AFRICAN DEVELOPMENT FUND

REPUBLIC OF CHAD

BUSINESS CLIMATE IMPROVEMENT AND ECONOMIC DIVERSIFICATION

SUPPORT PROJECT (PACADET)

OSGE/GECL

November 2013

Translated Document

TABLE OF CONTENTS

I. STRATEGIC THRUST AND RATIONALE ........................................................................ 1

1.1. Project Linkages with Country Strategy and Objectives .................................................... 1

1.2. Rationale for Bank’s Involvement ...................................................................................... 2

1.3. Aid Coordination ................................................................................................................. 4

II. PROJECT DESCRIPTION ................................................................................................. 5

2.1. Project Components ............................................................................................................ 5

2.2. Technical Solutions Adopted and Alternatives Explored ................................................... 7

2.3 Project Type ........................................................................................................................ 7

2.4. Project Cost and Financing Arrangements .......................................................................... 7

2.5. Project Area and Beneficiaries ............................................................................................ 9

2.6. Participatory Approach for Project Identification, Design and Implementation. ............... 9

2.7. Consideration of Bank Group’s Experience and Lessons Reflected in Project Design .... 10

2.8. Key Performance Indicators .............................................................................................. 11

III. PROJECT FEASIBILITY ................................................................................................. 12

3.1 Economic and Financial Performance............................................................................... 12

3.2 Environmental and Social Impacts and Climate Change .................................................. 12

3.3 Gender ............................................................................................................................... 12

3.4 Social ................................................................................................................................. 13

3.5 Forced Resettlement .......................................................................................................... 13

IV. PROJECT IMPLEMENTATION ..................................................................................... 13

4.1. Implementation Arrangements .......................................................................................... 13

4.2. Monitoring and Evaluation................................................................................................ 15

4.3. Governance........................................................................................................................ 15

4.4. Sustainability ..................................................................................................................... 16

4.5. Risk Management .............................................................................................................. 16

4.6. Knowledge Building ......................................................................................................... 17

V. LEGAL FRAMEWORK .................................................................................................... 17

5.1. Legal Instrument ............................................................................................................... 17

5.2. Conditions Related to Bank’s Intervention ....................................................................... 17

5.3. Compliance with Bank Policies ........................................................................................ 18

VI. RECOMMENDATION ...................................................................................................... 18

LIST OF TABLES

Table 1.3: Major Projects of TFPs in PACADET-Related Sectors

Table 2.1: Project Components and Activities

Table 2.2: Alternative Solutions Explored and Reasons for Rejection

Table 2.3: Estimated Project Cost by Component

Table 2.4: Sources of Financing (UA million)

Table 2.5: Project Cost by Expenditure Category (UA million)

Table 2.6: Expenditure Schedule by Components (UA million)

Table 2.7: Lessons from Previous Institutional Support Projects

Table 4.1: Monitoring Stages and Feedback Loop

Table 4.2: Potential Risks and Mitigation Measures

Annex I. Comparative Socio-economic Indicators

Annex II. Table of AfDB Portfolio in the Country (June 2013)

Annex III. Key Related Projects Financed by the Bank and Other Development Partners

Annex IV. Map of the Project Area

i

Currency Equivalents

(September 2013)

Monetary Unit: CFA FRANC (XAF)

UA 1 = CFA 747.75

UA 1 = EUR 1.18

UA 1 = USD 1.50

Fiscal Year 1 January - 31 December

Acronyms and Abbreviations

ADF

AFD

African Development Fund

French Development Agency

AfDB African Development Bank

ANIE National Investment and Exports Agency.

ARMP Public Procurement Regulatory Authority

BDEAC Development Bank of Central African States

CCIAMA Chamber of Commerce, Industry, Handicrafts, Mines and Agriculture

CDE Centre for the Development of Enterprise

CEDAW Convention on the Elimination of All Forms of Discrimination against Women

CEMAC Central African Economic and Monetary Community

CMA Mediation and Arbitration Centre

CS Sector Committee

CSPR Reform Programme Coordination and Monitoring Unit

DSEPP Projects and Programmes Monitoring and Evaluation Directorate

ECCAS Economic Community of Central African States

ENFJ National Judicial Training School

EPA Economic Partnership Agreement

EPCV

Permanent Survey on Household Living Conditions

EUD European Union Delegation

FDI Foreign Direct Investment

FE

FODEP

Foreign Exchange

Forum for State-Private Sector Dialogue

GAP Governance Action Plan

GDP Gross Domestic Product

GUF Landed Property One-Stop Shop

GVT Government

HIPC Heavily Indebted Poor Countries

IFC International Finance Corporation

IMF International Monetary Fund

LC Local Currency

ii

MTC Commercial Court Judges

MTEF Medium-Term Expenditure Framework

NA Not Applicable

NCB National Competitive Bidding

OCMP

OHADA

Public Procurement Oversight Agency

Organization for the Harmonization of Business Law in Africa

OPEV Operations Evaluation Department of the Bank

PACADET Business Climate Improvement and Economic Diversification Support Project

PCR Project Completion Report

PIU Project Implementation Unit

RAFC Administrative, Finance and Accounting Officer

RCCM Trade and Personal Property Credit Register

RT Republic of Chad

SG Sector Groups

SMP Staff Monitored Programme (IMF Economic Assistance Programme)

TDFO Bank Field Office in Chad (TDFO)

TFP Technical and Financial Partner

UA Unit of Account

UNDP United Nations Development Programme

US

USD

PND

United States

United States Dollars

National Development Programme

WB World Bank

WTO World Trade Organization

iii

Project Information Sheet

Client Information

BORROWER: Republic of Chad

EXECUTING AGENCY: Reform Programme Coordination and Monitoring Unit

(CSPR) attached to the Office of the Prime Minister

(PM) 1

Financing Plan

Source Amount (in UA) Instrument

ADF2

5.89 million

Comprising 1.92 million Grant 3.97 million Loan

TOTAL COST 5.89 million

Key ADF Financial Information

Loan/Grant Currency

UA

Interest Type* NA

Interest Rate Margin* NA

Commitment Fee* 0.50%

Other Costs* 0.75%

Maturity 50 years

Grace Period 10 years

FRR, NPV (baseline scenario) NA

ERR (baseline scenario) NA

*where applicable

Duration – Milestones (expected)

Preparation Mission

April, 2013

Appraisal Mission August, 2013

Country Team October, 2013

Grant and Loan Agreement Negotiation November, 2013

Presentation to the Board December, 2013

Effectiveness January, 2014

Completion December, 2017

Last Disbursement December, 2018

1 Established by Decree No. 2/PR/PM/2013 and attached to the Prime Minister’s Cabinet

2 Country allocation (Loan 2.81, Grant 0.86); Cancellation (Loan 1.16, Grant 0.59).

iv

Project Summary Project

Overview

Project Name: Business Climate Improvement and Economic Diversification Support Project

(PACADET).

Project Area: Nationwide

Project Duration: 48 months

Project Cost: UA 5.89 Million

Project

Objectives

PACADET’s objective is to promote private sector development and economic diversification in order to

lay the groundwork for inclusive economic development in Chad. Its operational objectives are to improve

the investment climate by implementing two major components, namely: (i) Supporting public and private

sector dialogue and investment climate reform; and (ii) Supporting entrepreneurship and investment

promotion.

Needs

Assessment

The role of the private sector and its importance in the Chadian economy are reflected in Chad's 2013-2015

National Development Programme (PND), which embodies the country's development vision. The private

sector remains poorly developed, characterized by a dual structure in which a few large firms coexist with a

myriad of small businesses of the informal sector. Very small enterprises (VSEs)3 account for 91% of all

enterprises, small- and medium-sized enterprises (SMEs) for about 3% and major enterprises, backed

mainly by foreign capital, make up about 6%. The main challenges and constraints faced in promoting

medium- and long-term development of the private sector are threefold: (i) weakness of the legislative,

institutional and regulatory framework; (ii) difficulties in accessing financing, especially for SMEs; and

lastly (iii) weak supervisory and support structures. The Government adopted in 2012, in consultation with

the private sector and Technical and Financial Partners, a timetable for implementing business climate and

economic diversification reforms aimed at reducing the country's dependence on oil resources.

Target

Beneficiaries

The project area is N'Djamena and the rest of the country. The direct beneficiaries are public

administration, the private sector, entrepreneurs in the country and the entire Chadian population.

Economic operators will take advantage of the improved business climate to accelerate the development of

their businesses, while the people, on their part, will benefit from better prices and the improved

employment situation brought about by the positive developments in the competitive environment and

national production landscape.

Outcomes

and

Impact

The expected outcomes of the project implementation in the short-term are: (i) reduction in the cost and

time it takes to start a business; (ii) reduction in the time it takes to issue land titles; (iii) facilitation of

access to financing thanks to the availability of land titles serving as collateral and the assistance provided

by the approved business incubation centre; (iv) increased number of businesses started by women in

growth-oriented sub-sectors; (v) decreased recourse to legal redress over business disputes following the

establishment of the Arbitration Centre and strengthened capacity of commercial courts. In the longer term,

the country will become increasingly more attractive, particularly in terms of Foreign Direct Investment

(IDE), thus paving the way for more inclusive economic growth. Bank’s Value

Added

The Bank’s comparative advantages and value added in this operation stem from the experience it has

acquired over the years in the design and implementation of capacity building projects in Member States.

