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INDEPENDENT EVALUATION GROUP Mozambique Country Assistance Evaluation

Approach Paper

Country Background 1. Mozambique is a country of over 20 million people, has a per capita income of $340 (GNI, Atlas method) and occupies an area of 802,000 square kilometers in South-West Africa. About 70 percent of the population live and work in rural areas. Following years of internal conflict, the economy was in a shambles by the mid 1980s when the country, in the midst of civil war, joined the World Bank. The civil war came to an end in 1992, and the first democratic elections were held in 1994. Since then elections have been held regularly. The upcoming round of presidential and parliamentary elections will take place in 2009. Since the cessation of conflict, Mozambique has, however, achieved impressive economic growth (albeit from a low base) and has become an example of successful post-conflict reconstruction and development. Over the period 2003-2005, Mozambique’s development was strongly supported by foreign aid with average annual disbursements of Official Development Assistance (ODA) amounting to over US$1 billion, making up 30 percent of gross national income (GNI) (Annex 1:Table 2).

2. Real gross domestic product (GDP) growth has averaged about 7-8 percent annually since 1996, higher than the previous decade, when growth averaged 4 percent per annum (Annex 1: Figure 1). Strong growth can be attributed to macroeconomic stability and policy reforms, growth in agriculture, post-war infrastructure rehabilitation, and increases in exports aided by mega-projects in the manufacturing sector. Although, part of this growth can be attributed to a post-conflict catch-up effect that cannot last indefinitely, sustaining the more “permanent” component of growth remains a challenge, necessitating a deepening of reforms, including governance reforms, improvements in the business environment, and a strengthening of human and institutional capacity as well as increased investment.

3. Strong economic growth has contributed significantly to the decline in income poverty, but the distribution of the poor remains uneven across regions. Income poverty, as measured by the headcount index, has fallen steadily from 69 percent of the population in 1996/97 to 54 percent in 2002/03. However, there are major differences in poverty across regions in Mozambique, ranging from 45 percent in the center of the country, where the greatest reduction took place over the period, to 66 percent in the south; and across provinces, ranging from 36 percent in Sofala (in the center) to 81 percent in Inhambane (in the South), partially reflecting provinces’ relative access to markets and economic opportunities. Also, absolute poverty in 2002/03 was more prevalent in rural areas (55 percent) than in urban areas (51 percent). Successive governments have persistently shown strong concern for social equity and poverty reduction. The government prepared an Action Plan for the Reduction of Absolute poverty (PARPA, the Portuguese acronym for Poverty Reduction Strategy Paper (PRSP)) in 1999 and PARPA II in 2006.

4. Despite impressive growth, Mozambique remains one of the poorest countries in the world with high levels of absolute poverty and malnutrition, and low levels of social indicators (Annex 1: Table 1). The Human Development Index for 2004 ranks the country 168th out of 177

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countries.1 Mozambique’s per capita income is less than half the Sub-Saharan average and many of the key social indicators are also below the Sub-Saharan average. Improvements in the quality of life have not been evenly distributed between females and males, and between urban and rural areas, with lowest access to social services in rural areas. Under-five mortality and maternal mortality are higher in the more rural northern and central provinces, where the lack of health facilities limits access to care. Girls’ enrollment, especially at the post-primary levels, lags significantly behind that of boys. Adult literacy is only 56 percent; there is an acute shortage of highly educated workers and the quality and relevance of education continues to be a concern.2

5. HIV/AIDS poses one of the most serious socio-economic challenges for Mozambique. The country has the seventh highest prevalence rate in the world with 16 percent of the Mozambicans living with HIV/AIDS. Mozambique is surrounded by countries that have some of the highest prevalence rates in the world. The AIDS epidemic has devastating socio-economic effects. Studies estimate that HIV/AIDS reduces African countries’ economic growth by 1 to 2 percentage points annually. The Food and Agriculture Organization estimates that Mozambique may lose more than 20 percent of its agricultural labor force by 2020 because of the epidemic. The Government of Mozambique (GoM) and development partners have devoted significant efforts to dealing with the epidemic problem but are still not commensurate with the need.

6. Mozambique has received large flows of external assistance (including debt relief), with about half of government expenditure derived from external aid.3 Among some 40 donors, The International Development Association (IDA) is the largest single financier, accounting for about 20 percent of all donor contributions (Annex 1: Table 2). The high volume of aid from a large number of donors brings with it difficulties in effective coordination and maintaining coherence of strategic resource allocation within and between sectors, and issues related to aid alignment and harmonization (A&H). The World Bank Program 7. Since Mozambique joined the Bank in 1984, the Bank has lent US$3.5 billion and carried out a large number of analytical and advisory activities (AAA). Since 1998 the International Finance Corporation's (IFC’s) committed portfolio has reached US$495 million, covering mining, power, and manufacturing. The Multilateral Investment Guarantee Agency's (MIGA’s) guarantees have totaled US$311 million. 8. Bank lending to Mozambique has been mainly in the form of investment credits and recently of direct budget support. Since fiscal 2001, Mozambique has received 22 credits from IDA for a total of over US$1 billion (Annex 1: Figure 2). Direct budget support was

1 Mozambique went through more than 20 years of conflict before peace in 1992, and is still repairing the damage to human and physical infrastructure. 2 Of the seven million people active in the labor market, more than 90 percent have completed only five years of primary education or less. There is a significant shortage of technical and higher level skills, especially in math and science. Of the 30,000 students enrolled in tertiary education, less than one-third major in natural sciences, agriculture, engineering and health sciences, and fewer eventually graduate (Mozambique 2007 Country Partnership Strategy (CPS)). 3 Good economic management helped Mozambique qualify for heavily-indebted poor country (HIPC) debt relief starting in 1999.

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introduced in fiscal 2005, and along with earlier development policy loans account for about 30 percent of the portfolio. The Bank also participated in a Sector Wide Approach (SWAp) for the agriculture sector, which spanned through 2006. The current portfolio is spread across almost all sectors (Annex 1: Table 3).

