Estrateji peyi Gwoup BID pou Ayiti 2017-2021

PUBLIC SIMULTANEOUS DISCLOSURE DOCUMENT OF THE INTER-AMERICAN DEVELOPMENT BANK AND THE INTER-AMERICAN INVESTMENT CORPORATION HAITI IDB GROUP COUNTRY STRATEGY 2017-2021 OCTOBER 2017 This document was prepared by Agustín Filippo (CID/CID), with coordination from Laura Alonso (CID/CID) and under the supervision of Koldo Echebarría (CID/CHA). It has been coauthored with Marcelo Paz, Maria Cecilia Acevedo DSP/DCO (IIC), and has benefitted from technical inputs from VPS and MIF, as well as data on operations from SPD and CHA, and comments on the implementation of the proposed country strategy 2017-2021 by FMP/CHA. This document is being released to the public and distributed to the Bank’s Board of Executive Directors simultaneously. This document has not been approved by the Board. Should the Board approve the document with amendments, a revised version will be made available to the public, thus superseding and replacing the original version. CONTENTS Executive Summary ................................................................................................................ iii I. Country Context................................................................................................................1 II. IDB Group Presence in Haiti.............................................................................................3 III. CS 2017-2021: Priority Areas ...........................................................................................7 (i) Improve the business climate to enhance productivity .........................................................….8 (ii) Render key services more accessible to enhance human development........................... 10 (iii) Strengthen government capacities to increase fiscal sustainability................................... 13 IV. Financing Scenario .........................................................................................................15 V. Strategy Implementation.................................................................................................16 VI. Risks...............................................................................................................................19 ANNEXES Annex I Results Matrix and Country System Matrix Annex II Main Economic and Social Indicators Annex III Indicative Lending Framework Annex IV Development Effectiveness Matrix (DEM) Summary Annex V Management’s Response to the Country Program Evaluation’s Recommendations ELECTRONIC LINKS i. HAITI'S CDC ii. FIDUCIARY SECTOR NOTE iii. PORTFOLIO iv. CIVIL SOCIETY CONSULTATION v. COORDINATION WITH DONORS vi. GOVERNMENT DEVELOPMENT PLAN i ABBREVIATIONS CDC Country Development Challenges CEP Conseil Electoral Provisoire [Provisional Electoral Council] CNMP Commission National des Marchés Publics CSCCA Cours Supérieure des Comptes et du Contentieux Administratif [Superior Courts of Auditors and Administrative Disputes] CS Country Strategy EdH Eléctricité d'Haïti [Electricity of Haiti, Haitian electric public utility] FDI Foreign Direct Investment GDP Gross Domestic Product GoH Government of Haiti GRF IDB Grant Facility HSF Haiti SME Development Fund IIC Inter-American Investment Corporation IDB Inter-American Development Bank IDBG Inter-American Development Bank Group IMF International Monetary Fund LAC Latin America and the Caribbean MIF Multilateral Investment Fund MINUSTAH United Nations Stabilization Mission to Haiti MSMEs Micro- Small- and Medium Enterprises NCB National Competitive Bidding OMJ Opportunities for the Majority initiative PBG Policy-Based Grant PFM Public Financial Management PSDH Plan Stratégique de Développement d´Haiti [Haiti National Strategic Development Plan] SCF Structured and Corporate Finance Department SG Sovereign-Guaranteed [operations] SME Small and Medium Enterprises SNIP Système National d’Investissements Publics [National Public Investment System] TAS Treasury Single Account UNDP United Nations Development Program VAW Violence Against Women ii EXECUTIVE SUMMARY Country Context In recent years, Haiti has made progress in key social indicators, although significant social and economic gaps remain. This progress is consistent with a better economic performance and some acceleration in GDP growth over the last decade (to an annual rate of 2%). What lies beneath the prevailing poverty rates, however, is insufficient economic growth over extended periods of time. The main challenges the country faces are to: (i) strengthen the business climate so that productivity and economic growth can improve; (ii) provide access to basic public services to bridge the social gaps that also affect incomes per person; and (iii) overcome limited government capacity and institutional weaknesses that hamper good governance and the efficient provision of public services. IDBG Presence in Haiti The IDBG is one of the main donors in Haiti. Between 2010 and 2016, the Bank approved 36 operations: eight policy-based grants for a total of US$153 million, and 28 investment grants for US$ 945 million. Under the previous Country Strategy (CS 2011-2015) the principal areas of intervention were: transport (the main sector in terms of size, with 32% of the approved amount), education, private sector development, agriculture, water and sanitation, and electricity. Priority Areas The IDBG Country Strategy for the period 2017-20211 will seek to contribute to higher, inclusive and more sustainable growth that supports a reduction in poverty and inequalities. The Strategy has three strategic priorities that will guide sovereign and non-sovereign guaranteed operations in Haiti: (i) improve the business climate to enhance productivity; (ii) render key public services more accessible to enhance human development; and (iii) strengthen government capacity to increase fiscal sustainability. Bank support will incorporate cross-cutting themes that are key to Haiti’s overall stability and poverty reduction, particularly climate change resilience, protection of the environment, and gender equality. Financial Scenario Strategy