Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 54457-NG

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 102.5 MILLION

(US$160 MILLION EQUIVALENT)

TO THE

FEDERAL REPUBLIC OF NIGERIA

FOR A

GROWTH AND EMPLOYMENT IN STATES PROJECT (GEMS)

February 17, 2011

Finance and Private Sector Development

Western and Central Africa

Africa Region

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 authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective January 31, 2011)

Currency Unit = Nigerian Naira (NGN)

NGN 1 = US$0.00656

US$1 = SDR 0.64023

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AAP Africa Action Plan

AFD French Development Agency

AfDB African Development Bank

AIEA Association of International Education Administrators

APL Adaptable Program Loan

BIR Boards of Internal revenue

BPP Bureau of Public Procurement

CAD Commercial Agriculture Development Project

CBN Central Bank of Nigeria

CFAA Country Financial Accountability Assessment

CEM Country Economic Memorandum

CPAR Country Procurement Assessment Review

CPS Country Partnership Strategy

DFID Department for International Development

EFCC Economic and Financial Crimes Commission

ESMF Environmental and Social Management Framework

ESIA Environmental and Social Impact Assessment

FCT Federal Capital Territory

FGN Federal Government of Nigeria

FIAS Foreign Investment Advisory Services

FMOC Federal Ministry of Commerce

FMR Financial Management Reports

FPD Finance and Private Development

FPFMD Federal Project Financial Management Directorate

FPIU Federal Project Implementation Unit

FPM Financial Procedures Manual

GEMS Growth and Employment in States Project

ICA Investment Climate Assessment

ICOR Incremental Capital Output Ratio

ICP Investment Climate Program

ICT Information and Communications

IDA International Development Association

IEG Independent Evaluation Group

IFC International Finance Corporation

IPR Intellectual Property Rights

IPSAS International Public Sector Accounting Standards

ISPON Institute of Software Practitioners of Nigeria

ITAN Information Technology Association of Nigeria

ITeS Information Technology Enabled Services

LGA Local Government Areas

LIL Learning and Innovation Loan

MCT Ministry of Culture and Tourism

MDA Ministries and Development Agencies

M&E Monitoring and Evaluation

MIGA Multilateral Investment Guarantee Agency

MSME Micro Small and Medium Enterprise

NEEDS National Economic Empowerment and Development Strategy

NESG Nigerian Economic Summit Group

NCS Nigerian Customs Service

NIAF Nigeria Infrastructure Advisory Facility

NIPC Nigerian Investment Promotion Commission

NITDA National Information Technology Development Agency

NPF Nigerian Police Force

NSC National Steering Committee

NTDC Nigeria Tourist Development Corporation

OAGF Office of the Accountant General of the Federation

ODIN Outsourcing Development Initiative of Nigeria

OSIC One Stop Investment Center

PAD Project Appraisal Document

PEFA Public Expenditure and Financial Accountability Program

PEMFAR Public Expenditure Management and Financial Accountability

Review

PIM Project Implementation Manual

PMP Pest Management Plan

PMU Project Management Unit

PPF Project Preparation Facility

PPP Public Private Partnership

RAP Resettlement Action Plan

RPF Resettlement Policy Framework

SEEDS State Economic Empowerment and Development Strategy

SGC State Growth Committee

SIL Specific Investment Loan

SME Small and Medium Enterprises

TRIPS Trade Related Aspects of Intellectual Property Rights

TVET Technical Vocational Education Training

USAID United States Agency for International Development

UNCTAD United Nations Conference on Trade and Development

WTO World Trade Organization

Vice President: Obiageli Katryn Ezekwesili

Country Director:

Sector Director:

Onno Ruhl

Marilou Jane Uy

Sector Manager: Paul Noumba Um

Task Team Leader: Ismail Radwan

NIGERIA

Growth Enterprises and Markets in States (GEMS)

CONTENTS

Page

I. STRATEGIC CONTEXT AND RATIONALE .................................................................. 1

A. Country Context and Sector Challenges .............................................................................. 1

B. Rationale for Bank involvement .......................................................................................... 6

C. Higher level objectives to which the project contributes ..................................................... 7

II. PROJECT DESCRIPTION .................................................................................................. 8

A. Lending instrument .............................................................................................................. 8

B. Project development objective and key indicators............................................................... 9

C. Project Components ........................................................................................................... 10

D. Lessons learned and reflected in the project design ........................................................... 22

E. Alternatives considered and reasons for rejection ............................................................. 24

III. IMPLEMENTATION ..................................................................................................... 26

A. Partnership arrangements ................................................................................................... 26

B. Institutional and implementation arrangements ................................................................. 27

C. Monitoring and evaluation of outcomes/results ................................................................. 29

D. Sustainability...................................................................................................................... 30

E. Critical risks and possible controversial aspects ................................................................ 31

F. Loan/credit conditions and covenants ................................................................................ 34

IV. APPRAISAL SUMMARY .............................................................................................. 34

A. Economic and financial analyses ....................................................................................... 34

B. Technical ............................................................................................................................ 37

C. Fiduciary ............................................................................................................................ 42

D. Social.................................................................................................................................. 43

E. Environment (Category B : Partial Assessment) ............................................................... 44

F. Safeguard policies .............................................................................................................. 45

G. Policy Exceptions and Readiness....................................................................................... 45

Annex 1: Country and Sector or Project Background ............................................................. 46

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies .................. 50

Annex 3: Results Framework and Monitoring ......................................................................... 51

Annex 4: Detailed Project Description ....................................................................................... 59

Annex 5: Summary Project Costs IDA financing ..................................................................... 95

Annex 6: Implementation Arrangements .................................................................................. 97

Annex 7: Financial Management and Disbursement Arrangements .................................... 106

Annex 8: Procurement Arrangements ..................................................................................... 118

Annex 9: Economic and Financial Analysis ............................................................................ 126

Annex 10: Safeguard Policy Issues ........................................................................................... 133

Annex 11: Project Preparation and Supervision .................................................................... 137

Annex 12: Documents in the Project File ................................................................................ 139

Annex 13: Statement of Loans and Credits ............................................................................. 140

Annex 14: Country at a Glance ................................................................................................ 142

Annex 15: Maps.......................................................................................................................... 143

Figure 1 - Land registration costs as percent property value .................................................... 4

Figure 2 - Hours p.a. to fill in all tax forms ................................................................................. 4

Figure 3 - Growth by sector 2005 – 2006 (percent)....................... Error! Bookmark not defined.

Figure 4 – Project Governance and Management .................................................................... 29

Box 1: Establishing Baselines & Quantified Targets ................................................................ 22

Box 2: Critical risks and possible controversial aspects ......................................................... 32

Table 1: Sources of Financing .................................................................................................... 21

Table 2: Returns to GEMS......................................................................................................... 37

NIGERIA

NIGERIA - GROWTH AND EMPLOYMENT IN STATES (GEMS)

PROJECT APPRAISAL DOCUMENT

AFRICA

AFTFW

Date: February 17, 2011 Team Leader: Ismail Radwan

Country Director: Onno Ruhl

Sector Manager/Director: Paul Noumba Um/

Marilou Jane D. Uy

Sectors: Information technology (30%);

General industry and trade sector (30%); Sub-

national government administration (20%);

General finance sector (20%)

Themes: Other financial and private sector

development (40%); Export development and

competitiveness (30%); Infrastructure services

for private sector development (20%);

Technology diffusion (10%)

Project ID: P103499 Environmental category: Partial Assessment

Lending Instrument: Specific Investment Loan Joint IFC:

Joint Level:

Project Financing Data

[ ] Loan [X] Credit [ ] Grant [ ] Guarantee [ ] Other:

For Loans/Credits/Others:

Total Bank financing (US$m.): 160.00

Proposed terms: The Credit will have a 10 year grace period with 30 years to maturity per the

latest Op 3.10 update of July 2009.

Financing Plan (US$m)

Source Local Foreign Total

BORROWER/RECIPIENT 0.00 0.00 0.00

International Development Association

(IDA)

80.00 80.00 160.00

Total: 80.00 80.00 160.00

Borrower:

The Federal Republic of Nigeria

Responsible Agency: Federal Ministry of Commerce and Industry

Old Federal Secretariat

Block H. Area 1

Garki, Abuja, Nigeria

Participating State Governments: Cross River, Kano, Kaduna, Lagos and Abuja FCT.

Estimated disbursements (Bank FY/US$ millions)

FY 2011 2012 2013 2014 2015 2016

Annual 5.00 40.00 45.00 40.00 25.00 5.00

Cumulative 5.00 45.00 90.00 130.00 155.00 160.00

Project implementation period: Start: March 18, 2011 End: December 30, 2016

Expected effectiveness date: September 1, 2011

Expected closing date: December 31, 2016

Does the project depart from the CAS in content or other significant respects?

Ref. PAD I.C. [ ]Yes [X] No

Does the project require any exceptions from Bank policies?

Ref. PAD IV.G. Have these been approved by Bank management?

[ ]Yes [X] No

[ ]Yes [ ] No

Is approval for any policy exception sought from the Board? [ ]Yes [X] No

Does the project include any critical risks rated “substantial” or “high”?

Ref. PAD III.E. [X]Yes [ ] No

Does the project meet the Regional criteria for readiness for implementation?

Ref. PAD IV.G. [X]Yes [ ] No

Project development objective Ref. PAD II.C., Technical Annex 3

The Project Development Objective is to: increase growth and employment in participating

states. This will be addressed by improving the Investment Climate (Component A, to be funded

directly by DFID) and by strengthening industry competitiveness and job creation in selected

states (Component B, funded in part by IDA), and by leveraging impact beyond immediate

stakeholders and target areas (Component C, funded by IDA).

Project description Ref. PAD II.A., Technical Annex 4

The project will have three components:

- Component 1 : Improved investment climate;

- Component 2 : Increased competitiveness of strategic clusters including; ICT, entertainment,

hospitality, wholesale and retail trade, construction and meat and leather; and

- Component 3: Project implementation, communication, monitoring and evaluation of the

program.

Which safeguard policies are triggered, if any? Ref. PAD IV.F., Technical Annex 10

Environmental Assessment (OP/BP 4.01)

Pest Management (OP/BP 4.09)

Involuntary Resettlement (OP/BP 4.12)

Significant, non-standard conditions, if any, for:

Ref. PAD III.F.

Board presentation: No conditions.

Loan/credit effectiveness: No conditions

Covenants applicable to project implementation: In addition to the standard fiduciary (procurement, financial management and disbursement)

provisions, project-specific covenants will include:

(i) Operation of the National Steering Committee and the Federal PIU.

(ii) Preparation of Annual Work Plans and Budgets and implementation of the Project in

accordance with the Project Implementation Manual, ESMF, RPF and Pest Management Plan.

(iii) Terms and conditions applicable to the management of performance grants, including a

disbursement condition related to the adoption of a satisfactory grants manual.

(iv) Submission of semi-annual progress reports and undertaking a mid-term review of the

project in consultation with IDA no later than 30 months after effectiveness.

(v) A project preparation facility (PPF) has been established since October 2009. The project

financing also permits retroactive financing for expenditures made after April 1st 2010.

1

I. STRATEGIC CONTEXT AND RATIONALE

A. Country Context and Sector Challenges

Country Context

1. After a sustained growth spurt, Nigeria‟s economy now faces testing times. Between

2003-2008 Nigeria‟s economy boomed. Higher oil prices and a series of home-grown,

economic reforms put the country on the road to middle-income status. Oil dominates the

Nigerian economy, accounting for 95 percent of export revenue and 80 percent of

government revenues1. Economic growth continues to be closely linked to oil. As oil prices

climbed inexorably higher, the Nigerian economy grew rapidly. In 2008, the fall in oil prices

led to a budget shortfall and depreciation of the Naira. However, prudent management of

previous oil windfalls resulted in the accumulation of foreign currency reserves of over

US$45 billion in 2008. This provided Nigeria with a sizeable cushion to weather the financial

crisis, but reserves have since dropped to US$35 billion, the excess crude account has been

depleted and government debt is rising again, albeit from a low base.

2. Growth has yet to benefit large parts of the workforce and the population. The oil

sector accounts for just 0.15 percent of employment. The majority of the workforce and

almost all the poor are engaged in the non-oil sector which is dominated by agriculture; a

sector which accounted for 23 percent of GDP and 60 percent of employment in 2005.2

Although the non-oil sector has grown rapidly, averaging 10.2 percent in 2004-2007,3 it has

not been able to create a large number of formal sector jobs.

3. The reform momentum and infrastructure spending slowed in 2009. The new

administration of President Jonathan has understandably taken time to take stock of the

situation and build an inclusive coalition for reform. Numerous difficult reforms in areas such

as banking, power, and the creation of a Sovereign Wealth Fund are developing. Employment

has also been a clear priority of the new government. Nevertheless, challenging structural

reforms are needed to close the infrastructure gap, diversify the economy, improve living

standards and resolve the Niger Delta situation.

4. The global financial crisis has presented a serious challenge to Nigeria‟s growth

ambitions. Nigeria has a vision of becoming a top twenty economy by the year 2020.

Achieving this objective would require sustained growth in double digits. However, growth

started to slow in 2008 and was 6 percent in 2009 as the secondary impacts of the financial

crisis begin to be felt. The main transmission mechanisms of the global financial crisis are

falling commodity prices, especially oil prices, reduced net capital inflows (in particular

foreign direct investment and remittances), and the drying up of trade finance and

international lines of credit. Despite improvements in economic and political governance

stretching almost a decade, Nigeria finds itself in economic difficulties due to the global

economic crisis and has drawn down the excess crude account from a high of over US$22

billion to just US$0.5 billion in November 2010.

5. Nigeria‟s pro-private sector growth strategy is embodied in the former President‟s 7-

point agenda and the National Economic Empowerment and Development Strategy

1 According to UNCTAD this represents the most highly concentrated export structure in the world. 2 Commercial Agriculture Development Project, Project Appraisal Document 3 Fitch Ratings: Federal Republic of Nigeria Sovereign Ratings, 2008.

2

(NEEDS). The 7-point agenda also stresses the need for wealth creation and employment as a

priority. The latter has been a particular focus of the current Minister of Finance. Policy-

makers have agreed that Nigeria needs to explore options to diversify into non-oil sources of

growth and reduce the current dependence on hydrocarbons. Diversification is important for

making growth sustainable, increasing employment and living standards of the poor and

hedging against the potential shocks from dependence on a single commodity. Nigeria‟s

growth strategy, NEEDS, targets improved public finances and a better economy through

structural and institutional reforms. Complementary strategies have taken the reform impetus

to the thirty-six states. All the strategies have recognized the importance of the private sector

for growth and poverty reduction.

6. Nigeria is at a crossroads. The country can choose to tackle the distortions that have

reduced incentives for investment and productive activity and move towards sustainable and

diversified growth. It can also build on islands of success and promising cluster initiatives

and enclaves that can then pull along the rest of the economy (successfully achieved in China

and India) or it can ignore the reform imperatives and pay the price of having a highly

distorted, rentier economy, and remaining dependent on the price of oil.

Sector Challenges

Removing the bottlenecks to private sector growth and competitiveness

7. The project will focus on improving the investment climate and supporting public and

private interventions in six key growth sectors: ICT, entertainment, hospitality,

wholesale/retail trade, meat and leather, and construction.

8. Sustaining and improving recent growth rates depends on improving national

competitiveness. Despite recent progress, the Nigerian economy continues to face significant

competitive challenges. Total factor productivity appears to have fallen consistently between

1970 and 2000. By several measures, Nigeria is one of the least competitive countries in the

world4. Agricultural exports have fallen from 2.5 percent to 0.2 percent of total exports

between 1980 and 2005. Manufacturing has similarly shrunk from 8.4 percent of GDP in

1980 to just 4.6 percent in 2005. Entire sectors, such as textiles, have been all but wiped out

over a few years despite high tariff and non-tariff barriers.

9. For years, Nigerian firms have faced a tough business environment5. A desperate

shortage of energy6 and a poor transportation network as well as low-levels of education in

the workforce in general and continuing unrest in the Niger Delta have all played a part in a

declining manufacturing sector and reduced competitiveness. And yet Nigeria‟s resourceful

businessmen and women continue to find ways of coping. The resilience of the private sector

promises a much improved performance if Government and the private sector can partner to

remove some of the most significant obstacles to doing business. Improving the investment

climate will also spur the repatriation of Nigeria‟s capital. Without national investment

opportunities, domestic savings have consistently been higher than national savings,

confirming Nigeria‟s net capital flight.

4 Kwawka et. al. 5 Nigeria ranks 137 out of 183 countries in the World Bank Doing Business 2011 Index, having fallen back in each of the

last three years. 6 It is estimated that Nigeria generates less than 4,000MW of power while current a demand can be estimated to be around

10,000MW of power.

3

10. Government must move quickly to tackle job creation and poverty reduction. With

one in five Nigerians unemployed, the country is not maximizing its human resource

potential. Demographic trends are equally alarming. It is estimated that each year as few as

one in ten of the 4.5 million new entrants to the labor market find jobs.7 The World Bank‟s

Growth and Employment study heralds this as “a growing employment crisis”. Open

unemployment of the youth aged between 15 and 29 years is estimated to be 60 percent.

Persistent youth unemployment coupled with unrest in the Niger Delta and other parts of the

country is a potentially incendiary situation. Nigeria‟s policy-makers and development

partners recognize that this requires swift attention.

11. Nigeria‟s workers need to be more productive to compete in a globalized 21st century

economy. An unskilled Nigerian worker is paid around US$100 per month. This is lower

than many of Nigeria‟s competitors. And yet they produce less than US$300 per month.

When their output is compared to their cost, Nigeria‟s workers are shown to be less

productive than their counterparts in more dynamic countries such as Kenya and South

Africa. One reason that Nigeria‟s workers are less productive is that Nigeria‟s factories and

enterprises are idle close to one-third of the time.8 Another reason is the low levels of skills of

the workforce in general and the growing preference for non-science and non-technology

related subjects at the tertiary level: a trend that needs to be reversed if Nigeria is to reap the

benefits of becoming a 21st century knowledge-based economy.

12. The investment climate has been neglected for too long. The relationship between a

better investment climate and higher levels of private investment is well established in

Africa.9 Since independence, Nigeria‟s oil sector has provided the vast majority of

government revenues. As long as they did not need a robust private sector to provide tax

revenues and job creation, Government largely ignored the private sector. As a result much

of the legal and regulatory framework that governs private sector activities dates to colonial

times.

13. Nigeria‟s investment climate is particularly poor.10

Nigeria ranks 137 of 183 in the

World Bank‟s Doing Business index, performing particularly poorly in four indicators:

registering property (179); obtaining construction permits (167); trading across borders (146);

and paying taxes (134). It is now time for Government to focus on providing the public goods

and conducive investment climate that are essential to enable private sector growth.11

14. Improving productivity will take simultaneous efforts to improve whole industries and

to improve individual firms within the industry. Unlike other countries, Nigeria‟s best firms

have not been able to grow larger and take a bigger market share. To allow this to happen,

policy-makers need to identify and eliminate the obstacles to competition, by reducing

barriers to entry, simplifying taxes, property registration and licenses and facilitating trade

across borders. (See Section II and Annex 4).

7 Kwakwa et. Al. Binding Constraints to Growth in Nigeria, 2007. 8 Nigeria: Investment Climate Assessment. 9 See for example The Investment Climate in Africa from the Perspective of Private Investors, World Bank

Paper (2007). 10 Nigeria Investment Climate Assessment. World Bank, 2008. 11 Kwawka et. al.

4

Overcoming challenges within the investment climate and promising value chains

15. The Growth Employment In States Project (GEMS) will support key investment

climate reforms in Land and Tax administration. It will also support a process of improved

investment promotion.

16. Investment in land and buildings represents just 12-14 percent of gross capital

formation. The low rate of investment causes shortages of housing and commercial and

industrial property preventing the growth of many industries, including the construction

industry itself. The Doing Business 2011 Report indicates that Nigeria is one of the slowest

and most expensive places to register property, although costs range widely from state to

state. A detailed 2010 study of all Nigerian states showed that on average it cost 16 percent

of property value to register property, ranging from 5.2 percent in Yobe to 36.6 percent in

Ondo. This compares to Ghana (1.1 percent), and South Africa (8.7 percent).

17. The Investment Climate Assessment (ICA) revealed that businesses regard tax rates

and administration to be significant constraints to business expansion. In fact, tax rates are

lower than most comparator countries but the way taxes are administered makes their level

appear arbitrary, and they are time consuming for businesses to comply with. A typical

Nigeria business takes 1,120 hours per annum to comply with 35 separate tax payments (see

Figure 2). Tax evasion is widespread, reducing the tax base and constraining government

investment in infrastructure. The whole system operates at a low equilibrium in terms of tax

collection, investment and growth.

18. The poor competitiveness is caused both by government failures, notably poor

policies and institutions and lack of investment in infrastructure and other public goods, and

by market failures of information and coordination that result in a low correlation between

market share and efficiency. In addition, productivity is low because of poor management

Figure 2 - Land registration costs as percent

property value

0

200

400

600

800

1,000

1,200

Nigeria China Kenya S.Africa India

Figure 1 - Hours p.a. to fill in all tax forms

5

and business models.12

The lack of competitiveness reduces the return to investment and its

productivity in terms of growth and jobs. These issues are explained in detail in the Bank‟s

“Employment and Growth Report”.

Figure 3 – Average Growth by sector 2005 – 2009

Source: African Statistical Yearbook, African Development Bank 2010.

19. Nonetheless there are sectors, outside the extractive and agricultural sectors, which

are growing very quickly (Error! Reference source not found.). GEMS will increase the

incentive to invest in industries with high potential for growth and employment by improving

the competitiveness of strategic clusters.

20. As part of the GEMS design process, a study13

was carried out to identify industries

with high growth and employment potential and which provide fertile ground for successful

intervention. Industries were judged against two criteria:

(i) The potential to offer strong upside in terms of growth, employment and spillovers

(cost discovery and economic linkages);

(ii) The feasibility of successful intervention in terms of ability to bridge the

competitiveness gap, likelihood that policy failures could be addressed and the

presence of a private sector able to address market failures.

21. Based on the finding of the GEMS sector study, six industries were identified for

intervention: i) ICT; ii) Hospitality (Hotels & Restaurants); iii) Entertainment;14

iv)

Wholesale/Retail; v) Construction; and vi) Meat & leather. Detailed analysis of how the cost

12 The ICA reports low Total Factor Productivity compared to other countries but notes that better managed firms 60%-80%

more competitive than the worst. 13 Identifying Growth Pole Value Chains for Cross River, Kaduna, Kano and Lagos states, Emerging Market Economics,

May 2008. 14 Entertainment (film and music) was not analyzed in the first study but included subsequently through analysis carried out

by the World Bank.

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

6.80%

-3.40%

9.20%

13.00% 13.90%

17.54%

6.20%

6

structures of three of these of industries are affected by government and market failures has

also been carried out.15

In summary, some of the key constraints in each sector include:

(i) ICT: infrastructure, skills, and regulatory constraints;

(ii) Hospitality: convoluted and expensive visa process, little use of ICT for booking

payment or marketing, weak management and customer service skills, slow uncertain

and expensive land acquisition and development process;

(iii) Entertainment: copyright piracy; weak distribution chains; low levels of technical

skills, production equipment; investment and little access to finance;

(iv) Wholesale/retail: poor storage, handling/transport and physical market infrastructure;

underdeveloped processing and packaging; and constrained competition;

(v) Construction: lack of skilled labour linked to weak TVET; constraints of slow

uncertain and expensive land acquisition and development process; poor quality/high

cost inputs such as concrete and poor access to finance;

(vi) Meat and leather: poor quality hides, veterinary services, cold chains/storage,

outdated abattoir practices, high stock levels because of lengthy import and export

delays.

22. The potential contribution that the six industries selected could make to growth and

employment, and the pressing issues that each faces and the strategic clusters in which

GEMS will work is set out below. More details of the interventions envisaged in each

industry are set out in the appendices. During its implementation, GEMS may identify

additional industries that also have the potential to make strong contributions to growth and

employment and where the conditions for success are favorable. More detail on this is

available in the various notes on file including the Project Components and Economic and

Financial Analysis. The complete value chain analysis is also on file.

B. Rationale for Bank involvement

23. The Federal Government of Nigeria (FGN) has requested the World Bank‟s assistance

to prepare and finance the proposed project for four major reasons:

(i) The Bank’s expertise in growth oriented investment climate reforms: The World

Bank has conducted a number of proprietary diagnostics in Nigeria including; (i)

Doing Business in Nigeria (2008 and 2010), (ii) Investment Climate Assessment 2008

and (iii) State Level Institutional Mapping. The Bank administers an ongoing

Investment Climate Program (ICP) trust fund (financed by the UK Department for

International Development (DFID), due for completion in 2011. Government

counterparts have requested the Bank‟s assistance in improving Nigeria‟s investment

climate and national and state-level doing business scores.

15 Product Value Chain Analysis, Consilium International, 2008 covers the construction, wholesale/retail and meat & leather

industries.

7

(ii) The Bank can bring an array of global expertise: Successfully tackling growth and

competitiveness issues will require: public policy advice, investment finance, reform

experience, as well as experience in the application of growth theories. The Bank is

the only institution that can bring together International Development Association

(IDA), IFC, Foreign Investment Advisory Services (FIAS) and Multilateral

Investment Guarantee Agency (MIGA) expertise as well as experience on key value

chain improvements, taxation policy etc.

(iii) The Bank is seen as an honest broker: Improving the investment climate will require a

concerted effort by the public and private sectors as well as support from academics,

think-tanks, donors and other stakeholders. The Bank has successfully won the trust

and confidence of both the public and private sectors through a series of public-

private dialogues and consultations. It has also drawn on other stakeholders such as

Association of International Education Administrators (AIEA), Nigerian Economic

Summit Group (NESG), Lagos Business School and Kano Business School.

(iv) The Bank has already laid much of the groundwork: In addition to the diagnostic

studies that have been completed and the Bank‟s ongoing activities financed through

the ICP trust fund, the Bank also has an ongoing Micro Small and Medium Enterprise

(MSME) project. The MSME project has supported investment climate reforms

including; alternative dispute resolution, credit bureaus, secured lending and business

registration initiative. The Bank therefore has concrete and recent experience in

supporting improvements in the investment climate.

C. Higher level objectives to which the project contributes

24. This project aims to reduce poverty in Africa‟s most populous country by contributing

to Nigeria‟s growth and employment objectives. Growth and employment are at the heart of

the NEEDS and SEEDS strategies. Nigeria‟s 7-point policy agenda, (the country‟s poverty

reduction strategy), explicitly recognizes the importance of employment and wealth creation.

Nigeria‟s 2020 strategy also targets economic growth as a critical development initiative.

The strategy includes an ambitious goal of taking Nigeria into the ranks of the world‟s top

twenty economies by the year 2020.

25. The proposed project also represents a central element of the World Bank‟s strategy

in Nigeria. The Country Partnership Strategy (CPS) which is a joint World Bank / DFID

document was presented to the Board in July 2009. It aims to improve the enabling

environment for non oil growth. The Nigeria CPS aims to consolidate the country‟s recent,

rapid growth, embed it in a more diversified economy, and broaden its distributional impact.

This project directly supports the second CPS pillar; growing the private sector and focusing

on non-oil growth. The CPS also recognizes Nigeria‟s federal structure and the need to carry

growth to the state level which is also supported by this project.

26. The Country Partnership Strategy is conducted jointly with the Federal Government

of Nigeria and DFID. The discussions are attended by Nigeria‟s other major donors United

States Agency for International Development (USAID) and the African Development Bank

(AfDB). As such, the CPS is an important attempt at donor harmonization and

implementation of the Paris principles. The proposed project follows this spirit as it is

delivered through a parallel co-financing arrangement with DFID. The project has three

8

components. DFID will directly fund Component A;16

and two further sub-components of

Component B. The IDA project directly funds five further sub-components of the Component

B, and the remainder of Component C. The Bank and DFID teams have worked closely

together throughout project preparation, and the overall project17

is described by shared

objectives and a joint results framework. DFID funded components of GEMS have been in

operation from April 2010, and staff from the Bank and the Federal Ministry of Commerce

GEMS teams have participated in a recent review. DFID has funded the Investment Climate

Program (ICP), implemented by the Bank, which has produced much of the diagnostic work

for the project design. The teams have also ensured full collaboration with USAID and AfDB

during the design process. Towards the end of the design phase, the French Government

through the Agence Française de Développement (AFD) also confirmed their interest in

providing additional US$100 million through additional parallel financing. This funding has

not been confirmed officially, and the success of the project as currently envisaged does not

depend on it.

27. The project supports the Africa Region‟s Finance and Private Sector Development

(FPD) strategy which is focused on improving the investment climate and providing support

to Small and Medium Enterprises (SMEs).

28. The proposed project will address remaining challenges in the investment climate, job

creation strategies, national competitiveness, and human resource weaknesses. If addressed

successfully, the project will make a significant and measurable impact on these higher level

objectives.

II. PROJECT DESCRIPTION

A. Lending instrument

29. The lending instrument proposed is a Specific Investment Loan (SIL). It will be

financed with an IDA credit in the total amount of special drawing rights (SDR) 102.50

(US$160 million equivalent). It will be over a five-year period. The project would be

financed by a standard IDA credit payable over forty years with a ten year grace period. A

SIL is proposed for this operation because of its flexibility to support a broad range of project

activities in the participating states.

30. Parallel co-financing of GBP 70 million (approx USD$110.7m)18

in grant financing

has been approved by DFID, and their project operations have been underway since April

2010. A further US$100 million credit is under discussion with AFD, to be delivered through

parallel financing. The task team and Government counterparts will also seek additional

financing from other donors during implementation. The Bank and DFID have pledged to

continue consultations with other financing agencies, most notably the United States Agency

for International Development (USAID), the African Development Bank (AfDB) and the

German government during implementation as these agencies have already expressed an

interest in supporting the project development objectives and the two former agencies are

working jointly with IDA and DFID on the CPS II which was approved in July 2010.

16 See later for more breakdown of component activities and funding, and Annex 5 for a detailed budget. 17 The term „project‟ is used throughout the document to refer to the joint activities of DFID and the Bank relevant to GEMS.

The project is made up of IDA- and DFID- funded components and sub-components. 18 $/GBP rate used through this PAD is 1 GBP = 1.58094, correct as of 14th December 2010

9

31. The project will be implemented over a five-year period from effectiveness to six

months prior to project completion. The project is expected to close on December 30, 2016.

The project design, structure and implementation plan will allow it to achieve the main

development objectives and performance indicators (see below and Annex 3).

B. Project development objective and key indicators

32. The GEMS Project represents a broad multi-donor initiative of which IDA will fund

certain components and sub-components. The Project Development Objective is to: increase

growth and employment in participating states. This will be addressed by improving the

Investment Climate (Component A, funded directly by DFID) and by strengthening industry

competitiveness and job creation in selected states (Component B, funded in part by IDA),

and by leveraging impact beyond immediate stakeholders and target areas (Component C,

funded by IDA). The Project will deliver three outcomes:

(i) An improved investment climate that reduces the cost and risk of doing business

providing a greater incentive to invest (linked to Component A). This will be

measured by improvements in the ease of doing business especially the time taken

to start up and register a company;

(ii) Increased job creation in key sectors (linked to Component B); and

(iii) Increased growth in key states driven by increased investment both foreign and

domestic (linked to Component B).

33. The project will also provide for effective monitoring, evaluation and dissemination

of information to provide valuable lessons which, through communication and peer learning,

help to leverage the project impacts (Linked to Component C).

34. The project will be delivered through Nigeria‟s Federal Ministry of Commerce and

Industry. The annual allocations for spending across the four target states and FCT will be

determined through annual work-plans and budgets. The Federal PIU will manage the

procurement and oversight for the project. The states will not be involved in fund flows but

will play an instrumental role in contributing to the preparation of the work plans and budgets

(to be collated by the Federal PIU) and facilitating coordination through the state growth

committees.

35. Support to deliver Outcome 1 will focus initially in four states: Kano, Kaduna, Lagos

and Cross River. Additional focal states will be added according to demand, needs assessed,

growth potential in relevant industry sectors, favorability of context and availability of funds.

Outcome 2 will focus on these four states plus the FCT, while working in other states as

required by value chains that do not fit neatly within state boundaries. Anambra or Enugu as

a growth pole for the South East zone is likely to be included once the project has been

established and has the capacity to support further expansion. If conditions in the Niger Delta

region improve the project may also support development efforts possibly focused around

youth employment and/or oil-related services in that troubled region.

36. The complete set of performance indicators and the methodology required to monitor

them is found in Annex 3.

10

C. Project Components

37. The proposed project comprises three components;

A. An improved investment climate;

B. Increased competitiveness of strategic clusters; and

C. Effective project implementation, monitoring and evaluation, and

communication.

38. IDA will finance component C and the following strategic clusters; under Component

B: ICT, Entertainment, Hospitality and Wholesale and Retail trade.

39. Annex 4 provides a summary description of the components and activities under the

project while a comprehensive description is provided in a note on file. The salient features

are described below.

Component A: Improved Investment Climate

(US$75 million equivalent which will be fully funded by DFID)

40. The Investment Climate Assessment highlighted three key areas of weakness in

Nigeria‟s current investment climate; Energy, Transport and Access to Finance. With

infrastructure and access to finance addressed by other operations, GEMS will focus on

improving the business environment19

, the next most important cause of Nigeria‟s poor

investment climate. DFID and the World Bank are piloting reforms of land and tax

administration under the Investment Climate Program (ICP) in all four GEMS focal states.

GEMS will consolidate and deepen ICP progress as follows.

41. Land: ICP has developed a strategy to address the causes of low investment in land

development. This builds on the successful land administration modernization work of the

DFID Security, Justice & Growth Project. Action plans based on this strategy have been

agreed for Kano and Lagos and will be developed for other states. There is tremendous

appetite for reform as agencies stand to earn higher fees from a greater volume of land

transactions. GEMS will provide the technical and financial assistance required covering the

following areas.

a) Design and install an effective system for making serviced land available for

development. Access to land was ranked highest of the business environment

constraints in the Nigeria Investment Climate Assessment (ICA). This will be

addressed by improving land planning, greater use of public-private

partnerships to develop land and auctioning, rather than administered,

allocation of land.

b) Develop more simple and transparent procedures for investors to acquire

secure title to property and reduce the cost of land transactions. Secure title

exists for just 3 percent of land, preventing the poor and businesses from

using it to raise finance20

. The length of time and cost of obtaining title make

19The business environment is a sub‐set of the investment climate and includes the administration and

enforcement mechanisms established to implement government policy, as well as the institutional arrangements that

influence the way key actors operate – Donor Guidance on Business Environment Reform, DCED , 2008. 20 See for instance, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, Hernando De

Soto, 2000.

11

Nigeria one of the most difficult places to register property worldwide.

Surveys21

reveal tremendous variation between states suggesting huge scope

for improvement22

. Reducing the number of procedures, greater delegation of

authority and establishing electronic registries with computerised search

systems for all property records would reduce the time and cost of obtaining

title. The project will support experts and stakeholders in identifying and

removing the key obstacles through technical and financial assistance.

c) Simplify and streamline the procedures for obtaining planning consent and

construction permits to allow investors to develop land quicker and at a

lower administrative cost. The time and cost of obtaining construction

permits and utility connections is excessive, delaying land development: it

takes on average 350 days and 580 percent of national income in Lagos.

Other states also perform poorly so there is room for improvement in all23

.

Time and cost can be addressed by simpler, more transparent procedures,

better planning and better coordination between federal and state level. The

project will support experts and stakeholders in identifying and removing the

key obstacles, including through the provision of improved digitised

processing and data management.

42. Tax: The ICP‟s pilot work has revealed that GEMS can improve tax administration

through:

a) Improved capacity and incentives for Boards of Internal Revenue (BIRs):

GEMS will train officials in tax assessment and administration and explore

ways of providing greater autonomy to BIRs so that tax officials may be better

remunerated.

b) Establish better systems of tax administration: GEMS will support BIRs to

improve the efficiency and transparency of tax administration by

computerising tax assessment, payment and the issuance of tax clearance

certificates. The project will support both technical assistance and hardware.

c) Reduce multiple taxation: State and local government areas (LGAs) may

attempt to collect over 150 taxes and levies. Many are without legislative

backing and do not generate much revenue, but do provide the pretext for

officials to predate on businesses and citizens. GEMS will provide the

technical assistance to focus states and LGAs to reduce multiple taxation and

move to a system of a fewer, more easily administered taxes.

d) Tax payer education: GEMS will help increase the amount and quality of

information available to tax payers by assisting BIRs to establish walk-in and

call centers for tax payer queries and complaints.

43. Investment Promotion & Facilitation: The discovery of new opportunities for

investment is undermined by information failures. The Nigerian Investment Promotion

Commission (NIPC) is responsible for investment promotion federally. NIPC is not able to

21 Doing Business in Nigeria, World Bank & IFC, 2008 and 2010 22 In Kano, it takes on average 31 days to register property, in Kaduna 130 days. The administrative cost of registering

property amounts to 10.8percent of its value in Kano, 20.9 percent in Lagos. 23 Kaduna performs best requiring 125 days and 643.8 percent of income per capita compared to 350 days and 580.3 percent

of income in Lagos, the worst. There is much scope for improvement even in Kaduna

12

reflect the opportunities and priorities of individual states to attract investment, prompting

some states to establish their own investment promotion agencies24

. However, they lack the

know-how, and infrastructure to do so effectively.

44. The process of obtaining the approvals, licenses and permits businesses need to

operate is not transparent and can take many months, adding to the cost and risk of

investment. At Federal level, NIPC has established a One Stop Investment Center (OSIC),

bringing together 16 agencies in one place to process investor applications, reducing the time

taken from months to days. The main bottleneck now is at state level where the investor may

need to obtain approvals from a plethora of agencies. The states are keen to establish OSICs

but have very limited experience in this.

45. GEMS will (a) support the federal OSIC to undertake a process of simplifying

procedures for agencies involved, thereby establishing a model that states can follow and (b)

provide the technical assistance to participating states required to establish effective

investment promotion systems and support in the four states.

46. Flexible Facility including Peer Learning: It is the aim of the project to leverage

impact throughout Nigeria. This will be achieved in case of investment climate reform

through the use of (a) a flexible facility used to exploit identified new opportunities for

reform and (b) through peer learning activities. Both will be used in response to opportunities

as and when they are identified.

47. To respond to new opportunities to promote investment climate reform, this DFID-

funded and administered component of GEMS will provide a pool of unassigned funds – the

„flexible facility‟. When the conditions for success are favorable, as identified by

stakeholders, the project will allocate funds to address new areas of reform against agreed

reform deliverables. Reform opportunities identified will not differ significantly from those

areas described above, being limited by definition to those that support the investment

climate. The flexible facility will allow the project to respond to reform opportunities where

political will, technical feasibility and impact potential are identified. With adequate political

will, for example, the reform of customs would be an obvious example: the time and cost of

clearing shipments through Nigeria‟s ports and land borders is amongst the highest in Africa,

contributing to poor competitiveness of all industries.

48. Peer learning activities will work in support of the aims of the flexible facility and the

project more broadly, by strengthening demand for reforms and promoting good practice at

the federal and state levels. For example, lessons learned from improving the tax

administration system in the focal states will be shared through the Joint Tax Board25

. Peer

learning may also cover workshops, study tours, some communications activities etc.

Component B: Increased Competitiveness of Strategic Clusters

(US$172 million equivalent of which IDA will contribute US$140 million equivalent)

49. This component includes interventions in six promising value chains to increase

growth and employment. Five of these sub components will be funded by the IDA; and two

by DFID. IDA will also support „Additional Cluster Development Activities‟. This element is

24 Cross River has already done so and the other three are at various stages of planning. 25 The Joint Tax Board brings together all the state boards of internal revenue and the Federal Inland Revenue Service

(FIRS).

