Document of The World Bank

FOR OFFICIAL USE ONLY

Report No. 113547-KE

INTERNATIONAL DEVELOPMENT ASSOCIATION

INTERNATIONAL FINANCE CORPORATION

MULTILATERAL INVESTMENT GUARANTEE AGENCY

PERFORMANCE AND LEARNING REVIEW OF THE COUNTRY PARTNERSHIP STRATEGY

FOR

THE REPUBLIC OF KENYA FOR THE PERIOD FY14-FY18

June 19, 2017

International Development Association East Africa Department Africa Region The International Finance Corporation Sub-Saharan Africa Department The Multilateral Investment Guarantee Agency Sub-Saharan Africa Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank Group authorization.

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The date of the last Country Partnership Strategy was June 3, 2014

FISCAL YEAR July 1 – June 30

CURRENCY EQUIVALENTS

(Exchange Rate Effective May 31, 2017) Currency Unit – Kenyan Shilling

KES 103.55=1.0 US Dollar

ABBREVIATIONS AND ACRONYMS

AAA Analytical and Advisory Activity ACPA Annual Capacity and Performance Assessment AF Additional Financing AfD French Development Agency AfDB African Development Bank ASA Advisory Services and Analytics ASAL Arid and Semi-Arid Lands CA Communications Authority CAK Competition Authority of Kenya CAP Community Action Plan CARPS Capacity Assessment and Rationalization of Public Service CAT DDO Catastrophe Drawdown Option CBK Central Bank of Kenya CBR Central Bank Rate CCSA Cross-cutting Solution Area CDD Community Driven Development CIMES County Integrated Monitoring and Evaluation System CIT Corporate Income Tax CLR CLTS

Completion and Learning Report Community-Led Total Sanitation

CMA Capital Markets Authority CoG Council of Governors CoP Conference of Parties CPF Country Partnership Framework CPI Corruption Perceptions Index CPPR Country Portfolio Performance Review CPS Country Partnership Strategy CRA Commission on Revenue Allocation CRRs Completion and Results Reports CRW Crisis Response Window CSO Civil Society Organizations CT CT-OVC

Cash Transfer Cash Transfer for Orphans and Vulnerable Children

DANIDA Danish International Development Agency DB Doing Business DfID Department for International Development DHS Demographic and Household Survey

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DPG Development Partners Group DPL Development Policy Lending DPO Development Policy Operation EA Environmental Assessment EAC East African Community EACC Ethics and Ant-Corruption Commission EDGE Excellence in Design for Greater Efficiency EIA Environmental Impact Assessment ERC ESH

Energy Regulatory Commission Environmental Sanitation and Hygiene

EU European Union FCDC Frontier Counties Development Council FCV Fragility, Conflict and Violence FIG Financial Institutions Group FiT Feed-in Tariff FM Financial Management FY Fiscal Year GBV Gender Based Violence GDP Gross Domestic Product GEF Global Environment Facility GNI Gross National Income GoK Government of Kenya G-Pay Government Payment System (electronic) GPE Global Partnership for Education GPOBA Global Partnership for Output Based Aid GRM G2B

Grievance Redress Mechanism Government to Business

ha Hectare HSSF Health Sector Services Fund IBRD International Bank for Reconstruction and Development ICR Implementation Completion and Results Report ICT Information and Communication Technologies ICZM Integrated Coast Zone Management ID4D Identity Card for Development IDA International Development Association IE Impact Evaluation IEBC Independent Elections and Boundaries Commission IEG Independent Evaluation Group IFC International Finance Corporation IFMIS Integrated Financial Management Information System IFPPP Infrastructure Finance Public Private Partnership IFRA Independent Fiduciary Review Agency IMF International Monetary Fund INDCs Intended Nationally Determined Contributions IPF Investment Project Financing IPPs Independent Power Producers IPSAS International Public Sector Accounting Standards IRA Insurance Regulatory Authority ISSAI International Standards of Supreme Audit Institutions JICA Japan International Cooperation Agency KAA Kenya Airports Authority

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KACCAL Kenya Adaptation to Climate Change in Arid and Semi-Arid Lands KADP Kenya Accountable Devolution Program KCAA Kenya Civil Aviation Authority KCSAP Kenya Climate Smart Agriculture Project KEMSA Kenya Medical Supplies Agency KenGen Kenya Electricity Generation Company KeNHA Kenya National Highways Authority KENTRADE Kenya Trade Network Agency KEPSA Kenya Private Sector Alliance KERP Kenya External Resources Policy KfW German Development Agency KICP Kenya Investment Climate Program KMP KMTC

Kenya Municipal Program Kenya Medical Training College

KNBS Kenya National Bureau of Statistics KPLC Kenya Power and Lighting Company KQ Kenya Airways KRA Kenya Revenue Authority KShs Kenya Shillings KSIF Kenya Sustainable Land Management Investment Framework KTCIP Kenya Transparency and Communications Infrastructure Project KTDA Kenya Tea Development Authority kV Kilovolt KYEOP Kenya Youth Employment and Opportunities Project KYEP Kenya Youth Employment Project LAIFOMS Local Authorities Integrated Financial Operations Management System LVEMP Lake Victoria Environment Management Project M&E Monitoring and Evaluation m3 Cubic Meters MAS Manufacturing Agribusiness and Services MCA Member of the County Assembly MDTF Multi Donor Trust Fund MIGA Multilateral Investment Guarantee Agency MIS Management Information Systems MoALF Ministry of Agriculture, Livestock and Fisheries MoDP Ministry of Devolution and Planning MoEP Ministry of Energy and Petroleum MS Moderately Satisfactory MS+ Moderately Satisfactory or better MSMEs Micro, Small and Medium Enterprises MTP Medium Term Plan MU Moderately Unsatisfactory MW Mega Watt NaMSIP Nairobi Metropolitan Services Improvement Project NDEF National Drought Emergency Fund NEDI North and North Eastern Development Initiative NGO Non-Government Organization NLTA Non-Lending Technical Assistance NSNP National Safety Net Program NT National Treasury OAG Office of the Auditor General

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OBA Output-Based Aid ODF Open Defecation Free OP Operational Policy OTC Over The Counter PAPs PBA

Project Affected Persons Program Based Allocation

PEFA Public Expenditure and Financial Accountability PER Public Expenditures Review PETS Public Expenditure Tracking Survey PFM Public Financial Management PFMA Public Finance Management Act PforR Program for Results PIBS Program Implementation and Beneficiary Satisfaction Survey PIUs Project Implementation Units PLR Performance and Learning Review PPAs Power Purchase Agreements PPP Power Purchasing Parity PPPs Public Private Partnerships PRG Partial Risk Guarantee PSASB Public Sector Accounting Standards Board PSW Private Sector Window PV Photovoltaic RAP Resettlement Action Plan RBF Result-Based Financing REIT Real Estate Investment Trust ROSC A&A Reports on Observance of Standards and Codes: Accounting and Auditing RVR Rift Valley Railways SAU Social Assistance Unit SCD Systematic Country Diagnostic SDI Service Delivery Indicator SEZ Special Economic Zone SGR Standard Gauge Rail SLM Sustainable Land Management SME Small and Medium Enterprises SOE State-Owned Enterprise SORT Systematic Operations Risk-Rating Tool SRO Self-Regulatory Organization SSA Sub Saharan Africa SUF Scale-Up Facility TA Technical Assistance TF Trust Fund THS-UC Transforming Health Systems for Universal Care TI Transparency International TIMP Technologies, Innovations, and Improved Management Practices UNFCCC United Nations Framework Convention on Climate Change UNFPA United Nations Population Fund UNICEF United Nations Children’s Fund USA United States of America USAID United States Agency for International Development US$ United States Dollars VAT Value Added Tax

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WBG World Bank Group WHO World Health Organization WSP Water and Sanitation Program

IDA IFC MIGA Vice President: Director: Task Team Leader:

Makhtar Diop Diarietou Gaye Peter Isabirye

Dimitris Tsitsiragos Oumar Seydi Manuel Moses

Keiko Honda Merli Baroudi Stephan Dreyhaupt

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KENYA PERFORMANCE AND LEARNING REVIEW OF THE

COUNTRY PARTNERSHIP STRATEGY

CONTENTS

Executive Summary ........................................................................................................................ vii I. Introduction ........................................................................................................................... 1 II. Main Changes in Country Context ..................................................................................... 1

Key Macroeconomic Developments ........................................................................................ 1 Poverty Reduction and Shared Prosperity ................................................................................ 3 Political and Security Developments ....................................................................................... 4 Emerging Country/Development Issues ................................................................................... 4

III. Summary of Program Implementation ............................................................................... 6 Portfolio Performance .............................................................................................................. 6 Evolution of Partnerships and Leveraging ............................................................................... 9 Overview of Progress towards Achievement of CPS Outcomes ........................................... 10

IV. Emerging Lessons ................................................................................................................ 14 V. Adjustments to Country Partnership Strategy ................................................................ 15 VI. Risks to CPS Program ........................................................................................................ 18

Annex 1: Updated CPS Results Matrix .................................................................................. 20 Annex 2: Matrix of changes to the original CPF Results Matrix ........................................... 31 Annex 3: Matrix summarizing progress to CPS Objectives .................................................. 34 Annex 4: WBG Portfolio ........................................................................................................ 53 Annex 5: Advisory Services and Analytics (ASAs) .............................................................. 56 Annex 6: WBG Collaboration ................................................................................................ 58

LIST OF FIGURES AND TABLES Figure 1: Progress towards CPS Outcomes ....................................................................................... 10 Table 1: Selected Economic and Poverty Indicators, 2014 - 2020 ...................................................... 2 Table 2: Kenya Planned and Delivered IDA Operations FY14-FY17 CPS (US$ millions) ................ 7 Table 3: Indicative IDA/IBRD ASA and Lending for FY18-FY20 ................................................... 17 Table 4: Revised Systematic Operations Risk-Rating Tool (SORT) ................................................. 19

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KENYA PERFORMANCE AND LEARNING REVIEW OF THE

COUNTRY PARTNERSHIP STRATEGY

EXECUTIVE SUMMARY 1. Kenya’s macro-economic environment has remained relatively stable during the first half of implementing the Country Partnership Strategy (CPS) FY14-FY18. Gross Domestic Product (GDP) has grown at around 5.9 percent per year since 2014 and the exchange rate has remained relatively stable. The re-basing of GDP in 2014 revealed that Kenya’s economy is larger and growing more rapidly than previously estimated—above the threshold for classification as a lower middle-income country—and is presently the fifth largest in Sub-Saharan Africa (SSA) (second largest among non-oil exporters after South Africa). The country remains at a low risk of debt distress although the authorities must manage the country’s external position prudently. GDP growth is projected to strengthen over the medium term along with further consolidation of macroeconomic stability. Generally, the macro-economic foundations and fundamentals are robust and in line with the CPS expectations.

2. Extreme poverty incidence in Kenya declined by 10 percentage points over the past decade, but a quarter of the population continues to live in abject deprivation. The incidence of extreme poverty assessed against the international poverty line of US$1.9 per day declined from 33 percent in 2006 to an estimated 24.4 percent in 2016. The Kenya National Bureau of Statistics (KNBS) is presently analysing recently collected survey data to update the official national poverty lines and statistics.1 Preliminary estimates suggest that by national standards poverty incidence also declined at a similar rate over the past decade but inequality remains high and the Gini index only declined marginally. The poorest 40 percent of the population only accounts for 13 percent of total consumption and continues to live well below the US$3.1 per day which is the international benchmark more characteristically used to assess poverty rates in lower middle-income countries.2 Persistent inequality is driven in part by the continuing gap between average rural and urban living standards

3. The strategic objectives and design of the CPS remain valid, and interim results under the World Bank Group (WBG)-supported program show good progress in key areas though some elements have advanced less quickly. Significant contributions have been made in increasing power generation capacity; reducing transit time in Kenya as well as dwell time at the port of Mombasa; improving the business environment; strengthening planning and management of urban growth; and improving delivery of social services for vulnerable groups. However, more effort will be needed to increase agricultural productivity, land under irrigation, climate change resilience, and greater citizen feedback on the quality of service delivery.

4. The CPS noted that devolution would come with significant opportunities as well as some challenges. As expected, parts of the WBG-supported program--both in the existing portfolio and the

1 Updated national poverty estimates will be published by June 2017 based on the second Kenya Integrated Household Budget Survey (2015-16) for which fieldwork was completed in September 2016. 2 Poverty incidence measured against the US$3.1 a day international poverty line declined from 59 percent in 2006 to an estimated 49 percent in 2016 (http://pubdocs.worldbank.org/en/171341492188161402/mpo-ken.pdf).

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delivery of new lending during the start of the CPS period--suffered from slowed project implementation, impacted by institutional reorganisation and by the transition to county-provided services. At an operational level, the process of decentralizing government made it difficult for implementing agencies to access funds in a timely manner and to meet portfolio deadlines as intended. Preparation of new operations faced particular challenges and substantial delays due to protracted consultations between the National and County Governments before reaching consensus on key project aspects such as identification of beneficiary counties, flow of funds, and implementation and reporting arrangements. In line with the objectives of the CPS, the WBG intends to keep devolution a priority, supporting the National and County Governments to strengthen their capacity to deliver services more effectively. 5. Delivery of new projects in the CPS program has been greater than anticipated—a record US$3.5 billion in new International Development Association (IDA) commitments delivered since FY14 (of which US$2.8 billion were in the IDA17 cycle). Looking ahead, there is a strong pipeline of projects under consideration for financing of US$2 billion or more in the IDA18 cycle. Kenya will also potentially be able to avail itself of International Bank for Reconstruction and Development (IBRD) lending, and will officially enter IDA/IBRD blend status at the start of FY18. International Finance Corporation (IFC) has increased its portfolio by approximately US$140 million since the start of the CPS period; its program in Kenya is the third largest in Africa, after Nigeria and Ghana. Under the CPS, the WBG has also delivered key knowledge products including support to enhance the business climate and strengthen devolution.

6. Strategically, IDA investments have been selective—as directed by the CPS—with a scale-up in resources directed towards human resource development and in delivering the beginning of a devolution dividend. Notably, the World Bank has re-engaged in education and agriculture to a significant extent. Major strides have been made in boosting social safety nets and employment opportunities—particularly among women and the youth. At the county level, there are reported marked improvements in infrastructure and access to essential services, but it is still quite early in the devolution process. The World Bank has maintained a strong presence in large infrastructure and logistics projects aimed at sustainable growth. Going forward, the World Bank’s program/sectors of engagement shall be guided by the Kenya External Resources Policy (KERP).

7. Collaboration between the World Bank, IFC, and MIGA has contributed to strong performance in key CPS objectives such as increasing power generation capacity and boosting the country’s business environment and competitiveness. In the Doing Business 2017 Report, Kenya moved up 21 places, and was ranked the most improved business environment in Africa and the third most improved globally. The WBG collaborated to support Kenya to bridge its growing energy demand; current energy generation capacity stands at 2,341 Mega Watt (MW), surpassing peak demand of 1,614 MW.

8. Results to date under the WBG-supported program show good progress in key areas, and room for improvement in others. Five of the ten outcomes set out in the original CPS are on track. These include important achievements such as enhanced infrastructure and logistics for sustainable growth; strengthening planning and management of urban growth; improved enabling environment for private investment; improved social services delivery for vulnerable groups, particularly women; and adequate systems to monitor performance of services delivered by counties. In three other outcomes areas, progress is partially on track: greater agricultural productivity; improved capacity to manage risks from climate change; and better provision of health and sanitation

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services by counties. Finally, there are two outcomes areas that are categorized as off track: greater citizen feedback on the quality of service delivery in key sectors; and heightened transparency and accountability in the use of public resources, particularly at the county levels. That is because for the former, the indicator to measure progress was narrowly defined (viz., use of citizen report cards, whose pilot ended midstream) and for the latter, an increase in the volume of statutory and special reports that the Office of the Auditor General now has to provide, including for devolved governments, among other reasons.

9. Many of these results have been partly shaped by portfolio performance which also has some strong areas. A review of completed IDA projects by the Independent Evaluation Group (IEG) over the CPS period, rated five projects (62.5 percent) as Moderately Satisfactory or better (MS+). For IFC Agribusiness, all portfolio clients have completion and results reports (CRRs) between 3-4, considered satisfactory; in Manufacturing, Agribusiness and Services (MAS) and in Financial Institutions Group (FIG), 80 percent of all projects committed in the CPS period have CRRs between 3B-4B (considered MS+). Results of the 2015 stakeholder survey are essentially qualitative, but they do show a marked improvement in WBG effectiveness. Achieving development results in Kenya is rated significantly higher compared to the 2012 survey. There was a marked improvement in views of the WBG, especially with regard to staff preparedness, relevance and alignment with Kenya’s development priorities, quality of technical assistance, knowledge work, and responsiveness.

10. While Kenya has made progress in governance at the national level and across some sectors (e.g.: transport and health), challenges remain at the subnational level. These include weak oversight and accountability, variable enforcement of laws and regulations, inefficient public investment management and corruption. Moreover, achieving Kenya’s development goals in the context of shared prosperity will require effective partnerships between private and public sectors and between the two levels of government. Basic elements to achieve these partnerships are largely in place, but accelerating growth as foreseen in Vision 2030 will require continued policy improvements and, even more important, ramping up implementation of public investments and programs.

11. Social safeguard risks have been a notable challenge in the first half of the CPS with operational policy (OP) 4.10 (Indigenous Peoples) and OP 4.12 (Involuntary Resettlement) being triggered for most projects. The portfolio consists of mostly category A and B projects. Two high-profile cases that were referred to the Inspection Panel have been successfully resolved. The WBG has invested in efforts to mitigate safeguard risks by working closely with implementing agencies and civil society to increase awareness and understanding of the World Bank’s social safeguard policies and related instruments. The WBG continues to address other portfolio implementation challenges on an ongoing basis.

12. Lessons learnt during the implementation of CPS are informing WBG programs and approaches going forward. An important lesson for devolved sectors is that early engagement with county governments is critical. Devolution requires long-term capacity building and special attention to inter-government relations. Addressing low absorption of funds calls for simpler project designs, paying greater attention to implementation readiness ahead of project Board approvals, closer and more regular monitoring, and increased support to project implementation units on World Bank processes and procedures. Additionally, while perhaps hard to quantify, investing in remote areas yields benefits from greater equality and social cohesion, but working in regions affected by fragility and conflict requires in-depth local knowledge and pragmatic approaches.

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13. As the CPS objectives remain valid and implementation is broadly on track, the Performance and Learning Review (PLR) proposes to extend the CPS period for two years until FY20. This extended period will allow the WBG to support and benefit from the national planning processes and to consolidate the new data and knowledge for a Systematic Country Diagnostic (SCD). The SCD is planned for FY19, to inform a Country Partnership Framework (CPF) targeted for FY20. If in the meantime there are significant unexpected developments, such as a significant change in priorities following the 2017 elections, then the preparation of the CPF can be brought forward. Several priority adjustments in the CPS are being made to respond to national needs and lessons highlighted in this PLR. Most importantly the World Bank is supporting a new North and North Eastern Development Initiative (NEDI)–approximately US$1 billion in new lending to support the counties in the north and north-eastern parts of Kenya during FY17 and FY18, including a focus on host communities around refugee camps. The World Bank anticipates widening its sources of finance, most notably drawing on IBRD resources beginning in FY18, now that Kenya has become IBRD creditworthy. Kenya will have access to the IDA Catastrophe Drawdown Option (CAT DDO). Kenya can also make active use of the IDA Single Currency Program, currency and interest rate risk management products and disaster risk management products. The WBG will use the range of its financing sources, as applicable, such as the IDA Scale Up Facility, IDA’s Crisis Response Window (CRW), and other new products of the IDA18 replenishment including the Refugee Window and possibly the Private Sector Window in fragile regions. The WBG will continue to make available financing instruments that provide the best fit for delivering strong development impacts; in addition to Investment Policy Financing (IPF) and Program for Results (PforR), these could include IBRD guarantees to mobilize private sector funding, IDA Catastrophe Deferred Drawdown Option (CAT DDO), and Development Policy Lending (DPL). Analytical work will include: (i) poverty work/poverty surveys; (ii) Country Economic Memorandum; (iii) Public Expenditure Reviews; (iv) service delivery indicators; and (v) constraints to private sector development.

