PROJECT INFORMATION DOCUMENT (PID) - World Bank



PROJECT INFORMATION DOCUMENT (PID)

APPRAISAL STAGE

Report No.: AB5286

|Project Name |Cameroon - Competitive Value Chains |

|Region |AFRICA |

|Sector |General industry and trade sector (100%) |

|Project ID |P112975 |

|Borrower(s) |GOVERNMENT |

| |Government of Cameroon |

| |Cameroon |

| |Tel: (237) 222 42 70 Fax: (237) 222 48 54 |

|Implementing Agency | |

| |Ministry of Economic Affairs, Programming and Regional Development |

| |Yaoundé |

| |Cameroon |

| |Tel: (237) 222-4270 Fax: (237) 222-4854 |

| |prctg@yahoo.fr |

|Environment Category |[X] A [] B [ ] C [ ] FI [ ] TBD (to be determined) |

|Date PID Prepared |May 3, 2010 |

|Date of Appraisal Authorization |April 20, 2010 |

|Date of Board Approval |June 24, 2010 |

1. Country and Sector Background

Recent economic developments

1. Cameroon is a linguistically and ethnically diverse country whose geography ranges from Sahelian semi-desert in the north through grassland to equatorial forest in the south. This diversity favors varied economic and agricultural activities, though 70 percent of the population depends on agriculture and pastoral activities for their livelihood. Cameroon has one of the highest proportions of land area devoted to conservation in Africa, with some 14 percent of the country’s territory designated as national parks, reserves, sanctuaries and conservation concessions. Cameroon also has significant natural resources, including oil, high-value timber species, agricultural products including coffee, cotton, and cocoa, and as yet untapped natural gas, iron, bauxite, and cobalt. Its human capital is acknowledged as being well educated and a resource that could be further developed.

2. Despite wide ranging economic reforms since the 1990s, starting with an ambitious privatization program including all the major infrastructure and agricultural sectors and later reaching its HIPC completion point in 2006, Cameroon has remained a lower middle income country. In 2007, per capita income reached $1,050, less than a 1% increase annually on average from 2004 to 2008. The 2007 household survey estimated that 39.9% of the country’s population still lives in poverty, almost unchanged from its 40.2% level recorded in 2001.

3. Cameroon’s economy has performed below its potential over the last decades. Between 1997 and 2007, Cameroon’s per capita GDP growth averaged a modest 1.5 per cent per annum (while this represented a modest recovery from the negative 4.6% per annum per capita GDP growth in the 1987-1997 decade that reflected external shocks and poor policy choices).

4. As a result of declining oil production and revenue, the budget ran a deficit during most of the 1990s, leading to a rapid accumulation of public debt. In addition, public spending was highly sensitive to electoral cycles, leading to periodic fiscal slippages. However, Cameroon’s poor record of fiscal management has shown signs of improvement since 2005, when the government adopted a medium-term fiscal strategy.

5. There have been improvements in fiscal performance and public finance management, as well as the preservation of macroeconomic stability. Nonetheless, structural reform implementation was uneven and economic growth was below expectations. In light of Cameroon’s recent mixed growth performance and the ongoing global economic slowdown, the recent policy documents have reiterated GoC’s commitment to reinvigorate growth-oriented policies.

Table 1: Selected Macroeconomic Indictors (2005 – 2008)

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6. Economic activity in 2008 showed some resilience in the face of the global slowdown (Tables 1). Real GDP is expected to have grown by 4.6 percent in 2008—despite a projected contraction in oil output—driven by the continued pickup in nonoil economic activity. The global crisis has, however, increased downside risks. Slower world demand has lowered timber exports. Sustained high oil prices for most of the year nevertheless improved the current account balance in 2008, despite increased imports resulting from high food prices and reduced taxation of staples. Recent Government statistics forecast a modest impact of the crisis in 2009 (with GDP growth contracting from 3.4% in 2008 to 3.0% in 2009), with a rebound to 5.7% growth in 2010[1].

Cameroon’s Vision for Growth and Development

7. The Government of Cameroon has strong ambitions for its future, as reflected in its “Vision 2035”. This policy document serves as the anchor for the new PRSP (Growth and Employment Strategy Paper) and envisions Cameroon as an “emerging nation, democratic and united in its diversity” by 2035. Its principle objectives include: i) reducing poverty to a socially acceptable level; ii) becoming a middle-income country; iii) acquiring the status of a Newly Industrialized Country; and iv) reinforcing national unity and the democratic process.

8. The Growth and Employment Strategy will cover the first ten years of the long-term development vision and will focus on accelerating growth, creating formal employment and reducing property, consequently, it aims to (i) increase the average annual growth rate to 5.5 percent over the period 2010-2020 ; (ii) reduce the underemployment rate from 75.8 percent to less than 50 percent in 2020 with the creation of tens of thousands of formal positions per annum over the next ten years; (iii) reducing the income poverty rate from 39.9 percent in 2007 to 28.7 percent in 2020.