Implementation The IDB will continue to work within the financing parameters of the IDB Grant Facility (GRF)2, which provides an envelope of up to US$990.7 million for the new country strategy period.3 The IDB’s expected contribution to Haiti (measured in terms of the share of total grants received by the government) could reach 50% in 2017-2021. The IDBG will focus on the sustainability of program results and effective implementation, aiming at achieving long lasting effects. To do so, the Bank will favor portfolio consolidation, will continue to support strengthening of country systems, and will participate actively in donor coordination activities. Risks There are three main risks that can affect the results and sustainability of the program: macroeconomic risks related to international and domestic factors, including instability triggered by natural disasters; the risk of problems in project execution; and the risk of political instability in the country. 1 The CS 2017-2021 will be valid from IDBG Board approval until December 31, 2021. 2 Created in 2007 in the context of the Multilateral Debt Relief Initiative (see document AB-2565). 3 Subject to annual approvals of transfers of Ordinary Capital (OC) to the GRF by the Board of Governors of the IDB (see documents AB-2764 and GN-2442-51). iii I. COUNTRY CONTEXT 1.1 Social and economic indicators have improved after a decade of enhanced economic and political stability, although significant challenges remain. Extreme poverty fell by 7 percentage points from 31% in 2001 to 24% in 2012. There is better access to education: net primary enrollment grew from 50-60% in the early 2000s to 90% in 2015. Health indicators have also improved: the mortality rate for children under 5 years fell from 105 per 1,000 live births in 2000 to 69 in 2015; in the same period, the maternal mortality rate fell from 505 per 100,000 births to 359. In addition, investment climate indicators reflect a sounder business environment: mobile cellular subscriptions increased from less than one per 100 people in 2000 to 65 in 2015; the time required to register property fell from 683 days in 2004 to 312 in 2015 and the time to start a business dropped from 202 to 97 days4. 1.2 Social conditions remain characterized by poverty, inequality and a lack of access to basic public services. The following indicators express these challenges: (i) Haiti has a national poverty rate of 59%, extreme poverty is 24%, and exhibits high inequality with a Gini coefficient of 0.615; (ii) food insecurity is widespread, currently affecting 3.6 million Haitians, more than a third of the population; (iii) demographic pressures and informal urban settlements have mounted (70% of the urban population lives in underdeveloped and underserved areas); (iv) inequality associated with the rural-urban divide expanded as urban extreme poverty halved in ten years, to 12%, whereas in rural areas it stagnated at a much higher level, 38%, contributing to a current rural poverty rate of 75%6; (v) despite improvements in education and health, as well as in water and sanitation, indicators are below LAC’s average7; (vi) gender inequality is pervasive, as health services for women are weak, violence against women and girls is widespread, and women’s rights to own land, to receive education and to have a well paying job are inferior to those of men. 1.3 Insufficient growth lies beneath these outcomes. Haiti’s average rate of economic growth has been 2.0% per year between 2006 and 2016, higher than the previous two decades and consistent with some improvement in social indicators, but below LAC’s average of 2.6%8. In 2016, because of historic negative trends, per capita income was 30% lower than in 1980 (WEO). This behavior of economic growth through the years is derived from a decline in productivity; Haiti’s total factor productivity (TFP) decreased at an annual rate of 1.5% since 19709. Between 1991 and 2011, agriculture productivity declined at an annual rate of 2.1%, underperforming countries such as Nicaragua and the Dominican Republic10. In the manufacturing sector, after a severe crisis in the 1990s, production and employment have not yet recovered to 1980 levels11. The weakness in economic growth performance is consistent 4 Source of indicators: World Development Indicators 2015, The World Bank (2016). 5 Poverty and inclusion in Haiti, World Bank #89522, 2014. 6It is worth noting that 40% of the population, approximately 4 million people, live in rural areas. See CDC section 3.1; and Haiti IHSI "L’évolution des conditions de vie en Haïti entre 2007 et 2012, La réplique sociale du séisme", 2014, and World Bank and Observatoire National de la Pauvreté et de l’Exclusion Sociale (ONPES), "Investing in People to Fight Poverty in Haiti, Reflections for Evidence-based Policy Making”. Washington, DC: World Bank, 2014. 7 See section III. (ii) for detailed information and values of indicators. 8It is worth mentioning that the DR is a top performer in the region in terms of economic growth and grew at a rate of 5.2% during that period. 9 See CDC 3.1 and Katz, S. (2016) “Podrá Ayiti volver a ser el reino de este mundo”, mimeo, for modeling and estimation of productivity. 10 See CDC 3.1.f and table III.4 for a breakdown per decade and a discussion on alternative sources and estimations of TFP. It is worth mentioning that the decline in productivity is concentrated in 1991-2000 (-4.6%) and was flat or barely positive in 2001-2011. 