Concerning the improvement of the business climate, in particular, it has financed similar operations in

Rwanda with the Rwanda Development Board, Burkina Faso with the Business Incubation Centre

(“Maison de l’Entreprise”) and in Senegal with the Investments and Exports Promotion Agency (APIX).

Knowledge

Building

When implemented, this project will support technical capacity building in the monitoring and

implementation of inter-ministerial reforms. In particular, capacity in the area of business climate will be

strengthened through technical assistance and various methodological guidelines that will be developed.

The practices will be disseminated within the administration through the documents produced and the

training sessions and within the Bank by TDFO through seminars and OPEV reports.

3 There are four categories of enterprises in Chad: very small enterprises (VSEs) characterized by a staff of less than 5 people, small

enterprises with a staff of 5 to 20 people, medium-sized enterprises with a workforce of 20 to 100 people and lastly big enterprises with

a workforce of over 100 people (CNPT-2011 Survey)

v

Results-Based Logical Framework Country and Project Name: Business Climate Improvement and the Economic Diversification Support Project (PACADET)

Project Objective: Promote private sector growth and economic diversification by improving the business climate.

RESULTS CHAIN

PERFORMANCE INDICATORS MEANS OF

VERIFICATION

RISKS/MITIGATION

MEASURES

Indicator

(including ISC) Baseline Target

IMP

AC

T Sharp fall in the

dependence of the Chadian

economy on the oil sector

[Share of the non-oil private

sector in the GDP]

8.7% in 2012

10% in 2017

Consultation of

IMF’s 2015

Article IV

Report

OU

TC

OM

ES

Outcome I: Private sector

development is facilitated

by the reforms

I.I. Number of days it takes

to start a business

I.2 Number of commercial

disputes resolved through

mediation

I.3 Number of days required

to issue a land title

A minimum of 10

days is required to

start a business

Less than 1% of all

cases are currently

resolved by

mediation

At least six months

are required to issue

a land title

I.I. Starting businesses

reduced from 10 to 3

days in 2014

I.2. At least 5% of

commercial disputes are

resolved by mediation in

2015, pursuant to

OHADA regulations

I.3. The time taken to

issue land titles is

reduced from six months

to one month in 2015

ANIE Report

Statistics from

the Chamber of

Commerce

Risk 1:

Sluggishness in

making decisions

related to reform

implementation

Mitigation:

Enhancement of

inter-ministerial

coordination

Outcome II:

Entrepreneurship and sector

support are strengthened

Number of SMEs in growth-

oriented sub-sectors4

established as a result of the

project (including the

percentage owned by

women)

2 Two SMEs

established in

growth-oriented

sub-sectors and

listed in ANIE

databases

20 viable SMEs

established in growth-

oriented sub-sectors in

2016, including at least

25% by women

ANIE Report

Statistics from

the Chamber of

Commerce

OU

TP

UT

S

COMPONENT I: SUPPORT FOR PUBLIC AND PRIVATE DIALOGUE AND INVESTMENT CLIMATE REFORM Risk 2:

(ii) Underestimation

of the scope and

difficulty of reforms

to be implemented

Mitigation measures:

(i) Strengthening the

operationalization of

public and private

dialogue;

(ii) Communication

1.1. The legal and

regulatory framework for

the establishment and

promotion of SMEs is

reviewed and upgraded 5

1.1.1 Number of regulatory

instruments reviewed,

upgraded, promulgated and

broadcast nationally

The regulatory

instruments are

obsolete and

studies not

available

Texts revised and

promulgated, if need be,

no later than 2015 and

broadcast nationally

Official

Gazette of

Chad (OG)

1.1.2. Number of instruments

accompanied by decrees of

implementation on the

promotion of investment

adopted6.

No comprehensive

inventory of

statutory

instruments relating

to investments

A collection of

instruments is made

available to potential

investors by ANIA and

broadcast nationally

ANIE Reports

and

Newsletters of

the Ministry of

Commerce

4 High growth potential sub-sectors listed in the National Development Plan 5 This entailed (i) reviewing and improving the institutional, regulatory and legal framework relating to the establishment of companies to

reduce the time, procedures and costs required to start a business (see Chad's ranking on starting a business); (ii) streamline the tax

system (special levies) and licensing and related regulations; and (iii) support the preparation of strategic and institutional and legal frameworks required to optimize production sectors and prepare special economic zones.

6 In particular, instruments relating to the facilitation of the process for starting a business and obtaining a land title.

vi

1.2. Public and private

dialogue is operational and

a standing forum sponsored

by the Prime Minister's

Office is legalized

1.2. Number of public and

private meetings held in 2014

and minutes of meetings

Public-private

dialogue is sporadic

and unstructured

The public-private

dialogue framework is

formal, operational and

permanent; at least three

minutes of meetings are

available in 2014 and

subsequent years

Official

Newsletters of

the Chamber of

Commerce and

the Ministry of

Commerce

on reforms;

(iii) Technical

assistance for the

structure tasked with

monitoring reforms

and the Ministry of

Trade and Industry;

(iv) Establishment by

the Government of a

reform programme

monitoring

coordination unit

attached to the Prime

Minister's Office;

Risk 3:

Political instability

Mitigation measures:

Re-election in 2011

of the President with

a comfortable

majority and the new-

found peace with

Sudan allow for

strong presumptions

of relative political

stability.

Risk 4: Non-

involvement of

stakeholders

Mitigation measures:

Establishment of a

Steering and

Operationalization

Committee in charge

of the platform for

dialogue between the

private sector and the

public.

1.3. Commercial Courts are

strengthened and the

records processing time

reduced

1.3. Minutes of training

sessions and acceptance of IT

equipment

Court staff have not

received any

training for five

years

Staff members are trained

and IT equipment

available in 2015 for the

five Commercial Courts

ENFJ official

training

curriculum

1.4 The framework for

monitoring reforms using

“Doing Business”

indicators is formalized

1.4. Minutes on the delivery

of the reform-monitoring

methodology and framework

is available

Lack of a reform-

monitoring

methodology and

framework

A methodology and

framework for monitoring

reforms are available in

2014

Project report

and AT report

available at the

PIU

1.5 Reform of the cadastral

register and land tenure

legislative framework for is

effective7

1.5 Legislation and

regulations as well as

implementing decrees are

adopted on urban planning,

housing, land tenure and State

lands

The legislation and

regulations are

obsolete

The legislation governing

land tenure in Chad is

updated and available in

2016

Chad's Bulletin

of Legal

Notices and the

Newsletter of

the Ministry of

Commerce and

Handicrafts

COMPONENT II: SUPPORT FOR PARTNERSHIP AND INVESTMENT PROMOTION

2.1. ANIE is fully

operational and

interconnected

2.1. Delivery record of the

project for the

interconnection of ANIE

with partner government

services

ANIE is not

interconnected

with partner

government

services

The time it takes to start a

business drops from 10 to

3 days in 2015

ANIE and

“Doing

Business”

Report

2.2. Short- and medium-

term guidelines of the

Ministry of Commerce are

defined and accessible

2.2 An allocation is provided

in the 2014 budget for the

recruitment of a Consultant

The Ministry has no

Strategic and

Operational Plan

A Strategic and

Operational Plan is

available at end-2014

Record of

delivery of the

Strategic and

Operational

Plan to the

Ministry

2.3.Specific support for

project structuring and

contract analysis is

proposed

2.3. List of seminars and

training and targeted studies

on growth-oriented sub-

sectors implemented (with

women making up 25% of

the beneficiaries)

No specific

seminars on

growth-oriented

sub-sectors

Seminars on growth-

oriented sub-sectors are

provided in 2014 (with

women making up 25% of

the beneficiaries)

ANIE and

Chamber of

Commerce

reports

2.4. SME access to public

procurement is supported

and regulated by law

2.5. Share of public

procurement contracts

awarded to national SMEs

Less than 3% of

public procurement

contracts are

awarded to national

SMEs

10% of public

procurement contracts are

reserved for SMEs,

including subcontracting

and consortia in 2015

OCMP Reports

from 2015

KE

Y A

CT

IVIT

IES

COMPONENTS RESOURCES

Component I: Support for public-private dialogue and investment climate reform

- Technical assistance, equipment and training Component II: Support for partnership and investment promotion

- Technical assistance, equipment and training, Component III: Project Management

- Technical assistance, procedure manuals, equipment and training

Resources:

Component I: UA 3.97 million

Component II: UA 1.11 million

Project Management: UA 0.50 million8

Total: UA 5.89 million9

7 This refers to the reform of legislation and regulations on urban planning, housing, land tenure and State lands, and review the draft Code on Private and

State Lands and the implementing legislation to be enacted. 8 These expenses will also cover the administration of the project from support to preparation for the HIPC Initiative

9 This total includes costs related to contingencies and hazards

vii

Project Implementation Schedule

A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

0. Preparatory activities

0.1 Project appraisal

0.2 Board presentation

0.3 Grant effectiveness

0.4 Selection of project management team

0.5 Project launch mission

0.6 Preparation of procedures manual

1. Procurement of equipment and supplies

1.1 IT hardware and software and office automation

2. Technical assistance services

2.1 Preparation of CBDs and drawing up of shortlists

2.2 Launch of CBDs, bid evaluation and contract award

2.3 Consulting services

3. Training

3.1 Preparation of CBDs and drawing up of shortlists

3.2 Launch of CBDs, bid evaluation and contract award

3.3 Consultancy services

4. Operating expenses

5. Monitoring and evaluation

6. Steering committee meetings

7. Project supervision and mid-term review

8. Closure of activities

9. Annual financial audits

2013 2014 2015 2016 2017

1

REPORT AND RECOMMENDATION OF MANAGEMENT TO THE

BOARD OF DIRECTORS CONCERNING THE BUSINESS CLIMATE

IMPROVEMENT AND ECONOMIC DIVERSIFICATION SUPPORT PROJECT

(PACADET)

This proposal submitted for Board approval concerns the provision of a loan of UA 3.97

million and a grant of UA 1.92 million10, from the resources of the African Development Fund

to the Republic of Chad, for financing the Business Climate Improvement and Economic

Diversification Support Project (PACADET). This is an institutional support project whose

purpose is to back the implementation of reforms necessary to develop the private sector and

build the capacity of the Ministry of Trade and Industry, an agency which plays a key role in

implementing Government’s private sector policies. PACADET will be implemented over the

2014-2017 period.