9. The Growth and Employment Strategy identifies weak productivity, a looming energy crisis and effects of the financial crisis, food insecurity, stagnating poverty, and high unemployment as key challenges facing the period in question (2009-2019). It envisions significant investment in infrastructure to stimulate growth, notably in energy, roads, port infrastructure, water supply, and information technology. Productive increases are sought in agriculture and livestock farming, mining (notably in bauxite, iron, and cobalt), key value chains (timber, ICT, tourism), and in the business climate. It looks to strengthen human development and develop more robust formal sector employment. The GESP also places important emphasis on regional integration, and envisions strengthened partnerships with non-traditional donors. Finally, it stresses the need to improve governance, including specific initiatives related to corruption, public procurement, business climate, and civic participation.

10. Cameroon’s economy presents a paradox, whereby it possesses a massive resource base, but does not catalyze this into sustained economic growth or poverty reduction. Improving Cameroon’s competitiveness requires that all sectors of the economy become more productive and efficient – which, in turn, requires an improved investment climate. In the 2010 Doing Business report, Cameroon is ranked at the 171st position (out of 183 countries).

Developing competitive value chains

11. Recognizing that past reform attempts have been uneven and spread too broadly, the Government is centering its new strategy on the most promising value chains to accelerate growth and job creation through private investments and diversified high value exports. The value chain opportunities are clustered around the manufacturing, mining, forestry, agribusiness, tourism and ICT industries. In these industries, Cameroon has yet to take advantage of its natural and human resource riches – e.g. little industrial transformation of raw materials, world class ecotourism sites not accessible, little mining production outside oil and vast underemployment of relatively skilled labor. The proposed project chose to focus on two key value chains with high potential: sustainable wood transformation and ecotourism.

12. With 20 million hectares, Cameroon has the second largest forest in Africa (behind the Democratic Republic of Congo). It is also among the most varied with more than 300 species. With $400m of exports in 2007, wood is the second most important export for Cameroon, behind oil. The industry accounts for around 9 percent of Cameroon’s GDP. There is very little value added (e.g. transformation). The main constraints to sustainable wood transformation in Cameroon are:

• Low transformation yield (less than 30 percent of the cut wood is commercialized) against 45 percent in Ghana and Côte d’Ivoire;

• Insufficient drying of the wood used for the domestic and regional markets resulting in very low quality;

• Differential tax treatment between the traditional/inefficient and industrial/productive wood cutting industries – it is estimated that the traditional wood cutting segment accounts for one third of the total market (1 million cubic meters), it is principally destined to the domestic and regional markets;

• Insufficient skills of players, especially among the traditional sector which accounts for 150,000 workers compared to less than 13,000 in the industrial sector;

• Significant cross-cutting investment climate constraints – e.g. heavy regulatory and fiscal burden, high costs and poor quality of energy and transportation, difficulties to access financing and poor governance – e.g. the “all in” cost of a machine is twice what it is in Europe or Asia (OTF analysis).

13. Cameroon has a number of world class nature and culture based touristic assets – e.g. one of the two significant gorillas reserve in the world (the other one being at the border between Rwanda, the Democratic Republic of Congo and Uganda), one of the largest volcanoes in the world (Mont Cameroon), unique lunar landscape in Rhumsiki and a multitude of traditional kingdoms in the West and North, each with their own culture. Yet, these assets are under leveraged, less than 15,000 tourists a year choose Cameroon – most of Cameroon’s 500,000 international visitors come for business or family reasons. Tourism in Cameroon is mostly limited to week-ends and vacations – resulting in very low occupancy rates (around 30 percent). Although very underdeveloped, the tourism industry in Cameroon already accounts for 2.5 percent of GDP and 110,000 jobs (mostly in the informal sector). The main constraints to a rapid development of the sector are:

• Poorly managed world class touristic assets due to lack of investments and professional management;

• Insufficient/inadequate promotion of tourism products;

• Poorly trained workers in the industry;

• Remaining security and harassment issues;

• Significant cross-cutting investment climate constraints: high transportation and telecom costs, fiscal and regulatory burden, limited access to finance and governance issues.

2. Objectives

14. The project would contribute to achieve the Government goals spelled out in the Growth and Employment Strategy:

a) Increasing growth. the support to the development of two value chains with high potential (wood and tourism) aims at increasing private investments and developing the national private sector, thus diversifying the Cameroonian economy and creating additional sources of growth;

b) Reducing unemployment: the project aims at creating new economic opportunities for the abundant workforce in the targeted sectors and geographical areas;

c) Reducing poverty: the project aims at supporting the formalization of enterprises in the two value chains, thus increasing formal employment (while decreasing informal employment) and encouraging better working conditions. The project will also ensure that communities around the project areas will also benefit from the project activities (with, for example, increasing economic opportunities).