11 The trends seen in Haiti go against the traditional view of successful structural change in which labor is transferred from one sector (agriculture and informal services) to another (manufacturing, sophisticated services), with workers 1 with the absence of a wide range of basic social services, which is in part related to the fact that government and the private sector lack the capabilities and the right incentive structure to provide them. 1.4 Growth performance is held back by institutional capacity and governance. Haiti ranks 11th of 178 countries on the Fragile States Index (where number 1 is the most fragile state)12. Haiti also ranks low in the World Bank Governance indicators. In those indicators, Haiti performs relatively better in “Political Stability and absence of violence”, and in “Voice and accountability”, compared to “Government effectiveness” although the country has made no significant progress since 1998. Limited institutional development and government capacities is thus one of the central problems holding back Haiti’s human and economic development as it affects both the business climate and access to basic public services. Although there are multiple causes behind the lack of sound institutions, political instability has certainly played a role. 1.5 The political transition was smooth. Haiti’s current president was inaugurated on February 7, 2017, after a one-year provisionary government had been in place. Parliament ratified Haiti’s Prime Minister and Cabinet on March 21, 2017, a sign of cooperation between the executive and the legislative branches. In contrast with the previous period, Congress is now complete, with all members in both chambers democratically elected. This institutional setting could lay the basis for an increased focus on Haiti’s development policy and would also be key to contain social unrest and enhance security, given the withdrawal of the United Nations Stabilization Mission to Haiti (MINUSTAH) and, increasingly, the transfer of internal security responsibilities to the national police. 1.6 The Prime Minister presented the Government’s National Priorities to Parliament. The Declaration of General Policy (Déclaration de Politique Générale, an electronic link in this CS), describes government objectives in several areas including: politics, economics, environment, infrastructure, social and culture. The declaration emphasizes the need to mobilize resources and expenditures to increase investment and provide a wider access to basic public services. 1.7 Government policy will have to adapt to reduced access to finance. Haiti faces a stringent international financing context that affects its capacity to implement the national plan; it also affects growth and macroeconomic prospects as it could add volatility to public spending, inflation and exchange rates. Haiti suffered a decline in external financing (mainly concessional debt from Venezuela) from US$400 million per year in 2010-2014 to approximately US$150 million per year (or 1.5% of GDP), in 2015 and 2016. This trend is not likely to be reversed in the short term. At the same time, total aid from external donors also declined from a peak in 2010 at around US$2 billion, to an estimated US$400 million per year during 2017-2021 (see Annex III, table A) that will be almost entirely channeled through the government by the largest donors (confirming a reduction in humanitarian aid entering the country and executed by NGOs). A serious consequence of the curtailment in financing has been seen in public investment. In fact, public capital expenditures averaged only 8.5% of GDP per year in 2015- 2016, down from 16.2% in 2012-2013, though still above pre-earthquake averages of 7% in 2005-2009. In this context, the provision of basic public services is a concern, notably in the electricity sector where substantial financial losses associated with the public utility company seeking higher pay. See for example the two-sector and two-technology models in section 1.4 in Barro and Sala-i-Martin “Economic Growth” 2nd Edition, MIT, 2004; sections III-V in Ros, J. “La teoría del desarrollo y la economía del crecimiento”, FCE-CIDE, 2004, and Part II in Ros, J. “Rethinking Economic Development, Growth, and Institutions”, Oxford, 2013. 2013. Acemoglu, D. “Introduction to modern theory of growth”, Princeton, 2009, provide formalizations of this type of trajectories of growth and economic development. Recent case studies on structural change can be found in McMillan, M., Rodrik, D., Sepúlveda, C. eds. “Structural change, fundamentals, and growth: a framework and case studies.” IFPRI, 2016. 12 The Fragile States Index (FSI) is an annual ranking of 178 countries based on the different pressures they face that impact their levels of fragility, and it is assembled with information related to each country’s economic, institutional, and social aspects. See graph III.7 in Haiti’s CDC. http://fundforpeace.org. 2 EDH threaten fiscal outcomes. Thus, increased taxation and greater spending efficiency will be necessary to expand the sustainable provision of public services, as intended by the government. 1.8 Exposure to extreme events presents additional challenges. Haiti has suffered extreme natural events with high frequency and to a great loss, and is placed 8th in the World Risk Vulnerability Index. Such a risk, coupled with weak capacity to prevent losses and organize responses to recover from a disaster, have affected the country's ability to grow sustainably and will constitute a challenge for future growth. To reduce this vulnerability, the country is taking steps to improve resilience to climate change in the areas of watershed management, coastal protection and climate smart agriculture, as stated in its Intended Nationally Determined Contributions (INDCs)13. 1.9 Haiti has opportunities for economic growth. To exploit some of these opportunities, Haiti could rely on its traditional comparative advantages and the development of the manufacturing sector14. With a population of 10.3 million, it is the third largest country in the Caribbean, together with the Dominican Republic and Cuba, and it is relatively young (36% of the population is younger than 15 years), with the largest “population dividend” among the LAC countries.15 Haiti’s diaspora is estimated at 1.5 million or more, well connected in international markets and a substantial source of remittances (more than 20% of GDP). Finally, Haiti’s geographic location provides opportunities for trade with dynamic markets such as the United States and the Dominican Republic. II. IDB GROUP PRESENCE IN HAITI 2.1 The Bank’s 2011-2015 Country Strategy with Haiti focused on six priority areas16: (i) education: improving infrastructure quality, as well as access to and quality of education; (ii) private sector development: improving the business climate, creating jobs and supporting MSMEs; (iii) energy: increasing supply of electricity services in Port-au-Prince and rural areas, and improving management, planning and oversight of the sector; (iv) water and sanitation: increasing access to potable water and sanitation in urban and rural areas; (v) agriculture: improving agricultural income and reducing losses from natural disasters; and, (vi) transport: improving the quality of the national road system and the country’s connectivity. 