14. Key risks to the program include political and governance risks (including the upcoming general elections), environmental and social risks, and institutional capacity risks: the overall the risk rating remains Substantial. The main risks that materialized during the CPS period concerned social and environmental factors and implementation capacity, especially related to devolution. The Government of Kenya (GoK) has developed a framework on the flow of funds to counties and the World Bank and GoK will continue to consult on other mitigating measures. Broad-based stakeholder and civil society involvement is expected to mitigate potential risks related to the upcoming general elections in August 2017. The commitment of the authorities to a sound macroeconomic environment remains a major mitigating element in light of an increased fiscal deficit and the introduction of interest rate controls in 2016.

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KENYA PERFORMANCE AND LEARNING REVIEW OF THE

COUNTRY PARTNERSHIP STRATEGY

I. INTRODUCTION 1. This Performance and Learning Review (PLR) summarizes progress under the FY14-FY18 WBG Country Partnership Strategy (CPS) for Kenya. The CPS, which the Board of Executive Directors discussed in June 2014, builds on three domains of engagement: (i) competitiveness and sustainability – growth to eradicate poverty; (ii) protection and potential – human resource development for shared prosperity; and (iii) consistency and equity – delivering a devolution dividend. A common platform, garnering good governance, underpins all three domains of engagement. The CPS supports Kenya’s second Medium-Term Plan (MTP2), 2013-2017, which operationalizes the country’s longer-term Vision 2030. The PLR finds that the strategic objectives and design of the CPS remain valid, and progress towards CPS outcomes is good on most fronts. It proposes a two-year extension of the CPS to FY20, to ensure a smooth transition in support of the national planning processes and to dovetail with the new data and knowledge to be included in the Systematic Country Diagnostic (SCD) that will inform the CPF.

II. MAIN CHANGES IN COUNTRY CONTEXT

Key Macroeconomic Developments

2. Macroeconomic performance over the first half of the CPS has been robust and in line with expectations at the outset, and economic growth in Kenya has outperformed global and regional trends during the period. Kenya has experienced robust and broad-based growth since the mid-2000s after three decades of disappointing performance before then. The re-basing of Gross Domestic Product (GDP) in 2014 revealed that Kenya’s economy is larger and growing more rapidly than previously estimated. Kenya is presently the fifth largest economy in SSA - second largest among non-oil exporters after South Africa - and earned reclassification to a lower middle-income country as of 2014. Solid growth has continued during the CPS period, with GDP estimated to have increased just below 6 percent per year on average, outperforming global (2.7 percent per year) and SSA (3.1 percent per year) during the same period. Domestic consumption has driven growth on the income side, fueled in part by a surge in foreign remittances, and supplemented by robust government investment. On the production side, the services sector remains the most dynamic with manufacturing playing a modest role. In particular, the tourism sector showed strong recovery after a two-year decline due to security concerns. Agriculture, which is largely rain dependent, performed relatively well over the CPS period, although the on-going drought is dampening performance in 2017. 3. Kenya’s macroeconomic environment remains stable. The current account deficit almost halved from 10.3 percent in 2014 to an estimated 6.0 percent in 2016, primarily due to lower oil prices, a surge in remittances and lower investment-related imports that more than offset weaker exports. Kenya’s import cover exceeds five months—well above the three-month prudent threshold—and the real exchange rate has remained stable. The US$1.5-billion International Monetary Fund (IMF) Standby Arrangement and Standby Credit Facility, which received a successful review in January 2017, provides further foreign exchange buffers. Inflation has remained within the authorities’ target range (5±2.5 percent) for 2016, declining to a multi-year low of 5.0 percent in May 2016. While headline inflation hit 10.3 percent in March 2017, this mainly reflects transitory factors such as the present weather-related increase in food prices and recent rise in oil prices. Moreover,

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underlying demand pressures remain relatively subdued as core inflation is less than 4.0 percent. On the fiscal front, after peaking at 8.4 percent of GDP in 2014/15 (FY15), the fiscal deficit declined to an estimated 7.5 percent of GDP in FY16. The National Treasury (NT) projects the deficit to rise to 9.3 percent of GDP in FY17, mostly on account of a 2.4 percentage point increase in development spending. However, the projected deficit for FY17 assumes 100 percent execution of capital projects, which is unlikely (for example in FY15, the infrastructure execution rate was only 31 percent).

4. In the medium term, the fiscal deficit is expected to decline to about 4.4 percent of GDP by FY20. Spending pressure will be reduced by the equivalent of around 1 percent of GDP once the Standard Gauge Rail (SGR) is completed (and hence not requiring new allocations). In addition, some one-off government spending in FY17 and FY18 including drought-related spending (estimated at US$295 million), and expenses related to the organization of the 2017 elections will not be repeated between FY18 to FY20. On the revenue side, the Government is undertaking measures to improve tax administration and decrease tax fraud through fiscal consolidation. These include: (i) the integration of Kenya Revenue Authority (KRA) information technology systems with Integrated Financial Management Information System (IFMIS); (ii) the rolling out of new Customs Management System that will permit integration of the various tax departments to provide additional and more consistent information on importers; (iii) initiatives to strengthen revenue at the county level; and (v) an improvement in valuation benchmarking to counter undervaluation of imports. The World Bank supports the Government’s resource mobilization efforts with analytical work on value added tax (VAT) and corporate income tax (CIT), including both administration and policy issues.

5. Kenya’s medium-term growth of around 6 percent per annum should outperform its regional peers (which are at around 3.4 percent), although not reaching its own ambitious 8 percent target laid out in Vision 2030 and MTP2. Table 1 summarizes economic performance and prospects. While 2017 growth will likely dip to 5.5 percent on account of the on-going drought and weak credit expansion exacerbated by interest rate controls, GDP growth should rebound in future years. Kenya’s growth prospects factor in the benefits of completed infrastructure projects, renewed fiscal consolidation, a post-election reduction in recurrent spending, and continuing structural reforms, which will encourage private investment. Future oil revenues could provide some additional stimulus on the resource side, but more rapid growth will require substantive improvements in the productivity of investments, to which the CPS contributes.

Table 1: Selected Economic and Poverty Indicators, 2014 - 2020 2014 2015 2016 c 2017 d 2018 d 2019 d 2020 d Real GDP growth, at constant market prices 5.3 5.6 5.9 5.5 5.8 6.1 6.0 Private Consumption 4.6 5.3 7.2 5.7 6.0 6.2 6.2 Government Consumption 6.0 15.4 -6.5 4.4 4.9 4.7 4.5 Gross Fixed Capital Investment 14.6 4.9 5.7 5.5 6.1 7.2 6.5 Exports, Goods and Services 5.3 -0.9 4.0 4.0 4.3 4.8 4.6 Imports, Goods and Services 10.6 -1.2 5.0 4.5 5.1 5.7 5.5 Real GDP growth, at constant factor prices 5.3 5.8 5.5 5.5 5.8 6.1 6.0 Agriculture 3.5 5.6 5.6 5.4 5.4 5.4 5.4 Industry 6.5 6.9 5.7 5.7 5.6 5.6 5.5 Services 5.7 5.4 5.3 5.5 6.1 6.6 6.6 Inflation (Consumer Price Index) 6.9 6.6 6.5 6.6 7.1 7.1 6.1 Current Account Balance (% of GDP) -10.3 -6.8 -6.0 -5.8 -6.5 -7.0 -7.2 Fiscal Balance (% of GDP)a -8.4 -7.5 -9.3 -6.7 -5.5 -4.4 4.0 Total Revenue a 19.1 18.8 20.4 20.6 20.6 21.5 21.5 Tax Revenue a 16.6 16.3 17.1 17.4 17.8 18.8 18.8 Debt (% of GDP) a 47.2 48.7 45.3 47.4 48.7 49.1 48.0 Primary Balance (% of GDP) a -4.6 -6.0 -4.6 -4.4 -2.6 -2.0 -1.5 Poverty rate (US$1.9/day PPP terms)b 26.3 25.3 24.4 23.6 22.7 21.6 Poverty rate (US$3.1/day PPP terms)b 51.0 50.2 49.1 48.1 46.9 45.8 Sources: National Treasury, World Bank, May 2017. Notes: (a) These indicators are for Fiscal Years (July – June); (b) World Bank staff estimates and projections based on the 2005-06 KIHBS (see: http://pubdocs.worldbank.org/en/171341492188161402/mpo-ken.pdf); (c) World Bank Staff estimates; (d) World Bank staff forecasts

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6. Risks to Kenya’s medium-term prospects remain balanced. External risks include a slowdown in the global economy and uncertainties related to the United States (US) interest rate hikes. Domestic risks include the potential for fiscal slippages, adverse weather conditions, and a potential dent to financial sector stability and further weakness in credit growth stemming from interest rate caps. However, there also exist upside opportunities to enhance Kenya’s robust growth performance. First, if Kenya improves the efficiency of its Public Investment Management system, it stands to reap greater productivity gains from its on-going infrastructure drive. Secondly, there exist further opportunities to enhance productivity in the agricultural sector which accounts for about 25 percent of GDP and employs a large proportion of the workforce with significant potential to reduce poverty. Finally, there exist new engines of growth across the economy including the on-going exploration of petroleum and other mineral resources, the on-going rebound in tourism, unlocking the potential in affordable housing3 and improving productivity in the informal enterprises4. Improvements in any of these could boost Kenya’s medium-term growth outlook.

Poverty Reduction and Shared Prosperity

7. Poverty incidence in Kenya has declined over the past decade but inequality persists and a significant portion of the bottom 40 percent live in dire straits. The incidence of extreme poverty assessed against the international poverty line of US$1.9 per day declined from 33 percent in 2006 to an estimated 24.4 percent in 2016. The Kenya National Bureau of Statistics (KNBS) is presently analysing recently collected survey data to update the official national poverty lines and statistics.5 Preliminary estimates suggest that by national standards poverty incidence also declined at a similar rate over the past decade, but inequality remains high. While living standards of many in the bottom 40 percent have improved, they all continue to live below the US$3.1 international poverty benchmark commonly used for lower middle-income country comparisons.6 The bottom 40 percent accounts for only 13 percent of total consumption. Persistent inequality is driven in part by the continuing gap between average rural and urban living standards.

8. Poverty reduction has been particularly slower in the north and north-eastern semi-arid areas of the country. Over the past 35 years, Kenya’s north and north-eastern semi-arid areas have perennially experienced the highest incidence and depth of poverty in the country.7 These areas are also characterized by higher levels of vulnerability, where even the majority of the non-poor remain at constant risk from falling back into poverty when experiencing agro-climatic or other shocks. Preliminary estimates for 2015-16 suggest that the poverty rates in these areas remain up to double the national average, particularly in the counties of Turkana, Mandera, Samburu, Garissa, Marsabit, Wajir, West Pokot, Isiolo and Tana River (these nine counties continue to rank among the 15 poorest counties in the country). The on-going drought in these regions poses a severe risk, reversing recent progress in poverty reduction, and further exacerbating the spatial inequalities that characterize Kenya’s development.

3 Kenya Economic Update 15. 4 Kenya Economic Update 14. 5 Updated national poverty estimates will be published by June 2017 based on the second Kenya Integrated Household Budget Survey (2015-16) for which fieldwork was completed in September 2016. 6 Poverty incidence measured against the US$3.1 a day international poverty line declined from 59 percent in 2006 to an estimated 49 percent in 2016 (http://pubdocs.worldbank.org/en/171341492188161402/mpo-ken.pdf). 7 The first household budget survey to measure poverty in Kenya was collected in 1981-2, followed by surveys in 1992, 1994, 1997, 2005-6 and, most recently, in 2015-16.

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Political and Security Developments

9. Kenya will hold general elections on August 8, 2017. Observers hope that the calm conduct of the March 2013 general elections will be repeated with no reoccurrence of the violence which marred some earlier elections. Within Kenya, there have been some contentious debates, key among them the level of preparedness of the Independent Elections and Boundaries Commission (IEBC) to deliver free, fair and credible elections. IEBC acknowledges the challenges and tight timelines, but maintains its commitment to delivering a credible election.

10. Implementation of Kenya’s nascent but rapidly evolving government devolution and related reforms has had significant impact on Kenyan politics and society. The new institutions have created opportunities for greater subnational accountability and affected the balance of power across institutions and levels of government. There has been increased representation of women in county assemblies, but this is largely through nomination. It remains to be seen if this will help reverse the deeply embedded gender norms that still frustrate women’s effective participation in county government. The overlapping of county governments with traditional institutions also affects the role that both play in making devolution effective. The GoK recently launched the Kenya Devolution Policy whose main objective is to clarify the status, roles, and relationships between the national and county governments.

11. Security issues have become more prominent in recent years. The rise in insecurity in 2014-15 along the coast and in other parts of the country has been linked, in part, to violent extremism particularly by the militant group al-Shabab. Counties with large pastoral communities such as Turkana, Wajir, Marsabit, and Mandera have seen a spike in inter-community conflict and increased pressures on natural resources due to environmental degradation and drought. Cross-border insecurity linked to terrorist groups, violence, and internal conflicts arising from competition for resources and land issues continues to hamper prospects for growth and poverty reduction. Youth remain vulnerable to recruitment into crime and violence due to high youth unemployment.

Emerging Country/Development Issues

12. Achieving Kenya’s development goals in the context of shared prosperity will require effective partnerships between private and public sectors and between the two levels of government, with a focus on lagging counties. The basic elements to achieve these partnerships are largely in place, in particular: (i) a commitment to macroeconomic stability as demonstrated by continued adherence to the IMF standby program; (ii) significant improvements in the business environment, as measured by Kenya’s increased ranking in the Doing Business survey and the recent suite of private sector development–related legislation; (iii) stepped-up infrastructure investment and an improving framework for Public Private Partnerships (PPPs); (iv) a largely successful transfer of mandated responsibilities to county governments with an increasing focus on lagging counties; and (v) the potential demographic dividend resulting from rapid growth in the working age population.

13. Building on this base to accelerate growth as foreseen in Vision 2030 will require continued policy improvements and, even more important, ramped-up implementation of public investments and programs. Manufacturing and agriculture can both contribute significantly to higher growth with appropriate policies and institutional reforms. Continued reforms in the

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business environment (after recent improvements, Kenya now ranks 92nd in Doing Business)8 and long delayed institutional reforms in agricultural marketing top the agenda for these sectors. Kenya’s devolved government structure poses both challenges and opportunities to enhance the coverage and quality of service delivery in health, education and skills training necessary to reap the demographic dividend. The two levels of government have often failed to reach consensus on key aspects such as project implementation arrangements, the flow of donor funds, and frameworks for conditional grants. Intergovernmental forums at the sector level have not been able to resolve issues that cut across a number of sectors. Effective coordination of projects that involve multiple agencies at the national level also remains a challenge. Finally, lagging implementation of public investments, especially large infrastructure projects, results in expenditure shortfalls and cost escalation, and undermines productivity gains.

14. Some progress in governance has been made at the national level and across some sectors (e.g.: transport and health) although challenges remain, including at the subnational level. With devolution, new challenges have emerged including weak oversight and accountability, variable enforcement of laws and regulations, inefficient public investment management and corruption. Mechanisms are not yet well embedded for putting into practice demand-side governance through public dialogue and citizen engagement to strengthen oversight and accountability of governments and officials. Corruption (bribery) in public sector procurement is rampant adding an estimated 10-20 percent to total contract costs9. Kenya’s score and ranking in the Transparency International Corruption Perception Index has deteriorated slightly over the CPS period, currently coming in at 145 out of the 176 countries ranked. On the positive side, six counties have volunteered to undertake a Public Expenditure and Financial Accountability (PEFA).

15. The Government has also made good progress in a variety of reforms to improve the effectiveness of the social protection sector. Under the National Safety Net Program (supported by a PforR operation), the Government has developed a social protection consolidation strategy, and has made good progress in implementation, including setting up a Social Assistance Unit (SAU) and consolidating three of the four cash transfer (CT) programs under its management, developing an Operations Manual for the consolidated programs, making payments for all three CT programs simultaneously, and starting work on a consolidated Management Information System (MIS). The Government has also drafted regulations for the National Drought Emergency Fund (NDEF). While financial management (FM)-related challenges still remain, the line ministry has demonstrated strong leadership by engaging in discussions with the World Bank and other development partners to seek support to address these fiduciary and operational challenges. The Government is in the process of preparing a comprehensive time-bound FM action plan and is committed to its implementation which should bring improvements in all three CT programs led by the SAU.

16. Implementation of reforms in the energy sector has helped improve governance and financial viability of the power utility companies. There is transparent rules-based regulation of the sector that sustains its overall commercial viability. Kenya Electricity Generation Company (KenGen) and Kenya Power and Lighting Company (KPLC) are listed on the Nairobi Stock Exchange with an important share of private ownership (30 and 49.9 percent, respectively), which has ensured availability of continuous audited financial statements. The sector now operates on commercial

8 Kenya was ranked 92nd out of 190 countries surveyed in the 2017 Doing Business Report. 9 Ethics and Ant-Corruption Commission (EACC) “An evaluation of corruption in public procurement-A Kenyan experience”, 2015.

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principles supported by transparent financial relationships between the sector utilities and cost-reflective retail electricity tariffs. The Energy Regulatory Commission (ERC), whose powers are prescribed in the Electricity Act 2006, carries out periodic retail tariff reviews. Parliament is expected to enact the Energy Policy and Energy Bill in 2017. It will align the policy and regulatory framework with the 2010 Constitution’s requirements for devolution of electricity services and greater accountability in the sector. Furthermore, Kenya has attracted significant private participation in generation: there are ten Independent Power Producers (IPPs) that account for 30 percent of installed generation capacity, with US$2.4 billion in private equity and commercial loans mobilized to finance privately-owned power plants. These developments have received considerable WBG support. The private sector presence in electricity generation is fully supported by take-or-pay power purchase agreements signed with KPLC. The agreements are supported by the Government and MIGA and IDA security package which insures the obligations of KPLC.

17. Kenya has long been an engine for, and can benefit further from, deeper regional integration. Regional trade statistics suggest that Kenya has been one of the main beneficiaries of growth in intraregional trade within the East African Community (EAC) and can derive more benefits especially from increased trade in services. The WBG strongly supports the regional agenda, and indeed the Kenya portion of seven regional projects currently under implementation totals US$1.2 billion, with other projects in the pipeline to support deeper intra-regional trade integration. Areas of support include trade and transport facilitation along the main transit corridors; harmonizing regulations in telecommunications, finance and banking services; regional public health issues and medicine registration/regulation; resilience in pastoral communities; infrastructure projects in transport, Information and Communications Technology (ICT) and energy. The Lake Victoria Environment Management Project (LVEMP)-(P100406) addresses environmental risks to surrounding communities around Lake Victoria which is the largest shared natural resource in the EAC, and works closely with the Lake Victoria Transport Program - Series of Operations (SOP) (P151606) which will support navigation on and connectivity around the lake.

III. SUMMARY OF PROGRAM IMPLEMENTATION

Portfolio Performance

18. The IDA lending program has unfolded in line with CPS plans and totaled almost US$3.5 billion over the last four years (FY14-FY17). The allocation across the three domains of engagement has also been largely as envisaged—the largest absolute concentration in “growth promoting investments” (Domain of Engagement I), while the shares of “protection and potential” (II) and “equity and consistency” (III) have both risen.

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Table 2: Kenya Planned and Delivered IDA Operations FY14-FY17 CPS (US$ millions) CPS PLANS (05/08/2014)a ACTUAL DELIVERIES

FY Project Projected Financing

Project Committed Financing

2014 Transport 204 Transport Sector Support Project 204 Social Safety Nets 260 National Safety Net Program 250 Health Sector Support 41 Health Sector Support Project 41 Pastoral Livelihoods/Community Development* 77 Regional Pastoral and Livelihoods Project * 77 Transparency and Communications* 30 Transparency and Communications Project (AF)* 30 Total 612 Total 602

2015 Transport 100 Petroleum Technical Assistance (TA) 50 Energy 250 Electricity Modernization Project 450 Coastal Region Water Security & Climate Resil. 200 Coastal Region Water Security & Climate Resil. 200 Pastoral Livelihoods/Community Development 44 Financial Sector Support 37 Devolution Support 120 Water Security and Climate Resilience (AF) 58 Better Statistics 50 East Africa Reg Transport, Trade and Dev’t Facil* 500 Lake Victoria Environment Management (AF)* 10 Total 764 Total 1,305

2016 Statistics PforR 50 Devolution PforR 200 Youth Employment and Opportunities Project 150 Transforming Health Systems for Universal Care 150 Kenya Electricity Expansion (AF) 68 East Africa Public Health Networking Project

(AF)* 10

Africa Higher Education Centers of Excellence * 18 Total 646

2017 National Agricultural and Inclusive Growth 200 Climate Smart Agriculture 250 National Safety Net Program (AF) 50 Water and Sanitation Development Project 300 Development Response to Displacement Impacts* 100 Total 900 Grand Total

3,453

a The CPS provided the proposed program for 2 years (FY14 and FY15), noting that the pipeline for other years would be firmed-up as the CPS progressed. * Regional Project.