I. STRATEGIC THRUST AND RATIONALE

1.1. Project Linkages with Country Strategy and Objectives

1.1.1 Chad’s 2013 to 2015 National Development Plan (PND), which focuses on the

country’s vision and defines its development agenda, is the reference document for its

technical and financial partners. It centres on eight priority strategic outcomes, including

the development of the private sector11. These priority strategic outcomes reflect the activities

on which the Government plans to focus its efforts in the coming years so as to accelerate

growth and boost sustainable development. To achieve these outcomes, the Government has

defined four strategic pillars: (i) developing production supply and decent employment

opportunities12

; (ii) mobilizing capital and combating inequality, poverty and social exclusion;

(iii) protecting the environment and adapting to climate change; and (iv) improving

governance. Activities supported under Pillar (i) aim to encourage private investment and

improve the competitiveness of the economy by providing basic infrastructure. Pillar (iv)

activities aim to pursue reforms with a view to enhancing the efficiency of the administration

and developing instruments that ensure transparency, further streamline justice and strengthen

social dialogue.

1.1.2 The Bank’s 2010-2014 Country Strategy Paper (CSP) for Chad is consistent

with the National Development Plan (PND). Its assistance strategy in Chad revolves around

two pillars: (i) promoting good governance in the public sector; and (ii) developing basic

infrastructure. Pillar 1 is in line with the first thrust of the PND. Through this pillar, the Bank

is supporting the implementation of reforms to improve the business environment with a view

to facilitating private sector development. More specifically, the Bank’s objective under this

pillar is to reduce the main barriers to the emergence of the private sector in Chad as may be

summed up in two major constraints: (i) an unattractive investment environment; and (ii)

weak institutions responsible for promoting the private sector.

1.1.3 The project is consistent with both Thrust I of the PND and the guidelines of Pillar I

of CSP 2010-2014. It is a continuation of the reforms initiated by the country since 2003,

which, among other aspects, led to the adoption in 2003 of a Poverty Reduction Strategy

Paper (PRSP). This document also enabled the implementation of the first National Poverty

Reduction Strategy (NPRS I) over the 2003-2006 period, the second National Poverty

Reduction Strategy (SNRP II) for the 2008-2011 period and, more recently, to the definition

10 UA 5.89 million (Loan: 2.81 million, Grant 0.86 million) and cancellation (Loan: 1.16 million, Grant: 1.06 million) 11 See the development agenda diagram on page 1 of the technical annexes 12 Pillar covering private investment initiatives

2

of a new National Development Plan (PND) for 2013-2015. Under its eight priority strategic

outcomes, the PND guarantees the continuation of private sector development, beginning with

the removal of the aforementioned constraints affecting the business climate. Furthermore, the

project is also consistent with the guidelines of the Bank’s Strategy (2013-2022), the Bank’s

Private Sector Development Strategy (2013-2017) and the Strategic Framework and

Governance Action Plan II for the period 2014-201813, especially its pillar on the private

sector. Indeed, by reducing the constraints affecting the business environment, the project

aims to create favourable conditions for the resumption of economic growth through a

significant increase in private investment and production – the source of lasting jobs and

prosperity.

1.2. Rationale for Bank’s Involvement

1.2.1 Political, Economic and Social Context: After a decade marked by recurrent

conflicts, Chad is gradually emerging from its fragile state and has, since 2010, enjoyed

relative political and security stability thanks to Government efforts and the constant dialogue

it maintains with neighbouring countries and the international community. On the economic

front, after a strong rebound in 2010 (average GDP growth of 9.4%14

)), growth slowed in

2011 (1.6%) due to the decline in oil production and the effects of drought on the agricultural

sector. Economic prospects for 2013 and 2014 are encouraging, with real GDP growth of

around 2.7% and 11.1%, respectively. GDP growth in 2014 would be driven by new

investments in the oil sector. However, the resulting oil revenue should experience a relative

decline due to falling world prices. Nevertheless, the Chadian economy remains highly

dependent on the oil and gas sector, which accounts for 20% of GDP, compared with 12% for

agriculture, 22% for trade and transport, and 1% for the manufacturing sector. This

dependence leads to high vulnerability to external shocks and the vagaries of oil production.

However, the impact of the oil sector on employment and the rest of the economy is limited,

as shown by monetary poverty prevalence rate which stands at 46.7%.

1.2.2 To date, the private sector15 has sustained growth only marginally as shown by the

level of (non-oil) private investment, which accounted for only 8.7% of GDP in 2012

(compared to 14% on average in sub-Saharan Africa and 25% in Asia). According to the

“Doing Business 2014” Report, Chad ranks 189th

out of 189. Moreover, the Chadian private

sector is characterized by a dual structure whereby a few large companies with mostly foreign

shareholding coexist with a myriad of small businesses in the informal sector. Very Small

Enterprises (VSEs)16 account for 91% of all enterprises, while Small- and Medium-sized

Enterprises (SMEs) account for 3%, and large Foreign Investment Enterprises (FIEs) for 6%.

13 Governance Action Plan (GAP) 2014-2018 in the process of being approved 14 Over the 2004-2012 period, according to PND 2013-2015 15 A full description of Chad's private sector is available in Technical Annexes (A2) 16 There are four categories of enterprises in Chad: very small enterprises (VSEs) characterized by a staff of less than 5 people, small

enterprises with a staff of 5 to 20 people, medium-sized enterprises with a workforce of 20 to 100 people and lastly big enterprises with a workforce of over 100 people (CNPT-2011 Survey)

3

1.2.3 On the strength this observation, Chadian authorities are seeking to diversify

the economy and make the private sector the main driver of growth and productive

employment creation. To achieve this goal, Chad needs to improve its investment climate

and better capitalize on the comparative advantages it enjoys by virtue of its geographic

location and the wealth of its natural resources. Several challenges greatly limit the

development of the country’s private sector, especially SMEs. These key challenges that were

identified in the Employers’ White Paper (Livre Blanc du Patronat)17

, the study on growth-

oriented value chains18

and the strategy paper for the promotion of SMEs/SMIs19

include:

(i) The ineffectiveness of support and supervisory structures: these structures exist but

are ineffective, dispersed and lack the material and human resources required to coordinate

their activities. They include the National Investment and Exports Agency (ANIE) - the

business start-up one-stop-shop in Chad – which is supposed to facilitate the process of

starting businesses, especially in growth-oriented sub-sectors20, the Business Formalities

Centre (CFE), the Business Development Centre (CDE), the Chamber of Commerce,

Industry, Agriculture, Mines and Handicrafts (CCIAMA), the Chadian National Employers'

Council (Conseil National du Patronat Tchadien - CNPT), and the Ministry of Trade and

Industry, which enforces Government policies in terms of private sector support and

organization. Moreover, the private sector lacks the appropriate framework for high-level

dialogue on reform priorities with the public sector, particularly as regards measures that

should be taken to remove constraints hindering the development of a robust private sector.

Indeed, although there is an inordinate number of professional associations, private sector

unions or sector-based think tanks (Chamber of Commerce, Professional Association of

Banks, Association of Chadian Trade Unions, etc.), they lack a united front when discussing

with the Government on key priorities to improve the business climate;

(ii) Difficulty in accessing financing: access to credit is extremely difficult for SMEs. Due

to the high risk level and the reluctance of banks, financing may be obtained only if backed

with collateral, and the main instrument often required by banks in this regard is a land title.

However, ownership of a reliable land title by SMEs presupposes the existence upstream in

the country of a property registration procedure that is working well enough to make such

titles acceptable to banks. The modernization of the cadastral register and the land tenure

system, particularly the land-titling process, is currently underway. Meanwhile, SMEs are

financed primarily with own resources and rarely resort to bank credit. This situation is most

paradoxical, especially since according to the latest report of the Bank of France on the status

of the Franc Zone, banks in the Central African region in general, and Chad in particular, are

all in a situation of over-liquidity. According to the “Doing Business 2013” Report, access to

financing remains a major obstacle for Chadian SMEs. The country’s ranking on access to

credit actually slipped from the 97th

position in 2012 to the 104th

. This poor performance is

mainly due to the lack of an operational guarantee system and the unreliability of land titles;

(iii) Weakness of the legislative, regulatory and institutional framework: this aspect is

clearly demonstrated by the difficulties that businesses face in carrying out their activities. On

the judiciary front, the difficulties are manifold and pertain to relations that companies and

credit institutions have with public authorities, clients and employees. The most disturbing

difficulties cause disputes that eventually lead to wrongful convictions, thus not only

endangering the survival of businesses, but also swell unemployment when they cause

employees to lose their jobs. These difficulties also lead to loss of revenue for the

17 Chadian Employers’ White Paper (Livre Blanc du Patronat Tchadien), 2012 edition, page 25 18

Diagnostic study on growth- and employment-generating value chains in Chad, conducted in partnership with the World Bank 19

Study conducted by ORCE in 2012 on SMEs

20 According to the PND, growth-oriented sub-sectors refer to activities related to gum arabic, spirulina and shea butter

4

Government, particularly in terms of unpaid taxes. Moreover, the handling of disputes with

tax authorities is another source of risk for businesses since there is excessive recourse to

legal redress to settle commercial disputes in Chad due to the human, material and

organizational weaknesses of commercial courts and the absence of an arbitration centre that

would have the advantage of offering an alternative method for resolving such matters.