13

included in order to allow the program to respond positively, through similar interventions, to

new opportunities that are likely to arise during the project for which financing is not

available. This could involve the expansion of work on one of the six selected value chains to

a new state, for example. In contrast to Component A, activities under Component B will

focus on specific industries, and will include activities such as „performance grants26

, public

private dialogue, infrastructure investment, and market analysis, as well as some industry

specific legal and regulatory reforms. In the DFID funded sectors, Service Providers will

undertake a thorough mapping of the sector and stakeholders, and help establish a „Cluster

Stakeholder Group‟ to inform and oversee interventions. This preparatory work has been

completed by IDA staff working closely with public and private sector stakeholders for the

remaining sectors. The precise combination and delivery mechanisms of the interventions

will vary according to sector. A very brief summary of the six intervention areas, and the

additional cluster development activities, is presented below and the details are available in

the various annexes to the PAD and the notes on file.

Information and Communications (ICT): (US$50 million fully funded by IDA).

This sector is growing at over 30 percent per annum and attracts US$3-4 billion of

investment annually. Continued growth is made likely by strong demand for new products

and technology, and access to submarine cabling. The industry is creating 150,000 formal

jobs per annum, 10,000 of which are for new IT graduates. Developing high labor use sub-

sectors, such as call centers and software services, could substantially increase employment

in well paid jobs for school leavers.

The objective of this value chain intervention is to address the binding constraints to the

sector‟s growth focusing on issues including infrastructure, skills, access to finance and other

BDS, and industry specific regulation. GEMS will work on ICT clusters in all four focal

states as well as Abuja where call centers and ICT parks are emerging.

The project will support:

a) An improved enabling business environment for IT and Information

Technology Enabled Services (ITES)

b) Investment in ICT infrastructure, including IT parks and broadband

connectivity

c) Development of ICT and entrepreneurial capacity within public and private

institutions through training and development grants27

, technical assistance

and facilitating creation of a network of IT businesses

d) Development of the local IT industry through improved market information

services, market research, promotional activities, grants for programmes

designed to strengthen business associations and , and technical support to the

Outsourcing Development Initiative of Nigeria (ODIN).

Direct beneficiaries will include ICT firms and their current and potential employees, and

consumers - including businesses and public sector institutions - of improved ICT services in

Nigeria. As a direct result of the project, for example, it is expected that some 174

government Ministries, Department and Agencies will be linked to broadband networks. It

26 Performance grants are awarded on a competitive basis to businesses to incentivize them to address market failure in ways

that produce positive development outcomes. 27 The business incubation grants and the training grants will not be part of the performance grant system, and will be

awarded on a case by case basis according to criteria devised by service providers during the inception phase.

14

has been estimated that a 10 percent increase in telephone penetration rate over the long run

is likely to register a 0.6 percent higher annual growth in GDP. The intervention aims to

generate 15,000 extra jobs over 5 years.

Entertainment: (US$25 million fully funded by IDA). The Nigerian film industry

euphemistically known as “Nollywood” is the most prolific film industry in the world with an

output of 40 films a week. It is the world‟s third largest by value, estimated at US$250

million per annum. The music industry is estimated to be of similar size. Strong demand

domestically and from consumers in Sub-Saharan Africa and the large African diaspora is

driving growth. Employment is estimated at 350,000 formally and as much as one million

informally. Growth could be much faster if the loss of revenue from piracy, which deprives

the industry of up to US$1 billion in revenue annually, can be addressed.

The objectives of the GEMS intervention are to: (i) improve the protection of intellectual

property rights (IPR); (ii) strengthen formal marketing and distribution channels; (iii)

increase access to equity and loan finance; (iv) improve management and skill training; (v)

develop leasing and equipment hire services; and (vi) develop the national film institute to

serve as a center of excellence.

The project will fund:

a) Technical Assistance (TA) and training to support public sector capacity

building, public awareness building and law enforcement to reduce piracy.

Partner institutions include the Federal Ministry of Information and

Communication, the National Film and Video Censors Board and the National

Copyright Commission.

b) TA, training, financial support and performance grants to support improved

distribution through improved packaging and marketing, twinning with

established distribution networks, overseas marketing, film festivals and

improving access to finance

c) TA and financial support to a Nigerian film institution to provide studio space,

equipment, training and a focal point for the industry.

The potential beneficiaries will include up to one million plus employed in the production of

film and music content, and whose jobs and income depend on quality of product, effective

distribution and protection from piracy. The industry will benefit from improved

coordination, more investment, faster growth, and the creation of up to 50,000 additional jobs

over five years.

Hospitality: (US$25 million fully funded by IDA). The hotels and restaurants sector is

growing at 11 percent p.a. In the domestic market, business travel is booming and a leisure

travel market emerging. In the international market, visitor numbers are amongst the highest

in Africa (more than three million visitors annually) though most are visiting friends and

relatives or business travelers28

. Driven by greater participation of women in the work force,

the trend towards convenience foods is driving a catering boom. The fast food industry is

growing at 40 percent p.a. The industry currently employs 150,000 formally but several times

that number informally.

28 The country attracts over 3 million international visitors, largely business visitors from neighboring countries and the

Nigerian diaspora visiting friends and relatives

15

The objective of this GEMS component is to improve industry growth and job creation

through improving i) access to land; ii) protection of and investment in visitor attractions; iii)

relevant skills; iv) institutions for marketing and standards enforcement; and v) efficiency and

inclusivity within supply chains. GEMS will focus on Lagos, Kano and Cross River,

recognized growth poles for the industry29

.

The project will fund:

a) TA to ensure that planning guidelines and regulations protect tourism assets

and provide for the needs of the catering industry and the process of obtaining

permits and licenses is streamlined;

b) Technical and financial assistance to ensure natural and cultural assets are

developed to provide an attractive, authentic and socially and

environmentally sustainable experience to visitors using Public Private

Partnership (PPP) arrangements.

c) Financial incentives (ie performance grants) to encourage investment in

innovative new business models and technologies;

d) Technical and Vocational Education and Training (TVET) pilots;

e) TA to support institutional strengthening within the hospitality industry

improving capacity to pursue policy change, upgrade products, ensure health

and safety of visitors and employees and promote better environmental

stewardship.

The potential project beneficiaries include those who fill the expected 10,000 job positions

created; those in industries such as agriculture, construction and transport benefiting from the

externalities of a stronger hospitality industry; employees benefiting from increased skills,

incomes and working conditions.

Wholesale & Retail Trade: (US$30m fully funded by IDA). This is the largest part

of Nigeria‟s underdeveloped service sector accounting for 17 percent of GDP. Growing at 13

percent per annum, the industry employs 500,000 in the formal sector and nearly 10 million

informally. Growth and incomes would increase substantially if the high levels of waste30

and

inefficiency in the industry were reduced. Kano and Lagos have huge wholesale/retail

clusters, including West Africa‟s largest markets, but there are significant clusters in Kaduna

and Cross River that GEMS will also target.

The objective of the GEMS interventions will be to maintain industry growth and boost

employment through efficiency improvements The project will aim to i) increase income

opportunities and reduce waste by increasing investment in better storage, distribution

systems and market infrastructure; ii) promote better business models to reduce transaction

costs in the traditional wholesale/retail system and make the emerging modern retailing

system more accessible to small suppliers; and iii) improve the enforcement of weights and

measures, food safety and product standards to increase consumer confidence.

The project will fund:

29 The country‟s Tourism Master Plan prioritizes the three states. 30 Estimated at 30percent-40percent for perishable and 20percent for non-perishable products

16

a) TA and financial assistance to support investment in physical market

infrastructure to increase space and improve handling and storage facilities,

solid waste disposal and storm water drainage;

b) TA and financial assistance/performance grants to support innovation of new

business models and technologies that will help to reduce transaction and

coordination costs and waste and are inclusive of small producers;

c) TA and financial support to market associations to develop and enforce private

standards, including weights, measures and product standards, and ways to

improve health and safety and environmental impacts;

d) TA, training and financial support to federal agencies and local governments

to improve the enforcement of health and safety and product standards and to

provide evidence for policy advocacy and reform.

Beneficiaries will include the 2-3 million employed in the sector across the four target states,

who will benefit from greater efficiencies in the supply chain, increasing incomes, and from

improved working conditions. Consumers across Nigeria should benefit from reduced cost of

food, and from greater confidence in standards. At least 5,000 formal jobs are expected to

result from the interventions.

Construction & Real Estate: (US$21 million fully funded by DFID). This is a

relatively under-developed industry (less than 2 percent of GDP) that is nevertheless growing

at 12 percent per annum. The demand for housing, commercial property and civic

infrastructure is buoyant. The industry is labor intensive employing some 2-3 million people

directly and a similar number in supplier industries such as wood and metal fabrication. The

major issues include access to serviced land and skill shortages that are causing the industry

to import labor31

. Up to 35 percent of skilled labor in Lagos is made up of foreigners as local

labor lacks the relevant skills.

The objective of the GEMS intervention is to improve industry growth and job creation

through improved; (i) access to serviced land; (ii) project management and vocational skills;

(iii) access to finance; (iv) systems of construction permits and standards; and (v) improved

public-private coordination. The largest cluster is in Lagos but the other three focal states also

have significant construction industries.

The project will fund:

a) TA and financial assistance to improve skills development systems and

institutions;

b) TA to improve access to finance;

c) Performance grants to incentivise innovation in business models and

technology;

d) Analysis and technical assistance to support policy advocacy and reform.

The key beneficiaries include an estimated 20,000 workers with improved skills and income

potential; those filling the estimated 20,000 additional jobs created; one million plus

benefiting from improved working conditions; and consumers benefiting from reduced prices

and better enforcement of appropriate standards.

31 Up to 35percent of skilled labor in Lagos is made up of foreigners as local labor lacks skills

17

Meat & Leather: (US$11 million fully funded by DFID). Meat consumption is

growing at 6-7 percent annually and would grow faster if its high cost could be reduced32

.

About one million households keep livestock in Kano and Kaduna and sizeable numbers are

employed in slaughtering, butchering and trading livestock in these states. Incomes earned by

farmers are low because of poor animal husbandry and a hugely inefficient supply chain that

transports animals, not meat, to the South.

The leather industry is Nigeria‟s largest source of non-oil exports and has experienced a

phenomenal recovery in recent years. Nigerian sheep and goat skins are regarded as amongst

the best in the world. Direct employment is limited to 10,000 directly but the sale of skins

constitutes part of the value of animals which are kept widely in the North (see above). A

major issue for the industry is the inadequate supply of good quality skins which is limiting

growth and employment. This is closely related to the poor state of abattoirs in the North.

Other issues include; (i) high cost of finance; (ii) inadequate power supply. The leather

industry of Nigeria is focused on a single cluster in Kano which will be assisted to increase

growth and employment. Ensuring that women benefit will form an explicit target for this

intervention.

The objective of this GEMS component is to reduce the constraints and inefficiencies which

restrict growth and employment in the industry. The interventions will: (i) support

investment in abattoirs in the North to supply more and better quality meat to the South (ii)

improve animal health and nutrition by training private sector para-veterinarians; (iii) support

feed suppliers to develop a market for feeding ruminants; (iv) improve food safety throughout

the meat chain; and (v) generate efficiencies within the international leather value chains. The

important clusters are in Kano, Kaduna and Lagos.

The project will fund:

a) Facilitation of investment to private sector to improve supply of higher

quantity and quality of meat and leather;

b) Grants and technical assistance to improve public sector capacity within the

sector;

c) TA and grants to support meat and leather industry product development and

business models;

d) Development of improved food safety initiatives;

e) Support to private and public sectors to strengthen the investment climate

specific to the sector.

The main beneficiaries will be the approximate one million households that keep animals in

Kano and Kaduna State, who could benefit from estimated 20 percent higher prices for their

herds. The interventions should generate 5,000 new jobs. Consumers will benefit from

improved quality and safety of meat, and lower prices.

Additional Cluster Development Activities: (US$10 million fully funded by IDA).

The remainder of the project finances may be used to support additional cluster development

activities within Component B of the project, similar to those described in the six value

32 Meat consumption per capita is lower than neighboring countries.

18

chains described above. This will allow the project to respond flexibly to a dynamic and

developing agenda, and will enable it to exploit opportunities to expand the project impact in

a cost effective way. For example it may become clear that a major bottleneck in a given

supply chain actually occurs outside of the states initially identified. The GEMS National

Steering Committee (NSC), in collaboration with the PMU, will develop suitable criteria for

inclusion of such additional activities in order to maintain the focus and ensure the efficiency

of this sub-component. Activities that meet the eligibility criteria will be appraised approved

and included in the relevant annual work plan and budget for funding on a first-come, first-

served basis thereby ensuring that the project channels funds to the most proactive and

successful reform areas.

The process for the identification of such activities has been outlined in the project

implementation plan. The process ensures that money is only allocated to well prepared

activities that include a suitable ToR, procurement timeline and are tied to government's

stated reform objectives as agreed with the Bank. Key milestones for each additional cluster

development activity would be submitted that would allow the central FPIU to supervise and

monitor the activity going forward.

50. Performance grants have proved to be a valuable method for cultivating ideas from

the private sector, testing out new innovations and scaling up successful examples. Each

cluster will benefit from performance grants to incentivize the private sector to develop new

ideas, move up the value chain and increase productivity and performance levels. Since the

issues to be addressed in each value chain are markedly different, each value chain will have

its own dedicated performance grants. In order to ensure that the private sector players have

an important monetary stake in each initiative the grants will be restricted to matching funds

up to 50 percent of the total budget.

51. The performance grants will be managed within the IDA funded clusters by the

Federal PIU with the assistance of grant committees for the relevant sectors and within the

DFID funded clusters by the relevant designated service provider. The grant committees are

likely to include public and private sector representatives and could also include members

from the state technical committees and/or the cluster stakeholder groups. The composition of

the grant committees will be subject to approval by IDA. The performance grant program

will operate on a transparent and competitive basis, modeled on the „Challenge Fund‟

approach successfully used by DFID and IDA in other projects. Relevant businesses will be

invited to submit proposals for matching funding (at least half to be provided by the business)

to reduce the cost and risk of investments that address systemic market failures. For example,

within the hospitality industry, grants may be used to support the establishment of a

franchising business model, or to support the development of new Business Development

Services (BDS). The grants will finance eligible expenditures (goods and services) required

for such activities, in accordance with the approved grant activity proposals and budgets.

52. The IDA funded grants will be appraised and approved by the relevant grant

committees and the Federal PIU, and will be managed by the Federal PIU which will enter

into grant agreements with the relevant grant recipients. However, approval of both the

committee composition and each round of awards will require „no objections‟ from IDA.

DFID will approve performance grants within the DFID funded components managed by the

respective service providers contracted by DFID. The size of the minimum and maximum

grants, the detail of their operational mechanisms and the criteria through which they will be

19

awarded will be determined by the FPIU in consultation with IDA and DFID during the

inception phase of each sub-component.

53. The grants will be used for productive purposes, comprising goods, works and

services as specified in grant agreements in each case. All the payments for grants to the

beneficiaries will be made centrally from the designated account managed by the FPIU, based

on accounting documentation submitted and duly verified. Such accounting documentation

would be retained at the FPIU for purposes of audits.

54. The grants are likely to vary somewhat between sectors. The details of the eligibility

criteria, appraisal and approval procedures, grant contracting arrangements and templates,

beneficiary target groups and phasing of the program will all be included in a special grants

manual (to be attached as an addendum to the project implementation manual) which will be

subject to approval by IDA as a condition of disbursement.

Component C: Project Implementation, M&E and Communications

(US$20 million fully funded by IDA)

55. In a large country with a federal structure, reforms need to be proven in a few states

and clusters where conditions for success are favorable to deliver tangible results. The

demonstration effect will be leveraged by high quality monitoring, evaluation, and reporting

systems, as well as a communications project that will disseminate lessons learned widely to

influence other states and industries. The peer learning and M&E built into interventions

described above will be supplemented by a strong lesson learning and communication

capability at the apex of the project.

A Federal Project Implementation Unit (FPIU), staffed by officials of the Federal Ministry of

Commerce and Industry has been established, using the project preparation facility funding

during the project preparation stage. It will be responsible for project management,

procurement and financial management, delivered with the support of a commercially

tendered Project Management Unit (PMU). The (PMU), reporting directly to the FPIU, will

serve to carry out financial management, work planning and reporting, Monitoring and

Evaluation (M&E) independent of implementing service providers, identify lessons learned

and communicate them widely to influence other stakeholders within the purview of the

project and wider afield. The PMU will also manage the procurement of World Bank funded

sub-components33

, including the selection of service providers, and the procurements and

disbursements pertaining to each industry cluster funded by the Bank. In addition DFID is

funding a full time private sector development adviser to be seconded to the Bank for the

duration of the project to provide oversight of project management.

(i) Project Management: The project will support incremental operating costs

related to the FPIU. This sub-component will cover the costs of equipment,

vehicles, minor civil works such as office rehabilitation, and other operational

and maintenance expenditures. It will also cover the costs of implementation-

related studies, and the costs of the PMU.

33 The PMU will not be responsible for procurement within the DFID funded sub-components. These DFID funded service

providers will report directly to DFID. The PMU will, however, coordinate reporting, lesson learning etc over the whole

GEMS project.

20

(ii) Monitoring and Evaluation: The project will finance the establishment and

operation of a results-based monitoring and evaluation system including

maintenance and management of the management information system and the

associated training costs. The project will fund baseline surveys as well as

periodic impact assessment surveys during project implementation. The

delivery of the M and E will be one of the responsibilities of the PMU.

(iii) Project coordination: The GEMS project encompasses a complex array of

stakeholders and institutions including at least seven Service Providers (SPs),

Cluster Stakeholder Groups (CSGs), State Growth Committees (SGCs), and a

range of related DFID and World Bank programs. The PMU will be tasked

with ensuring information sharing and potential synergies are maximized,

whilst reducing the risk of duplication or misaligned objectives amongst the

different actors.

(iv) Environmental and Social Management: The project has funded the costs of

implementing a comprehensive Environmental and Social Management

Framework (ESMF), Resettlement Policy Framework (RPF) and Pest

Management Plan (PMP) which includes the preparation and implementation

of Resettlement, and Environmental Management Plans and pest control

measures as required in accordance with the ESMF, RPF and PMP. The

project will also use the M&E system to monitor the various aspects of the

environmental and social management measures. The project will develop

comprehensive analysis and strategies relating to gender, and the economic

empowerment of disadvantaged groups.

(v) Strengthening Government Institutions: The project will support technical

assistance and training for Federal and State level government employees and

consultants required to successfully implement the project. It is expected that

this support will include state level coordinators, contracted through the FPIU

as independent local consultants, as well as their accompanying costs such as

vehicles, equipment, office space and other incremental operating costs. The

proposed project would also fund training and capacity building for full time

government officials domestically and internationally as appropriate.

(vi) Communications Strategy: In order to maintain support for national growth

objectives, government intends to undertake a communications campaign that

will raise awareness of the benefits of an improved investment climate,

increasing liberalization of factor markets, improved competitiveness and

introducing increased private sector participation in all aspects of the

economy. A major goal of the communications campaign will be to encourage

open and transparent, two-way communications and to build support among

key interest groups and the public at large for the growth agenda. This

component will help the project achieve its objectives as well as demonstrate

results. The country-wide effort to involve and inform stakeholders of the

reform process is likely to begin with a detailed segmentation of the key

stakeholders and will result in customized strategies to reach as much of the

population as possible especially those in the rural areas. The communications

strategy will consist of (i) outsourced public relations campaign to “sell the

growth agenda”, and (ii) two-way dialogue between government

21

representatives and reform stakeholders in the private sector to inform and

refine the process.

56. The dedicated service providers appointed for each intervention will be tasked to

ensure there is effective M&E and lessons are learnt and communicated to the rest of the

industry thereby leveraging the results of activities carried out in strategic clusters.

57. The following table summarizes the sources of financing. See Annex 5 for more

detail:

Table 1: Sources of Financing

Component DFID funding IDA funding COMPONENT A

Improved Investment Climate $75.09m

COMPONENT B

ICT $50m

Entertainment $25m

Wholesale/Retail $30m

Construction $21.34m Hospitality/tourism $25m

Meat and Leather $11.07m Additional Cluster Development $10m

COMPONENT C

Project Implementation, M&E and

Communications $2.37 $20m

TOTAL $110.67 $160m

22

Box 1: Establishing Baselines & Quantified Targets

D. Lessons learned and reflected in the project design

58. Maintaining the reform momentum: Broad-ranging improvements in the investment

climate and in infrastructure provisions through regulatory, institutional reforms and sector

investment are typically done with national coverage. However, experience shows that such a

strategy does not bring results in the short-term, and, more important, does not necessarily

allow the emergence of a better business environment to foster private sector investment.

Given the importance of a reliable business environment for the success of this project, a

combination of targeted investments and regulatory reforms focusing on: (i) regulation and

taxation; (iii) finance and infrastructure; and; (iii) customs reforms, will be financed through

the project. The project will focus on quick-wins in order to generate sustained support for

the broader reform program.

59. An integrated approach: Delivering sector investments sequentially will not yield the

expected results and the project will not reach its objectives until the platform for growth is

completed. Each sector investment implementation schedule will be carefully timed to

coincide with other sector investments in order to allow the delivery of the integrated services

essential to the platform, which will then support economic growth. The integrated approach

is a results-based approach combining all segments of the project to attain one single

objective.

60. A regionally focused approach: An emerging lesson from other growth projects is that

a regionally focused approach to development in response to private sector demand might

better enhance impacts on growth and poverty reduction. Focusing on selected areas allows

optimal allocation of scarce public resources and strategic deployment of limited institutional

The program‟s goals of growth, incomes and jobs in selected states will need to be translated

into quantified targets against which progress will be tracked. At this stage, initial baselines

have been derived from the Nigerian ICAs, and from the global and sub-national Doing

Business Surveys. Targets around job creation and other cluster specific targets will require

significant analytical inputs to establish, and will be finalized after an initial Inception Phase.

During the first six months after its commencement, under the supervision of the GEMS

PMU, each Service Provider supporting the GEMS components 1 and 2, will be tasked to

conduct baseline assessments and agree with their strategic oversight body (SGCs and/or

Cluster Stakeholder Group) targets for relevant output, outcome and impact indicators. The

indicators will demonstrate a clear logic model for how activities and output will combine to

deliver outcomes and impacts identifying process milestones that are critical for the logic to

hold.

This is likely to result in a more detailed GEMS logical framework that reflects the realistic

ambitions of its stakeholders. The overall log frame, developed by the GEMS PMU, will be

linked to individual log frames for each intervention. These revisions may result in a

restructuring of the results framework, attached at Annex 3.

23

capacity. It also achieves the critical mass of inputs required to generate sustainable growth

and build best practices for future initiatives.

61. Decentralized and independent implementation arrangements: The Madagascar

Integrated Growth Poles Project (Cr. 4101-MG)demonstrated that to achieve better

ownership, accountability and monitoring over the life of the project and to ensure quick

delivery of the planned investments, the project needs to be executed with one central

implementation unit reporting to a central Steering Committee with regional representations

in each regional pole concerned.

62. Building public private relationships: The recently concluded investment climate

assessment revealed that along with the fairly common list of investment climate constraints

there is a more fundamental problem of government credibility. A legacy of recent periods of

military rule, and a reputation for corruption, has generated a sense of mistrust towards the

institutions of government. For this reason the project will need to encourage sustained

public-private dialogue in order to rebuild trust. It will also support to other initiatives such

as the better business initiative and strategic partnerships with private sector oriented Federal

agencies such as the Nigeria Investment Promotion Commission (NIPC).

63. Establishing a forum for dialogue: Madagascar‟s experience indicates that the success

of the growth poles approach depends on establishing an institutional platform to foster

regular dialogue and a working, collaborative partnership amongst various stakeholders

including different line Ministries, the public and private sector as well as National and

regional/Municipal authorities and civil society groups. Such an institutional platform

requires high level oversight and direction at the level of the key implementing ministry that

is responsible for the conceptualization, design and implementation of the strategy. This

ensures that the interests of all the key stakeholders are addressed early in the project cycle.

64. Improving impact and sustainability: Previous reform oriented efforts have failed

because they remained only known to a select group of high level policy-makers in the

Federal government and a few members of the private sector. Successful efforts to reform the

business environment need to have a national brand with sufficient recognition and credibility

across a broad network of policy-makers.

65. The commitment of “champions”: Reforms in many countries have relied on the

presence and energetic commitment of champions. The downside, however, is that

dependence on a particular champion can put the project at risk should the individual not

remain in position. The project will need to maintain the buy-in from key ministries that it

currently enjoys, and broaden buy in across a range of federal and state level actors who are

necessary to move forward on targeted reforms.

66. Selectivity and sequencing: There are clear reform lessons emerging from several

developing countries concerning the prioritization of investment climate improvements. A

recently concluded Country Economic Memorandum (CEM) highlighted the “binding

constraints” to growth. The CEM looked at systematically identifying the key constraints and

the cost-benefit factors that could help to determine the best sequencing of reform actions.

The project has also been informed by the latest economic thinking on growth diagnostics

from the Harvard University growth team including Professors Rodrik and Hausmann.

24

67. Inter-state competition: Experience in India and other countries organized along

federal lines has shown that generating inter-state competition can have as powerful an

impact as national benchmarking. It can help to generate spill-over effects and foster

sustained demand for increasingly complex reforms. Benchmarking across the states also has

the advantage that it illustrates to other states what can be done within Nigeria. The current

investment climate and doing business surveys will therefore quickly be widened to cover all

36 states plus the FCT early during the project implementation period. The project will also

support peer-to-peer learning and build the capacity to carry out future state level diagnostics

and analysis.

68. The project draws a number of lessons from Independent Evaluation Group (IEG)

reports. The recent evaluation of state level programs in federal countries34

confirms the

desirability of such an approach in countries such as Nigeria, and the desirability of selecting

a few states. The IEG 2006 report on the World Bank‟s investment Climate approach35

urged

the World Bank to approach a balanced constituency for reform by making better use of the

World Bank‟s convening power to bring the government together with other stakeholders.

This partly informs this programs strong focus on public private partnerships and dialogue at

the centre of reform design and implementation. The project design also reflects the other key

recommendations within this report to identify and respond to political economy context, and

to use a critical mass of micro-economic reforms, rather than piggy backing small reforms

onto macro-economic adjustment operations.

E. Alternatives considered and reasons for rejection

69. Choice of instrument: The range of appropriate World Bank instruments was limited

from the outset. It is clear that with a project of this size a Learning and Innovation Loan

(LIL) would not be appropriate. Using an Adaptable Program Loan (APL) was considered

and might have been a useful option if other regional growth poles had not been ready to

appraise at the time of preparation. For these reasons the specific investment loan was

selected as the most suitable instrument.

70. Selecting an integrated multi-sector approach: This project is not designed as a

traditional single-sector project. The focus of the design is on the integration of all the

necessary infrastructure investments (soft and hard) that will allow the FGN to support

growth in selected sectors. The task team opted for a design demonstrating that the same

infrastructure can service a broad range of sectors, rather than just one. This design is new to

World Bank operations in the Africa region, and is expected to bring more tangible results on

the ground.

71. Coordination with other projects: Other projects within the World Bank‟s portfolio

are tackling similar issues with a value chain approach. For instance, the Commercial

Agriculture Development Project (CAD) proposes supporting oil palm and cocoa value

chains in Cross River. Rather than combine the two projects it was decided to keep them

separate. The task team will work closely with CAD colleagues on the palm oil and cocoa

initiatives but it will not be funded from the proposed GEMS project. In other areas that are

not being addressed by CAD, the current project will take the lead e.g. in meat and leather

and potentially in other areas that might be identified for funding under the flexible funding

34 IEG, 2009 „World Bank Engagement at the State Level: The Cases of Brazil, India, Nigeria, and Russia

Evaluation Summary 35 IEG, 2006: „Improving Investment Climates An Evaluation of World Bank Group Assistance

25

arrangements outlined above. In general the task team will focus this operation largely on the

non-agriculture related issues whilst coordinating closely with CAD to capture the synergies

available in the agricultural space.

72. Number of states: During the concept review, many observers felt that the

incorporation of three or four states would be too taxing in terms of management oversight

and might spread the project resources too thinly. However, in order to address complete

value chains across six industries in a meaningful fashion, the four key states needed to be

included. Additional funding from other donors may provide the opportunity for adding

further states upon request, and if value chain analysis is supportive, at a later stage of

implementation. IDA officially requested letters of commitment from the four focal states

and has since been working extensively with counterparts from each of the selected states.

73. Selection of states. States selection was based on the selected states representing the

key engines of growth for Nigeria, and having strong growth potential. This was confirmed

by the 2007 Nigerian Growth and Employment study. Their selection was also informed by

the location of the key industrial clusters identified, and by the governance of the states

meeting minimum requirements given by the Public Expenditure Management and Financial

Accountability Review (PEMFAR) and the Public Expenditure and Financial Accountability

(PEFA) analysis. The states also reflect the CPS agreed with DFID. No states from the south-

south or the south-east geo-political zones have been selected. However, the economic

rationale for the selected states is very powerful, and additional states may be considered

during implementation. Anambra as a growth pole for the South East zone could be included

once the project has been established and has the capacity to support further expansion. IDA

has had promising initial discussions with representatives of Anambra state and will build on

this base with diagnostic and feasibility studies in implementation. If conditions in the Niger

Delta region improve, the project may also support development efforts possibly focused

around youth employment and/or oil-related services in that troubled region. This will allow

the project to reflect another lesson within the IEG report on state level programs 41

; to mix

richer and poorer states to balance substantive progress with development impact potential.

74. Funding of parallel but separate operations: At the beginning of the preparation

phase the IDA task team considered separate parallel operations with its counterpart DFID

team. However, this had various drawbacks including the inability to leverage IDA‟s

concessional loans with DFID grants. It also reduced the total funds available. The

duplication of names and objectives was already beginning to confuse government

counterparts and other stakeholders. The teams decided therefore to prepare a single project

that would receive parallel co-financing and allow the space for additional financing

agencies, such as AFD, to come on board later. The two teams have carefully managed the

institutional expectations to allow them to come on stream together. In addition, the project

enjoys shared objectives and results framework36

. Restructuring of objectives and results

framework may occur as a result of new financing becoming available, although additional

activities and related results represent difference of degree (more outputs) rather than kind

(different outputs). The additional flexible funding that DFID was able to mobilize during

project preparation also proved extremely useful to the current operation.

36 However, due to differing administrative requirements, the final versions of these objectives and results frameworks are

not expressed in exactly the same formats or wording.

26

III. IMPLEMENTATION

A. Partnership arrangements

75. The GEMS project represents a strong partnership between FGN, DFID and the IDA.

It will be implemented with a common logical framework and apex level governance and

management arrangements to ensure strategic oversight, and coordination across

interventions supported by both development partners.

76. It is recognized that the IDA and DFID have different comparative advantages in

terms of type of financial instruments, flexibility of resource use and industry experience.

The management arrangements for individual interventions are designed to ensure timely and

relevant assistance drawing on the strengths of both organizations. IDA has the experience

needed to support the establishment of an effective National Steering Committee (NSC) and

Federal Project Implementation Unit (FPIU). The lessons learnt from that experience will be

harnessed for GEMs.

77. IDA will fund specialists, procured through FPIU, and its agent, the PMU, to support

Federal and state level agencies that are promoting and facilitating investment based on its

experience worldwide. The Bank has expertise in the service industries of ICT,

entertainment, wholesale & retail and tourism and will support FPIU‟s procurement of

specialist service providers who can command the respect of stakeholders for these

industries. Its loan instrument is particularly appropriate to these industries as they require

large scale investment in market infrastructure.

78. DFID and IDA will work together to support the establishment of effective State

Growth Committees (SGCs) in each of the four target states, building on those established by

the DFID funded and World Bank implemented ICP program. Advisers, contracted through

the FPIU, will be appointed to service them. The SGCs will be peopled by senior public and

private sector figures, who will provide guidance, advice and oversight of project activities in

a given state (see para 77 for further details). DFID has established a sound partnership with

Kano, Kaduna and Lagos state governments supporting improvements in governance,

business voice and health and education. The partnership represents a major asset for GEMS.

Recently, the CPS agencies, including the World Bank and DFID, signed MoUs with Kano

and Kaduna states in relation to development activities to formalize commitments to

partnership.

79. DFID has appointed a service provider to support business environment reforms.

DFID has considerable experience in supporting land and tax administration reforms at the

state level in Nigeria through the Security, Justice and Growth (SJG) program and the ICP.

Its grant instrument, flexible procurement procedures and ability to switch resources are well

suited to the unpredictable process of supporting policy and institutional change. DFID has

also appointed Service Providers to support stakeholders in the meat & leather and

construction industries. DFID has a track record in making commodity markets work better in

Nigeria and has been working on land issues that are central to the construction industry.

80. The GEMS project will seek support from further partners. The Agence Française de

Développement (AFD) have recently indicated their willingness to provide US$100 million to

enable the project to expand its impacts likely to be focused on strengthening access to

finance. However, the project as described here does not rely on this input to achieve the

27

objectives set out above. GEMS project will also engage the IFC in dialogue to identify

opportunities for additional targeted support. This is likely to include both direct investment

in certain value chains, and the provision of technical investment climate reform advice from

IFC‟s investment advisory services unit.

B. Institutional and implementation arrangements

81. Executing agency: The Federal Ministry of Commerce (FMOC) will have overall

responsibility for the execution of the project through the FPIU, based in the Directorate of

Trade, which will maintain day-to-day relations with the financing institutions. The project‟s

administrative and implementation arrangements will be handled by the FPIU, supported by

the PMU, while financial management will be handled by Federal Project Financial

Management Directorate (FPFMD) in the Office of the Accountant General of the Federation

(OAGF).

82. Project implementation period: The project will be implemented over a period of five

years from March 2011 – December 2016.

83. Strategic Oversight: Figure 5 below sets out the structure for implementing the

project. Strategic oversight and governance will be provided by a National Steering

Committee (NSC) to be chaired by the Federal Minister of Finance and include

representatives of the Ministries of Commerce, Information and Communication, the

National Planning Commission and other relevant sectors as appropriate. It has been

suggested that the National Economic Management Team (NEMT) could play this role since

it already includes the key ministries. Representatives of each focal state, and eminent people

from the private sector would also be invited to attend relevant meetings. The National

Steering Committee will set overall policy, take responsibility for deploying resources to

their most productive use and ensure the project is coordinated with FGN and state

government interventions. It will have the delegated authority to take decisions on behalf of

all key stakeholders including FGN, state governments, and DFID. As a strategic body it

would normally only meet bi-annually but it could meet more often if required. Within the

NSC, a finance and audit sub-committee will be constituted and would meet more frequently

to review the financial management and governance arrangements on the project.

84. Project Management: The NSC will be served by the FPIU housed within the Federal

Ministry of Commerce and Industry, and staffed by its officials. FPIU will procure the

services of a Project Management Unit (PMU) through commercial tender; a lean secretariat

responsible for coordinating the work of all components of the project and providing M&E,

lesson learning and communications functions. It will also procure all consultants, goods

works and services, with the exception of performance grants, where the grant recipients will

procure goods and services, on the basis of commercial practices where found acceptable to

the Bank. It will keep track of DFID-funded components which will, however, be procured

and accounted for directly by DFID. All IDA funded GEMS consultants will report to the

FPIU via the PMU, and both DFID Service Providers and World Bank funded consultants

will supply information to the PMU for the collation of consolidated GEMS work-plans,

budgets, and reports. The PMU will also be housed within the Federal Ministry of Commerce

and Industry.

28

85. The FPIU and its agent, the PMU, will work closely with the four State Growth

Committees, and the six Cluster Stakeholder Groups. The FPIU was established in October

2009 and comprises 12 members who are civil servants and take on their new roles in the

FPIU as part of their official duties: a project coordinator, his deputy, two project officers,

three monitoring and evaluation officers, a procurement manager, two specialist project

accountants, and a project auditor. It may also include engineers and other experts as

required, staffed either through official secondments, or procured through the PMU as

consultants. The FPIU‟s performance will be benchmarked against timely implementation of

the project work plans and will report to the Federal Ministry of Finance and to the National

Steering Committee when appropriate.

86. The main activities of the FPIU, and its agent, the PMU, will be: (i) implementation

of all IDA funded activities; (ii) annual consolidation of the work programs and budgets; (iii)

contracting and supervision for the IDA funded project; (iv) monitoring and evaluation of the

various activities supported under the IDA funded components; v) collation and presentation

of information across all GEMS components; and managing project communications.

87. The operation of the project will be governed by a Project Implementation Manual

(PIM). The initial PIM has been drafted by the FPIU and accepted by IDA. The PIM will be

updated throughout the life of the project, however, following Board approval the PIM will

be updated to include more details on the grant mechanisms and update on the procurement

and financial management arrangements if any have changed since the initial draft.

88. Financial Management will be handled by the FPFMD being established in the Office

of the Accountant General of the Federation. The FPFMD will be responsible for managing

all the financial affairs of the project including ensuring compliance with the financial

management covenants of the Financing Agreement and requirements of the Government,

and forwarding the quarterly unaudited interim financial reports and audited annual financial

statements to IDA.

29

Figure 4 – Project Governance and Management

89. State Growth Committees (SGCs) will ensure state level ownership and

coordination. They will be made up of representatives from government and the private

sector and will oversee and advise on project activities that occur in their states, ensure

coordination with the policy thrust of the state government and meet the evolving needs of

the private sector. The SGCs will report through the PMU to the NSC. The SGCs will be

serviced by state coordinators contracted by the FPIU/PMU who will support them in

ensuring that their own cohesive program of activities is developed and implemented

effectively. More information on the project implementation is provided in Annex 6.

C. Monitoring and evaluation of outcomes/results

90. Implementation support: IDA will devote substantial resources each year for

implementation support. The implementation support team will include World Bank and

DFID staff, with inputs from the IFC as and when they become involved (see above). During

the first two years, implementation support will focus on performance of the implementation

entities in establishing and managing project systems and plans. During subsequent years

implementation support will focus on progress in executing works, developing sector

strategies, and strengthening the capacity at the state level to sustain improvements in the

investment climate.

91. Monitoring: Overall project monitoring will be based on indicators confirmed at

appraisal and the project implementation plan to be finalized by the FPIU/PMU and to be

agreed during negotiations. Monitoring will be carried out by the FPIU/PMU, in coordination

with DFID funded monitoring and evaluation (M & E) systems, and assisted by consultants

Federal Public Financial Management Unit

30

as necessary. Progress under each project component will be monitored and coordinated by

the FPIU/PMU under the guidance of the NSC. Progress reports will be prepared by the

FPIU/PMU every six months, commencing in December 2010, and submitted to the IDA

within one month thereafter. No later than four months after the closing date of the project,

the PMU will prepare and furnish to the IDA a report on the execution of the project, its costs

and the benefits derived and future benefits to be derived from it. Annex 3 includes the

detailed key performance indicators for the project as a whole and for each component.

92. Reviews: Intensive implementation support by the joint task teams together with FGN

and the other involved parties will be carried out every six months. The FPIU/PMU will be

responsible for: (i) preparation of the necessary documentation for the reviews; and (ii)

planning of review meetings. During the first reviews, special attention will be paid to assess

private sector participation in the project activities throughout the selected growth poles.

Their views will be taken into account especially when reviewing the need to reorient some

activities.

93. The support provided under Component A Improvement in the Investment Climate

has already started under the ongoing Investment Climate Program (a DFID financed and

World Bank executed trust fund). This program provides suitable benchmarks of the

investment climate in the selected states. The project supports the roll-out of investment

climate surveys throughout the country and updates of those that have been concluded. In

other areas such as support to the entertainment industry very little data is available. The

existing surveys will be supported by baseline diagnostics prior to implementation.

94. Mid-term review: Given that the IDA and DFID task managers will be based in

Abuja, the project will be constantly supervised and monitored. An early mid-term review is

suggested depending on progress made. However the review will be carried out no later than

December 2013 by the World Bank and DFID together with the NSC, the FPIU/PMU, and

other relevant stakeholders. In addition to covering all the areas included in annual reviews,

the mid-term review will assess the implementation status of the national and regional

components, institutional and financial arrangements, improvements in the national and state

level investment climates as well as the project‟s continued fit with national and state level

developmental objectives.

