Document of The World Bank

FOR OFFICIAL USE ONLY

Report No. 31882-GA

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

COUNTRY ASSISTANCE STRATEGY

FOR

THE GABONESE REPUBLIC

FOR THE PERIOD FY05-FY09

M a y 2,2005

Gabon Country Management Unit Africa Region

This document has a restricted distribution and may be used by recipients only in the performance of their official Duties. I t s contents mav not otherwise be disclosed without World Bank authorization.

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The date of the last Country Assistance Strategy was October 15, 1998.

CURRENCY EQUIVALENTS Currency Unit = CFA Franc (CFAF)

US$l.OO = 506 CFAF (April 12,2005)

FISCAL YEAR Calendar year

ABBREVIATIONS AND ACRONYMS

Vice President: Director: Task Team Leader:

AAA AFD

AfDB APDF APIP

BGD

BEAC

CAS CASCR CEMAC

CET CEM

CFAA CGAP

COMIFAC CPAR

cso C W Q DPL

DPR ElTI

ESW EU

F I A S

FSAP GDP GEF GPRSP

IBRD Gobind T. Nankani, AFRVP Ali M. Khadr, AFC07 Mehrnaz Teymourian, AFMGA

Analytical and Advisory Activities Agence FranGaise de D&veloppement (French Development Agency) African Development Bank Africa Project Development Facility (APDF) Agence de Promotion des Investissements Privks (Private Investment Promotion Agency) Banque Gabonaise de Dkeloppement (Development Bank of Gabon) Banque des Etats d’Afrique Centrale (Central Bank of Central Africa) Country Assistance Strategy Country Assistance Strategy Completion Report Communautt! Economique et Mone‘taire d’Aj’rique Centrale (Economic and Monetary Community of Central Africa) Common external tariff Country Economic Memorandum

Country Financial Accountability Assessment The Consultative Group to Assist the Poor

Central African Forest Commission Country Procurement and Audit Review

Civil Society Organization Core Welfare Indicators Questionnaire Development Policy Loan

Development Policy Review Extractive Industries Transparency Imitative

Economic and Sector Work European Union

Foreign Investment Advisory Service (a joint service of the IFC and WBG) Financial Sector Assessment Program Gross Domestic Product Global Environment Facility Growth and Poverty Reduction Strategy Paper

ICR IFR

IDA IDF IFC

IMF

LIL

MIGA MDGs MTEF

NGO NTICs

OED PAPSUT

PIP PROMOGABON

PRSP PSD PSFE

PSR ROSC

SME SNBG

SSA

UNDP WBG WBI WHO

Implementation Completion Report Infrastructure Framework Report

International Development Association Institutional Development Fund International Finance Corporation

International Monetary Fund

Learning and Innovation Loan

Multilateral Investment Guarantee Agency Millennium Development Goals Medium-Tern Expenditure Framework

Non-Governmental Organization New Technologies for Information and Communication Operations Evaluation Department A semi-autonomous agency under the Ministry of Planning and Economy Public Investment Program Agence nationale de la promotion de la petite et moyenne entreprise National (Promotion Agency for SMEs) Poverty Reduction Strategy Paper Private Sector Development Programme Sectoriel Fore^t-Environnemenl (Forestry and Environment Program Project Status Report Report on Observance of Standards and Codes Small and Medium Enterprise Socie‘tk Nationale de Bois Gabonais (National Timber Marketing Company) Sub-Saharan Africa

United Nations Development Program World Bank Group World Bank Institute World Health Organization

FOR OFFICIAL USE ONLY TABLE OF CONTENTS EXECUTIVE SUMMARY ........................................................................................................................... i

I . INTRODUCTION ............................................................................................................................... 1

I1 . COUNTRY CONTEXT ........................................................................................................................ 2 Political Economy and Social Context ............................................................................................. 2 Poverty Profile .................................................................................................................................. 3 Macroeconomic Track Record .......................................................................................................... 5

ECONOMIC OUTLOOK .............................................................................................................. 8 Key Economic Challenges ................................................................................................................ 8 Medium-Tenn Macro-Economic Framework .................................................................................. 9 Debt Sustainability ............................................................................................................................ 9

I V . COUNTRY DEVELOPMENT PROGRAM AND ISSUES ............................................................ 11 Country Priorities and Agenda ....................................................................................................... 11 Key Development Challenges ........................................................................................................ 13

V . WORLD BANK GROUP ASSISTANCE STRATEGY ................................................................... 23 A . Lessons Learned .............................................................................................................................. 23 B . Partnership and Participation .......................................................................................................... 25 C . The World Bank Group Assistance Strategy .................................................................................. 26 Pillar 1 : Strengthening the management of public resources (both natural and financial) for improved social outcomes ......................................................................................................................................... 28

Improving efSiciency and equity in public expenditures ..................................................................... 28 Improving revenue mobilization and ensuring sustainable management of natural resources ......... 29 Completing and implementing the GPRSP ......................................................................................... 30 Addressing the challenge of HIV/AIDS ............................................................................................... 30

Pillar 2: Improving the investment climate to foster sustainable. private sector-led growth ................. 30 Improving the investment climate ....................................................................................................... 30 Building local capacity in the private sector ...................................................................................... 32

Scenarios and Triggers .................................................................................................................... 32

V I . MANAGING RISK ............................................................................................................................ 36

A . B . C .

I11 . A . B . C .

A . B .

D .

VI11 . CONCLUDING REMARKS .......................................................................................................... 37

TABLES: Table 1: Table 2: Table 3: Table 4: Table 5: Table 6: Table 7: Table 8 . Table 9:

Situating Gabon relative to other middle-income countries ........................................................... 4 Gabon . Key Economic Indicators 2001-2004 ............................................................................... 6 External Account Indicators and Financing Requirements 2001-2004 .......................................... 6 Gabon . Key Economic Indicators 2005-2008 ............................................................................... 9 External Account Indicators and Financing Requirements 2005-2008 ........................................ 10 External Debt Exposure Indicators 2001-2006 (in percent) ......................................................... 10 Gabon and the Millennium Development Goals .......................................................................... 12 Planned World Bank Group Program FYO5-09 ........................................................................... 27 IBRD Debt Exposure Indicators ................................................................................................... 35

This document has a restricted distribution and may be used by recipients only in the performance of their official duties . I t s contents may not be otherwise disclosed without World Bank authorization .

FIGURES: Figure 1 : Oil Production in Millions of Barrels.. ................................................................... ..5 Figure 2: Importance of Oil Sector in the Economy.. ............................................................... .8

Figure 4: Recent Achievements in the Forest Sector.. ............................................................ .16 Figure 3: Real GDP Growth.. .......................................................................................... .8

BOXES: Box 1. FIAS Diagnostic o f the Investment Environment - Key Recommendations .................................. 15 Box 2. Past and Planned Bank Involvement in Forest and Environment in Gabon ................................... 17 Box 3. Pilot Community Infrastructure Works and Capacity Building Project ......................................... 19 Box 4. Gabon and the Extractive Industries Transparency Initiative (EITI) .............................................. 21 Box 5. Capacity Development for Civi l Society ........................................................................................ 22 Box 6. Lessons Learned from the CAS CR ................................................................................................ 23 Box 7. 2004-2005 Client Survey ................................................................................................................ 24

CAS ANNEXES: Annex 1. Gabon 2005-2009 CAS Results Framework Annex 2. Capacity Building for Parliamentarians Annex 3. CAS Consultations Annex 4. CAS Completion Report Annex 5. Development Partners Coordination Annex 6. Country Financing Parameters

CAS STANDARD ANNEX TABLES: Annex A2: Country at a glance Annex B2: Selected Indicators of Bank Portfolio Performance and Management Annex B3: IBRDDDA Program Summary Annex B3: IFC Program Summary Annex B4: Summary of Non-lending Services Annex B5: Poverty and Social Development Indicators Annex B6: Key Economic Indicators Annex B7: Key Exposure Indicators Annex B8: Operations Portfolio (IBRDDDA and Grants) Annex B8: Statement of IFC’s Held and Disbursed Portfolio

MAP of Gabon (IBRD 33408)

1. Gabon i s a resource-rich country with a small, highly urbanized population. The country i s well- endowed with arable land, forest and mineral resources, but o i l has been for long Gabon’s main economic sector and the principal driving force of i t s growth. Despite the high per capita income that the o i l sector has afforded, the country has not been able to overcome the challenges o f equitable economic development and minimum social welfare for all. Inequality i s high, and large sections o f the population do not have effective access to public services. While Gabon has made progress towards meeting the Millennium Development Goals, several social indicators are s t i l l lagging. In particular, a rising HIV/AIDS prevalence rate i s a serious concern. As the prospects for o i l decline, the situation i s expected to worsen.

2. Recognizing the challenges facing the country, the Government prepared an Interim Poverty Reduction Strategy Paper (I-PRSP) in June 2003, even though as an IBRD country i t was not a requirement. Important policy actions have been taken since mid-2002, marking a significant break from past performance and demonstrating a renewed commitment on the part of the authorities to sound macroeconomic management. After a history of repeated slippages against IMF-supported program targets, performance under the current Stand-By Arrangement i s on track. The Government has made striking progress in the forest sector reform agenda, and has taken important steps towards greater transparency in the management of o i l revenues, as evidenced notably by the recent declaration of intent to adhere to the Extractive Industries Transparency Initiative (EITJ) and work towards i t s implementation. The combination of declining revenues and the need to improve social outcomes has been a powerful incentive for Government to improve transparency and efficiency in the use of i t s public resources, both natural and financial. The planned World Bank Group assistance program has been designed to support Gabon’s efforts and to ensure that the current window of opportunity i s not lost.