9. This evaluation will cover the period July 1, 2000 through June 30, 2008 (that is, World Bank fiscal years (FY) 2001-2008). During this time, Bank assistance was guided by a 2000 country assistance strategy (CAS) for fiscal 2001-2003, a 2003 CAS for fiscal 2004-2007, and a 2006 CAS Progress Report. The evaluation will also cover the self-assessment of fiscal 2004-2007 CAS program (i.e., CAS Completion Report (CASCR) prepared in 2007 as part of the 2007 Country Partnership Strategy (CPS), which became effective on July 1, 2008).

10. The Bank has supported Mozambique’s poverty reduction strategy and the CASs have maintained almost the same objectives, but with some minor variations including in program components. The GoM’s strategy emphasized growth and poverty reduction and was based on three pillars: (i) Economic development (increasing economic opportunities in the 2000 CAS) through maintaining a sound macroeconomic environment, developing the financial sector and strengthening the private sector; (ii) Organization of the state (improved governance and empowerment in the 2000 CAS) through improvements in public service delivery, law and order, and transparency and accountability; and (iii) Social development (improving human capabilities in the 2000 CAS) through improvements in health and education.

11. The 2000 CAS, which supported the government’s poverty reduction strategy, focused on three pillars:

• Increasing economic opportunities by: o Strengthening the private sector environment and the financial sector, o Developing infrastructure, o Promoting rural development and agriculture, and o Ensuring sound environmental management.

• Improving human capabilities by: o Preventing and reducing the impact of HIV/AIDS, o Improving health, and o Improving education.

• Improving governance and empowerment by: o Reforming the public sector, and o Improving the rule of law.

12. The 2003 CAS constituted a continuation of the previous CAS by supporting the government’s poverty reduction strategy. The Bank support was mainstreamed across three similar pillars:

• Improving the investment climate and sustaining GDP growth by: o Improving business environment for the private sector, o Reinforcement of the regulation and supervision of financial systems, o Improved delivery of infrastructure services, o Sustainable management of natural resources, and o Improved use of new farm technologies.

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• Expanding service delivery by:

o Reduced incidence rate of HIV/AIDS, o Improved coverage of health services, o Increased access and quality of primary education system, and o Increased access to safe water and sanitation.

• Building public sector capacity and improving governance: o Improved budget allocation, execution and monitoring, and o Improving governance, reforming judicial, reducing corruption and

enhancing accountability.

13. The 2006 CAS Progress Report, an assessment of the Bank’s program during the two years of the implementation of the fiscal 2004-2007 CAS, retained the three pillars of the 2003 CAS, but proposed a harmonization of the outcome indicators in the CAS and the retrofitted Performance Assessment Framework (PAF) of the PRSP undertaken in 2006. 14. In 1998, the Independent Evaluation Group (IEG) (then Operations Evaluation Department (OED)) completed a Country Assistance Review (CAR) that covered the period 1984-1998. The CAR concluded that the Bank played a critical role in Mozambique’s recovery by helping to assess problems and opportunities, design the evolving policy agenda, and mobilize IDA and other resources. The CAR noted that development partners continue to look to the Bank to deliver advisory and analytical services for sectoral and thematic programs, particularly in the area of economic governance (e.g. fiscal management, public sector reform, trade policy and financial sector development). The CAR also found that the availability of grant financing in some sectors, and the government's preference not to incur debt, may limit the scope for IDA financing. A further finding was that development effectiveness has been limited by weaknesses in aid coordination and excessive focus on traditional investment and technical assistance projects rather than results-based sector-wide programs. The CAR recommended that the Bank: (i) be more selective and cede leadership to other donors where they have a comparative advantage or substantial financial presence; (ii) use country dialogue and aid coordination mechanisms to nurture policy reform and capacity building; (iii) enhance partnerships among donors and civil society to improve results for sector programs; (iv) support the Mozambican authorities' increased leadership in development and aid coordination; and (v) increase the responsiveness and effectiveness of Bank assistance by further decentralizing authority to the field. The planned country assistance evaluation (CAE) will provide an opportunity for IEG to assess whether these recommendations have influenced subsequent design of the Bank strategy. 15. An important operational aspect of the Bank’s programs is that there have been significant delays in project preparation, effectiveness, and implementation, as well as a large disparity between CAS planned and actual lending. Disbursements on several infrastructure projects have been slow and closing dates have been extended on several projects. There was a large disparity between planned and actual activities for these CASs, particularly as regards the lending program. Of the 23 projects proposed in the CASs, only 16 were approved and seven were dropped, while six new projects not foreseen in the CASs were prepared and approved (through fiscal 2007), bringing total approvals close to target.

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General Approach to the Evaluation 16. The present evaluation will focus on Bank assistance to Mozambique over the period fiscal 2001-2008 (para. 9), with the main objectives of: (i) evaluating the outcome of the Bank’s assistance program as well as examining to what extent earlier CAR recommendations have influenced recent strategies and practices, and (ii) distilling lessons and recommendations for improving design, implementation, and management of the Mozambique country assistance program. The timing of this evaluation presents a key opportunity to assess Bank assistance and provide a platform for the next CAS (2010) and for the expected new government (2009). The evaluation will benefit from an assessment by IEG-IFC of IFC’s assistance program to Mozambique, although this will be included as part of the CAE rather than being produced as a separate Country Impact Review (CIR) or Country Evaluation Note (CEN). Since MIGA has played only a small role in Mozambique, inputs from IEG-MIGA are expected to be modest, in the form of consultations and desk reviews. 17. The CAE will apply the now standard IEG country assistance methodology structured around the usual criteria of relevance, efficacy, efficiency, outcome, and risk to development outcome. In each of the focus areas detailed below, the CAE will review the relevance of Bank strategies and interventions in relation to the government’s own strategies and the country’s development constraints. The CAE will also discuss the degree to which the assistance objectives have been achieved or are expected to be achieved (efficacy); how cost-effectively they were achieved (efficiency); and the role played by the Bank in achieving the results (contribution) in the context of the government’s development goals (expected outcome). The CAE will also assess the probability of continued long-term benefits or the resilience to risk of the net benefit flow over time (risk to development outcome).

18. Given the large donor presence and the integration of the Bank work with other donors, the CAE will attempt to differentiate the role/contribution of the Bank vis-à-vis that of other development partners, the country, and exogenous factors.