19. While the World Bank portfolio has grown in value, the number of projects has been kept at around 36. The current FY17 portfolio comprises 29 national projects and the Kenya portion of 7 regional projects, with net commitments of approximately US$5.2 billion and US$1.2 billion, respectively (Annex 4). Net commitments have increased from US$5.8 billion at the start of the CPS period to US$6.4 billion currently. The Advisory Services and Analytics (ASA) portfolio is tending toward more programmatic activities, directly linking a multi-year, integrated ASA program with the overall dialogue and lending programs (Annex 5). 20. IFC’s program in Kenya is the third largest in Africa, after Nigeria and Ghana. IFC’s portfolio in Kenya increased by approximately US$140 million since the start of the CPS period, and totals US$922.6 million as of May 31, 2017 (Annex 4). IFC has further diversified to include the construction and real estate, and nonmetallic mineral product manufacturing sectors, and maintains a rich Advisory Services program that covers health; Micro, Small and Medium Enterprises (MSMEs); PPPs; renewable energy; trade and competitiveness; and corporate governance.

21. MIGA currently supports four projects in the energy sector with a gross exposure of US$211 million and net exposure of US$187 million (Annex 4). This includes one MIGA guarantee issued in FY14 for Gulf Power Limited for the development of an 80-megawatt heavy fuel oil diesel power plant, including a 66-kilovolt interconnector and backup-metering equipment, on a 20-year build-own-and-operate basis. The IFC is providing financing for Gulf Power Limited and the project is further supported by a partial risk guarantee from IDA.

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22. Collaboration has been a hallmark across the WBG. The Energy, Health, Education, Finance and Markets, and Trade and Competiveness Global Practice teams, building on the comparative advantages of the different institutions within the WBG, are creating synergies in energy, finance, urbanization, private sector development, agribusiness, health, education, and oil and gas (details in Annex 6).

23. Performance of the IDA portfolio is mixed. The portfolio disbursement ratio for IPF reached 22 percent in FY15 with approximately US$500 million disbursed. However, the IPF disbursement ratio slowed in FY16 to 12 percent, partly explained by the inevitable slow start-up of new projects in a rapidly expanding portfolio. There were also important underlying factors including delays in procurement processes, preparation and disclosure of safeguards instruments, land acquisition by GoK for resettlement and relocation, as well as inadequate provision of budgets and counterpart funding. Other challenges included devolution and, in some cases, the application of remedies by IDA in respect of ineligible expenditures and lapsed loans.

24. Both the GoK and the World Bank have undertaken a series of measures to improve management. These include: (i) continuous engagement through the National Treasury to address key implementation challenges; (ii) quarterly disbursement clinics and audit workshops for project staff, and (iii) institution of a joint World Bank/GoK committee to monitor implementation of agreed mitigation measures on a monthly basis. 25. The IDA portfolio has generated positive development outcomes. Six projects10 have closed thus far during the CPS period, five (83.7 percent) with implementation and completion results reports (ICRs) rating achievement of development objectives as MS or higher. The IEG has not yet reviewed these ICRs. For eight projects closed before the CPS and reviewed by IEG over the period October 2013 – February 2016, five (62.5 percent) were rated MS or MS+. The evaluation results show that projects in the later years achieved better outcomes than earlier projects. Of the three projects rated Moderately Unsatisfactory (MU), two were in agriculture11, highlighting challenges still faced in achieving development outcomes under community-driven development (CDD) type of projects.

26. IFC’s portfolio has also faced a number of challenges during this period with some of its clients, notably Rift Valley Railways (RVR) and Kenya Airways (KQ). Some of the operational and financial issues are specific to each project, and may reflect both internal and exogenous factors. It is therefore not unusual for companies to breach certain covenants, for valid reasons. For example, the RVR project faced operational and financial challenges, and KQ by significant changes to the business outlook, Ebola, terrorism, and slow response by management to mitigate the impacts. Others suffered implementation delays and subsequent performance shortfalls due to delays in land acquisition and/or sub-division mostly because of succession issues among the land sellers; and long and bureaucratic processes to complete the succession and issuance of new titles at the Land Control Board. With sensitive clients such as RVR and KQ, IFC relies on a strategic, collaborative approach with the key sector stakeholders (including the GoK, development partners and other financiers). Although the collaborative approach is generally successful, there are constraints, for example when IFC is a minority shareholder with limited influence, as in the case of KQ.

10 East Africa Trade and Transport Facilitation Project, Western Kenya Community Driven Development Project, East Africa Agricultural Productivity Project, Kenya Agriculture Productivity and Agribusiness Project, Kenya Youth Employment Project, Northern Corridor Transport Improvement Project. 11 Arid Lands and Improving Agricultural Productivity.

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27. In spite of the foregoing challenges, the performance of IFC’s portfolio in Kenya has been satisfactory during the period FY14-FY16. In Agribusiness, all portfolio clients have completion and results reports (CRRs) between 3-4, considered satisfactory; in Manufacturing & Services and Financial Institutions Group, 80 percent of all projects committed in the CPS period have CRRs between 3B-4B and 20 percent have CRRs of 5A or worse; while in Infrastructure and Natural Resources, no new deals were closed in this period.

28. Results of the 2015 country survey of WBG stakeholders showed a marked improvement in several areas. Overall, WBG effectiveness and achievement of development results in Kenya rated significantly higher than in 2012. There was a marked improvement in overall attitudes especially toward staff preparedness, relevance and alignment with Kenya’s development priorities, quality of technical assistance, knowledge work, and responsiveness. The 2015 survey also pointed to a need to speed up processes, and to intensify collaboration with stakeholders outside the Government.

Evolution of Partnerships and Leveraging

29. The World Bank continues to engage in policy dialogue at the highest level through the Development Partners’ Group (DPG), and at the technical level through sector working groups. These fora provide a platform to harmonize policy dialogue between development partners and the Government on key policy issues. In June 2014, the Government approved the KERP, which aims to limit each development partner to a maximum of four key sectors of investment and to direct activities beyond the four sectors through delegation/partnerships. The World Bank’s support over the remainder of the CPS and the subsequent CPF will follow the KERP guidelines. 30. The WBG collaborates with development partners in key development areas. The World Bank administers a Multi-Donor Trust Fund of US$22 million12 to support Kenya’s devolution process through building capacity at the national and county levels. The United Kingdom is contributing US$56 million to the World Bank-supported Social Protection Program to provide cash transfers to orphans and vulnerable populations. In health, the World Bank has partnered with: (a) the Government of Japan to provide financing for transforming universal access to health care; (b) United Nations Children Fund (UNICEF) on results-based financing for health; (c) United Nations Population Fund (UNFPA) to improve maternal health and access to contraception services; (d) World Health Organization (WHO) to develop a broader health financing strategy including disease surveillance; and (e) the Governments of Norway, Canada and the Bill and Melinda Gates Foundation in financing a Global Financing Facility grant of US$40 million. There are also Trust Funds (TF) in the urban sector and education (Global Partnership for Education). In the aviation sub-sector, there has been very strong partnership between the WBG and the French Development Agency (AFD). On issues of trade and competitiveness, the Kenya Investment Climate Program 2 TF, with resources from the Department for International Development (DFID, UK) and the Dutch Government, has provided key funding for technical assistance related to the business environment, special economic zones, the automation of Government services, and analytics, among others. Overall, TF form an important part of the World Bank’s portfolio particularly in support of ASA and Technical Assistance (TA), with an active commitment of approximately US$296 million, out of which US$138 million has been disbursed.

12 The contributing partners are Sweden, Finland, US, DfID, Danish International Development Agency (DANIDA) and European Union (EU).

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Overview of Progress towards Achievement of CPS Outcomes

Figure 1: Progress towards CPS Outcomes

31. Interim results under the WBG-supported program show good progress in key areas, and room for improvement in others. As in indicated in Figure 1, five of the ten outcomes are on track, three are partially on track, and two are off track. Progress against the indicators for each outcome is detailed in Annex 3. Key results are summarized below.

DOMAIN OF ENGAGEMENT ONE: Competitiveness and Sustainability—Growth to Eradicate Poverty 32. Outcome 1: Enhanced infrastructure and logistics for sustainable growth are making impressive contributions to sustainable growth (on track). Installed generation capacity has increased by 663 MW (on track) of which the WBG has financed or otherwise supported 530 MW (80 percent). System losses have not reduced from the baseline level (off track) due to extension of distribution lines in the low-voltage network to connect new consumers, overload of major transmission lines compounded by delays in the commissioning of new transmission lines, and rise

Domain 1: Competitiveness and Sustainability – Growth to

Eradicate Poverty Domain 2: Protection and Potential

– Delivering Shared Prosperity Domain 3: Consistency and

Equity – Delivering a Devolution Dividend

Outcome 1: Enhanced Infrastructure and Logistics for Sustainable Growth

Outcome 4: Greater Agricultural Productivity

Outcome 8: Better Provision of Health and Sanitation Services by Counties

Outcome 2: Strengthened Planning and Management of Urban Growth

Outcome 5: Improved Social Service Delivery for Vulnerable Groups, Particularly Women

Outcome 9: Adequate Systems to Monitor Performance of Services Delivered by Counties

Outcome 3: Improved Enabling Environment for Private Investment

Outcome 6: Improved Capacity to Manage Risks from Climate Change

Outcome 10: Heightened Transparency and Accountability in the Use of Public Resources, particularly at the County Level

Outcome 7: Greater Citizen Feedback on the Quality of Service Delivery in Key Sectors

On Track

Partially On Track

Off Track

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in electricity. However, completion of major transmission projects and a program to stem commercial losses (supported by IFC) should turn this around by the end of the CPS period. There has been a dramatic reduction in waiting times at ports and border crossings (target exceeded), driven by the new Border Management Unit within the Kenya Revenue Authority, the attention of top political leadership, the increased transparency provided by the electronic single window system, and the key performance indicators developed to monitor service delivery by the port community. Transit time along the Northern Corridor in Kenya was reduced to 1.5 days against a target of three days through the removal of barriers. A new indicator to measure access to electricity has been introduced.

33. Outcome 2: Strengthened planning and management of urban growth is exceeding expectations (on track). Nine urban centers have completed integrated strategic plans and another five are under preparation supported by the Kenya Municipal Program (P066488). An additional ten urban centers will complete integrated plans, supported by the Nairobi Metropolitan Services Improvement Project (P107314) during the remainder of the extended CPS period.

34. Outcome 3: Improved enabling environment for private investment have put Kenya on the global reform map (on track). Efforts to improve the investment climate at both the national and county levels have resulted in significant changes. Kenya was ranked as one of the top 10 reformer countries in the 2017 Doing Business report, ranking as the 3rd most improved country globally (improvements on starting a business, getting electricity, registering property, protecting minority investors, and resolving insolvency). Kenya’s rank improved by 21 places to 92nd (from 113) of the 190 countries surveyed. In 2016 Kenya was also ranked as one of the world’s top reformers.

DOMAIN OF ENGAGEMENT TWO: Protection and Potential—Human Resource Development for Shared Prosperity 35. Outcome 4: Greater agricultural productivity appears possible but will need greater efforts (partially on track). The indicator on annual increase in yields of smallholder farmers of maize, Irish potatoes and beans has been achieved in the context of a WBG-supported project; but there has been no progress in the increase of agricultural irrigated land due to delayed commencement of construction of irrigation infrastructure. Contracts supported by IDA financing have been awarded and construction is expected to be complete by 2019/20, but will cover only part of the necessary expansion in irrigated area, the rest relying on GoK’s own financing. Completion of the works contracts, in addition to significant engagement in agriculture, should contribute to achievement of this outcome.

36. Outcome 5: Improved social service delivery for vulnerable groups, particularly women has shown impressive progress (on track). Over 24 million women have utilized public primary healthcare centres and now have access to health, nutrition, and reproductive health services, 1.5 million more than the original CPS target. Women’s access to improved water sources under the World Bank-supported Water and Sanitation Program (P096367) has already exceeded the CPS target by 15 percent. The employment success rate of youth internships under a WBG-supported program is approaching the target level and considerably exceeds the project objectives. Finally, over twice as many people have enrolled under social safety nets than anticipated in the CPS targets, and 95 percent of these beneficiaries receive payments electronically using a two-factor authentication.

37. Outcome 6: Improved capacity to manage risks from climate change got off to a slow start but are picking up at the district level (partially on track). Community action plans with concrete climate risk management activities reflected in the budget are under formulation in four

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vulnerable counties with associated training and other capacity building activities. Lack of information on crop losses due to drought led to reformulating indicators. New indicators focus on climate smart-agricultural inputs and country climate risk profiles.

38. Outcome 7: Greater citizen feedback on the quality of service delivery in key sectors lacks relevant data (off track). Work on citizen engagement has been ongoing through various activities such as public participatory budgeting. However, the indicator proposed to measure progress was narrowly defined, and there was no data to measure progress. The indicator specified the use of citizen report cards to monitor service delivery in the health, education, or water sectors, but citizen report cards did not go beyond the pilot phase (2010-2013) in health, nor are they used in the water and education sectors. The outcome indicator has been refocused on more relevant measures of citizen engagement rather than the specific tool of citizen report cards.

DOMAIN OF ENGAGEMENT THREE: Consistency and Equity —Delivering a Devolution Dividend 39. Outcome 8: Better provision of health and sanitation services counties are making progress in the promotion of, but devolution has also led to performance challenges (partially on track). After overcoming obstacles in the organization of immunization services the number of immunizations has attained about 50 percent of the increment targeted in the CPS; but the reliability of administrative data on immunizations is suspect, leading to the replacement of this indicator with a measure of births delivered in health centers. Inconsistent, unreliable and simply missing data on sanitation performance stymied the county benchmarking exercise intended to measure progress. A new benchmarking exercise is underway.

40. Outcome 9: Adequate systems to monitor performance and service delivery by counties has completed the design phase (on track). Six counties have performance monitoring systems with support from the Kenya Accountable Devolution Program. The Council of Governors (CoG) has requested a rollout to the remaining 39 counties and six counties have volunteered to do a PEFA exercise. The outcome has been rephrased to remove the word “adequate”.

41. Outcome 10: Heightened transparency and accountability in the use of public resources, particularly at the county level, lags behind expectations, and will require intensified efforts during the extended CPS period (off track). As of FY15, the timely submission of consolidated annual financial statements to Parliament by Office of the Auditor General had barely improved from the baseline. At the county level, the use of the IFMIS remains generally restricted to processing payments and expenditures. Its application to budget preparation and execution, accounting and financial reporting lags significantly (partly due to connectivity issues). Better targeted support under the proposed Governance for Enabling Service Delivery in Kenya PforR operation (P161387) should help get this outcome back on track.

Gender 42. The WBG portfolio has shown good progress on gender issues, in areas such as human development, community driven development initiatives, and infrastructure sectors (such as energy, transport and ICT). In energy, for example, women are able to sell their merchandise for longer hours due to lighting/increased security, and pupils (including girls) can study during night hours. Improved transport corridors and access to ICT services have opened up opportunities for small-scale businesses (e.g.: M-pesa money transfer services, which are mainly attended by women/young adults). Box 1 provides some examples of the impacts of WBG-supported gender work. Kenya’s IDA portfolio meets one of the gender targets in the corporate score card. About 80

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percent of projects approved during the current CPS period that included gender in the design of their monitoring and evaluation (M&E) have reported on at least some of their gender indicators during implementation (against a target of 75 percent). On the second corporate scorecard indicator, nearly half of the projects approved between FY14 and FY16 received “fully gender-informed” ratings (against a target of 66 percent). The gap in performance appears to be mostly due to a lack of use of gender-informed analysis in project design. 43. In the remaining CPS period, a key output will be the Poverty and Gender Assessment (P160994) and Poverty Monitoring TA (P147507). Planned gender-informed impact evaluations of Life Skills for In-School Youth in Nyanza province, Social and Economic Impacts of Rural Electrification in Kenya, Result-Based Financing, and Health Insurance Subsidy Program will provide additional gender analysis. Attention to gender in the Kenya Accountable Devolution Program (KADP) – (P133461) will take advantage of the opportunity that devolution presents for increasing the capacity of county-level government to take into account the needs of both women and men, with specific support to gender-responsive budgeting, M&E, and citizen engagement. The KADP will also include attention to Gender-Based Violence (GBV), with support for research on the drivers of GBV from the Conflict and Violence Mitigation TA, which aims to mainstream prevention and response to GBV across the Kenya portfolio.

Box 1: Examples of Impacts of WBG-supported Gender Work The World Bank has been working closely with several partners to support the Government in its efforts to enhance gender balance. Key World Bank operations supporting human development and community driven development have a strong focus on gender. GoK’s policies of free maternity services, and user fee removal for primary care, are increasingly benefitting women. For example, administrative data shows that 938,588 women gave birth at public facilities and 24 million women used public primary healthcare services during FY15-FY16 (independent surveys corroborate these findings). Over half (53 percent) of the beneficiaries of the Primary Education Development Project (P146797) that aims to enhance early grade learning of basic mathematics are girls. About 2,006,277 beneficiaries of Cash Transfer Programs are estimated to be females. A robust gender-disaggregated data analysis is planned after the ongoing clean-up of the program management information system. The Health Sector Support Project (P074091) was amended to ensure a greater focus on improving delivery and utilization of health services by women and children. The project has already achieved encouraging results in terms of both provision of and access to services: cash transfers, provided through the Health Sector Services Fund (HSSF), have contributed to improved quality of care, staff motivation and patient satisfaction. The project has: contributed to 851,945 women receiving free delivery services that meet the quality norms at public health facilities, compared to a target of 550,000; provided 556,810 moderately malnourished children under five and moderately malnourished pregnant and lactating women in drought areas with supplementary feeding, compared to a target of 285,210; provided 18,441 poor households with health insurance subsidies, compared to a target of 30,000; and has provided 41.8 million people with access to a basic package of health, nutrition, or reproductive health services, compared to a target of 39.4 million. An impact evaluation and mixed methods gender assessment of the Kenya Youth Empowerment Project (P111546) included gender-disaggregated analysis of the impact of the project which provided life skills, vocational skills, and work experience placements. The impact evaluation finds that the female participants experienced a larger (and significant) increase in wage earnings. Women’s wage earnings increased Kenya Shillings (KShs.) 7,500 - almost a doubling of the control group – while men’s wage earnings increased by KShs. 5,000 – around a 26 percent increase compared to the control group. The project increased paid employment by 5.6 percent for men and 6.6 percent for women. Women also experienced the largest increases in likelihood of opening bank accounts and of saving money in those accounts. In the agriculture sector, the Japanese Social Development Fund-supported and NGO-implemented Accelerating Rural Women's Access to Markets and Trade Project (P130785), which aims to improve women farmers’ economic empowerment and livelihoods by enhancing their agricultural productivity and access to markets, has provided women with access to banking and financial services, training, and productivity-enhancing inputs. Over the course of the project women farmers have achieved productivity increases ranging from 70 percent (dairy) to 122 percent (poultry). Women’s leadership skills have been developed as well.

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Social Safeguards

44. The implementation of safeguards across the portfolio has faced new challenges. Large-scale infrastructure projects in the urban, transport, energy, and water sectors involve complex safeguards issues. Implementing agencies in these sectors require further assistance to effectively manage environmental and particularly social risks to the standards required on World Bank-supported projects. During the CPS period, there were two Inspection Panel cases for which Management Action Plans remain under implementation. Also during the CPS period, the World Bank undertook a review of safeguards performance across the portfolio and found significant client capacity gaps that adversely affect the efficient delivery of WBG-supported projects. This has led to greater awareness of the World Bank’s environmental and social standards across the portfolio, though clearly more needs to be done. While awareness of safeguards policies has increased over recent years, World Bank efforts to assess client capacity require closer attention, and continued efforts at the project and systemic levels to build client capacity are needed to improve safeguards performance and more effectively manage environmental and social risks on an expanding portfolio.

Climate Change

45. The GoK has set out its approach for achieving a low-carbon and climate-resilient development path in its Intended Nationally Determined Contribution (INDC). The INDC itself builds on the National Adaptation Plan and National Climate Change Framework Policy. These and other policies recognize that Kenya’s economy is highly dependent on climate-sensitive sectors such as agriculture, tourism, and energy and that climate change could cost the country as much as US$500 million per year, or approximately 2.6 percent of GDP. Kenya is vulnerable to extreme weather conditions such as drought which adversely impacts crop yields. Activities that help mitigate climate-related livelihoods risks include Climate Smart Agriculture, and the National Safety Net PforR (P131305) which supports GoK in establishing a National Drought Emergency Fund. The World Bank also supports TA to help GoK develop a disaster risk management framework. In addition, many WBG-supported projects include a zero-down contingency Emergency Response Component. The World Bank is also working with GoK to provide comprehensive risk financing through a proposed IDA CAT DDO to mitigate against some of these risks, which also reflects the fact that disaster risk in Kenya is climate related.