95. Prior to the mid-term review, the Borrower will contract a consultant to review and

assess the progress of implementation and prepare the necessary documentation for the

review. The review will evaluate progress in reaching project objectives and identify

measures needed to reach objectives. Careful attention will be paid to: (i) the performance of

the FPIU/PMU in, amongst other things, addressing environmental and social issues in the

design and implementation of the different components; and (ii) the performance of the

FPIU/PMU in addressing fiduciary responsibilities. This will involve visits by specialists to

selected sites for first-hand assessment of executing entities' performance. They will assess

the environmental and social impacts of investments, both individually and cumulatively, and

the adequacy of safeguard procedures agreed for the project.

D. Sustainability

96. The sustainability of project benefits will depend on several factors, including,

financial sustainability of the project, ownership and recipient commitment, capacity of

31

stakeholders (Cluster Stakeholder Groups and State Growth Committees) and the broader

enabling institutional environment.

97. Financial sustainability of the project. The sustainability of the project benefits at the

state level depends on the financial soundness of the value chain interventions. The

interventions are based on solid analytical underpinnings that have identified the key drivers

of demand including, for example; a rapidly expanding population, change in consumer taste,

and increase in supermarkets. These factors will drive the market demand for increased

livestock and wholesale and retail operations. The construction boom in Lagos is clearly not

a short term phenomenon but based on a rapidly urbanizing population. The city remains at

the beginning of this demographic trend and with limited land and limited financing options;

there is clear pent-up demand in this sector that will be unleashed through project

interventions.

98. Ownership and beneficiaries’ commitment. The project has been tailored to national

development needs as expressed in the FGN‟s 7-point agenda, the NEEDS and SEEDS

documents as well as more specific industry strategies such as the Cluster Development

Strategy of the FMOC. It has also been adapted to the advice of other relevant stakeholders,

including private sector leaders in the various industrial sectors, and state and federal

government officials in relevant fields. This advice has been received during study tours by

consultants preparing the project, and through the workshops and committee meetings held

throughout related DFID and World Bank projects. The latter include the World

Bank/DFID‟s Investment Climate Program, MSME program and DFID Security, Justice and

Growth program. This inclusive approach to the design and implementation of the project

will ensure continued relevance to the beneficiaries‟ needs, and a national perspective and

ownership. Interventions at the state level will build on participative approaches and

collective decision-making to enhance the ownership and commitment of the beneficiaries.

The project will also contribute to the social mobilization and awareness creation at the state

level.

99. Capacity of Cluster Stakeholder Groups: The sustainability of the project benefits

depends on the durability of the CSGs as well as the capacities of their leaders and members

to manage the proposed project and future improvements and reforms. The project will make

significant investments in capacity building efforts through training and technical assistance

to build technical expertise, social capital and expand the knowledge frontier. In particular,

the CSGs will gain capacity in industry diagnostics, planning, and in respect to more

productive and transparent relationships with relevant government and non-government

agencies.

E. Critical risks and possible controversial aspects

100. The overall risks to the project are moderate. Nigeria has experienced periods of

political uncertainty, and GEMS will be implemented at a time of global economic

uncertainty. The federal system increases the complexity of achieving sustainable reform.

Since the return of democracy, FGN has made progress in improving governance. There is

now a strong consensus in favor of policies to sustain growth and macro conditions are now

more stable. Returns to GEMS depend upon incremental gains in investment and growth. So,

even if global economic conditions cause investment and growth to fall, provided GEMS is

able to achieve its purpose, it will still be able to provide attractive returns. An assessment of

32

the political economy of change and the possible controversial aspects of the project is

presented in the technical section of the appraisal summary.

101. Lack of capacity impedes timely project implementation. Lack of capacity at the

FPIU level, interference in project implementation or leadership changes may result in

implementation delays. To reduce this risk, several steps are being taken. First, the PMU will

be contracted, and they will retain responsibility for the implementation of the project,

provided that the project performance objectives, as set out in their terms of reference are

met. The performance objectives will be monitored by the NSC. Second, staff from the PMU

will be recruited on a competitive merit basis. Third, the World Bank‟s Country Office will

provide day-to-day support for project implementation. Finally, the project includes resources

for training, technical assistance, and institutional support, which will help build lasting

capacity of government and nongovernmental entities.

102. The risks to the proposed GEMS project may be categorized in four types: political,

economic, governance and project implementation. In general, it is possible to anticipate and

mitigate the most significant risks. The major risks, their probability and impact and how they

can be measured and mitigated are set out in the table below.

Box 2: Critical risks and possible controversial aspects

Risk Probability Impact Monitoring/ Effect Mitigation Risks after

mitigation

Political Risks

1. FGN and state

governments

withdraw support

for GEMS

2. Political Turnover

Low (1)

Medium

(3)

High

High

FGN fails to abide by

terms of IDA credit.

State governments do

not commit their

agencies to reform.

Key individuals leave

their posts

Regularly briefing

policy makers on

progress achieved.

State Committees

maintain pressure on

governments to honor

commitments.

Changes predicted and

prepared for to the

extent possible through

ongoing consultation

with stakeholders

Low (1)

Results may be

slow to materialize

which might also

thwart the pace of

the project.

Moderate (2)

Economic Risks

3. Global economic

trends cause a

severe recession

in Nigeria

reducing

investment &

growth

4. Nigeria‟s

financial system is

destabilized

causing private

credit to fall

reducing ability to

invest.

Moderate

(2)

Medium

(3)

Medium

Medium

Private investment falls

as % of GDP. Rate of

growth falls sharply.

Private credit as % of

GDP falls & ICAs

reveal access to finance

is a binding constraint

to investment.

Ensure GEMS increases

amount & productivity

of investment to deliver

incremental gains over

“without project” levels

DFID and World Bank

support FSS 2020 and

aligned programs.

The Bank is also

supporting improved

banking supervision and

financial disclosure

through another project.

Medium (3)

Unforeseen and

unfolding events

e.g. in banking may

hamper the

developmental

effects of the

project.

Moderate (2)

Governance Risks

5. Increased crime &

corruption reduce

the willingness to

invest.

Medium

(3)

Medium

Levels of investment.

ICA surveys.

Support public sector

governance reforms,

empower private sector

to hold government to

account via DFID‟s

ENABLE and SAVI

Medium (3)

Sophisticated levels

of corruption and

bureaucratic nature

of government

might make it

33

Risk Probability Impact Monitoring/ Effect Mitigation Risks after

mitigation

Financial

Management

6. Poor financial

controls lead to

mismanagement

of GEMS

resources.

Procurement

7. Procurement

related risks due

to lack of

manuals, lack of

capacity, lack of

adequate record

keeping and

management

systems, and

frequent political

interference in

procurement

systems.

Substantial

(3)

Substantial

(3)

High

High

IDA funds cannot be

accounted for.

Procurement not

transparently and

competitive done

projects.

Financial management

will be managed by

FPFMD which would

have a robust FM

arrangement. This

Directorate of the

OAGF is supported by a

Bank grant to ensure

effective operations.

The project will

competitively appoint a

firm for project

management i.e (PMU)

and will have among

the key staff

professionally qualified

and experienced

procurement. The FPIU

will also have a

procurement consultant

and who will work with

assigned Procurement

Officers and build their

capacity process.

difficult to identify

at the initial stage.

Medium (3)

Moderate (2)

Political

interference may

still be in place after

mitigation measure

are in place but

could be minimize

Implementation

Risks

8. GEMS National

Steering

Committee fails to

exercise effective

oversight and

governance.

9. Business

environment

reforms fail to

materialize

because agencies

are not committed

to the reform

agenda or

incapable of

implementing

them.

10. Stakeholder

groups prefer to

serve their own

narrow interest

rather than

improve industry

performance.

11. FPIU does not

have the capacity

or resources to

adequately deliver

their role.

Low (1)

High (4)

Medium

(3)

High (4)

Medium

Medium

High

High

GEMS funds are not

deployed to best effect

and progress is slow,

caused by poor

accountability for

performance.

Sub-national Doing

Business indicators

reveal lack of progress

focal states.

The M&E system

shows that GEMS funds

are benefitting only a

few firms.

Progress slows

Careful selection of

GEMS NSC.

Ensure State

Committees maintain

pressure on agencies to

deliver reforms,

including raising

concerns with the state

governor.

Careful selection of

stakeholder groups and

monitoring of their

allocation of resources

by service providers

and the PMU.

A contracted project

management unit will

supply project

management inputs

Low (1)

Implementation of

project will depend

on capacity of

appointees .

Medium (3)

Low (1)

Medium (3)

Partnership Risks

12. Implementing the

project through a

partnership with

Low (1) Medium Other donors may

decide to scale back

their efforts in response

to political drivers from

Future project officers

screened by all

members of partnership.

Low (1)

Constant efforts are

required by existing

and incoming

34

Risk Probability Impact Monitoring/ Effect Mitigation Risks after

mitigation

other financing

agencies

including bi-

laterals and multi-

laterals increasing

the

implementation

risks

headquarters. Extensive handovers are

undertaken when

project officers leave.

personnel to

maintain effective

partnership systems

F. Loan/credit conditions and covenants

103. In addition to the standard fiduciary (procurement, financial management and

disbursement) provisions, Project-specific covenants will include:

(i) Operation of the National Steering Committee and the Federal PIU.

(ii) Preparation of Annual Work Plans and Budgets and implementation of the Project

in accordance with the Project Implementation Manual, ESMF, RPF and Pest

Management Plan.

(iii) Terms and conditions applicable to the management of performance grants,

including a disbursement condition related to the adoption of a satisfactory grants

manual.

(iv) Submission of semi-annual progress reports and undertaking a mid-term review

of the project in consultation with IDA no later than 30 months after effectiveness.

IV. APPRAISAL SUMMARY

A. Economic and financial analyses

104. Though poverty is falling in Nigeria, the rate of poverty reduction needs to more than

double to achieve the first Millennium Development Goal (MDG 1). For the country to come

close to achieving this target, growth would need to almost double from its recent trend rate

of 6 -7 percent p.a. Despite the global downturn, Nigeria has strong macro fundamentals and

has started to grow strongly again after a period of weaker growth in 2008/9. Growth in 2010

is forecast to be close to 8 percent. Recovery to the long term trend rate is expected to be

gradual. Achieving MDG 1 may no longer be possible but, for rapid poverty reduction, the

recovery from the slowdown has to be stronger and faster than currently expected.

105. There are concerns over the elasticity of poverty reduction with respect to growth. In

recent years, growth has not resulted in sufficient formal sector jobs being created so that 92

percent of the work force remains informally employed. Having grown rapidly between 1999

and 2004, by 2006, incomes from self and wage employment were falling in real terms and

the growth of agricultural incomes is slowing.

106. With government expenditure and investment constrained by lower oil revenues,

faster recovery and poverty reduction depend on increasing private investment in the non-oil

35

economy. The non-oil economy that has been growing rapidly in recent years and from which

the bulk of the work force earn their incomes: oil accounts for just 0.15 percent of total

employment. Experience has shown that attracting greater levels of private investment does

cause rapid growth.

107. To date, only a few non-oil sectors have managed to attract investment and, by and

large, they have tended to be capital intensive (i.e. telecommunications, financial services,)

and so have not created many jobs What is needed is greater and more broad based

investment in industries that have low incremental capital to output ratios (ICORs) and can

create more jobs. This requires a better investment climate. Government, supported by

development partners, is now addressing the binding constraints to investment, infrastructure

and access to finance.

108. The Growth and Employment in States (GEMS) project‟s goals are growth, incomes

and jobs. It will build on efforts to improve the investment climate by improving the business

environment in selected states. Component A will lower the cost and risk of investment. It

will lower the cost of investment by addressing the long delays and high administrative

burden incurred in complying with business regulations. And, it will help to make business

regulations more transparent, thereby reducing the risk of investment. Along with efforts to

improve the availability of infrastructure and finance, this will increase the incentive for the

private sector to invest.

109. Component B will increase the competitiveness and returns to investment in selected

industry clusters. These have been selected for their potential contribution to growth,

employment and incomes and for their spillover benefits to other parts of the economy. They

form a large share of economic activity and employment in the states so that improving their

competitiveness should result in a significant increase in private investment and growth.

110. Using the Making Markets Work Better for the Poor approach (M4P), GEMS‟

interventions will address both government and market failures thereby delivering systemic

change. Apart from their effect on growth and competitiveness, interventions are designed to

increase job creation by increasing the demand for labor and boosting the supply of skills.

Whenever possible, they will aim to increase incomes of the poor, the young and women who

are particularly disadvantaged in finding attractive employment.

111. Component C will disseminate the lessons learned from GEMS implementation

thereby leveraging the gains from the first two Components. It will increase the demand for

additional reform of the business environment and motivate wider stakeholders in the

selected industries to take on the successful business models and technologies pioneered by

GEMS.

112. GEMS provides high returns to the US$270 million that DFID (£70 million/US$110

million) and the World Bank (US$160 million) intend to invest. Experience suggests that,

along with measures to reduce the binding constraints, improving the business environment

could easily boost growth by 2 percent p.a. by the end of GEMS‟ five year life. The four

states selected for GEMS have a GDP in the region of US$30 billion. This should result in

increased growth of US$600 million per annum by year five.

113. Even if a small proportion of this gain is attributed to GEMS (20 – 30 percent), the

project produces a net present value of US$300 million at the 10 percent real rate of discount

36

appropriate for Nigeria. This finding is confirmed by bottom up analysis of the six industry

clusters. Even with modest increases in competiveness, these industry clusters are capable of

exceeding US$600 million in incremental value added by year five. The full analysis is found

in a document on file.

114. GEMS aims to create 100,000 jobs at a cost per job of US$2700. This is on the low

side of cost per job in Nigeria (US$1,000- US$100,000). It will also raise incomes from

livestock of 1 million or so farmers in Kano and Kaduna by 20 percent and the incomes of the

2-3 million self employed in the four states in wholesale & retail trade by 10 percent.

115. Alternatives considered include focusing on the binding constraints to investment

alone. This was considered to offer lower incremental returns than the preferred deign

because of the fact that huge sums are already being invested for this purpose. The option of

taking on a broader agenda of reform across multiple states and industry clusters was also

rejected. In Nigeria‟s contested policy space, change is hard to achieve. It is better to focus on

a few states and industry clusters where the context offers reasonable assurance of success

and then to leverage impact, as GEMS seeks to do, than risk outright failure.

116. The US$270 million invested in GEMS‟ will deliver faster growth through greater

and more productive private investment in the non-oil economy of the focal states. It will

contribute to a better investment climate increasing the incentive to invest and improve the

effect investment has on growth and jobs in selected industries

117. Studies show that improving the investment climate in Africa can increase private

investment by 6 – 7 percent of GDP37

. Improvements in macro conditions alone have

increased private investment by 5 percent of GDP in Nigeria. So, it would be reasonable to

assume that, together with wider investment climate reforms, GEMS will boost private

investment by 3 percent of GDP. The increase in private investment is likely to increase

growth substantially. The 5 percent of GDP increase in private investment boosted Nigeria‟s

growth rate by 4 percent p.a. from the late 1990s to currently. Assuming that a 3 percent

increase in private investment would boost growth in the focal states by 2 -3 percent p.a.

appears reasonable, especially as investment will be drawn to non-oil industries with high

incremental capital ratios where GEMS will be working to improve competitiveness.

118. The four focal states have a combined GDP of approximately US$30 billion, roughly

25 percent of the country‟s GDP. Assuming that GEMS and other improvements in the

investment climate increase growth by 2 percent would result in benefits of US$600 million

annually. This should result in very high returns to the project even if the proportion of

benefits attributed to GEMS is modest (Table 2 below). The net present value of investment

would be over US$350 million at the 6 percent discount rate.

37 The Investment Climate in Africa from the Perspective of Private Investors. G. Iarossi, World Bank 2006.

37

Table 2: Returns to GEMS, (NPV $ million)

Incremental Growth of 2%

Discount Rates 6% 10% 15% IRR

5 Attributed to GEMS

20% 372.6 270.3 181.5 48.1%

25% 525.8 391.3 273.4 63.0%

30% 679.0 512.3 365.3 77.0%

119. In addition to its impact on aggregate growth, GEMS is likely to produce high returns

to investment in selected industries. For example, reducing the revenue lost by the

Entertainment industry to piracy by a quarter could increase the industry‟s contribution to

growth by US$250 million p.a., representing a huge return to the US$15 million that GEMS

intends to invest in that industry.

120. GEMS should have a significant impact on job creation, indirectly through higher

investment, and directly through cluster interventions. Across the 10 industries that it will

support, it should help to create an additional 100,000 jobs at a cost of just US$2,700 per job.

Nigeria has suitable labor laws. GEMS will help to provide the incentive investors need to

create permanent jobs formally.

121. In addition, large numbers of farmers and the self employed would have their incomes

boosted through increased efficiency of the markets in which they participate. This includes

the 2-3 million people involved in the four states in informal wholesale/retail and the one

million rural families in Kano and Kaduna that keep animals.

B. Technical

The Political Economy of Change

122. This section examines the extent to which GEMS is likely to be supported by sections

of society before turning to the challenges it is likely to face as a result of the political

economy of the changes it hopes to bring about.

Support for GEMS Objectives

123. As it is strongly aligned to locally owned development plans and poverty reduction

strategies, GEMS has received strong endorsement from FGN and state governments. The

wider political establishment is also supportive of the aims of the project as the need to

prioritize growth is not contested in the political discourse of Nigeria. In August 2010, the

GEMS PPF supported a successful NEMT initiative: the Growth and Employment Pact,

providing a forum for dialogue and agreement between GEMS sectors and FGN.

124. The private sector is supportive of GEMS and parts of the private sector have been

enthusiastic in wishing to participate in Output 2. In particular, GEMS has received support

because of its focus on tangible benefits at the industry level, rather than a purely investment

38

climate approach. Progressive parts of the private sector are therefore keen to participate in

Cluster Stakeholder Groups38

.

125. Community based organizations and NGOs addressing poverty alleviation may

perceive improving the business environment as insufficiently relevant to the needs of the

poor. It will therefore be important to communicate how through the Making Markets Work

Better for the Poor (M4P) approach GEMS will ensure that the poor benefit from cluster

interventions and reinforce that with communicating the impacts achieved, when data

becomes available.

126. GEMS‟ focus on job creation is expected to find widespread support, however, even

amongst NGOs. Despite the rapid growth achieved since the return of democracy, the

economy has failed to create sufficient jobs to cope with the growing work force and the

rapid pace of urbanization39

. The result has been that the proportion of the work force

employed in wage employment has declined40

. Though incomes have increased, informal

occupations are less remunerative compared to formal employment and the livelihoods they

provide are less secure, frequently in poor working conditions that subject workers to health

and safety risks.

127. Recognizing that the poverty, crime and violence that have become a major problem

in Nigeria is partly a result of the lack of jobs, the establishment and civil society are keen to

find answers to the pressing need to create jobs. By attempting to find answers, GEMS is

anticipated to receive widespread support.

Potential Barriers & Support for Change

128. Despite the wide support that the project‟s goals may command, it will face major

challenges in bringing about the policy and institutional reforms that it seeks. Nigeria is one

of the most complex societies in the world with hundreds of ethnic and linguistic groups and

religious differences. To this must be added the complexity of the political system with its

federal, sub-national, traditional and economic power bases41

.

129. In most countries, the basic social contract between the citizen, business and the state

is founded around taxation and its use by the state to provide services and public goods. In

Nigeria, the social contract is generally perceived as weak as the state relies comparatively

more on oil for its revenues, than on taxes paid by businesses and households. Many state

level governments get the majority of their revenue from the Federal government, based on

an agreed formula for revenue sharing, although they also raise a proportion of their revenue

internally from within the state, mainly through income and employee taxation. The result is

that government interests are arguably less aligned with private sector development than in

countries which depend on a thriving, diversified private sector for tax revenues. It is notable

that Lagos state, which has the highest proportion of internally generated funds (IGR), is also

one of the most progressive in pursuing pro-growth policies and reforming institutions.

38 The World Bank has supported the establishment of stakeholder groups for the ICT, Tourism and Entertainment industries

that have already made progress in developing proposals to address competitiveness and returns to investment. The

GEMS PPF supported a „Growth and Employment Pact‟ where the groups where able to identify priorities and agreements

in their sectors with the FGN in August 2010. 39

Employment, Unemployment, Joblessness and Incomes in Nigeria: 1999-2006, Francis Teal & Luke Haywood, CSAE,

2008 40 Evidence on the rate of job creation and incomes is presented in the Economic Annex. 41 Drivers of Change in Nigeria: Towards Restructuring the Political Economy; Chris Heymans & Christopher Pycroft, June

2005.

39

130. Policy making can be unpredictable as power is often perceived to be vested in

individuals rather than embedded in formal institutions42

. Such instability undermines the

incentive to invest and makes gains in reform difficult to sustain as policy makers change.

Policy and institutional reform that will strengthen the role of institutions rather than

individuals, as championed by GEMS, will thus be challenged.

131. In a context of a poorly paid civil service, change may be impaired by inertia. The

joint World Bank, DFID Investment Climate Program (ICP), and DFID‟s Security Justice and

Growth (SJG) Program have found that reform progress is likely to be greatest where public

servants perceive directly the gains from reform. SJG made significant progress in reforming

Lagos‟s land registry partly because the Ministry of Lands stood to benefit from the greater

revenues that faster land registration provides.

132. The greatest challenge in improving policies and institutions lies at state and local

government level43

, where GEMS will focus. Building capacity to implement reform is not

sufficient to deliver reforms44

. Reform also depends on the interaction of structural and

institutional factors and agents of change in leadership positions.

Component A: Improved Investment Climate

133. Under this output, GEMS will address legal and regulatory reforms and strengthen

institutions, mainly at the state level, though it will also work with Federal level ministries

and development agencies (MDAs). We consider possible barriers to and support for the key

reforms that GEMS intends to bring about.

134. Land Administration: Land ownership, transfer and development are severely

undermined by several fundamental causes in Nigeria, leading to court cases and even

conflict:

(i) only 3 percent of land covered by secure title

(ii) land vested in state with approvals/permit systems cumbersome and

discretionary

(iii) overlapping claims, in part caused by overlapping sources of authority in land

allocation

(iv) compensation for compulsory purchases set very low, and administered poorly

135. The GEMS approach will be to simplify, make transparent and speed up the processes

associated with securing title, transfer, development and compensation. This approach may

encounter resistance from those who stand to benefit from the status quo. The GEMS SP will

need to exploit countervailing incentives such as the state‟s interest in increasing revenues

from efficient land systems, and other benefits of change. This will require high quality

analysis and presentation of data to key parties, and effective communication to build

coalitions for change amongst those benefiting from change.

42 Nigeria-The Political Economy of Change: Strengthening the Incentives for Economic Growth. Pat Utomi, Alex Duncan

and Gareth Williams, September 2007. 43 Political Economy of Change. 44 Ibid.

40

136. Reform of Tax Administration. All four state governments participating in the

project are supportive of reforms to help improve revenue collection, and have already started

the process of reforming tax administration. Currently the system limits growth as a result of:

(i) giving discretionary power to tax officials or tax farmers

(ii) complexity and burden of paying taxes

(iii) local government and tax officials‟ incentives to limit transparency and complexity to

protect rents.

137. GEMS aims to make the incidence of taxes more transparent and reduce the

administrative burden that the payment of taxes imposes on businesses and citizens. Support

is likely from state governors, many of whom have made increasing internally generated

funds a priority, but resistance from some officials may be high.

138. Measures to strengthen the coalition for reform are likely to include:

(i) building state and local capacity to increase the yield from legitimate taxes,

levies and fees;

(ii) motivating state legislatures to pass legislation that makes it illegal for LGAs

to collect any taxes, levies and fees that do not have legal backing.

(iii) tax payer education and better sources of advice on taxation (such as walk-in

tax advice centres) which have a crucial role to play in improving the

transparency and efficiency of the tax system.

(iv) establishing One Stop Shops for tax payment, helping tax officials identify

with its goals

(v) encouraging government leaders to increase revenue through provision of

evidence of the costs and potential of the current system.

139. The flexibility facility is intended to respond to new opportunities for deepening

business environment reforms. It is important that, in selecting new areas or states for GEMS

to work on, attention is given to the political economy of change and, especially whether

there is sufficient committed leadership and political will for undertaking the reform.

Component B: Increased Competitiveness of Strategic Clusters

140. Issues of political economy will also affect the policy and institutional reforms needed

to address the government failures that constrain growth and job creation in industry clusters.

Each industry will throw up its own issues and challenges but there are a set of common

issues that will affect all, as discussed below.

141. Reform of trade policy: In a number of instances (construction, wholesale & retail),

improving competitiveness will, ultimately, require lowering trade barriers. Trade policy is

often the subject of strong contestation between powerful competing interests.

142. The GEMS response should be the provision and dissemination of robust evidence of

the effect of the policy options on the public interest, in support of coalition building. GEMS

should also consider the potential incentives for reform for those perceived to be adversely

affected by such policies.

143. Public private partnerships (PPP): GEMS clusters will require PPP either to facilitate

investment by the private sector or to enable the use of publically funded assets by the private

41

sector. PPP arrangements in Nigeria have often been weakened by non-transparent

frameworks for participation. Negotiated agreements have also had to be renegotiated, or

even abandoned, when they were found to be lopsided in favor of the private sector, thereby

putting off other investors.

144. GEMS SPs will thus need to help state governments develop transparent frameworks

and consult widely before PPPs are implemented. The offer of funds for investment by

GEMS will need to counter the influence of those who may wish to use PPPs for rents or

patronage.

145. Reform of technical & vocational education and training (TVET): Improved TVET is

required throughout GEMS clusters. However, reform in the financing and management of

TVET may encounter resistance from certain public sector incumbents. This is why GEMS

SPs will need to be sensitive to the interests of the state funded TVET system. GEMS can

encourage participation by showing the benefits that could accrue to public sector providers

as a result of reforms, or by offering incentives in the form of investing in the upgrading of

publicly funded institutions so that they can also supply good quality services to GEMS

146. Strengthening Enforcement: Much of the institutional change GEMS seeks to bring

about will take the form of better enforcement: of health and safety legislation in the work

place; food safety and product standards; weights and measures and legislation to protect the

environment. GEMS SPs will need to overcome both weak capacity and those whose

interests are harmed by enforcement.

147. SPs will need to demonstrate to businesses that compliance can bring benefits. For

example, better health and safety have been shown to increase productivity. Environmental

compliance can reduce consumption of energy or costly chemicals. Transparency also

reduces costs for business. However, this may not always be possible and, in these cases,

public communications around the public interest benefits that are likely to flow should

become the focus.

148. Engaging with the private sector: Engaging with the private sector through

performance grants and other partnerships risks the capture of public funds by a small group

of businesses to reinforce their market power. The project runs the risk of alienating civil

society if it is viewed as supporting the interests of big business at the expense of the poor.

149. There are a number of in-built mechanisms that should mitigate these risks. Firstly,

each cluster intervention will be informed by the M4P approach which makes improving the

outcomes for the poor an explicit deliverable of the intervention. Performance grants are to be

awarded using the challenge fund mechanism which is transparent and open to all comers.

Nevertheless, care will need to be taken by those responsible for awarding grants to avoid

project capture. And, the communication function of the project (Component C) will need to

proactively communicate how the activities undertaken under Component B will serve the

public interest and benefit the poor, not just businesses.

42

Component 3: Monitoring and Evaluation and Communication

150. It is easier to achieve reform by focusing on selected states and industries. But to

maximize impact, the project needs to leverage its impact by disseminating lessons learned.

Communication will also need to show that the interests of groups affected negatively have

been recognized and that measures can be put in place to mitigate adverse impacts.

Otherwise, there is a danger that the messages put out by the project will be rejected out of

hand.

151. The communication function of the project (Component C) will be a vital tool in

reform strategies. It will need to pay particular attention to:

(i) motivating the leadership;

(ii) promoting transparency and accountability through public and official education;

(iii) empowering constituencies by providing evidence in support of reform; and

(iv) communicating the benefits of reform measures.

C. Fiduciary

152. The overall FM risk in the project is moderate. Appropriate FM staff will be assigned

by the Accountant General for the FM of the project in the FPFMD, while a finance officer

will be located in the FPIU. The internal audit unit in the FPMD would carry out a risk based

audit. All FM staff would require training and exposure to Bank FM and Disbursement

procedures.

153. Formats of unaudited interim financial reports, annual consolidated financial

statements and terms of reference for the auditor will be agreed with the borrower. A

Designated Account will be opened by FPFMD with a commercial bank. The FPFMD Project

Financial Procedures Manual (FPM) will be updated to incorporate specific financial

management arrangements and chart of accounts.

154. Measures to mitigate FM risks and strengthen the financial management system

include setting up of accounting systems as well as appropriate FM staffing at the FPFMD

and proper internal control and governance structures. Detailed internal control framework

and risk management strategy will be outlined in the FPM. The detailed Financial

Management and Disbursement Arrangements are presented in Annex 7.

155. Procurement. A Bureau of Public Procurement has been established at the Federal

tier by an Act of the National Assembly, with the support of the Bank and other development

partners, and this has strengthened procurement practices. Furthermore, the Federal

Government of Nigeria has issued circulars for the establishment of a procurement cadre in

the federal civil service. At the state level, the Governors‟ Forum has in principle adopted the

concept of Public Procurement similar to the federal model for this tier of government.

However, the process of institutionalizing this is still at its infancy and is being supported by

another Bank financed project - SGCBP II. Substantial progress in procurement reforms has

been made at the Federal Government level. The contract administration in the public sector

has improved thereby leading to improved value for money in public expenditure. As part of

implementation of the public procurement Act, the Bureau of Public Procurement has issued

procurement Regulations and Manual that guides the operations of procurement functions at

the Federal Public Service. BPP has further issues other procurement tools - Standard

Bidding Documents for procurement of Works, Goods and Consultant Services. Bidding

43

opportunities and contract awards for major contracts are now widely published in National

Dailies and Government established Procurement Journal.

156. The Federal Ministry of Commerce and Industry (FMoCI) will have overall

responsibility for the execution of the project through the Federal Project Implementation

Unit (FPIU), based in the Directorate of Trade, which will maintain day-to-day relations with

the financing institutions. The project‟s administrative, financial and implementation

arrangements will be handled by the FPIU. The FMoCI has already established a FPIU but it

does not have previous experience in implementing Bank funded projects and therefore have

limited knowledge of Bank‟s procurement procedures. Therefore to ensure efficient and

effective project implementation, and for the purpose of implementing this project, the FPIU

implementation functions including procurement, will be delegated to an experienced

Management Consulting firm, who will form a Project Management Unit (PMU). The

Consulting firm shall be hired by FPIU through a competitive process. The recruitment

process will give adequate consideration to appropriate skills mix in terms of their personnel

with particular attention to Bank procurement procedures experience. To foster ownership,

the FPIU will have coordination role for the PMU functions.

157. The FPIU is currently headed by a Deputy Director of Trade and other assigned staff

among which is a Procurement Officer and an Assistant. These two procurement assigned

staff do not have prior experience in implementing Bank funded project. In view of this and

the magnitude of the coordination roles mentioned above, there is a need to strengthen

immediately, the procurement unit of the FPIU with a Procurement Consultant for a period of

two years. The procurement Consultant will assist the FPIU in its day -to -day coordination

role in the area of procurement and provide on the job training to the FPIU staff. The

procurement staff will further receive additional formal procurement training on Bank

financed procurement procedures from relevant training institutions, such as Lagos Business

School, Ghana Institute for Management and Public Administration, Eastern and Southern

African Management Institute, etc on a continuous basis. Above measures will ensure that

adequate procurement capacity exist in the FPIU by the end of project implementation. In

view of all of above, the procurement risk at the project level is substantial until the capacity

of FPIU is built. The complete procurement arrangements are found in Annex 8.

158. “Guidelines on Preventing and Combating Fraud and Corruption in projects Financed

by IBRD Loans and IDA Credits and Grants”, dated October 15th

, 2006 and updated January

2011, shall apply to the project.

D. Social

159. The overall social impact of the GEMS project is expected to be positive.

Specifically, the job creation and employment opportunities in the project activities would

lead to improvement in the socio-economic status of the poor including vulnerable groups

such as women and youths. The GEMS project is not expected to lead to any large scale

acquisition of land, displacement of people or prevent people from access to their usual

means of livelihood. However, land will be needed to be set aside for the location of critical

infrastructure. World Bank safeguard policy on involuntary resettlement (OP/BP 4.12) is

triggered.

44

160. Finally, inclusive consultation process of the project and involvement of non state

actors such as NGOs and CBOs in the monitoring and evaluation of project impacts would

lead to social accountability, transparency and openness. To address these social issues, the

Environmental and Social Management Framework and Resettlement Policy Framework

(RPF) were prepared by the project proponents. The ESMF and RPF contain sections dealing

with social issues including consultation and communication strategy. In particular,

consultation held with stakeholders during the preparation of the ESMF and RPF will

continue during implementation. The ESMF and RPF have been reviewed by the World Bank

and subsequently disclosed country –wide and InfoShop prior to appraisal. Overall, the

project is not expected to have any profound adverse impacts.

E. Environment (Category B : Partial Assessment)

161. The Nigeria Growth and Employment in States Project (GEMS) is not expected to

have profound environmental and social impacts. Accordingly, the project is classified in EA

Category B meaning that the potential adverse environmental impacts of the Project‟s

activities will be small-scale and site-specific and thus easily remediable, as is typical of

category B projects. Considering the activities that will be funded by the project, the overall

environmental and health impacts of the project will positive.

162. The GEMS project will not entail large scale use of chemicals. However, the project's

activities include support for meat production and leather tanning that could lead to the

proliferation of pests and use of chemicals though at limited scale. As part of safeguard due

diligence, the borrower has prepared and disclosed a Pest Management Plan (PMP) country-

wide in Nigeria and at World Bank InfoShop.

163. These potential impacts of the project will be prevented or mitigated through the

implementation of the environmental and social management framework prepared by the

project proponents. During project preparation the exact location and potential adverse

impacts were not known in sufficient details. The borrower has therefore prepared

Environmental and Social Management Framework (ESMF), Resettlement Policy

Framework (RPF) and integrated Pest Management Plan (IPMP). These documents have

been disclosed in Nigeria in March 2010 and World Bank Infoshop prior to appraisal.

164. In addition, the borrower has demonstrated its commitment to mitigating adverse

social and environmental impacts in the implementation of a range of World Bank projects

including category A projects. There are adequate legal and institutional frameworks in the

country to ensure compliance with World Bank safeguards policies triggered by the GEMS

project. The GEMS project will fund the implementation of ESMF, RPF and IPMP including

the capacity building needs of the federal ministry of environment as identified in the three

documents. The project management unit will recruit an environmental specialist to be

responsible and accountable for all safeguards issues. He or she will be supported by

consultants to be engaged on needs basis. Besides, the safeguards specialists in the World

Bank team will provide additional guidance as required.

45

F. Safeguard policies

165. The GEMS project triggered the following World Bank safeguard policies:

Environmental Assessment (OP/BP 4.01); Involuntary Resettlement (OP/BP 4.12), and Pest

Management (OP/BP 4.09). Three safeguards instruments of ESMF, IPMP have already been

prepared, reviewed, approved and publicly disclosed in Nigeria and World Bank InfoShop.

Safeguard Policies Triggered by the Project Yes No

Environmental Assessment (OP/BP 4.01) [X] [ ]

Natural Habitats (OP/BP 4.04) [ ] [X]

Pest Management (OP 4.09) [X] [ ]

Physical Cultural Resources (OP/BP 4.11) [ ] [X]

Involuntary Resettlement (OP/BP 4.12) [X] [ ]

Indigenous Peoples (OP/BP 4.10) [ ] [X]

Forests (OP/BP 4.36) [ ] [X]

Safety of Dams (OP/BP 4.37) [ ] [X]

Projects in Disputed Areas (OP/BP 7.60)* [ ] [X]

Projects on International Waterways (OP/BP 7.50) [ ] [X]

G. Policy Exceptions and Readiness

166. No policy exceptions are sought for this project. The key staff of the PIU have been

hired or seconded by government. The project implementation manual has been adopted.

The procurement plan has been agreed. The PPF has been made effective and is already

disbursing.

* By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on

the disputed areas

46

Annex 1: Country and Sector or Project Background

NIGERIA: Growth and Employment in States Project (GEMS)

PROJECT RATIONALE

1. This section sets out the broader context within which GEMS will be implemented.

The sections that follow address how GEMS will deliver its outputs. They provide an in-

depth analysis of interventions in each sector. The full analysis is presented in a document on

file entitled “Expanded Country Analysis”.

The Importance of Private Investment

2. The Growth and Employment in States (GEMS) project aims to contribute to reducing

poverty in Nigeria, Africa‟s most populous country. The project objective is to promote

growth, incomes and jobs and improve the investment climate in selected states.

3. Over the past decade, Nigeria has made significant progress in reducing poverty due

principally to rapid and sustained non-oil growth. Between 2002 and 2007, non-oil growth

averaged 8.1 percent p.a. Poverty incidence fell by some 12 percent from 1996 to 2004.

4. However, poverty incidence remains high, at 54 percent in 2004, and the rate of

poverty reduction needs to increase two and a half times if the country is to achieve the first

millennium development goal. This requires the rate of non-oil growth to average 15 percent

p.a. between 2010 and 2015, a challenging target given current global economic conditions45

.

5. In the past, rapid growth has not been accompanied by job creation. Over 90 percent

of the work force is informally employed46

. Whilst incomes of the informally employed have

improved, the best opportunity to escape poverty and earn attractive incomes is limited to the

lucky few who have managed to find waged employment. Increasing the rate of job creation

is crucial for poverty reduction. Improving opportunities for the young to find jobs is

especially important as high youth unemployment47

is a contributory factor to crime and

violence.

6. An improved business environment in selected states. An improved business

environment will create the conditions for greater levels of private investment. Higher levels

of private investment are associated with faster growth and poverty reduction the world

over48

. In Nigeria, private investment will have to play the decisive role in increasing non-oil

growth and creating jobs. Public investment, which has been a significant contributor to

increased investment and growth in the past, is likely to be constrained by the fall in oil

revenues.

45 Growth and poverty reduction are discussed in the Economic Annex. 46 Employment, Unemployment, Joblessness and Incomes in Nigeria: 1999-2006, Francis Teal & Luke Haywood, CSAE,

2008 47 Like most African countries, open unemployment is low in Nigeria. Lack of jobs encourages the young to become

economically inactive, as discussed in the Economic Annex. 48 See Economic and Financial Analysis Note on File.

47

7. Traditionally, private investment has been low in Nigeria representing just 13.2

percent of GDP in 2004, well below the levels of comparator countries (c. 20 percent of

GDP). Private investment has been rising rapidly of late with both domestic and foreign

investment increasing. However, it remains below the level required to sustain rapid growth,

especially in view of the constraints on the growth of public investment. Projections are for

private investment to grow slowly over the next few years. This will not be sufficient to cause

the high rates of non-oil growth needed to reduce poverty rapidly.

8. Moreover, private investment has been drawn to only a few sectors of the economy:

in 2005, 75 percent of FDI was in the oil sector. Recently, a few other industries have also

managed to attract investment, notably telecommunications, financial services and large scale

food processing. This has resulted in very high rates of growth. For example, over the past 5

years, the ICT industry has averaged close to 30 percent p.a. growth. Nigeria‟s incremental

capital output ratio (ICOR) is high49

.

9. However, investment has been limited to those few sectors able to provide

exceptionally high returns to compensate for the country‟s poor investment climate which

increases the risk and reduces the returns to investment. Many sectors, with potentially high

ICOR‟s, have not been able to attract investment, limiting growth. Further, sectors that have

been able to attract investment have tended to be capital intensive limiting the effect of

investment on job creation.

10. So, greater private investment is required to maintain growth. In addition, if the

investment climate could be improved, it would be possible to attract investment to sectors of

the economy with high ICORs and greater employment intensity. This would help to improve

the productivity of private investment in terms of growth and employment.