3. The present CAS takes i t s lead from the main development objectives of the Government as highlighted in I-PRSP and the national prospective study “Gabon 2025”. The priorities o f the Government over the medium term, as reflected in these documents, are: (i) to improve efficiency in the use o f public resources, with a focus on improving the quality and quantity of basic services; and (ii) to improve the environment for private sector-led investment in the non-oil sectors o f the economy. Gabon’s national development strategy seeks to generate sustained growth for poverty reduction. Following the completion o f i t s I-PRSP, Gabon has undertaken the preparation of a Growth and Poverty Reduction Strategy Paper (GPRSP) that w i l l form the basis o f i t s future development strategy. The Bank i s assisting Government to finalize the GPRSP.

4. This i s the third assistance strategy the Bank’ has prepared for Gabon. The first two were prepared in 1994 and 1998, respectively. Although the horizon of the 1998 Country Assistance Strategy (CAS) did not extend beyond 2001, after that date the Bank continued to implement operations prepared under the previous programs. The last two operations in the Bank’s portfolio, an urban development LIL and a privatization project, closed in June 2004. The 1998 CAS embraced an ambitious agenda for political and social reform, including significant attention to poverty alleviation. However, while some progress was made on privatization and macroeconomic management, i t did not achieve the majority o f the proposed CAS outcomes.

5. This CAS sets out planned lending and non-lending World Bank Group support to Gabon over the period FY05-09 that i s less ambitious. Activities have been selected based on their alignment with the Government’s objectives and the World Bank Group’s comparative advantage. Other development partners plan lending, grant and technical support in areas that complement the Bank’s areas of comparative advantage. The CAS i s articulated around two pillars: (1) strengthening the management of public resources (both natural and financial) for improved social outcomes; and (2) improving the

The “Bank’ refers to the IBRD and IDA; the “World Bank Group” refers to the Bank, F C , FIAS and MIGA. 1

investment climate to foster sustainable, private sector led non-oil growth. Cross-cutting themes are developing capacity in Government, c iv i l society, and improving governance and participation.

6. The Bank’s base-case assistance program wi l l include three lending operations in the urban, natural resources, and infrastructure sectors: a US$25 mill ion Public Investment Program for Local Infrastructure Development Project expected to be presented to the Board in June 2005, a US$15 mil l ion Natural Resources Management Development Policy Loan for FY06, and a US$25 mill ion Infrastructure Project in FYO8. Each operation places emphasis on improving transparency and efficiency in use o f public resources, including natural resources, and on improving the environment for greater participation of the private sector. In the Base Case, the lending program planned for FY05 to FY09 thus amounts to US$65 million, in addition to US$1.5 mill ion which would be sought in IDF grants, and a US$10 mil l ion GEF supporting the national Forest and Environment Sector Program (PSFE). Non-lending activities include continuing support for GPRSP preparation (and i t s subsequent implementation), public financial management, private sector development, civi l society capacity development and a Poverty Assessment. Currently IFC has an exposure of US$3.8 mill ion in the o i l and gas sector, and the World Bank Group’s Foreign Investment Advisory Services (FMS) has recently completed a diagnostic study o f the investment climate. A US$61 mill ion MIGA guarantee facility for rehabilitation and modernization of a professional training institute i s expected to be presented to the Board in May 2005. This project i s MIGA’s first in the education sector.

7 . The current situation in Gabon i s considered to be the Base Case. Remaining in the Base Case would be predicated on continued satisfactory macroeconomic performance and continued progress in the implementation of the forest reform agenda as evidenced notably by continued implementation o f the moratorium on allocation of new permits until the new transparent auction procedures are implemented. In the event that the country falls short of meeting the base-case criteria, a low-case scenario would be activated which would involve no new lending and a reduced level o f AAA support.

8. Consideration for moving to a High Case would be based on a modulated approach whereby in the first instance a particularly good track record of performance o f reforms in the natural resource sector would trigger presentation of a second Natural Resources Management DPL (US$10 million) for Board consideration in FY08. Beyond this, specific actions to improve the broader investment climate would trigger preparation o f a Diversification support operation (US$18 million) for Board presentation in FY09. More substantial BanklIFC collaboration would also be considered.

9. The main external risk affecting the ability of t h i s CAS to achieve i t s objectives would be a sharp drop in petroleum prices. The main internal risk i s of a departure from good fiscal management practices. There i s also a risk that commitment to structural reforms w i l l diminish over time and/or vested interests w i l l succeed in preventing such reforms from being implemented. Commitment to the reform agenda i s likely to be strengthened following elections, as the Government w i l l face less pressure to manage the impact o f policy implementation on vested interests. A stronger role for Parliament, the private sector, and civi l society, along with a credible and well functioning law and justice sector, w i l l also help to hold the Government accountable. Bank- and other partner-supported capacity development activities w i l l help strengthen these roles.

The following issues are suggested for Board discussion: The appropriateness o f the two “pillars”, as defined in paragraph 6, as entry points towards the ultimate goal o f poverty reduction; and Whether the Bank program strikes the right balance between being realistic, as recommended in the CASCR, and providing adequate support to address Gabon’s development priorities.

I. INTRODUCTION

1. This Country Assistance Strategy (CAS) sets out planned lending and non-lending World Bank Group support to Gabon over the period FY05-09. The last CAS for Gabon was discussed by the Board in September 1998. I t called for the Bank to transcend i t s traditional lending role and instead play the role of a knowledge bank. Although many of the outcomes envisaged in the FY99 CAS did not materialize, ongoing projects provided for continuity in the dialogue with Gabon. Beginning in 2003, the Bank became more active in Gabon, and country economic performance improved. Lessons learned since FY99, reviewed in a CAS Completion Report (CASCR) (see Annex 4), have been taken into account in preparing the present CAS.

2. Although Gabon i s an IBRD Borrower, i t has undertaken the preparation of a PRSP, known locally as the Growth and Poverty Reduction Strategy paper or GPRSP, which w i l l form the basis o f i t s future development strategy. Because the GPRSP i s not yet complete, the Government has not yet established definitive monitorable development goals. Consequently, while th i s CAS i s rooted in the GPRSP, i t does not meet the full requirements for a Results-Based CAS. However, an Interim-PRSP (I- PRSP) was prepared in June 2003 and underpins this CAS. The CAS i s also rooted in a results-based framework (Annex 1) linking planned Bank actions to Gabon’s medium- and long-term development objectives via intermediate (CAS period) outcomes. The mid-term CAS review (to take place in FY07) will, i f needed, provide an opportunity to fine-tune the alignment o f the CAS with the completed GPRSP and to establish quantitative measures o f performance.

3. The CAS i s articulated around two pillars: (1) strengthening the management o f public resources (both natural and financial) for improved social outcomes; and (2) improving the investment climate to foster sustainable, private-sector-led growth. Cross-cutting themes are developing capacity in Government, civi l society, and the private sector, and improving governance and participation.

4. Planned lending in the Base Case would amount to US$65 mill ion for three operations in support of these pillars, and US$11.5 mill ion in related GEF and IDF grants. Remaining in the Base Case would be predicated on continued satisfactory macroeconomic performance as evidenced by, inter alia, a successor arrangement with the IMF following the expiration o f the Stand-By in June 2005 and continued satisfactory performance under such an arrangement; and continued progress in the implementation of the forest reform agenda as evidenced notably by continued implementation of the moratorium on allocation of new permits until the new transparent auction procedures are implemented. Departure from these would trigger a Low Case, under which Bank involvement would be restricted to non-lending activities after an init ial project in FY05.

5. Consideration for moving to a High Case would be based on a modulated approach whereby in the first instance a particularly good track record of performance of reforms in the natural resource sector would trigger presentation of a second Natural Resources Management DPL (US$lO million) for Board presentation in FY08. The specific triggers for this first module would include: full implementation of the Extractive Industries Transparency Initiative (EITI); and the full and effective abolition of the export monopoly of SNBG by January 2006. Beyond this, remaining in the High Case would be predicated on specific actions to bring about significant improvements in the investment climate, which would trigger preparation o f a Diversification support operation (US$18 million) for Board presentation in FY09. Specific criteria for moving forward with this operation would be the completion o f the privatization o f Gabon Telecom and of actions recommended by the World Bank Group’s Foreign Investment Advisory Services (FIAS) on public procurement and real estate titles.

6. Beyond IBRD, broader World Bank Group support i s currently limited, although such support could develop over the CAS period. There i s scope for increased Bank/IFC collaboration if Gabon continues to make good progress, especially if i t moves to the High Case. A US$61 mill ion MIGA guarantee facility for rehabilitation and modernization of a professional training institute i s expected to be presented to the Board in May 2005.

11. COUNTRY CONTEXT

A. Political Economy and Social Context

7. Gabon is a resource-rich country with a small, highly urbanized population. Extending over 267,667 km2 on the west coast of equatorial Africa, Gabon i s well-endowed with arable land, forest and mineral resources. I t i s the fourth-largest producer o f petroleum in Africa after Nigeria, Angola and Equatorial Guinea, and the second largest exporter o f timber after Cameroon. I t has extraordinary biodiversity as well as r ich deposits o f magnesium and iron ore. The country i s one o f the most urbanized in Sub-Saharan Africa, with a population currently estimated at 1.3 million, with more than 50 ethnic groups2. Approximately 75 percent o f the population i s concentrated in two major urban centers, Libreville (pop. 450,000) and Port Gentil (pop. 100,000), and in about f i f ty smaller towns. The rural population i s thinly scattered over the vast hinterland where access i s difficult.

8. The country has been politically stable since independence and i s a force for stability in the Central Africa Region. The country has had two political leaders, Leon Mba, the hero of independence in 1960, and El Hadj Omar Bongo Ondimba, in power since 1967 and now the longest serving President in Africa. The country shifted from single-party rule back to a multi-party political system in the early 1990s. However, the party o f the President, PDG (Parti Democratique Gabonais) maintains a dominant position, and organized opposition i s not sufficiently significant to form a common front against the ruling party. The party has succeeded in maintaining political stability and social peace by ensuring that rents and rewards are distributed among traditional authorities across ethnic lines. Parliamentary elections last took place in 2001, and the next Presidential election i s scheduled for December 2005. Gabon has also played a strategic role in promoting peace and stability in the central Africa region. The President i s a respected senior statesman who i s often called upon to mediate in conflicts (recent examples include the Central African Republic, Republic of Congo, and Togo). The importance o f such stability in a region plagued by conflict helps to explain the continued support of some development partners, in spite of the country's uneven track record in transparency and public resource management.