IV. EMERGING LESSONS Main Lessons – Portfolio/Program Implementation and Performance 46. A number of lessons have been learned during CPS implementation thus far, and these are informing the WBG approach going forward including:

• Achieving shared prosperity in Kenya demands a much more aggressive effort to bring the benefits of development to Kenya’s remote areas. However, working in regions affected by fragility and conflict requires in-depth local knowledge and pragmatic approaches, as well as drawing on the experience the WBG has gained in conflict affected and fragile areas elsewhere in Africa and the world. Implementation can also be costly. The WBG will undertake additional analytic work to deepen the understanding of conflict drivers and the spatial integration of the north and north-eastern counties.

• Most projects involve major institutional and policy reforms with consequences for implementation. Managing the complicated process of institution and capacity building requires

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political goodwill, significant resources, both human and financial, and provisions for extended implementation periods; but sustained engagement with government counterparts in their reform programs can ultimately yield impressive results. Box 2 details WBG support to a Government-led reform program for the Kenya Medical Supplies Authority (KEMSA).

• Implementing complex projects in a low-capacity environment may require complementing capacity building efforts with resources from other development partners (e.g.: through TF); CDD projects are transaction-intensive and vulnerable to fiduciary risks. This may call for alterative management mechanisms such as use of an Independent Fiduciary Review Agency (IFRA) to mitigate against fiduciary risks.

• Protracted consultations between the two arms of government have impacted timely decision-making. Given the challenges of devolution, improving service delivery will depend on how quickly both the WBG and GoK address the challenges due to devolution, including decision- making regarding program implementation, capacity building, monitoring, and governance.

• Improving portfolio performance will require coordinated initiatives across a broad range of activities. Low absorption of funds calls for simpler project designs, greater attention to implementation readiness during project preparation, closer and more regular monitoring, and increased support to project implementation units (PIUs) to align with WB processes and procedures. Improving implementation readiness will require enhancing the efficient use of project preparation advances. For its part, the GoK can help by having project preparation teams in place, providing counterpart funding, and achieving efficiencies in the processes between line ministries and PIUs, especially when parastatals are involved. Capacity building efforts (e.g.: the Devolution PforR) will need to continue in all these areas.

Box 2: How WBG support for reform can really make an impact – the case of health. WBG support to a Government-led reform program for the Kenya Medical Supplies Authority (KEMSA), joined by key partners in the health sector, resulted in transformational impact. KEMSA has now adjusted its business model to respond to the needs of devolved health systems of Kenya. All 47 counties have memoranda of understanding with KEMSA and place orders on-line using the integrated logistics management information system. Based on these orders, KEMSA supplies quality-tested essential medical supplies at the doorstep of each public health facility either monthly (hospitals) or quarterly (dispensaries and health centers). The order fill rates by KEMSA consistently exceeded 90 percent, and the organization is no longer dependent on public finances for advance procurement. KEMSA has successfully received a large contract of US$650 million from the US Government for procuring commodities for priority programs in Kenya, and many countries in the region are visiting KEMSA to learn from its reforms.

V. ADJUSTMENTS TO COUNTRY PARTNERSHIP STRATEGY

47. This PLR proposes to extend the CPS period by two years to FY20. Such an extension is motivated by three factors. First, it aligns the CPS period with the timing of Kenya’s own national planning processes including the third Medium-Term Plan (MTP3), 2018-2022, that is already advanced in its construction. Second, it gives time for important new data (including the Household Budget Survey which underpins poverty and income estimates) to become available, that will be consolidated alongside other knowledge products in a Systematic Country Diagnostic (SCD). The SCD is planned for FY19, to inform a CPF targeted for FY20. Third, it allows the momentum of the current CPS—whose fundamental building blocks and performance-to-date remain very much valid—to be maintained with Government counterparts and other development partners with whom strong alliances have been built.

48. A key element in the WBG’s work over the next phase of the CPS is the North and North

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Eastern Development Initiative (NEDI). The NEDI covers the historically underserved counties of Mandera, Wajir, Isiolo, Marsabit, Garissa, Tana River, Lamu, Turkana, West Pokot, and Samburu. In June 2016, the WBG launched the NEDI focused on transformative and integrated infrastructure (energy, transport, ICT, livestock and water) investments that the region needs to connect to national and global markets. These infrastructure investments are laying the ground for additional operations that will enable sustainable livelihoods with targeted support to farmers and pastoralists in the region, lead to improved health outcomes by combating stunting of children under 5, and expand support to the most vulnerable households through regular cash transfers. The NEDI consists of six operations with estimated new lending of approximately US$1 billion during FY17 and FY18.13 The WBG is also supporting the Frontier Counties Development Council (FCDC) for enhanced cross-county collaboration, capacity building, and citizens’ participation, through a Multi-Donor Trust Fund (MDTF).

49. Based on a positive creditworthiness assessment conducted by the WBG, Kenya will officially enter IDA/IBRD blend status at the start of FY18. WBG management has informed the WBG’s Board of Executive Directors of Kenya’s creditworthiness for IBRD borrowing and consequent move to blend status starting with the IDA18 cycle. IBRD lending will likely occur over the coming fiscal years, with the precise timing dependent on specific opportunities and circumstances. The volume of IBRD lending will depend on CPS program performance, on government interest in IBRD financing, and IBRD’s on-lending capacity and demand from other borrowers. In the meantime, Kenya will continue to access IDA credits under IDA18 and also have access to other WBG financial products such as the IDA Single Currency Program, currency and interest rate risk management products and disaster risk management products including catastrophe bonds, weather derivatives and insurance-linked products. The WBG will use the range of its financing sources, as applicable, such as the IDA Scale-Up Facility, IDA’s Crisis Response Window (CRW), Regional Program, and new windows under the IDA18 replenishment such as the Private Sector Window (PSW14) and the Refugee Sub Window.

50. The WBG will continue to be responsive and flexible to changing country circumstances and needs, and make adjustments to the proposed program as needed. These could include, for example, support to emergencies and natural calamities such as drought; addressing emerging challenges such as stunting, reengaging in education (especially on quality and post-primary/tertiary levels); and addressing impacts of forced displacement on refugees and host communities especially around the Dadaab and Kakuma camps. The WBG will continue to make available financing instruments that provide the best fit for delivering strong development impacts; in addition to IPF and PforR, these could include IBRD guarantees to mobilize private sector funding, IDA CAT DDO, and DPL. The proposed IDA/IBRD ASA and lending, categorized by CPS domain of engagement, are indicated in Table 3.

13 Water and Sanitation Development Project; Climate Smart Agriculture Project; Development Response to Displacement Impacts Project; National Safety Net Program AF; proposed Off-grid Solar Energy Access Project; and proposed North Eastern Transport Improvement Project. 14 As an IDA/IBRD blend country beginning in FY18, Kenya could access the PSW for the subnational areas of Kenya affected by fragility or conflict. Determination of these areas will be carried out through an assessment by the Fragility, Conflict and Violence (FCV) Cross-cutting Solution Area (CCSA).

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Table 3: Indicative IDA/IBRD ASA and Lending for FY18-FY20 Focus Areas Main Instruments

Advisory Services and Analytics Financing

Domain of Engagement I: Competitiveness and Sustainability – Growth to eradicate poverty

- Constraints to Private Sector Development

- Country Economic Memorandum - Financial Sector Innovation - Boosting Private Sector

Competitiveness - Financial advisory: Power Utilities - Financial Deepening & Development - Port City Interface - Kenya Economic Update Series - Capital Markets

- Kenya Infrastructure Finance and PPP, AF (FY18, US$50 million)

- KenGen Guarantee Program (FY18, US$45 million) - Industry and Entrepreneurship Project (FY18, US$50

million) - Aviation Modernization Project (FY18, US$285 million) - Electricity Transmission Project - Mass Rapid Transit System Development Project - Urban Support Program (FY18, US$300 million) - East Africa Competiveness Project

Domain of Engagement II: Protection and Potential – human resource development for shared prosperity

- Public Expenditure Reviews - Service Delivery Indicators - Impact Evaluation (IE)-Water and

Sanitation Services Improvement Project

- Results-Based Financing IE - Policy Dialogue - Water and Sanitation Services Delivery - Enhancing Dialogue on Environment

and Natural Resources - Conflict and Violence Mitigation - Kenya Agriculture Insurance and

Regulation

- National Safety Net Program Ph.2 - Upper Primary & Secondary Education Quality

Improvement. Project (FY18, US$200 million) - Marine/Blue Economy - Disaster Risk Management CAT DDO (FY18, US$200

million) - Livestock Insurance Program - Kenya Mortgage Refinance Facility & Affordable Housing

PPP - Kenya Informal Settlements Improvement Project Phase 2 - Lake Victoria Environnement Management Project Phase 3 - East and Central Africa Agriculture Transformation Project

Domain of Engagement III: Consistency and Equity – delivering a devolution dividend

- Poverty Work/Poverty Surveys – Poverty and Gender Assessment/Poverty Monitoring TA.

- Case Processing (Judicial Performance Improvement Project)

- Energy Access - Integrated Support for Kenya PforR

Operations

- Off-grid Solar Access Project (FY18, US$150 million) - North Eastern Transport Improvement Project (FY18,

US$500 million) - Governance for Improved Service Delivery (FY18,

US$150 million) - Successor Project to Kenya Transparency Communications

Project - Identify Card for Development (ID4D) Project

Note: 1). This is an indicative program; to be confirmed with progress of projects preparations. Indicative lending amounts for projects planned for FY18 only have been noted (amounts for projects planned for FY19 and FY20 will be determined in due course as client dialogue and preparation advance); 2). The country will use IBRD and SUF resources in addition to its core IDA18 Allocation; 3). Kenya’s indicative IDA18 core allocation is expected to be in the range of US$2.0-US$2.1 Billion. Actual Program-Based Allocations (PBA) will be determined annually during the FY18-FY20 period and will depend on: (i) total IDA resources available; (ii) the number of IDA-eligible countries; (iii) the country’s performance rating, per capita GNI, and population; and (iv) the performance and other allocation parameters for other IDA borrowers.

51. IFC will continue to work in key areas that promote private sector-led growth, and where possible reach underserved communities. For example, in the roads construction sector, IFC is seeking to come up with a sustainable model to unlock access to finance and equipment leasing services for Small and Medium Enterprises (SMEs) contractors that are involved in roads construction. Under urban infrastructure and affordable housing, IFC is focusing on Green Building standards, introduction of international standards for office buildings and commercial property, warehousing/logistics efficiency, and increasing affordable housing supply building materials (cement and steel) and chemicals (fertilizers). IFC will also participate in the financing of the crude oil export pipeline project from the South Lokichar oil fields to a port location. In health and education, IFC anticipates expansion into new sub-segments (PPP, pharma distribution); introduction of modern formats into the region and supply chain development (food retail); support to scalable models of primary, secondary and tertiary education and skills training; and replication of well-

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established models, such as Bridge Schools, in new markets. IFC will continue to harness synergies in energy (PPPs), transport (roads and airport), urbanization (low-cost housing); private sector development (agribusiness, value addition, access to finance, youth employment, provision of agricultural inputs, equipment, and pesticides), education (secondary education and vocational training); and oil and gas (skills training).

52. MIGA’s pipeline includes one large project in the infrastructure sector. MIGA will also continue to look for opportunities to support the energy sector in Kenya through the Kipevu wind farm and solar IPPs. MIGA has also received interest from investors in the Kenyan roads annuity program, on both the debt and equity side, as well as a large wind farm and several solar projects. In the energy space, MIGA is looking to support KPLC by providing stand-alone cover for KPLC’s power purchase agreement (PPA) obligations without the need for additional sovereign support. MIGA will also look to expand further into the infrastructure space by supporting the expansion of Kenya’s road network, through support to PPPs.

53. WBG collaboration will continue to exploit opportunities for synergies and leveraging, especially engaging the private sector in infrastructure development. That is part of the “cascade” approach to secure much larger and impactful private financing. As an example, the Pooled Water Fund (pooled bond fund) will be a global first to bring in longer-term investors, primarily pension funds and insurance companies. Other instruments such as Special Purpose Vehicles, single insurer bonds, and private placements may also expand access to commercial finance for water. The PPP agenda, and the emerging priority to focus specifically on crowding in domestic/local currency financing to accompany PPP transactions coming to market in the road sector, could be a model for Africa. The policy environment is moving in the right direction, and the WBG will work to support Kenya’s interest. In the remote regions of the north and north-east, the private sector faces both commercial and security risks. In line with the NEDI, the WBG will continue to seek innovative ways to mitigate these risks, as it has by supporting an off-grid solar electrification program where much of the service is being provided by the private sector. The WBG lowers risks by grouping several counties together to create a larger market for procurement, and offers debt financing to solar companies to meet their upfront costs to enter the market.

54. Annex 1 presents a revised results framework to reflect changes in key outcome indicators, milestones, and end-targets given the proposed two-year extension. The revised framework includes 12 new outcome indicators replacing dropped indicators, while revising and rephrasing others. The sole adjustment across the domains of engagement and outcomes is the rephrasing of Outcome 7 on citizen feedback for which the anticipated mechanisms to measure progress failed to materialize. Annex 2 provides details on the changes to the framework.

VI. RISKS TO CPS PROGRAM

55. The CPS identified several potential risks to the achievement of the envisaged results. The greatest risk was potential macro-economic instability including from possible fiscal pressures associated with devolution. Others were natural or man-made disasters and insecurity; unexpected changes in political leadership, policy direction and ministerial leads in key sectors; the worsening of governance and corruption; and ineffective implementation of good practice social and environmental safeguards. The CPS anticipated these risks to be manageable and/or have a modest probability of occurring. The main risks that materialized during the CPS period were insecurity; drought (in FY17)—Kenya is vulnerable to extreme weather conditions such as drought which adversely impacts

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crop yields; social and environmental impacts; and shortfalls in implementation capacity (especially related to devolution). Delays in reaching agreement between the national government and counties on key project aspects and implementation modalities increased politicization. The GoK has put forward a framework on the flow of funds to counties, and both the WBG and GoK will continue to consult on other mitigating measures. The high rating of political and governance risk is mainly due to the uncertainty around the upcoming general elections in August 2017. However, broad-based stakeholder and civil society involvement is expected to be a significant mitigating influence.

56. The proposed CAT DDO will provide support to help mitigate against some of the disaster risks. Environmental and social risks are high due to new challenges facing Kenya following a major build-up in infrastructure investment, with mitigation mainly through building capacity of the client and institutions (para 44). Risks linked to institutional capacity for implementation and sustainability, as well as fiduciary management are substantial. As explained elsewhere in the document (paras 24 and 46), these are being addressed through the WBG’s ongoing engagement in capacity building. An increased fiscal deficit and the imposition of interest rate controls in 2016 introduced further elements of macroeconomic risk, slightly lowering short-term growth prospects and introducing an additional element of uncertainty over the longer term. The commitment of the authorities to a sound monetary and fiscal framework remains a major mitigating element. The Systematic Operations Risk Rating (SORT) analysis presented in Table 4 confirms that these risks remain broadly valid with an overall Substantial rating.

Table 4: Revised Systematic Operations Risk-Rating Tool (SORT) Risk Rating Rating

(H, S, M, L)* 1 Political & governance H 2 Macro-economic M 3 Sector strategies and policies M 4 Technical design of project/program M S Institutional capacity for implementation and sustainability S 6 Fiduciary S 7 Environmental & social H 8 Stakeholders M Overall S

* - H – High, S – Substantial, M – Moderate, L - Low

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MTP2 Goals

Annex 1: Updated CPS Results Matrix

Domain of Engagement 1: Competitiveness and Sustainability— Growth to Eradicate Poverty Development Goals: Improving infrastructure and the business environment, while being responsive to environmental pressures is the backbone of long-term growth.

Vision 2030 Goals: • Create a globally competitive and prosperous nation • Transform Kenya into a newly industrializing, middle-income country

Second Medium Term Plan 2013-2017 (MTP2) Goals: • Deploy world class infrastructure facilities and services • Develop and maintain an integrated safe and efficient transport network • Enhance private sector participation in the provision of infrastructure facilities and services strategically complemented by

government sector interventions • Increase water availability in the country

Issues and Obstacles: • High growth rates alone will not have significant impact on poverty reduction without addressing equity; a more inclusive growth model that focuses on

quality job creation is needed • Political economy around devolution, combined with growing pains of the process may impede target growth rates in the short term • Implementation problems in key sectors such as urban, energy, transport and agriculture need to be addressed • Regional integration will be important and more private sector participation is required to meet investment targets in infrastructure sectors • Kenya’s private sector is underperforming primarily due to constraints on infrastructure, investment climate, competitiveness; reforms that focus on the

business environment, access to finance for firms, and public private partnerships are essential • Economic growth and urbanization must do a better job of creating jobs and employment and internationally competitive cities • Bridging growth of demand for energy with increases in power capacity (5,000 MW by 2017) is critical and will stimulate reduction in overall electricity

prices; however, the off-taker’s (KPLC) credit-worthiness needs to be safeguarded. In addition, sustainable funding mechanisms are necessary to realize the planned 2 million new household connections where citizens benefit.

Governance • Improving the governance/enabling environment through better regulations, control of corruption, improved judiciary that impartially and speedy

enforcement of contracts and administration of justice will improve the climate for doing business and attracting investments that leads to creation of more wealth and employment.

End of FY20 CPS Outcome Selected Milestones and Outputs World Bank Group Program Outcome 1: Enhanced Infrastructure and Logistics for Sustainable Growth

Outcome 1.1: Reliable and efficient energy supply, including through regional cooperation

1.1. (i) Installed generation capacity from diversified

sources (geothermal, thermal, wind) (MW)* Baseline: 1,765 MW (2013)

• The Ethiopian-Kenya 500 kilovolt (kV), 200 MW capacity line and converter substations are commissioned by end of 2018.

• Construction of 330 km of transmission lines and 2,300 km distribution lines together with associated substations by end of 2017.

Ongoing: World Bank: [P120014] KE Electricity Modernization Project; [P103037] KE Electricity Expansion Project; [P126579] Eastern Electricity Highway Project; [P122671] Kenya Private Sector Power Generation Support; [P125388] KE Global Partnership for Output-Based Aid (GPOBA); [P153179] KE Electricity Expansion Project Additional Financing

Vision 2030

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Target: 3,570 MW (2020) -revised

*This indicator is part of the implementation plan of the Second Medium Term Plan (MTP) 2013-2017

1.1. (ii) System loss reduction (% of output) *

Baseline: 18.7% of output (2013) Target: 15.9% of output (2020)

1.1. (iii) Increase electricity access: (number of people provided with electricity)15. New indicator

Baseline: 0 (2016) Target: 1,800,000 (2020)

(AF); [P14234] Kenya Petroleum Technical Assistance Project (TA); [P121019] Kenya Infrastructure Finance PPP (IFPPP). IFC: [29801] Thika IPP (Investment); [29418] Gulf Power Ltd (Investment); [8917] Kipevu II Power Project (Investment); [28550] Kenya Power and Lighting Company (Investment); [592107] Kenya – Utility Efficiency in Africa Program (Advisory Services); [590607] Kenya Investment Climate Power Project (Advisory Services); [555905] Lighting Kenya (Advisory Services); [P148371] Realizing PPP Opportunities; Kenya Investment Climate Program Phase 2 (KICP2) Non-Lending TA (NLTA) on Business Environment Reform; NLTA on Export Competitiveness and Innovation; NLTA on Investment Climate Diagnostics; KICP2 NLTA on Trade and Competitiveness; Financial Innovation NLTA. MIGA: [3658] OrPower 4, Inc.; [9722] Thika Power Ltd. Planned World Bank: [P162182] Kenya IFPPP (AF); [P160009] KE Off-Grid Solar Access Project [P160009]; [P162422] KE KenGen Guarantee Program; [P162467] KE Electricity Transmission Strengthening Project; [P132836] Financial Sector Development in Kenya (TA); [P147897] Financial Sector Innovation (TA); Financial Advisory – Power Utilities (TA); Energy Access (ASA). IFC: Additional Financing for Special Economic Zone (SEZ) Program; AAA on PPPs; Scale up of KICP2 NLTA on Business Environment Reforms; ASA on

15 Additional access by the WBG program. Original program supported only generation capacity and loss reduction.

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Investment Climate Diagnostics; ASA on Sector Competitiveness including Services, Agribusiness and Extractive Industries; ASA on Financial Sector Development. MIGA: Support for renewable energy projects (wind, solar).