3. Rationale for Bank Involvement

15. The proposed Competitive Value Chains Project aim at stimulating private investments in high potential value chains by providing a critical mass of infrastructure investments, policy reforms and support to firms. To ensure focus and results, the project will cover a limited number of value chains with proven potential – wood transformation and tourism – and will leverage other IDA projects in the forestry, transport and energy sectors. Other high potential value chains are being supported by complementary World Bank projects (e.g. the Agriculture Competitiveness and Central African Backbone projects, as well as the mining sector project under preparation). The project aims to have a demonstration effect, with the possibility to replicate the proposed approach on other value chains with a high potential.

16. The project builds on a number of diagnostic reports, including the 2004 Competitiveness Diagnostic Study which assessed the potential of all the main local industries, the 2006 Investment Climate Assessment, the 2007 Development Policy Review, the 2008 Cost of Factors Study and the 2008 Private Sector Development Study.

17. The proposed project is part of a wider Government program to improve Cameroon’s competitiveness and has been prepared with the support of the Competitiveness Committee, within the Ministry of Economy, Planning and Regional Development.

18. Both the government and private sector have shown great interest in the project, with IDA financing geared towards accelerating implementation of the government’s strategy and leveraging other partners and the private sector.

19. Strategic fit with Growth and Employment Strategy and Country Assistance Strategy. As highlighted in the section above, increasing the competitiveness of the Cameroonian economy is at the center of the Growth and Employment Strategy Paper. Increasing Cameroon’s competitiveness is also one of the two pillars of the World Bank Country Assistance Strategy. In addition, the updated 2007 Africa Action Plan emphasizes the need for export competitiveness expansion and economic diversification.

4. Description

Lending instrument

20. The project will be a Specific Investment Loan (SIL). The project would span five years, with an IDA allocation of US$30 million equivalent. The amount is exclusive of taxes which will come as the government’s counterpart financing.

Project development objective and key indicators

21. The Project Development Objective (PDO) is to contribute to the growth of the wood and tourism value chains by improving their competitiveness and the investment climate. The project will support specialized infrastructure investments, vocational training, policy reforms and direct support to firms through a innovation grant.

22. Key outcome indicators include:

• Number of artisans and formal workers in the wood value chain;

• Value of exports from the third transformation of wood;

• Number of hospitality workers in the tourism value chain;

• Increase in the number of international visitors in Cameroon;

23. Key intermediate outcomes include:

• Number of formal firms in the wood value chain;

• Number of visitors to the Mont Cameroun National Park;

• Number of visitors to the Chiefdoms in the Western and North Western regions supported by the project;

• Number of visitors to the Campo Ma’an National Park

• Number of hits in the e-tourism platform;

• Number of registered hotel nights;

• Number of days to register a business

• Number of hours to pay taxes

• Taxes and tariffs levied on imported equipment

• Number of business taxes and licenses

• Average annual increase in turnover of firms which benefited from the innovation grant (Competitiveness Support Fund - FAC)

• Number of firms benefiting from FAC - of which percentage managed by women (core FPD indicator)

Project components

Component 1: Sustainable wood transformation (US$2.2 million)

24. The objective of this component is to increase, sustainably, the economic value added of the wood value chain in Cameroon (second and third transformation). The project will support a critical mass of interventions in the wood value chain to trigger productive private investments and job creation. Although the project will promote wood products, the net environmental impact should be positive because it will promote the use of certified wood (coming from sustainable forestry exploitations), productive cutting techniques (allowing much more wood to be used from a given tree), secondary species (left abandoned today) and drying techniques (allowing the wood products to have a much longer shelf life).

25. This component includes the following three subcomponents: (i) improvement of the policy framework; (ii) promotion of sustainable wood transformation techniques and vocational training and, (iii) preparation studies for the creation of a wood cluster in Yaoundé. These subcomponents are further detailed below.

Subcomponent 1.1. Reforms to promote the transformation of certified dry wood (US$0.4 million)

26. The project will finance a consulting contract to improve the institutional, policy and regulatory framework along the wood value chain. The consultant will recommend, on the basis of relevant international good practices, new policies to: (i) encourage the development of a domestic market for competitive certified wood, (ii) encourage the drying of wood, including around the forests in the East to save on transportation cost and (iii) encourage wood transformation. The consultant will explore the opportunity to develop a common regional policy to facilitate controls and avoid a “race to the bottom” between countries facing similar challenges and opportunities. The consultant will also recommend a new regulatory and institutional framework to encourage the formalization of the wood artisans and encourage/recognize the use of dry legal/certified wood by them. (US$0.3 million)

27. The project will finance a consulting contract to create the Wood Federation regrouping private operators all along the value chain (US$0.1 million)

28. The project will also support under component 3.2 below (innovation grant), private sector companies which are working in partnerships with community forests in the process of being certified and private companies which are investing in drying plants using legal/certified wood.