19. The design matrix (Annex 2) highlights the key themes of the country assistance program (growth, human development, and governance), expected outcomes identified, including intermediate indicators, and the choice of instruments of support (PRSCs and other development policy lending, investment projects, SWAp and common funds, and other instruments) as well as dealing with aid A&H issues with development partners. The following section spells out the key evaluative questions associated with these themes and issues. Poverty reduction is directly related to progress on the issues identified in the following paragraphs concerning growth, human resource development, and governance and public sector reform. Thus, in addition to evaluating these issues separately, the CAE will also look at their cumulative impact on poverty reduction.

20. The evaluation will entail a review of all project and program documents and AAA since fiscal 2001. It will also draw on past and ongoing IEG evaluations, including sector and thematic work. In particular, the CAE will draw on the on-going IEG Evaluation of Poverty Reduction Support Credits that includes Mozambique as a case study and coordination will be ensured between the two evaluation teams so that each provides an up-to-date reflections of the other’s findings. It will also draw on Bank assessments and undertake a literature review on

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development activities in Mozambique as they relate to Bank assistance. The evaluation will also seek feedback from the government and local stakeholders, and donors on their perceptions of the Bank as a development partner.

Issues Focus of the Evaluation 21. The CAE review of the strategy, program and outcomes will be organized along the lines of the three pillars of the government strategy of growth and poverty reduction (PARPA). The various Bank strategy documents are broadly consistent with the PARPA and can be organized using the same pillars:

(i) Promotion of high economic growth through reform. Bank support emphasized growth through private sector investment, improved regulation and supervision of financial systems, improved delivery of infrastructure, and rural/agriculture development and sustainable management of natural resources. The bulk of the Bank’s activity, especially lending, was directed toward this pillar. In particular, the development policy lending and PRSC series and the Enterprise Reform Project, complemented by analytic work through the country economic memorandum (CEM), the public expenditure reviews (PERs) and the Doing Business Surveys, were instruments used for dialogue and reform. The evaluative questions that will be used to assess each of these are outlined below and summarized under the broader umbrella question: To what extent has the Bank been able to contribute to the sustainability of growth (including whether such growth has been poverty-reducing) and to strengthen the permanent component of growth?

• Improved business environment for the private sector. Has the Bank had

success in persuading the government to improve the overall investment and regulatory climate? Has the business climate improved significantly over the review period? Has the cost of doing business declined? Have issues related to business competitiveness and private sector development been effectively addressed through development policy lending and budget support? What has been the role of the Bank and IFC in private sector development? Have they coordinated their activities/roles? Has the role of the private sector increased? Is the Bank (or is it perceived to be) more focused on promoting foreign investment than domestic investment? Have Bank activities provided the impetus for developing Mozambique’s investment promotion capacity, and in bringing foreign investment into the country? Has the emphasis on large “mega-projects” that came in under special negotiated conditions and circumvented many of the administrative barriers faced by local investors distracted from the fact that small domestic investors may still face administrative barriers to doing business, and are there sufficient degrees of linkages between foreign investors and local firms? The CAE will provide a more detailed discussion of these issues, particularly in terms of employment generation and poverty reduction results.

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• Financial sector strengthening. The role of the Bank was expanded from a narrow focus on efficient, profitable banks to a broader overview of the financial sector, including adequate access to finance.4 The Bank support was provided through the Financial Sector Capacity Building project, the Financial Sector Technical Assistance (TA) project and the poverty reduction support credit (PRSC) series. The Bank also conducted a joint Bank-Fund Financial Sector Assessment and other AAA. What was the role of the Bank in enhancing the soundness and competitiveness of the banking sector; including through compliance with International Financial Reporting Standards (IFRS), and sale of government shares in state-owned banks? Was Bank support successful in increasing access to credit by small and medium enterprises (SMEs)?

• Improved delivery of infrastructure services. Bank support was targeted at improving access to telecommunications, transport connections (roads, ports and railway), and power, given their current low level.5 Has Bank support helped to address infrastructure constraints to growth, reduce infrastructure costs, increase access and ensure the long-term financial sustainability of infrastructure investments? Has the Bank been successful in improving delivery of infrastructure services?

• Rural development and sustainable management of natural resources. The objective of the Bank’s assistance was to assist in the adoption of new farm technologies so as to improve agricultural productivity. Bank lending was small and overall assistance was largely through analytic work, a 1999-2006 SWAp in advancing research, extension, animal health support systems, and promoting the security of land tenure for smaller holders, and a recent 2006 Market Led Smallholder Development Project, which was not foreseen in the 2003 CAS. The change in approach from a SWAp to a project warrants an examination. The CAE will address whether the Bank used the right mode/vehicle of engagement, given the limited success of the SWAp for the agriculture sector. Was folding agriculture support into the PRSC following closure of the SWAp (though the Bank then did support a pilot project to improve agricultural support services, increased productivity and more efficient marketing in the context of community driven development) the right approach to support the sector and how well did the PRSCs address sectoral issues in agriculture? Was the Bank and the country prepared enough to make this switch successfully? The last sector review was carried out in 1997 and the 2000 CAS proposed rural development strategy study was delayed to fiscal 2005.6 Has the Bank paid sufficient attention to the agriculture sector? Have Bank interventions helped raised agricultural productivity?

4The World Bank (WB) Doing Business Survey ranked Mozambique 143 out of 178 countries on ease of getting credit for 2006. 5 Currently only 7 percent of Mozambican households have sustainable access to electricity and potential shortages of energy supply to industry may hamper Mozambique’s growth. 6 A number of unplanned studies (not included in the CAS) were carried out during fiscal 2005-2007 which included the impacts of extension services, contract farming and supply chain financing, and the horticulture development study.

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(ii) Development of human resources. The Bank’s human resource development strategy focused on improving access to education, health and water services, on enhancing quality at all levels, and on addressing HIV/AIDS epidemic. Mozambique’s low ranking in the Human Development Index summarizes a number of problems in health and education which are major constraints to development. Expenditure on health and education is low relative to comparators. Social services are more accessible in urban areas than in rural areas. The quality and relevance of education is a concern and HIV/AIDS poses a serious threat to Mozambique’s socio-economic development.

