should provide more help during project preparation and implementation stages

Most potential bidders use the services of external consultants for project preparation, and in many cases, the results are not satisfactory due to the consultants’ lack of knowledge of the project and inadequate cooperation with the project initiators.

Knowing the situation in the field in general and in the county selected for the pilot survey in particular, we are of the opinion that local self-government in most cases cannot provide the help demanded because the institutional framework required is not in place and there are no teams trained and capable of providing adequate support; thus, capacity strengthening at local level remains a priority. This claim is further supported by the fact that most projects are still prepared by local consultants on behalf of beneficiaries, and the same consultants are often not adequately trained, they are not focused enough on helping the bidder, they do not cooperate enough with bidders on the activities envisaged and do not take into consideration the benefits to be derived for the local community and therefore also for themselves as consultants. Finally, their success is not measured in terms of the number of good projects but in terms of the number of projects prepared, and is actally

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measured only in terms of personal gain to be derived from consultancy services rendered in project preparation. With regard to the cost-effect ratio: (a) 69% of respondents consider that funds invested are matched by effects in the field; (b) no respondent considers effects obtained to be inadequate; and (c) all local self-governments claim that funds invested have produced maximum effect. With regard to overall satisfaction with the CSERP team, 92% of respondents said they were fully satisfied with the help provided by the CSERP team during their project implementation. Finally, it can be claimed that CSERP encouraged the local and regional community to work together on development programs and preparation of future projects. CSERP made all the key stakeholders at the local community level work together. Information Bulletin Information bulletin “CSERP Info” was produced independently by the Project coordination unit at its own initiative. It brings news on project implementation by county and is distributed via email to all beneficiaries. Beneficiary Assessment During a regular CSERP supervision mission by the World Bank, it was agreed that an independent analysis of beneficiary project satisfaction will be carried out before closing, in order to provide relevant information on the current project and on what can be corrected if the project continued. The Bank promised to help the Project coordination unit in aligning job descriptions of each consultant who would be engaged to carry out analysis in the field with the given guidelines. The impact assessment at the beneficiary's was carried out by independent consultancy Olimp. CSERP Staff Although the change in CSERP ownership in the summer of 2008 and the change of the project director were important factors accounting for the acceleration and success of the project’s implementation, as recognized at all levels, the key role played by CSERP staff cannot be ignored. Soon after the new director was appointed, the CSERP staff started working as a team capable of overcoming together all hurdles and challenges standing in the way to complete this demanding multi-sectoral project. Some of the staff members left after a period of time, but the core personnel stayed to the very end. Most staff members who participated in the project gained specific skills and knowledge, and were either promoted or obtained higher positions, which shows that they had gained institutional capacity required for middle and local management level. Their contribution to the project completion should be recognized and we want to use this opportunity to thank them all. Link: CSERP – Regional Development Strategy “Regional development strategy of the Republic of Croatia proposes a new relationship and cooperation mode between partners at central as well as regional and local levels, asking them to resolve together issues and problems that are key for the social and

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economic cohesion and competitiveness of Croatian regions and to define, on the basis of a jointly adopted development policy framework, developmental priorities by county and by region, while taking into account their specific needs.” (quote from Regional Development Strategy). CSERP was aligned with a number of priorities and objectives specified in the Regional development strategy, and especially with Priority 1.2: Support for areas that are continuously lagging behind, in order to contribute to their sustainable development and increase national competitiveness; and Instrument: Program for areas with developmental difficulties. Moreover, CSERP complemented perfectly all the standard projects financed through relevant ministries, associations, and UN agencies, and it also often financed those projects that were not considered interesting by national investors. Most frequently, these were projects falling to a large extent or completely under the responsibility of the local self-government bodies, such as local road and pavement reconstruction, construction of kindergartens, and the like. The project became very good at selecting target groups (i.e. potential applicants) whose projects could make an impact on many project beneficiaries already in the implementation phase. The area of implementation was perfectly aligned with the needs, level of development, sustainability, and possibilities present in an ASSC, which required the highest level of intervention accross all sectors in order to achieve gradual harmonized development in such areas. CSERP performance cannot only be measured and seen in terms of successful placement and withdrawal of grant funds, in terms of funds made available to end beneficiaries. Its success also can be viewed in terms of its achievements in encouraging local communities to tackle problems and find solutions, and to engage in activities that will ensure sustainable development of the local community and encourage inhabitants to remain living in these ares. CSERP and Raising Awareness of Sustainable Development

Implementation of CSERP contributed to and supported the process of regional development by strengthening capacity at the local self-government level, increasing quality and level of knowledge, motivation, and project cycle management skills, establishing inter-regional cooperation and development of specific projects, that should result in higher level of social inclusion and economic development of municipalities and towns located within ASSC. Development strategies in every county were used to define infrastructure as a priority because it could create quality preconditions for people to remain in those areas. It is well known that social awareness in not adequately developed in our society, and the funds earmarked for the component, just as the funds available for socially vulnerable groups at local and regional government level, are not sufficient to meet the needs. The loan granted by the World Bank and the two rounds of its implementation have made a major contribution to raising awareness of the people regarding the need to help the most vulnerable groups in their community, even if assistance projects are small, because these groups are in need of help and, without such funds, any assistance to them would simply not be possible or feasible.