Furthermore, it is necessary to reform the country’s fiscal and trade policy, especially to align

it with “OHADA21” regulations. In its current state, Chad’s fiscal policy does not allow for the

harmonious development of business. Very often, economic operators complain about the

latent climate of tax insecurity and the high tax burden, resulting in a reduction in their

investment capacity.

1.2.4 The Bank’s intervention is motivated by three main reasons: firstly, the project is

part of a reform process guided by a roadmap22 for improving the business climate. To

overcome the aforementioned problems, the Government adopted, in consultation with the

private sector and the Technical and Financial Partners (2012), a timetable for implementing

reforms to improve the business climate and diversify the economy. The specific objectives of

the initiative include: (a) facilitating the practical implementation of public-private sector

dialogue so as to improve the business climate; (b) streamlining and reducing taxes and

special levies, and introducing a system that is more oriented towards private sector growth;

(c) structuring the institutional support mechanism for private sector development; (d) developing

financial and non-financial support mechanisms for SMEs to have greater access to credit; and

(e) promoting entrepreneurship. Secondly, to improve knowledge of the context, particularly

in connection with production sectors, with a view to ensuring diversification, the

Government, in partnership with the Bank and the World Bank23, conducted a study on

growth- and employment-generating value chains of the agro-industry sector that

recommends interventions in key sectors such as gum arabic, spirulina and cattle production,

in partnership with other TFPs. Thirdly, the key technical and financial partners in Chad have

established a framework for joint reflection on the reform implementation timetable.

1.3. Aid Coordination

In Chad, a Technical and Financial Partners’ Committee chaired by AfDB was

set up in April 2011. The Committee hosted several multi-donor thematic groups24

, including

the one charged with private sector issues (chaired by BDEAC, with AFD serving as the

secretariat). It holds meetings to coordinate and harmonize partner interventions. Apart from

the Bank, the key TFPs involved in the sector in Chad are the European Union25

, through its

Regional Trade and Integration Support Programme (Programme Régional d’Appui au

Commerce et à l’Intégration - PACIE) which aims, among other things, to introduce the

notion of quality assurance in infrastructure projects and modernize the country’s industrial

base. For its part, the World Bank is studying the constraints affecting growth-oriented sub-

sector market systems, particularly the upstream aspects, as part of preparation of a support

project that will complement the Bank’s on the downstream aspects of growth-oriented sub-

sector value chains, especially in terms of entrepreneurship in these sectors and export support

process. This project was designed in close coordination with the authorities, the private

sector and key TFPs on the ground in Chad. Consultations have helped to ensure the

complementarity of project activities with those partners.

21 Organization for the Harmonization of Business Law in Africa 22

Business Environment Improvement Charter, adopted in 2010, leading to development of the reform implementation timetable 23

Diagnostic study on growth- and employment-generating value chains in Chad 24 The “private sector” thematic group is also undertaking a mapping of available financial and non-financial support that TFPs may offer

to private sector operators in Chad 25 The EU and French Cooperation supported the programme for the establishment of commercial courts, while the World Bank supported

the Forum for State-Private Sector Dialogue (FODEP)

5

Table 1.3

Major Projects of TFPs in PACADET-Related Sectors TFPs Projects/Studies Areas Covered

European

Union

Delegation

Technical Assistance

Regional Trade and Integration Support Programme (PACIE) 26

Advisory support services for businesses

Standardization and quality infrastructure, improvement of trade and

agricultural statistics, strengthening and upgrading of the industrial

fabric

World Bank Study on value chains

Support to growth-oriented sub-sectors

Analysis of market system constraints affecting a number of growth-

oriented sub-sectors Assistance for the structuring of export sectors

AfDB Study on the private investment

environment in ECCAS member

countries

Study on the major constraints affecting

private sector development and

SME/SMI promotion in the

diversification of the Chadian economy

Private sector investment environment

Challenges and constraints affecting SMEs/ SMIs in Chad

BDEAC Support for the rehabilitation of Sahr

market

Support for the beef sector

Modernization of market infrastructure to boost marketing

Assistance for the construction of production facilities

UNDP Technical Assistance as part of the "CIR"

project implementation

Sales support for economic operators on national and international

markets

AFD Support for gum arabic production

Support for the Small Business

Incubation Centre (Maison de la petite

entreprise)

Structuring of the upstream and downstream aspects of the sector

Operational support activities for small businesses

II. PROJECT DESCRIPTION

2.1. Project Components

2.1.1 PACADET’s objective is to foster private sector development to drive strong

and inclusive economic growth. Its operational objectives include: (i) improving the

business climate through the identification and implementation of the necessary key reforms;

and (ii) building entrepreneurial and investment capacity.

2.1.2 The project consists of three components: (I) Support for public and private

dialogue and reform of the investment climate; and (II) Support for entrepreneurship

and investment promotion; a third component (III) is devoted to project management and

coordination. Complementarity between the first two components stems from the fact that the

investment climate needs to be improved to facilitate economic diversification through

entrepreneurship and investment.

26 Overall cost EUR 68 million

6

Table 2.1:

Project Components and Activities Component Name Cost (in UA

million) Components Description

Component ❶: SUPPORT FOR

PUBLIC-PRIVATE

SECTOR DIALOGUE

AND INVESTMENT

CLIMATE REFORM

3.97

Sub component I.1: Operationalization of public and private sector dialogue and

technical assistance for monitoring “Doing Business” indicators

Definition and facilitation of sector-based and thematic working groups;

Development of a business climate improvement strategy and coordination with the

“Doing Business” Secretariat;

Defining the reform steering and monitoring framework and organization and

operationalization of the action plan associated with “Doing Business” indicators in

conjunction with the Reform Programmes Coordination and Monitoring Unit of the

Prime Minister’s Office;

Sub-component I.2: Development and adoption of an SME promotion legislative

and regulatory framework

Review and reform of the legal, regulatory and institutional framework for setting up

business;

Preparation and signing of instruments implementing the law and dissemination of

new regulations;

Sub component I.3: Support for the cadastral and land tenure system reform

Updating the N'Djamena cadastral map, establishing a single geodetic reference

network and supplying technical equipment (SIF);

Feasibility study and implementation of a landed property one-stop shop (GUF);

Reviewing and strengthening the institutional, regulatory and legislative framework,

and providing training in real estate appraisal27

;

Providing assistance to the Directorate General for Legal Affairs in land dispute

management;

Sub-component I.4: Support for commercial courts

Compliance of Chadian commercial law with “OHADA” provisions and “CEMAC”

regulations, especially those relating to arbitration;

Capacity building for ENFJ trainees and judges of commercial courts28

;

Conducting a feasibility study and establishing a Mediation and Arbitration Centre

(CMA);

Providing assistance to the ENFJ Legal Documentation Centre;

Computerization of RCCM, IT equipment for commercial courts and networking.

Component ❷ SUPPORT FOR

ENTREPRENEURSHIP AND INVESTMENT

PROMOTION

1.11 Sub-component 2.1: Assistance to strengthen the SME institutional support

framework 29

Reviewing the business development process and operationalizing the one-stop shop

for business development, export and investment;

Feasibility study for the establishment of a “Business Incubation Centre”; Support for the development of SMEs in growth-oriented sub-sectors

30 ;

Feasibility study and establishment of an approved pilot management centre under

CCIAMA;

Sub-component 2.2: Fostering market access for SMEs

Facilitating SME access to public procurement by training them to respond to bid

invitation31

, as well as facilitating their integration into value chains of multinational

groups based in Chad through subcontracting;

Organizing dialogue between major groups and SMEs;

Sub-component 2.3: IT equipment and networks

27 This concerns the reform of legislation and regulations governing on urban planning, housing, land tenure and State lands, the review of

the draft real estate and land code as well as the implementation instruments to be enacted.

28 (i) Training in the keeping of the RCCM; (ii) computer and Internet tools applied to the court; and (iii) introduction of specialized training modules in the ENFJ curriculum for Judges and Clerks.

29 The issue here concerns the inadequacy of Chad’s current SME support system, which should be aligned with the new realities of a

globalized world and the country’s membership in the WTO, CEMAC, ECCAS and the Central African EPA. 30 Growth-oriented sub-sectors in gum arabic, spirulina and agro-industry. 31 Chad Small Business Act: this activity will necessitate the review of the Investment Code and upgrade of Chadian SMEs to enable them

to respond to bid invitations and fit into the value chains of large national or multinational groups operating in Chad, and thus strengthen their commercial and productive capacity.

7

Interconnection of ANIE32

with partner government services, IT equipment for one-

stop shops and establishment of a data centre;

Component ❸: PROJECT

MANAGEMENT AND

COORDINATION

0.50 Procurement and installation of accounting software, provision of training and

guidance for users and development of a procedures manual; and

Production of interim and annual financial statements and annual account audits;

Coordination; Organization of Steering Committee meetings (two meetings per year).