9. Gabon plays a leading economic role in Central Africa. Gabon's membership in CEMAC (Communaute' Economique et Mone'taire de 1 'Afrique Centrale), the Central African Economic and Monetary Union, with a common CFA currency and exchange rate regime, has strengthened economic management by creating a regional framework for macroeconomic surveillance and an institutional forum for policy dialogue. Adherence to the CEMAC convergence criteria, a set of fiscal and structural targets, has helped constrain monetary and fiscal expansion. Furthermore, Gabon's membership in the trade regime, with a common external tariff (CET), has acted as an inducement to considerable trade liberalization from the early 1990s, both through reduction of average tariffs and by removing quantitative restrictions. Finally, Gabon, together with Cameroon, has been one o f the prime movers of sub-regional integration in Central Africa, and has promoted regional initiatives to boost the economic inter-relationships among the member states of the zone.

2 For the purpose of the CAS the published figure of 1.3 million i s used, although results of a recent census suggest population could be as high as 1.5 million.

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10. Gabon i s also a key member of the Congo Basin Forest Partnership. In 2005 and 2006, Gabon w i l l chair the Central African Forest Commission (COMIFAC), following the Heads of State Summit held in Brazzaville in February 2005. Shared responsibility for forest management i s a driver of regional integration in Central Africa. All Central African countries share the Congo Basin Forest, which i s o f unique value to the global community. This group of countries has common interests and common claims, including the maintenance and sustainable use of biodiversity.

B. Poverty Profile

11. Despite high per capita income, Gabon has not been able to overcome the challenges of equitable economic development and minimum social welfare for all. During the initial years after independence, the Government invested heavily in capital projects and industries, assuming substantial debt in the process. During the o i l boom years of 1973 to 1985, the Government adopted economic policies aimed at promoting full employment through public sector initiatives such as creation o f parastatals. The Government provided generous wages and established an elaborate social security system which, in spite o f i t s imperfections, was considered among the best in sub-Saharan Africa. O i l wealth brought benefits to the urban elite which were further shared through family networks, contributing to a massive rural to urban exodus. Lack of recent data poses a challenge in understanding the evolution in recent years of the distributional effect of o i l wealth on poverty, but the general perception of local citizens, conveyed to the Bank during the CAS consultations, i s that l iving conditions have been steadily worsening over the past decade. While the redistribution of rents has been successful in reducing poverty in some countries with s i m i l a r per capita incomes, t h i s does not appear to be the case for Gabon.

12. Inequality i s high, and large sections of the population do not have effective access to public services. Inequalities plague the current social service delivery system, priorities are often misplaced, and access of the poor to services remains low. The Bank‘s participatory Poverty Assessment, completed in 1997, served to raise awareness o f these problems within Government. I t showed that despite Gabon’s high per capita income, relative poverty in consumption terms i s widespread (at about 60 per~ent )~ . Many of Gabon’s social indicators are lagging behind other IBRD countries with similar GDP per capita (see Table 1). While Gabon has been able to improve access to primary education and access to improved water sources other social indicators such as immunization of one year olds, the maternal mortality ratio and HIV/AIDS prevalence (where estimates have doubled in the past two years) are of particular concern. In the longer run, significant progress on equity as well as growth w i l l be essential for effective and sustained poverty reduction.

3 Relative poverty in Gabon (defined as per capita incomes of less than the minimum wage, equivalent to about U S $1,440 in 1993 dollars) i s very different from the extreme poverty experienced in most of Sub-Saharan Africa. Still, the Poverty Assessment showed that per capita incomes below half this level (less than US $700) were insufficient to meet minimum nutritional needs and other basic spending requirements in urban areas of Gabon.

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Source: 2004 U N D P Human Development Indicators Report

13. In 2000, the authorities began preparing a Poverty Reduction Strategy Paper, although as an IBRD borrower Gabon was not required to do so. An I-PRSP was completed in June 2003. Subsequent work has focused on expanding public participation in the process, developing a statistical database to better estimate current levels of poverty, and working out sectoral strategies to focus government activities on poverty reduction. While there i s room for much improvement in public service delivery and the management o f public resources, the ultimate solution to the poverty problem in Gabon i s seen in economic diversification and creation o f productive economic opportunities in the private sector for the poor. The GPRSP preparation process i s s t i l l ongoing, with a final product expected around end- 2005.

14. Despite the fact that the GPRSP work i s stil l on-going, it was important not to delay a new CAS at this time. There i s a need to set Bank interventions in the context o f a strategic framework discussed with and understood by our clients and partners. Good progress has been made recently in improving our dialogue with Gabon and in the country’s own performance. The new CAS i s needed to demonstrate Bank commitment and to maintain the momentum o f this dialogue, as well as to pave the way for new financial commitment and analytical and advisory work by the Bank in the country.

15. The timing is favorable in order to capitalize on current high-level commitment to the reform process, as well as to respond to growing pressures from Parliament and civil society for reform. Major progress has been achieved in macroeconomic management, and the Government i s fully engaged with c iv i l society and the donor community in finalizing the GPRSP. The next frontier i s for the momentum for reform to penetrate the sector ministries and be reflected in better institutional

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performance. The activities included in the Bank support program, together with the contributions o f other development partners, w i l l help strengthen Government commitment and capacity at a critical moment for Gabon.

GDP, while the o i l sector accounts for close

16. I t should be recognized, however, that this CAS i s only an intermediate step toward supporting poverty reduction in Gabon. Improving management o f public resources by strengthening revenue mobilization and public expenditure management i s a necessary prerequisite for the Government to provide more efficient and effective services to the poor. Similarly, improvements in infrastructure and natural resources management w i l l enhance the country’s growth potential but w i l l not necessarily bring benefits directly to the poor. More targeted assistance w i l l need to be articulated by the entire donor community around the sector strategies which are expected to be included in the GPRSP, in order to ensure that benefits from externally-funded programs actually f low to the poor in the future.

Year

C. Macroeconomic Track Record

17. While Gabon’s past history of program implementation has been poor, important policy actions undertaken since mid-2002 and the broadly satisfactory track record of budgetary implementation in 2003 and 2004 have demonstrated the renewed commitment on the part of the authorities to implement sustained adjustment. In May 2004, the Executive Board o f the IMF approved a 14-month, US$102 mil l ion Standby Arrangement supporting the Government’s economic program. The main thrust o f the program i s to promote economic diversification through sustained fiscal adjustment and comprehensive structural reforms. The first, second and third reviews were satisfactorily concluded in August and December 2004, and March 2005 respectively. The current Standby Arrangement expires in June 2005, and it i s expected that i t w i l l be followed by further IMF support, the exact nature of which i s s t i l l under discussion. Gabon i s keen to remain under an IMF arrangement following the expiration o f the Stand-By Arrangement. The IMF w i l l consider the most appropriate arrangement, provided that performance under the Stand-By Arrangement remains satisfactory, and based on the extent to which the foundations for a medium-term program are deemed to be in place. The IMF w i l l also carry out a fiscal Report on Observance of Standards and Codes (ROSC) as part o f the process of determining what form o f support would be most appropriate for Gabon in the future.

18. Growth has recovered somewhat but remains modest. While the overall macroeconomic environment has remained stable since 2000, the economy has been vulnerable to fluctuations in o i l prices as well as to a declining trend in o i l production (see Figure 1). Real GDP growth recovered from -1.9 percent in 2000 to 2.0 percent in 2001, followed by a decline to 0 percent in 2002, rebounding to 2.6 percent in 2003 and then dropping back to 1.4 percent in 2004 (see Table 2). In terms o f the expected evolution o f the composition o f

Figure 1. Oil Production in Millions of Barrels

160 y

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a better economic performance in 2004 than envisaged and resulted in more optimistic forecasts for economic growth in the future, assuming the continuation of higher o i l prices, continued prudent fiscal management and successful export diversification (Table 2).

Table 2: Gabon - Key Economic Indicators 2001-2004 2001 2002 2003 2004(Prel.)

Real GDP growth (% per year) Oil (% per year) Non-oil (% per year)

Inflation (end period) (% per year) Gross investment/GDP (%) Gross national savings/GDP (%) Revenue/GDP (9%)

Oil revenue/GDP Non-oil revenue/GDP

Total expenditure/GDP (%) Primary budget balance/GDP (9%)

2.0 0.0 2.6 -5.7 -1.4 6.8 5.3 0.6 1 .o 1 .o 0.4 3.5

25.8 24.4 24.0 36.8 29.6 33.5 34.0 31.5 29.8 21.8 17.7 16.2 12.2 13.9 13.6 30.8 28.1 22.4 3.2 3.5 7.4

1.4 -1.0 2.3 -0.6 24.3 34.8 29.1 15.7 13.4 21.6 11.5

Overall balance (excluding grants)/GDP (%) 3.2 3.4 7.4 7.5 Source: IMF and World Bank

19. Fiscal policy has generally been consistent with macroeconomic objectives. The Government continued i t s consolidation of public finances in 2003 and 2004, with the budget posting a surplus of 7.4 percent of GDP in 2003 and 7.8 percent in 2004. Gabon has been successful in curtailing the growth of current expenditure by reducing the ratio from 19.9 percent of GDP in 2000 to 16.4 percent in 2004 and the wage bill from 6.4 percent to 5.9 percent of GDP over the same period. Moreover, the Government o f Gabon, in consultation with international development partners, w i l l assess the public expenditure framework for social services and poverty reduction in the preparation of the GPRSP. However, low execution rates o f the investment budget and gaps between allocated and the executed budgets continue to hamper public financial management and affect the delivery o f public services. Due to tighter fiscal measures, a reduction in tax and customs exemptions, and collection of tax arrears, an increase in the mobilization of non-oil revenue from 12.2 percent of GDP in 2001 to 13.4 percent in 2004 has partially compensated for the recent and projected decline in o i l revenue. The target under the IMF-supported program of reducing the non-oil primary deficit from 8.2 percent of non-oil GDP in 2003 to 7.7 percent in 2004 and 5.7 percent in 2005 i s broadly on track.