2.2 The 2011-2015 strategy was prepared in the aftermath of the 2010 earthquake. Its main goal was to generate a wave of grant financing that could enhance the government’s capacity to address reconstruction at a time when its capabilities had been dramatically reduced by the 13 For more information, please see: Haiti NDC. 14 Exports of the Haitian assembly industry (mainly garments) reached US$ 354.1 million in 2016 according to the Central Bank of Haiti, and are defined as value added in the country by those industries for the purpose of export statistics. Primary exports and essential oils, the two other main goods exports, are US$30.0 million, and USD 23.7 million respectively. It is not immediately clear, however, what are the export shares since US$ 540.0 million, more than half of an export bill of US$ 994.9 is unaccounted for, and listed as adjustments. Although not conclusive, the export information is consistent with the view of a path for growth based on developing light manufacturing (source for information on trade http://www.brh.net/tableaux/exportproduits.pdf). 15 A “positive” demographic dividend is normally associated with higher per capita growth, since y=(PIB/L)*(L/P). Where y=PIB per capita, or PIB/P, L=workforce, and P=Population. For a given value of PIB/L, an increase in the “demographic” factor L/P (granted it is not only demographic, as it relates also to social, economic and gender related elements) drives PIB per capita upwards. The demographic dividends also matter in the choice of fiscal policies and fiscal sustainability. See Arenas, A. (2016) “Sostenibilidad fiscal y reformas tributarias en América Latina”, CEPAL. 16 CS 2011-2015 was drafted in the aftermath of Haiti’s 2010 earthquake, and its validity has been extended to December 31, 2017 through a one-year extension of the transition period. 3 loss of infrastructure, equipment, and public officials17. Thus, a key element of the strategy’s design was the ability to take urgent action in an expedited manner. The Bank succeeded in accelerating disbursements, which increased from an annual average of US$65 million in 2000- 2009 to US$180 million in 2010-2015. 2.3 The Bank is the largest multilateral donor in Haiti. During 2011-2016 the Bank approved 36 sovereign-guaranteed operations financed by the IDB Grant Facility (GRF) for a total of US$1,098 million. Between 2010 and 2016, Bank financing represented 30% of total grants received by the government and a substantial share of overall aid inflows to the country.18 2.4 Of the 36 operations approved, eight were policy-based grants for a total of US$153 million and 28 were investment grants for US$945 million. The distribution of funds approved per CS priority sector was as follows: transport, 30%; private sector development, 22%; agriculture, 15%; education, 13%; energy, 8%; and water & sanitation, 5%. During the same period, the Bank also approved 19 operations in Bank-administered co-financing totaling US$170 million, covering the six areas of focus. The Bank also approved 64 technical cooperation operations totaling US$31 million. With regards to the private sector, the IDB Group approved 36 non-sovereign guaranteed operations for a total of US$43.7 million, of which US$28.6 million were from the MIF to support the agriculture, microfinance, energy, health and reconstruction sectors, and US$ 17.3 million from the IIC to support investments in the industry, services (financial and non-financial) and agribusiness sectors, of which US $6.3 million are outstanding. One of the largest private sector projects in execution, the Haiti SME Development Fund (HSF) was established in 2012 (Spain provided €9.4M of equity and €40.6M of debt; IIC contributed €0.2M of equity and €0.8M of debt) to make financing more accessible to MSMEs. 2.5 Portfolio composition. As of June 30th, 2017, the active portfolio financed by the GRF consists of 34 projects for a total of US$1,088.5 million, of which US$638.3 million (58.6%) have been disbursed and US$ 450.2 million (41.4%) remain undisbursed (see electronic link 2 for details). The MIF has an active portfolio of 21 projects for a total of $21.4 million, with $11.4 million (53%) disbursed. There are 9 operations in the IIC's active portfolio for a total approved amount of $8.2 million, of which $7.9 million (97%) have been disbursed. Program Results during 2010-201619 2.6 During 2010-2016, IDB Group interventions contributed to improving the provision of public services - including basic social services and infrastructure - and private sector development. The following are some of the results obtained through the IDBG’s program. 17 The Post Disaster Needs Assessment conducted by the Government and the International community indicates: “There has been massive infrastructure destruction. Some 105,000 homes have been destroyed and more than 208,000 have been damaged. Over 1,300 educational establishments, and over 50 hospitals and health centers, have collapsed or are unusable. Part of the country’s main port is not operational. The President’s Palace, Parliament, the Law Courts, and most of the Ministry and public administration buildings have been destroyed.” Losses in public infrastructure were estimated at US$ 2.1 billion, and overall damages at $7.8 billion. 