Outcome 1.2: Enhanced logistics and distribution network, and more efficient major gateways16 1.2. (i) Waiting times at ports and border crossings17

(days)∗ Baseline: Ports: 13 days; Border crossings: 2 days (2013) Target: Ports: 8 days; Border crossings 1 day (2018)

• All operators and activities at the port managed and coordinated from one focal point.

• A border management organization established. • All operators and activities at airports managed

and coordinated from one focal point.

Ongoing World Bank: [P126321] KE National Urban Transport; [P124109] KE Kenya Transport Sector Support; [P148853] East Africa Regional Transport and Trade Development Facilitation Project. IFC: [24766] Kenya Uganda Rail; [31650] Kenya Airways. Planned World Bank: [P156971] Aviation Modernization Project; [P161305] North Eastern Transport Improvement Project; Identity Card for Development (ID4D) Project; Port Cities Interface (ASA)

Outcome 2: Strengthened Planning and Management of Urban Growth

2. (i) Urban centers with integrated strategic plans

(number) Baseline: 0 (2014) Target: 24 (2020) – revised

Ongoing World Bank: [P066488] KE Municipal Program; [P107314] KE Nairobi Metropolitan Services; [P126321] KE National Urban Transport; [P124109] KE Transport Sector Support Project; [P149019] KE Transparency and Communications Infrastructure Project (KTCIP) AF; [P096367] KE Water & Sanitation Service Improvement; [P123367] Additional Finance; [P145559] KE Water Security and Climate Resilience in the Coastal Region Project.

16 Major gateways include ports, airports, and border crossings. Efficiency would be measured by a reduction in waiting times. 17 Transit time in Kenya reduced to 1.5 days against a target of 3 days through the removal of barriers along the Northern Corridor (Mombasa-Kampala-Kigali- Goma/Bujumbura) ∗ This indicator is part of the implementation plan of the Second Medium Term Plan (MTP) 2013-2017

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Planned World Bank: [P156777] Kenya Urban Support Program; [P159891] Mass Rapid Transit System Development Project; Successor Project to KTCIP.

Outcome 3: Improved Enabling Environment for Private Investment (Capturing the Connecting Platform Outcome of Garnering Good Governance)

3. (i) Completed key investment reforms in

business regulation, trade logistics and industry (number)

Baseline: 0 (2014) Target: 20 (2020) - revised

3. (ii) Reforms at the national and sub-national level,

as recorded by Doing Business/Subnational Doing Business (select Counties – number). New indicator

Baseline: 0 (2017) Target; 20 and 10 (2020) at the National and County levels, respectively

3. (iii) Growth in new business registration

(percentage). New indicator Baseline: 0 (2017) Target: 25% (2020)

3. (iv) Reduction in direct compliance costs to

private sector from trade logistics/facilitation work (value, US$ million). New indicator

Baseline: 0 (2017) Target: US$25 million (2020)

Ongoing World Bank: [P105269] Judicial Performance Improvement Project; [P147220] KE Export Competitiveness and Innovation (TA); [P121019] KE Infrastructure Finance PPP; [P144507] KE Commercial Financing for Urban Water and Sanitation (TA); [P133163] KE Investment Climate Assessment (ASA); [P133164] Manufacturing Export Competitiveness in Kenya Policy Note (TA). Joint World Bank-IFC Global Practices: Additional Financing for SEZ Program; KICP2 NLTA on Business Environment Reforms; ASA on Investment Climate Diagnostics; ASA on Sector Competitiveness including Services, Agribusiness and Extractive Industries; [P161206] Enhancing Local Content ASA; [P156466] Digital Entrepreneurship Kenya; Support to Kenya Climate Innovation Center; Kenya Climate Venture Facility; [593208] Investment Climate for Sub-National Business Regulation; [570008] Investment Climate for Trade Logistics; [594987] Investment Climate for Industry. Planned Joint World Bank-IFC Global Practices: [P161317] Kenya Industry and Entrepreneurship; Kenya Mortgage Refinance Facility and Affordable Housing PPP; East Africa Competitiveness Project; Kenya Investment Climate Program 3 (KICP3) World Bank [P162182] Kenya IFPPP (AF); [P156971] Aviation Modernization Project; [P161305] North Eastern Transport Improvement Project; Identity Card for

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Development (ID4D) Project. ASAs: - Constraints to Private Sector Development; Country Economic Memorandum; Financial Sector Innovation; Boosting Private Sector Competitiveness; Financial Advisory: Power Utilities; Financial Deepening & Development; Port City Interface; Kenya Economic Update Series; Capital Markets; Policy Dialogue; Case Processing (Judicial Performance Improvement Project); Energy Access.

Domain of Engagement 2: Protection and Potential— Human Resource Development for Shared Prosperity Development Goals: To protect the vulnerable and help them develop their potential, which is critical to sharing in prosperity.

Vision 2030 Goals: • Provide a high quality of life to all its citizens by 2030 in a clean and secure environment • Improve livelihoods of vulnerable groups • Provide an efficient and high quality health care system • Provide a globally competitive quality education, training and research • Enhance drought resilience and climate change adaptation Second Medium Term Plan 2013-2017 (MTP2) Goals: • Improve the socioeconomic status of citizens and vulnerable groups • Advance an innovative, commercially-oriented, competitive and modern agriculture sector • Scale up high impact interventions to reduce maternal and neonatal mortality and morbidity in the country • Develop human resources within employment; to equip the youth with appropriate technical and vocational skills for the industry • Reduce vulnerability to natural disasters, such as droughts, and enhance adaptation to climate change

Issues and Obstacles: • High rates of poverty persist among vulnerable groups, especially children (53.5 percent), including orphans and vulnerable children (54.1 percent). • Expenditure on safety net, including cash transfers, is still low compared to the size of the population in need. Cash transfer programs tend to be limited in

size, fragmented and are largely uncoordinated. • Maternal mortality is among the highest in Africa at 488 deaths per 100,000 live births. The proportion of women who deliver with skilled attendance is

only 44 percent and has remained largely unchanged since 1993. • Over a third of Kenyan children are stunted, while 14 percent are severely stunted. • Unemployment rate for youth is double the adult average, at about 21 percent, with 28 percent of youth neither in school nor at work. Ensuring that young

people are successfully integrated into the economy and are employed will open the pathway to a demographic dividend for development that will improve Kenya’s competitiveness, raise household incomes, reduce poverty and create a virtuous circle of investment and growth.

• Livelihoods and economic activities in Kenya are highly vulnerable to climate fluctuations. The country’s inland areas are largely arid with two-thirds of the country receiving less than 500 mm of rainfall per year, limiting the potential for agriculture.

Governance • Weak governance in sectors manifested in poor quality of public expenditure, elite capture, leakages, inefficiencies and mismanagement have impact on

quality of, and access to services and service delivery outcomes in infrastructure and social sectors (e.g.: electricity, water, agriculture, health and education). The poorest Kenyans have the greatest difficulty accessing services due to these constraints.

Vision 2030

MTP2 Goals

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End of FY20 CPS Outcome Selected Milestones and Outputs World Bank Group Program Outcome 4: Increased Agricultural Productivity 4. (i) Annual increase in yields of smallholder

farmers of selected agricultural commodities (average percentage) * Baseline: 17 bags/ha maize; 4.5 bags/ha beans; 60 bags/ha Irish potatoes (2013) Target: 15% bags/ha increase for maize, beans and Irish potatoes (2020) - revised

4. (ii) Agricultural irrigated land (ha)*

Baseline: 130,000 hectares of irrigation and 30,000 hectares of drainage (2013) Target: 175,000 hectares of irrigation and 40,000 hectares of drainage (2020) - revised

4. (iii) Increase in water storage (Mwache dam). New

indicator Baseline: 0 (2016 Target: 78.6 million M3 – total storage (2020)

4. (iv) Agricultural land brought under sustainable

land management (SLM) due to adoption of new technologies, innovations, and improved management practices (TIMPs) (hectares). New indicator

Baseline: 0 (2017) Target: 420,000 (2020)

• Harmonized agricultural sector development strategy and its implementation framework completed by 2018

• National sustainable land management planning

framework established by 2018.

• Staff and water resources users’ association trained in areas related to water management and planning (Target: 600).

• Completion of basin management plans (new milestone)

Ongoing World Bank: [P154784] Kenya Climate Smart Agriculture Project; [P153349] National Agriculture and Rural Inclusive Growth; [P094692] KE Coastal Development Project; [P091979] KE Adaptation Climate Change; [P108845] KE – Global Environment Facility (GEF): Coastal Development Project; [P117635] KE Enhancing Water Security and Climate Resistance; [P129408]; Regional Pastoralism Livelihood and Climate Resilience Project; [P145559] Coastal Region Water Security and Climate Resilience Project. IFC: [32216] Kenya Tea Development Agency. Planned World Bank: [P163980] Marine/Blue Economy Project; L. Victoria Environment Project Phase 3; East and Central Africa Agriculture Transformation Project. ASAs: - Enhancing Dialogue on Environment and Natural Resources; Kenya Agriculture Insurance and Regulation.

Outcome 5: Improved Social Service Delivery for Vulnerable Groups, Particularly Women Outcome 5.1: Increased women’s access to health services 5.1 (i) Women with access to a basic package of

health, nutrition or reproductive health services (number)*

Baseline: 21,292,054 (2013) Target: 25,000,000 (2020) - revised

• Poor households receiving health insurance subsidies (Target: 30,000)

• Counties implementing Public Private Partnerships to improve delivery of basic package of health services (Target: At least 3 counties).

Ongoing World Bank: [P152394] KE Transforming Health Systems for Universal Care; [P074091] KE Health Sector Support Project; [P144197] KE Health Sector Support Project AF; [P111556] East Africa Health Laboratory Networking Project. IFC: [24994] Advanced Bio-Extracts Limited. Planned World Bank: ASAs: Public Expenditure Reviews, Service Delivery Indicators; Results-Based Financing IE;

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5.1 (ii) Reduction in total fertility (number)18. New indicator

Baseline: 3.9 (2014) Target: 3.5 (2020)

Integrated Capacity Support Kenya PforR Operations.

Outcome 5.2: Increased women’s access to water services

5.2 (i) Women with access to improved water

sources in areas supported by Bank operations (number)

Baseline: 260,050 (2013) Target: 770,000 (2020) – revised

• Options developed and financed to improve delivery and sustainability of urban services under new county structure.

• 15 sub-counties declared open defecation free (Baseline is 2).

Ongoing World Bank: [P156634] Water and Sanitation Development Project; [P096367] KE Water & Sanitation Service Improvement; [P126637] KE Water & Sanitation Service Improvement (AF); [P107314] KE Nairobi Metropolitan Services; [P113542] KE Informal Settlements Improvement Project; [P066488] KE Municipal Program; [P100406] Lake Victoria Environmental Management Program; [P144507] KE Commercial Financing for Urban Water and Sanitation (TA); [P131284] GPOBA-Nairobi Sanitation; [P132979] Kenya Urban Water and Sanitation OBA Fund for Low Income Areas. Planned World Bank Kenya Informal Settlements Improvement Project Phase 2. ASAs: Public Expenditure Reviews, Service Delivery Indicators; Impact Evaluation (IE)-Water and Sanitation Services Improvement Project.

Outcome 5.3: Enhanced Market Skills for Youth at- risk

5.3 (i) Interns, covered by the Kenya Youth Employment Project (Bank-supported) project, employed or self-employed within six months after internship completion (%)

Baseline: 71 % (2013)

Ongoing World Bank: [P146797] Kenya Global Partnership for Education (GPE) Project; [P111546] Youth Empowerment Project; [P151831] Kenya Youth Employment and Opportunities Project.

18 The ongoing results-based financing provided through Kenya Health Sector Support Project in 20 counties helps improved coverage for contraceptive use. Under the Transforming Health Systems for Universal Healthcare (THS-UC) project, counties are being incentivized based on improvements in coverage for basic reproductive, maternal, nutrition, adolescent and child health services including contraception. In addition, the THS-UC supports procurement of Family Planning commodities based on priorities identified by counties from an allocation of US$20 million equivalent for essential commodities. However, it is important to clarify that the WBG is making “notable contributions” for achievement of targets of these two indicators rather than fully attributing the change only to our operations. For example, the salaries of health workers which contributes to significant part of the cost is paid by county governments while the national government is supporting commodity security.

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Target: 80 % (2015)

5.3 (ii) Percentage of youth receiving training and an internship through the Kenya Youth Employment Opportunities Project (Bank-supported project) who find a job or are self-employed after at least six months. New indicator

Baseline: 55 % (2016) Target: 70 % (2020)

IFC: [32171] Bridge International Academies; [29350] Braeburn Schools. Planned World Bank: [P160083] Upper Primary and Secondary Education Quality Improvement Project. ASAs: - Conflict and Violence Mitigation.

Outcome 5.4: Enhanced and More Systematic Social Protection 5.4 (i) People covered by social safety nets

(number) Baseline: 1,650,000 (2013) Target: 4,280,000 (2020) - revised

5.4 (ii) Beneficiaries for whom payments are made

electronically using two factor authentication (percentage)

Baseline: 0% (2013) Target: 90% (2020) – revised

• System for recertification of National Safety Net Program beneficiaries in place” (2019).

• 75% Payments disbursed to service providers on time by 2018.

Ongoing World Bank: [P111545] KE Cash Transfer for Orphans and Vulnerable Children (CT-OVC); [P146161] Cash Transfers for OVC AF; [P131305] KE National Safety Net Program; [P161179]KE National Safety Net Program AF; [P121594] Social Protection Interventions – DFID (TA); [P147507] Poverty Monitoring (TA). Planned World Bank: National Safety Net Program Phase 2. ASAs: Public Expenditure Reviews, Service Delivery Indicators; Integrated Capacity Support Kenya PforR Operations.

Outcome 6: Improved Capacity to Manage Risks from Climate Change 6. (i) Increased production of climate smart

agricultural inputs by seeds (tons of early generation and certified seed) and breed (number of livestock) producers. New indicator.

Baseline: generation seed 0; certified seed 0; livestock parent stock 0. (2017) Target: generation seed 35 tons; certified seed 150 tons; livestock 1,020 (2020)

6. (ii) Counties with climate risk profiles with concrete climate risk management activities reflected in County action plans and budgets (number). New indicator

Baseline: 0 (2013) Target: 32 (2020)

Ongoing World Bank: [P154784] Kenya Climate Smart Agriculture Project; [P153349] National Agriculture and Rural Inclusive Growth; [P094692] KE Coastal Development Project; [P091979] KE Adaptation Climate Change; [P091979] Adaptation to Climate Change in Arid and Semi-Arid Lands (KACCAL). Planned World Bank: [P161562] KE Disaster Risk Management CAT DDO; Livestock Insurance Program. ASAs; - Enhancing Dialogue on Environment and Natural Resources; Kenya Agriculture Insurance and Regulation.

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Outcome 7: Greater Citizen Feedback on the Quality of Service Delivery in Key Sectors (Capturing the Connecting Platform Outcome of Garnering Good Governance) 7. (i) Health, education, or water sectors using citizen

feedback mechanism on service delivery (number) Rephrased indicator

Target: 2 (2018) Target: All devolved Sectors (2020)

• Public Expenditure Reviews (PER) undertaken in the education, health and water sectors. Second PER on Health, water and sanitation covering 10 counties is underway due for completion in 2017. Public expenditure tracking surveys (PETS) and service delivery indicator (SDI) survey at concept note stage to be completed by the last quarter of FY 17.

• Percentage of customer complaints responded to within turn-around time: e.g.:

• (i) Nairobi Water Company Baseline: 56% (2017) Target: 65% (2020)

Ongoing World Bank: [P156634] Water and Sanitation Development Project; [P096367] KE Water & Sanitation Service Improvement; [P146797] Kenya GPE Project; [P152394] KE Transforming Health Systems for Universal Care; [P074091] KE Health Sector Support Project; [P144197] KE Health Sector Support Project AF; [P107314] KE Nairobi Metropolitan Services. Planned World Bank: [P161387] Governance for Enabling Service Delivery in Kenya.

Domain of Engagement 3: Consistency and Equity— Delivering a Devolution Dividend Development Goals: The focus on building consistency and equity is a long-term drive that has devolution at its core.

Vision 2030 Goals: • To meet objectives outlined in the economic and social pillars, Kenya’s national governance system will be transformed and

reformed to acquire high-level executive capability consistent with a rapidly industrializing country. • Kenya will adopt a democratic decentralization process with substantial devolution in policy-making, public resource management

and revenue sharing through devolved funds

Second Medium Term Plan 2013-2017 (MTP2) Goals: • To enact and operationalize policies and legal framework toward national cohesion and integration • To establish a comprehensive framework for human rights • To undertake various legal reforms including development, review and implementation of all legalizations relating reforms in

governance, judiciary and the rule of law Issues and Obstacles:

• Kenya’s devolution comes with high expectations for improving service delivery and bringing government closer to the people. • The devolution also carries significant risks for service delivery disruption, some already occurring. • Fiscal sustainability is threatened, especially as expansion of the wage bill is a major risk, particularly for larger urbanized counties. • Although they are the key drivers of growth, large urban counties have inherited significant payroll and debt obligations, while at the same time incurring

reduced central transfers. • Need to build county institutional capacity, especially in core county planning, public finance management, and human resource systems, along with basic

data-driven performance monitoring, which flags capacity gaps and reinforces county incentives to get working systems in place. • Operationalizing transparency and citizen participation in county planning, budgeting, and performance management systems as per Constitution is a

major challenge. • There is a need to build capacity of historically marginalized counties to make use of new financing. Larger per-capita transfers to arid and semi-arid

counties provide an opportunity to address long-standing infrastructure and service delivery gaps.

Vision 2030

MTP2 Goals

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Governance • Public sector institutional and political economy constraints and weaknesses are key obstacles to progress. They pose serious challenges in the

implementation of devolution and reforms aimed at enhancing transparency, accountability and efficiency in resource allocation and /quality of public expenditure.

End of FY20 CPS Outcome Selected Milestones and Outputs World Bank Group Program Outcome 8: Better Provision of Health and Sanitation Services by Counties 8. (i) Counties with improved sanitation

performance as measured by annual benchmarking (percentage)

Baseline: 0% (2013) Target: 25% (2020) - revised

8. (ii) Mothers delivered in local health facilities

(number). New indicator Baseline: 851,945 (2014) Target: 950,000 (2020) - revised

8. (iii) People benefiting under the project from a

connection to the sewage system or from improved septic sludge management (number). New indicator

Baseline: 0 (2016) Target: 500,000 (2020)

Ongoing World Bank: [P156634] Water and Sanitation Development Project; [P096367] Water and Sanitation Services Improvement Project; [P113542] Kenya Informal Settlements Improvement Project; [P149129] Kenya Devolution Support Project; [P149718] Kenya Statistics Program for Results. Planned World Bank: PER; PEFA Academy; Household Poverty Survey; [P145457] KE Service Delivery Indicators. IFC: Doing Business

Outcome 9: Systems to Monitor Performance of Services Delivered by Counties 9. (i) Counties with a county performance monitoring

system (%) Baseline: 0 % counties (2013) Target: 20% of 47 counties (2020)

• Core set of county capacity indicators identified and vetted with county/national government –including PFM, HR, planning, performance; investment climate.

• Updated household poverty survey completed at the county or national level.

• County performance management platforms designed and piloted in 5 counties.

• County data portal strengthened – with links to open data portal.

Ongoing World Bank: [P149129] Kenya Devolution Support Project; [P149718] Kenya Statistics Program for Results; [P133461] Kenya Accountable Devolution Program; Integrated Capacity Support for Kenya PforR Operations.

Outcome 10: Heightened Transparency and Accountability in the Use of Public Resources, particularly at the County Level (Capturing the Connecting Platform Outcome of Garnering Good Governance)

• Quarterly consolidated financial statements published by the National Treasury for national government and county governments entities to show overall General Government Fiscal (within 30 days of end of each quarter).

Ongoing World Bank: [P149129] Kenya Devolution Support Project; [P149718] Kenya Statistics Program for Results; [P133461] Kenya Accountable Devolution Program.

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10. (i) Timely submission of consolidated annual financial statements to Parliament by the Office of the Auditor General (OAG) (months)

Baseline: within 10 months from year-end (2016) Target: within 3 months of year-end (2020) - revised

10. (ii) Counties using IFMIS for budget

preparation and execution, accounting, and financial reporting (number)

Baseline: 10 (2014) Target: 37 (2020) - revised

• Public Sector Accounting Standards Board established with supporting Secretariat – guidelines for reporting format issued.