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LINK CSERP – EU “The central level is expected to define a clear direction of development and the funds provided for the purpose while lower levels are expected to focus on acquiring new skills and contributing to strategic development planning. This is why it is necessary to use the early years of the strategy implementation to build capacity at all levels in order to enable clear definition of needs, agreement on priorities of development and development of ideas and submission of project proposals that will justify investment of public funds into a particular field. Such capacity building is of key importance in the future use of EU structural funds.”(from Regional Development Strategy). CSERP made a direct contribution to priorities related to the integration of the RoC into the EU:

With regard to meeting political criteria, it speeded up the process of return of refugees and displaced persons by improving social and economic conditions and the overall climate regarding refugees, returnees, settlers and local population. It has enabled the economic and social integration of returnees through regional development projects in these areas;

With regard to meeting social policy criteria, CSERP developed the capabilities of social partners and promoted solidarity among inhabitants to create prerequisites for a cohesive society;

With regard to regional policy and coordination of structural instruments, CSERP supported efficient coordination among ministries, associations, business people, and local and regional management structures, in order to develop an all-encompassing and coherent strategy of regional development and to build partnerships between relevant parties at national, regional and local levels;

With regard to its implementation following guidelines and rules similar to those for other projects financed from the EU funds, CSERP was a precursor for EU procedures;

CSERP maintained, upgraded and strengthened Croatian institutional arrangements related to regional policy management in line with the EU requirements. The institutional development component and the CSERP implementing arrangements deal with objectives defined in pre-accession assistance requirements and are aimed at increasing absorption capacity from pre-accession and structural funds.

CSERP was recognized as the body that implements basic procedures in line with the EU guidelines in order to achieve alignment with the EU and the use of pre-accession and post-accession EU funds.

Project Continuation The MRDFWM and the local community views the project as being an important factor that can help harmonize and eliminate differences in regional development. A request was submitted to the relevant ministry to continue the project, having in mind the fact that the World Bank officials indicated on a number of occasions the fit between the project and the World Bank strategy and understanding of how the proejct can help undeveloped regions catch up to the others. At the time of this writing, however, there was no final decision on the project continuation. The following are considered the main benefits of the

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project and factors that would support a follow-up project:

(a) CSERP encouraged local and regional management levels to work jointly on future project development, and this is the objective specified by many other associations being currently set up (for example, local action groups, agencies).

(b) CSERP used subproject implementation to encourage cooperation and agreement among all potential and actual participants with the objective to help develop local communities; this created an efficient network of stakeholders.

(c) For most grant beneficiaries, CSERP was their first encounter with tendering documents and project budgets, and the first project to recognize the importance of field work, the contribution of county coordinators and regional coordination offices, and organization and guidelines that fit the circumstances. All of these will soon be expected from the RoC when projects are implemented with EU funds. The approach proved to be an advantage in subproject implementation and in preparing beneficiaries for accessing EU funds.

(d) CSERP transferred knowledge and skills that can help sustain local communities.

Today, the RCOs are being approached by other institutions, local self-government bodies, and business people who now recognize the importance of their role in project preparation and ultimately their successful implementation.

(e) CSERP achieved more than was defined by basic objectives; it encouraged

communities to start activities not previously carried out – even communities that were not included in CSERP project started to think differently about their sustainability, which has resulted in a new understanding of the concept of community participation in sustaining a particular area.

(f) Project participation has enabled grant beneficiaries to become involved in or even initiating local community development.

(g) CSERP project qualities have been recognized locally, regionally, and internationally. The scope of project activities has enabled a wide range of stakeholders to participate.

(h) CSERP is included among the measures in negotiations on Chapter 23 in the EU accession process, and has been recognized as an example of good practice in the Millennium declaration.

(i) CSERP was viewed as a good model of project implementation by many domestic and foreign organizations that have adopted its approach as their own model.

(j) CSERP was a perfect complement to standard financing programs with relevant ministries and it often financed projects that national investors were not interested in, mostly projects fully or partially under the responsibility of local self-government units (for example, road reconstruction, kindergarten construction or enlargement, community centers).

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(k) The project paid special attention to balanced social development in supporting the demographic revival of the region. The project attempted to alleviate regional problems such as high and chronic unemployment, low and slowly growing GDP, very limited level of manufacturing activity, and poor infrastructure and depopulation through its community investment component.