18 As reported by Haiti’s Ministry of External Cooperation, of US$8.4 billion in total inflows to the country (measured in terms of disbursements), 14.1% corresponded to IDB and 34.6% to the United States. The 10 largest donors in Haiti are responsible for 91% of disbursements. Data must be taken as an approximation, however, as for example the FRH, Haiti Reconstruction Fund, was funded by donors and may represent a case of duplication of disbursements. Furthermore, and while most of the disbursements are grants, this source also may include some debt financing (albeit in concessional terms) for example from Venezuela. 19 More information on results can be found in the Haiti Progress Report – May 2017 (GN-2610-19). CS 2017-2021 will have, as will be discussed below, interventions aligned behind three main development challenges; Agriculture and Transport will remain key components of the general objective in the new CS that deals with enhancing productivity, Water and sanitation and Education will feature within the general objective that promotes the improvement in basic social services. Finally, Energy as well and the type of interventions labeled Private Sector Development will be topics included in the “Dialogue Areas” between the Bank and the country. For more details about the number of operations and their amounts allocated to each specific objective of the CS, please see the electronic link iii. 4 2.7 The strategy placed emphasis on infrastructure development to improve connectivity and access to markets and services. Progress was made in the transport sector, particularly in the improvement of the primary road network (national routes RN1, RN7 and RN8). As a result, since 2011, travel time in RN1 and RN7 has been reduced by 83%. About 154 km of the primary road network are currently under construction, representing over 15% of the national road network of the country. To enhance gender equality in transport, women were included in training and certification programs linked to traditionally male jobs, as such women made up 75% of program beneficiaries in heavy machinery, road management, and entrepreneurship training and 89% of all participants in the masonry, scraping, and carpentry training. In the Energy sector, improvements were achieved in electricity coverage and quality, while issues related to the financial and operational sustainability of EDH (Electricité d’Haiti) continue to be a challenge. In terms of coverage, there was progress in the rehabilitation of the electricity distribution system in Port-au-Prince through the construction of the Tabarre Substation and the connection of eight new circuits that provide reliable electricity to the metropolitan area. In addition, after several years of rehabilitation, the first turbine of the Péligre Hydroelectric Plant went into operation in August of 2016. 2.8 Provision of social services concentrated in the education and water and sanitation subsectors. In Education, the Bank helped improve access by: i) financing school construction (33 new school buildings completed by the end of 2016), and ii) provision of an average of 35,000 tuition waivers to private schools annually. Water and sanitation management and coverage in urban areas improved with Bank support. In Port-au-Prince, the number of active connections is growing (household connections increased from 32,000 to 49,000 between 2011 and 2016). Drinking water and sanitation connections in the six secondary cities are expected to be finalized by the end of 2017 (with two cities that can self-finance the provision of quality water services) and over 25,000 new households with access to water services. 2.9 Under the pillar of private sector development, several initiatives were implemented towards promoting job creation and foreign direct investment. In the north-east region of Haiti, the Caracol Industrial Park has created nearly 12,000 new jobs, of which 60% are held by women. The park houses six tenants, a diverse set of industries comprising apparel, paint and sisal. Regarding enterprise development, the IIC’s Haiti SME Fund (HSF) has co-financed 377 SME loans for US$11.4 million, mostly to women-owned businesses. The MIF and Compete Caribbean’s projects are having impacts in agriculture and in the provision of basic services, among other sectors20. 2.10 The Bank sought to improve productivity of the agriculture sector, given its role in rural employment, especially of low-income households, by promoting sustainable agricultural practices, rural flood protection, and land tenure regularization. In particular, technology transfers in agroforestry contributed to the reforestation of 13,082 hectares of land and led to significant increases in gross value added per plot; in addition, evidence shows that in IDBG financed operations, about 75% of farmers who are exposed to a new technology end up adopting it. In addition, 200 upstream small-scale water and soil conservation infrastructures were built, supporting agroforestry practices of 7,125 farmers; and four major downstream river bank protection works were completed, reducing expected losses for annual crops21. MIF projects contributed to strengthening the agricultural value chains of cocoa and sorghum 20 Compete Caribbean’s portfolio in Haiti is comprised exclusively of private sector operations through its innovation window. The Compete Caribbean Program portfolio illustrates some of the possibilities of applying a private sector focused technical assistance model to Haiti, aimed at improving livelihood opportunities for the poor. The Program funded 6 innovative projects in Haiti that are leveraging private sector investments (US$4.2 million in counterpart) and will generate 1,079 jobs, of which 31% are for women. 21 The total reduction in average annual estimated losses caused by floods in agricultural production, infrastructure and personal property for the prioritized watersheds is US$11.9 million (in the watersheds of Macaisse, Bertrand, Bas-la Crête and Maniche source: PCR of project PMDN I). 5 contributing to opening domestic and export market access of these products and facilitating participation of small-scale producers. 