Basic Costs UA 5.58

Million

Contingencies UA 0.31

Million

Total Cost UA 5.89

Million

2.2. Technical Solutions Adopted and Alternatives Explored

At the project preparatory phase, several implementation options were

considered, particularly concerning project anchoring, the number of entities to be

supported, the scope and scale of investments to be made and inherent constraints facing the

potential beneficiary entities. In this particular case, trade-offs had to be made to: (i) ensure

compatibility between the project development objectives and the financial allocation; and (ii)

take the operations of other TFPs into account for reasons of complementarity. The technical

solution adopted for the project is presented in paragraphs 2.1 and 2.1.2 of this report. Chad’s

National Development Plan (PND) clearly identifies the main constraints affecting private

sector development in the country and provides guidance in terms of reforms needed to

address them. Moreover, the Employers’ White Paper33 also suggests avenues for reform. It

must, however, be noted that the lack of national commitment to their implementation

contributes to significantly impede further reforms. Therefore, to support the Government, the

capacity building provided by the project is essential.

2.3 Project Type

PACADET is an ADF-financed institutional support project designed to

promote private sector development in Chad in a bid to foster strong and inclusive

economic growth. This will be achieved by reducing constraints that affect the business

climate and economic diversification. The project also includes a strong capacity building

component, especially in terms of support services for SMEs and the Ministry of Trade and

Industry.

2.4. Project Cost and Financing Arrangements

The total project cost is estimated at UA 5.89 million, of which UA 4.30 million

will be in foreign exchange (73%) and UA 1.60 million in local currency (27%). The ADF

will cover 100% of the project cost, excluding project-related duties and taxes, in line with the

Policy on Expenditure Eligible for Bank Group Financing (ADF/BD/2007/72/Rev.2,

paragraph 4.2.2), which allows ADF to fund the entire cost of a given project provided the

following three criteria are met: (i) the country's commitment to implement its development

programme; (ii) the level of funding allocated by the country to sectors targeted by Bank

assistance; and (iii) the budgetary situation and the debt level. Chad meets all three eligibility

criteria. These costs include a 2% provision for physical contingencies and a 3.5% provision

for price escalation. The detailed cost table is provided in Technical Annex B2 of this report.

The following summary tables give the breakdown of project costs:

32 National Investment and Export Agency, one-stop shop for business development in Chad 33 2012 Edition, published by the Chad National Employers’ Council (CNPT)

8

Table 2.3

Estimated Project Cost by Component Components CFAF Million UA Million %

F.E.

L.C. Total F.E. L.C. Total

I. Public-Private Sector Dialogue and

Business Climate Improvement

Support

2375.85 593.96 2969.81 3.18 0.79 3.97 67%

II. Entrepreneurship and Investment

Support 666.58 166.65 833.23 0.89 0.22 1.11 19%

III. Project Management 0.00 370.80 370.80 0.00 0.50 0.50 8% Total Base Cost 3042.43 1131.41 4173.83 4.07 1.51 5.58 95%

Provision for Physical Contingencies

(2%) 60.85 22.63 83.48 0.08 0.03 0.11

Provision for Price Escalation (3.5%) 108.65 40.41 149.06 0.15 0.06 0.20

Total Project Cost 3211.93 1194.44 4406.37 4.30 1.60 5.89 Note: The exchange rates used are indicated in the introduction of this report (Page (i))

Table 2.4

Sources of Financing (UA million)

Source of Financing UA Million % of total

F.E. L.C. Total

GOVERNMENT 0.00 0.00 0.00 0% ADF - LOAN 1.40 0.52 1.92 33% ADF - GRANT 2.90 1.08 3.97 67% Total Project Cost 4.30 1.60 5.89 100%

Table 2.5

Project Cost by Expenditure Category (UA million)

Code EXPENDITURE CATEGORIES CFAF Million UA Million % in F.E. Grant Loan

F.E. L.C. Total F.E. L.C. Total

1. Goods 417.33 231.47 648.80 0.56 0.31 0.87 64% 0.00 0.87

2. Consultancy Services 2,625.10 656.27 3 281.37 3.51 0.88 4.39 80% 1.50 2.89

3. Operation 0.00 243.66 243.66 0.00 0.33 0.33 0.33 0.00

Total Base Cost 3,042.43 1 131.41 4 173.83 4.07 1.51 5.58 73% 1.83 3.76

Provision for Physical

Contingencies (2%)

60.85 22.63 83.48 0.08 0.03 0.11 0.04 0.08

Provision for Price Escalation (3.5%)

108.66 40.41 149.06 0.15 0.05 0.20 0.07 0.13

Total Project Cost 3,211.93 1,194.44 4,406.37 4.30 1.60 5.89 73% 1.92 3.97

9

Table 2.6

Expenditure Schedule by Component (UA million)

Component 2014 2015 2016 2017 Total

I. Public-Private Sector Dialogue and

Business Climate Improvement

Support

0.80 1.19 1.19 0.80 3.97

II. Entrepreneurship and Investment

Support 0.22 0.33 0.33 0.22 1.11

III. Project Management 0.10 0.15 0.15 0.10 0.50

Total Base Cost 1.12 1.67 1.67 1.12 5.58

Provision for Physical Contingencies

(2%) 0.02 0.03 0.03 0.02 0.11

Provision for Price Escalation (3.6%) 0.04 0.07 0.07 0.04 0.20

Total Project Cost 1.18 1.77 1.77 1.18 5.89

2.5. Project Area and Beneficiaries

The project covers Chad’s national territory with a total population estimated

at 11.5 million. The direct project beneficiaries are: (i) the private sector, especially SMEs;

(ii) administrative structures34 selected for project purposes; and (iii) the Chadian population

as a whole, since the development of investment and private production will necessarily result

in increased competition between the players and will be good for consumers because it will

also stimulate production, thanks to the rising consumption level. It will also help to reduce

unemployment. Moreover, the State will benefit from PACADET since the increased

production and consumption will generate additional revenue. Such revenue could effectively

be used to finance projects that are likely to improve Chad’s social indicators, especially

those promoting gender mainstreaming in public policy and PND priority programmes, thus

reducing gender inequality.

2.6. Participatory Approach for Project Identification, Design and Implementation.

During project preparation, consultations were held with various structures

from the public (Ministries of Trade and Industry, Justice, Urban Planning, Housing, Land

Affairs and State Lands) and private sectors (Chamber of Commerce, Industry, Agriculture,

Mines and Handicrafts, and Employers). The consultations continued in August 2013 during

the appraisal mission. The process has helped to demonstrate and confirm that the project

objectives are consistent with the expectations of the beneficiaries. Needless to say, this

collaboration in structuring the project will continue during the implementation phase through

the participation of various beneficiary institutions in the Steering Committee. The private

sector will be particularly involved in activities such as: (i) implementation of the public-

private sector dialogue platform; (ii) training in the methodological approach to the piloting

and monitoring of reforms identified; and (iii) training programmes for project promoters in

growth-oriented sub-sectors.

34

Ministries of Justice, Urban Planning, Housing, Land Affairs and State Lands, Trade and Industry.

10

2.7. Consideration of Bank Group’s Experience and Lessons Reflected in Project

Design

2.7.1 As of 31 July 2013, the portfolio of AfDB-financed projects in Chad comprised

16 operations for a total commitment of UA 138.34 million (see Annex II). It is divided

between institutional support projects with a national and regional scope, on the one hand, and

infrastructure projects, on the other. Specifically, the twelve domestic operations35

represent a

financing volume of UA 93.09 million, with a total disbursed amount of UA 51.43 million or

55.25% of commitments.

2.7.2 In 2005, the Bank approved a Governance Reform Support Project (PARG),

which actually ended on 30 November 2010; its main achievements and outcomes are

included in this project. PARG led to significant improvements in public finance

management in Chad, and the design of the current project took into account the lessons

drawn from its implementation. Key lessons reflect the need to: (i) better target beneficiary

structures; (ii) ensure better distribution of training during the project lifespan; and (iii)

improve the structure of training sessions, with emphasis on shorter sessions, for instance.

Between 2004 and 2009, the Bank also financed the Economic Management Support Project

(PAGE) whose implementation has helped to strengthen management capacity and

development projects. Two main beneficial lessons may be drawn from PAGE’s

implementation: (i) problems arising during implementation should be corrected; and (ii) new

impetus should be given by identifying additional support and incorporating it into the

implementation schedule. These lessons have helped to highlight the importance of

supervision missions and the concrete benefits that may be derived from them. During

PACADET’s preparation, account was taken of lessons drawn from PARG and PAGE. In

combination with capacity building operations planned under PACADET, these lessons will

help to improve the project design and implementation.

2.7.3 Lessons from implementing previous projects were taken into account in

PACADET’s design. Table 2.7 below presents the main lessons learned and shows how they

have been incorporated into the preparation of the current project.

Table 2.7:

Lessons Learned from Previous Institutional Support Projects Lessons Learned Steps taken to Incorporate them in the Project

Project Area Right from the project identification phase – and for efficiency and budgetary reasons

discussions focused on limiting the number of beneficiary structures. In light of these

concerns, it was decided during the appraisal phase to limit the number of such

structures to three.

Number of Activities Right from the identification mission, considering the large number of challenges to

overcome, the need to prioritize activities became crucial. Our discussions with the

authorities allowed us to limit the number of components to three36

, with seven sub-

components.