• Audit manuals issued consistent with International Standards of Supreme Audit Institutions (ISSAI) guidelines.

• Template to consolidate reports of annual appropriation accounts and other financial statements of the national government and county governments and their entities

• 25% counties with publicly available and published budgets by 2018.

• County PFM training modules/guidelines developed and rolled out across counties.

• Integrated Financial Management Information System (IFIMIS) functioning in at least 37 counties (of 47).

Planned World Bank: [P161387] Governance for Enabling Service Delivery in Kenya (Public Investment Management, Financial Management, Electronic Government Payment system—G-Pay, Wage Bill Data, Audit, Transparency); Integrated Capacity Support for Kenya PforR Operations.

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Annex 2: Matrix of changes to the original CPF Results Matrix Original CPS Results Matrix Updated CPS Results Matrix Comments Domain of Engagement One: Competiveness and Sustainability – Growth to Eradicate Poverty Outcome 1.1: Reliable and efficient energy supply, including through regional cooperation.

Outcome 1.1: Reliable and efficient energy supply, including through regional cooperation.

Maintained

Indicator 1.1. (i)

New/lower FY20 target. One milestone removed.

The target has been revised from 4,065 MW to 3,570 MW by 2020. The previous target set by the GoK was based on ambitious demand growth assumptions. WBG’s contribution remains 982 MW. The milestone on system to measure availability and repair times was achieved and has been dropped.

Indicator 1.1. (ii)

No change Need to continue monitoring this indicator which is currently off track. Only end target date is revised to FY20 to match the new closing date of the CPS.

New indicator 1.1 (iii) Indicator 1.1 (iii): Increase access to electricity (number of people provided with electricity).

Outcome 1.2: Enhanced logistics and distribution networks and more efficient major gateways

Outcome 1.2: Enhanced logistics and distribution networks and more efficient major gateways

Achieved; maintained for the Completion and Learning Report (CLR).

Indicator 1.2. (i) Achieved The outcome indicator on waiting time at border crossings and the ports was achieved. All the three related milestones have been achieved.

Outcome 2: Strengthened planning and management of urban growth

Outcome 2: Strengthened planning and management of urban growth

Maintained.

Indicator 2. (i) New FY20 target Target of integrated strategic plans increased from 14 to 24 by 2018. The increase by 10 is because of the additional support from Nairobi Metropolitan Services Improvement Project (NaMSIP). Originally, only Kenya Municipal Program (KMP) was supporting this activity.

Outcome 3: Improved enabling environment for private investment

Outcome 3: Improved enabling environment for private investment

Maintained

Indicator 3. (i) New FY20 target Change to reflect extension of CPS to FY20. New indicator 3. (ii) Indicator 3. (ii): Reforms at the national and sub-national level, as

recorded by Doing Business/Subnational Doing Business (select Counties – number).

New indicator 3. (iii) Indicator 3. (iii): Growth in new business registration (percentage).

New indicator 3. (iv) Indicator 3. (iv): Reduction in direct compliance costs to private sector from trade logistics/facilitation work (value, US$ million).

Domain of Engagement Two: Protection and Potential – Human Resource development for Shared Prosperity Outcome 4: Greater agricultural productivity

Outcome 4: Increased agricultural productivity Rephrased to Increased agricultural productivity.

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Original CPS Results Matrix Updated CPS Results Matrix Comments Indicator 4. (i) New FY20 target and milestone Change to reflect extension of CPS to FY20. New milestone on

completion of basin management plans. Indicator 4. (ii) No change Work on activities contributing to agricultural irrigated land has just

started. Change to reflect extension of CPS to FY20. New indicator 4. (iii) Indicator 4. (iii): Increase in water storage (Mwache dam). New indicator 4. (iv) Indicator 4. (iv): Agricultural land brought under sustainable land

management due to adoption of new technologies, innovations, and improved management practices (hectares).

Outcome 5.1: Increased women’s access to health services.

Outcome 5.1: Increased women’s access to health services.

Maintained.

Indicator 5.1 (i) New FY20 target Change to reflect extension of CPS to FY20. The revised/modest target also takes into account the current growth of private sector and the citizens’ strong preference for private sector under the health insurance subsides vis-à-vis utilization of public services.

New indicator 5.1. (i) Indicator 5.1 (ii): Reduction in total fertility (number). Outcome 5.2: Increased women’s access to water services

Outcome 5.2: Increased women’s access to water services

Maintained.

Indicator 5.2 (i) New FY20 target Change to reflect extension of the CPS to FY20. Outcome 5.3: Enhanced market skilled for youth at risk

Outcome 5.3: Enhanced market skilled for youth at risk

Maintained.

Indicator 5.3 (i) Tightened Made more specific to the Kenya Youth Employment Project- KYEP (now closed).

New indicator 5.3. (ii) Indicator 5.3 (ii): Percentage of youth receiving training and an internship through the Kenya Youth Employment and Opportunities Project (KYEOP) World Bank-supported project who find a job or are self-employed after at least six months.

Outcome 5.4: Enhanced and more systematic social protection

Outcome 5.4: Enhanced and more systematic social protection

Maintained.

Indicator 5.4. (i) New FY20 target and new milestone Change to reflect extension of CPS to FY20. New milestone relates to having a system for recertification of NSNP beneficiaries in place (by 2019).

Indicator 5.4. (ii) New FY20 target Change to reflect extension of CPS to FY20. Outcome 6: Improved capacity to manage risks from climate change

Outcome 6: Improved capacity to manage risks from climate change

Maintained.

Indicator 6. (i) Dropped Difficult to measure. Indicator 6. (ii) Dropped Replaced. New indicator 6. (i) Indicator 6. (i): Increased production of climate-smart agricultural

inputs by seeds (tons of early generation and certified seed) and breed (number of livestock parent stock) producers.

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Original CPS Results Matrix Updated CPS Results Matrix Comments New indicator 6. (ii) Indicator 6. (ii): Counties with climate risk profiles with concrete

climate risk management activities reflected in County action plans and budgets budget (number).

Outcome 7: Greater citizen feedback on the quality service delivery in key sectors

Outcome 7: Greater citizen feedback on the quality service delivery in key sectors

Maintained.

Indicator 7. (i) Dropped The indicator on citizen report cards has been dropped because the activity did not go beyond the pilot in the health sector; no mechanism to collect data and monitor progress in the water and education sectors.

New indicator 7. (i) Indicator 7 (i): Health, education, or water sectors using citizen feedback mechanism on service delivery (number).

Domain of Engagement Three: Consistency and Equity – Delivering a Devolution Dividend Outcome 8: Better provision of health and sanitation services by counties

Outcome 8: Better provision of health and sanitation services by counties

Maintained.

Indicator 8. (i) New FY20 target; renumbered as 8. (i) Change to reflect extension of the CPS to FY20. Indicator 8. (ii) Dropped Data on the indicator -- children immunized in local health facilities --

is less credible. New indicator 8. (ii) Indicator 8. (ii): Mothers delivered in local health facilities (number). New indicator 8. (iii) Indicator 8. (iii) People benefiting under the project from a connection

to the sewage system or from improved septic sludge management (number).

Outcome 9: Adequate systems to monitor performance of services provided by Counties

Outcome 9: Systems to monitor performance of services provided by Counties

Rephrased to drop the word “Adequate”.

Indicator 9. (i) No change The indicator is maintained but has been renumbered to 9. (i). Outcome 10: Heightened transparency and accountability in the use of public resources, particularly at the County level

Outcome 9: Heightened transparency and accountability in the use of public resources, particularly at the County level

Maintained.

Indicator 10. (i) New FY20 target, renumbered as 10. (i) Change to reflect extension of the CPS to FY20.

Indicator 10. (ii) Target maintained; renumbered as 10. (ii) Change to reflect extension of the CPS to FY20.

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MTP2 Goals

Annex 3: Matrix summarizing progress to CPS Objectives

Overarching Goals: Sustainable Reduction in Poverty and Increased Shared Prosperity

This results framework is situated against a broad ambition of reducing poverty and promoting shared prosperity. Even though the near-term CPS outcomes cannot really be measured on such high-level metrics, this is useful to present them as a guiding force.

Vision 2030 aspires to 10% annual GDP growth rates which are well above historical levels. This CPS aspires to contribute to average growth rates during the CPS period. To play some part in reaching these goals, the WBG program will seek to increase productivity and improve consumption in a sustainable manner, with particular attention to the poorest segments of society. The Devolution Agenda offers an opportunity to provide historically disadvantaged counties with greater transfers per citizen, setting the basis for improved decentralized service delivery. This opens new opportunities to address long-standing inequalities, but also brings new challenges that have major implications for reducing poverty and achieving shared prosperity. The CPS will contribute to address these challenges by adopting a mainstreamed approach to better governance across all three domains of engagement. Population: 43.18 million (2013) Growth rate: 4% (2012) Poverty rate: 47% (2005) GNI Coefficient: 47.7 (2013)

Domain of Engagement 1: Competitiveness and Sustainability— Growth to Eradicate Poverty Vision 2030 Goals: • Create a globally competitive and prosperous nation • Transform Kenya into a newly industrializing, middle-income country

Second Medium Term Plan 2013-2017 (MTP2) Goals: • Deploy world class infrastructure facilities and services • Develop and maintain an integrated safe and efficient transport network • Enhance private sector participation in the provision of infrastructure facilities and services strategically complemented by

government sector interventions • Increase water availability in the country

Issues and Obstacles:

• High growth rates alone will not have significant impact on poverty reduction without addressing equity; a more inclusive growth model that focuses on quality job creation is needed

• Political economy around devolution, combined with growing pains of the process may impede target growth rates in the short term • Implementation problems in key sectors such as urban, energy, transport and agriculture need to be addressed • Regional integration will be important and more private sector participation is required to meet investment targets in infrastructure sectors • Kenya’s private sector is underperforming primarily due to constraints on infrastructure, investment climate, competitiveness; reforms that focus on the

business environment, access to finance for firms, and public private partnerships are essential • Economic growth and urbanization must do a better job of creating jobs and employment and internationally competitive cities

Vision 2030 Goals

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• Bridging growth of demand for energy with increases in power capacity (5,000 MW by 2017) is critical and will stimulate reduction in overall electricity prices; however, the off-taker’s (KPLC) credit-worthiness needs to be safeguarded. In addition, sustainable funding mechanisms are necessary to realize the planned 2 million new household connections where citizens benefit.

Governance

• Improving the governance/ enabling environment through better regulations, control of corruption, improved judiciary that impartially and speedy enforcement of contracts and administration of justice will improve the climate for doing business and attracting investments that leads to creation of more wealth and employment

Original CPS Outcome/Target Progress toward CPS outcomes Selected Milestones and Outputs

Outcome 1: Enhanced Infrastructure and Logistics for Sustainable Growth Outcome 1.1: Reliable and efficient energy supply, including through regional cooperation 1. Installed generation capacity from

diversified sources (geothermal, thermal, wind) (MW)* Baseline: 1,765 MW (2013) Target: 4,065 MW (2018)

*This indicator is part of the implementation plan of the Second Medium Term Plan (MTP) 2013-2017

• On track Installed generation capacity increased by 662.75 MW from 1,765 MW in 2013 to 2,341 MW as at June 2016 taking into account plant retirement (86 MW), against a peak demand of 1,614 MW, giving a healthy reserve margin of 32%. Of the new generation capacity developed, 530 MW was financed or supported by the WBG - 280 MW geothermal capacity at Olkaria I and IV by KenGen and 250 MW thermal capacity by three IPPs, (87 MW Thika Power, 83 MW Triumph Generating Power and 80 MW Gulf Power). The balance of the capacity (132.75 MW) has been developed by the private sector and the Government. 2018 target of 4,065 MW based on very ambitious assumptions of 12% annual growth in electricity demand in line with vision 2030. However, despite increasing electricity access from 32% to about 50% of the population over the CPS review period, electricity demand has increased only about 5% annually. The Country’s Long Term Generation and Transmission Plan is being revised with a view to rescheduling the commissioning dates of some of the proposed generation capacity to avoid large surpluses. The revised long term plan estimates under the reference scenario, the generation capacity to be 2, 606 MW by 2018 and 3,570 MW by 2020.

• The Ethiopian-Kenya 500kV, 200 MW capacity line and converter substations are commissioned by 2017. On track.

The contract for the converter stations has been

awarded to Siemens and Isolux. Project expected to be completed in the second half of 2018.

• Construction of 330km of transmission lines and

2,300km distribution lines together with associated substations by 2016. On track. 304km of transmission lines already completed and the balance is nearing completion. 7,252km of distribution lines constructed or rehabilitated out of which 2,195km are new lines. Target is substantially achieved.

• System to measure system availability and repair times

implemented. Achieved.

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∗ This indicator is part of the implementation plan of the Second Medium Term Plan (MTP) 2013-2017

The initial target of 4,602 MW will be achieved by 2024. The WBG’s contribution to the 2018 was estimated at 982 MW. This included some 52 MW Olkaria III geothermal capacity to be developed by an independent power producer, OrPower4. However, in 2015, OrPower4 decided to drop the requirement for payment security from KPLC which also meant that IDA Partial Risk Guarantee was not needed. OrPower4 however, proceeded to develop the additional capacity. The other 400 MW that is co-financed by the WBG will be imported from Ethiopia following completion of the WB Eastern Electricity Highway Project (on track). The Government and the private sector are developing 1,370 MW. The projects are still at various stages of development and are unlikely to be commissioned by 2018.

2. System loss reduction (% of output)∗ Baseline: 18.7% of output (2013) Target: 15.9% of output (2018)

• Off track. Electricity losses have increased from the baseline target to 19.4% in June 2016. KPLC attributes the increasing losses to extension of distribution lines in the low voltage network to connect new consumers, overload of major transmission lines compounded by delays in the commissioning new transmission lines, and rise in electricity theft. KPLC is implementing a number of loss reduction initiatives that include a revenue protection program (financed under the Kenya Electricity Modernization Project), enhanced inspections of metering installations and improvement in billing accuracy. Technical losses are expected to improve once major transmission projects currently under implementation such as the 400kV Nairobi-Mombasa line, Olkaria IV-Suswa are completed in FY17. As a result, the indicator may be sustainably achievable by 2018 and sustained thereafter. KPLC is also working with

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19 This indicator is part of the implementation plan of the Second Medium Term Plan (MTP) 2013-2017

IFC to implement a loss reduction initiative that will mainly focus on commercial losses.

Outcome 1.2: Enhanced logistics and distribution network, and more efficient major gateways

Waiting times at ports and border crossings (days)19 Baseline: Ports: 13 days; Border crossings: 2 days (2013) Target: Ports: 8 days; Border crossings 1 day (2018)

• Achieved It takes one (1) day to cross the border. The dwell time at the port of Mombasa is two (2) days (Nov. 2016) against the target of three (3) days The GoK has established a border management unit within the Kenya Revenue Authority to support these achievements. This outcome has received highest level of attention from the Heads of State for Kenya, Uganda and Rwanda under the Northern Corridor Infrastructure Development Summit Initiative. The high level commitment by the Heads of State has led to immediate results at negligible costs by removing barriers on the Mombasa to Kigali trade corridor such as eliminating road blocks and administrative barriers that slowed traffic. The transit time in Kenya (as of Nov. 2016) is one and a half (1.5) days against a target of three (3) days. Launching of the Electronic Single Window in 2014 within 27 agencies processing permits through the system has enabled E-payments to be made.

• All operators and activities at the port managed and coordinated from one focal point. Achieved The Managing Director, Kenya Ports Authority has been assigned the responsibility of managing all the players at the port. The arrangements are in place and operational.

• A border management organization established. Achieved A Border Management and Control Unit within the Kenya Revenue Authority headed by a Deputy Commissioner is now fully operational.

• All operators and activities at airports managed and coordinated from one focal point. Achieved

Kenya Trade Network Agency (KENTRADE) has been established as a state Agency under the National Treasury, with a mandate to facilitate cross border trade and establish, manage and implement the National Electronic Single Window System (Kenya TradeNet System). It is fully operational and its launch has contributed to a reduction in dwell time at the port and transit time in Kenya.

Outcome 2: Strengthened Planning and Management of Urban Growth

Urban centers with integrated strategic plans (number) Baseline: 0 (2014) Target: 14 (2018)

• On track As of December 2015, nine urban centers had completed integrated strategic plans and additional five centers have strategic plans under preparation (under KMP). In addition, preparation of integrated strategic plans for 10 additional urban centers is underway (under NaMSIP). In total, the Bank is supporting the preparation of strategic plans for 26 urban centers, all of which will be completed by 2017.

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Outcome 3: Improved Enabling Environment for Private Investment (Capturing the Connecting Platform

Outcome of Garnering Good Governance) Completed key investment reforms in business regulation, trade logistics and industry (number)

Baseline: 0 (2014) Target: 15 (2018)

• On track FY15 reforms included: - Simplifying starting a business (e.g.: reduced time

to pay stamp duties, reengineered administrative processes at Huduma Centers)

- Competition Act amendments - Increased cross border merger control - Regulatory reform yielding increased electricity

access - Faster property transfers and unified form for

property registration - Improved access to credit information

FY16 reforms included - E-payment for export/import fees and integrated

single window system - Digitized company registration - Insolvency Act of 2015 - Automated National Transport and Safety

Authority licenses - Companies Act of 2015 - Kisumu construction permit system - Mombasa construction permit system - Automated application/approval of Mombasa

business permits - Geographic information system for electricity

access - Ugandan recognition of accounting professionals

from EAC partner states

• Investment climate assessments in business regulation, trade logistics and industry completed Impact assessment of export promotion and support schemes and business and technology incubator services completed by 2015: Achieved Investment climate assessments and value chain analyses in business regulation, trade logistics and industry have been completed as follows:

- Understanding Firm-Level Innovation and Productivity in Kenya (Feb. 2015)

- Manufacturing Performance, Productivity, and the Business Environment (published as part of the Kenya Economic Update in March 2015)

- Furniture industry in Kenya: situational analysis and strategy (Nov. 2015)

- Kenya - Leather industry: diagnosis, strategy, and action plan (Nov. 2015)

- Kenya Apparel and Textile Industry: Diagnosis, Strategy and Action Plan (Nov. 2015)

- Informal Enterprises in Kenya (June 2016) - A Firm-Level Productivity Diagnostic for Kenya’s

Manufacturing and Services Sector (Oct. 2016) - Standing out from the Herd: An Economic

Assessment of Tourism in Kenya (expected Jan. 2017)

Domain of Engagement 2: Protection and Potential— Human Resource Development for Shared Prosperity Vision 2030 Goals: • Provide a high quality of life to all its citizens by 2030 in a clean and secure environment • Improve livelihoods of vulnerable groups • Provide an efficient and high quality health care system • Provide a globally competitive quality education, training and research • Enhance drought resilience and climate change adaptation

Second Medium Term Plan 2013-2017 (MTP2) Goals: • Improve the socioeconomic status of citizens and vulnerable groups • Advance an innovative, commercially-oriented, competitive and modern agriculture • Scale up high impact interventions to reduce maternal and neonatal mortality and morbidity in the country

Vision 2030 Goals

MTP2 Goals

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20 This indicator is part of the implementation plan of the Second Medium Term Plan (MTP) 2013-2017 21 This indicator is part of the implementation plan of the Second Medium Term Plan (MTP) 2013-2017

• Develop human resources within employment; to equip the youth with appropriate technical and vocational skills for the industry • Reduce drought vulnerability to natural disasters, such as droughts, and enhance adaptation to climate change

Issues and Obstacles: • High rates of poverty persist among vulnerable groups, especially children (53.5 percent), including orphans and vulnerable children (54.1 percent). • Expenditure on safety net, including cash transfers, is still low compared to the size of the population in need. Cash transfer programs tend to be limited

in size, fragmented and are largely uncoordinated. • Maternal mortality is among the highest in Africa at 488 deaths per 100,000 live births. The proportion of women who deliver with skilled attendance is

only 44 percent and has remained largely unchanged since 1993. • Over a third of Kenyan children are stunted, while 14 percent are severely stunted. • Unemployment rate for youth is double the adult average, at about 21 percent, with 28 percent of youth neither in school nor at work. Ensuring that

young people are successfully integrated into the economy and are employed will open the pathway to a demographic dividend for development that will improve Kenya’s competitiveness, raise household incomes, reduce poverty and create a virtuous circle of investment and growth.