2.11 While most operations achieved results in terms of product delivery, not all targets were achieved as expected. In investment operations, examples include delays and cost overruns in infrastructure projects and the setting of excessively optimistic targets, for example in the education sector and in the Caracol Industrial Park. Results fell short of expectations in terms of policy and regulatory reform. Policy Based Grants helped open the policy dialogue in several key sectors such as transport, water and sanitation, agriculture and energy. However, their effectiveness was in part affected by the fragile institutional environment at the time of their implementation. Lessons learned from implementation of CS 2011-2015 2.12 The Bank should emphasize long-term results and capacity strengthening. The Bank’s program during CS 2011-2015 had a focus on the recovery from the earthquake and on rapid disbursements. In the new country strategy, the Bank will renew its efforts to support structural policies and strengthen institutional capacity. 2.13 Consolidation of the portfolio. Partition of the Bank’s portfolio into smaller annual operations helped mitigate risks caused by an uncertain environment for project execution (making it possible to approve additional operations to enhance the results in any given sector), but created greater transaction costs during execution. To increase efficiency and effectiveness, the 2017-2021 strategy will focus on consolidating the portfolio, finalizing execution of older operations and concentrating approvals in fewer operations with larger approved amounts. The advantages of such an approach will be to reduce the time and resources used in the preparation and approval of operations, to increase efficiency of executing units that would be able to plan their activities better, and to stimulate more competition in the procurement process. 2.14 Further efforts are needed to strengthen financial management and enhance transparency. The main challenges are in the areas of internal controls and risk management, availability of trained personnel in finance and procurement, governance structures (steering committees are mainly inactive), integrated financial management systems and budget monitoring, asset and inventory management, and contract management and archiving systems. Taking this into account the Bank would seek to: (i) strengthen the mechanisms to guarantee transparency in the execution of operations, and (ii) provide quick response in the case of suspicion of prohibited practices. Specific actions taken by FMP such as strengthening government counterparts, as well as providing training and participating in Bank project teams have been effective in creating better and more transparent conditions for project execution 22, 23. 2.15 Sustainability in Bank funded programs. Strategy implementation will place emphasis on sustainability of results achieved under the previous strategy and of those expected from the new interventions. The design of the projects to be programmed during the new CS will 22 The Haiti country office used until recently (December 2016) special procurement provisions, consisting in increased thresholds for internal approval of Direct Contracting by Certified personnel and Procurement specialists. These provisions were not used frequently and did not have a considerable impact on project execution; for this reason, it was decided not to extend their validity. 23 Since 2014 the Bank has become a partner in strengthening Haiti’s PFM reforms in the following activities: (i) support to Haiti’s Supreme Audit Institution (CSCCA) through the elaboration of the 8-year strategic plan (2016-2024) and 5-year operational plan (2016-2021); (ii) capacity building of the CSCCA’s audit function through formal training of auditors; (iii) the assessment of the Treasury Single Account (TSA) and the preparation of action plan (iv) MAPS diagnostic and the establishment of a strategic action plan for the modernization of the national procurement system (v) Strengthening the National Procurement Commission (CNMP) through the elaboration of a 5-year strategy for the institution. 6 emphasize the risks and mitigating factors related to: (i) execution mechanisms, and (ii) commitment to long-term financing for management, operation, and maintenance. 2.16 Coordination among donors is needed at the operational level. To speed up implementation of operations and reduce transaction costs to counterparts, the IDBG will strengthen coordination at the operational (project) level, going beyond the successful thematic coordination mechanisms currently in place (sector Tables, agreeing on objectives, approaches, areas of interventions, leadership, etc). 2.17 Private sector development operations face multiple challenges. On the one hand, the execution of part of the portfolio dedicated to support private sector development through interventions aimed directly at SMEs had limited results, and on the other hand the private sector windows of the IDBG had difficulties originating operations due to their limited scale and high risks. In the 2017-2021 CS, the IDB Group will build on these lessons and narrow the focus of SG operations (Grants) to enhance the business climate and macroeconomic management, while NSG operations from the private sector windows will address the financing needs of a wider scope of firms (of various sizes and sectors of activity). 