Table 3: External Account Indicators and Financing Requirements 2001-2004 2001 2002 2003 2004 (Prel.)

Exports4 (annual % change) -19.0 -5.7 4.2 21.5 Imports’ (annual % change) 9.3 7.1 -5.4 19.3 Current account balance/GDP (%) 11.0 5.2 9.6 10.4 Capital account balance/GDP (%) -12.6 -6.3 -9.8 -10.7 Overall balance/GDP (%) -1.6 -1.1 -0.2 -0.2 Financing gap (% of GDP) 0.0 0.0 0.0 0.0

Source: IMF and World Bank

Current dollar terms. Ibid.

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5

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20. The external current account, including grants, has posted a surplus since the last CAS and has risen to close to 10.4 percent of GDP in 2004 due to higher oil prices and a rise in manganese exports (see Table 3). In 2004, total exports increased by close to 21.5 percent with non-oil exports increasing by more than 12 percent, while imports increased by 19.3 percent. However, the capital account has remained in deficit due to capital outflows and repatriation of o i l profits by foreign companies, resulting in a slight overall balance o f payments deficit. The financing gaps in 2005-2006 are expected to be covered by Paris Club debt rescheduling, use o f Fund resources, and drawdown o f foreign reserves.

21. Like other countries in the CFA Zone, Gabon’s inflation rate has remained relatively low over the last several years. Due to prudent monetary policy at the regional Central Bank (BEAC), inflation was contained through the period and averaged below 2 percent. Furthermore, the fixed exchange peg to the Euro ensures that monetary policy i s being used to stabilize the exchange rate and not for domestic credit expansion. Also, the strict implementation of fiscal rules that set l i m i t s on BEAC financing to monetize deficits has helped curtail inflation in Gabon. The country has successfully adhered to the regional convergence criteria relating to fiscal balances, consumer price inflation, and external debt, but has slipped on the criteria o f net changes in government arrears. The appreciation o f the Euro, especially vis a vis the dollar, has led to a slight appreciation of the real effective exchange rate and a weakening of overall export competitiveness.

22. The Government has made considerable progress on the structural reform agenda, but some challenges remain. Even though the former General Directorate of Price Controls has been replaced by a new General Directorate of Competition, Government commitment to price liberalization has sometimes been questionable, in particular regarding the automatic adjustment of domestic retail prices for petroleum products, which have not changed since 2002. With regard to foreign trade, quantitative restrictions s t i l l exist, especially in the sugar sector. Some public enterprises, such as the palm o i l company AgroGabon and the rubber company Hevegab, have been successfully privatized. However, progress has been slow in privatizing other companies such as Gabon Telecom and Air Gabon.

23. While the financial sector in Gabon is, in general, profitable and stable, certain structural features could contribute to medium-term-solvency and growth concerns. Banks dominate the financial sector, and are generally cost-efficient and liquid. Short-term banking sector risks are tempered by a high level o f liquidity and adequate access to central refinancing. However, the activities and potential of commercial banks are limited by the relatively small size of the non-oil economy at present, particularly given the financing of the o i l sector i s largely undertaken outside of the country. In addition, the banking sector i s highly concentrated, with a loan portfolio that i s non-diversified6. At end-February 2001, three out of five operating banks did not meet prudential ratios on risk diversification, leaving the sector as a whole exposed to a small number o f enterprises. The Banks April 2003 Gabon Financial Sector Assessment (FSA) recommended that banks: (a) diversify domestically by entering into underserved markets; (b) proceed with cross-border diversification; and (c) syndicate with foreign banks. All of these trends need to be closely followed by supervisory authorities.

24. As a CEMAC country, Gabon follows the BEAC regulations which treat money laundering and terrorist financing as criminal offences. On November 20, 2002, the BEAC Board o f Directors approved draft anti-money laundering and counter-terrorist financing regulations that would apply to banks, exchange houses, stock brokerages, casinos, insurance companies, and intermediaries such as lawyers and accountants in all six member countries. The BEAC regulations would also require banks to record and report the identity o f customers engaging in large transactions. Gabon has signed, but not yet

The largest bank accounts for more than 40 percent of loans and deposits, and the largest three banks account for more 6

than 80 percent of a l l bank loans and deposits.

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ratified, both the 1988 UN Drug Convention and the UN International Convention for the Suppression o f the Financing o f Terrorism. The Gabonese Ministry of Foreign Affairs reports that the National Assembly w i l l pass the latter convention in 2005. Gabon i s expected to comply with the regional international standards and take concrete steps to regulate and operationalize these measures so as to establish a viable anti-money laundering and counterterrorist financing regime.

25. Transparency in oil revenue management has begun to be addressed. To help address this issue, in 1998 the Government passed a law to set up a Fund for Future Generations (FFG). Under the law, the FFG should receive 10 percent of projected o i l revenues, 50 percent o f “windfall” revenues (in excess of projections), and accumulated interest, up to a minimum capital o f CFAF 500 billion. The Government has been making regular deposits to the FFG account in BEAC since 2002, in agreement with the IMF. Since January 2005, the deposits have been credited with interest at 1.7 percent. The FFG held a balance o f CFAF’ 60 bil l ion as o f February 2005. Together with the recent declaration o f intent to adhere to the EITI and the first steps towards implementation with the technical support o f the Bank, the recent history o f FFG management suggests a move in the direction of greater transparency in the management o f o i l revenues.

111. ECONOMIC OUTLOOK

A. K e y Economic Challenges

26. Prospects for oil, traditionally Gabon’s key economic sector and the principal driving force of economic growth, are declining. Since 1998, Gabon has been facing the prospect o f a gradual decline in o i l output because i t s current o i l fields are aging. Despite government and foreign investment in new exploration, so far no new large o i l fields have been discovered. Recently, the o i l production curve has been relatively flat at around 13.5 mil l ion metric tons a year. Production i s expected to decline over the next two years, to 11 mill ion tons a year, as compared to the peak o f 17 mil l ion tons in 1998. N o other single resource in Gabon could be sustainably exploited at a rate that could replace the projected petroleum revenue shortfalls. The challenge facing Gabon i s to ensure continued growth and i mproved social indicators in the face o f declining petroleum production.

27. In order to compensate for declining oil production, other economic activity will need to be promoted. In the medium and longer term, economic diversification w i l l be needed in order to address the future gaps in revenue due to o i l shortfalls. Financing from exports wil l be quite critical especially given Gabon’s high level o f import requirements, currently close to 40 percent o f GDP. In this context, promising areas o f diversification are mining, forestry, fisheries, construction, and tourism, and new sectors

Figure 2. Importance of Oil Sector in Economy (percent)

90

50 i 40 4 I

2000 2001 2002 2003 2004

Oil revenuemotal revenue . . . . . . . Oil exportsmotal exports

Oil GDPKotal GDP

Figure 3. Real GDP Growth (percent)

-4 - 0 -

-8 -

0‘ -6 - 0 .

0 . 0’

-10 - ” -12 1

GDP growth Oil growth Non-oil growth . . - . - . .

such as information, communication and technology services. In 2003, the mining sector contributed 1.4 percent to GDP, while forestry and construction contributed 2.9 percent and 11 percent o f GDP respectively. The Government w i l l need to implement sound strategies to create new sources o f growth

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implement sound strategies to create new sources of growth in these sectors by creating an enabling environment for private sector activity and selective public investment.

B. Medium-Term Macro-Economic Framework

28. Despite these challenges, prospects for the medium term indicate stable, though very modest, growth. High petroleum prices over the past year have allowed the coming on stream of additional fields that would have otherwise been considered non-commercial, thus helping to stabilize o i l production for a few years. Investment in rubber production, ongoing expansion in the agri-business sector, as well investment in the forest and mining sectors should boost the non-oil GDP growth rate from about 2.3 percent in 2004 to 3.5 percent on average over the period 2005 to 2008. The expected gains in the non-oil sectors should somewhat offset the declining o i l production (oil production i s expected to decline by about 4.8 percent annually on average between 2004 and 2008), to achieve an average GDP growth rate of about 1 percent in the period 2004 to 2008. The projected elevated prices for o i l and manganese would also help the external position. The external current account surplus at 10.4 percent o f GDP in 2004 i s forecast to increase to about 12.2 percent in 2006 (see Table 3 and 5 respectively).

Table 4: Gabon - Kev Economic Indicators 2005-2008

Real GDP growth (% per year) Oil (% per year) Non-oil (% per year)

Inflation (end period) (% per year) Gross investment/GDP (%) Gross national savings/GDP (%) Revenue/GDP (%)

Oil revenue/GDP Non-oil revenue/GDP

Total expenditure/GDP (%) Primary budget balance/GDP (%)

2005 Proj 2.0 -0.6 3.0 1 .o

22.7 38.1 32.4 16.9 15.5 19.6 13.8

Overall balance (excluding grants)/GDP (%) 10.8 Source: IMF and World Bank

2006 Proj 0.2 -8.6 3.5 2.0 22.3 38.2 32.2 16.7 14.6 20.7 12.3 9.5

2007 Proj 0.7 -8.0 3.5 1.4

22.2 39.2 32.2 15.6 16.6 21.0 10.4 8.4

2008 Proj 1 .o -7.0 3.4 1.5

21.4 40.1 32.1 15.1 17.0 21.3 10.2 8.2

29. Sustained growth depends on the commitment of the authorities to continue prudent fiscal policy, as suggested under the Fund-supported program. Gabon must continue to demonstrate i t s determination to confront i t s economic challenges by pursuing policies aimed at diversifying the economy and further improving the enabling environment for private sector investment in the medium term

C. Debt Sustainability

30. Historically, Gabon has borrowed extensively to implement its expansionist economic policies. This approach has left the country with expensive debt and heavy debt-service ratios. While the debt i s manageable over the longer term, high debt-service ratios pose a problem in the short run, constraining the possibility of redirecting fiscal resources to improve public service delivery. Most external debt i s owed to official creditors, in particular to France. For this reason, there i s less risk o f an unforeseen increase in the interest cost of debt, unlike other middle-income countries that raise most o f their financing in capital markets.