The Binding Constraints to Investment

11. The binding constraint to greater and more widespread private investment in the non-

oil economy is infrastructure (power and transport) with low access and high cost of finance

following closely behind50

. Currently, lack of power from the grid causes investment costs to

rise, as all investors have to purchase generators, and the returns to investment are depressed

by poor competitiveness as self generated power is 3-4 times more expensive than power

from the grid.

12. The Federal (FGN) and state Governments recognize the importance of improving

infrastructure. FGN‟s 7 point agenda, which is essentially the country‟s development

strategy, prioritizes infrastructure as a means of achieving sustainable non-oil growth. Federal

and State Governments are supporting a series of public private partnerships to increase

power generation.

13. To date, although the sums allocated to infrastructure have been huge51

, investment

remains below levels required to meet the power needs of the country rapidly and the

effectiveness of investment leaves much to be desired. Nevertheless, it is clear that the

electricity deficit is being given the priority attention it deserves.

49 Nigeria Investment Climate Assessment. World Bank, 2008. 50 Nigeria: Growth & Competitiveness, World Bank Country Economic Memorandum (CEM), 2006. This finding is

confirmed by the World Bank‟s Nigeria Investment Climate Assessment 2008. 51 Estimates vary between US$13-18 billion.

48

14. The country‟s road density is low and the railways, essential for moving bulky

commodities at a reasonable cost across a country as large as Nigeria, barely function52

. High

transport costs reduce competitiveness depressing the returns to investment. The importance

of this constraint has also been recognized with the result that investment in roads is gaining

impetus at Federal, state and local government levels53

.

15. These efforts by Government to improve infrastructure are being supported by

Nigeria‟s development partners. The principal source of assistance is World Bank credits

backed up by technical assistance. DFID is providing technical assistance through its Nigeria

Infrastructure Advisory Facility (NIAF).

16. Access to finance for investment has been low in Nigeria. The ratio of private credit

to GDP, a causal factor in growth and poverty reduction, was only 22.8 percent of GDP in

200754

, much lower than comparator countries. And, the cost of capital was high, close to 30

percent when all charges were taken into account. Such a high cost of finance depresses

returns to investment, especially long term investment in fixed assets that is essential for

increasing the capacity of the economy to grow and to enable it to compete more effectively.

17. Since then, a combination of better macro management and financial sector reforms,

including increasing the minimum capital requirements for banks, has caused the availability

of credit to the private sector to rise rapidly: In 2008, it is reported that private credit rose to

43 percent of GDP. Much of this, however, was directed to personal loans. Surveys reveal

that less than 5 percent of businesses had access to a loan55

. The cost of finance has fallen to

23 percent, still very high in real terms (9 percent-10 percent), but the direction of change has

been encouraging.

18. With the binding constraints to investment being addressed, attention has switched to

other factors that are limiting investment. The World Bank‟s Investment Climate Assessment

(ICA) for Nigeria56

reports that businesses view a range of administrative and regulatory

factors that make up the business environment as the next most severe constraints after

infrastructure and finance. Access to land is particularly prominent but businesses also

mention a range of factors including tax administration.

52 IMF Article IV 53 The road deficit is greatest in rural roads which are financed by both Federal and local governments. 54 Nigeria: Employment & Growth Study, World Bank, 2009, Draft, unpublished/ 55 Nigeria Investment Climate Assessment. World Bank, 2008. 56 Nigeria Investment Climate Assessment. World Bank, 2008.

49

Table 1: Percentage of firms reporting major or very severe constraints

Source: Nigeria ICA, 2008

19. This perception of Nigerian businesses is substantiated by objective indicators.

Nigeria ranks 137 out of 183 in the World Bank‟s Doing Business index suggesting a very

poor business environment.

20. Returns to investment are depressed further by a combination of government and

market failures in markets served by many industries with high potential to contribute to

growth and employment. These failures result in low productivity and competitiveness as

evidenced by Nigeria‟s rank of 127 out of 139 in the World Economic Forum‟s

competitiveness index. Nigeria has fallen in the rankings in both Doing Business and the

WEF index in recent years.

Constraint TOTAL Small Med. Large Foreign Dom. Manuf. Retail OtherMore

industrialized

Less

industrialized

Better

regulatory

environment

Worse

regulatory

environment

Electricity 76% 77% 70% 75% 88% 76% 81% 67% 76% 76% 76% 78% 74%

Access to finance (e.g. collateral) 53% 59% 35% 11% 25% 53% 56% 56% 48% 49% 60% 55% 51%

Cost of finance (e.g. interest rates) 45% 50% 30% 22% 44% 45% 50% 45% 38% 43% 48% 47% 43%

Macroeconomic environment 29% 28% 32% 23% 19% 29% 30% 31% 25% 28% 29% 31% 27%

Transportation 28% 29% 26% 32% 39% 28% 33% 29% 21% 26% 32% 26% 31%

Access to land for expansion / relocation 25% 27% 20% 15% 40% 25% 29% 22% 23% 23% 28% 26% 23%

Corruption 25% 27% 17% 8% 29% 25% 24% 26% 25% 23% 27% 31% 18%

Crime, theft and disorder 23% 24% 19% 15% 28% 23% 20% 26% 25% 19% 29% 24% 22%

Tax rates 21% 21% 20% 14% 36% 21% 27% 19% 15% 20% 22% 27% 14%

Practices of competitors in informal sector 16% 17% 13% 11% 24% 16% 19% 14% 13% 14% 18% 17% 15%

Tax administration 14% 14% 15% 7% 24% 14% 18% 13% 9% 14% 14% 17% 10%

Political environment 13% 13% 14% 0% 14% 13% 13% 12% 14% 13% 13% 19% 7%

Business licensing and Permits 12% 13% 9% 0% 7% 12% 14% 12% 10% 9% 18% 14% 10%

Inadequately educated workforce 6% 7% 4% 4% 11% 6% 6% 6% 8% 5% 9% 8% 5%

Telecommunications 6% 6% 6% 3% 11% 6% 5% 5% 7% 4% 10% 8% 4%

Customs and Trade Regulations 5% 5% 7% 3% 13% 5% 4% 9% 3% 5% 6% 5% 5%

Labor Regulations 4% 4% 5% 0% 7% 4% 5% 3% 3% 4% 5% 5% 3%

State StateFirm size Ownership Industry

50

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies

NIGERIA: Growth and Employment in States Project (GEMS)

Sector Issue Project Latest Supervision

Rating (World

Bank-funded)

Summary of Project Date

IP DO

Growth and

employment

Micro Small

and Medium

Enterprise

Project

(P083082)

S MS $32 million support to

increasing performance and

employment levels of MSMEs

in selected non-oil industry

sub-sectors.

Closing

6/11

Infrastructure

gap/access to

market

Rural Access

and Mobility

Project Phase

1 (P072644)

MS MS $60 million support to

improving road access for

rural communities in Kaduna

state and improving

management of the state road

network in a sustainable

manner.

Closing

12/14

Infrastructure

gap/access to

market,

productivity,

Commercial

Agriculture

Development

Project

(P096648)

S S $150 million support to

strengthening agricultural

production systems and

facilitating access to market

for targeted value chains

among small and medium

scale commercial farmers.

Closing

12/14

Investment

climate

DFID

Investment

Climate

Project

ICP focuses on reducing the

cost of doing business and

improving firm

competitiveness at sub-

national (state) level

Growth DFID

PropCom

£17.5 million support to

improving the livelihoods of

the poor by facilitating the

development of viable

agricultural and service

markets

Access to

finance

IFAD Rural

Finance

Institutional

Building

Program

(RUFIN)

$27.17 million support to

improving livelihood and

living conditions of the poor

by improving access to micro-

financing on a sustainable

basis.

Productivity,

market

linkages,

competitive-

ness

USAID

Maximizing

Agricultural

Revenue and

Key

Enterprises in

Targeted

States

(MARKETS)

$25.1 million support to

improving technologies and

management practices and

strengthening market linkages

and promoting responsiveness

from farmers to demand-

driven competitive production.

51

Annex 3: Results Framework and Monitoring

NIGERIA: Growth and Employment in States (GEMS)

Introduction

1. The GEMS project proposes to benefit from best practice results measurement and

monitoring and evaluation. On the monitoring side, this will include third party results

monitoring while on the evaluation side it will feature randomized control groups as

explained below.

Third Party Monitoring

2. International experience largely from the human development and social protection

sectors has demonstrated that incorporating truly independent third party monitoring of

results can lead to better outcomes, provide voice and inclusion for beneficiary communities,

reduce waste and corruption and introduce transparency and savings into the process. Third

parties such as beneficiary communities, think tanks, universities other donor organizations

and NGOs can all be used where appropriate to monitor results. The M&E specialists within

the PMU will ensure that the project employs these best practice techniques working with

other donors, industry associations and chambers of commerce around the country to

accurately and independently monitor the results of the project.

Impact Evaluation

3. Donor projects are often criticized for having weak or nonexistent project impact

evaluations. Evaluations that are carried out are often not scientific or are not granular

enough to isolate the project impact from a range of other factors. The only way to avoid this

situation is to adopt a practice from the health sector – randomized trials with placebos and

control groups. The idea is to introduce new project financed initiatives randomly in some

areas and not in others [or to some people and not to others], and to measure how much

change occurred and at what cost. This approach is expensive but gives a much clearer sense

of which interventions are most cost-effective.

4. A robust IE requires a set of tools that will enable us to identify the true effect of a

program, separating the effect of other factors. These tools involve identifying what would

have happened in the absence of the program- creating a valid counterfactual. Counterfactual

analysis allows us to overcome the fact that we can never observe the same person with and

without the intervention at the same point of time.

5. At the appraisal stage, the project financed the training of four Nigerians including the

project coordinator and the procurement specialist in advanced impact evaluation techniques

in Dakar, Senegal. The task team will also collaborate closely with the Development Impact

Evaluation Group in DEC and the IFC to introduce best practice IE. A pilot is already

underway in collaboration with Bank Human Development teams support IT training in

Nigeria.

52

The Results Framework

6. The results framework below highlights the key variables that the M&E component of

the project will track during the implementation period of the project. Not all of the indicators

included in the results framework will be reflected in the project implementation status report

since not all the indicators are project related. There are several high level indicators such as

the networked readiness indicator, competitiveness of selected clusters or jobs created that

are not entirely within the control of the project. It is expected that the project will contribute

to these outcomes but they will depend on a host of other factors that are not under the

control of the project e.g. government spending on IT, international investment in the

telecoms sector, exchange rates, interest rate, overall growth, macroeconomic conditions and

the security situation. Nevertheless, it will be important to have a good idea of the overall

position of these variables and so they are included in the results framework as part of the

broader overall monitoring task. The Results Framework will be reviewed in early 2011, as

part of a review of the DFID funded components of the GEMS, which have been operating

since April 2010.

7. The investment climate and doing business indicators are collected in Nigeria on a

state by state basis. Comprehensive baseline surveys have been undertaken between 2007-

2010 through the Investment Climate Program (ICP) a DFID financed trust fund. The

ongoing work program of the ICP will be merged into GEMS once the project is operational.

8. The remaining baselines have been collected during the preparation phase. Other

baselines are not possible until implementation. For instance, it is impossible to get a baseline

figure for enterprises that are selected for performance or matching grants until they are

actually selected. Therefore, the remaining baselines will be populated during project

implementation.

53

GEMS Results Framework

PDO Outcome Indicators Use of Outcome

Information

To increase growth and

employment in selected

states through:

1. Addressing

causes of weak

business

environment

2. Promoting

growth in 6

industry

clusters.

1. Time required to start a business

Baseline Milestone 1 Milestone 2 Target Date

Kano3657

Kaduna34

Lagos -108

Cross River57

Kano

Kaduna

Lagos - 105

Cross River57

Kano

Kaduna

Lagos -90

Cross River50

Kano 36

Kaduna 34

Lagos -75

Cross River 45

2a. Growth rate of selected enterprises within target clusters58,

Baseline Milestone 1 Milestone 2 Target Date

n/a59 + 1% + 3% + 5%

n/a

Baseline +0% Baseline +10% Baseline +20%

n/a

Baseline +0% Baseline +5% Baseline +10%

2b. Number of direct beneficiaries benefitting from

employment and income opportunities (minimum % women)

Baseline Milestone 1 Milestone 2 Target Date

n/a 10,000 (33%) 50,0000 (33%) 100,000 (33%)

Will be collected

through doing business

surveys and will be

used to inform peer-to-

peer learning events and

as part of the oversight

of the ICP component.

Will be used to monitor

progress in selected

clusters.

Will be estimated on

overall basis based on

periodic surveys.

Intermediate Results

Results Indicators for Each Component Use of Results

Monitoring

Component A. Improved

Investment Climate

A1. Improved availability

of land for Development

A2. Reduced time for land

transactions cost and time

A1. Area of land released for development (by State)

Baseline Milestone 1 Milestone 2 Target Date

3% of land has

secure title.

Baseline +5% Baseline +15% Baseline +20%

A2a. Days to register property

Baseline Milestone 1 Milestone 2 Target Date

Kano-38

Kaduna-130

Kano-38

Kaduna-120

Kano-38

Kaduna-90

Kano-38

Kaduna-60

57 World Bank Doing Business team has baseline data for Cross River, Kaduna and Kano and is in the process of calculating

equivalent global rankings. 58 Incremental growth rate per annum above without project estimates of companies benefitting directly from GEMS

interventions 59 Not appropriate: baseline figures for firms and clusters will not be available until researched during inception phases

54

A3. Improved tax

administration

A4. Improved investment

facilitation

Lagos-82

Cross River – 63

Lagos-60

Cross River – 63

Lagos-40

Cross River – 40

Lagos-40

Cross River –

40

A2b. Cost of registering property as % of property value

Baseline Milestone 1 Milestone 2 Target Date

Kano-11.9

Kaduna-13.9

Lagos-22.2

Cross River –

23.6

Kano-11.0

Kaduna-13.0

Lagos-20.0

Cross River –

20.0

Kano-10.0

Kaduna-10.0

Lagos-15.0

Cross River –

15.0

Kano-9.0

Kaduna-9.0

Lagos-.12.0

Cross River –

12.0

A3a. Time for Tax payment compliance

Baseline Milestone 1 Milestone 2 Target Date

1120 hours 1000 hours 900 hours 800 hours

A3b60

. Number of tax payments

Baseline Milestone 1 Milestone 2 Target Date

35 33 30 25

A4. Time taken to obtain all approvals, licenses to operate

Baseline Milestone 1 Milestone 2 Target Date

Kano-75

Kaduna-61

Lagos-350

Cross River – 89

Kano-75

Kaduna-61

Lagos-300

Cross River –85

Kano-70

Kaduna-55

Lagos250

Cross River – 80

Kano-65

Kaduna-50

Lagos-200

Cross River – 75

Intermediate Results

Results Indicators for Each Component Use of Results

Monitoring

Component B. Increased

Competitiveness of

Strategic Clusters

Construction

Output

Cost/sqm.61

Jobs created

Meat & Leather

Meat – livestock output62

Para VETs trained

Increased incomes for women

Baseline Milestone 1 Milestone 2 Target Date

$450m66 +$0 +$15m +$50m

$ 2,500 2,250 1,750 1,250

Not applicable 1,000 10,000 20,000

Baseline Milestone 1 Milestone 2 Target Date

$ 550m +$ 10 +$ 50 +$100

5080 70 150 300

n/a Baseline +5% Baseline + 15% Baseline + 20%

60 The baseline figure is a 2008 figure based on Lagos. Updated baselines for each state will be estimated at project inception

through surveys. 61 Residential building per square meter. Figure for 2008.A new baseline figure will be established in 2010 along with a

without project projection. Milestones are incremental over without project case. 62 As above 66 Figure for 2008.A new baseline figure will be established in 2010 along with a without project projection. Milestones are

incremental over without project case

55

New private abattoirs

Leather % good skins

ICT

Network Readiness

Private investment attracted to ATV63,

Number of students trained and certified

Hospitality

output64

Increase in jobs in

beneficiary institutions65

New PPP arrangements in attractions

0 0 1 2

20%80 20% 25% 30%

Baseline Milestone 1 Milestone 2 Target Date

3.45 3.50 3.55 3.60

0 US$1m US$5m US$20m

n/a80 1000 3000 5000

Baseline Milestone 1 Milestone 2 Target Date

$2,700m +$0m $ 20m $ 50m

n/a

300 + 1,000 5,000

Not applicable

2 5 10

Intermediate Results

Results Indicators for Each Component Use of Results Monitoring

63 IT Enabled Services 64 As above. 65 As Above

56

Arrangements for Results Monitoring

Results indicators Baseline

2010

Year 1

2011

Year 2

2012

Year 3

2013

Year 4

2014

Year 5

2015

Reports

frequency

Data collection

instruments

Responsibility

Time required in starting a

business Kano3667

Kaduna34

Lagos -108

Cross

River57

Kano

Kaduna

Lagos - 105

Cross

River57

Kano

Kaduna

Lagos -90

Cross River50

Kano 36

Kaduna 34

Lagos -75

Cross River

Annually Doing Business

Indicators

ICP for the

baseline and

then GEMS

service

providers

Incomes of self employed in

wholesale / retail

n/a Baseline

+0%

Baseline

+10%

Baseline+20% Every 2-3

years

Beneficiary

surveys

Service

providers and

M&E

consultants

Incomes from rearing

livestock

n/a Baseline

+0%

Baseline +5% Baseline +10% Every 2-3

years

Beneficiary

surveys

Service

providers and

M&E

consultants

Increased job creation n/a 10,000 50,000 100,00 Not a project indicator but one that will be tracked

for information purposes.

Component A. Improved

Investment Climate

Area of land released for

development by state

n/a Baseline

+5%

Baseline

+15%

Baseline+20% Annually Surveys and

official

statistics

ICP Service

providers

Days to register property Kano-38

Kaduna-130

Lagos-82

Cross River – 63

Kano-38

Kaduna-120

Lagos-60

Cross River

– 63

Kano-38

Kaduna-90

Lagos-40

Cross River –

40

Kano-38

Kaduna-60

Lagos-40

Cross River – 40

Annually Doing Business

Indicators

ICP for the

baseline and

then GEMS

service

providers

Cost of registering property

as % of property value Kano-11.9

Kaduna-13.9

Kano-11.0

Kaduna-13.0

Lagos-20.0

Kano-10.0

Kaduna-10.0

Lagos-15.0

Kano-9.0

Kaduna-9.0

Lagos-.12.0

Annually Doing Business

Indicators

ICP for the

baseline and

then GEMS

service

67 World Bank Doing Business team has baseline data for Cross River, Kaduna and Kano and is in the process of calculating equivalent global rankings.

57

Arrangements for Results Monitoring

Results indicators Baseline

2010

Year 1

2011

Year 2

2012

Year 3

2013

Year 4

2014

Year 5

2015

Reports

frequency

Data collection

instruments

Responsibility

Lagos-22.2

Cross

River – 23.6

Cross River – 20.0

Cross River – 15.0

Cross River –

12.0

providers

Time for Tax payment

compliance 1120 hours 1000 hours 900 hours 800 hours Annually Doing Business

Indicators

ICP for the

baseline and

then GEMS

service

providers

Number of Tax Payments 35 33 30 25

Improved Investment

Facilitation Kano-75

Kaduna-61

Lagos-350

Cross

River – 89

Kano-75

Kaduna-61

Lagos-300

Cross River

–85

Kano-70

Kaduna-55

Lagos250

Cross River –

80

Kano-65

Kaduna-50

Lagos-200

Cross River – 75

Annually Doing Business

Indicators

ICP for the

baseline and

then GEMS

service

providers

Component B. Increased

Competitiveness of

Strategic Clusters

Construction –output

cost/sqm.

Jobs created

$450m

$2,500

0

+$0

2,250

1,000

+$15m

1,750

10,000

+$50m

1,250

20,000

This is a DFID funded component and these are

the figures that the DFID service providers will

monitor.

Meat – livestock output

Para VETs trained

Increased incomes for women

New private abattoirs

Leather % good skins

$550m

50

n/a

0

20%

+$10

70

Base+5%

0

20%

+$50

150

Base+15%

1

30%

+$100

300

Baseline+20%

2

40%

This is a DFID funded component and these are

the figures that the DFID service providers will

monitor

ICT

Network Readiness

Private investment attracted

3.45 3.50 3.55 3.60 Annually

International

report on

networked

readiness

Collected by

M&E team

58

Arrangements for Results Monitoring

Results indicators Baseline

2010

Year 1

2011

Year 2

2012

Year 3

2013

Year 4

2014

Year 5

2015

Reports

frequency

Data collection

instruments

Responsibility

to ATV68,

Number of students trained and certified

Annually

Annually

Provided by

ATV

Provided by

certified

trainers

Hospitality

output69

Increase in jobs in

beneficiary institutions70

New PPP arrangements in attractions

$2,700m

+$0m

$ 20m

$ 50m

Annually

Every 2 -3

years

depending

on M&E

plan

Official figures

from bureau of

statistics

Beneficiary

surveys

Collected by

M&E team but

will not be a

project indicator

M&E team

* Indicators, baselines and targets should be disaggregated by sex, age etc. wherever relevant

68 IT Enabled Services 69 As above. 70 As Above

59

Annex 4: Detailed Project Description

NIGERIA: Growth and Employment in States Project (GEMS)

1. A comprehensive description of the entire project is found in the document on file

entitled “Project Description”. This annex provides more detail on the IDA funded Project sub-

components under Component B, which include the four value chain interventions ICT;

Entertainment; Hospitality; and Wholesale and Retail Trade. It also includes the „Additional

Cluster Development Activities‟, also under Component B. Details of IDA funded Component

C: M&E and communications are also set out below. Component A is not included here as it is

entirely funded by DFID.

COMPONENT B

I SUPPORT FOR THE ICT SECTOR (US$50M)

INTRODUCTION

2. The importance of ICT as a critical engine for productivity and growth is increasingly

understood all over the world. There is also evidence that higher rates of ICT penetration are

associated with greater levels of exports71

and that a 10 percent increase in telephone penetration

rate over the long-run is likely to register 0.6 percent higher annual growth in GDP. In Africa,

the impact of ICT on trade, productivity, growth, incomes and efficiency are even more germane.

In recognition of the enormous potential of ICT, many African countries have taken preliminary

steps to reform respective ICT markets by introducing competition and improving the legal and

regulatory environment. Reforms implemented over the last decade in Africa have unleashed

competitive forces in the telecommunications and ICT sectors, fostered private sector

participation in the fixed and mobile phone markets in particular, and continue to nurture new

innovative industries. The result has been an unprecedented increase in investment in the telecom

and ICT sectors – some US$19.5 billion between 2000 and 2007, mostly in the mobile sector. By

contrast, the gap in access to broadband between sub-Saharan Africa and the rest of the world is

getting wider, and is characterized by high prices and limited availability. A very limited

coverage of fixed telephone access networks and development of low capacity networks which

focus primarily on voice services is constraining the development of the data market.

3. Nigeria‟s Information and Communications Technology sector is the largest in Africa,

with over US$12 billion of investments and 62 percent of the African market. The ICT sector has

experienced an unprecedented growth in the last five years, largely mirroring trends in Africa,

and is led by an explosion in the telecom sector where service revenue is growing year-on-year at

about 19 percent (estimated US$7.3 billion of service revenue in 2007), and phone penetration

has grown from about 3 percent to 40 percent (2003-2008).

71 Telecommunications Infrastructure and Economic Development: A Simultaneous Approach; Lars-Hendrick Röller & Leonard

Waverman, American Economic Review, 2001

60

4. The growth is largely the result of a liberalized and competitive market which has

contributed to an exceptionally strong mobile sector (estimated 56 percent Growth rate in

2008)72 . The mobile sector now accounts for more than 95 percent of the Nigerian market and

boasts some of the largest International and Regional Telecom Operators – MTN, Globacom,

Zain, and Etisalat. The highly competitive market is forcing operators to invest aggressively to

expand coverage and improve quality of service. In October 2007, MTN arranged a US$2 billion

five-year loan to expand network coverage and build fiber-optic transmission network

throughout Nigeria. Zain and Globacom are planning some US$1 billion each on network

improvements. The Government‟s renewed efforts to re-privatize Nitel are likely to introduce

additional competition and investment into the country‟s communications infrastructure. Already

Nigeria has access to submarine cabling, and this access should soon increase as further

significant private investment in cabling is expected.

5. The impressive developments in the telecom industry is creating business opportunities in

a wide range of voice, data and internet applications and services, and is also spurning a new

industry of prospering ICT companies including a multitude of ISP companies and other

companies that supply and service telecommunications and IT equipment, and a handful of

computer assembly companies. The impressive cluster of international and local telecom and IT

companies is also making Nigeria a magnet for innovative IT applications and services. Nigeria

is hoping to leverage its strong telecommunications base, as well as its flourishing cluster of IT

companies to position itself as a formidable competitor, and a niche market to capture a piece of

the US$475 billion global IT/ITES opportunity73

of which only 14 percent is presently realized.

The timing of this push/positioning may be quite apt, in particular with the recent ranking of

Nigeria by Merrill Lynch as one of the World‟s 10 least vulnerable economies. As the abnormal

growth in the mobile sector stabilizes, investors are likely to look into new growth areas in the

ICT space; the IT/ITES sector is certainly poised to attract even bigger investments given

appropriate business environment and incentives.

6. Nigeria‟s ability to capitalize on new IT/ITeS industry opportunities depends largely on

its ability to address key challenges which currently make the country less attractive than other

locations around the world. Broad consensus from the various international rating/benchmarking

studies74

confirm that critical factors which determine a country‟s locational competitiveness

include: (i) an overall environment that is conducive to business, (ii) quality of public

infrastructure relevant to the IT/ITeS industries, and (iii) availability of employable skills

(including IT skills). In Africa, the countries that have ranked relatively favorably in some of

these studies have included Egypt, Mauritius, Tunisia, Ghana, South Africa, Morocco and

Senegal. In the latest report by Global Services-Cyber Media which ranks 15 African Countries‟

according to whether they are „Ready‟, „ Upcoming‟, or „Yet to be ready‟, for becoming an

attractive outsourcing destination, Nigeria ranks 13th overall and first of three countries in the

„Yet to be ready‟ category. This is in spite of the country‟s prominent status as one of the most

attractive markets in Africa and the Middle East, and with the largest mobile market in Africa.

72 BMI 73 ITES defines the sector of the Information Technology Industry which aims to provide various services through the use of IT

(including call centers, back office operations, claims processing, medical transcription, billing, coding etc). ITES is often

used interchangeably with BPO – Business Process Outsourcing/Offshoring. 74 At Kearney, Gartner, Hewitt, Mckinsey, Global Services

61

The Intervention

7. The objective of the ICT component is to provide support to the Federal Government of

Nigeria (FGN) to build on the successes of the telecom industry (contributing some 2 percent of

GDP) and to develop a more robust IT and ITES sector which has the potential to become a

significant source of growth and employment for the economy. The support addresses key

constraints to IT and ITES development in Nigeria. The support should be provided within the

framework of a comprehensive IT and ITES policy which articulates issues ranging from

appropriate infrastructure and incentives to institutions and skill sets for harnessing the IT and

ITES industry in Nigeria. Support to the ICT cluster will be organized around the following

areas:

a) Enabling Business Environment

b) Infrastructure related to IT and ITeS services

c) Skills Development and Entrepreneurial Capacity Building

d) Support to the local IT/ITeS Industry

(a) – ENABLING BUSINESS ENVIRONMENT (US$ 5 MILLION)

8. Nigeria is in the process of revising its 2001 National Policy for Information Technology

which sought to make the country “an IT capable country in Africa and a key player in the

Information Society by the year 2005‟. The 2001 document adopts a common policy for all IT

and ITES issues without specific emphasis on policies for growing the increasingly lucrative

ITES business potential. Nigeria has an opportunity to develop a separate and more targeted

ITES policy and regulatory framework which among other things articulates how the

government intends to create/enforce supportive and safe environment, develop the institutional

capacity, and engage with the private sector to harness this business potential. Unless issues

ranging from policy and regulatory instruments, institutional capacity building, infrastructure

access and human resource development are tackled in a holistic and complementary manner,

prospects of success of an ICT-led growth agenda will at best be limited.

9. The Project therefore proposes to support:

(i) The development of a comprehensive ITES policy & strategy which articulates Nigeria‟s

value proposition and strategy for becoming a significant player in the ITES market,

including resources required, financing options;

(ii) Establishment of a ITES-BPO Secretariat under the aegis of NITDA to work with ODIN

and other key stakeholders to facilitate investment promotion, infrastructure and skills

development;

(iii) Development and implementation of an integrated and effective ITES-BPO investment

promotion strategy, marketing Nigeria as an ITES- BPO destination;

(iv) Data Protection, cyber laws, Consumer Privacy and Electronic Transaction laws which

assure investors and users of the safety and authenticity of data/ on-line transactions;

(v) Simplified set-up procedures and related regulations, including single window clearance

and support for ITES-BPO investors established within and outside the Free Zones;

(vi) Comprehensive economic and policy package for facilitating growth of ITES-BPO.

62

10. While the institutional framework for governance of the IT industry remains unclear, it is

important that the key institutions that are charged with regulating the telecom and IT sectors -

NCC and NITDA – have the requisite capacity to proactively regulate the sector, with a special

emphasis on regulatory efforts related to decreasing the cost of international telecommunications

and improving quality of service. Resources would also target:

(i) Capacity building in key technical and economic areas;

(ii) Enforcement of Service Level Agreements with key telecom operators to ensure high

quality of service standards; and

(iii) Regulations on national and international infrastructure sharing.

(b) –INFRASTRUCTURE RELATED TO IT AND ITES

11. Various studies have confirmed that the availability of reliable infrastructure; high

quality/affordable real estate, robust telecommunication infrastructure, reliable utilities

infrastructure (particularly power) and transportation are critical for the survival and success of

the IT and IT-enabled services industry. Taking into consideration the importance of these to the

development of the industry, the support for infrastructure will focus on the development of

suitable, high-quality real-estate, real-time connectivity and robust utilities infrastructure in

dedicated enclaves.

Affordable Real Estate

12. An AT Kearney Competiveness Report which assessed Ghana and eleven (11) other

countries, including Nigeria, in terms of their relative competitiveness and ability to become

destinations of choice for ITES-BPO, highlights the peculiar challenges that Nigeria faces in

general with its poor infrastructure. The consulting firm Mercer, for example, recently ranked

Lagos as the 30th (out of 50) most expensive cities in the world, only slightly less costly than

New York but considerably more expensive than Los Angeles, and Washington DC. From all

indications, Abuja too is not too far off. These are two (2) of the key locations where most of the

country‟s two hundred and fifty (250) IT companies75

– mostly members of Information

Technology Association of Nigeria (ITAN) as well as major Telecom and Outsourcing

companies are located. A significant number of the IT companies are small and medium

enterprises.

13. In a number of countries where there is unreliable public infrastructure, both local and

International companies in the IT and ITeS industry look for customized facilities such as IT

Parks which provide modern office space, high-speed broad-band links, reliable power supply

and other ancillary services. Accordingly, leveraging IT parks to reduce the costs incurred by IT

and ITeS companies will be key to stimulating growth of technology intensive, knowledge-based

industries.

14. Nigeria currently has a handful of locations that could be developed into IT Parks. These

include Abuja, Lagos, Kano, and possibly, Akwa Ibom states. The most promising - in terms of

Government commitment, capital investments, access to key city infrastructure (roads and

75 Mostly members of ITAN

63

airport), linkages with academic institutions, quality/location of Park, and management

arrangements - are the Abuja Technology Village (ATV) which has been designated by the

Nigerian government as a Special Economic Zone, the Digital Bridge Institute Park in Lagos,

and the Kano IT Park. The ATV Free Zone, which boasts several hundred hectares of land

located within the institutional zone along the Abuja Airport expressway currently focuses on

providing amenities to attract businesses within four (4) focus technology sectors namely ICT,

Biotechnology, Energy Technology and Minerals Technology. Its being situated adjacent to the

African University of Science and Technology as well as other training institutions in Abuja

provides an additional advantage to tap into the institutions‟ existing/future talent pool as well as

collaborate to develop more relevant skills base for its clients.

15. The DBI‟s 7-acre Park at the center of Lagos (formerly Nitel Training Institution) is

focusing on training/capacity building, research, and BPO activities, particularly in film and

security related activities.

16. Kano‟s IT Park opportunity has received tremendous support from Government,

including contribution of a 10-storey building capable of housing more than three hundred

(300) ICT businesses. All three (3) Parks are at different levels of readiness and have received

the endorsement of the largest association of private IT companies in Nigeria, ITAN, and the

newly established Association, Outsourcing Development Initiative of Nigeria (ODIN), as

critical infrastructure for reducing cost and improving efficiency of the IT Industry.

17. The project proposes to support on-going Government efforts in the three (3) states,

Abuja, Lagos and Kano as follows:

Abuja – Abuja Technical Village (ATV) Abuja – ATV Free Zone (US$ 16 million)

18. Abuja‟s attractiveness as a well-planned city and center of Government also makes it

very attractive to a number of businesses who find difficulties in operating out of Lagos,

especially due to its congestion. The Abuja Technology Village is intended to provide affordable

ready-to-move-in real estate to key growth IT industries. The Government is already investing in

critical infrastructure such as roads, and is hoping that such investment in infrastructure will

provide the requisite signals to attract Private Sector participation in the development of the IT

Park and also to the IT/ITeS Industry which continues to express a need for such facilities.

Project funds will therefore support of:

(i) Redesign and reconfiguration of ATV into state-of-the-art IT Park. (US$ 3 million).

(ii) A Smart Building which will be the first operational facility on the site intended to

serve the dual purpose of accommodating the ATV Corporate Office and a

Technology Incubation Center. This also entails some support to the Incubation

Center. (US$3 million).

(iii) Built-to-suit open-plan working space with plug and play amenities. The facility

will comprise office spaces, utilities, internet access and shared resources for lease

to IT/IT-enabled services companies. It would also comprise training rooms and

64

library especially for Public Sector workers on awareness on outsourcing and its

applicability/advantages for effective public service administration. (US$3 million).

(iv) Uninterrupted Power and Water Supply (US$5 million).

(v) Operational process improvement for the ATV Free Zone Management Company

include management and follow-up of the regulatory and governance arrangements

for the operations of ATV as a Special Economic Zone/Growth Pole, capacity

mobilization & development, as well as monitoring and evaluation of business

automation processes. The objective is to ensure effective and efficient

administration of the Technology Park. (US$2 million).

DBI (Lagos) – IT Park Lagos – DBI IT Park (US$3.5 million)

19. Most of the two hundred and fifty (250) plus IT companies which constitute ITAN, as

well as the core of the Nigerian Film industry are currently located in Lagos. There are currently

no shared facilities or platform for dedicated IT training, software development/testing and

content development training. Project support will complement WBG‟s on-going dialogue with

the Government to develop software development certification and BPO training, and will focus

the following value-adding shared facilities:

(i) Software testing and cyber security center. (US$1 million)

(ii) A highly equipped cyber-café to enhance internet access penetration amongst the

youths. (US$0.5 million)

(iii) Training grants for film production companies to improve content development,

marketing and distribution, and competitiveness of film industry (US$1 million).

(iv) Shared Post-production facilities to improve quality of products and reduce cost of

production (US$1 million)

Kano IT Park (US$1 million)

20. Kano is strategic for attracting and stimulating business in the northern part of Nigeria.

The state is already recognized as a somewhat successful commercial hub servicing demands

particularly for goods in the Northern region and the Federal Capital Territory. Significant

resources have already been invested in an intended state-of-the-art facility, which is expected to

house some three hundred (300) ICT companies. The skills and effective entrepreneurial

capacity in the state is still very poor, even relative to other cities in Nigeria. Project funds will

be used to support the following:

65

i. IT/ITES training and business incubation

Improving Connectivity

21. Despite the impressive developments in the telecommunications sector, the country is

still plagued by a lack of a robust and reliable national backbone, which is resulting in the

reliance on expensive satellite for transmission and backhaul capacity. While an increasingly

competitive environment is driving down prices for telecom services, average per minute cost of

domestic prepaid mobile (peak) of about US$0.34 still remains above the region‟s average of

about US$0.24. Cost of broadband is high (average price of about US$10,000 for a full circuit to

US or UK – about 4 times as high as India) and penetration is only about 0.4 percent (OECD is

16 percent, Korea, Denmark about 25 percent) with availability limited by the weak state of the

country‟s public telephony network. This means that the majority of broadband service providers

remain highly dependent on wireless infrastructures, and most investment is in wireless

technologies, in increasingly WiMAX networks which poses latency challenges for the data

market.

22. The combined lack of robust and reliable national fiber network and access to

competitively priced international bandwidth, is seriously impeding the development of high-

speed services (broadband services) and constraining the development of data services and the

industries which are heavy users of data services. This is particularly important for the IT/IT

enabled industry and e-Government services/applications which require large volumes of

capacity, high-quality and low-prices that can only be provided on fiber-based transmission

networks. International connectivity, as well as reliable infrastructure to carry voice and data

traffic in and out of Nigeria is critical for the development of this market. Without this, large data

users are reliant on wireless technologies which often have technical and economic limitations.

There is currently only one major submarine fiber-optic cable – SAT-3 - connecting most of

Sub-Saharan Africa (combined with SAFE) to the rest of the world. The closed-club structure of

the cable has maintained high prices and limited access by competing operators to it. NITEL‟s

current control of the SAT 3 cable access ensures that prices for international communications

are kept relatively high. There are very positive indications, however, that Main One‟s submarine

cable which has landing points in Nigeria and Ghana will be completed by 2010, and should

result in significant reduction in price of international connectivity.

23. While both the private sector and the Government are aggressively rolling out national

and regional fiber networks76

, the speed at which these networks are being developed, does not

support the current needs of the Government‟s growth agenda in general, and the IT and ITES

sector in particular. In addition, most of Nigeria‟s private telecom companies are focusing on

addressing infrastructure gaps and traffic between the states. Communications infrastructure

within the states, are for the most part inadequate to support a robust data market.

24. The situation is beginning to change however, as various states begin to facilitate

broadband diffusion. In February 2007, Nigerian ISP, Hyperia, launched Port Harcourt‟s first

portable broadband wireless access network. Port Harcourt is a major petrochemical and

76 Four international fiber projects are racing to complete ahead of each other on the West Coast of Africa to give some much

needed price competition to SAT3.

66

business area with a high concentration of expatriates and multinational businesses. In November

2007, the state government of Yobe announced that it had deployed an integrated telephone and

internet backbone based on WiMAX technology to facilitate education and e-government in the

state, and also for private business use.

25. The Federal capital, Abuja, is very keen to become a formidable business hub, with

competitive broadband infrastructure that supports the more than 174 MDAs in the Federal

Secretariat as well as the businesses within the state.

26. The project proposes to support key activities including:

Federal Capital Infrastructure (US$10 million)

(i) A fiber optic network (about 100 kms), including detailed technical/engineering

feasibility studies) connecting the 174 MDAs around the Federal Capital as well as

two spurs to the Abuja Technology Village and the Digital Bridge Institute. The

project proposes to leverage and support ongoing investments and initiatives of

Galaxy Backbone, a public enterprise of the Federal Government of Nigeria

established to operate a single nation-wide infrastructure platform for all Federal

Government MDAs, and is in an early stage of fund mobilization for a government

network beginning with the Federal Secretariat. The support will be in the form of

Output -Based Aid on a competitive basis to build the fibre network. The proposed

business model is a PPP in which the public partner for the government will be

represented by Galaxy. Management of the network will be provided on a

competitive basis by a private operator who will provide capacity and services to

Government institutions in the FCT, as well as subsidized capacity to selected

schools, hospitals, ATV and DBI. Subsidized capacity will be extended to

universities within a 200 km radius of Abuja, to provide further support to the

capacity building and employability thrust of the GEMS project. Institutions within

this radius include –The University of Abuja, Nassarawa State University, Ahmadu

bello University. There are also a number of polytechnics within this geographic

area, collectively these institutions have over 50,000 students. The private provider

will also be obliged to provide transmission services as well as open and non-

discriminatory access for any service provider. (US$6 million);

(ii) Provision of enabling infrastructure and equipment for the localization of content in

Nigeria – (Data center build out, redundant/disaster recovery site, metro LAN

connectivity etc). The localization of content in Nigeria will go a long way in

helping to reduce the overall cost of bandwidth in Nigeria .The majority of internet

usage in Nigeria is primarily email (Yahoo Hotmail and Gmail etc), search (Google

etc) and surfing such social networking sites as youtube, facebook, myspace etc

Huge amounts of international bandwidth are used to access these services.