2.18 The lessons learned are consistent with OVE findings and recommendations. OVE’s “Country Program Evaluation: Haiti 2011-2015”24 recommended to (1) set the next country strategy in realistic terms, focusing on building the country’s long-term institutional capacity; (2) initiate a process with the Government to integrate the Bank’s resources into the national general budget, supporting the Government of Haiti in consolidating this budget; (3): prepare an exit strategy for financing permanent staff/consultants in the government institutions; (4) review and consolidate the current investment portfolio using a cost-effective approach aimed at sequencing the interventions to strengthen the sustainability of the Bank’s portfolio outcomes; and (5) target the use of sovereign guaranteed resources to improving the business climate to facilitate private sector activity. III. CS 2017-2021: PRIORITY AREAS 3.1 The main goal of CS 2017–2021 is to contribute to higher, inclusive and more sustainable growth, supporting the Government’s goals of expanding and sustaining private and public investment, and enhance access to basic public services. Achieving these goals will require private sector job creation and the reduction of poverty and inequalities, as well as institutional capacity strengthening in the public sector. The IDB Group will provide this support through its public window and its private windows (IIC and MIF), acting in a coordinated fashion to enhance the reach and sustainability of its interventions. 3.2 The CS proposes three strategic priorities that will guide SG and NSG operations in Haiti: (i) improve the business climate to enhance productivity; (ii) render key public services more accessible to enhance human development; and (iii) strengthen government capacity to increase fiscal sustainability. The Bank will moreover contribute to cross-cutting themes including greater climate change resilience, protection of the environment and gender equality through actions that integrate these themes into the core activities of the priority areas. 3.3 The selection of the strategic areas proposed in this CS is based on: (i) Haiti’s Country Development Challenges (CDC) report; (ii) dialogue with Haiti’s authorities, political parties, business leaders and civil society (via CONSOC); and (iii) the Déclaration de politique Générale as well as legacy documents on economic development, such as the Development Plan – Plan 24 CPE Document RE-434-1, Management’s response RE-434-2, Report of the Chairperson of the Programming Committee of the Board of Executive Directors RE-434-3. 7 Stratégique de Développement d´Haiti 2030 (PSDH)25. The CS priority areas are consistent with the government’s national plan economic objectives: (a) encouraging investment and (b) expanding access to basic public services; and with its instruments: (1) preserving macroeconomic stability, (2) strengthening tax and customs administration, (3) improving the business climate, and (4) enhancing firm competitiveness and increasing exports. At the sector level, the government also indicated a strong focus on agriculture, with which the IDBG strategy is also aligned. 3.4 The IDB Group will implement CS 2017-2021 through new operations as well as existing operations in the portfolio. The IDB will continue to draw funds from Haiti’s Grant Facility (GRF) for SG operations under CS 2017-2021, and will seek co-financing from other donors when applicable. The Bank will also provide support to the implementation of the strategy via active dialogue with the authorities and the provision of expert advice in various matters, as well as through different media (training sessions, presentations, seminars) and other knowledge products. CS 2017–2021 is aligned with the Bank’s Updated Institutional Strategy 2010-2020 (UIS) and the IIC’s Business Plan 2017-2019. (i) Improve the business climate to enhance productivity26 3.5 Haiti's challenges in agriculture have a long history and important consequences. The product per worker and per hectare has declined continuously over the past decades and is now 25% lower in real terms than in 1996. Meanwhile, other countries have expanded production and they are now several times more productive than Haiti (Nicaragua and Jamaica have 7 times Haiti’s product per worker, and the Dominican Republic more than that). This decline has far reaching consequences as agriculture accounts for 47% of total employment and 75% of employment in low-income households. A non-performing agriculture sector contributes to increased concerns in several areas, including: (i) food security; (ii) demographic pressures and informal urban growth (70% of the urban population lives in underdeveloped and underserved areas); (iii) income inequality associated with the rural-urban divide; and (iv) the environment24. Productivity issues in agriculture and internal migration have an impact on labor markets in general, contributing to lower wages everywhere. Gender gaps are also evident in the labor market: women have unemployment rates 20 percentage points higher than men in urban and rural settings, and when they are employed they earn 17% less than men (in 2012, the latest data available). Gender discrimination in income (taken as the fraction of the wage differential that cannot be explained by observable factors) in Haiti was estimated, in 2012, at 40% (and up to 50% in lower wage activities), on par with values found in Africa (45%) and behind LAC (18%). 3.6 The main reasons behind the decline in productivity growth are linked to the business climate. The following list includes some of the more relevant factors that explain poor productivity in the economy, particularly in agriculture: (1) a challenging regulatory framework for business, with an uneven playing field and weak property rights (Haiti ranks 133 out of 144 in the Global Competitiveness report in this indicator), with strong effects in rural areas because of land titling issues as 60% of private land lacks formal title, and only 5% of the territory is 25 There are similarities in the different development strategies and in the identification of the main challenges. See for example Buss, T. “Foreign aid and the failure of state building in Haiti under Duvalier, Aristide, Preval and Martelly”, UNU WIDER working paper, 2013/104 (2013). 26 See section 3.1 of Haiti’s CDC (Annex I). In the CS, “business climate” is used in the sense of the factors that affect the country’s productivity and long-term prosperity, and it is used interchangeably with “competitiveness”. Among the typical factors relevant for “business climate” or “competitiveness” we have: business regulations and taxes, institutions and individual rights on property, infrastructure, macroeconomic environment, health, education, financial market development, and innovation. “Productivity” is instead used in this document in a narrow sense, that of Total Factor Productivity. 