• Education. Education has received the most assistance from the Bank (20 percent of the total). Bank support to the sector ranged from access issues at the primary, secondary and tertiary levels to quality and equity concerns. How was the Bank able to create and sustain such a broad relationship with the government in education? Did these interventions contribute effectively to improve access and reduce urban/rural disparities? Did Bank assistance help improve learning outcomes? Most of the assistance supported higher education, with the objective of increasing the number of university graduates, introducing new degrees and improving efficiency. Did the Bank achieve these objectives? While the credits for higher education may help to alleviate a felt need in the country, the Bank needs to better articulate the benefits of assistance in this sub-sector as against interventions to eradicate youth illiteracy, now at 40 percent. The 2000 CAS proposed a Skills Development project (US$80 million) to help reduce the skill constraint, but the Bank dropped this project and substituted a Higher Education project for it. The CAE will investigate the justification for this change in approach.

• Improved coverage of health services. The Bank supported improvements in the health system with a Health Sector Recovery credit (US$98.7 million in 1995). Since then the Bank did not provide direct financing to support the objectives of improving the coverage of basic health services (the exception was the HIV/AIDS grant noted below). The CAS proposed fiscal 2003 Health SWAp was delayed. However, the Bank’s analytical work continued and the key directions of Bank policy dialogue were the need to increase health expenditures; use an integrated service delivery approach, and focus on less-served rural areas. Did the Bank support result in improved health indicators and coverage, particularly in rural area?

• AIDS Epidemics. Was Bank support through the HIV/AIDS Response Project, the regional HIV/AIDS Treatment Acceleration Project, and policy dialogue adequate given the threat posed by the disease? What, if anything, could the Bank have done differently or done more of to help Mozambique reduce the prevalence rate more effectively? Has the Bank pursued regional solutions to HIV/AIDS problems that involve all Southern African countries?

• Increased access to safe-water and sanitation. The goal of Bank assistance was to reduce by half the number of Mozambicans without access to clean water and sanitation. Bank support was implemented through two back-to-back National

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Water Development projects. Did the Bank achieve that objective? These projects aimed at institutional development reforms targeting five cities. As Bank support to increase water and sanitation was largely institutional and had narrow coverage raises the question whether there was a disconnect between the goal of the strategy and the Bank instrument.

• Gender. Both education and health sector lending had important gender focus or implications. Could the Bank have done more to lessen the gender disparity in social service delivery? In evaluating the gender program, the CAE will draw on the evidence and findings of the ongoing IEG Evaluation of Bank Support for Gender.

(iii) Improving the public sector and enhancing governance. Bank assistance was to help sustain macroeconomic stability, bring about improvements in public expenditure management, strengthen government capacity, enhance governance and anti-corruption efforts, and strengthen the rule of law. The expected outcomes identified included improved budget allocation and execution, improved monitoring and evaluation (M&E) capacity, reduced corruption, and improved justice system. Using the PRSCs and the PERs, the Bank worked closely with the International Monetary Fund (IMF) in supporting government reforms on macroeconomic issues. The Bank also collaborated with other partners/donors in providing budget support through the use of PAF.

• Maintaining macroeconomic stability and improving public sector management. Was the Bank successful in helping to establish a stable macroeconomic framework and improving the capacity to manage public resources? Did the Bank analyze and take into account the social and political economy factors, including capacity and willingness of the authorities to carry out reforms? What was the role of the Bank program in revenue enhancement and expenditure control measures to reduce the budget deficit; debt management; and enhanced transparency through introducing changes in Public Finance Law to include some off-budget flows within the budget and donor –financed expenditures in budget report? How did the Bank and the Fund coordinate, and are there any positive lessons to be drawn?

• Strengthening M&E capacity in government. Did the Bank develop an overall strategic framework for capacity building in coordination with the government and donors? How effectively did the Bank program contribute to Mozambique’s efforts and what was the quality and effectiveness of the Bank’s advice and AAA in this area? Did Bank assistance help improve government capacity for economic management, monitor its development strategy (PARPA), and align the PARPA to budget document? Was the Bank support successful at the sub-national level, provincial and district levels?

• Governance and reducing corruption. The Bank supported the corruption reduction objective mainly through the Public Sector Reform Project and policy support through the various PRSCs, complemented by TA from the World Bank Institute. Was the Bank assistance effective in helping the government develop and implement the Anti-Corruption Strategy? Did the

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strategy yield the expected results, especially the main anti-corruption target relating to the number of cases prosecuted? Did the Bank put in place a monitoring and evaluation system to track progress in governance and anti-corruption? In particular, did the Bank use triggers in the PRSC to ensure government delivers in a timely manner the results in the Anti-Corruption Strategy, especially in the prosecution of cases? Was the Bank’s assistance in governance and public sector reform areas adequate to country conditions? Was the Bank support focused more on the supply side of the governance framework (including public financial management and public sector reform) and less on the demand side of good governance (including efforts needed to increase citizen demand for accountability)?

• Improving the justice system. The Bank has only recently (in 2006)7 initiated a program to assist capacity-building and strengthen institutions at the provincial jurisdictional levels with the objective of raising awareness of citizens’ right through outreach programs, and improve access to courts, conflict resolution mechanisms and legal services. The CAE will examine progress achieved.

22. The CAE will attempt to connect the country-specific lessons that emerge for Mozambique to more general policy and institutional issues whose relevance extends beyond Mozambique, in order also to draw lessons which might be applicable to other countries, particularly on the Bank’s role in a multi-donor framework and aid alignment and harmonization issues. 23. Donor Alignment and Harmonization (A&H). Donors play an important role and aid has been increasing (Annex 1: Table 2). The donor community has sought to develop institutions to promote effective donor A&H. The government plays a major role, as it meets with Program Aid Partners yearly to discuss PARPA implementation, update PAF targets, and ensure alignment of development partner support with budget priorities and reporting. In addition, Joint Sector Working Groups meet regularly to review sector issues. While there were discussions among donors about doing some joint strategies, no joint strategies were prepared. TheAfrican Development Bank (AfDB) and the Department for International Development (DfID) have expressed interest in collaborating on an evaluation of the Mozambique program and this is currently being considered, although rationale for an all-out joint evaluation appears weak. The proposed CAE will address the following A&H issues, which could be a focus of collaboration with AfDB under a more limited joint-evaluation formula (para 24):

• Are the current donor coordination mechanisms working well? Are more intensive collaborative efforts warranted?

• Are assistance programs aligned with the country priorities as defined by government’s planning documents (PARPA)? Is the coverage of key priorities adequate or are there gaps in areas where joint efforts would have been warranted?

