World Bank Document

[Pages:5]Public Disclosure Authorized

Public Disclosure Authorized

PROJECT INFORMATION DOCUMENT (PID)

APPRAISAL STAGE

Report No.: AB6222

Economic Revitalization of Khyber Pakhtunkhwa and Federally

Project Name

Administered Tribal Areas (ERKF)

Region Sector

Project ID Borrower(s) Implementing Agency

Environment Category Date PID Prepared Date of Appraisal Authorization Estimated Date of Board Approval

SOUTH ASIA General finance sector (30%); Micro-and SME finance (30%); General industry and trade sector (20%); Sub-national government administration (20%) P124268 GOVERNMENT OF PAKISTAN (GoP)

1. Department of Industries Civil Secretariat Government of KP Contact Person: Fazal Kareem Khattak, Secretary Industries Telephone No.: 92-91-9210924, Email: secyind@ 2. FATA Secretariat Warsak Road Peshawar Contact Person: Mazhar Ali Shah, Chief Economist Telephone No.: 92-91-9212933, Fax No.: 92-91-9212833 Email: mazharkcl@ [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) December 14, 2010 December 16, 2010

January 14, 2011

Public Disclosure Authorized

Public Disclosure Authorized

I. Country and Sector Background

1. Pakistan now faces an emergency of historic proportions caused by two main events: the recent militancy crisis and the July/August 2010 floods. In early 2009, the Government of Pakistan (GoP) launched major military operations in Khyber Pakhtunkhwa (KP) Province and the Federally Administered Tribal Areas (FATA) to root out the local pockets of militants. The offensive led to significant damage to physical infrastructure and services in a region which was already performing low on development indicators as compared to other parts of the country.

2. In addition to the loss of jobs and other legitimate earning opportunities, growth in the industrial sector has stagnated. The tourism sector and related economic activities in Swat have ceased almost entirely because of security concerns. One of the most important economic sectors of KP-FATA economy, mining of gems and dimension stones, is operating at less than 10% of previous output levels because of the deterioration in security conditions and the ban on the use of explosives (dynamite), an essential mining input. Out of 270 mines, only 25 are operational in KP province. The experience in other sectors is similar, and overall the economy of KP and

FATA is likely to have contracted significantly in 2009/10, thereby demanding immediate attention of the development sector.

II. Objectives

3. To support the GoP in the economic recovery and revitalization of the crisis affected areas of KP province and FATA, by creating sustainable employment opportunities through rehabilitation of Small and Medium Enterprises (SMEs), investment mobilization, and institutional capacity building.

III. Rationale for Bank Involvement

4. The GoP has launched various assessments for strategic medium- to- long term support for the region. A Damage and Needs Assessment (DNA) was completed in 2009 with the World Bank (WB) and Asian Development Bank (ADB) support covering the areas first affected by the GoP's action to combat the militants1 and a subsequent Post Crisis Needs Assessment (PCNA), Report supported by the ADB, European Commission (EC), United Nations (UN) and WB was formally issued in October 2010. Recognizing the need for a harmonized approach to respond to the PCNA recommendations, the GoP and Donors have requested the Bank to administer a Multi Donor Trust Fund (MDTF) for KP, FATA and Balochistan, which now has US$ 130 million in pledges from ten donors; Australia, Denmark, Finland, European Union, Germany, Italy, Turkey, UK, USA and Sweden.

5. The PCNA Report provided the underpinning for long term peace building in KP and FATA. Drawing on extensive stakeholder consultations, the Report identifies key crisis drivers and the consequent priority areas that need to be addressed to support a coherent and durable peacebuilding strategy. These have been organized into four strategic objectives related to political and governance reform, employment and livelihood opportunities, provision of basic services, and efforts for counter-radicalization and reconciliation2. The ERKF builds on the Pillar 2 of the PCNA that recommends creation of employment generating opportunities in farm and non-farm sectors, development of marketable skills, rehabilitation of enterprises and improving the investment and business climate for medium to long term economic growth and peace building in these areas. It also acknowledges the need for the project instruments to be flexible, due to the continuing militancy and possible displacements as well as the high likelihood of further natural disasters in the region such as landslides, floods, drought and earthquakes.

6. The Pakistan Country Partnership Strategy (CPS) for FY10-13 recognizes that conflict and insecurity represent major obstacles to economic development and poverty reduction. The ERKF Project is fully aligned with the CPS, falling under Pillar 4 `improving security and reducing the risk of conflict'. Under this Pillar, the CPS considers that addressing the longstanding economic deprivation and social inequities among the population in the northwest frontier (now called Khyber Pakhtunkhwa) region is critical to dealing with conflict. The

1 Swat, Upper and Lower Dir, Buner, Shangla, Mohmand, and Bajaur. 2 The key strategic objectives of the PCNA are: (i) enhance responsiveness and effectiveness of state to restore citizen trust; (ii) stimulate employment and livelihood opportunities; (iii) ensure provision of basic services; and (iv) counter-radicalization and reconciliation

Operation therefore has a strong focus on SME development to enable income generation and revival of economic activities in the conflict affected areas.