Companies such as yahoo and Google are increasingly localizing content and

services in countries around the world as they try to reduce their costs of service

delivery. By creating the enabling environment where by the proper infrastructure

and equipment with the right distribution and connectivity (metro fiber etc) these

67

companies will be encouraged to co-locate servers in Nigeria that will enable such

online activities as messaging, search and social network site access. With the

interventions for the ATV smart building and the Galaxy metro fiber ring, the basic

components for content localization are in place, with further investment in data

center infrastructure and equipment, Nigeria with the support of GEMS can take the

first steps into content localization and thus further drive down the cost of

bandwidth in the country in a relatively short space of time. (US$4 million)

(c) – Skills Development and Entrepreneurial Capacity Building (US$10 million)

27. While there are a number of impressive and Telecom and IT companies operating in

Nigeria, for the large part, the entrepreneurial base of the ICT sector continues to be weak.

Promising local entrepreneurs often lack technical and business expertise as well as access to

venture capital funding to allow them to nurture their talents.

28. The Project proposes to support the industry by:

(i) Providing technical assistance and grants to eligible start-up IT companies for

specific development projects aimed at building the capacity of such companies in

technical, management, financing and market knowledge skills, and create a network

of IT business incubators in Nigeria;

(ii) Carrying out a program to link domestic industry with international industry leaders

and forge partnerships among key domestic training institutions (NYSC, NUC,

ITAN, NCS);

(iii) Providing technical assistance and Grants to eligible public and private institutions

for specific development projects to train trainers and professionals in key niche areas

for IT/ITES development.

As the World Bank‟s STEP B program is also proposing to cover similar ground the task team

has come to an agreement on the components to be supported under STEPB and GEMS Projects.

This is captured in the figure below.

68

Figure 1: IT and ITES Skills Development Components

Abbreviations: BPO: Business Process Offshoring/Outsourcing, CERT: Computer Emergency

Response Team, CMMi: Capability Maturity Model Integration, COPC: Customer Operations

Performance Center, PSP: Personal Software Process, TSP: Team Software Process.

(d) - Support for Local IT/ITes Industry (US$4.5 million)

29. Nigeria has a number of ICT Associations which continue to push for reforms and

commitment from Government, and act as catalysts for growth of the IT/ITeS sector. Key

among the institutions are (i) the Nigeria Computer Society (NCS), (ii) the Computer

Professionals Registration Council of Nigeria (CPN), (iii) the IT Industry Association of Nigeria

(ITAN), the Institute of Software Practitioners of Nigeria (ISPON), and (iv) the recently

constituted Outsourcing Development Initiative of Nigeria (ODIN).

30. Local ICT companies cite inadequate resources for market research, capacity building,

awareness building and investment promotion. Resources from the project will therefore support:

(i) Market intelligence services and access to on-demand world-class research and

voice of the customer annual survey;

(ii) Promotional activities to sensitize government and other stakeholders with the

objective of attracting investment and business into the sector;

(iii) Capacity Building and operational support, including through grants, for ITAN,

CPN, NCS and ISPON;

(iv) Support for ODIN as an industry association to further promote the growth of the

Nigeria IT/ITES sector from an outsourcing perspective. ODIN is being modeled

alongside NASSCOM, the Indian industry association. Its core focus is to

STEPB and GEMS

Knowledge Hub Skill assessments

Software Developer

CertificationFoundational BPO

Training

TSP/PSP

Domain

Training

COPC

6 sigma

CMMi

GEMS

STEPB

CERT

Mangmt

Training

IT Services IT Enabled Services

69

promote the Outsourcing Sector in Nigeria and the country‟s viability to attract a

significant share of the global outsourcing market while also supporting the

execution of regulatory improvement, infrastructure and capacity development

programs. The objective is to utilize a ODIN as the platform to bring the both the

public and private sector in Nigeria together to develop the Nigerian ICT/ITES as

well as outsourcing industry.

Funds will be utilized to:

1. Recruit world class talent to direct and manage the organization for two years;

2. Provide operational and administrative support for the activities of ODIN for two

years;

3. Support interventions in key areas of needed development in the Nigeria

ICT/ITES space.

II SUPPORT FOR THE ENTERTAINMENT INDUSTRY (US$25M)

Introduction

31. The Nigerian Film industry, euphemistically known as Nollywood, is the most prolific in

the world producing no fewer than 40 new movies every week. It is the third largest movie

industry in the world by value (US$250 million) after Hollywood and Bollywood (India‟s film

industry). It is estimated that the Nigerian industry employs 200,000 people directly and provides

up to one million job opportunities indirectly. Most of those employed in the industry are

graduates or school leavers.

32. Despite these tremendous achievements, the industry remains unstructured and loosely

regulated. Production standards remain low, marketing and distribution linkages are at best ad

hoc and access to finance remains extremely limited. There are few global linkages and a strong

need to improve quality at all stages of the value chain from production to post-production and

retail distribution.

33. As many of the companies that make movies in Nigeria are not registered and their

output is not copyrighted, rampant piracy is pervasive. By some estimates, for every legitimate

copy that is sold by the producer, another 5-10 are sold by pirates. It is reported that Nigerian

movies are widely shown all over the African continent on national broadcasting networks

without payment of any royalties to the original film-makers. These challenges make it difficult

for producers to recoup their costs. Until the industry can capture a greater proportion of the

revenue stream, it will be consigned to making low-budget, low-quality productions and will not

have the ability to scale-up its operations and provide a larger number of well-paid jobs for

Nigeria‟s youth.

34. The Nigerian music industry faces many of the same issues, although as explained below,

it also confronts a number of issues that are unique to the music industry. We believe that

together the entertainment industry has significant potential for growth and value addition for the

70

Nigerian economy. Furthermore, as the industry appeals predominantly to the youth, support to

the industry will provide more opportunities for Nigeria‟s youngsters as well as earn increasing

amounts of foreign exchange for the country. The rest of this document outlines the key

intervention areas that will form the basis of proposed World Bank / DFID support to the

industry.

(a) - Copyright and Piracy Protection77 (US$10 million)

Piracy: a scourge of the Nigerian film and music industries

35. During the 1980s, many international record labels such as Polygram and EMI exited

Nigeria. The lack of record labels coupled with the recent development of new data storage

technologies (e.g. Compact Discs, Digital Video Discs contrasted to Audio Cassettes) provided

an easy opportunity for unlicensed individuals, to copy and mass produce records. An explosion

of cultural expression that has accompanied the establishment of democratic government in

Nigeria has been exploited by pirates using mass recording machines or importing pirated copies

of songs and films from overseas. The situation has been exacerbated without established labels

and film studios to protect their financial interests and by weak or non existent law enforcement.

Powerful vested interests have been created with cartels of pirates reportedly operating with the

help of public officials, making it impossible for individual artists to successfully challenge them

or bring them to justice. The sheer scale of piracy in Nigeria deters investment and re-investment

in the industry and discourages artists from becoming commercial.

36. The other detrimental impacts of piracy include encouraging the continued brain drain of

talented artists and other professionals, the loss of cultural heritage, loss of tariffs, taxes and

foreign exchange earnings as well as opportunities for foreign investment.

37. The implications of this situation are much broader than the music or movie industries. If

Nigeria gets a reputation as a nation that is tolerant to piracy many multinationals will steer clear

of it. As a signatory to TRIPS (Trade Related Aspects of Intellectual Property Rights) under the

WTO, Nigeria has several obligations which are not yet fulfilled.

Protecting IPR and defeating the pirates

38. The first step to combat piracy is to ensure that all films and songs are copyrighted. That

in turn requires that all music and movie-makers register their own businesses and products.

Only if intellectual property is registered can it be protected. At the moment very few Nigerians

register their IPR. Registering IPR for films and music in Nigeria is also a first step to protecting

IPR in overseas markets. The most important export markets in the US and EU both require that

the IPR is registered in the home country first.

39. There are three further steps to a successful anti-piracy campaign;

Public sector capacity building;

77 This section draws heavily on the Consolidated Campaign Against Piracy, project brief of Astromedia Integrated, 2005.

71

Public awareness building; and

Law enforcement.

Public Sector Capacity Building for IPR

40. It is proposed that the project provides capacity building support to the most important

anti-piracy public sector bodies operating in Nigeria.

41. The most important body in this area is the Nigerian Copyrights Commission (NCC).

The NCC is directly responsible for handling all matters affecting copyrights and Nigeria‟s

position in relation to international copyrights conventions, as well as building public awareness

of copyrights. The NCC has made several efforts to enforce some of the related laws, and has

attempted to improve industrial standards for the IP trade (e.g. the gradual introduction of

authenticating holograms on genuine Music and movie CDs.) Recently, NCC has also been

active in liaising with international organizations dealing with IP rights protection. The project

will seek to work closely with the NCC and strengthen its capacity and efficacy in all areas.

42. The Nigerian Customs Service (NCS) is also an important player. NCS regulated cross-

border trade and smuggling and illegal trade. Fake IP goods should be treated on the same basis

as fake drugs or fake money and should be confiscated if detected and the dealers prosecuted.

Other interested parties include the Nigerian Investment Promotion Council (NIPC) as piracy

deters higher levels of foreign investment.

43. The Standards Organization of Nigeria (SON) standardizes and regulates the quality of

all products in Nigeria, and according to section (3) subsection (1) of the 1972 Act No. 56, the

statutory functions of SON is, among other things, to “undertake investigations as necessary into

the quality of facilities, materials, and products in Nigeria and establish a quality assurance

system including certification of facilities, products, and laboratories.” The SON‟s concerns in

this matter are centered of the fact that pirated IP products are categorically inferior in quality to

the genuine ones. Recently SON has cooperated with musicians through their association

PMAN, to enforce quality control procedures, in the music industry.

Public Awareness Building

44. One of the causes of endemic levels of IP piracy is the ignorance of the general public on

IP rights. It is vital that the Ministry of Information provides the public with the right perspective

through its powerful media presence.

45. The Ministry of Commerce similarly has the overall regulatory authority and

responsibility for these industries. The IP rights offenders violate numerous statutes established

by the Ministry for instance the trademark infringement. As it is today, all sections of the IP

industries suffer from a lack of supporting infrastructure ranging from poor distribution

networks, to general ignorance of government laws and support programs. It is particularly

serious in the IP sector (contrasted to other parts of the economy) because the country has only

recently begun to understand the latent potential in this sector, and is yet to establish specific

provisions to duly recognize and handle various pertinent issues.

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Enforcing IPR

46. The manufacturers and distributors of pirated products are tax evaders. Not only do they

not pay tax but their illegitimate sales of counterfeit products prevent the legitimate owners from

selling their wares and paying taxes resulting in billions of naira in lost revenue. Thus it is

imperative that the Federal Inland Revenue Service supports the enforcement of IPR.

47. The Economic and Financial Crimes Commission (EFCC) mission statement is: “To curb

the menace of corruption that constitute the cog in the wheel of progress; protect national and

foreign investments in the country; imbue the spirit of hard work in the citizenry and discourage

ill-gotten wealth; identify illegally acquired wealth and confiscate it”. Therefore the EFCC will

also play a vital role in enforcing IPR.

48. The enforcement of IPR will also depend on the efforts of other government agencies

such as the Nigerian Police Force (NPF) and Customs. They have wide networks, compared to

other agencies, and could be the most effective at surveillance and implementation of the anti-

piracy agenda. The project could offer technical assistance and training to Nigeria‟s enforcement

agencies to familiarize them with the specifics of the law‟s requirements and methods of

combating piracy. However the project will not get involved in prosecuting cases, raids on

markets or other issues directly related to individuals or groups.

Project aims

49. Within this broader context the project aims to support the industry by:

(i) Developing improved registration standards and procedures for recognition of

intellectual property rights;

(ii) Carrying out public awareness building activities related to the protection of

intellectual property;

(iii) Providing technical assistance to relevant public authorities to strengthen the

mechanisms for enforcement of intellectual property laws and regulations.

(b) - Improving Distribution and Marketing (US$10 million)

50. At the moment, there are few formal distribution channels open to Nigerian film-makers.

There is no established cinema circuit that caters to Nigerian movies. The few international style

cinemas that do exist in a handful of the country‟s major towns cater exclusively to international

movies. Nigerian movies, therefore, utilize digital media and go straight to DVD and VCD

formats. Without a formal distribution and marketing channel, they are unable to reap the

financial benefits of a cinema release.

51. Burgeoning overseas markets in pirated copies have also developed as the pirates have

proved energetic in getting illegal copies to market in many different countries. It is estimated

that the lost industry revenue in North America alone could be as high as US$200 million.

73

52. The other distribution channels that are emerging include MNET‟s Africa Magic and now

Africa Magic Plus as well as an increasing number of terrestrial channels such as Hi TV that are

showing Nigerian movies. Channel O appears to be the leading music channel as well as forum

for releasing high quality short movies of topical interest to a youth audience. MTV Africa and

other channels are also increasingly interested in African music.

53. It is reported that these channels purchase Nigerian movies at market rates. Commercial

channels are interested in improving the quality of the film and music products that are currently

being sourced. Getting better content on their channels will in turn allow them to charge higher

rates for their channels when they are marketed to cable companies such as DStv, Nilesat and

others. MNET Africa would also like to maintain its branding and image by ensuring that all

movies and music products meet the same rigorous quality standards. Eventually, they would

also like to be able to market and sell African movies to mainstream cable channels (e.g. Black

Entertainment Television BET in the US) and other buyers internationally.

54. Early discussions with industry executives reveal that there is a lot of potential for value

creation in the industry. One idea that is being floated is that of a TV premiere for the best

productions each year. “Red carpet” events would be publicized and marketed creating increased

interest and a higher profile for the film-makers. This in turn would provide more incentive for

higher budget and higher quality productions. It would also create an enhanced revenue stream

for the best productions.

55. In this area, the project will support the following items;

(i) TA and grant support to facilitate the emergence of packaging and joint marketing

companies). Such bodies would capitalize on economies of scale in packaging and

marketing and be able to market Nigeria‟s films and music overseas. They would also

have the benefit of ensuring standardization and quality of the Nigerian products;

(ii) Grants for activities supporting twinning initiatives with established distribution

networks. Domestically, there are several existing avenues for distribution including

supermarket chains, banks, post offices and other facilities that could be used to

distribute movies and music;

(iii) Development of a recognized export path for Nigerian entertainment industry

products. This includes streamlining clearance and inspection-free shipment of goods

as well as establishing a clearing house where distributors can buy goods direct. As

some piracy takes place due to limited legitimate supply, it is expected that this

initiative will also serve to reduce piracy;

(iv) Support to the Nigerian film and music industry to market its products overseas. At

the moment, almost every Nigerian movies that sells overseas is pirated. Even the

ones that are “originals” are considered illegal in the UK as they have not been

certified by the British Censor Board. Nigerian movies have not been granted US

copyrights 78;

78

Copyrighting in the US. When it comes to scripted movies two things are usually done. First, in the US the Library of

Congress (Copyright Office) holds registered works of art and issues the official copyright Certificate of Registration. When

you submit an application for registration you pay a fee and the work, if original, is registered and you receive the certificate.

All works of art; books, music, scripts, etc. are registered this way. One reason the Library of Congress facility is so huge:

They warehouse a copy of everything. The second thing that is done is registering the script with the Writers Guild of America

(WGA).

74

(v) Film Festival: Convening an international film festival to showcase Nigerian movies

to promote the domestic talent both locally and overseas;

(vi) Access to finance: the project will establish a venture capital facility for the

entertainment industry on a commercial basis. Initial discussions with managers of

similar funds in Bollywood have taken place.

(vii) Exploring alternative internet-based distribution channels such as itunes and

amazon.com.

(c) - A Nigerian Film Institute (US$5 million)

56. It is proposed to strengthen the Nigerian Film Institute. The improved institute would

fulfil several new functions including;

(i) Establishment or provision of a studio facility;

(ii) Improving standards through training and capacity building for industry

stakeholders;

(iii) Establishing a hub for key industry skills;

(iv) Supporting establishment of equipment leasing facility

57. Studio Nollywood: The vast majority of Nigerian movies are not produced in studios.

Most are shot on location all over Nigeria with hotels, homes and offices often rented out by

their owners and appearing in the movie credits79

. Using such locations it is very difficult to

provide quality sound and lighting. Shooting is often also restricted by the other activities that

are going on at the location. Studio space and time is desperately required by the industry and

yet has not been provided by the private sector. This situation is a result of the fragmentation in

the film industry and lack of music labels as well as the difficulty of capturing revenues from

film and music products. Creating a professional studio that catered to Nigerian film-makers

would go a long way to improving standards.

58. Training: Although Nigeria‟s film-makers are extremely inventive and capable of

improvising to overcome any situation, they will not be able to move up the value chain without

increased formal sector training. The best way to provide this is through hands-on experience. It

is proposed that the training courses offered should be based on collaboration and partnership

with existing schools. Early discussions with universities of Ahmadu Bello, Lagos, Port

Harcourt, Calabar and Uyo affirm this need. It is proposed to provide practical training, diplomas

and seminars from six months to one year technical courses. If necessary, mobile training

facilities could also serve to reach parts of the country that would not have easy access to the

physical training location.

59. Center of Excellence / Industry focus: The national film institute would provide a natural

hub for the industry. It would also be a place where seminars, film festivals and competitions,

screenings and shows could take place. It would create awareness and promote the industry both

79 Cinema of Nigeria, Wikipedia 2008.

75

domestically and internationally. The institute would also house the various Nigerian guilds

including the Actors Guild, Directors and Creative Writers‟ guilds.

60. Equipment leasing: Nigeria‟s film-makers own almost all their own equipment. There

are very few places where equipment can be rented. Even where equipment is available it is very

expensive and the latest equipment is not offered. In the fast moving entertainment industry,

Nigeria‟s stakeholders are therefore not able to compete as new cameras and software change

with increasing rapidity. It is proposed that the film-institute would include an equipment leasing

facility that would cover its costs of operation and provide training on new equipment and

editing software.

III SUPPORT FOR THE HOSPITALITY INDUSTRY (US$25 MILLION)

RATIONALE

61. The hospitality industry, comprising hotels and restaurants, accounted for just 0.5 percent

of non-oil GDP (2006). However, it is a major source of economic output in Lagos and the other

major cities.80 The industry is growing rapidly at a rate of nearly 11 percent p.a. in recent years.

Rapid growth is being driven by the following factors:

a) Nigeria is a major destination for international visitors attracting over three million

non-resident visitors in 2006. Visitor numbers have increased dramatically from 2.2

million in 2003. The vast majority of these visitors are business travelers from

neighboring West African countries such as Benin and Niger. In addition there are

also large numbers of visitors from Europe (US$0.5 million) including business

travelers from the Nigerian diaspora visiting friends and relatives (VFR).

b) International leisure visitors arriving by air were estimated at US$190,00081

in 2004

spending an estimated US$280 million82

. This market segment has remained static.

c) The Nigerian domestic tourism market has grown rapidly led by business travel and

VFR. The domestic leisure market is small but growing rapidly as a middle class

emerges, led by festivals and events such as Calabar‟s Christmas Festival and the

Durbar in Kano.

d) Over the past five years, Nigeria has witnessed an explosion of fast food chains. The

leading chains are domestically owned, offering Nigerian food. This is a response to a

change in lifestyles caused by increasing participation of women in the work force.

Nigerian food takes considerable time to prepare and, for households with working

women, fast food chains offer convenience and value. The fast food chains cater to

Nigeria‟s rapidly growing middle class;

e) This change in lifestyles has also caused rapid growth of informal catering (bukas)

which can offer exceptional value for money for the poorer consumer. The large

80 Rough estimates of GDP of the GEMS focal states suggest that the industry accounts for half of Lagos‟s GDP, 9percent of

Kano‟s, 8percent of Kaduna‟s and 6percent of Cross River. The figure for Lagos is likely to exaggerate the importance of the

industry considerably. 81 A reasonable comparator is Ghana which attracts more than half a million international visitors. 82 Nigeria Tourism Development Master Plan, UNWTO, 2006.

76

number of poor migrants to Nigeria‟s rapidly expanding towns and cities provide the

customer base.

62. Despite its recent rapid growth, the hospitality industry is still in its infancy, poised for

rapid growth. The Tourism Master Plan identified five clusters as offering the best opportunities

for tourism development, three of which are based on Kano, Lagos and Cross River83:

Tropical Rainforest: covering Cross River‟s cultural (Christmas Festival, Calabar port

and town) and natural attractions as well as the domestic and regional conference

market segment (Obudu). Cross River has already established itself as one of the

premier leisure destinations in Nigeria attracting over one million visitors to its

Christmas Festival. Its 61 hotels boast a room stock of 1,500 which makes it a

reasonable sized destination. The state has excellent attractions for nature and

adventure tourists such as the world class Afi Mountain Canopy Walkway at

Buanchor in Boki Local Government. The gorillas in Cross River, recently

recognized as a distinct subspecies (gorilla diehli) and one of Africa's most critically

endangered primates84

, is another example. However, these are not well known either

in Nigeria or internationally. Calabar was the port of origin of the largest number of

slaves shipped to the New World but is yet to attract significant numbers of Afro-

American heritage visitors.

Atlantic Gateway: focusing on Lagos and Ogun states offering the gateway to Nigeria

for VFR and business travelers combined with a cultural and leisure experience. The

mega city has experienced a boom in hotel construction and has attracted five

international hotel operators. But the city lacks leisure facilities, both natural and

man-made, that could help to boost visitor expenditure. The excellent historic assets

and beaches around Badagary have yet to be developed.

Sahara Gateway: focusing on the historical city of Kano and its cultural festivals

(Durbar). The city‟s historic assets have not been developed as attractive visitor

attractions and it relies on a single event, the Durbar, for visitors. As a commercial

center, it draws huge numbers of business visitors but lacks good accommodation and

leisure facilities to maximize revenue. Some of the best hotels are in the public sector.

63. The Master Plan recognizes that the growth of tourism is limited by:

A poor institutional framework. There is a need for a new Tourism Act and the key

organizations involved in promoting and regulating tourism suffer from poor

capability to discharge their functions. The visa regime is a major impediment for

international visitors and skill training is in decay85

;

There is potential for huge new investment in accommodation. The total numbers of

hotel beds is just 38,807 and occupancy rates are, on average, over 80 percent

83 The other two are the Capital Conference cluster around Abuja and the Scenic Nature cluster around the scenery and game

parks of Bauchi and Plateau 84 The total population numbers fewer than 300 individuals) 85 The National Institute for Hospitality and Tourism (NIHOTOUR) is ineffective.

77

implying high potential returns to investment. However, problems of access to land

constrain investment and high taxes and levies, which can add up to 30 percent to

operating costs, depress returns to investment. Lack of appropriate standards means

that the value for money hotels offer varies tremendously. Apart from the

international chains and a few, locally owned boutique hotels, much of the plant is

poorly designed and badly managed. This is a symptom of the poor skill training

available;

Much of the natural, cultural and historic assets of the country are in a poor state

requiring investment in restoration and developing an attractive visitor experience.

Many valuable assets are not adequately protected by planning guidelines and

regulations and hence their future is threatened;

The industry is yet to develop capabilities in destination management companies (tour

operators), conference organizers and attraction guides needed to offer an attractive

visitor experience;

Destination marketing by the Nigeria Tourist Development Corporation (NTDC) and

state tourist boards is weak and poorly targeted.

64. The catering industry in Nigeria was reported to have sales of US$2.5 billion in 2004,

growing at 20 percent p.a. In that year, the turnover of the fast food industry was estimated at

US$385 million representing a market share of 15 percent86. The fast food industry has been

growing at 40 percent p.a., so it is increasing market share rapidly.

65. In 2005, there were 468 fast food outlets. Plans announced by the major fast food chains

suggest that the number of outlets would rise to over 3,000 with Mr. Biggs, the market leader,

planning to increase its outlets from 130 in 2005 to over 300. There are four other national chains

which are locally owned. Foreign investment is limited to five or so South African chains.

Though foreign foods are popular in Nigeria, increasingly, the fast food chains are serving a

wider array of Nigerian foods and these are gaining market share.

66. The major impediments to the growth of the catering industry are:

(i) Acquiring suitable sites and obtaining the necessary planning approvals, permits

and licenses;

(ii) Developing and managing efficient supply chains for the major chains with multi-

site operations;

(iii) Skill training for managers and employees.

67. The hospitality industry is relatively labor intensive. Despite its relatively small share of

GDP, over half a million employees are estimated to be in wage employment. In 2005, with 486

outlets, the fast food industry alone employed 25,000 staff formally. Increased investment in

accommodation, attractions and formal catering could provide a large number of formal jobs. In

addition, there are large numbers of persons self employed in the industry operating Bukas. The

numbers could be around two million as the catering industry is a major source of informal

livelihoods in the country.

68. Intervention in support of the hospitality industry could deliver the following benefits:

86 Fast Food Industry in Nigeria, International Business Strategies, August 2006.

78

a) Maintain the growth of a lead growth industry that is far from reaching its full

potential;

b) The industry has strong linkages with other sectors especially agriculture,

construction and transport. Its growth could therefore have a strong pull through

effect on other sectors;

c) In states such as Cross River which have experienced notably slower growth than the

economy as a whole, the industry could provide growth momentum for the economy

as a whole as tourism expenditure will buoy demand for a wide range of goods and

services.

d) This labor intensive industry could generate a significant number of formal jobs and

improve the incomes of large numbers of people employed in the industry.

THE INTERVENTION

69. Intervention in support of growth and employment in the hospitality industry will cover:

a) Technical assistance to ensure that planning guidelines and regulations protect

tourism assets and provide for the needs of the catering industry and the process of

obtaining permits and licenses is streamlined;

b) Technical and financial assistance to ensure natural and cultural assets are

developed to provide an attractive, authentic and socially and environmentally

sustainable experience to visitors using public private partnership (PPP)

arrangements;

c) Performance grants to incentive development of innovative new business models

and technologies that help to develop a competitive hospitality industry in Nigeria;

d) A system of more effective technical and vocational education and training (TVET)

is piloted that helps to meet the needs of the industry and provides an attractive

career path for its employees;

e) TA and grant to support institutions involved in promoting and regulating the

hospitality industry so that they are effective in pursuing policy change, upgrading

products, ensuring health and safety of visitors and employees and promoting better

environmental stewardship.

70. GEMS will establish a Cluster Stakeholder Group made up of committed and capable

persons from the public and provide sectors concerned with the hospitality industry. The Group

will exercise oversight over a Service Provider (SP) Appointed by GEMS that will provide

technical and financial assistance. GEMS will work in the hospitality industries of Cross River,

Lagos and Kano. It will build on the lessons learnt by the MSME Project which is providing

support to Cross River‟s tourism industry.

(a) IMPROVING PLANNING, STREAMLINING PERMITS AND LICENSES (US$2 MILLION)

71. The system of planning is in disarray in most Nigerian states and cities. Years of neglect

mean that master plans and zoning derived from them are out of date. Lack of enforcement has

79

meant that unsuitable development has led to widespread blight. Though cities such as Lagos

have recognized the urgent need to address this issue87, the process of developing, consulting

and enacting into law new master plans and zoning regulations will take time.

72. In the interim, the lack of effective protection given to natural and cultural assets

threatens their sustainability through encroachment and unsuitable development on adjacent

land. This perilous position can be addressed through a combination of:

An updated tourism act may provide protection for national assets. However, unless

this is accompanied by a system of enforcement which is effective, it is likely to

provide only limited protection on the ground;

In the absence of updated master plans, it is possible, under existing legislation, to

bring in regulations that protect areas of special interest. All the major natural and

cultural assets can be deemed areas of special interest and the regulatory protection

they receive, from encroachment or blight, strengthened though more easily enforced

regulations.

73. The GEMS SP will be tasked to undertake research and consultation to identify ways to

increase the protection afforded to natural and cultural assets with the Ministry of Culture &

Tourism and each state government. The SP will assist them to pass the necessary legislation and

planning guidelines and regulations.

74. As noted in the Technical Annex, the system of obtaining planning permission,

construction permits and licenses to operate particular types of establishments is slow, expensive

and not transparent. GEMS intends to address the streamlining of procedures to obtain approvals,

permits and licenses under Output 1 which will address regulatory reforms in each state. The SP

will ensure that reforms brought about under that output take account of the needs of the

hospitality industry. New plans developed should provide for the demand for new hotels, man-

made attractions and catering establishments. The SP will ensure that the obtaining of permits

and licenses to operate hotels, attractions and restaurants is made more transparent and

streamlined whilst reducing the risk to the health and safety of visitors and employees and

improving environmental impacts.

75. The land administration sub-component of GEMS Component A, Investment Climate

Reform, funded by DFID, will use financial and technical assistance to identify and exploit ways

to increase the amount of land for development made available by state governments, ensuring

that the process of sale is transparent (auctions) and socially responsible, compensating those

who have had their rights (including usufruct) impinged by the state. The SP for the hospitality

industry will influence the state ministries of land to release sufficient quantities of suitable land

to meet the needs of the hospitality industry.

(b) SUPPORTING INVESTMENT IN TOURISM ASSETS (US$10 MILLION)

87 The Ministry of Planning is preparing plans for the development of a number of self contained cities that will make up the

mega-city thereby reducing the current pressure on transport caused by poor planning.

80

76. In general, the neglect of the tourism industry in the past has meant that outstanding

natural and cultural assets have, often, not been developed to provide an attractive visitor

experience. This affects the tourism industries of all three states:

Cross River: Whilst the state government has invested large sums of money on

developing man made attractions such as Tinapa, the cable car and developed an

excellent state museum and visitor center at the site of the former slave docks, many

natural assets are still inaccessible or need investment to develop an attractive visitor

experience (i.e. Duke‟s Town). The critical imperative for the state‟s tourism industry

is to reduce the visitor peak at Christmas and increase the average length of stay of

the large numbers of visitors to the state. This requires offering a greater variety of

attractions and improving the transport links between them, thereby persuading the

visitor to stay longer or to visit the state for reasons other than the festival;

Lagos: With much of the cities former bathing beaches now unsuitable for bathing

because of water pollution and the lack of man-made attractions, there is a paucity of

leisure facilities for the business or VFR visitor;

Kano: Many of the city‟s historic assets lack investment to ensure their preservation

and the development of interpretive signage, media and guides that would enrich the

visitor experience. Kano‟s tourism industry is in need of broadening its offer beyond

the Durbar and to offer leisure activities for the large numbers of business travelers

that the city attracts.

77. The framework for attracting investment into the tourism assets of all three states requires

the development of an effective PPP framework. Under such a framework, public investment

would be used to preserve natural and cultural assets to offer an authentic visitor experience and

provide infrastructure. The private sector would be offered the opportunity to invest in the

development of the visitor experience, accommodation and commercial facilities (shops,

restaurants), operating the site within the guidelines set by the public sector.

78. The critical role that the SP will play is ensuring that the PPP framework is developed

and applied transparently, thus minimizing the opposition to such arrangements that have

derailed their progress in other industries. The SP will ensure that, under such frameworks, the

private sector carries risk commensurate with the potential for return.

79. In Cross River and Kano, there are a number of important tourism assets, such as hotels

and shopping and leisure complexes, which are still owned by the state. The privatization of such

assets has proved contentious in the past, resulting in delays and frustration for potential

investors. The SP for the hospitality industry will be expected to support state governments in

ensuring that these assets are transferred to private ownership in a transparent and timely

manner.

(c) INNOVATING NEW BUSINESS MODELS & TECHNOLOGIES (US$8 MILLION)

80. In general, the hospitality industry in Nigeria is not competitive offering poor value for

money to the visitor or domestic consumer.

81

81. Accommodation tends to be expensive reflecting the generally high cost of land in

Nigeria. Hotels tend to be poorly designed and their operating costs are high, mainly because of

the cost of self-generated power, but also because they are wasteful of energy. With the

exception of the foreign managed hotels and a few locally managed boutiques, the majority of

hotels are poorly managed. Their management lacks experience, there are few franchising

opportunities and business development services tend to be generic rather than adapted to the

hotel industry. These weaknesses apply to attractions also.

82. The lack of destination management companies means that the Nigerian industry is

unable to offer the packages of hotels, attractions, knowledgeable guides and reliable transport

that is considered a must for successful destinations. This lack of innovation is only partly a

result of the underdeveloped state of the market. The many government and market failures,

including the inability to enforce contracts and the difficulties in coordinating the activities of

large numbers of small businesses, also play a role.

83. In the catering industry, the large chains are challenged to develop reliable, cost effective

supply chains, especially for domestically produced foods: meat, fish, fresh vegetables, garri and

fufu etc. The main issue is how to coordinate the output of large numbers of small suppliers to

provide reliable quantity and quality. The smaller independents are poorly served by equipment

and input suppliers and industry specific BDS: for example, the bespoke packages of sales and

accounting software used in the developed countries are yet to gain ground in Nigeria.

84. The SP will be tasked to spur innovation in the hospitality industry. The component will

be run on challenge fund basis inviting proposals from the private sector and selecting those that

offer the highest economic and social return. Successful applicants will be provided with

performance grants subject to the GEMS funds being (at least) matched by the applicant. The

types of projects that GEMS may fund are:

(i) Improving the supply of BDS services to the small and medium sized (SME) hotels

attractions and catering establishments, including hotel design, management,

operational and accounting services, franchising arrangements and so on. Grants

could be provided to fee charging BDS services or the suppliers of hotel and

catering equipment and other supplies incentivized to improve embedded services88

;

(ii) Supporting the development of franchising in the hotel and catering industry

targeting the large number of well located, but poorly managed, SMEs;

(iii) Supporting innovation in the supply chains of large fast food chains and hotel

chains that will improve reliability of supply or reduce cost;

(iv) Developing new business models in the catering industry whereby specialist firms

develop cash and carry‟s or other forms of wholesaling to supply smaller caterers

and hotels

(v) Developing new business models involving the hotels, attractions, restaurants and

destination management companies that will enable more and better visitor

packages to be developed in the three states.

88 In many countries, hotels and restaurants are helped by their suppliers to develop their business. Hong Kong based suppliers

were an important source of BDS in the initial development of the tourism industry of the Maldives.

82

(d) IMPROVING TVET (US$4 MILLION)

85. Though the hospitality industry generally employs a large number of unskilled staff, its

growth is dependent on trained personnel occupying key positions – hotels and restaurant

managers, chefs, staff trained in health and safety and so on. Moreover, to ensure that it does not

suffer from a high rate of attrition, it needs to offer a career path to its employees who,

otherwise, frequently move to employment that is less demanding in terms of working unsocial

hours or offers better working conditions.

86. In Nigeria, the TVET system, generally, is in a parlous state, denied the investment it

needs to meet the needs of industry89. The hospitality industry‟s ability to attract skilled and

semi-skilled labor is further hampered by the decline of the National Institute for Hospitality and

Tourism (NIHOTOUR).

87. Improving the TVET system for the hospitality industry provides the opportunity to both

increase the efficiency of this rapidly growing, labor intensive industry, thereby providing more

and better jobs for the work force and to offer a better career path to its employees. The GEMS

SP will be tasked to:

(i) With cluster stakeholders, develop and implement a pilot project in each state to

demonstrate how cost effective TVET can be provided for the industry and its

employees;

(ii) Examine the most cost effective way that a system of effective TVET can be

developed in each state for the long term and recommend appropriate mechanisms

for financing the system;

(iii) Develop a system of qualifications, linked to suitable career paths, which can

provide the opportunity for employees to pursue a worthwhile, long-term career in

the hospitality industry. Establish mechanisms for agreeing curricula and trade

testing that meet the needs of both the industry and employees

88. Interventions in the field of TVET are relatively high risk, and program monitoring

systems will maintain a careful oversight of this aspect of the program.

(e) STRENGTHENING POLICIES AND INSTITUTIONS (US$1 MILLION)

89. The Tourism Master Plan notes the need for better tourism policies and institutions. The

route cause lies in the lack of capacity in federal organizations responsible for the promotion and

regulation of the industry including the Ministry of Culture and Tourism (MCT), the NTDC and

the state tourist boards. There is a need to improve tourism policy.

90. At the national level, the pressing issues are a new tourism act and reform of the

restrictive visa policy. At state level, there is a need to establish better policy frameworks that

89

Managing Labor Market Reform: A Review of Institutional Practices and Policies in Nigeria and Recommendations for

Improved Responsiveness. Powell, M & Treichel V, 2008.

83

provide for a clearer distinction between the roles of the public and private sectors and a less

discretionary approach to attracting investment.

91. In addition, capacity for effective destination promotion at both federal and state levels is

deficient. The limited budgets available are poorly spent lacking targeting and ways to leverage

the complementary spend of the private sector. National standards for accommodation are

largely absent and there is poor enforcement of health and safety standards for visitors and

employees. Though the industry complains of high cost of energy and poor infrastructure, all but

a few, large hotels are yet to invest in reducing energy usage, recycling water and waste and

investing in better treatment of sewage.

92. The GEMS SP will need to identify specific opportunities, at federal and state levels,

where building the capacity for better promotion and enforcement issues will pay large dividends

for the hospitality industry. In these areas, it will need to examine how and where:

A strong alliance can be built between the public and private sector to promote the

destination, change policies and offer better products;

Accommodation standards can be developed and enforced that will provide incentives

for the industry to comply, including linking promotion to standards and ensuring that

links between standards and better health and safety for visitors and employees is

clearly understood;

Provide cost effective training for the industry in complying with health and safety

standards;

Promote better environmental practices, especially those which will bring commercial

benefits to the industry such as reducing energy usage, recycling water and waste and

improving sewage treatment.

93. Where suitable opportunities exist, it will seek the agreement of the cluster Stakeholder

Group to provide the necessary technical and financial assistance to build capacity.

IV SUPPORT FOR THE WHOLESALE, RETAIL INDUSTRY (US$30 MILLION)

RATIONALE

94. Nigeria‟s service sector is less developed than comparator countries contributing just 28

percent of GDP. It is now growing rapidly, leading the growth of the economy. Wholesale and

retail trade is the dominant service industry accounting for over half service sector output (15

percent of GDP). It has been the major contributor to service sector growth. Between 2002 and

2006, the wholesale and retail industry grew by an average 10.6 percent p.a. and growth is

accelerating. In 2005 and 2006, it grew by over 13 percent p.a. A combination of population

growth, urbanization and higher incomes are driving expenditure, especially on food and

beverages which make up the bulk of wholesale & retail trade90.

90 Food and beverages make up 65percent of the consumption basket.

84

95. There are three types of wholesale & retail distribution systems:

(i) Traditional, Informal. This is the dominant system accounting for 64 percent of

industry sales91

. It consists of a large number of small, open air markets (estimated

at 2,500) but includes also some of Sub-Saharan Africa‟ s largest markets namely

Dawanau92

in Kano and Mile 12 in Lagos. The product range is limited mainly to

perishables and traditional foods, clothing and footwear and household goods. The

system is extensive, consisting of numerous intermediaries that consolidate the

output of huge numbers of small producers and then break bulk for large numbers

of micro retailers. Margins are low (5 percent-10 percent) per transaction but the

large numbers of intermediaries involved results in high transaction costs. In

addition, logistic infrastructure (handling, transport, warehousing, cold chain) is

very poor resulting in high levels of wastage. Up to 30 percent - 40 percent of

perishable and 15 percent -20 percent of non-perishable products may be lost

adding to the inefficiency of the system. Weights and measures are rudimentary and

there is little attention given to food safety or quality assurance.