Subcomponent 1.2. Promotion of sustainable wood transformation techniques and vocational training (US$1.1 million)

29. The project will finance a consulting contract which will document the best possible uses for various types of wood together with the standards, norms and construction techniques that should be applied. It will include information campaigns and documentation to promote the use of dried wood cut along standard dimensions using high yield cutting techniques, highlighting to both producers and consumers their economic and quality advantages. The detailed technical information on wood products and transformation techniques will be made available through a web site that will be managed by the Ministry of Forestry. (US$0.4 million)

30. The project will finance an in-depth study to develop specific recommendations as to how to improve the provision of vocational training by both the public and private sector in the wood value chain. (US$0.1 million)

31. The project will finance specific pilot programs as recommended by the above mentioned study – e.g. inviting world class technical experts, such as the Canadian Forintek and the French “Compagnons” to spend several months in Cameroon training large numbers of artisans as it was done successfully in Vietnam. (US$0.6 million)

32. The project will also support under component 3.2 (innovation grant) users of high yield and eco-friendly equipment and private providers of vocational training.

Subcomponent 1.3. Preparation studies for creating a wood cluster in Yaoundé (US$0.7 million)

33. The project will finance the preparatory studies necessary for the creation of a wood cluster in Yaoundé. Future financing (e.g. through an possible additional financing) would be available subject to specific conditions and approval by the Board of the World Bank. The studies will cover the economic feasibility, technical design, institutional arrangements, social and environment aspects - including a detailed description on how it will be ensured that the cluster will be supplied with legal wood.

Component 2: Ecotourism (US$8.7 million)

34. This component, together with the third component tackling the cross-cutting investment climate issues, aims at addressing a critical mass of the constraints preventing the growth of the tourism industry in Cameroon. The core of the proposed tourism development strategy is to focus on Cameroon’s world class touristic assets to constitute a few and compelling touristic packages. This component includes the following two subcomponents: (i) investments to upgrade and preserve world class tourism assets; and (ii) technical assistance to improve the regulatory and institutional framework of the tourism sector.

Subcomponent 2.1. Upgrading of world class tourism assets (US$6.7 million)

• Mount Cameroon (US$2 million)

35. The objective is for Mount Cameroon (4,095 m) to emulate Mount Kilimanjaro (5,825 m) which welcomes more than 40,000 tourists a year (compared to one thousand for Mount Cameroon). Mount Cameroon has unique faunal and animal diversity (including mountain elephants) and is close to attractive beaches (Limbé), cultural centers (Buea) and a large cosmopolitan city with an international airport (Douala). The project will finance: (i) the remaining 80km (out of 120km) of physical demarcation left to be completed around the Park (ii) the update and validation of the Mount Cameroon Management Plan (Mount Cameroon has been declared a National Park in December 2009) and technical assistance to build the capacity of the Park Management (in partnership with KFW) (iii) technical assistance to build the capacity and leadership of Mt CEO. Mt CEO is the successful inter-communal NGO offering ecotourism services on Mont Cameroon – with a revenue sharing agreement with local communities. Mt CEO will also federate, coordinate and provide technical support to other accredited actors (e.g. training and equipping of guides and porters ), (iv) the establishment of a proper reception area in Buéa; (v) the rehabilitation/construction and equipping of intermediate camps, shelters and cookhouses as well as trails, signaling and communication systems and (vi) local promotion activities. “Hard” investments within the Park and promotion activities will be financed only after the Mount Cameroon Management Plan has been validated and the Park management has been put in place. The project will also support as part of component 3.2 (innovation grant) private investments in eco-lodges and restaurants in and around the Park.

• Chiefdoms in the Western and North Western Provinces (US$1.5 million)

36. The project will finance: (i) the creation of museums and the development of areas for artisanal activities in ten Chiefdoms (to be selected following a competitive process) (ii) capacity building and equipment to help protect precious artefacts from fire and theft (on the basis of a code of good conduct), (iii) road signaling system around the region and (iv) local promotion and advertising campaigns through support to the local “Offices du Tourisme”. The project will also support as part of component 3.2 (innovation grant) private investments (e.g. hotels and restaurants).