7 Bank’s support for the justice sector has been through the PRSC series plus a $5 million IDA credit added in 2006 to the fiscal 2003 Public Sector Reform Project.

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• Has the SWAp and budget support provided adequate vehicle for joint effort and has been effective in mobilizing resources and supporting efficient improvements in their intended sectors/areas?

• How effectively has the Bank engaged with the country and with other donors, and what has donor alignment and harmonization meant for the effectiveness of Bank support (particularly with respect to general budget support and SWAps)? Has the need for a three-year common PAF limited the ability of the Bank and government to bring some issues on the agenda for discussion or flexibly react to policy needs?

• Has the Bank embraced Paris Declaration requirements with respect to the use of country systems and reduced the resort to project implementation units?

• How do other donors see the Bank as a development partner and what lessons may be drawn from those perceptions?

Collaboration with AfDB Evaluation Department 24. Consultation with AfDB Operations Evaluation Department (OPEV) management/staff has led to an agreement on the following scope of collaboration between WB-IEG and AfDB-OPEV:

○ Exchange of background reports;

○ Sharing analysis of socioeconomic and political development context;

○ A parallel assessment of AfDB’s role in A&H, necessitating the need for an OPEV staff member to be represented in the upcoming IEG-CAE mission to Mozambique;

○ However, the overall evaluation of the past role of each institution will be conducted in parallel.

CAE Team, Outputs and Timetable 25. The CAE will be carried out under the general supervision of Ali Khadr (Senior Manager, IEGCR (Country Evaluation and Regional Relations)). The task team will consist of Fareed Hassan (Task Team Leader, IEGCR), Adil Kanaan (macro, private and financial sector development), Jorge Garcia-Garcia (governance and public sector development), Hernan Levy (transport, urban development, energy and mining), and Jack Van Holst Pellekaan (poverty reduction, social delivery, and rural development). Tim de Vaan will provide research assistant support and Cecilia Tan will provide administrative support. Peer reviewers are James Sackey (IEGCR) and Janardan P. Singh (IEGKE) (Knowledge and Evaluation Capacity Development). Ibrahim Elbadawi (DECRG) (Development Research Group) will be engaged as an external peer reviewer. A mission to Mozambique is planned for February 2009. The CAE is expected to be delivered to the Committee on Development Effectiveness (CODE) Subcommittee in the second quarter of fiscal 2010.

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Annexes

Annex 1: Figure 1: Mozambique—GDP Growth Rates

12%

9%

6%8% 8% 8%

7%

0%

2%

4%

6%

8%

10%

12%

14%

2001 2002 2003 2004 2005 2006 2007

Annex 1: Figure 2: Mozambique—Bank Lending (Commitments in Million US$)

18.0

270.5

200.6

97.3

170.0

200.5 200.0

90.0

-

100.0

200.0

300.0

2001 2002 2003 2004 2005 2006 2007 2008

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Annex 1: Table 1: Selected Social Indicators (2003-04)

Mozambique Sub-Saharan Africa

GNI per capita, Atlas Method (current US$) 340 842 Immunization, measles(percent of children ages 12 to 23 months) Improved sanitation facilities, urban (percent of urban population with access)

Improved water source (percent of population with access) 43 56 Improved water source (percent of urban population with access) Improved water source (percent of rural population with access) Mortality rate, infant (per 1,000 live births) 100 96 Mortality rate, under 5 (per 1,000) 152 171 Life expectancy at birth (years) 42 47 Child malnutrition (percent of children under 5) 24 29 Source: World Bank Internal Document

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Annex 1: Table 2: Total Net Disbursements of Official Development Assistance (ODA) to Mozambique 2003-2005 (US$ Million)

Donor Calendar years 2003 2004 2005 Total

All Donors, Total 1036.74 1245.82 1285.9 3568.4 DAC Countries, Total 697.06 731.25 770.82 2199.13 DAC EU Members, Total 419.56 483.38 510.17 1413.11 Non-DAC Bilateral Donors,Total 2.89 3.84 1.83 8.56 G7, Total 330.33 302.88 325.68 958.89 Multilateral, Total 336.79 510.73 513.25 1360.77 Of which IDA, Total 159.05 194.22 242.7 595.97 Of which AfDB, Total 31.94 91.39 73.42 196.75 Australia 4.59 2.02 0.69 7.3 Austria 3.35 5.17 4.31 12.83 Belgium 8.71 10.57 12.21 31.49 Canada 26.7 27.34 56.19 110.23 Czech Republic 0.01 0.01 0.01 0.03 Denmark 66.43 67.42 64.87 198.72 Finland 21.99 25.66 24.75 72.4 France 16.59 14.61 13.71 44.91 Germany 37.91 38.65 42.64 119.2 Iceland 1.02 1.24 1.56 3.82 Ireland 39.9 48.69 48.31 136.9 Italy 15.09 26.99 21.56 63.64 Japan 35.27 19.41 14.77 69.45 Korea 0.1 0.05 0.16 0.31 Luxembourg 0.73 0.35 1.35 2.43 Netherlands 47.27 54.7 64.46 166.43 New Zealand 0.61 0.43 0.48 1.52 Norway 54.11 61.06 67.94 183.11 Portugal 19.11 24.25 22.56 65.92 Slovak Republic 0.18 0.2 0.1 0.48 Spain 22.58 32.48 29.35 84.41 Sweden 56.53 67.92 79.25 203.7 Switzerland 20.82 27.65 24.61 73.08 United Kingdom 63.37 65.92 80.84 210.13 United States 135.4 109.96 95.97 341.33 All bilateral donors AfDF (African Dev.Fund) 31.94 91.39 73.42 196.75 Arab Agencies 11.63 26.45 13.11 51.19 Arab Countries 1.58 2.34 3.92 EC 90.17 151.1 162.57 403.84 GEF 0.95 0.89 1.58 3.42 Global Fund (GFATM) . 16.38 16.38 IDA 159.05 194.22 242.7 595.97 IFAD 6.02 7.01 6.24 19.27 SAF+ESAF+PRGF(IMF) -8.95 -20.31 -25.46 -54.72 UNDP 8.91 8.51 7.41 24.83 UNFPA 9.04 8.96 5.89 23.89 UNHCR 1.54 2.2 2.44 6.18 UNICEF 7.8 8.51 8.73 25.04 UNTA 2.88 2.44 2.82 8.14 Nordic Dev. Fund 7.04 7.77 5.42 20.23 WFP 8.77 5.21 6.38 20.36 Source: OECD DAC Online database, Table 2a. Destination of Official Development Assistance and Official Aid Disbursements as of March 19, 2007