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3 1. In the past two years, Gabon has strengthened i ts overall debt management. Due to better liquidity management, the country’s payments to banks and commercial institutions have been regular. With the approval o f the IMF Standby Arrangement, the Paris Club took note o f the country’s improved macroeconomic and fiscal performance. In June 2004, i t reached an agreement with the Government o f Gabon to reschedule part of the country’s external debt. The Paris Club consolidated around €717 million, which resulted in a reduction in debt service to Paris Club creditors from €953 mill ion to €270 mil l ion over the l i fe of the debt. Because Gabon i s an IBRD country, the debt rescheduling took place under Paris Club’s classic terms, with all credits to be repaid progressively over fourteen years, including three years o f grace. Paris Club creditors also included a goodwill clause, signaling their agreement to consider a further restructuring which could include an element of debt reduction. At t h i s stage the Paris Club creditors do not see a need to implement the goodwill clause in light of the improvement in the debt situation, underpinned by high o i l prices.

Table 5: External Account Indicators and Financing Requirements 2005-2008 2005 2006 2007 2008 Proj. Proj. Proj Proj

Exports’ (annual % change) 13.9 -8.8 -8.7 -8.5 Imports’ (annual % change) 7.7 -0.2 -13.9 2.5 Current account balance/GDP (%) 13.7 12.2 10.2 10.1 Capital account balance/GDP (%) -10.6 -8.6 -8.4 -8.0 Overall balance/GDP (%) 3.1 3.6 1.8 1.9 Financing gap (% of GDP) 0.0 0.0 -2.2 -2.2

Source: IMF and World Bank

Table 6: External Debt Exposure Indicators 2001-2006 (in percent) 2001 2002 2003 2004 2005 2006

External Debt stock/GDP 63.1 62.7 55.9 50 45.5 42.4 External Debt-service ratio/exports 24.2 9.8 13.7 14.1 12.8 13.5 External Debt-service ratio/ revenue 40 16.2 23.4 33.7 29.2 33.1 Sources: Government of Gabon, IMF, and Bank staff estimates

32. The external debt stock of the country has decreased from 63.1 percent of GDP in 2001 to 50 percent in 2004 and i s projected to fall further to 42.4 percent in 2006 (Table 6). The latest debt sustainability analysis indicates that th i s decline i s due to three factors: (a) a less rapid decline in o i l receipts due to higher prices and less rapidly declining production volumes; (b) moderate non-oil growth; and (c) continued fiscal adjustment that results in no financing gaps. The baseline analysis indicates that the external debt to GDP ratio decreases continuously, financing gaps disappear and the debt service ratios peak within the next five years and decline thereafter. Similarly, Gabon’s total external debt to GDP ratio i s projected to decrease to 45.7 percent in 2006 and fall to less than one-fifth o f GDP within the next ten years. One key assumption underlying this trajectory i s the growth of non-oil GDP which i s projected to average 3.5 percent in 2004-2010. At the same time, stress tests reveal that Gabon’s debt sustainability continues to be sensitive to shocks in non-oil growth (which affect both non-oil exports and budget revenues) and to changes in o i l prices, since higher projected oi l prices translate into greater ease in meeting debt service obligations.

Current dollar terms. bid.

7 8

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Iv. COUNTRY DEVELOPMENT PROGRAM AND ISSUES

A. Country Priorities and Agenda

(i) National Development Strategy Objectives

33. The overarching goal of Gabon’s national development strategy is to generate sustained growth for poverty reduction. The country’s medium-term development goals, as described in the I- PRSP and the long-term vision document “Gabon 2025”, are (1) to foster non-oil private-sector-led growth; and (2) to strengthen public sector effectiveness and efficiency. The I-PRSP highlights the Government’s commitment to ensure that the fruits of t h i s growth benefit the poor more directly, through job creation in non-oil sectors. The Government also intends to improve the efficiency and equity o f public expenditures, specifically to improve the quality of investments in education and health.

34. Government’s view of the approach to reducing poverty has evolved over time. The major objectives identified in the I-PRSP were to: (i) reduce unemployment; (ii) halt the rural economic decline; (iii) improve access to basic social services; (iv) strengthen the social safety nets; (v) ensure that the poor have better l iving conditions; (vi) improve the position of women in society; and (vii) introduce more efficient governance systems. These objectives and the means to achieve them wi l l be more fully developed in the full PRSP. While initially the authorities conceived the PRSP as a catalog of measures to fight poverty directly, they have now adopted the classic format of the PRSP that includes growth policies. The document i s now referred to as the growth and poverty reduction strategy paper or Document de strate‘gie de croissance et de rkduction de la pauvrete‘ (GPRSP), to emphasize the growth- based pro-poor vision of development that the country i s pursuing.

35. The Bank is assisting Government to finalize the GPRSP. The Bank has provided technical assistance particularly to improve the statistical base, develop an accurate poverty profile, and improve the participatory process in the preparation o f the document. In t h i s context, provincial workshops with civi l society, major stakeholders, and development partners were held around the country from July 2004 and w i l l be completed during the first semester of 2005. Work on the poverty profile i s underway and results are expected by June 2005. At the same time, the authorities are preparing key sectoral policies and quantifying the costs of the related investment program.

(ii) Links to MDGs

36. Gabon has made substantial progress towards meeting the Millennium Development Goals (Table 7), although significant challenges remain. Extreme poverty i s believed not to be very widespread in Gabon (11 percent i s the current estimate, extrapolated from earlier calculations based on 1993 data). A high proportion of school-age children (93.5 percent) are enrolled in primary school, with a gender gap of only 2 percent in favor of males. However, the poor quality of education and high repeater and drop- out rates suggest that not al l the goals of primary education are being achieved. Gabon has made significant progress in reducing child mortality, from 155 per 1000 l ive births in 1992 to 91.4 per 1000 in 2000. This i s impressive given that the average Sub-Saharan African child mortality rate i s 161.5 per 1000 live births and increasing. Similarly, the maternal mortality rate in Gabon, though higher than the global average, i s one of the lowest in Sub-Saharan Africa. The country has not, however, been able to ensure access to adequate basic health services for all. For example, immunization rates in 2002 were lower than the Sub-Saharan Africa average, standing at 38 percent for DPT and 55 percent for measles, versus the Sub-Saharan Africa average of 59 percent and 57 percent respectively.

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I MDG Goals

1. Halve between 1990 and 2015 the proportion of people in extreme poverty and who suffer from hunger

2. Achieve universal completion of primary education by 2015 for both boys and g i r l s

3. Eliminate gender disparities in primary and secondary education by 2005 and for all levels by 2015 4. Reduce child mortality rates by two-thirds between 1990 and 2015

5. Reduce maternal mortality rate by three- quarters between 1990 and 2015

6. Halt and reverse by 2015 the spread of HIV/AIDS, malaria, and other diseases

7. Ensure environmental sustainability and access to an improved water source

7: Gabon and the Mill

World Situation

From 1990 to 1999 the proportion of the world's people living on less than US$l a day fe l l from 29 % to 23 %, but progress was uneven. 90 % of the world's elementary -school-age children (6-14) are enrolled.

There i s a gender gap of 7.6 % in the primary education gross enrollment ratio.

The world-wide child mortality rate i s 161.5 per 1,000 live births. At least 60 % of countries are unlikely or very unlikely to achieve the goal.

There are 400 maternal deaths per 100,000 live births.

In 1999 the prevalence rate of HIV/AIDS among adults aged 15-49 was 1.07 %.

In 2000 environment and forests are degrading at an accelerated speed in most tropical countries and about 80 % of the population had access to water.

d u m Development G Situation in Sub-Saharan Africa From 1990 to 1999 the proportion of people in extreme poverty slightly decreased, from 47.7 % to 46.7 %, too small to reach the 23.9 % target by 2015. 14 countries are considered off track and 19 seriously off track.

Only 25 % of SSA countries are likely to achieve the goal.

SSA average was 187 deaths per 1,000 live births in 1990, decreasing to 174 in 2002. At t h i s rate, the goal will not be achieved by 2015.

There has been no significant change from verj high maternal mortality ratios (917 per 100,000 live births in 2000) on average ir SSA countries."

The WHO estimates that there were 2.3 million AIDS-related deaths in 2001 and that the prevalence rate has reached 8.4%.

There i s continued loss of biodiversity. However, loss of forest cover seems to be lower in Central Africa than in other tropical areas. Access to improved water source rose from 48.7 % in 1990 to 55.4 % in 2000.

Current Situation in Gabon

The proportion of people in Gabon living an less than US$ 1 a day was estimated at 23 % in 19939. On the assumption that past trends have continued, extreme poverty in Gabon would now be only about 11 % of the population. 93.5 % enrollment of elementary-school- age children in 2000. However, 34.8 % of students repeated a year of elementary school. 22.9 % of children enrolled finished the elementary school cycle in 2002. The 2000 primary enrollment rate of women was 92.2 % versus 94.2 for men -hence the gender gap in Gabon i s only 2.0 percentage points at th is level.

From 1992 to 2000, the under-5 mortality rate decreased from 155 to 91.4 per 1,000 live births. If this trend continues, Gabon i s on track to achieve the goal.