• Kribi (US$1.5 million)

37. With its attractive beaches and city center, Kribi is a key tourism destination. The project will finance the upgrading of three beaches north of Kribi’s city center (Ngoyé, Mpala and Londji). This will include rehabilitation of access roads, parking areas, sanitation and surveillance facilities. The project will also finance the development of a commercial/artisanal area at Ngoyé beach (the beach closest to Kribi’s center) as well as the rehabilitation of Kribi’s public lighting. These supports are based on the urban and tourism development plan being finalized. The project will also provide technical assistance to the “Office Intercommunal du Tourisme” (e.g office equipment, training and local promotion) – the private sector is represented on the board of the Office. Private investments (e.g. in hotels and restaurants) will be supported as part of component 3.2 (innovation grant).

• Campo Ma’an (US$1.7 million)

38. Campo Ma’an is a National Park with very strong eco-tourism potential (e.g. Gorillas, drills and elephants) 70 km south of Kribi. The coastal road from Kribi to the Park is being rehabilitated. The Park has benefited from offsets from the Chad-Cameroun Pipeline ($0.4 million a year through FEDEC – scheduled to end on December 2010) as well as from technical assistance provided by World Wildlife Fund (WWF). A Park management plan was completed in 2006, the area is secured and the habituation of Gorillas has started. The project will finance: (i) the update of the 2006 Management plan, (ii) technical assistance to strengthen the capacity of the Park Management with respect to eco-tourism activities, (iii) activities in support of the local indigenous population (iv) the completion of the habituation program of Gorillas (focused on the internal island of Dipikar) which started with the technical support of WWF, (v) the rehabilitation of 45 km of trails (mostly within the Dipikar island) and the removal of bottlenecks along 46 km of roads within the Park and (vi) local promotion activities. “Hard” investments within the Park and promotion activities will be financed only after the updated Campo Ma’an Management Plan has been published and the eco tourism capacity of the Park management has been strengthened. Key private investments (e.g. ecolodges) will be supported as part of component 3.2 (innovation grant).

Subcomponent 2.2. Reforms of the tourism policy framework, promotion and vocational training (US$2 million)

39. The project will finance a consulting contract to study the feasibility and accompany the creation of a new dedicated institutional set up for the management of protected areas and tourism sites inspired by relevant international good practices. (US$0.3 million)

40. The project will finance a consulting contract to create the Cameroon Tourism Federation regrouping private operators (US$0.1 million)

41. The project will finance a consulting contract to create an e-tourism portal to promote Cameroon as a tourism destination, with an on-line reservation facilities accessible to small hotels such as World Hotel Link. This portal will be managed by the Cameroon Tourism Federation (US$0.3 million)

42. The project will finance national and international campaigns to promote the sites rehabilitated by the project. The content and format of these campaigns will be decided in partnership with the Cameroon Tourism Federation and the Minister of Tourism (US$0.4 million)

43. The project will finance an in-depth study to develop specific recommendations as to how to improve the provision of vocational training by both the public and private sector in the tourism sector. (US$0.1 million)

44. The project will finance the implementation of some of the key recommendations from the above mentioned study – e.g. support to the CEMAC School for Hotel and Tourism. (US$0.8 million).

45. The project will also support through component 3.2 (innovation grant) private providers of vocational training.

Component 3: Cross-cutting actions to support competitiveness (US$10.2 million)

46. This component includes the following two subcomponents: (i) support to investment climate reforms; and ii) innovation grant mechanism to help increase the competitiveness of small and medium enterprises in the wood and tourism value chains.

Subcomponent 3.1. Investment climate reforms (US$4.7 million)

• Support to the Cameroon Business Forum (US$1.0 million).

47. The Cameroon Business Forum (CBF) has been set up as the main platform for Public Private Dialogue on investment climate issues. The Permanent Secretariat of the CBF plays a key role – it is responsible for the organization of the Forums (e.g. high level meeting every six months), prepares the agenda, leads the technical work (carried out by working groups) and crucially, follows-up on the reforms decided upon at the meeting. The project will complement the support which is being provided by the International Finance Corporation (IFC). The project will finance three dedicated staff of the Permanent Secretariat as consultants (one economist, one communication specialist and one senior assistant). The project will finance technical assistance to the General Directorate of Economy within MINEPAT targeted at the implementation of the reforms enacted by the CBF. The project will also finance three consulting contracts to support: (i) business registration reforms, (ii) electronic payment of taxes and (iii) the generation of new investment opportunities in collaboration with the Investment Promotion Agency (IPA).

• Support to a business taxes and licenses guillotine (US$1.4 million)

48. The project will finance technical assistance to design and implement a “tax and business licenses guillotine”. This will enable to reduce the large number of taxes and licenses burdening the life of enterprises and affecting competition. This will entail a consulting contract to set up an on-line inventory of all business taxes and a systematic review to simplify, consolidate and eliminate business taxes and licenses. It will be followed by targeted technical assistance to support the implementation of the reforms.