8 registered in the cadaster. Moreover, gender bias is also evident as women's land ownership is much less than that of men despite inheritance laws stipulating explicit gender equality27: in a survey, only 25% of the parcels were owned by women28; (2) inefficient production techniques and lack of access to inputs and quality services for producers (only 2.6% of farmers have received any sort of technical training, less than 10% use fertilizers, climate resilient practices and inputs are not widespread, and regulation and support regarding sanitary and phytosanitary conditions are among the weakest in the region29); (3) lack of irrigation infrastructure and inadequate watershed management, with underfunded government programs for disaster prevention and mitigation to cope with recurring extreme weather events that are likely to be aggravated by climate change30; (4) little deployment of credit in the economy, with scarce financial instruments for SMEs and productive activities in general: credit for agriculture is less than 1% of the total credit of the banking sector31, while credit to the private sector as a percentage of GDP stands at 18.3%, less than half the LAC average of 49.2%32; (5) lack of infrastructure services of good quality (transport, logistics and energy) as evidenced by low values of international indicators; and (6) weak capacity in the Ministry of Agriculture to implement the required public policies that could enhance production capacity in the sector33. 3.7 The quality of infrastructure plays a vital role in the country´s productive capacity. Despite its importance for competitiveness, quality infrastructure is lacking in Haiti. The country’s score in the World Bank Logistics Performance from the World Bank was 1.72, in 2016 (where 1=worst, and 5=best), inferior to the Latin American average of 2.57, as well as to Honduras: 2.4 and Nicaragua: 2.5; the measure for Quality of Overall Infrastructure from the World Economic Forum in that year was 1.9 (1=worst and 7=best). Haiti´s transport system is limited, with only 23% of the road network at the national, departmental, and municipal level paved. Its inadequate quality and reduced coverage undermines both the provision of basic services to the rural population34 and the competitiveness of Haitian exports. Transport associated losses in some agriculture products appear to be very high (it has been suggested that they reach 40% of the value of production for certain fruits). This situation is underpinned by poor governance and weak technical capacity to execute the large portfolio in the transport sector. The Ministry of Public Works (MTPTC) is relatively weak and stretched thin in a vast number of areas, including terrestrial, maritime and air transport as well as water and sanitation, energy and telecommunications, among others. Its capacity to regulate the sector, plan investments, manage road assets, and implement policies in general is limited. This, coupled 27 James Deaton, B., Kelly, L., & Atsu Amegashi, J. “The Nature of Property Rights in Haiti: Mode of Land Acquisition, Gender, and Investment” 2016 World Bank Conference on Land and Poverty. 28 Land Alliance for Prosperity of People and Places. “Gender Analysis: Haiti Land Tenure Security Program – Phase Two”, prepared for the Inter-American Development Bank. May 2017. 29 Haiti scores 1.58/5 in the World Organization for Animal Health (OIE) indicator of animal health, and 15/100 in an indicator of the Inter-American Institute for Cooperation on Agriculture (IICA). 30 The forest coverage has been considerably reduced in the past 30 years. Approximately 85% of the country’s watersheds are either deteriorated or rapidly transformed, causing frequent flooding. The irrigation potential at the national level is between 135,000 and 150,000 ha; however, only 80,000 of the 90,000 developed hectares are irrigated and deteriorated due to the lack of maintenance and seasonal hurricanes. Losses to extreme natural events have been very high throughout the country’s history and are estimated at 4% of GDP per year over 1970–2015. Haiti’s ranking in the World Risk Index is consistent with this finding since it is the 21st most vulnerable country in the list (of 177 countries). See Haiti’s CDC section 1.1.b, and the National Agriculture Investment Plan of the Ministry of Agriculture, May 2010. 31 Bebczuk, R. and A. Filippo “Bank credit allocation by sector: Causes and effects on economic growth in Haiti”, mimeo, 2016. 32 See CDC 3.1.F, graph III.2 for an evolution of GDP per worker and per hectare. World Development Indicators, World Bank, 2016. 33 Fisheries, a subsector of primary activities in the economy with critical importance for coastal communities, is also facing several challenges that prevent its sustainable development, including: resource sustainability, sector governance, availability of information, lack of public infrastructure and services, and access to basic technologies and equipment. 34 For women aged 15-49 one of the key reasons for not seeking medical support is the lack of transport (with a response ration of 43%, according to the Demographic and Health Survey, 2012), second only to lack of money. 9 with the harsh topographical conditions prevailing in the country (abundance of mountains and irregular terrain, tropical rains), partly explains the slow pace at which the new paved area expands, and the rapid rate of deterioration of existing road infrastructure. 3.8 The IDBG will support improvements in the business climate using a multidimensional approach: (1) enabling conditions for increased productivity in agriculture, and (2) enhancing transport infrastructure. The focus will be in rural areas where most of the low-income population lives. 3.9 Enabling conditions for increased productivity in agriculture. In this area of action the IDBG will contribute to: (i) expanding irrigation and watershed management; (ii) enhancing the Ministry of Agriculture’s capacity to invest in agricultural research