Despite relatively high access to prenatal care for women aged 15 to 49, maternal mortality rate i s s t i l l high in Gabon at 420 per 100,000 births in 2002. However, t h i s represents a significant decline from 519 in 2000. If th is decline continues, Gabon appears to be on track to achieve the goal bv 2015. Official prevalence of HIV/AIDS among adults aged 15-49 increased from 2.8 % in 1991 to 8.1 % in 2003. 55% of children under one year have been immunized against measles. Estimated cases of malaria per 100,000 oeoole were 2,148 in 2000. Deforestation rate i s lower than in most parts of Central Africa. Three millions hectares of production forest are in the process of coming under sustainable management. Status of fisheries resources i s uncertain. Access to an improved water source rose from 67 % in 1995 to 86 % in 2000. L

Rapport National, dicembre 2003, Ministire e la Planijication et de la Programmation du Dkveloppement et des Nations Unies

Tidimie du VIH/SIDA ail Gabon, rapport 2003, Ministire de la Santi Publique rumain 2004, PNUD. Objectifs du Millinaire pour le Diveloppement, Premier

There i s no recent quantitative data on poverty since the 1997 World Bank Poverty Analysis (using data from 1993). 9

An ongoing household survey to be completed in June 2005 should provide more up to date information on the poverty levels in Gabon.

World Bank GenderStats database. 10

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37. With respect to environmental sustainability and access to potable water, Gabon faces new challenges. L o w population density in Gabon’s hinterland makes it more likely to preserve biodiversity than in most other tropical countries. However, significant commercial poaching takes place in connection with industrial logging. The fishing industry i s poorly monitored, and fish stocks are uncertain. Surface water resources are relatively abundant; however, recent problems in the supply and distribution o f potable water to urban centers and deteriorating sanitation conditions have given rise to significant health concerns.

38. HIV/AIDS and other diseases are of concern. The HIV prevalence rate in Gabon i s estimated at over 8 percent in 2003, with the two major urban centers reporting even higher prevalence rates, especially among the productive age group o f 25 to 39. The Government i s well aware of the increasing urgency o f the problem and has begun working on a National Strategy for HIV/AIDS prevention and control. The country received US$3.15 mill ion from the Global Fund to address the alarming progression o f the HIV/AIDS epidemic and to reduce i t s impact on the general population, and in particular on groups in a vulnerable situation. Prevention campaigns have also been implemented with the support o f UNAIDS. Other diseases such as malaria and tuberculosis are also prevalent in Gabon, as well as occasional outbreaks of Typhoid and Ebola.

39. Gabon can contribute relatively little to the global effort towards the Millennium Development Goals, both because of i t s small population and because it has largely succeeded in addressing the most extreme characteristics of poverty as seen in a global perspective. The poverty challenges facing Gabon today are addressing severe economic inequalities, generating more benefits from non-oil natural resources and ensuring their equitable distribution, ensuring sustainability o f the resource base, finding productive employment for the poor and non-poor alike, and improving the quality o f basic services, while enhancing the access of the poor through targeted redistribution o f resources within existing programs and budgets. Continued progress in meeting the challenge of HIV/AIDS w i l l also be critical.

B. Key Development Challenges

40. Gabon faces two main challenges in order to reduce poverty, improve governance, and foster economic growth. These challenges are: (i) improving efficiency and equity in the use of public resources, both natural and financial; and (ii) diversifying the economy by improving the investment climate, including infrastructure, for private sector development. A cross-cutting theme i s better governance, through improved transparency and accountability in the use of public resources and in basic service delivery mechanisms. The planned assistance program of the World Bank Group has been set up in order to assist the Government in addressing these challenges.

(i) Improving Efficiency and Equity in Public Resources Management

41. Improving delivery of social services to all households i s a key medium-term challenge facing the Gabonese authorities. The success of the Government’s effort to achieve the Millennium Development Goals (MDGs) depends on the allocation of increasingly scarce resources to support improvements in human capital and the delivery of social services. The GPRSP, to be completed in 2005, w i l l help further discipline the Government’s policy-setting and allocation processes during the CAS period by giving priority to areas most l ikely to assist in achieving the MDGs. Sectoral strategies to be prepared under the GPRSP wi l l provide guidance for future institutional and policy reforms, which were not accomplished as planned during the last CAS.

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42. Low budget execution, particularly with regard to the investment budget, has hampered the effectiveness of public spending. Despite relatively significant budget resources earmarked for health (for example, Gabon budgets about 3.6 percent of GDP on health), poor management and cash flow problems have constrained the execution of programs aimed at combating diseases and achieving the MDG health outcomes. This explains partly why Gabon, although a relatively wealthy country, has social indicators similar to lower income countries (Gabon i s ranked 122 in the world according to the Human Development Index). The vaccination rate, for example, dropped steadily in the latter half of the 1990s: in 1996, the percentage of children immunized against DPT was estimated at 62 percent, but by 2001 i t had decreased to 38 percent."

43. Since 2002, Gabon has begun undertaking reforms to strengthen the impact of public spending, under the guidance of the Fund and the Bank. Some o f these reforms have attempted to restructure budget procedures in order to strengthen the programmatic links between the budget and the Government's poverty reduction objectives. For instance, in 2003, the Government introduced program budgets and initiated the development of a medium-term expenditure framework (MTEF). The medium- term program i s aimed at sustaining fiscal adjustment and boosting non-oil sectors' growth and poverty reduction potential. A public expenditure review exercise, supported by several development partners, has recently begun and i s designed to support government efforts to improve public resources management and to provide input into the GPRSP. I t w i l l provide an overall diagnosis of public financial management issues and address key elements of budget preparation and execution.

44. Gabon lacks timely and reliable statistics, and needs to develop statistical capacity in order to measure progress in achieving results. Timely and reliable statistics are key inputs to the results management process. Lack of reliable data in Gabon affects the authorities' ability to formulate policies based on solid analytical work and to monitor or evaluate development programs. The Bank's ability to offer meaningful policy advice i s also constrained by the paucity of data. The ongoing preparation o f the GPRSP has drawn attention to the deficient statistical base. The 1993 household budget and consumption survey provides the most recent data available for analytical work on poverty. Results of the 2003 Census of Population and Housing are yet to be published. The sampling frame for the most recent data on social indicators, the health and demographic survey (2002)' was based on the 1993 census (i.e. outdated census information). In order to update statistical information on poverty, the authorities are working closely with the Bank to undertake a new rapid household survey o f the CWIQ (Core Welfare Indicators Questionnaire) type. This survey instrument w i l l allow the authorities to update the non-pecuniary measures o f poverty while building the capacity to process data rapidly using optical scanning technology. The results of t h i s survey, when available, will be shared with al l stakeholders as part of the Bank's support to the GPRSP process.

(ii) Improving the Investment Environment for Private Sector Development

45. To reduce the country's heavy dependence on oil, Gabon needs to jumpstart private-sector- led diversification. To foster economic development and increase employment, non-oil natural resources need to contribute more significantly to the GDP, through improved public sector management and increased private sector investment in these sectors. The Government i s aware that measures need to be taken to improve the investment climate and attract investment in the non-oil sectors. The Foreign Investment Advisory Services (FIAS), a joint service o f the Bank and the IFC, recently completed a diagnostic study of the investment climate in Gabon (see Box 1). I t identified several areas in need o f attention: (i) improving governance and the rule o f law; (ii) improving investment-related administrative procedures; (iii) reforming the tax system; (iv) improving infrastructure; and (v) reducing the costs of inputs.

2004 African Development Indicators, from the World Bank Africa Database. 11

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Box 1. F IAS Diagnostic of the Investment Environment - Key Recommendations

Improve Governance and the Rule of Law: Make this a top priority of the Government’s program and announce i t at highest level. Follow through by quickly designing a multi-faceted, multi-year strategy to improve the Rule of Law (with components on anti-conuption, judicial reform, civil service reform, legal reform and information, legal and judicial training, deregulation, etc.). Integrate the currently scattered initiatives into t h i s holistic strategy. With development partners’ assistance, start implementing the multi-year comprehensive govemance strategy.

Facilitate Private Sector Development: Strengthen Banque Gabonaise de Dkveloppement (BGD) by increasing i t s resources and the number of financial instruments it can use to support private enterprise development. Consider introducing venture capital in Gabon, through BGD or otherwise. Consider increasing BDG’s capital. Review the role and assess the impact of PROMOGABON and APIP in order to decide whether they should be maintained in their current form or restructured with a view to making them more effective instruments. Design a strategy to encourage informal operators to formalize. The strategy should aim to simplify the administrative procedures for investment, to simplify the tax system, to provide accounting support, and to tackle all the constraints that currently encourage entrepreneurs to remain in the informal sector. Reform education and professional training to reduce the gap between private sector needs and the sk i l l s of the labor force. As part o f the investment climate improvement program being conducted by FIAS, launch a study focusing on S M E access to credit to diagnose the constraints limiting S M E access to commercial finance and to recommend ways and means to improve such access (including through micro-finance schemes). The study could be done in partnership with CGAP and/or PEP-Africa. Agree on priority actions that need to be undertaken to alleviate the other constraints facing private sector operators, taking into account the recommendations o f World Bank-supported studies including the FIAS diagnostic study and the upcoming IFR. Streamline formalities and reduce the cost o f business registration. Ensure that all agencies concerned contribute to the functioning of the “one-stop shop” (under the Investment Promotion Agency). Adopt transparent procedures for business visas and clarify and standardize procedures for residency permits. Publish public procurement opportunities and contract awards. Improve customs clearance procedures and remove the statistical tax for customs (RUSID). Clarify procedures and reduce delays to secure final property title, inform the public of the revised procedures.

Reform the tax system: Implement the State Finance Act of 1995 prohibiting taxes not included in the budget law (para- fiscalitd). Launch a specific study on corporate taxation and investment incentives as planned under the program agreed with FIAS. This study would constitute a useful input for the broader program of tax reform that the Govemment i s discussing with the IMF.

Improve infrastructure and reduce costs of inputs: Engage consultations with development pattners and the private sector on priorities (energy, telecom, transport) and on that basis design a strategy. Complete privatization o f Air Gabon and pursue the restructuring of the telecom market by completing the privatization of Gabon Telecoms and strengthening the telecom regulatory agency.

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46. The inefficient functioning of the law and justice sector represents a major impediment to private sector development in Gabon. There i s a consensus among relevant stakeholders regarding the need to invest adequate resources in t h i s sector to promote the rule of law both as a matter of general concern and a means to enhance business and investment climate in Gabon.