Anchoring the Project

Implementation Unit at

the Prime Minister’s

Office

The need to anchor the Project Implementation Unit at the Prime Minister’s Office

was determined from the preparatory phase in agreement with the authorities, to

facilitate the coordination of reforms entailed by the project. Moreover, the

preparation coincided with the establishment of the Reform Programmes

Coordination and Monitoring Unit recently set up by Government.

35 Including institutional support operations amounting to UA 5.02 million, financed by the Fragile States Facility (FSF). The disbursement

rate for these projects is 27.76%, and their average age 1.84 years. 36 Including the project management component.

11

Weak coordination of

donor interventions

and sector-based

reform programmes

The operation was designed in close collaboration with other development partners.

The common anchor point for all similar projects at the Reform Programs

Coordination and Monitoring Unit established by the Government and attached to the

Prime Minister, under which the project will be placed, will facilitate the

harmonization of various operations.

2.8. Key Performance Indicators

2.8.1 Key performance indicators identified and expected outcomes at project

completion are listed in the Results-Based Logical Framework and in Box I below. It is

hoped that the process of identifying, prioritizing and implementing reforms will be fully

operational in the short and medium term. The operationalization of ANIE and the

computerization of the Trade Register (RCCM) should reflect concrete results. In the longer

term, private investment growth is expected to lead to job creation, reduction in

unemployment and an increase in tax revenue, thus making it possible to finance social

programmes targeting vulnerable groups.

Box :

Key Performance Indicators Output Indicators

SME legal framework instruments revised and, if necessary, promulgated latest by 2015

A collection of instruments is henceforth available for potential investors in 2015

The public-private dialogue framework is formal, operational and permanent in 2014

Staff are trained and equipment available in 2015

A reform monitoring framework and methodology are available in 2014

Legislation governing the cadastral register and land tenure is updated and available in 2016

The time required to start a business is reduced from 10 to 3 days in 2015

An operational strategic plan is available at the Ministry of Trade and Industry by end-2014

Support seminars on growth-oriented sub-sectors are organized and at least 25% of women are

beneficiaries

Outcome Indicators

The time required to start a business drops from 10 to 3 days at end-2014

The number of viable SMEs created in growth-oriented sub-sectors increases from 0 to 20 by end-

2016 with at least 25% owned by women

Impact Indicators

The share of the non-oil private sector in GDP increases from 8.7% in 2012 to 10% in 2017.

2.8.2 Staff recruited will gather data that will reflect indicators on outcomes achieved. The

Reform Programme Coordination and Monitoring Unit (CSPR), which will be the executing

agency, will be backed by a three-member team, including a monitoring/evaluation expert

exclusively dedicated to the project, and the Bank’s field office (TDFO). The

monitoring/evaluation expert will produce quarterly progress reports and contribute to the

preparation of reports on the status of project implementation and outcomes. PACADET’s

performance will be assessed based on indicators defined at project start up and supporting

data obtained during the implementation phase and on completion.

12

III. PROJECT FEASIBILITY

3.1 Economic and Financial Performance

This project will not generate any direct revenue on the basis of which the

financial return could be established. However, its performance could be assessed based on

the direct and indirect impacts of economic and social achievements generated in the medium

and long term. The expected economic and financial benefits will include the possibility of

creating the necessary conditions for increasing the contribution of the non-oil private sector

to GDP.

3.2 Environmental and Social Impacts and Climate Change

3.2.1 The project will not have any direct adverse environmental impact since its

activities are limited to training, technical assistance, studies and procurement of logistics

such as minor office automation and IT equipment. Moreover, PACADET is classified in

Category 3 in accordance with Bank guidelines.

3.2.2 Project activities are focused on building human and institutional capacities and will

not have a negative impact on the climate change process.

3.3 Gender

Chad has signed and ratified Conventions on the Rights of the Child (CRC) and

the Convention on the Elimination of All Forms of Discrimination against Women (CEDAW). In addition, during the Millennium Summit, the country undertook to achieve a

number of Millennium Development Goals (MDGs), including Goal 3 to promote gender

equality and empower women. Government’s stated objective is to promote gender

mainstreaming and protect vulnerable, disadvantaged37

groups. To achieve this goal, the

following four strategic thrusts were identified: (i) promotion of women and gender

mainstreaming; (ii) protection and development of young children and adolescents; (iii)

promotion and protection of vulnerable persons; and (iv) establishment of a social protection

framework for the family. There are on-going projects on all of these strategies – a reflection

of Government’s commitment to achieve its set goals on gender, in particular, and the

protection of vulnerable groups, in general. However, the persistent absence of equality and

fairness still undermines the country's sustainable development. To reduce gender inequality,

public policies must underscore the cross-cutting gender mainstreaming approach with a view

to reversing the curve and achieving significant progress in that area. The strategic options

previously defined and implemented by the Government will certainly help to advance the

gender cause in Chad. The project will strengthen Chadian women's entrepreneurial spirit38

and positively impact the country’s gender indicators. It is expected that 20 companies will

be incorporated by women in competitive growth-oriented sub-sectors, and that one

quarter of the economic operators trained under Component II will necessarily be

women.

37 PND 2013-2015, page 93. Similarly, between 2011 and 2015, the percentage of women appointed to decision-making positions

increased from 12% to 15%. 38

Particularly through Component II (entrepreneurship and investment support).

13

3.4 Social

In recent years, Chad's economy has experienced uneven growth, as reflected

by the outcome of the Third Consumption and Informal Sector Survey39

, according to

which poverty declined only slightly, despite the strong growth recorded in 201240..

Considering that nearly half of Chad’s population (46.7%) live in abject monetary poverty, it

goes without saying that by targeting vulnerable groups under Component II entrepreneurship

activities, PACADET and its expected outcomes will be beneficial to the most

underprivileged segments of the population, particularly unemployed youths and women.

3.5 Forced Resettlement

The project will not entail any population displacement.

IV. PROJECT IMPLEMENTATION

4.1. Implementation Arrangements

4.1.1 Institutional Arrangements

4.1.1.1 Due to the strong need for inter-ministerial coordination necessary to facilitate the

implementation of reforms required by the project, PACADET will come under the

supervisory authority of the Reform Programmes Monitoring Unit (CPSS), which is the

project executing agency under the aegis of the Directorate of the Prime Minister's Office.

The Reform Programmes Monitoring Unit (CPSS) will be strengthened by a dedicated project

team, comprising a coordinator responsible for the administration of project implementation,

assisted by monitoring-evaluation41, procurement and financial management specialists, all of

whom will be recruited through national or international competitive bidding process and on

the basis of terms of reference approved by the Bank.

4.1.1.2 A Project Steering Committee (PSC) will be responsible for overseeing and

monitoring implementation. As such, it will validate budgets and progress reports prepared by

the PIU (INS). The PSC will comprise representatives of various beneficiary structures: (i)

Ministry of Justice; (ii) Ministry of Urban Planning, Land Tenure, Housing and State Lands;

(iii) Ministry of Trade; and (iv) Ministry of Economy, Planning and International

Cooperation; (v) Ministry of Finance and Budget; and (vi) the Private Sector. The PSC will

take any action deemed necessary to ensure the smooth implementation of various project

components and will address all issues of jurisdiction to ensure proper coordination of project

implementation. The Project Coordinator will provide secretarial services during PSC

meetings.

4.1.2 Procurement Arrangements

All procurement of goods and works by international competitive bidding (ICB) and

consultancy services will be in accordance with Bank Rules and Procedures for the

Procurement of Good and Works, May 2008 Edition (Revised July 2012) or Rules and

Procedures for the Use of Consultants, May 2008 Edition (Revised July 2012), as the case

may be, using the Bank's standard bidding documents. Furthermore, pursuant to provisions

under Article 3.3 of these Rules of Procedure, procurement of goods through local

competitive bidding (LCB) shall comply with national procurement laws (Decree No.

39 ECOSIT 3 Survey, 2011 40

Increased from 1.6% in 2011 to 7.2% in 2012 and, according to projections, will stand at 7.4% in 2013 and 11.5% in 2014 41

He will oversee the results framework and, in particular, the logical framework indicators

14

503/PR/PM/SGG/2003), using standard bidding documents of the Republic of Chad, subject

to conditions set forth in the financing agreements. A Public Procurement Plan (PPP) will be

prepared by the country and submitted to the Bank, which will ensure its compliance with the

Grant Protocol and its relevant rules. The PPP will be prepared for an initial period of 18

months and will be updated by the Donee annually or as needed. Prior to its use, any proposed

revision of the PPP will be approved by the Bank. The Project Implementation Unit (PIU)

will be strengthened by a procurement specialist who will assist the PIU in the procurement of

goods, works, consultancy services and training as described in detail in Technical Annex B7.

4.1.3 Financial Management Arrangements

The Reform Programmes Monitoring Unit (CPSS) will be strengthened by a

dedicated project team. The Directorate of Administrative, Financial Affairs and Equipment

(DAAFM) of the Prime Minister's Office, will supervise the financial management of

PACADET, in collaboration with the project team. The Bank carried out an appraisal of the

current financial management system at DAAFM in September 2013 in accordance with the

Bank's methodology laid down by ORPF.0 in June 2010 in its kit on “Financial Management

of Projects Funded by the African Development Bank”. The objective of this assessment is to

ensure that funds provided for the project are used effectively and efficiently, and solely for

the purposes for which they were granted. To this end, it is important for the executing agency

to have technical and human resources that will help account for, preserve, inform and audit

the use of financial resources placed at its disposal.