IV. Description

7. The Project aims to support creation of employment opportunities and sustainable jobs for the people of KP and FATA, thereby addressing the core strategic objective of stimulating employment and livelihood opportunities, as highlighted in the PCNA Report. The Project has three components:

8. Component 1: SME Development (US$ 14 million). This component includes a matching grants program with technical assistance to support SMEs that have been adversely affected by the ongoing crisis in order to enhance their productive capacity and restore lost employment. This component will also promote economic empowerment of women by assigning priority to eligible enterprises owned and managed by women. Three types of support will be provided under this component:

(i) SME Rehabilitation: Matching grants to SMEs whose businesses have been affected due to direct damage to their buildings, machinery, equipment and stocks;

(ii) SME Up-gradation: Matching grants to SMEs to improve their productive capacity; and (iii)Business Development Services (BDS): to SMEs in areas such as accounting, financial

and legal services, market development, project management etc.

9. Component 2: Attracting Investments from the Diaspora (US$ 2 million). The main objective of this component is to mobilize private investment to jumpstart the rehabilitation of businesses and reconstruction of infrastructure, thereby creating employment. There are two main activities under this component:

(i) Pre-Feasibility Study for a Private/Public Sector Diaspora Bond for SMEs, and (ii) Outreach Program for Mobilizing Diaspora Investment

10. Component 3: Institution Building to Foster Investment and Implement Regulatory Reforms (US$ 4 million). This component will support capacity building of both KP and FATA governments to improve the business climate and attract investment to the region. This will be accomplished through:

(i) Capacity building of governments of KP and FATA; (ii) Development of a Public-Private Dialogue mechanism to promote reforms; (iii)Institutionalizing investment promotion; and (iv)Implementation Support

The SME Development component will be implemented by the KP office of Small and Medium Enterprise Development Authority (SMEDA), and the implementation of the second and third components will be done by the dedicated cells of KP and FATA authorities.

V. Financing

Source: Borrower MDTF for Crisis Affected Areas of NWFP/FATA/Balochistan

Total

($m.) 0 20

20

VI. Implementation

11. The ERKF Project will be implemented by a dedicated cell; Project Management Unit (PMU), each for KP and FATA. The PMU for FATA is already established, and is headed by a Project Director. Additional technical and support staff will be hired to oversee and facilitate implementation, and ensure compliance with Bank's safeguards, procurement and financial management requirements. The SME Development component of the Project will be implemented with the help of Small and Medium Enterprise Development Authority (SMEDA), as it is already engaged in donor projects for economic revitalization of KP. The progress of ERKF will be monitored by a Steering Committee (each for KP and FATA) headed by the respective Additional Chief Secretary.

VII. Sustainability

12. The ERKF will be implemented through existing institutional mechanisms within KP-FATA to ensure continuity of Project's activities. An Investment Facilitation Authority (IFA) for FATA has been notified that will take on various initiatives of ERKF beyond Project's completion. In view of the weak institutional capacities, the Project will also enhance the technical and administrative capabilities of the counterparts, and separate funding under this Project has been set aside to meet this objective.

VIII. Lessons Learned from Past Operations in the Country/Sector

13. The Bank recognizes that the projects completed in past, especially the Sector Adjustment Credits (SACs) for North Western Frontier Province (now called KP), highlighted the need for strengthening the capacities of the public sector counterparts. This capacity building is required so that the counterparts can effectively undertake policy reforms and are also able to meet Bank's requirements on compliance and reporting of financial management and procurement policies, when administering Bank projects.

IX. Safeguard Policies (including public consultation)

14. The Project triggers the Bank's Safeguards Policy (Environmental Assessment OP/BP 4.01) and falls under the Environment Category `B'. The task team has therefore prepared an Environmental and Social Screening and Assessment Framework (ESSAF), which defines the environmental assessment requirements the implementing agencies both in KP and FATA will need to fulfill before any component under the ERKF Project can be implemented. The ESSAF has been disclosed locally by the implementing agencies, and also at the InfoShop.

X. List of Factual Technical Documents

1. 2009 Damage and Needs Assessment (DNA) for KP-FATA 2. 2010 Post Crisis Needs Assessment Report (PCNA) 3. FATA Sustainable Development Plan 4. ESSAF

XI. Contact point

Contact: Shabana Khawar Title: Senior Private Sector Development Spec. Tel: 5722+219 / 92-51-909-0219 Fax: Email: Skhawar@ Location: Islamabad, Pakistan (IBRD)

XII. For more information contact:

The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Email: pic@ Web:

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