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Annex 1: Table 3: Focus Areas of Mozambique’s Major Development Partners

Development Partner G18* Sustainable growth Access to social services Improving Governance Infra- Private Rural/ Environ- HIV/ Water & Food Public Sector/ civil structure sector Agriculture ment Education Health AIDS Sanitation Security Governance society Justice AfDB Yes X X X Austria No Australia No Canada Yes X X X X X Belgium Yes X X X Denmark Yes X X X X European Comm. Yes X X X X X X X Finland Yes X X France Yes X X X X X X Germany No X X X X X X X X Japan No X X X X X Iceland No X X X X Ireland Yes X X X X Italy Yes X X X Netherlands Yes X X X X X X Norway Yes X Portugal Yes Spain No X Sweden Yes X X Switzerland Yes X X X X X UK Yes X X X X X X X United States No X X X World Bank Yes X X X X X X X X X X

*In 2004, 18 development partners (G18) signed a Memorandum of Understanding to provide general budget support through a joint monitoring framework, the Performance Assessment Framework (PAF). The G18 development partners are AfDB, Belgium, Canada, Denmark, EU, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, UK, and the World Bank.

Source: Adapted from 2003 and 2007 CAS documents

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Annex 2: Design Matrix - Strategic Pillars, Instruments and Key Indicators, Including Intermediate Indicators

2000 CAS Period 2003 CAS Period PILLAR 1: INCREASING ECONOMIC OPPORTUNITY PILLAR 1: IMPROVING THE INVESTMENT CLIMATE

2000 CAS 2003 CAS Completion Report Status

2003 CAS Intermediate Indicators 2007 CAS Completion Report Status

Roads 1.1 Improved business environment for private sector 1.1a Reduced administrative barriers

Meet annual targets on routine and periodic road maintenance (targets to be determined)

1,800km roads rehabilitated, 500km periodically maintained, 11,000km routinely maintained

Costs for registering a business lowered by 40% (from 108% GNI per capita) (AAP)

• Unnecessary registration procedures eliminated from among the 15 that now exist • GoM response times for core retained registration procedures reduced. • Commercial and industrial activity regulations revised

The 2007 Doing Business Report reports that 2006 costs for registering a business is 85.7% of GNI per capita, 21% lower (from 108% GNI per capita). 2007 costs forecast is significantly lower (20% of GNI per capita) due to implementation of electronic registration

Establish Road Fund independent of ANE

Not met, but legal documents finalized

Time required for registering a business lowered by 40% (from 174 days) (PAF Sub 19) (AAP)

See cell above. Time required for registering a business is now 113 days, lowered by 35% (from 174 days). Mozambique's rank for this indicator is 153 in 2006,156 in 2005. Forecast for 2007 is 33 days due to implementation of electronic registration.

Separate financing and allocation functions (under Road Fund) from contract management of supervision of construction and maintenance

Partly met; financing function of Road Fund has been separated

1.1b Improved competitiveness of labor market

Railways Reduction of cost of retrenchment (3 months per 2 yrs, baseline 2005) (PAF 18)

• New labor law discussed in Parliament • Foreign hires made simpler and less discretionary

The labor law reforms approved in November 2006 are proceeding in the right direction, but are too modest.

Traffic from neighboring countries to exceed 10m mt (ports) and 7m mt (railways) by 2002

Not met; traffic 5.6m mt (ports) and 3.3m mt (railways) in 2002

1.2 Regulation and supervision of financial system reinforced

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Energy % of banks whose financial reporting is in accordance w/ IFRS (PAF Sub 21)

• BAu/BIM assessment done and resulting action plans implemented. • Bring all bank accounting practices to IFRS by 2007 • GoM strategy for financial sector reform clarified.

The central bank has introduced IFRS accounting and the process of introducing IFRS to the rest of the financial sector has started.

Design and implement framework for expansion of electricity access, including differentiated tariffs and separation of generation, transmission and distribution

Design completed; implementation occurring under Energy Reform project

1.3 Improved delivery of infrastructure services 1.3a Improved access to telecoms

Water Teledensity doubled to 16 per 1,000 inhabitants overall (1.6 percent, 0.24 rural) by 2006 (AAP

• Full liberalization of the sector by December 2007. • Universal Access Policy and decree enacted • Interconnection rates between TDM and new mobile provider agreed • TdM privatization transaction completed

Total teledensity has increased from less than one percent in 2000 to nearly 9 percent in 2006 with about 1.6-1.8 million mobile subscribers.

Increase access in major cities to 50% by 2004

Not met, due to floods and withdrawal of private operator; access in major cities to reach 40% by 2005

1.3b Improved connectivity

Update National Water Policy and Water Law; formulate National Water Resources Management Strategy with stakeholder participation by 2004

On track Percentage of road network in good and fair conditions (PAF#9)(AAP)

• Road maintenance raised to 15,000 km/yr routine, 2,000 km/yr periodic by 2006 (from 12,000 and 620 in 2000)

71% of the primary, secondary and tertiary road network (in 2006) against a target of 75% for 2006 and 76% for 2007 (PARPAII).

Agriculture Rural access to all season roads (% of rural population) (AAP) Included in the retrofitted framework even though IDA support to this outcome would not begin during the CAS period.

Annual % increase in agricultural GDP

Growth -10.3% in 2000 (due to floods), 13% in 2001, and 7.9% in 2002

Increased traffic and operational efficiency of the three major rail- and port systems (Maputo, Beira, Nacala)

• 600 km Sena railway line rehabilitated • 317 km Machipanda railway line rehabilitated

Port traffic increase over past 5 yrs: Maputo 59%; Beira 0.2%; Nacala 17%; overall 35% from 7.3 m. tons in 2001 to 9.9 m. tons in 2005 at fraction of initial workforce. Rail traffic over past 5 years: Maputo 9%; Machipanda (Beira) -30%; Nacala -40%; overall -3% from 4.2

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m. tons in 2001 to 4.1 m. tons in 2005 at significantly reduced workforce.