(ii) Formal, small retail formats. This accounts for 35 percent of the sector‟s sales. The

system supplies mainly processed, non-perishable foods through a convenience

store (mini-supermarket) format and serves middle to high income consumers.

Manufacturers and importers supply wholesalers who sell to the retailer.

Occasionally semi-wholesaling may be required to produce consumer pack sizes

and, when this occurs, the costs of intermediation can be high. Margins tend to be

higher than the traditional system, especially for retailing (c. 20 percent).

(iii) Formal, large retail formats. They contribute 1 percent of sector turnover. The

dominant format is large supermarkets, owned by about a dozen chains, including

foreign owned chains such as Shoprite. They sell a wide range of fresh and

processed foods and household goods. The modern format has the potential to

undercut both the other formats because of shorter supply chains and the ability to

spread overheads across a high volume of turnover. They buy directly from

producers (i.e. fruit & vegetables), processors and manufacturers. A combination of

competitively priced products, greater quality assurance and a better shopping

experience are enabling this format to increase market share at the expense of the

others. The chains plan to increase stores several fold, driving growth. Currently,

this format serves mainly middle to high income consumers but it could prove

attractive also to lower income consumers.

96. Overall, the wholesale & retail system of the country can be considered to be inefficient.

Without processing or packaging, the price of a commodity could increase 2-3 times between

producer and consumer. The inefficiency of the system results in a combination of lower prices

to the producer and higher prices to the consumer. This is a major constraint on the growth of the

91

“Nigeria Retail Food Sector 2006”, USDA Foreign Agricultural Service, GAIN Report, 11/24/2006. 92

Dawanau market has more than 50,000 dealers, 6,000 locked up stores and more than 10,000 open shops. Lagos State boasts an estimated 384

markets with the largest being Mile 12 which rivals Dawanau with 45,000 traders.

85

economy depressing the growth of private consumption and it contributes to the high cost of

living93 and hence pushes up wages.

97. The development of a more efficient industry is hampered by numerous government

failures. The major markets are owned by municipal or state governments that have failed to

invest in their development resulting in congestion, lack of handling and storage facilities and

infrastructure, unsanitary conditions and pollution. There is little attention given to enforcing

health and safety or weights and measures.

98. There are multiple market failures also caused by uneven access to information and lack

of coordination between the large numbers of small intermediaries involved. Frequently, market

associations work to limit participation in the market, often on ethnic lines.

99. The large retail format could revolutionize the efficiency of the industry and the service it

provides to consumers. However, the way that this is likely to take place may exclude small

suppliers who cannot meet its quantity and quality requirements.

100. The wholesale & retail industry is the major employer in the country after agriculture.

Nationally, it accounts for about 15 percent of employment94. The overwhelming proportion of

employees is informal, often self employed. In major commercial centers such as Lagos and

Kano, it is the major employer: 40 percent of Lagos‟s work force is estimated to be employed by

the industry. In the North, men dominate the industry though women are involved in retailing. In

the South, women are by far the largest participants: The National Women & Men Market

Traders Association reports 1 million members in Lagos, the overwhelming majority of which

are women. Whilst the large wholesalers are sizeable businesses generating considerable wealth

for their owners, the incomes earned by the self-employed, which make up the majority of

participants, are very low.

101. Improving the efficiency of the wholesale & retail value chain would:

Maintain the growth momentum that the industry is providing to the service sector

and the non-oil economy;

Generate important spillovers such as reducing the cost of food to the consumer

(consumer surplus) thereby checking the growth in the cost of living that is

hampering the growth of private consumption and bidding up wages;

Reduce the waste and transaction costs between the farmer and the consumer passing

on some of the savings to the farmer, thus improving returns to agriculture;

Improve the incomes of the two-three million people employed in the industry across

the four states.

93 Analysis carried out by DFID shows that the cost of living in Nigeria is 50percent higher than the world average. This contributes to the

relatively high cost of labor. 94 The informal sector survey carried out by CBN/FOS/NISER reported that 70percent of the eight million people employed in the informal

service sector were employed in wholesale and retail.

86

THE INTERVENTION

102. GEMS will support growth, incomes and employment in the wholesale & retail industry

as follows:

a) Support investment in markets to increase space and improve handling and storage

facilities, solid waste disposal and storm water drainage;

b) Use performance grants and technical assistance to support innovation of new

business models and technologies that will help to reduce transaction and

coordination costs and waste and are inclusive of small producers.

c) Supporting the market associations develop and enforce private standards such as

better systems of weights and measures and product standards an ways to improve

health and safety and environmental impacts;

d) Support federal agencies (NAFDAC, SON) and local governments to improve the

enforcement of health and safety and product standards. Provide evidence for

changes to policies towards domestic and international trade that undermine the

development of an efficient wholesale and retail industry.

103. The intervention will cover all four states as each contains significant clusters of

wholesalers and retailers around its major markets. The development of markets such as

Dawanau and Mile 12 will be given special emphasis as they impact national trade and trade

with neighbouring countries95

. GEMS will constitute a Cluster Stakeholder Group to exercise

strategic oversight over the activities of a Service Provider (SP) appointed by the World Bank to

undertake the intervention in partnership with state and local governments and industry

participants. The activities that GEMS will undertake and the instruments that it will use under

each of the five headings are set out below.

(a) SUPPORTING INVESTMENT IN MARKETS (US$24 MILLION)

104. Traditionally, state and local governments have regarded the country‟s commerce as a

source of revenue rather than a vital economic activity to nourish. This has led to the neglect of

markets, especially market infrastructure. Fortunately, this attitude is now changing. In Kano

state, for instance, plans have been drawn up to redevelop the commercial center of the capital

and to invest in the expansion of Dawanau and other large markets such as Sabon Gari. Kaduna

state has also expressed an interest in following suit as have Cross Rivers and Lagos.

105. Whilst hugely worthwhile, investment in markets poses significant challenges:

95 Dawanau is the center of Nigeria‟s informal export of agricultural commodities to Niger and other Northern neighbors. Mile 12

attracts produce from Benin.

87

a) In cases where major development is planned, the authorities lack the financial

wherewithal to develop the markets themselves. There is a need to develop

frameworks and negotiate public private partnership (PPP) agreements that provide

sufficient incentive for the private developer whilst safeguarding the public interest.

PPP arrangements have been a frequent source of concern in Nigeria with respect to

transparency and possible corruption resulting in political and legal challenges that

have delayed the development process. The states need assistance in developing

transparent PPP arrangements;

b) Whilst the major concern of developers is to maximize the yield from the property,

there are major public interest issues to consider such as handling and storage

infrastructure, blight caused by noise and traffic congestion, the disposal of solid

waste and the construction of sanitation facilities for use by employees of the markets

and the public. These public interest issues need to be incorporated into the design of

the development and built into PPP arrangements.

c) In the larger cities, such as Lagos, Kano and Kaduna, there is a need to improve the

logistics infrastructure for the city as a whole. The major cities of developed and

developing countries have encouraged the development of warehousing and logistics

infrastructure at their edges thereby minimizing the movement and unloading of large

lorries in congested areas. Nigeria‟s large cities have yet to follow suit. Plans will

need to be formulated and PPP arrangements arrived at to encourage similar

development in Nigeria‟s major cities.

d) With all land vested in it, the state is able to use its powers to revoke certificates of

occupancy to make existing and new land available for development. However, the

process whereby this is undertaken, in terms of compensation and maintaining

livelihoods, has important social and economic consequences, not the least in terms of

court cases delaying development. There is a need for the states to adopt better

systems of involving stakeholders in the planning process and to implement better,

more transparent systems of compensation.

106. The GEMS SP will provide technical and financial assistance to support investment in

markets in ways that safeguard the public interest. The assistance will ensure that developments

provide opportunities for the huge number of small, self-employed traders to increase their

incomes, compensate those displaced and reduce environmental impacts.

(b) INNOVATING NEW BUSINESS MODELS & TECHNOLOGIES (US$2 MILLION)

107. Nigeria‟s wholesale & retail industry has been slow to innovate new technologies and

business models with the potential to improve its efficiency and competitiveness. The obvious

example is the slower emergence of large retail formats compared with East and Southern Africa

where they hold a much larger share of the market than in Nigeria. And, the country also lags

behind many African countries in developing a cold chain for perishables.

108. Now that the more efficient large retail formats are emerging, there is a danger that the

way they organize their supply chains will serve to exclude a large number of smaller producers

88

who will struggle to meet the minimum economic size or consistency of quality that they

demand96. For instance, Shoprite‟s store in Lagos is supplied by less than 50 producers of fresh

produce and most of these are large farmers. It makes economic sense for the retailer to limit its

purchases to a few, large and capable suppliers.

109. The large, retail format chains are aware of this danger and keen to find ways to build

more inclusive supply chains. The economic rationale stems from reducing the market power of

a few privileged suppliers. But the large supermarket chains are also aware of the social

responsibility consideration of strengthening their license to operate by working with larger

numbers of suppliers. Building more inclusive supply chains is, however, costly requiring

investment in building supply infrastructure (sorting and grading stations, pack houses,

warehouses and cold stores) and considerable management time. Whilst the social returns to such

investment are assured, the financial rewards are less certain.

110. Similarly, the emergence of more extensive cold chains is happening but it is limited to

the supply chains of the large retailers and the major fast food chains. There is a need to increase

investment in the infrastructure needed (cold stores, vehicles, refrigerated displays) that will

speed up market deepening. The potential benefits are large, founded on the high level of waste

at present, but the risks are also considerable in the form of insecure supply and uncertain

markets, especially if the customer base is to extend beyond the large supermarkets and caterers.

111. A less obvious, but equally important shortcoming is that, although there are strong

networks of relationships that enable the traditional system to function, the basis of trading

remains predominantly spot market. The organizing of supply chains that can meet quantity and

quality requirements with any certainty is yet to take place. The embedded services that, in other

countries, enable suppliers to understand and meet the requirements of their customers are

therefore frequently absent.

112. Further, although the traditional system includes sizeable businesses with considerable

assets, the overwhelming proportion remain informal in terms of registering businesses, paying

corporate taxes and employing workers97. Informality denies them access to bank accounts and

commercial bank finance and leaves them prey to a host of officials. This restricts their growth.

113. Gradually, the larger businesses are formalizing registering their businesses and opening

bank accounts but still not paying taxes or employing workers formally. They however continue

to be denied access to commercial bank loans because they do not maintain financial records and

find the whole process of obtaining a bank loan bureaucratic98. The majority continue to remain

informal. One of the reasons for this is the sheer bureaucracy of formalization having to register

with multiple agencies and maintain financial records.

114. The SP will be tasked to implement a program to spur innovation in the wholesale &

retail industry. The program will be run on challenge fund basis inviting proposals from the

96 In economic terms, the market failure is one of indivisibility. 97 Most wholesale & retail businesses pay license fees and rents to local authorities 98 In cities such as Lagos, there is now a thriving commercial micro finance industry that supplies non-collateralized loans to

small retailers. The critical constraint now is for wholesalers and larger retailers to access larger sums of money from the

commercial banks.

89

private sector and selecting those that offer the highest economic and social return. Successful

applicants will be provided with performance grants subject to the GEMS funds being (at least)

matched by the applicant. The types of projects that GEMS may fund are:

a) Supporting the large retail formats to develop more inclusive supply chains that

provide opportunities for smaller producers to increase their incomes by increasing

the efficiency of the supply chains (lower transaction and coordination costs);

b) Supporting cold chain operators to develop cold chain infrastructure that will offer

greater opportunity to smaller producers and retailers to improve their incomes by

reducing waste;

c) Supporting independent businesses and traditional wholesalers to establish supply

chains that can provide assured quantity and quality by increasing the supply of

embedded BDS services to their suppliers and/or investing in supply chain

infrastructure;

d) Supporting BDS provide innovate, cost effective ways of supporting large numbers of

informal wholesalers and retailers to formalize and obtain access to commercial bank

finance.

(c) IMPLEMENTING PRIVATE STANDARDS (US$2 MILLION)

115. In the traditional system, market associations play a major role in setting the rules of the

game. In general, local governments responsible for enforcing trading standards, health and

safety and ensuring adequate sanitary conditions are not motivated or able to discharge their

functions effectively. They leave almost all the day to day running of markets to the associations.

These associations are largely self regulating though they do turn to traditional rulers to mediate

in disputes or punish offenders.

116. Most associations recognize the importance of weights and measures and minimum

product standards establishing broad guidelines for their members. However, these guidelines are

often flouted with impunity because the general attitude of the associations is one of leaving

matters to willing buyers and sellers. They believe that there is a market for even rotten fruit and

vegetable because they can be used for some purpose and the poor cannot afford anything better.

And, if members choose to use different sized cups (mudu) to measure volume, than that is

between the buyer and seller.

117. This laissez faire attitude, however, ignores the reality that, without the enforcement of

weights and measures and minimum product standards, unscrupulous traders may take advantage

of customers. The lack of assurance over quantity and quality is a disincentive to buy as most

people factor in the risk that they will be short changed into the purchasing decision. In the

longer term, adherence to weights and measures and product standards benefits both the buyer

and seller as prices can be set with assurance.

118. The GEMS SP will need to investigate how a system of enforcing weights and measures

and standards can be introduced voluntarily by the more progressive market associations. The SP

90

will need to work with the associations to monitor the effect that better enforcement has on the

attitude and spending patterns of customers so that a case can be made on commercial grounds to

continue to enforce them. Otherwise there is a danger that improvements will not be sustained.

119. There are many sources of health and safety risks for those employed in traditional

markets and their customers: disease transmitted by either customers or traders may go

unchecked because health care provision is weak; inadequate street cleaning may cause

hazardous conditions; there may be problems of storm water drainage or solid waste disposal;

and crime and violence is always a possibility in Nigeria. De facto, addressing these issues falls

in the lap of the market associations.

120. The GEMS SP will provide technical assistance to the market associations in improving

health and safety for their members and customers. It will help to examine possible funding

options helping to broker possible solutions between the associations and the local government

to improve the supply of infrastructure services.

(d) IMPROVING TRADE POLICY AND ENFORCEMENT OF STANDARDS (US$2 MILLION)

121. De jure, the responsibility for enforcing weights and measures and product standards,

health and safety and the environment lies with a combination of federal agencies (SON,

NAFDAC) and local governments. These agencies struggle to discharge their duties effectively

hampered by lack of funding and poorly trained and motivated staff. They may also face strong

resistance from vested interests when they attempt to enforce measures that undermine the

commercial interests of powerful businessmen.

122. The GEMS SP will need to identify specific areas where building the capacity of

enforcement agencies will pay large dividends for the wholesale and retail industry. In these

areas, it will need to examine the political economy of change and see how strong resistance is

likely to prove. Where a strong alliance can be forged between the market associations, wider

representative organizations of the industry, such as the National Women & Men Market Traders

Association, and government agencies, the GEMS SP will provide capacity building assistance

to government agencies. Such assistance will, ideally, lead to productive collaboration between

the public and private sectors.

123. As noted earlier, commerce is seen by some government officials as means of exploiting

a source of revenue. One manifestation of this is the taxes levied on the movement of

commodities across state boundaries. These taxes are, in themselves, not onerous. But they

provide opportunities for officials and the police to extract rents from the movement of goods,

either at formal or informal checkpoints. Each checkpoint costs the owner only a small sum

(relative to the value of the commodity) in official and unofficial payments but it is the delay and

uncertainty caused that are the main hindrance to trade. The levying of an internal tax on the

movement of goods is hard to justify on economic grounds, especially now that value added tax

is in place. Moreover, the sums raised are small so that there is no revenue imperative to justify

them. There is a general consensus among reform-minded policy-makers that they should be

done away with.

91

124. Similarly, trade policy is restrictive of the many products that the wholesale and retail

industry could import to meet consumer needs. High tariffs and outright bans are justified on the

grounds of protecting domestic producers. Although, foreign investment in the wholesale and

retail industry is permitted, there is a special sensitivity towards the imports of foreign owned

businesses. Bans on the import of food and household goods represent a strong disincentive to

foreign investors who wish to provide a full range of competitively priced products in their large

retail formats

125. There is a need for a more rational approach to trade policy for the industry. There are

many instances where domestic supply is extremely limited (i.e. temperate fruit and vegetables)

because Nigeria does not have the climatic conditions or raw materials to produce them

competitively. In these instances, tariff and non-tariff protection makes little sense. Further, bans

on imports of some products are reportedly violated as it is exceedingly difficult to police

Nigeria‟s borders. The ban results in a loss to the exchequer enabling smugglers to earn rents.

This is the case with imports of vegetable oils at present99

.

126. In addition, the lack of trade facilitation represents a major barrier to the development of

a competitive wholesale and retail industry. The cost and time involved in importing are high:

Nigeria ranks 144 out of 181 countries in trading across borders in the World Bank‟s Cost of

Doing Business. Some shipments can be delayed for months because of congestion at the port

and delays in clearing customs. Apart from the cost, which can be very high if demurrage

charges are incurred, importers run the risk that, by the time the goods reach shops, they could

exceed their sell by dates resulting in a total loss of the shipment.

127. The GEMS SP will provide evidence in support of a more rational approach to domestic

and international trade policy with respect to the wholesale and retail industry. The evidence will

highlight the inefficiency of levying taxes on internal commodity movements and products

where high tariffs and non-tariff barriers are hurting consumers and the exchequer with little

prospect of domestic supply ever becoming a viable alternative. The SP will also track the actual

cost and time of importing goods identifying the key bottlenecks and suggesting options for

addressing them.

128. Armed with the evidence, the SP will help to forge alliances between the various parts of

the wholesale and retail industry, formal and informal, to lobby for changes in policy. Where

appropriate, the SP will help to forge broader alliances with those who share its concerns, for

example, the transport industry and manufacturers who depend on imported raw materials.

129. In supporting such alliances for reform, the SP will need to be fully aware of the political

economy of change. Trade policy is frequently the subject of strong contestation in Nigeria. By

examining how conflicting interests can be accommodated, it may be possible for pro-reform

champions to develop a package of policies to which there is less opposition.

99 This is documented in Product Value Chain Analysis, Consilium International, 2008.

92

V ‘ADDITIONAL CLUSTER DEVELOPMENT ACTVITIES’ (US$10 MILLION)

130. The provision for Additional Cluster Development Activities will enable GEMS to

provide reactive support to new clusters, or to new activities within clusters already within the

project as opportunities arise. As with the other activities under Component B, activities will

focus on specific industries, and can include activities such as performance grants, public private

dialogue, infrastructure investment, and market analysis, as well as industry specific legal and

regulatory reforms. The precise combination and delivery mechanisms of these interventions will

vary according to sector, and will be devised by the service providers selected for each industry

in consultation with the FPIU/PMU. The performance grant mechanisms will be governed

through guidance developed and updated in the PIM, and managed by the FPIU/PMU.

131. This provision will allow the project to respond flexibly to a dynamic and developing

agenda. The PMU will develop suitable criteria for project eligibility in order to maintain the

focus and ensure the efficiency of this sub-component. Projects that meet the eligibility criteria

will be appraised and approved and then funded on a first-come, first-served basis thereby

ensuring that the project channels funds to the most proactive and successful reform areas.

132. The process for the design and management of these activities has been outlined in the

project implementation plan. The process ensures that money is only allocated to well prepared

project ideas that include a suitable ToR, procurement timeline and are tied to government's

stated reform objectives as agreed with the Bank. Key milestones within the sub project would

be submitted that would allow the central FPIU to supervise and monitor the sub-project going

forward

VI COMPONENT C: EFFECTIVE M&E, COMMUNICATIONS (US$20 MILLION)

Establishing Baselines and Quantified Targets

133. The project‟s goals of growth, incomes and jobs in selected states will need to be

translated into quantified targets against which progress will be tracked. At this stage, without

having undertaken detailed baseline assessments, targets can only be set in general terms. Firmer,

specific targets will be set after an initial Inception Phase.

134. During the first six months after its commencement, under the supervision of the GEMS

PMU, each SP supporting the two GEMS components, will be tasked to conduct baseline

assessments and agree with their strategic oversight body (SGCs, Cluster Stakeholder Group)

targets for relevant output, outcome and impact indicators. The indicators will demonstrate a

clear logic model for how activities and output will combine to deliver outcomes and impacts

identifying process milestones that are critical for the logic to hold.

93

135. This is likely to result in an amended GEMS logical framework that reflects the realistic

ambitions of its stakeholders. The overall log frame, developed by the GEMS PMU, will be

linked to individual log frames for each intervention.

THE M&E SYSTEM

136. Primary responsibility for tracking progress will lie with individual SPs. They will

present their findings to their respective strategic oversight bodies and the GEMS PMU which

will consolidate their reports into an overall project level M&E report for the National Steering

Committee.

137. It is intended to carry out a midterm review of the project in year two after its

commencement. To enable this to provide insightful analysis of progress and make

recommendations on how its effectiveness could be improved, the GEMS PMU will commission

independent surveys to measure outcomes and impacts of selected interventions.

138. For the complex change processes involved in each of the two components to succeed, it

is important that there are strong feedback loops established between those responsible for

implementation and intended beneficiaries. The GEMS PMU will therefore attempt to learn

lessons on the process of change, what works and what hinders change and what measures

produce the highest impacts, and feed them back to those responsible for implementation. It will

therefore employ appropriate tools for undertaking participatory M&E including focus groups

and workshops and beneficiary surveys.

THE COMMUNICATION FUNCTION

139. In a country as large as Nigeria, it makes sense to work on a few priority business

environment reforms and selected industry clusters in focal states. It is much the best way to

demonstrate what can be achieved and learn lessons on what works best thus providing models

that other states can follow.

140. To leverage the impact of such focused intervention, however, it will be essential for

GEMS to communicate lesson learning widely. The peer learning built into the business

environment reform output and the M&E built into interventions in selected industries, will form

the first level of lesson learning and communication. Each SP will have resources to invest in

preparing communication material and funds to reach its target audiences.

141. The GEMS PMU will also have an independent lesson learning and communication

capability at the apex of the project. The PMU will regularly engage with SPs and their strategic

oversight bodies to distil lesson learning. It will focus on lessons that have wider implications

than the individual intervention. The GEMS PMU will communicate these more general lessons

more widely to influence other stakeholders, those within the purview of the project and further

afield.

94

142. Whilst the target audience for individual interventions will be those immediately

concerned with them, the GEMS PMU will communicate more widely to influence FGN and

development partners, other state governments and industries not served by GEMS. The PMU‟s

effectiveness in winning hearts and minds more widely will be crucial in leveraging the impacts

of the project.

95

Annex 5: Summary Project Costs IDA financing100

Nigeria: Growth and Employment in States Project (GEMS)

GEMS Indicative budget: IDA funded components

COMPONENT B: INDUSTY COMPETITIVENESS

Infr

astr

uctu

re

Co

ns

ult

an

cy

Eq

uip

men

t /

Go

od

s

Tra

inin

g

Perf

orm

an

ce

Gra

nts

Op

era

tin

g

Co

sts

To

tal

ICT 25 15.5 0.5 5 4 0 50

Entertainment 4 7 5 4 5 0 25

Tourism and Hospitality 0 14 3 2 6 0 25

Wholesale and retail trade 0 9 2 8 11 0 30

Additional cluster development 2 2 2 2 2 0 10

M & E and Communications 20 20

Totals 31 47.5 12.5 21 28 20 160

Annex 5b – Indicative Breakdown of DFID Contribution (in£ million)

MIS & capex

Performance grants

Technical assistance

To be allocated

Total

Component A: Business Environment

29 13.5 5.5 47.5

Component B: Industry Clusters

Subcomponent: Construction

0 3.5 10 13.5

Subcomponent: Meat & Leather

0 1 6 7

Component C: M and E and Communication

1.5 1.5

Total 29 4.5 29.5 7 70

100 The total US$160 million includes a US$2 million PPF to be reimbursed to IDA on Effectiveness

96

Annex 5c– Indicative Breakdown of DFID Contribution (in$ million)

MIS & capex

Performance grants

Technical assistance

To be allocated

Total

Component A - Business Environment 45.85 0.00 21.34 8.70 75.09

Component B: Industry Clusters

Subcomponent: Construction 5.53 15.81 21.34

Subcomponent: Meat & Leather 1.58 9.49 11.07

Output 3 2.37 2.37

Total 45.85 7.11 46.64 11.07 110.67

GBP/$ AS OF 14TH Dec 2010: 1.58094

97

Annex 6: Implementation Arrangements

NIGERIA: Growth and Employment in States Project (GEMS)

1. Implementing a project with the breadth and scope of GEMS poses challenges for good

governance and effective management, especially in the Nigerian context with its complex and

difficult political environment. Providing timely and relevant assistance in Nigeria‟s fast

changing environment will require responsiveness to changing needs and priorities. This section

examines how GEMS intends to meet these challenges. It starts with setting out how project

implementation will be organized addressing key roles and responsibilities. It then considers

issues of governance and management examining how the key risks to the project will be

managed.

Organizational Structure

Figure 1: Organizational structure for implementing the project.

2. Strategic oversight and governance will be provided by a National Steering Committee

(NSC) which will be chaired by the Federal Minister of Finance and include representatives of

the Ministries of, Commerce, Information and Communication and the National Planning

Commission. Each focal state, eminent people from the private sector and civil society would

also be invited to join. It has been suggested that the National Economic Management Team

(NEMT) could play this role as it includes representatives of all the relevant ministries. It is

Federal Public Financial Management Unit

98

envisaged that DFID and World Bank staff could serve as observers on the committee. The NSC

will set overall policy, take responsibility for deploying resources to their most productive use

and ensure the project is coordinated with FGN and state government interventions. It will have

the delegated authority of all key stakeholders and as a strategic body; it would normally meet

only bi-annually but could meet more often as required.

3. The project will be supported by a DFID Private Sector Development Adviser seconded

to the World Bank. The adviser will carry out the following functions:

Planning

4. Ensure SGCs (see below) and Service Providers contracted by DFID and the FPIU agree

annual work plans specific to each work area, cross-referencing and linked to the work plans of

DFID‟s other state level programs (SLPs), and that the PMU consolidates and secures NSC

agreement to project wide annual work plans encompassing the three outputs of GEMS;

Monitoring

5. Liaise with and support the GEMS Project Management Unit (PMU) and, through the

PMU, the SPs

6. Ensure that GEMS policies and procedures are being followed in all activities of the

project and advice on possible changes that would help improve the delivery of outputs and

outcomes.

7. Ensure that the PMU is carrying out its M&E function effectively (including being

effectively linked to the wider SLP knowledge management system) and, based on its reports,

advise the DFID, WB and the NSC on strategic decisions that they need to take in terms of

priorities for resource allocation.

8. Assist the SGCs exercise oversight over the implementation of state work plans. This will

include:

i) supporting the various state ministries and agencies and the DFID appointed SP

responsible for delivering the regulatory reform output of GEMS (Output 1);

ii) monitoring progress and influencing cluster activities (Output 2) in the state to ensure

that they respond to the interests of the local private sector;

iii) ensure that the GEMS PMU establishes an effective M&E and lesson learning system

9. Help to screen new opportunities for GEMS including undertaking additional business

environment reforms and adding other states and new industries for cluster intervention.

Co-ordination, communications and relationship management

99

10. Facilitate effective coordination and communications between GEMS and DFID‟s other

SLPs – ESSPIN (education), PATHS2 (health), SAVI (voice and accountability) and SPARC

(core governance reform) – and other relevant programs.

11. Facilitate effective coordination and communications between GEMS clients (the Federal

and State Governments and private sector), service providers (SPs) and funders (DFID and

World Bank).

12. Support project implementers (PMU, SPs) to overcome administrative barriers to project

delivery posed by FGN, DFID and WB bureaucracies.

13. Strengthen relationships with current and potential GEMS partners (including Private

Sector, Government and other Non-Government). This will include on-going dialogue around

GEMS project experience to date and the most effective way for DFID and the World Bank.

14. Ensure effective co-ordination and synergy of GEMS with other relevant programs and

policy initiatives of federal and state governments, DFID and WB.

15. Work with SPs and consultants to ensure GEMS project outcomes are effectively

communicated within the WB and DFID and to external stakeholders.

16. The World Bank will finance a PMU tasked with supporting the project implementation

work of the FPIU. It will be tasked with:

Coordinating the work of all activities of the project through annual work plans for the

project and state levels;

Undertaking M&E, commissioning and supervising independent surveys to measure

outcomes and impacts of all major activities funded by IDA credit, and collating

information across the project overall;

Providing the lesson learning and communications functions of the project helping to

support peer learning, disseminating good practice and influencing reform processes.

Supervising all IDA credit funded GEMS SPs and consultants tracking progress against

agreed work plans. All IDA credit funded SPs and consultants will report to the PMU;

Providing procurement services for all activities financed by the World Bank including

consultants, goods and services. DFID SPs will carry out their own procurement using

DFID guidelines.

Maintaining financial records for the project as a whole and process payments for GEMS

activities financed by the World Bank, ensuring fiduciary oversight. It will keep track of

DFID-funded activities which will, however, be accounted for directly by DFID SPs.

17. The PMU will be housed in and work closely with the Federal Ministry of Commerce

which will serve as FGN‟s Executing Agency for the Project. The Ministry of Commerce will be

assisted to set up effective financial systems to exercise fiduciary oversight over GEMS

resources provided by the World Bank.

100

18. State Growth Committees (SGC) will be established in all four states. They will be

made up of representatives of Government and the private sector and will ensure that state

specific work plans are agreed and delivered in a timely fashion, are coordinated with the policy

thrust of the state government and meet the evolving needs of the private sector. They will also

exercise oversight over cluster interventions in their state.

19. It is expected that many members of the SGCs will be drawn from the existing „State

Technical Committees‟ that have been established by the ICP program to undertake business

environment reforms The work of the SGCs will be supported by the State Level Coordinators

employed by the program in each state.

20. In states where DFID is providing a wider program of support through other State Level

Programs (SLPs) e.g. Kano, Kaduna and Lagos, the State Growth Committees, assisted by the

State level coordinators will coordinate with other state programs (and their respective state

technical committees) and hold ministries and agencies involved in regulatory reforms to

account.

21. At the project level, the State Growth Committees will report to the PMU through their

state representatives. They will be serviced by the GEMS State Coordinators, contracted by the

PMU, who will support them in their oversight and advisory activities pertaining to GEMS

activities in their state.

22. Cluster Stakeholder Groups will be formed for all cluster interventions. Three,

covering Entertainment, Tourism and ICT, are already operational. These stakeholder groups

will take responsibility for the development and implementation of strategies to improve the

competitiveness and increase the returns to investment in their industry clusters. They will be

supported by SPs appointed by DFID for the Meat and Leather and Construction industries.

23. Having agreed the strategy, they will oversee and guide the work of the SPs and

consultants and any other government agencies involved for delivering outputs agreed in annual

work plans. They will be consulted on budgets and, periodically, adjusting them in the light of

changing needs and priorities. The Groups may, in the case for poor performance, recommend

the dismissal of SPs communicating their views to the PMU who, in turn, will discuss the issue

with the GEMS Adviser and the NSC and advise the Ministry of Commerce (for World Bank

SPs) and DFID to terminate their contract.

Governance & Management Issues

24. The organizational structure above provides the framework for the implementation of

GEMS. For the project to deliver the timely and relevant assistance on which its success

depends, the way that organizational structure actually works will need to address a number of

issues that have proven to be key success factors for other projects of this type. These issues are

assessed below.

101

Local Ownership

25. Strong local ownership is crucial for GEMS in order to being about reform at federal and

state level and to galvanize the private sector to invest to increase growth and job creation in

selected clusters. The organizational structure provides opportunity for local ownership to be

built at several levels:

At the project level, the NSC will bring together the main ministries and agencies

concerned with growth and PSD (Finance, Commerce, and NPC) as well as eminent

persons from the private sector and civil society. By providing them with the

opportunity to set the strategic course and wield the ultimate authority over the

project, it should be possible to engender ownership of GEMS at the federal level;

At the state level, the State Growth Committees will exercise guidance and oversight

over all GEMS activities with particular focus on regulatory reform (Output 1). Their

sense of ownership of GEMS will be enhanced by the role that the State Coordinators

will play in helping them to oversee reforms in the state and to partner effectively

with the DFID appointed SP for regulatory reform;

Ownership of cluster interventions will rest with Cluster Stakeholder Groups made up

of legitimate and credible leaders from within the industry as well as representatives

of the government agencies that are committed to the development of the industry. By

giving them the authority to engage directly in the development and implementation

of cluster development plans and guiding the work of SPs and consultants, they

should feel that they own the cluster intervention.

Clear Lines of Authority and Responsibility

26. With a project such as GEMS that seeks to deliver outputs across different states and

industries, the need to combine local ownership with ensuring coordination, leads inevitably to

parallel authority structures and reporting lines. If these potential fault lines are not understood

and managed, there is a danger that progress on implementing the project may be derailed by

conflicting priorities.

27. The main tensions in the organizational structure with respect to parallel authority

structures and reporting lines are:

NSC versus State Growth Committees. The SGCs will be responsible for overseeing

the work in their states undertaken across all three GEMS outputs. They may wish to

alter the priorities and resources available to SPs working on their states responding

to new opportunities and issues as they emerge. However, it needs to be made clear to

the SGCs that the ultimate authority over resource deployment lies with the NSC who

will consider the merits of proposals put forward by individual states. The SGCs may

propose changes and lobby for them through their state representative on the NSC,

but, in the end, the decision lies with the NSC. Should any disagreement arise

between the NSC and a SGC, a meeting to discuss the matter should be arranged with

the relevant parties within 1 month.

102

Federal and state level priorities for business environment reforms. There could be

potential conflicting priorities set for the SP responsible for regulatory reform by the

NSC and the SGCs. For example, the NSC may wish to prioritize federal level

reforms, such as trade facilitation, whereas the SGCs may wish the SP to focus on

faster progress on state level reforms. Such tensions should be resolved through the

process of setting the annual work plan for the SP, a process which would start with

SP and PMU working together to prepare an annual work plan and then having it

approved by the SGCs and, ultimately, the NSC. In the area of regulatory reform, it

should be made clear by the GEMS Adviser that authority for reforms at the state

level lies with the SGCs and the SP. But the NSC has the ultimate authority over what

activities the project decides to undertake.

Industry versus state priorities for cluster interventions. Similarly, the SPs

responsible for the cluster interventions may be pulled in different directions by the

differing priorities of their Cluster Stakeholder Groups and the SGCs. Again, these

tensions should be resolved through the process of developing annual work plans

agreed first by the Cluster Stakeholder Group and then by the SGCs. The process may

involve iteration to accommodate the views of the SGCs. Possible incompatible

priorities may need to be resolved by the NSC.

28. The role of making the organizational structure work by reconciling competing priorities

and arriving at clear lines of authority will lie with the GEMS Adviser. S/he will need to use the

work plan process to ensure that there is buy-in into what the project will aim to achieve each

year across its various components involving the relevant parts of the organizational structure.

And, s/he will need to make sure that the work plans enable the project to hold SPs, consultants

and government agencies to account for what they promise to deliver.

Responsiveness and Flexibility

29. As noted earlier, in Nigeria‟s complex and changing environment, there is a need for the

project to respond to new opportunities or threats and to be flexible in deploying resources. The

additional cluster development activities included into the regulatory reform output and budgets

for cluster interventions provide the means to respond flexibly. The governance and management

arrangements need to ensure that there is a process of communicating changing needs and

priorities, from the bottom to the top, quickly and accurately. The way that this is envisaged is

through a formal process of preparing work plans for each activity and through the

communication between Cluster Stakeholder Groups and SGCs and their SPs and the PMU and

GEMS Adviser.

Fiduciary Oversight

30. Given the persistent problems with poor fiduciary oversight over government

expenditures, careful attention will need to be given to financial management arrangements.

DFID‟s response to poor procurement practices101

and weak financial controls within

government has been that it conducts all procurements and financial transactions either itself or

through its service providers, exercising oversight over their practices102

. The World Bank has

101 A procurement act has been passed but is yet to be given force. 102 All DFID service providers are subject to audit requirements.

103

developed a system of procurement and financial management that works through the

government apparatus but minimizes financial risk.

31. The way that GEMS will discharge its fiduciary responsibility is as follows;

DFID: All SPs funded be DFID will be procured by DFID. The contracts will include

carrying out all procurement of goods and services in line with DFID procedures.

They will be tasked to make payments to third parties against annual budgets

approved as part of work plans and to maintain sound records of all financial

transactions. They will be asked to submit annual financial statements which could be

audited at the request of DFID.

World Bank. The Bank will fund the procurement of a firm, by the FPIU, to run a

PMU. The PMU will then procure all IDA funded inputs using World Bank

procurement procedures, and will be responsible for approving payments to

contractors. The PMU will carry out all procurement activities in accordance with

World Bank procurement guidelines.

32. All requests for payments will be approved by the PMU ensuring that they are in accord

with annual budgets. Payments will be made by the Ministry of Commerce. Financial records

will be kept by both the Ministry of Commerce and the PMU. Both sets of records would be

subject to independent operational audits commissioned by the World Bank.

33. Such arrangements have been field tested in Nigeria by DFID and the World Bank and

have been found to be suitable for the context.

The Complementary Roles of DFID and the World Bank

34. GEMS represents a strong partnership between FGN, DFID and the World Bank. It will

be implemented as a unified project with a common logical framework and governance and

management arrangements described above.

35. It is recognized that the World Bank and DFID have different comparative advantages in

terms of type of financial instruments, flexibility of resource use and industry experience. The

management arrangements for individual interventions are designed to ensure timely and

relevant assistance drawing on the strengths of both organizations.

36. The World Bank has the experience needed to facilitate the effective establishment and

development of an NSC and FPIU/PMU through its successful MSME Project. The lessons

learnt from that experience will be harnessed for GEMS. The World Bank has expertise

comparative advantage in the service industries of ICT, entertainment, Wholesale & Retail and

Hospitality (catering & tourism) and will fund the procurement of consultants for these

industries. IDA‟s loan instrument is particularly appropriate to these industries as they require

large scale investment in market infrastructure.

104

37. DFID will lead on establishing effective SGCs and appoint the GEMS Adviser to service

them and the NSC. DFID has established a sound partnership with Kano, Kaduna and Lagos

states to support improvements in governance (SPARC), health and education and voice and

accountability. The partnership represents a major asset for GEMS. Two of the SLPs are

especially pertinent to GEMS:

SPARC: the program will address governance over taxation and public expenditure

and hence should contribute to improving the business environment in selected states.

SAVI: By promoting voice and accountability, the program should help to articulate

the demands of the private sector and civil society for a better business environment

that can help to deliver growth, incomes and jobs.

38. DFID will appoint the service provider to support regulatory reforms. DFID has

considerable experience in supporting land and tax administration reforms at the state level in

Nigeria through the Security, Justice and Growth (SJG) program and the ICP. Its grant

instrument, flexible procurement procedures and ability to switch resources are well suited to the

unpredictable process of supporting policy and institutional change. DFID has produce

guidelines for contractors supporting SLPs that require them to coordinate their work.

39. DFID will also appoint service providers to support stakeholders in the meat & leather

and construction industries. DFID has a track record in making commodity markets work better

in Nigeria and has been working on land issues that are central to the construction industry.

40. Responsibilities for the delivery of the joint GEMS logical framework will therefore be

divided as follows:

Table 1 : Division of Responsibilities DFID and World Bank

Component DFID World Bank

A: Investment Climate

Land

Tax administration

Investment promotion

Flexible facility

B: Industrial Cluster Development

ICT

Construction & Real Estate

Meat & Leather

Tourism

Entertainment and Film

Wholesale and retail trade

Additional cluster development

C: Overall M and E and

Communication

PMU

GEMS Adviser

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41. Experience from pilot projects has provided valuable lesson that have informed the

institutional arrangements for GEMS. NIPC has proved a suitable executing agency for the

MSME Project. The lessons it has learned will be transferred to its parent the Ministry of

Commerce. The effectiveness of the procedures developed for the MSME Project will be

improved by changes to procurement processes and financial management arrangements which

should make it possible for GEMS to deliver timely and relevant assistance.