• Support to the Competitiveness Committee (US$2.3 million).

49. The project will finance: (i) review of investment regimes – including import taxation of capital goods, (ii) five benchmarking studies to be publicly disclosed on key factor costs (transportation, financial services, telecom, cement, fertilizers and land); (iii) three consulting contracts to develop/implement strategies for export driven agribusiness value chains; (iv) a study to develop the ecotourism potential of the Dja biosphere reserve and Rhumsiki (v) master plan to develop Cameroon’s Littoral growth pole; (vi) a consulting contract to evaluate the feasibility and support the implementation of the planned national competitiveness innovation grant fund (PARCEC), and (vii) capacity building of the Competitiveness Committee (e.g. upgraded web site and training of staff).

Subcomponent 3.2. Innovation grant to support key private investments in the wood and tourism value chains - « Fonds d’Appui à la Compétitivité » (FAC) - (US$5.5 million)

50. The objective of the Fonds d’Appui à la Competitivité (FAC) is to kick-start key private investments by SMEs in the wood and tourism value chains in a context where access to finance if very difficult and the cost of imported equipment very high due to import taxes and tariffs (as discussed in component 3.1 above). The innovation grant will focus on investments which have strong positive externalities on the other actors of the value chain. A positive list has been developed to that effect – it includes vocational training, creation and diffusion of key information (e.g. through business associations), business development services, equipment for drying plants using certified wood, high yield eco friendly wood cutting equipment for SMEs and Community Forests working with certified wood, equipment for eco-lodges and restaurants next or within the two National Parks supported by the project. Support for the main hard investments on this positive list will be obtained through a competitive process and will be subjected to specific terms of reference, with an important emphasis on innovation and learning spillovers. 20% of the fund will not be subjected to the positive list to provide the flexibility to support unanticipated projects with strong positive externalities in the two value chains.

51. The FAC will co-finance 50 percent of the proposed investment costs. The minimum subsidy amount is CFAF 5 million (US$11,111) and the maximum is CFAF 50 million (US$111,111).

52. Applicants must meet the following eligibility criteria:

• Legal status allowing commercial activities in Cameroon;

• Structure created and operating in Cameroon, under Cameroonian law;

• In operation for over three years;

• SMEs: maximum of 50 employees, annual turnover under CFAF 500 million, capital assets under CFAF 200 million;

• Must show their capacity to finance the remaining 50 percent of the investment;

• Cannot have any direct or indirect link with any member of the Steering Committee, Management Unit or Review Committee (either through capital participation, service provision or direct family relation).

53. The governance and selection process will be subject to very strict rules to ensure independence, integrity and competency. At least, once every quarter the FAC Management Unit publishes an Expression of Interest inviting interested firms to apply to the FAC. A first screening of applications is then completed by the FAC Management Unit, based on the eligibility criteria. The Management Unit then undertakes a detailed analysis of the applications that meet the eligibility criteria and rates them. It then submits the detailed analysis, with the ratings, to the Review Committee for final decision. Once the application is selected, a Financing Agreement is established between the beneficiary and the FAC Manager; the Financing Agreement describes the different funding conditions. The Financing Agreement will stipulate that the beneficiary will need to submit information to the FAC Management Unit for the next three years for monitoring and evaluation (M&E) purposes.

Project coordination (US$5 million)

54. The component will support the establishment, equipment and operations of a dedicated team (to be hired competitively by a specialized firm) within the Ministry of Economy, Planning and Regional Development (MINEPAT) reporting to a high level Steering Committee. The team will be responsible for overall project implementation, procurement, financial management and M&E.

Reimbursement of Project Preparation Advance (US$2.9 million) and non allocated funds (US$1 million)

Table 2: Overall Budget: Summary

|Project Cost By Component |Total |

| |US$ million |

|Component 1: Sustainable wood transformation |2.2 |

|Reforms to promote the transformation of certified dry wood |0.4 |

|Promotion of sustainable wood transformation techniques and products |1.1 |

|1.3 Preparation studies for creating a wood cluster in Yaoundé |0.7 |

|Component 2: Ecotourism |8.7 |

|2.1. Upgrading of world class tourism assets |6.7 |

|2.2 Reforms of the tourism institutional framework and vocation training |2.0 |

|Component 3: Cross-cutting actions to support competitiveness |10.2 |

|3.1 Investment climate reforms |4.7 |

|3.2 Innovation grant to support competitiveness investments |5.5 |

|Project implementation |5.0 |

|PPA reimbursement |2.9 |

|Total Baseline Cost |29.0 |

|Physical Contingencies |0.5 |

|Price Contingencies |0.5 |

|Total Project Costs |30.0 |

Alternatives considered and reasons for rejection

55. The project was initially conceived as a “growth pole” project, where investments would focus on selected geographical areas with high growth potential. Following in-depth consultation with the Government, the concept shifted from a regional to a sectoral focus. It was thus proposed that the project should focus on selected value chains with a high potential.