Proposed mitigation measures42 should ensure that the project’s financial

management arrangements are such that can provide timely, accurate and reliable information,

and allow for the safeguard of project assets and the conduct of accounts audit within the

agreed timeframes. These measures mainly include the recruitment of a qualified accountant

assigned for project financial management, preparation of an administrative, accounting and

financial procedures manual, procurement of appropriate accounting software and conduct of

internal and external audit of missions fielded by private consulting firms. Details of the

financial management assessment are provided in the Technical Annexes.

4.1.4 Disbursement Arrangements

Disbursements will be made in accordance with the Bank’s Disbursement Manual.

The ADF will commit UA 5.89 million to fund the entire project. The disbursement methods

retained are: (i) the direct payment method for the loan disbursement; and (ii) the special

account and direct payment methods for the grant disbursement. The special account or the

revolving fund will be used to cover operating, workshop and field mission expenses, etc. The

funds will be disbursed by the Bank as an advance paid into a special account opened in the

name of the project by the Prime Minister's Office in a commercial bank acceptable to the

Bank. A disbursement letter setting forth all disbursement guidelines will be reviewed and

accepted by both parties during loan and grant negotiations.

4.1.5 Auditing Arrangements

The annual financial statements and financial monitoring reports prepared by

PACADET and the internal control system will be audited annually by a competent and

reliable independent audit firm, to be recruited on the basis of terms of reference (TOR) and

criteria satisfactory to the Bank. External audit will be tailored to specific project risks. Each

financial audit will cover one fiscal year ending 31 December in accordance with the rules in

42

See Table 4.2 on page 18

15

force in Chad. However, should the first disbursement be made in the second half of the first

disbursement year, the first audit could cover the first 18 months of the project. This same

principle shall apply to the last audit of the project, if the closing date falls within the first six

months of that fiscal year. The audited financial statements for each fiscal year will be

submitted to the Bank latest six months after the end of the relevant fiscal year. The report

shall include: (i) an opinion report; and (ii) a letter of internal control.

In accordance with the Bank’s new Policy on Disclosure and Access to Information,

the project will disclose audit reports (including audit reports with reservations) in the month

following the validation of the report by management. These reports must be officially

published and posted on an official website.

4.2. Monitoring and Evaluation

4.2.1 Project implementation is scheduled to last four years, from January 2014 to

December 2017. Attached to the Prime Minister's Office, the PIU will define the mechanisms

for monitoring and evaluating project implementation and outcomes. The PIU’s capacity will

be strengthened by a monitoring/evaluation expert to be recruited by the project to set up the

mechanism and train PIU members. The PIU team within the CSPR will prepare, in

accordance with the format required by the Bank, quarterly and annual progress reports based

on the monitoring of the project's logical framework indicators.

4.2.2 Project monitoring will be conducted by the Bank through sustained dialogue

between it and the authorities, in particular through the Bank’s Field Office in Chad and

during the half-yearly or quarterly project supervision missions, if necessary. At the end of

project implementation phase, a completion report will be prepared by the Bank in

conjunction with the Government. The implementation schedule is summarized below:

Table 4.1:

Monitoring Stages and Feedback Loop Milestones Responsibility Date/Period

Financing Approval AfDB/ADF October 2013

Setting-up of Project Management Team GVT November 2013

Loan/Grant Effectiveness AfDB-ADF/GVT January 2014

Preparation and Launch of BDs PIU/AfDB April-May 2014

Award/Signing of Contracts PIU May-December 2014

Start-up of Consultancy Services PIU June 2014

Mid-Term Review AfDB/PIU June 2016

Physical Project Completion PIU December 2017

Completion Mission AfDB/PIU December 2018

4.3. Governance

4.3.1 The last PEFA43 report on Chad (2009) shows that the institutional framework for the

country's public finance management is comprehensive, and that the external authorization

and financial control bodies44 (National Assembly, Ministry of General State Control and

Moralization) exist. Similarly, the budget execution and internal oversight agencies are

available. However, the report highlights the weak national and governance capacity that

43 PEFA 2009 Report is the most recent on “Chad” (page 17) 44 The recently established Court of Auditors should be included on the list of control bodies

16

undermines the performance of the framework. This situation limits the degree of donor

alignment with the national system. However, the fiduciary system is undergoing major

positive changes as a result of the support45 that the Bank is currently providing for national

public procurement system for the establishment of the Public Procurement Regulatory

Authority (Autorité de Régulation des Marchés Publics - ARMP).

4.3.2 With specific reference to PACADET, the project-based governance risk pertains to

the goods and services procurement process and financial resources management. These risks

will be mitigated by the strict implementation of the Bank's procurement rules of procedure

and establishment of the financial management system recommended as well as

implementation of all recommendations requested by the Bank's fiduciary departments. In

addition, the support of the Bank’s Field Office in Chad and financial audits will ensure

alignment between the resources involved, the services actually provided and the expected

outcomes. The training sessions that the Bank will provide for PIU members on project

management, procurement and financial management will help to reduce the risk associated

with poor governance. Lastly, project executing bodies and particularly PIU staff and Steering

Committee members will help to strengthen project governability.

4.4. Sustainability

Sustainability depends on the Government's willingness to carry out reforms through

the establishment of the Reform Programmes Monitoring Unit. The second factor is the

quality of capacity building actions and training courses for staff of selected structures. The

ability to capitalize on and re-use the knowledge learned, for instance as regards IT tools,

reforms management and planning as well as change management in public and private

environments, will enable beneficiary staff to improve their daily productivity and facilitate

the dissemination of best practices within the beneficiary institutions. Project outcomes will

significantly improve the business climate and facilitate the development of the private sector

source of investment, growth and creation of skilled jobs.

4.5. Risk Management

The table below provides a summary of the residual risks (other than those related to

governance and sustainability) as well as mitigation measures.

Table 4.2:

Potential Risks and Mitigation Measures Risks Level Mitigation Measures

Political instability Moderate The presidential election held on Monday, 25 April 2011, led to the re-election of

President Idriss Deby with a comfortable majority of about 88.26% of the vote. In

addition, peace was restored with Sudan, thereby paving the way for a period of relative

stability.

Slow decision-making and

under-estimate of the level

of difficulty involved in

the reforms to be

implemented

Moderate Government’s establishment of a unit devoted to the coordination and monitoring of

reform programmes and provision of technical assistance to reforms under the project

and a capacity building programme in the Ministry of Trade and Industry will help to

improve the information and decision-making level of the Government as well as the

spread of reforms.

Insufficient involvement of

stakeholders

Moderate The establishment of a Steering Committee that includes all project beneficiaries and the

operationalization of the platform for dialogue between the private and public sectors

will foster ownership and involvement of all and sundry.

45 FSF (Fragile States Facility) Public Finance and Planning Support Programme, which runs until November 2014

17

Weak administrative

capacity for the

implementation of project

activities and fiduciary

management and

procurement risk

Moderate Training activities planned by the project and support for the project management team

will mitigate this risk. The project plans to recruit three financial management,

procurement and monitoring/evaluation experts on a competitive basis to support the

project management team. Project implementation monitoring will be enhanced through

regular supervision missions by Bank experts who will provide, as appropriate, technical

support necessary for the timely execution of the operation.

Fiduciary risk High The recruitment of a financial management expert, the preparation of a procedures

manual that describes an appropriate internal oversight system, the establishment of a

computerized system of accounting and financial reporting, and internal oversight

missions of the State should ensure that the project’s financial management arrangements

are such that can provide timely, accurate and reliable information, and allow the

safeguard of project assets and the timely conduct of external audit of accounts. The

project will be supervised at least twice a year to ensure that risk-mitigation measures are

implemented and are operating satisfactorily.

4.6. Knowledge Building

PACADET’s implementation will lead to the development of several types of

knowledge related to the spread of reforms, particularly with respect to their identification,

planning and implementation management. Best practices will be disseminated within the

administration through members of the Steering Committee and focal points as well as

training sessions that will be held under the project. Additional knowledge will be capitalized

on and disseminated through various technical assistance reports, progress reports and

reporting by the project management team, project supervision reports and the completion

report.

V. LEGAL FRAMEWORK

5.1. Legal Instrument

A Protocol Agreement and a Loan Agreement to finance the project with ADF

resources for an amount not exceeding UA 5.89 million (UA 3.97 million loan and UA 1.92

million grant) will be signed between ADF and the Government of Chad.

5.2. Conditions Related to Bank’s Intervention

Conditions Precedent to Effectiveness

5.2.1 Effectiveness of the Loan Agreement shall be subject to fulfilment by the Borrower

of the provisions under Section 12.01 of the General Conditions. The Grant Protocol

Agreement shall become effective on the date of its signature by the Donee and the Fund.

Conditions Precedent to First Disbursement

5.2.2 In addition to effectiveness, as indicated above, the first disbursement of loan and

grant resources shall be subject to fulfilment by the Borrower of the following conditions, to

the Fund’s satisfaction:

(i) (i) Provide to ADF evidence of opening a special account bearing the name of the project in a

bank acceptable to ADF, to receive grant resources; and

(ii) Provide evidence of the appointment of the Coordinator.

18

5.3. Compliance with Bank Policies

This project complies with all applicable Bank policies.

VI. RECOMMENDATION

Management hereby recommends that the Board of Directors approve the proposal to

award a loan of UA 3.97 million and a grant of UA 1.92 million, i.e. a total amount of UA

5.89 million, to the Republic of Chad for the purposes and under the conditions set forth in

this report.