47. Gabon’s strategy in the non-oil sectors i s different from those of its neighbors. Unlike most Sub-Saharan African countries, Gabon does not depend very much on agricultural exports. Rather, i t s strategy i s to become a base for international services, especially those needed by the petroleum industry, while developing natural-resource-related transformation industries and tourism. If th i s strategy i s successful, Gabon could become an important economic partner for i t s neighbors as well as for the international community. I t s collaboration within the Congo Basin Initiative on the Tri-National Park i s one example of such partnership in the area of tourism, which involves joint efforts by the three park agencies concerned. such as coherent land use planning across borders, harmonization o f procedures and regulations, joint awareness raising and consultations processes. joint surveillance and other law enforcement activities, and setting up joint planning and monitoring and evaluation systems.

48. Forestry, currently the second-largest sector in terms of job creation after the public sector, has significantly greater potential to contribute to economic development. Gabon has 22.5 hectares of forest per capita, one of the highest ratios in the world. However, the sector’s contribution to the national economy remains below i t s potential in terms of employment. revenues and community development. The timber industry today provides about 7,000 direct jobs, whereas i t could probably provide twice as much employment in related transformation and transport services, without increasing the level of harvesting. The challenge for Gabon i s to increase forest-based benefits for the population while maintaining timber harvesting at a sustainable level, in accordance with forest management plans. Greater transparency and law enforcement i s needed at all steps of the sequence to foster accountability and reduce the room for corruption and arbitrary decisions. This requires removing policy and governance bottlenecks that have hampered sector performance during the last four decades.

49. Striking progress in forest sector reform marks a significant break from the past. Over the recent past, the Government has taken bold and concrete steps to improve transparency and efficiency in the forestry sector. Highlights of the recent reforms include notably: (i) passing a new Forest Code in 2001; (ii) creating 13 national parks which total ten percent o f Gabon’s total surface areal2 in 2002; (iii) simplifying the fiscal regime under the 2004 finance law; (iv) approving a letter of sector policy in May 2004 spelling out the priority reform agenda with a focus on transparency and basic law enforcement; (v) enacting a decree establishing

Fiscal regime simplified in 2004 finance law Letter of Sector Policy adopted by Council of Ministers

a moratorium on the discretionary allocation o f logging rights in August 2004; (vi) enacting a decision to abolish the long-standing monopoly on export marketing by the public marketing agency (SNBG) by January 2006; and (vii) disclosing the l i s t o f logging and non-compliant permits in the local newspaper and on the internet in 2005. The recent achievements mark a significant break from the past performance of the sector which was characterized by a lack of transparency, interference by vested interests, and distortions in the incentive framework. These are important first steps that need to be followed with further reforms in the same direction.

The creation of thirteen national parks by President Bongo Ondimba in 2002 was explicitly presented as a move 12

towards diversification of the economy, intended to stimulate eco-tourism and private sector activities.

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50. The recent reforms create a unique window of opportunity to deepen forest sector reforms and ensure their sustainability. The reform agenda in the forest sector, as described in the May 2004 letter of development policy, i s far reaching and includes provision for development of participatory forest zoning, monitoring of sustainable management plans and of illegal logging, development of community forestry, retrocession o f a share of revenues to local entities, and the development of non- extractive uses o f forests. Through fiscal incentives the Government i s also encouraging the expansion of domestic processing in terms of both quantity and quality.13 Removal of the SNBG export monopoly wil l remove market distortions and increase the sector’s competitiveness. The planned Bank support for the forest reform agenda (see Box 2) wi l l be crucial to ensure the momentum i s not lost.

Box 2. Past and Planned Bank Involvement in Forest and Environment in Gabon

The Bank’s Forest and Environment Project (PFE) laid the early groundwork for improved management of Gabon’s forest and environmental resources. Approved in 1992, the project closed in 2002. In the interval since the PFE closed in 2002, policy dialogue has developed and gathered momentum through the preparation by the Government of a National Forest and Environment Sector Program (PSFE) in coordination with all interested donors, private sector and civil society.

Gabon has significantly expanded i t s protected areas network, which now covers more than 10 percent of the nation’s surface area, including marine ecosystems, and i s setting up an autonomous agency for national park management. In 2004, Gabon’s Council of Ministers adopted a Letter of Sector Policy on natural resources management, including forests, fisheries, biodiversity protection and environmental management. This policy aims at promoting employment, revenues, rural development and increased entrepreneurship while protecting natural ecosystems and biodiversity. Later in 2004, the Government confirmed i t s commitment to greater transparency in managing the forest sector by establishing a moratorium on sole-source attribution of logging permits. In December 2004, the Government decided to remove the monopoly of the National Timber Marketing Company (SNBG), starting January 2006, so as to liberalize the timber trade. These reforms represent a striking departure from the long-standing climate of opacity, discretion and distorted incentives. These are f i s t steps which should be followed by further reforms in the same direction.

Through the two planned Natural Resources Development Policy Loans and a planned Grant from the Global Environment Facility, the Bank intends to support the implementation of Gabon’s PSFE program in synergy with other development partners (France, EU, US, AfDB among others). Bank and other donor support wil l help capitalize on the very significant recent Government reforms to ensure that they take hold and are deepened. The PSFE program will also provide unique opportunities to involve the Bank and other partners in the reform process that i s also starting to emerge in the fisheries and mining sectors. By linking lending to the implementation of reforms, the planned operations wil l strengthen the voice of reformers and increase their capacity to overcome resistance from vested interests. The two-staged DPL approach wil l also mitigate against the loss of momentum in the reform process.

51. Gabon has important geological reserves and a long history of mining, especially of manganese and uranium. However, compared to other countries with s i m i l a r mineral endowments, the contribution of the mining sector to the country’s wealth has remained relatively small. Besides manganese, of which Gabon i s the world’s third largest producer, mining activities are restricted to artisanal production of gold and diamonds and, to a lesser extent, excavation o f construction material. Gabon i s considered to have good mining potential and several mineral deposits have been identified over the years such as: gold (with a number of high grade small deposits identified in 11 regions in Gabon), iron ore, and columbium, along with several other minerals. The mining potential of the country i s not reflected in i t s current mining output. Potential mining output i s estimated to be capable of generating about US$300 to US$400 mill ion annually in revenues in the long term if a favorable investment

Domestic processing capacity increased from about 10 percent in 1990 to about 30 percent in 2002. 13

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environment exists and the appropriate regulatory systems are put in place. A recent diagnostic review of the mining sector, conducted by the Bank, has identified key reforms needed and has also highlighted the importance o f addressing artisanal mining activities (diamonds) and improving environmental management of mining activities.

52. Fisheries also represent a potential growth sector. At over 40 kg per capita Gabon’s fish consumption i s among the highest in Africa. Recorded fish production in 2004 was 45,000 metric tons o f which over 70 percent i s produced by artisanal fishers. In terms of biological potential the annual yield o f the fisheries has been estimated at 230,000 tons, but reliable estimates of the sustainable level o f production have not been made and despite a recent promising survey o f deeper waters, the resource base i s poorly known. Non-Gabonese nationals constitute 80 percent of the sector’s labor force which complicates stakeholder engagement. Weak sector governance, ineffective monitoring and control and lack o f transparency in licensing contribute to the absence of a clear vision for the future o f the sector. Gabon sees the development of t h i s sector as an alternative source of food for the local population and a potential revenue earner. On-shore fishing by communities and families can probably improve food security and increase cash income for poor communities and households. With regard to industrial off- shore fishing, the margin of improvement probably resides more in providing Government with sustainable revenues that can then be allocated to improved social service provision through public expenditures.

53. The current transport situation hinders the development of productive sectors, particularly in the rural hinterland. Gabon has 9,170 kilometers of roads, of which only 10 percent are paved. The two planned main axes connecting north to south and east to west are not completed. Part of the east-west axis i s connected by an old and dilapidated railway system. Development o f a new roads system i s difficult to justify economically given the very low population density and low economic activity in the rural areas and on the other side o f the borders. The solution more favored by developing partners most active in the transport sector, including EU, the AfDB and AFD, i s to rehabilitate existing priority networks and to ensure that adequate public financing i s available for their maintenance. The railroad concession, which was suspended following a dispute with the operator and i s currently functioning under temporary arrangements, w i l l have to be renewed under more financially viable terms and conditions. The National Airline needs to be quickly restructured and re-capitalized by the private sector.

54. Tourism has a high potential in this country that is part of one of the largest rainforest ecosystems in the world. However, tourism has not yet attracted significant investment. Gabon i s endowed with a 10,000 km coastline, wetlands, rivers, and rich faunal and floral wildlife. I t s forests belong to the Congo Basin tropical rainforest ecosystem, the world’s second largest area o f contiguous rainforest. Although the Government has recently taken bold conservationist measures and introduced new tax incentives to promote high-value, low-volume tourism, growth has been slow. Airfares to Europe and the U S remain expensive, tourism-related infrastructure and services are inadequate and costly, and both Government and private sector have failed to embark on a serious sector growth strategy. Foreign investors can only be expected when the sector-specific business environment reaches a critical threshold.

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55. Despite the major role of cities in Gabon’s economic growth, urban infrastructure has been globally under-funded (less than 10 percent o f public investments) in the last two decades. Poor works supervision by the administration and failure to pay the contractors on time has had consequences in terms of cost overruns and poor quality of works. Most public works are capital intensive, with very l i t t le impact o n employment in the construction sector. Financial resources that could enable cities to better manage urban infrastructure have not been transferred to municipalities. With the exception of Librevi l le and Port Gentil, most towns in Gabon have litt le capacity to handle infrastructure development and maintenance.