56. The scope of the project was narrowed during the preparation. It was therefore decided to focus on two key value chains (wood and tourism), instead of dividing investments on multiple value chains – which would have diminished the investments impact. It was also decided that the project should focus on its core objective, i.e. the development of two value chains, and will not attempt to solve a broad range of investment climate issues.

57. The financing of the construction of the pilot wood cluster in Yaoundé would be financed through an upcoming possible additional financing subject to specific conditions and approval by the Board of the World Bank. This would give enough time to the government to choose the location and conduct the necessary studies which will be financed by this project without delaying the implementation of the other components. Two other alternatives were considered to enable this phased approach: (i) Adaptable Program Loan (APL) – rejected because we were not in the context of a large multi phase program; and (ii) Separate Sector Investment Loan (SIL) – rejected because it would have generated high additional transaction costs as compared to the possible additional financing. Since this possible additional financing would be a category A, it was decided that this initial project be also classified as a category A project.

5. Financing

|Source: |($m.) |

|BORROWER/RECIPIENT |0 |

|International Development Association (IDA) |30 |

| Total |30 |

6. Implementation

Partnership arrangements (if applicable)

58. The project has been prepared in close coordination with other projects financed by the World Bank and other development partners. The Development Partner thematic group “Economy and Commerce” has allowed the project team to regularly inform development partners about the project preparation.

59. Internal partnerships. The project will collaborate closely with the Forest and Environment Development Program, in the context of the wood value chain. The project will involve sensitive issues (legality of wood used in the wood value chain) and guidance from the Forest and Environment Development Program will be sought.

60. The project will also closely work with IFC. The project will aim at encouraging IFC investments in private operators in the wood and tourism value chains. The project will also collaborate with the IFC on investment climate issues. In particular, the project will leverage the Cameroon Business Forum and will advocate for reforms along the Doing Business indicators. The project will also leverage with Africa MSME initiative which support two commercial banks operating in Cameroon to develop SME lending through the provision of technical assistance and lines of credit. The project will refer SMEs in the wood and tourism value chains to this facility.

61. External partnerships. The project will ensure close coordination with the European Commission financed initiatives which aim at improving competitiveness (in particular, the Support Program to Economic Partnership Agreement – PASAPE – between European Union and Central Africa). One component of PASAPE, implemented by the United Nations Industrial Development Organization (UNIDO), aims at strengthening the capacity of enterprises along selected value chains.

62. The project will also closely work with development partners active in the two value chains: in particular the Netherland Development Organization (SNV) and the Center for International Forestry Research (CIFOR) for in the wood value chain and the German cooperation agencies (GTZ and KFW) in the tourism value chain.

Institutional and implementation arrangements

63. The project implementation structure will comprise: (i) a Project Steering Committee (PSC) and (ii) a Project Coordination Unit (PCU). The project will be under the main responsibility of the Ministry of Economy, Planning and Regional Development. It would be coordinated by a dedicated team reporting to a multi-ministerial steering committee (Project Steering Committee) presided by the Ministry of Economy, Planning and Regional Development and with private sector participation.

64. The Project Steering Committee, (PSC), presided by MINEPAT, will be responsible for the strategic guidance of the project. It will reflect the multi sectoral nature of the project, and will include representatives of, inter alia: (i) ministries in charge of Forestry, Tourism, Industry and Finance; and (ii) the private sector. The PSC will be responsible for: (i) approving the project’s annual work plan and budget prepared by the Project Coordination Unit; (ii) providing overall co-ordination and policy guidance; and (iii) approving subsequent updates of the Project Operational Manual. The PSC will meet at least once a year. It will be chaired by the representative of Ministry of Economy, Planning and Regional Development of Economy. The Project Operational Manual will further detail the role of the PSC.

65. The Project Coordination Unit (PCU) will include a coordinator and several technical staff as well as support staff, as described below. The coordinator and the main technical staff will be working full time on the project and will be recruited competitively through a specialized firm which will also be recruited competitively.

Graph 1: Organization chart of the Project Coordination Unit.

[pic]

66. Project Operations Manual (POM): The POM gathers the following three manuals: (i) the administrative, accounting and financial procedures manual, (ii) the project implementation manual and (iii) the FAC procedures manual. The project implement manual will describe the implementation mechanism of the project, including the role of the Project Steering Committee and of the Project Coordination Unit. It will include the Terms of Reference for the staff of the Project Coordination Unit. It will also detail the coordination mechanism between the different ministries, the private sector and the thematic groups.