I

ANNEX I: COMPARATIVE SOCIOECONOMIC INDICATORS

Social indicators Chad

Africa Developing countries 1990 2011 *

Area (000 Km²) 1,284 30,323 98,461

Total Population (million) 6.0 11.5 1,044.3 5,733.7

Annual Population Growth (%) 3.1 2.6 2.3 1.3

Life Expectancy at Birth - Total (years) 50.7 49.6 57.7 77.7

Infant mortality rate (per 1,000) 128.1 126.6 76.0 44.7

Physicians (per 100,000 people) …. 40.0 57.8 112.0

Births Attended by Trained Health Professionals (%) ... 22.7 53.7 65.3

Anti-Measles Immun. Rate (% of children from 12 to 23 months) 32.0 46.0 78.5 84.3

Primary Enrolment Rate (Gross %) 49.9 92.5 101.4 107.8

Girls/Boys Ratio in Primary Education (%) 43.8 75.0 88.6 ...

Literacy Rate (% of the Population >15 years) ... 34.5 67.0 80.3

Access to Safe Water (% of Population) 39.0 51.0 65.7 86.3

Access to Health Services (% of the Population) 8.0 13.0 39.8 56.1

HDI Value (0 to 1) 0.3 0.5 0.5 ...

Human Poverty Index (HPI-1) (% of population) ... 53.1 33.9 ...

Chad

Macroeconomic indicators 2000 2009 2010 2011

GNI per capital, Atlas method current USD) 180 610 620 ...

GDP (in millions of current USD) 1,386 9,031 10,626 11,959

Real GDP per capital (% annual) -0.5 4.1 14.3 2.8

Real GDP per capital (% annual) -3.8 1.5 11.4 0.2

Gross Domestic Investment (% of GDP) 17.5 24.5 29.5 23.6

Inflation (annual %) 3.8 10.1 -2.1 -0.6

Fiscal balance (GDP %) -6.8 -7.8 -3.8 0.4

Trade, foreign debt and financial flows 2000 2009 2010 2011

Changes in export volume (%) 5.5 -9.1 -1.5 -6.2

Changes in import volume (%) 2.9 5.6 11.3 24.8

Changes in terms trade 24.7 -23.5 36.5 35.0

Trade balance (USD million) 28 791 1,438 1,806

Trade balance (% of GDP) 2.0 8.8 13.5 15.1

Current account balance (USD million) -214 -285 -52 272

Current account balance (% of GDP) -15.4 -3.2 -0.5 2.3

Debt servicing (% of exports) 13.3 2.0 2.5 2.2

Total external debt (% of GDP) 75.0 18.9 20.0 19.5

Total net financial flows (USD million) -225 576 501 ...

Net official development assistance (USD million) 131 561 486 ...

Net direct investment (USD million) 115 462 781 ...

International reserves (months of imports)

2.1 …

..

Private sector and infrastructure development 2000 2009 2010 2011

Time required to start a business (days) ... 75 75 66

Investor protection index (0-10) ... 3.3 3.3 3.3

Fixed phone subscribers (per 1,000 people) 1.2 5.3 5.3 …

Cell phone subscribers (per 1,000 people) 0.7 208.6 238.3

Internet users (per 1,000 people.) 0.4 15.4 17.4 …

Asphalted roads (% of total roads) 0.8 …

Railway, Goods transported (million tonne-km) …. …. … ...

Source: ADB Department of Statistics, from national and international sources

*The most recent year Latest update: May 2012

.

II

Annex II: Table of AfDB Portfolio in the Country (August 2013)

# Project Key Dates Amount (UA) %

Disb.

Age

(yr.) Closure

Approval Signature Effective. Commitment Disbursed

ADF PROJECTS

1

Natural Resource Management and

Development Project LOAN 4/17/2005 5/19/2005 2/16/2006 4,270,000 3,086,023.30 72.27 8.27 3/31/2014

Natural Resource Management and

Development Project GRANT 4/17/2005 5/19/2005 5/19/2005 2,000,000 1,463,519.91 73.18 8.27 3/31/2014

2 Natural Resource Management and

Development Project Supplementary LOAN 1/31/2011 04/04/2011 1/31/2011 9,570,000 0.00 0.00 2.50 12/31/2014

3 Rural Infrastructure Support Project LOAN 6/7/2011 11/14/2011 08/17/2012 5,200,000 180,959.67 3.48 2.15 12/31/2016

Rural Infrastructure Support Project

GRANT 6/7/2011 11/14/2011 11/14/2011 5,200,000 639,662.16 12.30 2.15 12/31/2016

4 Fisheries Development Project GRANT 11/09/2005 11/23/2005 11/23/2005 10,000,000 9224833.65 92.25 7.73 12/30/2013

5

DWSS Programme 8 Secondary Centres

GRANT 7/11/2012 7/17/2012 7/17/2012 6,900,000 50,307.73 0.73 1.05 10/31/2017

DWSS Programme 8 Secondary Centres

GRANT RWSSI 7/11/2012 7/17/2012 7/17/2012 3,461,400 102,090.50 3.91 1.05 10/31/2017

DWSS Programme 8 Secretary Centres

LOAN 7/11/2012 7/17/2012 10/4/2012 10,710,000 114,752.84 1.07 1.05 10/31/2017

6 Koumra- Sahr Road Asphalting Project

GRANT 6/26/2009 7/12/2010 7/12/2010

31,610,000 27790377.65 87.92 4.08 10/31/2015

FSF INSTITUTIONAL SUPPORT

7 NFSP Round Table 11/29/2011 11/29/2011 11/29/2011 139,326 133,092.02 95.53 1.67 3/31/2014

8 Statistics Support 11/22/2011 11/22/2011 11/22/2011 1,000,000 506,776.48 50.68 1.69 12/31/2013

9 General Livestock Census 2/12/2010 587,245 236,827.00 40.33 3.47 12/31/2013

10 Public Finance Capacity Building 11/1/2012 1/14/2013 1/14/2013 1,450,000 517130.2 35.79 0.75 10/31/2014

11 Capacity Building in Extractive and Oil

Industries (EITI) 11/1/2012 1/14/2013 1/14/2013 1,350,000 0.00 0.00 0.75 10/31/2014

12 PND Implementation Support Project 06/25/2013 - - 500,000 0.00 0.00 0.10 12/31/2014

REGIONAL OPERATIONS

13 Lake Chad Basin Sustainable Development

Programme /GRANT 12/19/2008 12/19/2008 12/19/2008 30,000,000 5939075.74 19.80 4.64 12/31/2015

14 Cotton Sector Support Project / GRANT 2/8/2007 2/8/2007 2/8/2007 5,000,000 1949577.58 38.99 6.67 12/31/2013

15 Lake Chad Basin Initiative Support Project

(PAIBLT) / GRANT 10/26/2005 11/18/2005 11/18/2005 10,000,000 7387483.43 73.87 7.77 12/31/2013

16 Central Africa Biodiversity Conservation

Programme/GRANT 07/22/2013 - - 250,000 0.00 0.00 0.02 31/12/2017

OVERALL TOTAL 138,340,676 56,044,327 40.47 3.33

- LOAN 29,750,000 1,898,829 6.38

- GRANT 108,590,676 54,145,498 49.80

III

Annex III: Key Related Projects Financed by the Bank and Other Development

Partners in the Country

Technical and

Financial

Partner

Project Activities Implementation Status

European

Union

Technical Assistance

Regional Trade and Economic

Integration Support

Programme (PACIE)

Support and consultancy services

for businesses.

Standardizations and quality

infrastructure, quality improvement

of trade and agricultural statistics,

strengthening and upgrade of the

industrial fabric.

On-going

On-going

IMF Staff-Monitored Programme

(SMP)

Programme to stabilize the

macroeconomic framework with a

view to reaching the HIPCI

completion point.

On-going

World Bank Study on Value Chains

Support for Growth-oriented

Sub-sectors

Analysis of constraints affecting the

market systems of some growth-

oriented sub-sectors

Support for the structuring of

sectors considered for export.

In preparation

UNDP Technical Assistance to

Implement the “Enhanced

Integrated Framework” (EIF)

Project

Commercial support for economic

operators on domestic and

international markets.

On-going

AFD Support for the Gum Arabic

Sector

Support for the Small Business

Centre

Structuring the upstream and

downstream aspects of the industry.

Operational support activities for

small businesses.

On-going

AfDB Extractive Industries

Transparency Initiative (EITI)

Support

Public Finance and Planning

Support

HIPC Initiative Preparation

Support

Study on the Private

Investment Climate in ECCAS

Countries

Strategic Paper on the

Promotion of SMEs/SMIs

Transparency in extractive

industries.

Public procurement, planning

instruments.

Macroeconomic capacity building.

Private sector investment climate.

Challenges and constraints affecting

SMEs/SMIs in Chad.

On-going

On-going

Awaiting launch

Study delivered

On-going

BDEAC SAHR Market Rehabilitation

Support.

Cattle Sector Support

Market infrastructure upgrades with

a view to boosting marketing.

Support for the construction of

production facilities

(slaughterhouses).

Closed

On-going

IV

Annex IV Map of the Project Area

This map has been provided by the staff of the African Development Bank Group exclusively for the use of the readers of this appraisal report. The names

used and the borders shown do not imply on the part of the AfDB Group, its members and Board of Directors any judgment concerning the legal status of

a territory nor any approval or acceptance of these borders.