• Livelihoods and economic activities in Kenya are highly vulnerable to climate fluctuations. The country’s inland areas are largely arid with two-thirds of the country receiving less than 500 mm of rainfall per year, limiting the potential for agriculture.

Governance

• Weak governance in sectors manifested in poor quality of public expenditure, elite capture, leakages, inefficiencies and mismanagement have impact on quality of, and access to services and service delivery outcomes in infrastructure and social sectors (e.g.: electricity, water, agriculture, health and education. The poorest Kenyans have most difficulties accessing services due to these constraints.

End FY18 CPS Outcomes Progress toward CPS outcomes Selected Milestones and Outputs

World Bank Group Program Outcome 4: Greater Agricultural Productivity 1. Annual increase in yields of smallholder

farmers of selected agricultural commodities (average percentage)20

Baseline: 17 bags/ha maize; 4.5 bags/ha beans; 60 bags/ha Irish potatoes (2013) Target: 5% bags/ha increase for maize, beans and Irish potatoes (2018)

2. Agricultural irrigated land (ha)21

Baseline: 130,000 hectares of irrigation

• Partially on track. The KAPAP ICRR reported the following

increase in yields of beneficiaries against the control: maize 41%, beans 40.5% and Irish potatoes 27.7%.

Irrigated area: the design consultants for Lower Nzoia irrigation system (4,000ha) are on site,

• Harmonized agricultural sector development strategy and its implementation framework completed by 2014. Partially achieved

Agricultural sector consultation and cooperation

mechanism in place. The NT, MoALF, and MoDP set up intergovernmental relations technical committee on agriculture to spearhead implementation of agricultural strategy under the devolved governance structure.

• Technologies and innovations that respond to women

and men smallholder priorities along selected product value chains generated (target: 82). Achieved

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and 30,000 hectares of drainage (2013) Target: 175,000 hectares of irrigation and 40,000 hectares of drainage (2018)

construction contract is expected to be awarded by 2nd quarter of FY18. It will take 3-4 year to finish construction around 2020; The design consultant contract for the 100ha pilot irrigation scheme in Kwale county is ready for signature. Construction will likely finish by 2019.

A total of 175 technologies and innovations were developed that directly respond to priorities along a number of value chains. These include 57 for food crops, 95 horticulture and industrial crops, two animal production, five animal health, 2 rangelands, five biotechnologies, four each in innovation platforms and natural resources management, and one in project management module (automated).

• National sustainable land management planning framework established by 2015. On track The consultancy to develop the Kenya Sustainable Land Management Investment Framework (KSIF) is underway. This KSIF process will be widely consultative and involving both the national and county governments. The final output for this process is expected by Dec. 2016. The KSIF will also take into account interventions required to address the climate risks identified in the Country Climate Risk Profile and the 15 County Climate Risk profiles, which have been finalized and will be used for prioritizing and planning the Climate Smart Agriculture interventions under the Kenya Climate Smart Agriculture Project (KCSAP)

• Water policy adopted and water bill submitted to Parliament by 2016. Partially achieved

The water bill was approved and enacted; the Cabinet Secretary of the Ministry of Water and Irrigation launched the process of updating the water policy to be in line with the water bill. The adoption of the new water policy may take some time.

• Staff and water resources users’ association trained in areas related to water management and planning (target: 600). On track. 725 staff trained.

Outcome 5: Improved Social Service Delivery for Vulnerable Groups,

Particularly Women

• On track

• Poor households receiving health insurance subsidies (Target: 30,000). On track

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22 This indicator is part of the implementation plan of the Second Medium Term Plan (MTP) 2013-2017

Outcome 5.1: Increased women’s access to health services

Women with access to a basic package of health, nutrition or reproductive health services (number)22

Baseline: 21,292,054 (2013) Target: 22,500,100 (2018)

According to the latest administrative data 24,065,319 women have utilized the Public Primary Healthcare facilities during FY 2015-16 and had access to the basic package of health, nutrition and reproductive health services. The share of the women is higher (56%) among beneficiaries using public primary health services.

So far 17,491 households have been enrolled and GoK has prepared plans for rapid scale-up to increase subsidies to 231,252 households with active participation of county governments

• Counties implementing Public Private Partnerships to

improve delivery of basic package of health services (Target: At least 3 counties). On track 4 county-level PPPs in ambulance service provision, oxygen, and laboratory implemented. Taita Taveta and Kilifi counties have signed Laboratory PPP with Lancet Laboratories to provide specialized diagnostic services. Meru and Kiambu counties have signed human resources PPPs between private medical training institutions and counties: Meru with Kenya Methodist University, and Kiambu with Mount Kenya University. Medical students undertake practical’s and internship in the county referral hospitals and, in the process, provide additional skilled labour to a resource constrained setting. Siaya County signed oxygen plant PPP with General Electronics Foundation worth KShs. 50million targeting to serve 72,000 critically ill patients within the county and its’ neighbours. Garissa, Bomet and Kakamega counties have signed PPPs with Kenya Red Cross worth KShs. 7.2 million each per annum for provision of comprehensive emergency pre-hospital care which includes ambulance and paramedic service. In addition, GoK committed US$400 million over the next 10 years in leasing medical equipment for 47 counties – 5 private sector firms contracted to supply and maintain theatre, renal, intensive care unit and radiology equipment to Level 4 & 5 Hospitals

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Outcome 5.2: Increased women’s access to water services

Women with access to improved water sources in areas supported by Bank operations (number)

Baseline: 260,050 (2013) Target: 770,000 (2018)

• On track.

As of December 2016, 884,000 women gained access to improved water sources under Water and Sanitation Services Improvement Project. By the end of the project in 2017, some 1.6 million women should get access to improved water sources. In addition, about 81,000 women will receive access to improved water sources under Kenya Informal Settlements Improvement Project. Altogether, nearly 1.7 million women will benefit from improved water sources through Bank-financed investments.

• Options developed and financed to improve delivery and sustainability of urban services under new county structure. Off track

• 20 sub-counties declared open defecation free (baseline is 2). 4 additional sub-counties declared open defecation free (total 6)

Water and Sanitation Program (WSP) - with financial support from KADP- supported Ministry of Health to develop a county Framework for National Open Defecation Free (ODF) Kenya 2020 Campaign. The Cabinet Secretary of Health launched the Framework in May 2016

WSP supported establishment and capacity building for third party certification of ODF status in 7 counties, thus increasing the roll of third party certifiers available for certification countrywide.

Job Aids for Public Health Officers and Community Health Volunteers to guide latrine construction developed and disseminated.

Capacity building undertaken for Public Health Officers and Kenya Medical Training College (KMTC) lecturers on Community-Led Total Sanitation (CLTS). Capacity building of KMTC lecturers to help embed CLTS in curriculum

• Disseminate best practices through the delivery of 2 knowledge products on innovative solutions for improved water and sanitation services access for the urban poor by June 2015 (baseline is 0). On track There has been measurable improvement in access to commercial finance in the water sector. World Bank collaborated with the water regulator to create and distribute a Creditworthiness Index, assessing the credit strength of water utilities. The regulator will incorporate this index in the regulator’s annual report in future. Through the ASA program, the World Bank

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created tool kits covering commercial borrowing to the water sector and delivered workshops—in collaboration with the regulator—for 50 water utilities, 30 county government water executives and 5 commercial banks. 5 commercial loans (US$ 2.5 million) have been made to water utilities with over US$ 20 million of potential pipeline loans. Building on this work, the World Bank team is advising a Dutch team on the creation of a pooled water fund to facilitate water sector financing from the domestic bond market. Other knowledge products include: (a) Innovation in Scaling Up Access to Water and Sanitation Services for Urban Poor (report number ACS13851, May 2015), (b) “Leveraging Water Global Practice Knowledge and Lending: Improving Services for the Nairobi Water and Sewerage Utility to reach the urban poor in Kenya (February 2015), and (c) Providing Water to Poor People Effectively: Lessons from Utility Reforms (August 2016).

Outcome 5.3: Enhanced Market Skills for Youth at-risk

Interns, covered by the Kenya Youth Employment Project (Bank-supported) project, employed or self-employed within six months after internship completion (%)

Baseline: 71 % (2013) Target: 80 % (2015)

• On track

To contribute to improved social service delivery for vulnerable groups, Kenya has made progress in enhancing market skills for youth at risk through the Kenya Youth Empowerment Project (KYEP). Through the KYEP 76% of the interns supported by the Project were employed or self-employed within six months after internship completion. (The target value for the Project was only50%).

The percentage was 82% for men and 70% for women with an average of 76% overall. The actual achievement was 52% over the target value.

• Total number of internships weeks provided (target: 200,000). Achieved

The actual provision was 289,781 weeks of internship training, 45% over the target value. This indicator is defined as including the weeks that interns spent in training and work placement and thus captures the total duration of the internship program.

• Total number of youth completing life skills training (target: 15,000). Achieved

The actual achievement for this milestone indicator was 19,532 youth completing life skills training, 30% over the target value.

Outcome 5.4: Enhanced and More Systematic Social Protection 1. People covered by social safety nets

(number) Baseline: 1,650,000 (2013) Target 1: 2,100,000 (2018)

• On track

Kenya has made notable progress in improving social service delivery to vulnerable groups. Through the Government’s National Safety Net Program (NSNP), systems related to complaints and grievances, management information systems and improved (secure and accessible) payment

• 93% NSNP beneficiaries conform to program targeting criteria. This milestone is measured through the Program Implementation and Beneficiary Satisfaction Survey (PIBS). Delays in conducting the baseline resulted in a massive expansion prior to the survey resulting in a much higher than anticipated baseline with a negative

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23 This indicator is part of the implementation plan of the Second Medium Term Plan (MTP) 2013-2017

2. Beneficiaries for whom payments are made electronically using two factor authentication (percentage)

Baseline: 0% (2013) Target 1: 75% (2018)

infrastructure have been incorporated into the NSNP and are supporting the effective delivery of cash benefits to over 4 million beneficiaries (close to 765,000 households- February 2017 figures) across four cash transfer programs.

4,012,555 beneficiaries are currently enrolled in the NSNP (this is an est. 765,000 households).

To date 95% of the NSNP case load of 763,529 HHs receives regular payments through the two factor authentication system through Equity Bank Limited and the Kenya Commercial Bank.

impact on the desired outcome. Further, significant improvements are unlikely as the GoK does not have plans for another massive nationwide expansion in recent years. As such, a revised indicator will focus on developing and putting in place a recertification plan with the aim of reducing inclusion and exclusion errors by ensuring that the NSNP maintains an up-to-date beneficiary registry that includes only eligible households.

• 70% Payments disbursed to service providers on time by 2018. Off track

There have been continuous delays in the payment of

beneficiaries, particularly in two of the four cash transfer program sunder the NSNP. The Treasury, supported by the World Bank are undertaking efforts to streamline the payment process and find a solution to facilitate timely payments transfer.

Outcome 6: Improved Capacity to Manage Risks from Climate Change 1. Crop losses due to droughts (US$)23

Baseline: US$2.8 billion (2008) Target: 5% reduction (2018)

2. Community action plans with concrete

climate risk management activities reflected in the budget (number)

Baseline: 0 (2013) Target: 32 (2018)

• Partially on track

• Methodology and tool for screening agricultural investment programs for climate risk developed (target: 1). On track Despite the delays in procuring a technically competent and experienced consultancy firm, a draft report has been produced and reviewed in the stakeholder workshop. The final outputs were expected by mid-December 2016.

• Climate risk profiles developed and used for district management plans (target: 4). On track The Country Climate Risk Profile was developed in 2015. The development of downscaled County Risk Profiles which was expanded from original four to 15 following KACCAL restructuring in June 2015 has been completed. Four of the fifteen profiles for four counties: Garissa, Tana River, Kilifi and West Pokot

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will be disseminated by mid-December, 2016. This expansion was aimed at preparing counties for participating in the upcoming KCSAP. These completed profiles should fast track the KCSAP implementation.

• Community adaptation micro-projects developed and implemented (target: 80). On track Through community-driven initiatives, Community Action Plans (CAPs) were prepared and finalized in 2015. The CAPs gave detailed information on appropriate household level investments. On the basis of CAPs, a total of 156 community climate change adaptation micro-projects were approved and their implementation completed by April 2017. The Kenya Livestock Insurance Program (TA) helped to design and provide technical support to implement a program to manage risks from climate change. As of February 2017, the program will have had two payouts in its 18 months of implementation, and the February 2017 payout will be significant due to the severity of the drought. 12,064 pastoral households out of 14,010 (86%) will receive a payout ranging from KShs. 1,400 (US$14) per household to the maximum of 29,400 (US$290) per household with an average payout of KShs. 17,802 (US$170). All the 6 counties and 62 out of 70 area units triggered payments (Turkana, Wajir, Isiolo, Tana River, Marsabit, Mandera),

• Officers from lead agencies trained on integrated coastal zone management and environmental impact assessments by 2016 (target: 85). Achieved 84 members trained - 39 in Integrated Coastal Zone Management (ICZM) and 45 in Environment and Impact Assessment/Environmental Assessment (EIA/EA).

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• Conservation areas receive a Management Effectiveness Tracking Tool score of at least 55 by 2016 (target: 3). Achieved – (i) Shimba Hills, (ii) Kisite-Mpunguti and (iii) Malindi protected areas all exceeded management effectiveness target score of 55 (by March 2016).

• Number of district management plans with concrete climate risk management activities reflected in the budget. On track

The KACCAL project operates in four Arid and Semi-Arid Land (ASAL) counties of Garissa, Kilifi, West Pokot and Tana River. Each of the four participating counties has incorporated adaptation to climate risk interventions in their FY16 and FY17 annual work plans and budgets. KACCAL approved 15 proposals for inter-community investments identified by the four counties. Excavations works on water pans is on-going and nearing completion. Kenya water security and climate resilience program has both capacity building and physical intervention in strengthening client capacity for managing climate change related risk. The program has supported master planning, resilience studies and technical deigns. Outputs pending program completion.

Outcome 7: Greater Citizen Feedback on the Quality of Service Delivery in Key Sectors (Capturing the Connecting Platform Outcome of Garnering Good Governance)

Health, education, or water sectors using citizen report cards to monitor service delivery (number)

Baseline: 0 sectors (2014) Target: 2 (2018)

• Off track In health, the indicator was based on a pilot which was undertaken between FY11-13. The pilot helped to design social accountability guidelines. However, following the devolution process, the pilot ended and there was no follow on activities. The Water Services Boards have some form of citizen engagement, but difficult to ascertain implementation. There are no citizen report cards in education.

• Public Expenditure Reviews undertaken in the education, health and water sectors. On track PER for health completed in 2014. Second PER on Health, water and sanitation covering 10 counties is underway due for completion in 2017. PETS and SDI survey at concept note stage to be completed last quarter of FY 17.

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Domain of Engagement 3: Consistency and Equity— Delivering a Devolution Dividend Vision 2030 Goals: • To meet objectives outlined in the economic and social pillars, Kenya’s national governance system will be transformed and

reformed to acquire high-level executive capability consistent with a rapidly industrializing country. • Kenya will adopt a democratic decentralization process with substantial devolution in policy-making, public resource management

and revenue sharing through devolved funds

Second Medium Term Plan 2013-2017 (MTP2) Goals: • To enact and operationalize policies and legal framework toward national cohesion and integration • To establish a comprehensive framework for human rights • To undertake various legal reforms including development, review and implementation of all legalizations relating reforms in

governance, judiciary and the rule of law Issues and Obstacles:

• Kenya’s devolution comes with high expectations for improving service delivery and bringing government closer to the people. • The devolution also carries significant risks for service delivery disruption, some already occurring. • Fiscal sustainability is threatened, especially as expansion of the wage bill is a major risk, particularly for larger urbanized counties. • Although they are the key drivers of growth, large urban counties have inherited significant payroll and debt obligations, while at the same time incurring

reduced central transfers. • Need to build county institutional capacity, especially in core county planning, public finance management, and human resource systems, along with

basic data-driven performance monitoring, which flags capacity gaps and reinforces county incentives to get working systems in place. • Operationalizing transparency and citizen participation in county planning, budgeting, and performance management systems as per Constitution is a

major challenge. • There is a need to build capacity of historically marginalized counties to make use of new financing. Larger per-capita transfers to arid and semi-arid

counties provide an opportunity to address long-standing infrastructure and service delivery gaps. Governance

• Public sector institutional and political economy constraints and weaknesses are key obstacles to reforms pose serious challenges in the implementation of devolution and reforms aimed at enhancing transparency, accountability and efficiency in resource allocation and /quality of public expenditure.

End FY18 CPS Outcomes Progress toward CPS outcomes Selected Milestones and Outputs

Outcome 8: Better Provision of Health and Sanitation Services by Counties

1. Counties with improved sanitation

performance as measured by annual benchmarking (percentage)

Baseline: 0% (2013)

• Partially on track The 2015 benchmarking of counties postponed due to poor and inconsistent reporting but the 2017 benchmarking process has already kicked off, and data collection from the 47 counties is currently ongoing. WSP and UNICEF are providing

• 30 counties place orders for essential medicines and medical supplies with Kenya Medical Supplies Authority. Achieved. All 47 counties now have memoranda of understanding with KEMSA and are ordering for essential medicines and medical supplies regularly. Most of counties are

Vision 2030 Goals

MTP2 Goals

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Target: 25% (2018)

2. Children immunized in local health

facilities (number) Baseline: 1,090,751 (2014)

Target: 1,298,058 (2018)

technical support to Ministry of Health with this effort. The benchmarking process is expected to be completed in May 2017. WSP supported GoK to develop and launch new framework documents: Environmental Sanitation & Hygiene (ESH) Policy; ESH Strategic Framework; and Prototype County Environmental Sanitation & Hygiene Bill. These set the building blocks for improved sanitation performance of counties. Children Immunized: According to the administrative data 1,187,464 were immunized in FY 2014-15. The recent Demographic Health Survey (2014) showed that Seventy-nine percent of children age 12-23 months have received all basic vaccines which is slightly higher than the 77 percent observed in the 2008-09 survey. The devolution impacted the procurement of vaccines and other inputs required such as syringes and cold chain equipment. Both levels of Government reached a consensus that GoK would procure vaccines, but issues of resource allocation remained and counties have again raised the issue following the findings of a leaked internal audit report.

now placing orders using the online logistic management information system supported under the Kenya Health Sector Support Project.

Outcome 9: Adequate Systems to Monitor Performance of Services Delivered by Counties

Counties with a county performance monitoring system (%) Baseline: 0 % counties (2013) Target: 20% of 47 counties (2018)

• On track

13% of counties have a performance monitoring system as of May 2016. Model for a county performance management system developed in 6 design counties with support from the Kenya Accountable Devolution Program. Based on the design work, the program developed a County Delivery System Handbook was developed. Subsequently the CoG has requested World Bank and other development partners’ support for roll-out to all 47 counties.

• Core set of county capacity indicators identified and vetted with county/national government –including public finance management, human resource, planning, performance; investment climate. On track i) Annual Capacity and Performance Assessment (ACPA) framework and tool developed to assess annually county capacity in PFM, Planning and M&E, Citizen Engagement, and Human Resources. Tool field-tested in 4 counties. First ACPA expected to be completed by February 2017. Procurement of consultant’s firm in progress. ii) Support provided to MoDP and the CoG to develop County Integrated M&E System (CIMES) Guidelines, including a set of core

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county indicators based on the MTP-2 Indicator Handbook and CoG County Budget Implementation Reports. CIMES Guidelines were vetted by the CoG in November 2016. Second phase of support to county governments to set up county performance management systems commenced in December 2016. 2nd phase to include a number of new counties plus an online training course.

• Updated household poverty survey completed at the

county or national level. On track (i) Supported by the Kenya Statistics PforR, data collection of the 2nd Kenya Integrated Household Budget Survey (KIHBS) started in September 2015 and finalized in March 2017. This survey provides updated poverty and inequality estimates for publication in 2017, quarter one. (ii) Concurrently, through the Poverty Monitoring TA, KNBS is piloting a Continuous Household Monitoring Survey which will provide quarterly national and annual county-level poverty estimates in the coming years.

• County performance management platforms designed

and piloted in 5 counties. On track County performance management platforms piloted in 6 counties by February 2015. Expansion to 12 counties by 2019.

• County data portal strengthened – with links to open

data portal. On track Open County data portal developed for the CoG. Data population still ongoing. Platform available online on: www.kenya.opencounty.org. Open county platform to feature new data, including County Statistical Abstracts and the BOOST (open budget portal) expenditure data, and a new Open County cell phone to be developed by March 2017.

• 20% counties with up-to-date budgets published online

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by 2017. Achieved As of January 2016, 23% of county budgets published online.