Annual % increase in real value of export crops

Value (current S) $67.8m in 1999, $52.7m in 2000 (due to floods), $64.2m in 2001, $84.7m in 2002

1.3c Improved household access to electricity

Annual % increase in smallholders' crop and livestock sales

Not monitored Number of new domestic connection per year (PAF # 12) (AAP)

• New electric generation projects promoted • New strategy developed for setting up a regulatory agency

Target for 2006 of 30,000 new household connections and 3000 clinics and schools is not met (+/- 17,000) due to government's change in sector reform approach just as the IDA-supported Energy Reform and Access Project (Cr. 38190) became effective

1.4 Sustainable management of natural resources % of natural resources land covered

by management plans • Natural resource management plans adopted by 50 communities by 2006 (from 12 in 2003) • Forestry concessions awarded to private operators have developed management plans

A small portion of natural resource land is covered by a management plan and these are mostly forest concessions

1.5 Increased use of new farm technologies Percent of farmer assisted

exploitations that adopted at lease one new technique (PAF #14)

• Farm household with access to extension services to increase from 13% in 2004.

No % in CASCR. The latter mentions that 70% of annual targets have been achieved by mid-2006

Lending Lending Enterprise Development Project (FY00), Nat Water Dev Project I (FY00), Railways and Roads Restructuring (FY00), Mineral Resource Management (FY01), Roads and Bridges I (FY02), Communications Sector Reform (FY02), Municipal Development (FY02), Economic Management and Private Sector Operation (EMPSO) (FY03), Energy Reform and Access (FY04)

Energy Reform and Access SIL (FY04), Beira Railway (FY04), Nat. Water Dev Project II (FY05), Transfrontier Conservation Areas & Tourism Dev GEF (FY06), Financial Sector Capacity TA (FY06), Market Led Smallholder Dev (FY06), Roads and Bridges 2 APL (FY07), Maputo Municipal Dev (FY07), GEF Market Led Smallholder Dev (FY07), PRSC 1 (FY05), PRSC 2 (FY06), PRSC 3 (FY07)

Non-lending Non-lending Industrial Performance and Inv Climate (FY03), FSAP (FY04) Private Sector Competitiveness Study (FY05), Contract Farming and Supply Chain Financing (FY05), Natural

Resources (FY05), Agriculture Strategy (FY05), Mining Policy TA (FY06), CEM (FY06), Zambezi Valley Regional Growth Study (FY07), Zambezi River Basin Regional Water Resource Management (FY07), Country Environmental Assessment/ Country Social Assessment (FY07), Horticulture Dev Sector Strategy (FY07), MIGA Enterprise Benchmarking Study (FY07), Value Chain Analysis (FY07), Commercial Debt Reduction TA (FY07)

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PILLAR 2: IMPROVING GOVERNANCE AND EMPOWERMENT PILLAR 3: BUILDING PUBLIC SECTOR CAPACITY AND ACCOUNTABILITY

2000 CAS 2003 CAS Completion Report Status

2003 CAS Intermediate Indicators 2007 CAS Completion Report Status

No Bank performance indicators were identified 3.1 Improved budget allocation and budget execution

Increased GoM revenues included in the budget (PAF 28)

• Off-budget revenues reported to MPF by ministries, and donor funding also reported • Outturn close to budget • SISTAFE introduced in 2004/05, with functional classif. • Accounting, auditing capacity developed • Revenue authority created

Own revenues included in the budget are 70 percent higher in real terms in 2007 than in 2006.

Budget execution rates for recurrent expenditure on goods and services in priority sectors greater than rate in non-priority sectors (PAF 26)

See cell above. Recurrent expenditures in priority sectors are not greater than expenditures for non-priority sectors

Increase number of external funds that are on CUT (PAF 29)

See cell above. External funds reporting in the single treasury account (CUT) have continually increased

Budget allocation and budget execution of PARPA priority areas in accordance with targets set by PARPA (PAF 25)

See cell above. Budget allocation in accordance with PARPA requirements (65%). Budget execution for 2006 on track to meet PARPA target.

3.2 Stronger M & E capacity in GoM

Improved consistency between PARPA, CFMP, PES, & OE (PAF #36)

• Annual PES Balangao made principal PARPA monitoring tool • PAF matrix regularly updated, to keep PARPA relevant

Government has made good progress in M&E at the national level especially for monitoring the PARPA II and aligning the PARPA II to budget documents. Nonetheless, there has been very little progress made at the sectoral level

3.3 Reduced corruption Proportion of cases of corruption

reported to the Cabinet Central de Anti-Corrupcao (High Authority for Combat of Corruption - GCCC) that are brought to a conclusion (PAF # 42)

• Governance surveys completed and anti-corruption action plan implemented by 2006

Not met. The High Authority for Combat of Corruption did not prosecute any cases in 2005 and only began prosecuting one case in 2006 (Director of Prisons). Information about prosecutions has

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also not been made public.

3.4 Increased efficiency in the provision of services by the justice system

Increase the number of judicial verdicts reached (PAF # 45)

• Increase in the number of cases sentenced/ closed • Increase in the number of citizens with knowledge of their rights and responsibilities.

Not followed up in CASCR

Increase the productivity of the courts and prosecutor's office.

See cell above. Not followed up in CASCR

Increase access to justice for citizens through improved communications, information and technology

See cell above. Not followed up in CASCR

Lending Lending Economic Management and Private Sector Operation (EMPSO) (FY03), Decentralized Planning and Finance (FY03), Public Sector Reform (FY03)

Decentralized Planning and Finance (FY04), PRSC 1 (FY05), PRSC 2 (FY06), PRSC 3 (FY07)

Non-lending Non-lending Public Sector Reform Preparation (FY01), PRSP Support (FY02), Enhanced HIPC Completion Point, PER, volume 1 (FY03), PER, volume 2 (FY04), Legal and Judicial Assessment (FY03), CEM (FY00), CPAR (FY03, CFAA (FY02)

Governance and Anti-Corruption Diagnostic (FY05), PER TA (FY05), PER (FY05), Institutional Governance Review (FY05), Impact of Extension Services (FY05), PPI Review (FY05), Marginal Budgeting through Bottlenecks TA (FY06), CEM (FY06, PER TA (FY06), Dec. and Local Service Del. Pol. Note (FY06), Public Financial Mgmt Assess. (PEFA) (FY06), Country Framework Report (FY07), Procurement Reform TA (FY07)