Monitoring and evaluation of outcomes/results

67. The results framework in Annex 3 defines performance indicators for each components and subcomponents. The PCU will be responsible for overall monitoring and evaluation (M&E) and for meeting the agreed reporting requirements. The PCU will include a dedicated M&E expert.

68. M&E systems will be put in place within the different components of the project (wood value chain, tourism value chain and Competitiveness Support Fund) to ensure that the required M&E data is regularly generated and tracked. The set up of such M&E system will be the responsibility of the M&E expert. The PCU will report on progress towards meeting the targeted results to the PSC and to the World Bank.

69. Semi-annual joint supervision missions with Bank, Government and implementation partner staff will assess the status of key project outcomes and update legal covenant compliance. The Mid-Term Review would be conducted no later than three years after the first disbursement. A final independent evaluation will be conducted in the last semester of project execution to assess overall achievement of expected project results.

7. Sustainability

70. Project sustainability is based on the following:

• High Government ownership. Project preparation has been jointly undertaken by the Government and the World Bank team. The Project Preparation Advance has allowed to build the nucleus of the PCU and to ensure full ownership of the project by the Government team. This project is part of a wider Government initiative, led by the Competitiveness Committee, to increase the Cameroonian economy’s competitiveness. This project aims to have a demonstration effect and to be replicated along other value chains.

• Sustainable value chain development. The project aims to catalyze the development of the targeted value chains through addressing regulatory and infrastructure constraints. Such approach aims at ensuring a sustainable development of the value chain: following this catalytic support, the value chain will be able to further develop beyond the project life.

• Sustainable mechanisms for the operation and maintenance of infrastructure financed by the project. The project will ensure that sustainable mechanisms for the operation and maintenance of infrastructure financed by the project are put in place. For example, the wood cluster will be established as a Public Private Partnership and will be managed by the private sector. The wood cluster business plan shows that the wood cluster should break even by year 2013, which should ensure its sustainability.

• Strong private sector participation in the two selected value chains. The strong participation of the private sector during project implementation aims at ensuring that the project is demand driven and meets the needs of the private operators along the two value chains.

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

71. The proposed project design draws on the past and on-going Bank and other donor operations in the private sector development sector in Cameroon and other countries and regions. The most relevant applicable lessons reflected in the proposed project design are:

Need to focus on value chains and locations with clear competitiveness potential

72. Becoming competitive requires resolving a combination of policy (both cross-cutting as well as industry specific), infrastructure, market failure (e.g. coordination) and skills issues. Governments have fallen in the trap of scattering scarce resources around locations and industries as a result of political pressure. This project will help Cameroon focus its limited capacity and resources on the industries and locations of highest potential while preserving some geographical equity.

Need to provide a critical mass of complementary interventions to trigger a strong private sector response

73. The project draws on the successful approach followed by Asian countries which consists in combining infrastructure investments with policy reforms and targeted support to firms to empower producers to reach a superior level of productivity.

Need to complement and leverage other projects, including from other development partners

74. The project will leverage the forestry, transport and energy projects of the World Bank. It will also leverage the European Commission initiatives on investment climate, the African Development Bank project on land reform and IFC’s investments and initiatives to help improve the investment climate.

Need to simplify the project design and avoid “Christmas tree” project

75. The need to simplify the project design and avoid a “Christmas tree” approach was also recognized. The project focuses on two key value chains and does not attempt to solve all investment climate constraints in Cameroon.

Clearly defined rules of the game

76. In context characterized by weak governance, it is crucial to design and implement clear mechanisms and transparent processes in order to reduce the possibility of misallocation of resources.

Need to ensure and build full client ownership and capacity to implement

77. The design of the project is the result of intense and comprehensive discussions with the Government of Cameroon. A project preparation advance was secured to ensure careful preparation and build up of implementation capacity and project ownership by the client. The government preparation team has been fully engaged in the project preparation: it has provided critical technical inputs in the project design and has helped ensured a broad Government and private sector consensus on the project design.

9. Safeguard Policies (including public consultation)

|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] |

10. List of Factual Technical Documents

78. The Borrower has prepared and disclosed the following documents:

• an Environmental and Social Management Framework (ESMF), published on December 23, 2009

• a Resettlement Policy Framework (RPF), published on January 19, 2010

• an Indigenous People Plan (IPP), published on January 19, 2010

• a draft access framework for the Mount Cameroon National Park, published on April 20, 2010

• a draft access framework for the Campo Ma’an National Park, published on May 3, 2010

11. Contact point

Contact: Vincent Palmade

Title: Lead Economist

Tel: (202) 473-9432

Fax:

Email: vpalmade@

12. 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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[1] Contrasted by the IMF estimate of 2.4% growth in 2009 and 2.6% in 2010.

* By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas

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