• Minimum standards and guidelines for citizen

participation in counties defined with consultation. Achieved

MoDP and the CoG developed Public Participation Guidelines with support from the Kenya Accountable Devolution Program. Launched April 2016.

Outcome 10: Heightened Transparency and Accountability in the Use of Public Resources, particularly at the County Level (Capturing the Connecting Platform Outcome of Garnering Good Governance) 1. Timely submission of consolidated annual

financial statements to Parliament by the Kenya National Audit Office (months)

Baseline: within 11 months from year-end (2013) Target: within 7 months of year end (2018)

2. Counties using IFMIS for budget

preparation and execution, accounting, and financial reporting (number)

Baseline: 10 (2014) Target: 37 (2018)

• Off track Office of the Auditor General (OAG) has

experienced challenges in submitting annual reports to the Parliament on time, due to the volume of statutory and special reports. The OAG now has to provide (now including devolved governments). For both FY 13/14 and 14/15 audit reports were 10 months late.

Budget estimate preparation is mainly executed using MS-Excel spreadsheets. Hyperion module is not fully in use in all counties. IFMIS use in counties is limited to processing payments and/or expenditures through G-Pay. Information accounting systems are fragmented: information is collated in spreadsheets from manual vote Books, G-Pay, IFMIS and in some instances Local Authorities Integrated Financial Operations Management Systems (LAIFOMS).

Although implementation is in early stages, its pace has suffered from counties having to fill new positions. However, implementation at county level has benefited from strong commitment to agreed activities.

• Quarterly consolidated financial statements published by the National Treasury for national government and county governments entities to show overall General Government Fiscal Position (within 30 days of end of each quarter). Off track Section 83 (5) of Public Financial Management Act 2012 requires the National Treasury to consolidate the quarterly reports and submit them to the National Assembly with copies of the reports to the Controller of Budget, Auditor-General and the Commission on Revenue Allocation (CRA) not later than forty-five days after the end of each Quarter and in addition publish and publicize the reports. Consolidated quarterly reports are yet to be published. Data on revenue and appropriations are sent to Controller of budget with copies to the CRA, and NT.

• Public Sector Accounting Standards Board (PSASB) established with supporting Secretariat – guidelines for reporting format issued. Partially on track

Board and Secretariat in place. GoK gazette appointments to the PSASB were gazetted on 28th February 2014 and the board is operational. NT provides the secretariat to the PSASB through seconded staff. The Secretariat has issued templates for producing annual consolidated reports, but has yet to issue guidelines on in-year reporting.

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• Audit manuals issued consistent with International Standards of Supreme Audit Institutions (ISSAI) guidelines. Partially on track OAG is yet to issue manuals consistent with International Standards of Supreme Audit Institutions. Manual and implementing policy documents developed and validated in 2014. Currently being implemented.

• Template to consolidate reports of annual appropriation accounts and other financial statements of the national government and county governments and their entities. Achieved The PSASB issued a template and guidelines (on the application of the template) on 1st July 2014 and gazetted them on 8th of August 2014. This template was used with general success by GoK, national and county government entities in their 2013-2014 financial reports which was generally successful. In 2015/2016, the KADP provided TA assistance in the development of annual consolidated financial statements FY 13/14 (All 47 county governments prepared their statements for the first time in International Public Sector Accounting Standards -IPSAS). The TA also provided support to counties to address management queries and provided training on common challenges in preparing financial statements.

• 25% counties with publicly available and published budgets by 2018. On track FY 2013/2014 over 40 counties had an accessible website, but it is estimated that just about 8 of them had budgets uploaded onto them. (This includes where the Appropriation Act had been uploaded but are not current/up to date budgets).

• County PFM training modules/guidelines developed and rolled out across counties. On track

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Three modules were completed, validated and rolled out. The remaining module i.e. procurement will be finalised by the end of the FY. At the additional request of the National Treasury (NT), two extra modules are currently being developed i.e. CDD Manual and the Internal Audit Information Systems Audit Manual. While the NT remains technically strong and is leading the development of these modules, there is poor coordination with training institutions and hence the relevant training institutions e.g.: Kenya School of Governance, have yet to institutionalise these modules, resulting in heavy reliance on NT staff to carry out training which is not sustainable and has resulted in rendering training opportunities ad hoc.

• Academy on public financial management assessment (PEFA) system held for trainers (Dropped)

The PEFA Academy was dropped. However, in 2016, sensitization on the PEFA 2016 was carried out for 50 national government officers and 40 county officers. PEFA will be carried out in six counties in 2017 (Makueni, Baringo, West Pokot, Kajiado, Nakuru and Kakamega).

• Integrated Financial Management Information System (IFMIS) functioning in at least 37 counties (of 47). Partially on track

IFMIS rolled out to all counties and G-pay in use in most counties. All modules are yet to be fully functional. IFMIS may not be in use by all counties due to issues relating to connectivity

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Annex 4: WBG Portfolio

Table 4.1: World Bank Portfolio (as of May 31, 2017)

Proj ID Project Name Date, Board App Closing Date Net Comm Amt ($m)

P146797 Kenya GPE Primary Education Development 05/18/2015 03/31/2019 88.40

P103037 KE-Electricity SIL (2010) 05/27/2010 12/31/2017 398.00

P120014 KE Electricity Modernization Project 03/31/2015 06/30/2020 450.00

P125388 KE: GPOBA W3: Kenya Electricity 02/24/2010 06/30/2017 5.15

P145234 Kenya Petroleum TA Project (KEPTAP) 07/24/2014 02/28/2021 50.00

P094692 KE-FMSCEDP (Coastal CD) GEF (FISH) 07/27/2010 06/30/2017 30.42

P108845 KE-FMSCEDP (Coastal CD) GEF (FISH) 07/27/2010 06/30/2017 5.00

P091979 E- Adaptation Climate Change (KACCAL) 06/10/2010 06/30/2017 5.50

P153349 KE-National Ag. and Rural Inclusive Growth 08/23/2016 12/15/2021 200.00

P154784 KE-Climate Smart Agriculture Project 02/09/2017 01/31/2022 250.00

P121019 Kenya Infrastructure Finance/PPP project 11/15/2012 12/31/2017 40.00

P151816 Financial Sector Support Project. 04/30/2015 07/31/2020 37.00

P105269 KE-Judicial Performance Improv SIL (FY13 11/15/2012 12/31/2018 120.00

P074091 KE-Health SWAP (FY10) 06/29/2010 06/30/2018 197.80

P152394 Transforming Health Systems for Universal Care 06/15/2016 09/30/2021 150.00

P149718 Kenya Statistics Program for Results 09/10/2015 12/31/2020 50.00

P131305 KE: National Safety Net Program 07/23/2013 03/31/2018 250.00

P151831 Kenya Youth Employment and Opportunities 05/20/2016 12/31/2021 150.00

P066488 KE-Municipal Program (FY10) 05/04/2010 05/31/2017 100.00

P107314 KE-Nairobi Metropolitan Services Improvement Project 05/10/2012 05/31/2019 300.00

P113542 KE-Informal Settlements Improvement Project 03/24/2011 05/31/2018 100.00

P149129 Kenya Devolution Support Project 03/15/2016 12/31/2020 200.00

P124109 KE:Transport Sector Support Project 04/21/2011 12/31/2018 503.50

P126321 KE-National Urban Transport Improvement 08/02/2012 12/31/2018 300.00

P096367 KE-Water & Sanitation Services Improvement (FY08) 12/20/2007 12/15/2017 449.35

P117635 KE Enhancing Wat Security & Climate Resilience Project 06/18/2013 12/31/2022 213.00

P132979 Kenya Water and Sanitation OBA Fund 11/13/2014 06/30/2018 11.84

P145559 KE - Coastal Rgn Water Security & Climate Resilience 12/16/2014 12/31/2021 200.00

P161179 KE-Add. Financing for National Safety Net Prog 03/31/2009 12/31/2016 50.00

P156634 KE-Water and Sanitation Development Project 04/26/2017 10/31/2022 300.0029 5,204.96

P126579 Eastern Electricity Highway Project 07/12/2012 06/30/2019 441.00

P100406 Lake Victoria Phase II APL 1 (FY09) 03/03/2009 12/31/2017 40.00

P129408 Regional Pastoral Livelihoods Resilience 03/18/2014 12/31/2019 77.90

P111556 East Afr Publ Hlth Laborat Net (FY10) 05/25/2010 03/30/2020 33.50

P148853 EA Reg.Transp.Trade Dev. Facil. Ph-2 06/11/2015 12/31/2021 500.00

P151847 East and Southern Africa Higher Educ Centers of Excellence 05/21/2016 12/31/2022 18.00

P161067 Development Response to Displacement Impacts 04/26/2017 04/29/2022 100.007 1,210.40

Regional Projects - Kenya Component only

National Projects

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Table 4.2: IFC Investment Portfolio (as of May 31, 2017)

Client Industry Group Sector Sum of Committed

Portfolio (US$ million) Equity Bank Financial Markets 137.5 KCB Group Financial Markets 145.3 Cooperative Bank Financial Markets 92.7 National Cement Manufacturing 61.4 Africa Oil Corp Oil, Gas & Mining 36.1 NIC Bank Kenya Financial Markets 55.0 Britam Holdings Limited Financial Markets 34.9 I&M Bank Financial Markets 46.6 Chase Bank Ke Financial Markets 25.0 Thika Power Infrastructure 22.8 BORL (Kenya) Agribusiness & Forestry 22.2 DTB Kenya Financial Markets 52.4 GTBank Kenya Financial Markets 20.0 RVR Infrastructure 29.9 Gulf Power Infrastructure 21.8 KTDA Power Other MAS Sectors 12.5 Stanlib Kenya Other MAS Sectors 12.2 NewGlobe Schools Health, Education, Life Sciences 11.8 ALP Tourism, Retail, Construction & Real Estates (TRP) 10.0 Other Other 72.5

Total 922.6

Table 4.3: IFC Advisory Portfolio (as of May 31, 2017)

Project Name Primary Business Line Total Funds Managed by IFC (US$)

2030 Water Resources Group Africa Program Cross-Industry Advisory Services 3,389,216 AMSME NIC BANK Kenya Financial Institutions Group 338,000 Co-operative Bank Ltd Financial Institutions Group 150,000 East Africa Corporate Governance Program Environment, Social and Governance 2,065,981 East &South Africa SME Cross-Industry Advisory Services 2,640,219 EQUITY BANK LIMITED Financial Institutions Group 700,000 Gulf African Bank Financial Institutions Group 770,000 Kenya Agribusiness Investment Climate Program Trade and Competitiveness 1,590,001 Kenya Commercial Bank Financial Institutions Group 300,000 Kenya Credit Reporting Strengthening Project Finance and Markets 333,000 Kenya Health in Africa Program Health, Nutrition and Population 4,486,829 Kenya Health PPP Cross-Industry Advisory Services 931,547 Kenya Investment Generation Program Trade and Competitiveness 2,570,550 Kenya Investment Policy Project Trade and Competitiveness 1,030,612 Kenya Power and Lighting Company - Phase II Cross-Industry Advisory Services 844,000 Kenya Regulatory Reform Trade and Competitiveness 7,737,501 Kenya Secured Transactions and Collateral Registry Support Project Finance and Markets 277,750

Kenyatta University Hostels Project PTAS Cross-Industry Advisory Services 198,800 KTDA Advisory Services Program Manufacturing, Agribusiness & Services 2,976,610 Lighting Africa Kenya Phase Two Cross-Industry Advisory Services 3,171,359 Syngenta Foundation for Sustainable Agriculture Finance and Markets 3,902,505 The Co-operative Bank of Kenya Financial Institutions Group 690,000 Trade Logistics Kenya Trade and Competitiveness 3,068,776

Grand Total 44,163,256

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Table 4.4: MIGA Portfolio (May 31, 2017)

Effective Date Project Name Gross Exp. (US$ million) Investor Name

09/22/2011 OrPower 4, Inc. 55 Omrat Holding Corp. 05/24/2012 Thika Power Ltd 33 Absa Capital

06/28/2013 83 MW Kitengela Power Plant 104 Standard Bank of South Africa Ltd / Cfc Stanbic Bank Limited

06/16/2014 Gulf Power Limited 19 Standard Bank of South Africa 4 projects Total 211

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Annex 5: Advisory Services and Analytics (ASAs) Delivered (FY14-FY17); Ongoing (FY17+); and Planned (FY18)

FY ASA FY ASA 2014 Governance Diagnostics at National Level

Decentralization Investment Climate Assessment Diversifying Manufacturing Kenya: Reports on Observance of Standards and Codes: Accounting and Auditing (ROSC A&A) Use of Country FM Systems Review Baseline State of the City Surveys Enhancing Municipal Revenue Social Protection Interventions- DFID Geothermal Development Company Financial Access Assessment Educ. Database Externally Financed Output Oil & Gas Legal Framework Review Kenya Engagement Kenya PER Gender Policy Notes Demand-side Governance Open Data Incubator Innovation Agriculture AAA Education AAA Investment Climate

2015 Accountable Devolution Powering Kenya’s Future Youth Employment Activities Teacher Policies Higher Education Value Chain Analysis Skills measurement Study Political Economy Analysis of Agriculture Kenya PER Kenya Economic Note Conditional Grants Framework Devolution and PFM institutions Building Human Capital-Education FM Analysis-Education Global Partnership on Education AAA Medium Term Strategy-Health Financial Sector Assessment P Update Follow-up Readiness for Climate-Smart Agriculture Improve service Standards-Urban Water New Water Policy and Act Strengthening Accounting and Audit Legal Urban Poor Access to Water and Sanitation Services Accelerating Access to Sanitation Agriculture Sector Review Nairobi Sanitation Preparation Strategy to Transform the Health Sector Social Accountability in Devolution Stocktaking Youth Employment Activities

2016 Kenya Urbanization Review Country Economic Memorandum Kenya Economic Update Investment Climate Assessment Political Economic Devolution Service Delivery Indicators Kenya Economic Note Governance Approach Accountable Devolution Devolution and Service Delivery Country Social Analysis Poverty Monitoring PFM & Procurement Assessment AAA on Policy, Sector, Country Analysis – Petroleum Export Competitiveness and Innovation PPP Opportunities Bright Light, Big Cities Tourism Economic Contribution

2017 Debt Management Capital Markets Transactions Petroleum Sector Social-Economic Analysis of Refugees in Turkana County Kenya Economic Updates - 14 & 15 Ongoing Plastic Latrines Life Skills in Nyanza Post Country Economic Memorandum Program Urban and Social NLTA Conflict and Violence Mitigation Port City Interface Kenya Agriculture Insurance and Regulation Country Portfolio Fiduciary Review Capital Markets Social Protection Interventions Poverty Monitoring Export Competitiveness and Innovation Commercial Financing for Urban Water and Sanitation Investment Climate Assessment Manufacturing Export Competitiveness in Kenya Policy Note

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FY ASA FY ASA 2018 Planned

Case Processing Judicial Performance Improvement Project Impact Evaluation-Water and Sanitation Services Improvement Project Financial Sector Innovation Results-Based Financing – Impact Evaluation Energy Access Boosting Private Sector Competitiveness Policy Dialogue Water and Sanitation Services Delivery Integrated Capacity Support for Kenya PforR Operations Enhancing Dialogue on Environment and Natural Resources Financial Advisory: Power Utilities Poverty & Gender Assessment

2019 & 2020

Focus of ASAs for FY19 and FY20 Poverty Work/Poverty Surveys Country Economic Memorandum Public Expenditure Reviews Service Delivery Indicators Constraints to Private Sector Development.

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Annex 6: WBG Collaboration

1. Efforts have been made to collaborate across the WBG. Building on WBG comparative advantage, this collaboration is creating synergy in energy, transport, urbanization, private sector development, health, education and oil and gas. Specifically, the WBG-supported Infrastructure Finance/PPP (IFPPP) project provided funding to the PPP Unit of the GoK’s National Treasury to carry-out pre-mandate assessments for projects in education, energy, housing and health. The IFC C3P Unit in collaboration with the IFPPP supervised the pre-mandate assessments for: (i) Magwagwa Multi-purpose dam; (ii) Kenya cancer treatment centres; (iii) and worked jointly to identify potential projects in low cost housing. IFC and MIGA are collaborating with the World Bank on Kenya’s transition from the Feed-in Tariff (FiT) to an auction system for solar IPPs.

2. IFC Advisory and IBRD have collaborated effectively to improve the business environment as highlighted in the review as an area of progress, especially on Doing Business Reforms. IFC Advisory (through the Kenya Investment Climate Program 1&2) played a key role in identifying, funding, and addressing key policy and regulatory constraints to investment at both national and subnational levels. More recently, IFC trust funds were deployed to review competition enforcement challenges and regulatory obstacles to competition focusing on key sectors such as telecoms and agriculture. There has been significant collaborative effort to increase the local content components of the oil and gas sector in support of the Kenya Petroleum Technical Assistance Project. This model has been adopted in many countries, and has proved to be a powerful combination of instruments to ensure successful reforms. IFC’s new strategy for Africa calls for more of this collaboration country by country.

3. While there were no new joint IFC/World Bank transactions in 2014-16, collaboration was mainly around management of the existing portfolio and wider sector issues in energy, and transport. Over FY16-17, the World Bank is leading a pilot of an invoice discounting platform that aims to increase access to finance for MSMEs leveraging an electronic platform to turn invoices into cash quickly and cheaply while lowering the risk of financing invoices. In collaboration with the platform, IFC is on-boarding private players in the road construction sector to contribute to reducing the US$2.1 billion gap in annual financing of road infrastructure to supplement the World Bank's direct funding.

4. WBG collaboration is also helping to leverage participation of the private sector into infrastructure development, for example in the water and energy sectors, and helping to improve performance of state-owned enterprises. In the water sector through a combination of microfinance and incentive grants, the WBG supported rural and per-urban utilities in accessing private financing for rehabilitation and expansion of small piped-water schemes. As a result, nearly 200,000 households have been provided access; and the WBG is supporting Kenyan utilities to become creditworthy so that they can access much needed commercial finance. Annual creditworthiness assessments are now being done which provide banks with objective data in assessing utility loan applications; and the World Bank is now supporting the country in establishing the first ever Pooled Water Fund (pooled bond fund). In the energy sector, the WBG has been supporting the Government in expanding generation capacity through IPPs by providing risk mitigation packages to IPPs through IDA partial risk guarantees and complementary MIGA Breach of Contract guarantees. Three power plants have been commissioned with 250 MW of thermal capacity (involving investment of over US$430 million), and the Kenya Power and Lighting

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Company Guarantee Program supported the KPLC in successfully restructuring its commercial debt through the use of a Guarantee instrument.

5. Opportunities for collaboration to enable the WBG to offer robust, holistic solutions for specific challenges, largely in support of ongoing operations and analytics could include:

o On de-risking investments for IFC and other private players, supporting IFC’s design and implementation of the IDA Private Sector Window to address key policy areas identified along key value chains and sectors – e.g.: in housing finance, agriculture and agribusiness, logistics and road transport.

o On devolution and county level fiscal sustainability, supporting the Kenya Devolution Program, and possibly the Secondary Cities Program, through work on subnational business environment reforms – e.g.: construction permitting, and business registration. This is an area where there has been evidence of traction in five pilot counties where significant progress has been made, with good potential for peer competition and learning. Coupled with ICT based solutions, there is significant opportunity for reduced corruption and improved governance at county government level.

o On governance and citizen engagement, supporting the improvement of access to services through work on ICT-driven Government to Business (G2B) services at national and subnational levels. A pilot activity through IFC advisory/trust funds supported/catalyzed the development of the initial framework for the e-citizen portal, which has since been scaled up with the help of other players. This platform drives what is now celebrated as a significant game changer in Kenya’s service delivery (at least 115 government services are now offered online on a transactional platform). There are opportunities for including a variety of feedback loops with significant potential for improving transparency and accountability (piloted in places like Rwanda with tax administration, and showing good results).

o On climate-resilient solutions for enhanced productivity in agriculture and agribusiness, supporting the Kenya Smart Agriculture program, by deploying global climate change private sector solutions to leverage innovations generated in the various parts of the innovation ecosystem in Kenya – such as iHub and Kenya Climate Innovation Centre. Other potential solution areas include supporting commercialization of agriculture, diversification of the agriculture export basket by linking farming communities to new markets, as well as global and regional value chains.

o On refugees and migrants, support to explore employment-rich solutions for refugees and host communities, which have the potential to catalyze co-dependent spillovers (e.g.: harnessing the power of refugee cash transfers to drive local value chains such as the livestock sector in the northeast of Kenya).