(l) CSERP has enabled development and expansion of business zones through demining.

(m) CSERP has contributed to gender equality; CSERP was instrumental in finding employment for 1,359 people, of which 763 were women, and among the 84,173 beneficiaries, 33,269 were women.

(n) Synergistic effects are visible in increased turnover and investment, and due to incentives provided by the project, numerous business entities have outgrown their local presence and have been transformed from small to medium-sized companies that are local players into export-oriented companies and relevant regional market players. All of them used subprojects to obtain and introduce ISO 9001 and 14001 standards, to become regionally competitive and to prepare for the EU market competition.

(o) The CSERP model has taught small and medium-sized entrepreneurs to prepare a business plan and budget, and guidelines for motivating their employees while coordinating activities, assessing performance, engaging in active business result management. By introducing budgeting, CSERP has taught SME entrepreneurs about budget control as a key instrument in ensuring operational transparency.

Based on all of the above, we conclude that the project has been an important factor in achieving balanced development of Croatia, in providing outstanding assistance in the process of eliminating gaps in development of war-affected areas, where the project was implemented, and in the future, balanced development of all areas and especially those that lag behind the average level of development of the Republic of Croatia. We have received more than 150 letters of support from local communities (municipalities, towns, counties and entrepreneurs) asking for the project to be continued. Such high level of interest for and recognition of relevance of the project and of this type of development projects in general by the local community in ASSC demonstrates that there is still a lot of need for this type of assistance in ASSC in order to support a balanced development of all the local communities, and especially those where level of development is below 50% of the average level of development in the rest of the country.

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Annex 9. Comments of Cofinanciers and Other Partners/Stakeholders Lada Blagaic of UNHCR sent the following comments on the draft ICR: Thank you for sharing the draft reports on Croatia Social and Economic Recovery Project (CSERP) and giving us opportunity to review and comment. UNHCR staff that worked closely with you during the development and implementation of the project carefully reviewed both documents and can only fully endorse what has been reported on. Those are carefully designed and factual reports which fully reflect impacts of this comprehensive and most important project implemented so far in the areas of return. UNHCR highly appreciate a role of monitor that was officially given within the project. It gave us an opportunity to monitor a decision making process at the level of the Regional Approval Committees ensuring that needs of persons of UNHCR concern are addressed. UNHCR focused on the social inclusion and small community infrastructure components. Our joint efforts have resulted in the inclusion of returnees, particularly women and vulnerable persons and communities, in a more systematic programme framework, which in our opinion, is the most suitable model of achieving sustainable return. Our contacts with the targeted communities prove that the impacts of this comprehensive programme are well-focused and sustainable. We have also received queries from the return communities that have not been included in the project on whether possibilities for extension. This is an additional proof of quality and efficiency of the CSERP in addressing the sustainability of refugee return and community development in the Areas of Special State Concern. Croatian Ministry of Finance responded by saying that they did not have any comments on the draft ICR.

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Annex 10. List of Supporting Documents Chersi, Diego. Technical Audit of Small Community Infrastructure Projects for Croatia Social and Economic Recovery Project, June 2009. Croatia Ministry of Regional Development, Forestry and Water Management. Croatia Social and Economic Recovery Project: Organization, Activities, Performance 2005-2010. February 2011. Croatia Ministry of Regional Development, Forestry and Water Management. Croatia Social and Economic Recovery Project, Operational Manual Volume 1 (Community Investments), August 2008. IMC Consulting. Social and Economic Recovery Project Grant No. TF050513, Integrated Assessment, July 2004. International Bank for Reconstruction and Development and International Finance Corporation. Country Assistance Strategy for the Republic of Croatia, November 24, 2004. Kelly, Sarah. Social and Economic Recovery Project Grant No. TF050513: Social Assessment, April 2004 (draft). Olimp (Mandac, Ana, Anic, Zeljka Gomuzak, Jadresin, Ana, Huic, Aleksandra). Analyses and Estimate of the Implementation of the Subproject with the Croatia Social and Economic Recovery, Prepared for Ministry of Regional Development, Forestry, and Water Management, June 2010. World Bank. Country Assistance Strategy for the Republic of Croatia, November 24, 2004. World Bank. Croatia Social and Economic Recovery Project Implementation Status and Results Reports, April 25, 2005 to January 19, 2011. World Bank. Implementation Completion and Results Report Guidelines. OPCS. August 2006 (Last updated 11/10/2010). World Bank. Project Appraisal Document. Croatia Social and Economic Recovery Project. Environmentally and Socially Sustainable Development Unit, Europe and Central Asia Region. February 28, 2005.

This map was produced by the Map Design Unit of The World Bank.The boundaries, colors, denominations and any other information shownon this map do not imply, on the part of The World Bank Group, anyjudgment on the legal status of any territory, or any endorsement oracceptance of such boundaries.

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