42. The ICP program has established sound relationships with the state ministries and

agencies responsible for undertaking land and tax reforms. Learning from that experience,

GEMS will ensure that implementing agencies take greater ownership of the reform process and

receive more intensive technical and financial assistance from the service provider.

43. As part of the design process, GEMS has already helped to establish stakeholder groups

in the ICT, Tourism and Entertainment industries. These groups have provided leadership in

developing action plans for their industries. Consultation and initiatives such as the NEMT led

„Growth and Employment Pact‟ shows that groups of stakeholders are willing to take leadership

in improving the competitiveness of the remaining four industries. Service providers and

consultants will help to formalize participation in stakeholder groups and facilitate the

development and implementation of action plans for each industry.

106

Annex 7: Financial Management and Disbursement Arrangements

NIGERIA: Growth and Employment in States Project (GEMS)

SUMMARY

1. The financial management assessment is in line with OP 10.02 and the Financial

Management Manual (March 2010) of the Financial Management (FM) Board. The objective is

to determine whether the implementing entities have acceptable financial management

arrangements, which will ensure: (i) that funds are used only for the intended purposes in an

efficient and economic way; (ii) the preparation of accurate, reliable and timely periodic

financial reports; and (iii) safeguarding of the entity‟s assets.

2. The Federal Project Financial Management Division (FPFMD) being established in the

Office of the Accountant-General of the Federation (OAGF) will be responsible for managing

the financial affairs of the project. The FPFMD is the federal equivalent of the State Project

Financial Management Units (PFMUs), a robust multi-donor and multi-project FM platform,

which was established in all states from 2002 through the joint efforts of the Bank and the

government. The PFMUs feature strong and robust systems and controls that are not otherwise

possible in individual ring-fenced project FM arrangements. The PFMUs were assessed by the

Bank and found to be acceptable for the implementation of Bank-assisted projects. Because they

are responsible for the FM arrangements of on-going projects, they are reviewed regularly and

strengthened as necessary e.g. by way of training on an ongoing basis. The PFMD has just been

established for projects at the federal level on the request of the federal government and in

recognition of the strong financial management the PFMUs feature in States. It would be

subjected to regular reviews and capacity building.

3. The FPFMD Financial Procedures Manual (FPM) includes accounting and reporting

arrangements, detailed internal control framework and risk management strategy, chart of

account and formats of financial statements specific to the project. FPFMD internal audit unit

will carry out a regular risk-based review of the project‟s FM activities and systems to ensure it

is sufficiently robust. External audit and Bank supervision will also ensure adherence to

implementation guidelines and expeditious remedial actions where necessary.

4. The FM risk is substantial. This will be mitigated by the strong FPFMD arrangement, and

implementation of the FM action plan, as well as substantial follow up and implementation

support.

Country issues

5. A review of implementation of the recommendations of the Country Financial

Accountability Assessment (CFAA 2000) carried out in January 2005 and a 2006 PEMFAR

indicates that the Federal Government of Nigeria (FGN) has made significant efforts to advance

reform of the PFM system since 2003. PFM initiatives and reforms are stated in the

Government‟s PRSP – NEEDS, and further articulated in the 7-Point Agenda, which sets out

policy priorities that will strengthen the reforms and build the economy so that the gains of

reforms are felt widely. Major achievements so far have been: (i) the adoption of an oil-based

fiscal rule that has greatly improved the quality of macroeconomic management; (ii) launching

107

of significant steps toward increased transparency of the budget process; (iii) more efficient cash

management; (iv) procurement reforms; (v) updating the legislative framework for PFM; (vi)

reallocation of budget resources in support of MDG-related government functions; (vii)

strengthening monitoring and evaluation (M & E); and (viii) introducing a more strategic longer-

term focus in budget management. Existing challenges include weaknesses in audit efficiency

and budget monitoring. The Bank supports government‟s PFM initiatives through Bank assisted

projects including those supporting economic management, economic reform and governance

and the state capacity building projects.

108

Risk Assessment and Mitigation Risk Risk

Rating

Risk Mitigating Measures Incorporated into

Project Design

Conditions for

Negotiation,

Board or

Effectiveness

Residual

Risk

Rating

Inherent Risks

1 Country Level

Weaknesses in the effective use

of public funds and oversight on

transparency and accountability.

Government‟s periodic budget

reports are still untimely and

delays are experienced in the

preparation of public accounts

as well as audit and review by

PAC. Poor linkages exist

between strategic planning and

long term budgeting at the

sector levels.

H In line with the Country Partnership Strategy

(CPS) 2010-2013, the Bank Group and other

partners are helping the government

strengthen its own systems over the long term.

It has governance as its core theme and

supports on-going initiatives to strengthen

procurement and public financial management

amongst others. This could minimize

opportunity for misapplication of funds and

ensure efficiency, accountability and

transparency.

Robust financial management arrangements

are being established at the FPFMD to

mitigate the country level risk.

None S

2 Entity Level

Weak institutional capacity to

implement the project

components and to effectively

monitor progress and embrace

accountability for results.

S The project will be implemented by the PIU in

FMoC&I. The Project staff would be trained

in Bank‟s financial management,

disbursement and procurement procedures. In

order to ensure implementation achieve its

developmental objective, Steering Committees

will provide oversight functions both at the

National and State levels.

None S

3 Project Level

Lack of familiarity with

procedures used in Bank-

assisted projects and the lack of

implementation experience.

There are risks associated with

effective monitoring by FPIU

due to likely limited monitoring

capacity. FPIU has not

undertaken similar activities and

could have challenges

monitoring the sub-projects and

activities

No previous experience in

project implementation which

could impact on FM.

S

Assignment of appropriately qualified and

competent project staff with requisite training

on World Bank procedures and guidelines.

Each State will prepare work plan and budgets

and this will be monitored by the State

Steering Committee.

None S

Control Risks

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4 Budgeting

Failure to prepare

comprehensive budgets,

effectively monitor periodic

budgets and incorporate project

finances in budgets and financial

records.

M Budget execution to be monitored through

quarterly Financial Reporting.

Project budget to be synchronized in national

budget.

Budget preparation procedures will be

documented in the FPM.

Formats and

arrangements

for preparing

quarterly

reports agreed

at appraisal.

M

5 Accounting

Failure to appropriately account

for project funds and provide full

supporting documentation

particularly on funding to States.

S Accounting and internal control procedures

including chart of accounts established and

documented in the project FPM. Consolidated

IFRs will be prepared by FPFMD

Use of computerized accounting system

None M

6 Internal Control

Inadequate documentation of

transactions. Compliance with

laid down procedures may be

ignored by management and

project staff.

S Independent and effective internal audit and

risk management function will be deployed by

the FPMD. Internal audit functions will

complement the internal control environment

and enforce compliance with the laid down

procedures.

None S

7 Funds Flow

Delay in funds flow and release

on eligible and approved request

from FPIU/FPFMD to the States

and goods/service providers.

Funds diversion to other uses.

Inability to prepare quality

Withdrawal Applications for

replenishment/ reimbursements

M Capacity building in Bank FM procedures and

disbursement guidelines; Skills enhancement

will be arranged to strengthen weak areas

including in use of client connection and e-

disbursement.

Clear agreement documented in the

procedures manual on timing of processing of

transactions and funds releases.

Use of government approved e-payments

would speed up payments processing

Disbursements will be only for incurred

eligible expenditure which has met all agreed

criteria. Also, direct payments to goods and

services providers to reduce the bottlenecks in

funds flow.

None M

8 Financial Reporting

Delay in the submission of

accountability reports to

government and to Bank,

delayed finalization and

submission of annual financial

statements.

M Computerized financial accounting system

will be used for reporting purposes at FPFMD.

Quarterly IFRs will be produced and

forwarded to Bank at agreed timing.

Formats of

reports and

Annual

Financial

Statements

agreed at

appraisal.

M

110

9 Auditing

Reliance on the audit by the

Office of the Auditor General of

the federation could raise

challenges both with the quality,

independence and timeliness of

the report.

M Independent external auditors will be

appointed by FPFMD in collaboration with the

FPIU based on TOR acceptable to IDA.

Content and

substance of

audit TOR

agreed at

negotiation.

L

Overall FM Risk Rating M

H-High S-Substantial M-Moderate L-Low

Strengths

6. The use of FM arrangement in the FPFMD in the Office of the Accountant General of the

Federation (OAGF) is a significant FM strength in the project.

Weaknesses

7. FPIU is new to World Bank projects and do not have experience in Bank FM and

disbursement procedures.

Implementing Entities

8. The FPIU in Federal Ministry of Commerce and Industry (FMoC&I) will be responsible

for the overall implementation of the project. Financial Management will be handled by the

FPFMD being established in the OAGF. The PFMD will be responsible for managing all the

financial affairs of the project including ensuring compliance with the financial management

covenants of the Financing Agreement and requirements of the government, and forwarding the

quarterly unaudited interim financial reports and audited annual financial statements to IDA.

Internal audit will be carried out by the internal audit unit of the FPFMD.

Planning and Budgeting

9. Budget preparation will follow the Federal Government procedure. Financial projections

or forecasts for the life of the Project (analyzed by year) will be prepared. On an annual basis, the

Project Accountant in consultation with key members will prepare the cash budget for the

coming period based on the work program. The cash budget should include the figures for the

year, analyzed by quarter. The cash budget for each quarter will reflect the detailed specifications

for project activities, schedules (including procurement plan), and expenditure on project

activities scheduled respectively for the quarter. All annual cash budgets will be sent to the task

team leader (TTL) at least two months before the beginning of the calendar year. Detailed

procedures for planning and budgeting will be documented in the FPM.

10. It is proposed that the project provides retroactive financing for any payments for eligible

expenses made after April 1st 2010 upto a maximum of US$ 3 million. Retroactive financing for

the Abuja Technology Village is foreseen at the time of Board approval. This is likely to finance

payments made for a site design and upgrading of the masterplan.

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Internal Control and Internal Auditing

11. The key elements to ensure a sound internal control system include internal control

environment; risk assessment; control activities; information and communication; and

monitoring. The project management has a responsibility of ensuring proper internal control

arrangements in the project. A risk-based review of project activities will be carried out by the

Internal Audit Unit (IAU) of FPFMD. They will report to the Project Coordinator at the FPIU

and the finance and audit sub-committee of the National Steering Committee; and at a minimum

they will: (i) carry out periodic reviews of project activities, records, accounts and systems; (ii)

ensure effectiveness of financial and accounting policies and procedures, as well as compliance

with internal control mechanisms; (iii) review transactions; (iv) physically verify purchases and

assets; and (v) carry out other functions as stated in the approved charter. They will undergo

training in the Bank financial management and disbursement procedures, as well as training on

risk-based auditing.

12. A finance and audit sub-committee with appropriate qualifications and skills will be

constituted under the oversight of the National Steering Committee, with responsibilities of: (i)

monitoring implementation of the risk management framework; (ii) reviewing annual operational

budgets and financial performance; and (iii) reviewing and clearing annual financial statements;

(iv) monitoring and ensuring timely implementation of recommendations made by internal and

external auditors, project monitoring agencies and IDA supervision missions on various fiduciary

oversight operations under the project (v) overseeing the continuing efficacy of accounting and

internal control standards, policies and practices; and (vi) overseeing the effectiveness of the

internal audit functions.

13. Fraud and Corruption: Possibility of circumventing the internal control system with

colluding practices as bribes, abuse of administrative positions, mis-procurement etc, is a critical

issue and may include: (a) late submission of supporting document; (b) poor filing and records;

(c) lack of system integration; (d) lack of budget discipline; (e) unauthorized commitment to

suppliers, bypassing budget and expenses vetting procedures; (f) unsecured safekeeping and

transportation of funds. These are mitigated as follows: (i) specific aspects on corruption auditing

would be included in the external audit TOR; (ii) the internal auditor would report directly to the

Steering Committee and Coordinators, as well as quarterly report to the Bank; (iii) FM

procedures manual approved before project effectiveness; (v) Strong FM arrangements (qualified

FM staff recruited under ToRs acceptable to IDA, quarterly IFR including budget execution and

monitoring; (vi) Measures to improve transparency such as providing information on the project

status to the public, and involvement of the federal government Economic Management Team as

a steering Committee for the project are built into the project design.

Accounting

14. The FPIU in consultation with the FPFMD will account for IDA funds on a cash basis,

augmented with appropriate records and procedures to track commitments and to safeguard

assets. Accounting records will be maintained in dual currencies (i.e. Naira and U.S Dollars).

15. The Chart of Accounts will facilitate the preparation of relevant monthly, quarterly and

annual financial statements, including information on the following:

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Total project expenditures.

Total financial contribution from financiers.

Total expenditure on each project component/activity.

16. Annual financial statements for the entire project will be prepared in accordance with

relevant International Public Sector Accounting Standards (IPSAS).

17. All accounting and control procedures will be documented in the FPM, regularly updated

by the Project Accountants, approved by the FPIU and shared with IDA and the Government.

18. With respect to accounting systems, the FPFMD is in the process of procuring and

installing a computerized financial management system which will be capable of accounting and

reporting for the project activities.

Financial Reporting

19. The FPIU and FPFMD will ensure that the project accountants produce relevant reports

on a timely basis. Reporting on the use of advances will be through quarterly reports using a

SOE based disbursement method. Payments through direct payments, reimbursements and

special commitments (if any) will be for expenditures in excess of 20 percent of DA advances.

In compliance with government reporting requirements, monthly returns will be made to the

Accountant - General of the Federation for incorporation in the government accounts.

Monthly Reports: On a monthly basis, the FPFMD will prepare and submit the following

reports to the Project Coordinators:

A Bank Reconciliation Statement for each bank account;

A Monthly Statement of Cash Position for project funds from all sources, taking into

consideration significant reconciling items;

A Monthly Statement of Expenditures classified by project components, disbursement

categories, and comparison with budgets, or a variance analysis; and

A Statement of Sources and Uses of funds (by Credit Category/ Activity showing IDA

and Counterpart Funds separately).

Details of the Monthly Reports, Quarterly Reports and Annual Financial statements are

documented in the FPM.

Indicative formats for the reports are available in a Bank guideline called “Financial

Monitoring Reports: Guidelines to Borrowers.”

20. Quarterly Reports: Interim Financial Reports (IFRs) will be prepared by FPFMD and

submitted to the Project Coordinator not later than 45 days after the quarter end. Reports will

include, at a minimum:

Financial Reports, which include a statement showing for the period and cumulative

(project life or year to date) inflows by sources, and outflows by main expenditure

classifications; opening and closing cash balances of the project; and supporting

schedules comparing actual and budgeted expenditures. The reports will also include cash

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forecasts for the following two quarters as well as analysis of disbursements against

contracts;

Transaction withdrawal schedule, listing individual withdrawal applications relating to

disbursements, by reference number, date and amount; and

Designated account statement reconciliation, showing deposits and replenishments

received, payments supported by withdrawal applications, interest earned on the account

and the balance at the end of the reporting period.

21. Indicative formats for the reports are available in a Bank guideline called “Financial

Monitoring Reports: Guidelines to Borrowers”.

22. Annual Financial Statements: The annual Project Financial Statements, which will be

prepared and submitted to the Bank within six months of the end of the Government fiscal year

(i.e. consolidation of the entire project financial activities), will include the following:

A Statement of Sources and uses of funds (by Credit Category and Activity showing IDA

and other Funds separately);

A Statement of Cash Position for Project Funds from all sources;

Statements reconciling the balances on the various bank accounts (including IDA

Designated Account) to the bank balances shown on the Statement of Sources and Uses

of Funds;

SOE Withdrawal Schedules listing individual withdrawal applications relating to

disbursements by the SOE Method, by reference number, date and amount; and

Notes to the Financial Statements.

External Auditing

23. FPFMD and PIU will appoint a relevantly qualified, experienced, competent and

independent external auditor based on Terms of Reference acceptable to the Bank to perform an

audit of all components and FPIU. Adequate measures will be put in place to ensure that the joint

activity does not undermine the timeliness and quality of the audit report.

24. The auditor will express an opinion on the Annual Financial Statements in compliance

with International Standards on Auditing (ISA). In addition to the audit report, the external

auditors will prepare a Management Letter giving observations and comments, and providing

recommendations for improvements in accounting records, systems, controls and compliance

with financial covenants in the Financing Agreement. The audit report would be prepared and

submitted within six months after the end of each financial year.

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Financial Management Action Plan

25. Actions to be taken for the project to further strengthen its financial management system

are as follows:

Table: Financial Management Action Plan Ref

No. Action Date due by Responsible

1 Agreement of un-audited consolidated Interim

Financial Report (IFR) formats;

Annual Consolidated Financial Statement formats, and

external auditors Terms of Reference.

Negotiation FPIU/FPFMD

2 Open Designated Dollar Account, Current Draw-down

account in a commercial bank. FMoF and IDA advised

of authorized bank signatories

Prior to disbursement of

IDA Credit proceeds.

FPIU/FPFMD

3 Engagement of external auditors for FPIU

Within 6 months after

Effectiveness.

FPIU/FPFMD

4 Assign qualified project accountants and internal

auditors for the project

Effectiveness FPFMD

5 Prepare Chart of Accounts specific to the project as an

addendum to the FPFMD FPM

Effectiveness FPIU/FPFMD

6 Install computerized FMS for FPFMD and train staff

on its use

6 months after

effectiveness

FPFMD

Fund Flows and Disbursement Arrangements

26. Project funding will consist of IDA credit. IDA will disburse the credit through one US$

Designated Accounts (DA), opened with a reliable commercial bank and managed by FPFMD.

The specific funding, banking and accounting arrangements are as follows:

27. FPFMD will open on behalf of the FPIU, the following account at a commercial bank

acceptable to FMoF and IDA:

One US$ DA to which the initial deposit and replenishments from IDA funds will be

lodged.

One Current (Draw-down) Account in Naira to which draw-downs from the DA will be

credited in respect of incurred eligible expenditures, maintaining balances on this account

as close to zero as possible after payments.

One US$ interest account

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Payments for eligible incurred expenditure to all suppliers will be made directly from

accounts maintained by the project using the government‟s e-payments systems based on

instructions from the States and of satisfactory adherence to the contract terms.

28. All bank accounts will be reconciled with bank statements on a monthly basis with

detailed review of copies of bank reconciliation statements and the relevant bank statements with

expeditious investigation of identified differences. Detailed banking arrangements, including

control procedures over all bank transactions (e.g., check signatories, transfers, etc.) will be

documented in the FPM.

29. Additionally, the FPIU and FPFMD will maintain an IDA Ledger Loan Account in US

Dollars/Naira/SDR to keep track of withdrawals from the IDA credit. The account will show (i)

deposits made by IDA, (ii) direct payments by IDA, and (iii) opening and closing balances. The

cumulative record of draw-downs from the IDA credit will be reconciled monthly with the

Disbursement Summary provided by the Bank.

30. All implementing units will be responsible for preparing and submitting to the Bank

applications for withdrawal, as appropriate. Appropriate procedures and controls, which will be

documented in the FPM, will be instituted to ensure disbursements and flow of funds is carried

out in an efficient and effective manner. The Withdrawal Applications will be supported by a

Bank statement and a reconciliation of the Designated Account, and such other appropriate

supporting documents for expenditures as may be required until such time as the Borrower may

choose to convert to report-based disbursement. Detailed disbursement procedures will be

documented in the FPM.

31. The Project will use the SOE-based Disbursement Procedures (as described in the World

Bank Disbursement Handbook). The format of the quarterly reports which includes the financial,

procurement and physical progress report will be agreed during the appraisal. Detailed

disbursement procedures are documented in the FPM.

32. To the extent possible, all of IDA‟s share of expenditures should be paid through the

Designated Account and all disbursements will be channeled through the Designated Account.

Other disbursement methods i.e. direct payment and special commitment may also be used.

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Illustrative Funds Flow Arrangements for IDA Funds

Documents flow /instruction

Funds flow

Reporting on Use of Credit Proceeds

33. Designated Account: The currency for DA will be United States Dollar and will be

segregated from other financing partners. Considering the cash flow requirements and project

design, a flexible ceiling will be determined for the operation, based on 6 months forecast as

provided in Annual Work Plans, Budgets and quarterly reports.

34. Financial Management Supervision Plan: FM supervision will be consistent with a risk-

based approach, and will involve a collaborative approach with the TTL, LOA and procurement.

The supervision intensity will be based initially on the PAD FM risk rating and subsequently on

the updated FM risk rating during implementation. Given a moderate risk rating, on-site

supervision is expected to be carried out once a year. On-Site review will cover all aspects of

FM, internal control systems, overall fiduciary control environment and tracing transactions from

the bidding process to disbursements. Additional supervision activities will include desk review

of quarterly IFRs, quarterly internal audit reports, audited Annual Financial Statements and

Management Letters as well as timely follow up of issues arising, and updating the financial

management rating in the Implementation Status report (ISR) and the Portfolio and Risk

Management (PRIMA) System. The Bank project team will support in monitoring the timely

implementation of the action plan.

Conclusion

35. The Financial Management Assessment conclusion is that subject to the recommended

mitigation measures and the recommended action plan being implemented as per the agreed time

frame, the project has met the minimum FM requirement in accordance with OP/BP 10.02.

IDA

Naira Draw-down Account

Goods/services providers

IFRs and other reports from

FPFMD to FPIU DA ($) maintained with a

commercial bank by

FPFMD/FPIU

Request by States to FPIU for

payments of incurred eligible

expenditure; Payment request

forwarded to FPFMD

Reports

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Further, this objective will be sustained by ensuring that strong and robust financial management

arrangements are maintained for the project throughout its duration. Detailed Financial

Management reviews will also be carried out regularly, either within the regular proposed

supervision plan or a more frequent schedule if needed, to ensure that expenditures incurred by

the project remain eligible.

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Annex 8: Procurement Arrangements

NIGERIA: Growth and Employment in States Project (GEMS)

A. General

1. Country Environment: Nigeria has been implementing a procurement reform program

(PRP) based on the recommendations of the 2000 Country Procurement Assessment Review

(CPAR). A review of the progress made on the 2000 CPAR recommendations as reflected in the

2007 Public Expenditure Management and Financial Accountability Review (PEMFAR) shows

that implementation of procurement reform program has brought about substantial improvements

in obtaining value for money in public sector expenditure. This has further introduced some level

of transparency into the country‟s procurement process. In this regard, the CPAR of 2000 has

been a positive catalyst, because it supported the agenda of financial sanitation of the current

Government. As a result of PRP: (a) collaboration between procurement and financial

management has been strengthened considerably; (b) a Bureau of Public Procurement (BPP) and

a procurement professionals‟ cadre were established at the Federal level in 2006; and (iii) the

Public Procurement Act was promulgated in Nigeria in June 2007 with a view to further reform

and sanitize the public procurement system. The Act adheres to the principles of the United

Nations Commissions on International Trade Law model law, and outlines the principles of open

competition, transparent procurement procedures, clear evaluation criteria, award of contract to

the lowest evaluated tender, and contract signature. The legislative framework is applicable to all

procurement categories (suppliers, contractors, consultants) and must be applied for all public

funds regardless of value. The Act has provisions for exceptions to competitive tendering, which

are the exception rather than the rule. The Procurement Act also requires a complaints and

appeals mechanism to be established to enhance accountability.

B. Procurement Risks

2. Procurement Risk at the Country level: As indicated above, substantial progress in

procurement reforms has been made at the Federal Government level. The contract

administration in the public sector has improved thereby leading to improved value for money in

public expenditure. As part of implementation of the public procurement Act, the Bureau of

Public Procurement (BPP) has issued procurement Regulations and Manual that guides the

operations of procurement functions at the Federal Public Service. BPP has further issues other

procurement tools - Standard Bidding Documents for procurement of Works, Goods and

Consultant Services. Bidding opportunities and contract awards for major contracts are now

widely published in National Dailies and Government established Procurement Journal. BPP has

established base line and performance indicators based on OECD/DAC methodology and

conducted a survey of private sector perception of public procurement to measure the health of

public procurement practice. Government has carried out a Procurement capacity and Training

Needs Assessment for major federal MDAs the recommendation of which is currently being

slowly implemented. However, the fundamental weakness in the Federal Procurement Act – the

involvement of BPP and Federal Executive Council in certifying contract awards and issuing

Certificate of No Objection and approving contracts respectively will need to be discontinued to

make the law and procurement practices in Nigeria more effective, efficient and acceptable

internationally. Until these fundamental flaws, which often leads to undue interference awards

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decisions are removed and recommendations of the PCTNA are reasonably implemented,

procurement risk at the country level is rated substantial.

3. Procurement risk at the Project level: The Federal Ministry of Commerce and Industry

(FMoCI) will have overall responsibility for the execution of the project through the Federal

Project Implementation Unit (FPIU), based in the Directorate of Trade, which will maintain day-

to-day relations with the financing institutions. The project‟s administrative, financial and

implementation arrangements will be handled by the FPIU. The FMoCI has already established

an FPIU but it does not have previous experience in implementing Bank funded projects and

therefore has limited knowledge of Bank‟s procurement procedures. Therefore to ensure efficient

and effective project implementation, and for the purpose of implementing this project, the FPIU

implementation functions including procurement, will be delegated to an experienced

Management Consulting firm, the Project Management Unit (PMU). The PMU shall be hired by

the FPIU through a competitive process. The recruitment process will give adequate

consideration to appropriate skills mix in terms of their personnel with particular attention to

Bank procurement procedures experience. To foster ownership, the FPIU will have coordination

role for the PMU functions.

4. The FPIU is currently headed by a Deputy Director of Trade and other assigned staff

among which is a Procurement Officer and an Assistant. These two procurement assigned staff

do not have prior experience in implementing Bank funded project. In view of this and the

magnitude of the coordination roles mentioned above, there is a need to strengthen immediately

the procurement unit of the FPIU with a Procurement Consultant for a period of two years. The

procurement Consultant will assist the FPIU in its day-to-day coordination role in the area of

procurement and provide on the job training to the FPIU staff. The procurement staff will further

receive additional formal procurement training on Bank financed procurement procedures from

relevant training institutions, such as Lagos Business School, Ghana Institute for Management

and Public Administration, Eastern and Southern African Management Institute, etc. on a

continuous basis. Above measures will ensure that adequate procurement capacity exist in the

FPIU by the end of project implementation. In view of all of above, the procurement risk at the

project level is substantial until the capacity of FPIU is built.

C. Guidelines

5. Procurement under the proposed project would be carried out in accordance with the

World Bank‟s "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004,

revised October 1, 2006 and revised in May, 2010 and "Guidelines: Selection and Employment

of Consultants by World Bank Borrowers" dated May 2004, revised October 1, 2006, and

revised in May 2010 and the provisions stipulated in the Legal Agreement. The various items

under different expenditure categories are described in general below. For each contract to be

financed by the Credit, the different procurement methods or consultant selection methods, the

need for pre-qualification, estimated costs, prior review requirements, and time frame for

different activities will be agreed between the Borrower and the World Bank in a detailed

Procurement Plan. The Procurement Plan will be updated at least annually or as required to

reflect the actual project implementation needs and improvements in institutional capacity.

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6. Procurement of Works: Works procured under this project would include: Renovation

of the National film institute, Construction of Abuja technology village, ATV Customer Call

Center Construction from kit, Construction of waste disposal bays in the local markets,

Construction of storage facilities, Construction of drainage structures, Office renovation and

factory shells for customer call centers and fencing and landscaping of the ATV site.

Procurement will be carried out using the Bank‟s Standard Bidding Documents (SBD) for all

International Competitive Bidding (ICB) contracts in accordance with the approved procurement

plan and the provisions in the Procurement Guidelines and National SBD agreed with and

satisfactory to IDA. The National competitive bidding procedures will ensure that: (i) bids will

be advertised in National dailies of wide circulation; (ii) methods to be used in evaluation of bids

and the award of contracts are made known to all the bidders and are not applied arbitrarily; (iii)

bidders are given adequate response time at least (four weeks) for preparation and submission of

bids; (iv) bid evaluation and bidder qualification are clearly specified in the bidding documents;

(v) no preference margin is granted to domestic contractors; (vi) interested eligible foreign firms

are not precluded from participation; (vii) award of contract will be made to the lowest evaluated

bidder substantively responsive to the bidding documents in accordance with pre-determined and

pre-announced/published and transparent methods; (viii) the bid evaluation reports will clearly

state the reasons for rejecting any non-responsive bid; (ix) the NSBD will adopt the provisions of

the Bank‟s Procurement Guidelines dated May 2004 and revised in October, 2006 and revised in

May 2010 on Fraud and Corruption; and (x) prior to issuing the first call for bids, the draft NCB

bidding document prepared by the PMU will be submitted to the Association and found

acceptable.

7. Minor civil works estimated to cost less than US$100,000 equivalent per contract, which

are labor intensive, spread over time, and which do not lend themselves to grouping and

therefore are unlikely to attract major construction firms and or foreign bidders, may be procured

under shopping procedures as detailed in paragraph 3.5 of the “Guidelines: Procurement under

IBRD Loans and IDA Credits” May, 2004 and June 9, 2000, Memorandum “Guidance on

shopping” issued by the Bank. The works will be procured under lump sum, fixed price contracts

awarded on the basis of quotation obtained from at least three qualified domestic contractors in

response to a written invitation. The invitation shall include a detailed description of the works,

including basic specifications, the required completion date, basic form of agreement acceptable

to the bank, and relevant drawings and BOQs where applicable. The award shall be made to the

contractor who offers the lowest responsive price quotation for the required work and who has

the experience and resources to successfully complete the contract.

8. Procurement of Goods: Goods procured under this project would include: laptops, ,

vehicles, communication and office equipment, Journals and Publications, Copyrights and

Intellectual Properties etc. The procurement will be done using the Bank‟s Standard Bidding

Document (SBD) for all international Competitive Bidding (ICB) and National Bidding

Document (NBD) agreed with or satisfactory to the Bank. The National competitive bidding

procedures will reflect those procedures highlighted in the preceding paragraph above. For

evaluation of bids, the Bank‟s Standard Evaluation Forms will be used. Procurement for readily

available off-the-shelf goods that cannot be grouped or standard specification commodities for

individual contracts of less than US$50,000 equivalent, may be procured under Shopping

procedures as detailed in paragraph 3.5 of the "Guidelines: Procurement under IBRD Loans and

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IDA Credits" dated May 2004 and revised in October, 2006 and revised in May 2010 and June 9,

2000 Memorandum "Guidance on Shopping" issued by the Bank.

9. Procurement of non-consulting services: Non-consulting services will include support

to cover the operational costs of the Outsourcing Development Initiatives of Nigeria (ODIN)

which is the industry association tasked with growing the IT and off-shoring industry in Nigeria.

Other non-consulting services will include training for project officers and certification training

in IT and IT related areas. Several workshops will be convened to raise the awareness of key

value chains, bring together stakeholders and disseminate the lessons of implementation. These

non-consulting services will also be carried out in line with provisions of the Bank‟s

Procurement Guidelines dated May 2004 and revised in October, 2006 and revised in May 2010.

10. Selection of Consultants: Consultancy services will include Baseline surveys, M & E

consultant, various TAs, Individual consultants etc. These services will be selected using

“Request for Expressions of Interest, short-lists, and Bank‟s Standard Requests for Proposal

where required by Bank‟s Guidelines.” Selection and Employment of Consultants by World

Bank Borrowers" dated May 2004, revised October 1, 2006, and revised in May 2010. Short-lists

of consultants for services estimated to cost less than US$200,000 equivalent per contract may

be composed entirely of national consultants in accordance with the provisions of paragraphs 2.7

through 2.8 of the “Guidelines”. Research institutes, public training institutions, and non-

governmental organizations may be hired to carry out specific researches, and training services

in accordance with paragraph 1.11 (b through d) and 3.16 of the above Consultant Guidelines.

The various method of consultant selection and prior review thresholds are as detailed in the

procurement plan.

11. Operating Costs: The project will finance the operating costs of the FPIU and salaries

of the consultants who are state level coordinators. It may also cover some costs of the state

growth committees. It will also finance the operating costs of the Offshore Development

Initiatives of Nigeria group within the ICT value chain sub-component. Operating costs will

include but not be limited to rental payments, utility payments, equipment, furniture, car rental,

stationery and other essential services such as web site hosting and development, cleaning and

maintenance.

12. The procurement procedures and SBDs to be used for each procurement method, as well

as model contracts for works and goods procured, are presented in the Project Implementation

Plan.

D. Assessment of the agency’s capacity to implement procurement

13. An assessment of the capacity of the implementing agency to implement procurement

actions for the project was carried out in accordance with Procurement Services Policy Group

guidelines dated August 11, 1998. The assessment reviewed the organizational structure for

implementing the project and the roles of the key actors in project implementation. The detailed

assessment is in the project files.

14. The project‟s administrative, financial and implementation arrangements including

procurement function will be handled by the FPIU. The FMoC already established FPIU does

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not have previous experience in implementing Bank funded projects and therefore have limited

knowledge of Bank‟s procurement procedures. Though the FPIU have both Coordination and

Implementation function responsibility for the project, day to day management of the

procurement functions will be outsourced to a private Management Consulting firm – PMU that

shall be recruited using QCBS. However, to enhance ownership and build Government agency

capacity, the work of the PMU will be overseen by the FPIU within the Federal Ministry of

Commerce and Industry. The FPIU has already been constituted and is staffed by a Project

Coordinator who is also the a Deputy Director of Trade, a Procurement Officer and an Assistant,

an M&E specialist, an FM specialist, an auditor, a project accountant, a technical advisor and

other support staff. A Procurement Consultant that has adequate experience in Bank operations

with be hired immediately to strengthen the coordination roles of the FPIU for a period of two

years.

15. The assessment also highlighted the need to train the relevant FPIU staff, establish a

proper filing system, contract management workshops and put in appropriate institutional

controls that will promote competition, transparency and accountability in the use of the Credit

fund. The required control mechanism and procurement process will be presented in the Project

Implementation Manual which will include a procurement manual under preparation by the

Borrower. The PIM shall be submitted to IDA for its review and clearance on or before project

effectiveness. An action plan was developed and agreed with the Borrower to ensure that this is

accomplished as detailed out in table 1 below. In view of the highlighted issues above, the

overall project risk for procurement is High.

Table 1: Procurement Action Plan

Action Responsibility Due Date Remarks

1. Procurement Plan for the first 18

months prepared and agreed with the

Bank.

GEMS Project By Negotiations Completed.

2 Recruitment of additional procurement

staff

GEMS Project December 2010 Process on-

going.

3. Preparation of Project Implementation

Manual (PIM) including adoption of

the Generic Procurement manual for

Bank financed Projects in Nigeria.

GEMS Project

and IDA

Effectiveness

4. Adoption of the Bank Standard

Bidding Documents for use under

NCB in lieu of lack of National

Standard Bidding Document.

GEMS Project

and IDA

Negotiation First set of

NCB bidding

document to

be prepared

and reviewed

by IDA.

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5. Conduct Independent Technical review

Audit (separate from annual external

financial audit).

IDA Annually To improve

efficiency in

the use of

funds.

6. Organize Contract Management

training for new staff.

GEMS Project During project

implementation*

To improve

project staff

contract

management

skills.

* The identified actions are meant to provide guidance during implementation and a road map without

being directly covenanted.

E. Procurement Plan

16. The Borrower had developed a procurement plan for project implementation which

provides the basis for the procurement methods. This plan will be agreed between the Borrower

and the Bank at negotiations. The agreed plan will be made available in the project‟s database

and in the Bank‟s external website and be included in the Project Implementation Manual (PIM).

The plan will include relevant information (including selection/procurement methods) on goods,

works, non consulting services and consulting services as well as the timing of each milestone in

the procurement process. The agreed Procurement Plan will be updated by the project in

agreement with the Bank annually or as required to reflect the actual project implementation

needs and improvements in institutional capacity. A summary of the international components of

the procurement plan is presented below.

F. Frequency of Procurement Supervision

17. In addition to the prior review supervision to be carried out from Bank offices, the

capacity assessment of the Implementing Agency has recommended six monthly supervision

missions to visit the field to carry out post review of procurement actions. In addition, an Annual

Independent Technical review Audit (separate from annual external financial audit) will be

conducted by the Bank.

G. Details of the Procurement Arrangements Involving International Competition

1. Goods, Works, and Non Consulting Services

(a) List of contract packages to be procured following ICB and direct contracting:

1 2 3 4 5 6 7 8 9

Ref.

No.

Contract

(Description)

Estimated

Cost

Procurement

Method

P-Q

Domestic

Preference

(yes/no)

Review

by Bank

(Prior / Post)

Expected

Bid-

Opening

Date

Comments

001 ATV Free

Zone master

$2.5m ICB N/A No Prior December

2009

This bid has

already been

124

plan

improvement

project

completed

and the Bank

has reviewed

it and found

it to be

satisfactory

002 ATV Customer

Call Center

Construction

from kit

$1.7m ICB N/A No Prior June 2011 Design

phase to be

funded

under the

PPF.

Prior review Thresholds

S/N Procurement Method Prior review

threshold USD’000

Comments

1 ICB (Works) >5,000 All

2 NCB (Works) <5,000 First NCB Bidding

Document

3 Shopping (works) <100,000 None

4 ICB (Goods) >750 All

5 NCB (Goods) <750 None

6 Shopping (Goods) <50 None

7 Direct Contracting All Values All

2. Consulting Services

(a) List of consulting assignments with short-list of international firms.

GEMS Project Procurement Plan

Ref No. Description Amount

US$

Selection method Review

by Bank

(Prior /

Post)

Duration

Date of

Contract

signature

Comments

021 Tourism value chain support consultancy

10,000,000 QCBS Prior 5 years Sept 2011

022 Entertainment value

chain support

10,000,000 QCBS Prior 5 years Sept 2011

023 Project management unit 10,000,000 QCBS Prior 5 years June 2011

(b) Consultancy services estimated to cost above $200,000 per contract and single source

selection of consultants (firms) for assignments estimated to cost above$50,000 will be

subject to prior review by the Bank.

(c) Short lists composed entirely of national consultants: Short lists of consultants for

services estimated to cost less than $200,000 equivalent per contract may be composed

entirely of national consultants in accordance with the provisions of paragraph 2.7 of the

Consultant Guidelines.

125

Prior review Thresholds

S/N Selection Method Prior review

threshold USD’000

Comments

1 QCBS >200 All

2 Single Source (Firms) All Values All

3 Consultant Qualification (Firms) <200 None

5 Selection of Individual Consultant <50 None

6 Single Source Selection (Individuals) All values All

18. Publication of Results and Debriefing: Publication of contract awards would be

required for all ICB, NCB, Direct Contracting and the Selection of Consultants for contracts

exceeding a value of US$200,000. In addition, where pre-qualification has taken place, the list of

pre-qualified bidders will be published. With regard to ICB, and large-value consulting contracts,

the Borrowers would be required to ensure publication of contract awards as soon as the Bank

has issued its „no objection‟ notice to the recommended award. With regard to Direct

Contracting and NCB, publication of contract awards could be in aggregate form on a quarterly

basis and local. All consultants competing for an assignment involving the submission of

separate technical and financial proposals, irrespective of its estimated contract value, should be

informed of the result of the technical evaluation (number of points that each firm received),

before the opening of the financial proposals. The implementing agencies would be required to

offer debriefings to unsuccessful bidders and consultants.

126

Annex 9: Economic and Financial Analysis

NIGERIA: Growth and Employment in States Project (GEMS)

1. The Economic and Financial analysis evaluates the economic case for undertaking the

Growth and Employment in States project (GEMS) in Nigeria. It focuses on how GEMS will

contribute to poverty reduction and examines the key challenges for delivering faster non-oil

growth in Nigeria. Later sections of the analysis consider the key issues to be addressed in order

to improve incomes and creating jobs. The analysis also sets out how precisely how GEMS will

contribute to growth, incomes and jobs and the final section assesses the costs and benefits of the

project, key risks that may undermine its feasibility and alternatives considered.

2. Following a request by management, the full Economic and Financial Analysis has been

consigned to a note on file in order to shorten the length of the PAD. A summary is presented

below. Other economic analyses conducted during the preparation of this project are mentioned

in Annex 12.