PILLAR 3: INCREASING HUMAN CAPABILITIES PILLAR 2: EXPANDING SERVICE DELIVERY 2000 CAS 2003 CAS Completion Report

Status 2003 CAS Intermediate Indicators 2007 CAS Completion Report

Status HIV/AIDS 2.1 Reduced HIV vertical transmission from mother to child By end 2000, Bank portfolio reviewed and retrofitted to include HIV/AIDS interventions where appropriate

Met; roads, health, education and rural projects retrofitted

Percentage (and number) of HIV + pregnant women receiving complete prophylaxis (PAF # 7)

• HIV/AIDS strategy revised and implemented • 100 Voluntary Testing Centers established by 2008 (from 24 in 2002) • Mother to Child Transmission centers (MTCTs) sites established • 500,000 people reached annually by civil society HIV control initiatives by 2008

For first 6 months of 2006, achieved 8,728 against 2006 target of 10% (16,000). Less than 5% of pregnant women living with HIV/AIDS receive the full course of prophylaxis for the prevention of mother-to-child transmission.

Health 2.2 Improved coverage of health services

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Reduce index of geographic inequality in provision of health care services to below 2,8 (est. 3.0 in 1998)

Indicator not tracked, but overall equality improved from 8.0 in 1995 to 2.0 in 2001

Proportion of institutional deliveries among expected births (PAF #3)

• Priority health services package defined • Health budget maintained at 3.4% of GDP

On track: 45.8% during first six months of 2006 (2006 target is 51%)

Increase proportion of health posts with Essential Drugs Program kits from 88% in 1997 to 90%

Not met; 83.5% of health posts with Essential Drugs Program kits in 2001

Coverage of DPTHeB (PAF #4) See cell above. On track: Vaccinations in infants 0-11 months was 92% during first six months of 2006 (2006 target is 95%).

Increase proportion of health posts with trained staff from 86% in 1997 to 90%

Met; 92% of health posts with trained staff in 2001

Utilization rate - professional consultations per inhabitant per year (PAF #10) (AAP)

See cell above. On track: 1.2 consultations per inhabitant during first six months of 2006 (2006 target is 0.94).

Education 2.3 Sustainable increases in access to safe water Increase grade 5 pass rate from 54% to 75%; grade 7 from 37% to 60%; and grade 10 from 33% to 55%

Not met, though large improvement; grade 5 pass rate 64%; grade 7 60%; and grade 10 41% in 2001

Percentage of population with access to public water (PAF #10)

• At least 1,200 additional rural water points per annum continued to be completed (compared to 900 to 1,300 over previous few years).

Overall access increased only marginally overall (Current overall access is 40.2%) but is expected to increase significantly in the five cities of the IDA project.

Reduce average repetition rate by half for primary and lower secondary education

Not met; repetition rate fell from 26% to 24%

2.4 Increase access and quality of primary education system

Increase EPl gross enrolment rate from 71% to 86% and EP2 from 15% to 30%

Met; EPl gross enrolment rate 106% and EP2 from 33% in 2002

EP1 net enrollment rate, targeting the total, and girls only. EP1 completion rate, targeting the total, and girls only

Enrollment expanded; there are problems w/ data quality. Primary completion rate remains low at less than 50%, posing a serious risk to the achievement of MDGs by 2015.

Increase girls enrolment from 73% in EPl and from 18% in EP2 and retention rates at primary and secondary schools from 40%

Met 2.5 Improved quality of higher education

Social protection Further increase in the number of graduates for al HEIs CASCR mentions an increase according to target.

Complete social security reform study

Study underway Further increase of students from the North and Center The indicator of increasing by 5 percentage points the number of students from the North and Center was only partially achieved. The proportion of students from the Center reached only 27% in 2004, short of the target which was 35%.

Continued reform in curriculum, develop quality assurance mechanism CASCR mentions introduction of new degree programs, according to target.

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2.6 Improved public service delivery planning, budgeting, and financial management

Definition of criteria for allocation of the investment budgets for districts from 2007 as well as the proportion of investment budget executed by district governments (2006), and implementation in 2007 (PAF#37)

• Decentralization regulations approved by 2004 and implementation initiated in 2005. • District dev. and investment plans prepared in 67 districts by 2007. • Pay reform initiated. • Functional analysis and restructuring plans completed in all ministries; • Restructuring plans implemented by seven ministries.

Criteria were defined and adopted for distribution in the 2007 Local Initiative Investment Budget (OIIL) and the proportion of investment budget to be executed by district governments has increased. Framework needs to be developed for all subnational entities.

National Decentralization Policy Approved through Consultative Process (2006) and implemented (including common M&E framework). Draft National Decentralization Strategy completed (PAF#38)

See cell above. Work on the National Decentralization Policy is under way but does not as yet set out specific strategies or targets

2.7 Transparency of public procurement practices reinforced Modern procurement system in

accordance with the best international procurement practices is operational up to district level (PAF # 33

• Procurement regulatory body (UFSA) established. • Ethics Code introduced • Appeal mechanisms introduced

Slow Progress. The new Procurement Code was approved by Cabinet in Dec 2005.

Lending Lending Higher Education (FY03), HIV/AIDS (FY03) National Water Supplemental (FY04), HIV/AIDS (Regional) (FY04), MAP HIV/AIDS Response Project (FY04),

Technical and Vocational Education (FY06), Water Services and Institutional Support (FY07), Higher Education, additional financing (FY07), PRSC 1 (FY05), PRSC 2 (FY06), PRSC 3 (FY07)

Non-lending Non-lending HIV/AIDS and Growth Linkages (FY03) Technical and Vocational Education (FY04), Labor Markets and Tec Voc Edu. (FY05), PSIA: Reducing Primary

School Fees (FY05), Health Sector Country Status Report (FY05), Water Resource Management (FY05), Country Integrated Poverty, Social, and Gender Assessment (FY07), Education Fee Reform Impact Analysis (FY07), PSIA Labor Market Reforms (FY07), Rural Strategy (FY07), Achieving the Health MDGs (FY07)