REDUCING POVERTY IN NIGERIA

3. Over the past decade, Nigeria has made significant progress in reducing income poverty.

Poverty incidence has fallen by some 12 percent from 1996 to 2004. Impressive as this

performance has been, it is unlikely to enable the country to achieve MDG 1. As poverty

incidence rose throughout the 1990s, halving the proportion of people living on less than a dollar

a day in 1990 by 2015 calls for a faster rate of poverty reduction than achieved between 1996

and 2004. Poverty still afflicts over half the population (54 percent).

4. As elsewhere in the world, the major contribution to poverty reduction has come from

growth. Between 1980 and 2000, growth was around 2 percent p.a., Per capita incomes fell

sharply causing poverty incidence to increase. After 2000, growth accelerated, averaging 5.7

percent p.a. between 2000 and 2005, causing per capita incomes to rise from US$358 - to

US$752. Poverty incidence fell as a result.

5. Growth has been accelerating throughout this decade. GDP growth averaged a robust 6.3

percent p.a. from 2004 to 2007. However, to achieve MDG1, growth will need to accelerate to

over 13 percent p.a, a challenging goal given

the current global downturn and domestic

issues discussed in the following chapter. In

Nigeria, the sources of growth matter

strongly for poverty reduction. Nigeria‟s

economy remains overwhelmingly reliant on

oil with oil revenues accounting for 85

percent of government revenue and over 90

percent of export earnings. Dominated by

oil, industrial output reached 42 percent of

GDP in 2007. Yet the industrial sector

employs only 3.4 percent of the workforce,

Figure 2: Contribution to GDP, Oil & Non-oil

127

with 0.15 percent in the oil industry.

6. What matters most for poverty reduction is the growth of the non-oil economy from

which the overwhelming proportion of the work force earn their living. The non-oil economy has

performed strongly. Between 2000- 2005, it averaged 5.1 percent p.a. growth enabling poverty

incidence to fall. Over the 2004-2007 period, the non-oil economy became the main driver of

growth averaging 7.8 percent p.a. growth. Oil output fell as a result of disruption of oil

production in the troubled Niger Delta (figure 2). This rapid rate of growth of the non-oil

economy will cause a further reduction in poverty.

7. However, if growth is to average 13 percent p.a. to achieve MDG1, non-oil growth will

need to exceed 15 percent p.a. In addition, there are concerns as high rates of growth have not

been accompanied by the creation of jobs in the formal economy. Over 90 percent of the work

force is informally employed103

. Whilst incomes of the informally employed have improved,

especially incomes from farming, there are doubts whether the current pattern of growth will

continue to provide opportunities for the poor to escape poverty at the same rate as before.

8. With few jobs being created, the work force has increasingly found itself engaged in

family agriculture or in informal self employment in service industries, particularly low entry

barrier activities such as wholesale & retail trade. With large numbers of entrants, incomes from

self-employment have started to fall. There is a danger that, if more and more people enter such

industries, they will compete away incomes reducing the effect growth has on poverty.

9. The best opportunity to escape poverty and earn attractive incomes is limited to the lucky

few who have managed to find jobs. Improving opportunities for the young to find jobs is

especially important as rates of economic inactivity and unemployment104

are higher amongst the

young. This lack of economic opportunity is a contributory factor to crime and violence which

undermine the business environment. Women also suffer high rates of inactivity reflecting lower

economic opportunity. GEMS aims to contribute to the pace of recovery of non-oil growth. It

will help to provide new opportunities for the poor to escape poverty by improving incomes and

creating jobs, especially for the young and women.

ECONOMIC FUNDAMENTALS

10. Nigeria has enjoyed strong growth over the past few years. The country has enacted the

Fiscal Responsibility Act which sets out a framework for saving oil windfalls generated by oil

prices exceeding a benchmark price. An Excess Crude Account has been established at the

Central Bank of Nigeria (CBN). The surplus on the current account, strong inflows of portfolio

and foreign direct investment (FDI) and large remittance flows have resulted in a build up of

foreign reserves (figure 3). In 2008, foreign exchange reserves reached US$60.8 billion,

equivalent to 30 months imports. Though reserves have fallen back from this high, they remain

strong.

103

Employment, Unemployment, Joblessness and Incomes in Nigeria: 1999-2006, Teal F & Heywood L, CSAE, May 2008 104 Like most African countries, open unemployment is low in Nigeria. Lack of jobs encourages the young to become economically inactive, as

discussed in chapter 3.

128

11. In 2006, the country used US$18 billion of its oil savings to settle its Paris Club

obligations. External indebtedness is now very low. Prudent fiscal policies have meant that

public debt, both external and internal, is moderate as shown in figure 3. However, recent trends

are jeopardizing this situation.

Figure 3: External Reserves and Indebtedness.

12. In addition, on the domestic side of the economy, the CBN‟s decision to increase the

capital requirements for commercial banks resulted in the consolidation of the 89 banks into 25

well capitalized entities by end 2005. These new entities have raised new capital through public

offerings, which has resulted in strong capital adequacy ratios, enabling them to increase credit.

13. Thus, the economy has developed strong fundamentals on both the external and domestic

side. These strong fundamentals prompted Merrill Lynch105

to claim that Nigeria was one of the

least vulnerable economies in the world. Such positive sentiment may have been overstated, as

discussed below, but it reflects the resilience that the economy had built up before the recent

downturn began.

THE IMPORTANCE OF PRIVATE INVESTMENT

14. The prognosis for the economy is for a gradual recovery to pre-crisis levels of growth

over a three year period. This will not be enough to deliver the faster non-oil growth required to

reduce poverty rapidly. For a faster recovery, with government consumption and investment tied

105 Global Economics, Merrill Lynch reproduced in THISDAY, 11 November 2008.

129

closely to the price of oil, the critical factor that will determine the rate at which the economy

recovers its growth momentum will be private investment. Private investment is crucial for

building the productive capacity of the economy, to introduce the technological innovation

required to address productivity and to create jobs.

15. Traditionally, private investment has been low in Nigeria representing just 13.2 percent

of GDP in 2004, well below the levels of fast growing Asian countries (around 20 percent).

Private investment has been rising rapidly of late with both domestic and foreign investment

increasing. However, it remains below the level required to sustain rapid growth, especially in

view of the constraints on the growth of public investment.

16. The new threats that have emerged, especially a tightening of private credit and the

decline of FDI, pose significant challenges to increasing private investment. But they need to be

overcome if the economy is to achieve the high levels of growth needed to achieve, or at least

come close to achieving, the MDG target for income poverty.

17. Moreover, up to now, private investment has been drawn to only a few industries of the

economy: in 2005, 75 percent of FDI was in the oil industry. Recently, a few other industries

have also managed to attract investment, notably telecommunications, financial services and

large scale food processing. This has resulted in very high rates of growth. For example, over the

past five years, the ICT industry has averaged close to 30 percent p.a. growth. Starved of

investment in the past, Nigeria‟s incremental capital output ratio (ICOR) is high106.

18. To date, investment has been limited to those few sectors able to provide exceptionally

high returns to compensate for the country‟s poor investment climate which increases the risk

and reduces the returns to investment. Many industries, with potentially high ICOR‟s, have not

been able to attract investment limiting growth. Further, industries that have been able to attract

investment have tended to be capital intensive limiting the effect of investment on job creation.

19. So, greater private investment is required to maintain growth. In addition, if the

investment climate could be improved, it would be possible to attract investment to sectors of the

economy with high ICORs and greater employment intensity. This would help to improve the

productivity of private investment in terms of growth and employment.

Improving the business environment

20. The binding constraint of power is being addressed by the FGN and state governments. It

is being assisted by the World Bank which is providing technical assistance in restructuring the

power sector and project support for public private partnerships in the sector. DFID is

implementing the Nigeria Infrastructure Advisory Facility (NIAF) which provides technical

assistance to the Federal and State Governments.

21. There is still a long way to go in addressing power and transport needs of the country.

There are concerns over Government‟s ability to exercise effective governance over expenditure

106 Nigeria Investment Climate Assessment. World Bank, 2008.

130

and to ensure efficient delivery of infrastructure services. Nevertheless, infrastructure is being

addressed and this should start to ease this binding constraint.

22. Similarly, access to finance has been addressed through bank consolidation and the cost

of finance by reducing inflation and government borrowing. To date, the main benefit of these

endeavours has been a dramatic increase in private credit in the form of personal finance for the

purchase of consumer durables and to invest in the stock market. As shown in the ICA, only 5

percent of firms in Nigeria have a loan, while 80 percent of firms report that they need credit.

23. The agenda of access to finance for businesses will be addressed by the CBN in its

Financial Sector Strategy 2020 (FSS 2020) which aims to develop a financial sector fit for

Nigeria to become the world‟s 20th largest economy. The World Bank is assisting the

development of FSS 2020, has already improved access to commercial micro finance through its

MSME Project and is planning a new intervention in support of access to finance in 2010. DFID

has implemented the Enhancing Financial Innovation and Access (EFInA) program to support

improved financial sector data, policy formulation and regulation and access to formal financial

services.

24. Thus, there are considerable efforts being made to reduce the binding constraints, though

they will take time to deliver tangible results. GEMS does not therefore intend to address

infrastructure and finance. However, it will work alongside government and development partner

initiatives to ensure that they meet the needs of the industries it will address under Output 2.

25. The World Bank and DFID have also turned their attention to the legal and regulatory

framework for business. Nigeria ranks 137 out of 183 in the World Bank‟s doing Business

Indicators suggesting a poor business environment. The Investment Climate Program (ICP),

launched by the two development partners, has undertaken detailed surveys across all 36 Nigeria

states which reveal tremendous variations between the states in the time and cost of starting a

business, registering property, dealing with licenses and enforcing contracts.

26. By publicizing this variation, ICP has sought to incentivize state governments to vie with

each other for leadership in offering an attractive business environment. It is currently working

in four states Kano, Kaduna, Lagos and Cross River to pilot improvements in land and tax

administration and promote investment. GEMS will build on this work to reduce the cost and

risk of investment.

ADDRESSING COMPETITIVENESS & RETURNS TO INVESTMENT

27. In addition to the poor investment climate, private investment is depressed by the low

rates of return to investment in many of Nigeria‟s industries. The fundamental reason for low

returns to investment is that many of Nigeria‟s industries are not competitive against their

regional or international counterparts. These industries have been able to grow only because they

are protected (i.e. much of agriculture) or produce non-traded goods or services (i.e. ICT,

construction). The lack of competitiveness is caused by low productivity and efficiency which

mean that, despite their growth, the industries produce low returns to all but a handful of

131

investors. The major causes of the lack of competitiveness are a set of government and market

failures the most prevalent of which are:

Inappropriate and Unstable Policies. FGN has pursued a policy of investment incentives and

high protection (tariff and quantitative) to encourage faster growth. However, the way that

these policies have been implemented encourages market power to be concentrated in the

hands of the few providing little incentive to improve competitiveness. Whilst a few earn

high returns, the majority are unable to earn reasonable returns on their investment. Tariff

protection punishes the consumer resulting in a high cost of living and pushing up wages. In

fact, policy instability, caused by government increasing and reducing protection in response

to the needs of producers and consumers, often undermines the incentive to invest.

A failure to provide sufficient public goods and effective institutions: In many instances, in

addition to electricity and roads, investment in industry specific infrastructure, such as

market and storage facilities or trunk cabling for the ICT industry, is inadequate. Investment

in other public goods such as research, knowledge and technical and vocational education

and training (TVET) and the institutions that are supposed to ensure these public goods are

widely available is also low so that they function ineffectively. The poor state of agricultural

research and extension services, TVET and enforcement of food and other product standards

are evidence of such government failure. Health and safety, product and environmental

standards and weights and measures are poorly enforced providing little incentive to improve

business practices.

Prevalent market failures: There are many examples of markets not functioning effectively

or efficiently. For example, the ICA shows that the correlation between market share and the

efficiency of firms is lowest in Nigeria compared to the countries studies, showing that

markets are not working efficiently in allocating resources. There are numerous examples of

uneven access to information, restrictive trade practices and abuse of market power.

Coordination between the small actors in the market can be very poor causing waste and high

costs that undermine competitiveness.

Poor business models and competence: The ICA reveals that Nigeria has much lower

productivity per worker than comparator countries. Whilst this is in part due to investment

climate constraints, the ICA shows that better managed firms can be 60 percent-80 percent

more productive. Improving competitiveness requires innovation to introduce business

models that are more efficient. And, it requires improving management capability through

better training and access to quality business development services.

28. To achieve its purpose of improving the business environment, GEMS will address

government and market failures that depress the returns to investment.

29. The economic transformation is being led by the growth of the middle class. Industries

such as wholesale & retail, the manufacture of food and beverages and catering, which provide

convenience food, are responding to greater disposable incomes and the greater female

participation in the work force amongst the middle classes. Construction and the related

quarrying of limestone to produce cement, are responding to the large deficit in the housing stock

fuelled by the greater availability of mortgage lending.

132

30. The ICT revolution in Nigeria is a response to the severe shortage of land lines in Nigeria

brought about by government monopoly of the telecommunications industry. Technological

change, in the form of mobile telephony and the advent of the internet, have ushered in

affordable telecommunication services for the middle class.

Figure 12. Industry Growth Rates

Source: DFID/World Bank Value Chain Analysis, Nathan EME (2008)

31. It is these rapidly growing industries that need to be assisted to continue the process of

economic transformation in Nigeria. GEMS will need to improve their competitiveness so that

the products they produce become more affordable and their output keeps increasing despite the

threats to the economy.

-5

0

5

10

15

20

25

30

35

8.97.2 6.8 6.2

9.9

-4.7

9.712.2

30.8

13.7

%

Sectoral Growth Rates 2005-2006

133

Annex 10: Safeguard Policy Issues

NIGERIA: Growth and Employment in States Project (GEMS)

1. Introduction and summary of safeguard issues: The Nigeria Growth and

Employment in States (GEMS) Project represents a broad multi-donor initiative of which IDA

will fund certain components and sub-components. The Project Development Objective is to:

promote growth and employment in participating states. This will be addressed by improving the

investment climate, strengthening industry competitiveness and job creation in selected states by

leveraging impact beyond immediate stakeholders and target areas. This project aims to reduce

poverty in Nigeria by contributing to the countries‟ growth and employment objectives.

2. Potential environmental and social impacts: The net environmental and social

impacts of the GEMS project are expected to be positive. In particular, the anticipated benefits

will be in the area of economic growth job creation and improved human development.

However, some potential adverse impacts have been identified for sub-project activities. Planned

activities under the GEMS project such as agro-processing; rehabilitation or constructions; and

infrastructure work related to value chains will likely have potential environmental and social

impacts thereby triggering the environmental assessment policy (OP/BP 4.01).

3. Furthermore, the construction of infrastructure and other minor civil works including

rehabilitation of existing roads and building may lead to air and noise pollution, traffic

congestion, waste generation, limited land acquisition, chemical handling and occupation health

issues. On Agro-processing, the demonstration and introduction of improved and new

technologies into agricultural production (e.g. improved crop varieties, processing technologies:

leather tanning, rice hullers, fruit processing etc.) could lead to intensification and increased use

of agrochemicals and upsurge of pest incidence thereby triggering Pest Management (OP/BP

4.09). An Integrated Pest Management Plan was prepared and disclosed by the borrower. The

GEMS project is not expected to lead to any large scale acquisition of land, displacement of

people or prevent people from access to their usual means of livelihood. However, land will be

needed to be set aside for the location of critical Infrastructure. World Bank safeguard policy on

involuntary resettlement (OP/BP 4.12) is triggered. The identified environmental and social

impacts are limited, site specific and easy to mitigate.

4. Environmental assessment category: The Growth Employment in States project is a

category B project. This is because the project activities are expected to have positive

environmental and social impacts, and there are potential limited adverse social or environmental

impacts that are few in number, generally site-specific, largely reversible, and readily addressed

through mitigation measures. Because the full extent of the environmental and social impact of

the program are known in advance it was necessary for the recipient to prepared an

Environmental and Social Management Framework (ESMF) and the Resettlement Policy

Framework ( RPF) for the program. In addition, a Pest Management Plan (PMP) was also

prepared by the project. The three safeguards documents, namely, ESMF PMP and RPF, and

that were prepared by the borrower in line with national and World Bank policies have been

disclosed in-country in Nigeria ( April, 30, 2010) and a the Bank‟s InfoShop ( May 5, 2010)

prior to appraisal.

134

5. Safeguards policies triggered: The GEMS project triggered the following World

Bank safeguard policies: Environmental Assessment (OP/BP 4.01); Involuntary Resettlement

(OP/BP 4.12), and Pest Management (OP/BP 4.09.

Safeguard policies

Safeguard Policies Triggered by the Project Yes NO

Environmental Assessment (OP/BP 4.01) [x] [ ]

Natural Habitats (OP/BP 4.04) [ ] [x]

Pest Management (OP 4.09) [x] [ ]

Physical Cultural Resources (OP/BP 4.11) [ ] [x]

Involuntary Resettlement (OP/BP 4.12) [x] [ ]

Indigenous Peoples (OP/BP 4.10) [ ] [x]

Forests (OP/BP 4.36) [ ] [x]

Safety of Dams (OP/BP 4.37) [ ] [x]

Projects in Disputed Areas (OP/BP 7.60)* [ ] [x]

Projects on International Waterways (OP/BP 7.50) [ ] [x]

6. Measures taken by the borrower to address safeguard issues: The Growth and

Employment Generation in States Project is classified in EA Category B. This implies that the

potential environmental and social impacts are likely to be moderate, site specific and easy to

manage. However, since the exact locations and the extent of potential impacts of the project

were not known in sufficient details at the time of project preparation, ESMF, RPF and PMP

were prepared by the project. The ESMF RPF and PMP have been publicly disclosed in Nigeria

and World Bank InfoShop.

7. Environmental Assessment (OP/BP 4.01): Safeguards policy OP 4.01 was triggered

as components of the project entail agro-processing, building construction and other minor civil

works including the rehabilitation and refurbishment of existing infrastructure. However, during

project preparation, the exact locations and intensity of the sub-projects were not known in

adequate details. Thus an Environmental and Social Management Framework (ESMF) have been

prepared and disclosed in Nigeria and World Bank InfoShop. The objective of the ESMF is to

establish a mechanism to determine and estimate the future potential environmental and social

impacts of the activities to be undertaken under the program, and to define the measures of

mitigation, monitoring and the institutional measures to be undertaken during implementation of

the project. In addition, the ESMF consists of five main parts: (i) Environmental Screening and

scoping (ii) Environmental Policy and Regulatory Framework; (iii) Current Environmental

Situation; (iv) Analysis of Environmental Impact Issues; (v) Development of Management Plan

to Mitigate Negative Impacts (vi) Institutional Framework; (vii) Training Needs; and (viii)

Public Consultation. In addition, the ESMF contained appendices depicting the EIA process of

the federal ministry of environment, checklist for screening sub-project activities for their

potential environmental and social impacts.

* By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the

disputed areas.

135

8. Pest Management (OP/BP 4.09): The GEMS project will not entail large scale use

of chemicals. However, the project's activities include support for meat production and leather

tanning that could lead to the proliferation of pests and use of chemicals though at limited scale.

As part of safeguard due diligence, the borrower has prepared and disclosed a Pest Management

Plan (PMP) country-wide in Nigeria and at World Bank InfoShop.

9. Involuntary Resettlement (OP/BP 4.12): The GEMS project is not expected to

result in massive loss or acquisition of land or in restriction to sources of livelihood. As indicated

above, at the time of project preparation it was not possible to establish the exact location and

extent of involuntary resettlement that may be involved in the GEMS project. Therefore as part

of safeguard due diligence, a resettlement policy framework depicting the process and

procedures to be followed in the event that OP 4.12 is triggered has been prepared and disclosed

by the borrower prior to appraisal. The RPF contains details of the principles and objectives

governing resettlement action plan preparation, review and approval of RAPs, Screening for

Involuntary Resettlement, establishment of baseline and Socioeconomic data, preparation of

resettlement action plan and the likely categories of project affected persons.

10. Other aspects of the RPF are methods of identifying of project affected persons

including criteria and eligibility for compensation of various categories of PAPS, method to

determine the cut – off dates, institutional framework and methods of valuing affected assets in

lieu of compensation and procedures for delivery of compensation. Compensation arrangements

for those being involuntarily resettled, including possibilities for land exchange is outlined in the

RPF. In particular, the RPF also contains mechanism for resolving disputes that may arise. In

addition, each RAP will include a detailed budget for compensation and other rehabilitation

entitlements. It will also include information on how the funds will flow as well as the

compensation schedule. The RAP will also clearly state where the sources of land and fund will

come from. The borrower, FGN carries official responsibility for meeting the terms of this

framework, including financial obligations associated with land acquisition.

11. Cumulative and induced impacts: No long term or cumulative adverse impacts

were identified in the ESMF RPF and the PMP.

12. Screening of projects: The GEMS project will have a review process in place to

ensure screening of all civil works for environmental and social impacts. This will include an

environmental screening sheet showing the estimated impact category of each sub-project

destined for rehabilitation and/or up-grading. The choice of the category will be based on the

environmental and social checklist contained in (ESMF and RPF). The potential environmental

and social impacts of projects will be screened using the checklist contained in ESMF and RPF.

The screening decision has three parts: the assignment of the environmental assessment category,

the determination of the safeguards instrument(s) that should be prepared, and the identification

of applicable safeguards policies. The project screening reports will be submitted to the GEMS

PMU which will review the results and recommendations and, confirm that all project-financed

fall within Environmental Category B and that the recommended action plan is appropriate.

Project considered to fall into Environmental Category A will not be funded by the GEMS

project. The GEMS PMU will then submit the report of the screening exercise with its

136

recommendations for clearance to the World Bank to proceed with the detailed Environmental

and Social Management Plans (ESMP) or Environmental and Social Impact Assessment (ESIA),

and Resettlement Action Plan (if required).

13. Consultation with various stakeholders and affected groups: To strengthen

participation and enhance inclusion, public consultations were carried out throughout the project

preparation phase. The identification of project components, were based on consultations with

local communities, federal government, state governments and local administrations. The

preparation of the Environmental and Social Mitigation Framework (ESMF), Resettlement

Policy Framework (RPF) and the Pest management Plan (PMP), included social assessment and

various forms of participation, from individual consultations to focus group discussions.

Consultations with local communities will be continuously organized during project

implementation at all stages of the civil works, to minimize conflicts, enhance cooperation, and

improve social benefits and performance of the works contracts. The safeguards instruments

have been subject to consultations with key stakeholders and will remain subject to public

disclosure. In addition, project stakeholders, local governments, local communities and project

affected persons (PAPs), will be continuously consulted at various stages of the project cycle,

from planning, design review and to implementation

14. Funding of safeguard mitigation measures: Cost for safeguard mitigation measures

will be covered by a combination of the credit and Government‟s resources and will be

incorporated into the bills of quantities of the civil works. The cost of supervision of the

implementation of civil works contracts including ensuring that the contractors meet their

safeguard obligations under the contracts, will be paid entirely form the IDA credit.

15. Capacity of the borrower to implement the safeguards compliance: Nigeria, the

client, has demonstrated its commitment to mitigating adverse social and environmental impacts

in the implementation of a range of World Bank projects. The Federal Government of Nigeria

and the participating States have environmental management agencies. There are adequate legal

and institutional frameworks in the country to ensure compliance with World Bank safeguards

policies triggered by the GEMS project. In Nigeria, the Federal Ministry of Environment is the

agency of FGN responsible for setting policy guidelines on environmental issues and ensuring

compliance with national environmental standards. In particular, the EIA Division, responsible

for the review of EIA of all new projects, including: that the required level of assessment is

conducted; that the various review mechanisms for an EIA are properly applied, with emphasis

on the participation of the stakeholders; and that the periodic environmental audits are conducted

and reviewed.

16. The Nigeria Growth and Employment in States (GEMS) will be responsible for the

implementation of the ESMF, PMP and RPF. Consultants will be engaged to prepare

Environmental Management Plans (EMPs) or Environmental and Social Impact Assessments

(ESIAs) and Resettlement Action Plans as when required. The GEMS PMU will have in place

and environmental officer will be responsible and accountable for the implementation of the

recommendations of these safeguards instruments. He/she will be complemented by short term

environmental and social safeguards consultants to be hired on need basis. Additional guidance

would be provided by the environmental and social safeguards specialist in the World Bank.

137

Annex 11: Project Preparation and Supervision

NIGERIA: Growth and Employment in States (GEMS)

Planned Actual

PCN review October 30th 2007 October 30

th 2007

Initial PID to PIC January 28th 2008 January 28

th 2001

Initial ISDS to PIC July 31st 2008 July 31

st 2008

Appraisal September 2009 April 1st 2010

Negotiations October 2009 February 15th 2011

Board/RVP approval December 1st 2009 March 17

th 2011

Planned date of effectiveness June 2010

Planned date of mid-term review December 2012

Planned closing date December 30th 2016

Key institutions responsible for preparation of the project: World Bank. DFID, Federal Ministry of

Finance, Federal Ministry of National Planning, Federal Ministry of Commerce and Industry, Federal

Ministry of Information and Communication, State Governments of Cross River, Kano, Kaduna, Lagos

and the Federal Capital Territory.

Bank staff and consultants who worked on the project included:

Name Title Unit World Bank Ismail Radwan Lead PSD Specialist (TTL) AFTFW Peter Mousley Lead PSD Specialist AFTFW Mavis Ampah Senior ICT Specialist GICT Obadiah Tohomdet Senior Communications Officer AFREX Randeep Sudan Lead ICT Specialist GICT Steven Dimitriyev Senior PSD Specialist AFTFW Richard Sandall PSD Specialist AFTFW Chukwuemeka Ugochukwu Team Assistant AFTFW Chioma Nwagboso Consultant AFTFP Manush Hristov Senior Legal Counsel LEGAF Catherine Masinde Senior PSD Specialist CICAF Omo Eweaka Consultant (Entertainment) AFTFP Peter Yee Consultant AFTFP DFID Kevin Quinlan Team Leader Economic Growth Gill Rogers Economist Graham Gass Social Development Adviser Lindsey Block Economic Adviser Scott Caldwell Governance Adviser Sean Doolan Environmental Adviser Valentine Udida Project Officer Alan Winters Chief Economist Mavis Owusu Gyamfi Head of Profession (PSD) Sunil Sinha Consultant Ally Bedford Consultant

138

Bank funds expended to date on project preparation:

1. Bank resources: US$466,455

2. Trust funds: US$72,680

3. Total: US$479,135

Estimated Approval and Supervision costs: Costs to approval US$15,000 and estimated annual

supervision costs are US$150,000.

139

Annex 12: Documents in the Project File

NIGERIA: Growth and Employment in States Project (GEMS)

Key Analytical Work

1. Mousley, Peter and Masinde, Catherine 2007. Business Environment Reform in Nigeria

Design and Implementation Experience in 2002-2007. A paper prepared for the SME

donor‟s committee conference on “creating better business environments for enterprise

development”, Accra Ghana, November 5-7th

, 2007.

2. World Bank 2008. A Study on Employment and Growth in Nigeria. Unpublished

mimeo.

3. Nigeria Poverty Assessment, Ojowu O, Bulus H & Omonona B , August 2007

4. Employment, Unemployment, Joblessness and Incomes in Nigeria: 1999-2006, Luke

Haywood and Francis Teal

5. The Investment Climate in Africa from the Perspective of Private Investors, World Bank

Paper (2007)

6. Nigeria Investment Climate Assessment. World Bank, 2008.

7. Nigeria: Growth & Competitiveness, World Bank Country Economic Memorandum,

2006.

8. Donor Guidance on Business Environment Reform, DCED, 2008.

9. Doing Business in Nigeria: Comparing Regulations in 10 states and Abuja, World Bank

& IFC, 2008.

10. Identifying Growth Pole Value Chains for Cross River, Kaduna, Kano and Lagos States,

Emerging Market Economics, May 2008.

11. DFID/World Bank Value Chain Analysis, Nathan EME (2008)

12. Product Value Chain Analysis in Nigeria Covering: Real Estate and Construction, Retail

and Wholesale Markets and Meat and Leather, Consilium International Inc for DFID &

World Bank Group, 2009.

Removed From Earlier Versions of the PAD

13. Comprehensive Country Context

14. Social and Environmental Assessment

15. Procurement Assessment

16. Making Markets Work for the Poor

17. Governance Arrangements

18. Program Description

19. Financial Management Assessment

140

Annex 13: Statement of Loans and Credits

NIGERIA: Growth and Employment in States (GEMS)

Original Amount in US$ Millions

Difference between

expected and actual

disbursements

Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev‟d

P096648 2009 NG-Commercial Agriculture Development 0.00 150.00 0.00 0.00 0.00 144.86 11.08 0.00

P096572 2009 NG-Fadama Development-III SIL (FY08) 0.00 250.00 0.00 0.00 0.00 187.80 46.33 0.00

P090644 2009 NG-Comm. Social Dev. (FY09) 0.00 200.00 0.00 0.00 0.00 162.65 27.43 0.00

P102119 2009 NG-HIV/AIDS Prog. Dev. II (FY09) 0.00 225.00 0.00 0.00 0.00 231.50 4.67 0.00

P106172 2009 NG-Electricity and Gas Improvement 0.00 200.00 0.00 0.00 0.00 206.87 0.00 0.00

P106280 2009 NG-Lagos Eko Secondary Education

(FY09)

0.00 95.00 0.00 0.00 0.00 67.77 -16.89 0.00

P090135 2008 NG-Federal Roads Development 0.00 330.00 0.00 0.00 0.00 321.54 24.58 0.00

P072644 2008 NG-Rural Access & Mobility - Ph. 1 0.00 60.00 0.00 0.00 0.00 50.05 10.87 0.00

P097921 2007 NG-Malaria Control Booster Project (07) 0.00 280.00 0.00 0.00 0.00 177.19 1.33 -13.64

P074132 2007 NG-S&T Educ in Post-Basic Ed (FY07) 0.00 180.00 0.00 0.00 0.00 107.27 96.76 0.00

P096151 2007 NG - State Edu Sector Project 0.00 65.00 0.00 0.00 0.00 31.33 18.16 1.11

P071340 2007 NG-Lagos Metropolitan Dev & Governance

0.00 200.00 0.00 0.00 0.00 160.90 74.00 0.00

P090104 2006 NG-Natl Energy Dev SIL (FY06) 0.00 172.00 0.00 0.00 0.00 59.27 52.46 0.00

P071391 2006 NG-Natl Urb Water Sec Ref SIM 2 (FY06) 0.00 200.00 0.00 0.00 0.00 122.14 81.57 0.00

P100122 2006 Avian Influenza Emergency ERL (FY06) 0.00 50.00 0.00 0.00 0.00 7.57 4.53 0.00

P088150 2005 NG-Econ Reform & Govern SIL (FY05) 0.00 140.00 0.00 0.00 0.00 76.96 73.85 12.15

P086716 2005 NG-Min Res Sustain Mgmt (FY05) 0.00 120.00 0.00 0.00 0.00 38.96 33.58 -3.33

P074447 2005 NG-State Governance & Cp Bldg TAL (FY05)

0.00 18.10 0.00 0.00 0.00 8.55 8.60 8.58

P083082 2004 MSME 0.00 32.00 0.00 0.00 0.00 13.59 11.46 0.00

P071075 2004 NG-Urb Water Sec Reform 1 SIL (FY04) 0.00 120.00 0.00 0.00 0.00 19.02 13.63 0.00

P074963 2003 NG-Lagos Urb Trans SIL (FY03) 0.00 150.00 0.00 0.00 0.00 13.56 -52.12 -2.12

P070290 2002 NG- Health System Dev. II (FY02) 0.00 217.00 0.00 0.00 0.20 59.43 -51.59 -45.78

P069901 2002 NG-Com Based Urb Dev (FY02) 0.00 110.00 0.00 0.00 0.00 40.36 44.69 17.19

Total: 0.00 3,564.10 0.00 0.00 0.20 2,309.14 518.98 - 25.84

NIGERIA

STATEMENT OF IFC‟s

Held and Disbursed Portfolio

In Millions of US Dollars

Committed Disbursed

IFC IFC

FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.

1999 AEF Global Fabri 0.32 0.00 0.00 0.00 0.32 0.00 0.00 0.00

1999 AEF Hercules 1.30 0.00 0.00 0.00 1.30 0.00 0.00 0.00

2000 AEF Oha Motors 0.84 0.00 0.00 0.00 0.84 0.00 0.00 0.00

141

2000 AEF SafetyCenter 0.41 0.00 0.00 0.00 0.41 0.00 0.00 0.00

1995 AEF Vinfesen 0.00 0.00 1.00 0.00 0.00 0.00 1.00 0.00

1994 Abuja Intl 1.75 0.00 0.00 0.00 1.75 0.00 0.00 0.00

2005 Accion Nigeria 0.00 1.89 0.00 0.00 0.00 0.57 0.00 0.00

2003 Adamac 25.00 0.00 0.00 15.00 11.56 0.00 0.00 6.94

2000 CAPE FUND 0.00 6.17 0.00 0.00 0.00 5.76 0.00 0.00

2001 Delta Contractor 0.00 0.00 15.00 0.00 0.00 0.00 0.20 0.00

2000 Diamond Bank 0.00 0.00 2.00 0.00 0.00 0.00 2.00 0.00

2005 Diamond Bank 0.00 0.00 30.00 0.00 0.00 0.00 30.00 0.00

2006 Diamond Bank 0.00 0.00 20.00 0.00 0.00 0.00 0.00 0.00

2000 FSB 5.25 0.00 3.75 0.00 5.25 0.00 3.75 0.00

1992 FSDH 0.00 0.86 0.00 0.00 0.00 0.86 0.00 0.00

2000 GTB 6.00 0.00 0.00 0.00 6.00 0.00 0.00 0.00

2004 GTB 20.00 0.00 0.00 0.00 20.00 0.00 0.00 0.00

2005 GTB 20.00 0.00 0.00 0.00 20.00 0.00 0.00 0.00

2006 GTB 30.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

GTFP Access Bank 33.58 0.00 0.00 0.00 33.54 0.00 0.00 0.00

2006 GTFP Access Bank 0.00 0.00 15.00 0.00 0.00 0.00 0.00 0.00

GTFP Diamond Bnk 30.28 0.00 0.00 0.00 29.38 0.00 0.00 0.00

GTFP GTB Nigeria 20.41 0.00 0.00 0.00 20.41 0.00 0.00 0.00

GTFP IBTC Plc. 5.03 0.00 0.00 0.00 4.69 0.00 0.00 0.00

GTFP Zenith 32.18 0.00 0.00 0.00 32.18 0.00 0.00 0.00

2000 IBTC 20.00 0.00 0.00 0.00 20.00 0.00 0.00 0.00

2006 IBTC 0.00 0.00 30.00 0.00 0.00 0.00 0.00 0.00

1981 Ikeja Hotel 0.00 0.06 0.00 0.00 0.00 0.06 0.00 0.00

1988 Ikeja Hotel 0.00 0.01 0.00 0.00 0.00 0.01 0.00 0.00

2002 MTNN 70.00 15.00 0.00 0.00 40.00 14.56 0.00 0.00

2002 NTEF 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2005 OCC 75.00 0.00 0.00 0.00 59.12 0.00 0.00 0.00

2006 SOCKETWORKS 0.00 0.00 2.50 0.00 0.00 0.00 1.88 0.00

2004 UPDC Hotels Ltd. 10.62 0.00 0.00 0.00 4.82 0.00 0.00 0.00

Total portfolio: 427.97 23.99 119.25 15.00 311.57 21.82 38.83 6.94

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic.

2006 UBA/STB 0.03 0.00 0.05 0.00

2005 Zenith Bank 0.03 0.01 0.00 0.00

2007 Eleme Petrochem 0.06 0.00 0.02 0.08

Total pending commitment: 0.12 0.01 0.07 0.08

142

Annex 14: Country at a Glance

NIGERIA: Growth and Employment in States (GEMS)

Nigeria at a glance 2/25/10

Sub- Lower

Key D evelo pment Indicato rs Saharan middle

Nigeria Africa income

(2008)

Population, mid-year (millions) 151.3 818 3,702

Surface area (thousand sq. km) 924 24,242 32,309

Population growth (%) 2.3 2.5 1.2

Urban population (% of to tal population) 48 36 41

GNI (Atlas method, US$ billions) 177.4 885 7,692

GNI per capita (Atlas method, US$) 1,170 1,082 2,078

GNI per capita (PPP, international $) 1,940 1,991 4,592

GDP growth (%) 6.0 5.0 7.6

GDP per capita growth (%) 3.7 2.5 6.3

(mo st recent est imate, 2003–2008)

Poverty headcount ratio at $1.25 a day (PPP, %) 64 51 ..

Poverty headcount ratio at $2.00 a day (PPP, %) 84 73 ..

Life expectancy at birth (years) 47 52 68

Infant mortality (per 1,000 live births) 97 89 46

Child malnutrition (% of children under 5) 27 27 26

Adult literacy, male (% of ages 15 and o lder) 80 71 88

Adult literacy, female (% of ages 15 and o lder) 64 54 77

Gross primary enro llment, male (% of age group) 104 103 112

Gross primary enro llment, female (% of age group) 89 93 106

Access to an improved water source (% of population) 47 58 86

Access to improved sanitation facilities (% of population) 30 31 52

N et A id F lo ws 1980 1990 2000 2008 a

(US$ millions)

Net ODA and official aid 34 255 174 2,042

Top 3 donors (in 2007):

Netherlands 3 4 0 344

Austria 0 1 2 321

United Kingdom 5 25 23 286

Aid (% of GNI) 0.1 1.0 0.4 1.3

Aid per capita (US$) 0 3 1 14

Lo ng-T erm Eco no mic T rends

Consumer prices (annual % change) 10.0 7.4 6.9 11.6

GDP implicit deflator (annual % change) 12.4 7.2 38.2 11.0

Exchange rate (annual average, local per US$) 0.8 9.2 101.7 118.5

Terms of trade index (2000 = 100) 165 87 100 214

1980–90 1990–2000 2000–08

Population, mid-year (millions) 71.1 94.5 124.8 151.3 2.8 2.8 2.4

GDP (US$ millions) 64,202 28,472 45,984 207,118 1.6 2.5 6.6

Agriculture .. .. 48.6 32.7 .. .. 7.0

Industry .. .. 30.5 40.7 .. .. 3.8

M anufacturing .. .. 3.4 2.6 .. .. ..

Services .. .. 20.9 26.6 .. .. 14.4

Household final consumption expenditure .. .. .. .. .. .. ..

General gov't final consumption expenditure .. .. .. .. .. .. ..

Gross capital formation .. .. .. .. .. .. ..

Exports o f goods and services 29.4 43.4 54.0 41.6 .. .. ..

Imports o f goods and services 19.2 28.8 32.0 24.7 .. .. ..

Gross savings .. .. .. ..

Note: Figures in italics are for years other than those specified. 2008 data are preliminary. .. indicates data are not available.

a. A id data are for 2007.

Development Economics, Development Data Group (DECDG).

(average annual growth %)

(% of GDP)

10 5 0 5 10

0-4

15-19

30-34

45-49

60-64

75-79

percent of total population

Age distribution, 2008

Male Female

0

50

100

150

200

250

1990 1995 2000 2007

Nigeria Sub-Saharan Africa

Under-5 mortality rate (per 1,000)

-4

0

4

8

12

95 05

GDP GDP per capita

Growth of GDP and GDP per capita (%)

Chappal WaddiChappal Waddi(2,419 m )(2,419 m )

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GusauGusau

LokojaLokojaAdo-EkitiAdo-Ekiti

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2001 Level

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10°E 15°E

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10°N10°N

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NIGERIA

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

0 50 100 150

0 50 100 150 Miles

200 Kilometers

IBRD 33458

SEPTEMBER 2004

N IGERIASELECTED CITIES AND TOWNS

STATE CAPITALS

NATIONAL CAPITAL

RIVERS

MAIN ROADS

RAILROADS

STATE BOUNDARIES

INTERNATIONAL BOUNDARIES