Box 3. Pilot Community Infrastructure .Works and Capacity Building Project

Innovation the earlier

The Pilot Community Infrastructure Works and Capacity Building Project (Learning and Loan) provided a practical test of approaches adopted in the Urban Sector Strategy developed under Transport Sector technical Assistance project (approved in FY95 and closed in €9’00). It was

designed to test new methods for building community-based infrastructure and providing support for local contractors. The goal was to improve living conditions in selected poor urban neighborhoods in a sustainable way and with substantial community participation. The project also aimed at building local capacity to undertake a larger program of community based-public works.

Despite i t s s m a l l size, the project was perceived by i t s stakeholders as the most concrete and practical way to address the poverty issue in Gabon. This project has allowed for the definition o f appropriate approaches and modus operandi for “soft” and community-based upgrading of low-income settlements as opposed to heavy restructuring. Rather than starting with heavy land restructuring and regularization and major infrastructure change that would have dramatically raised land values and upset the social composition o f the targeted settlements, the infrastructure upgrading effort focused on adapted improvements to existing main access and transi t roads. The objective was to facilitate physical access to services (such as transportation, f ire crews, ambulances) and improve sanitation and drainage in the targeted areas. In additiqn, and with technical support provided by PAPSUT through the municipalities, the recipient communities put together community-based micro-projects centered around the already improved access and transit road through their neighborhoods. As a result, micro-projects (essentially water, sanitation, and drainage facilities and pedestrian paths to the main transi t roads) were identified in the targeted neighborhoods and implemented with the effective contribution o f municipalities and communities.

Al l works included in the project were carried out by local entrepreneurs selected after open competitive bidding and without noticeable cost overruns. These works apparently have been the only ones included in the national PIP actually procured through open and competitive bidding. The technology used for access and transit road pavement (cement blocks) turned out to be the most appropriate to facilitate involvement o f local SMEs in the infrastructure upgrading process.

For the first time in Gabon, municipalities were involved in road paving projects. They learned how to procure these works and participated with community leaders in the design and implementation of micro- projects. As the methodology was developed, manuals were prepared, and training was performed on the project sites. This early experience was then used to train local government s t a f f on the job, creating technical units in the municipalities and involving them in project implementation. The project also trained professionals to help communities select the works to be performed, mobilize community contributions, and explain work procedures. A methodology for community participation was developed, tested, and improved. This process, although time- consuming, now provides the basis for larger future initiatives. A simi lar learning-by-doing process was used to extract lessons from the early involvement o f SMEs and design and provide training for young entrepreneurs in procurement and other management skil ls.

A few months before i t s closure on June 30, 2004, the project was discussed and evaluated openly at a national workshop that included representatives from a l l relevant line ministries, local governments, the local private sector, and civil society. The participants in the workshop praised the project’s achievements and requested that the initiative be expanded, in terms of both sector coverage (social infrastructure in health and education, transport and municipal facilities) and geographical coverage (urban and rural areas).

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56. Rapid urban growth challenges Gabon’s capacity to provide acceptable living conditions. Access to housing i s a big problem in Gabon, particularly in the main urban centers such as Libreville and Port Gentil. And while more than 30 percent of Gabonese households have access to electricity, and 71 percent have access to clean water, the infrastructure in place i s aging and there i s an urgent need to rehabilitate the existing facilities and expand them to serve peri-urban areas. There i s insufficient public funding or private interest to finance these works on a large scale. Through a Learning and Innovation Loan (LIL), the Bank has been supporting the development of community-based small-scale infrastructure and the growth of small construction contractors. The success of th i s pilot project has led to the preparation o f a new project that wi l l be developed on a larger scale during the coming CAS period and to extend i t s scope to the reconstruction of small-scale public buildings such as schools and clinics (see Box 3).

(iii) Governance and Participation

57. Efficient and transparent management of public finances has been an ongoing challenge to the Government and the donor community. Annual budgets are formulated and approved, but off-line expenditures arranged through unorthodox procedures often preclude effective execution o f the budget. These problems are well recognized by civi l servants who are constrained in their ability to run their programs, but are powerless to control the budgetary process. The circulation of information i s highly restricted both within and outside the Government. As a result, there i s little confidence within the private sector, and high costs are attached to any government transaction. Under the Bank-supported Privatization Project approved in 1997 and closed in June 2004, the Government began to gain experience with more transparent procedures and to understand better why poor governance could constitute an obstacle to private investment.

58. More timely dissemination of statistics will help strengthen governance. In order to improve fiscal transparency, the Gabonese authorities have made a significant effort to ensure the proper flow o f fiscal information to the public by making available (through the Finance Ministry’s statistical unit) a comprehensive database on fiscal activity. More timely publication o f such information i s necessary, particularly with regard to the proper monitoring of the Fund Standby Arrangement.

59. Gabon has made significant progress toward liberalization of the economy, but challenges remain. Although the agenda i s not yet complete, there has recently been visibly increasing commitment to improve the business climate and implement a reform agenda in key sectors such as forestry and mining. However, several issues remain to be tackled. For example, efficient and transparent pricing mechanisms for natural resources and related tax collection now need to be implemented, in order to allow for an adequate sharing o f the rent. In the past, forest revenues have been poorly collected and non- compliant companies not sanctioned, which discourages responsible investors. On-going reforms in the forest sector, which focus on transparency in concession allocation and on law enforcement, w i l l establish a more level playing field for responsible investors.

60. The combination of declining revenues and the need to attract more private investment provides a powerful incentive for Government to improve transparency and efficiency in the use of public resources, both natural and financial. In spite o f continued resistance from vested interests, there i s growing recognition among public authorities that resources need to be directed more efficiently to improve basic service delivery, and that new resources could be developed through economic diversification. At the express request of the President, the Government has declared i t s intention to implement the Extractive Industries Transparency Initiative (EITI) and has asked for Bank support in t h i s area (see Box 4). This commitment to improving the transparency o f revenues derived from extractive industries provides a clear indication of support for the agenda of improved transparency and governance. I t i s also a signal of Government’s growing commitment to increase transparency in the management of

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public resources. Reforms agreed under the forest reform agenda set forth in the Letter o f Natural Resource Policy under President Bongo Ondimba’s leadership are also contributing to this objective.

Box 4. Gabon and the Extractive Industries Transparency Initiative (EITI) The EITI aims at increasing transparency with respect to payments made to the Government by oil, gas

and mining companies. A t the EITI second annual conference held in London on March 17,2005, participants in the Initiative endorsed the following criteria for implementation:

0 Regular publication of all material oil, gas and mining payments by companies to governments (“payments”) and all material revenues received by governments from oil, gas, and mining companies (“revenues”) to a wide audience in a publicly accessible, comprehensive and comprehensible manner; Where such audits do not already exist, payments and revenues are the subject o f a credible, independent audit, applying international auditing standards; Payments and revenues are reconciled by a credible, independent administrator, applying international auditing standards and with publication o f the administrator’s opinion regarding reconciliation including discrepancies, should any be identified; This approach i s extended to all companies including state-owned enterprises; Civil society i s actively engaged as a participant in the design, monitoring and evaluation of this process and contributes towards public debate; A public, financially sustainable work plan for all the above i s developed by the host government, with assistance from the international financial institutions where required, including measurable targets, a timetable for implementation, and an assessment of potential capacity constraints.

Implementing countries are encouraged to exceed these criteria where possible, in l i ne with the principles of the IMF Code of Good Practices on Fiscal Transparency and the good practice examples in the accompanying Manual on Fiscal Transparency.

A preliminary needs assessment and a diagnostic of revenue flows and institutional responsibility for assessment and collection of extractive industry revenues have been carried out by the Bank with respect to the hydrocarbon and mining sectors. Further to t h i s initial assessment, a road map for implementation of the EITI has been prepared. An inter-ministerial committee entrusted with the coordination of the EITI implementation, the EITI Work Group, was created by ministerial decree February 24, 2005. The EITI Work Group i s currently defining a detailed action plan and responsibility for implementation.

Civil Society plays an important role in ensuring that high standards in transparency and accountability in public life, government operations and business are applied. To this end, the creation of a Stakeholders’ Group composed of civil society representative, industry representatives and government i s envisaged to facilitate public debate over measures to enhance transparency in the extractive industry. This wi l l ensure that all necessary reforms are introduced after due consultation, which wi l l facilitate their understanding and acceptance. Participation in the Stakeholders’ Group i s voluntary and non-binding.

While the involvement of the industry representatives does not present too many difficulties, the establishment of the civil society component of the stakeholders group poses some challenges. There are few non-governmental organizations in Gabon, familiar with the complexities of the hydrocarbon sector. The Government i s envisaging actions to improve civil society understanding of the Extractive Industry and to strengthen their ability to actively participate in i t s implementation. As an interim measure, the Government’s advisory body, Conseil Economique et Social (a consultative body comprised of government, private sector and civil society representatives) i s being considered to represent civil society in the stakeholder group.

0

0

0

0

0

61. Gabon’s Parliament i s not yet a strong force for improving governance. The Parliament comprises two chambers: the National Assembly (120 members, elected by direct popular vote) and the Senate, (9 1 members, elected by municipal councils and departmental assemblies). The Constitution gives the Parliament the power to “vote laws, set public taxation and oversee the action o f the executive power.” The PDG members find it diff icult to monitor and influence government policy and programs. There i s a strong need felt for capacity development to enable Parliament to play i t s proper role in ensuring better governance for the people o f Gabon (see Annex 2).

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62. Civil society does not yet play an effective role in shaping, implementing and overseeing national policies in Gabon (see Box 5). Before 1990, a small number o f Civil Society Organizations (CSOs) existed in Gabon. However, i t was only with the establishment o f the multi-party polit ical system in the country that the c iv i l society movement truly emerged in Gabon. Since then, there has been a proliferation o f associations, NGOs, and labor unions. According to different accounts, between 800 and 1000 such organizations exist in the country today. However, the State i s s t i l l reluctant to accept c i v i l society as a real partner of development. I t i s seen more as a counter-power, hindering the Government’s work, and a source of instability and social disturbance. Some structures o f dialogue have been put in place by individual ministries over the past few years, but they receive few funds. A legal framework to regulate c iv i l society-government partnership has been in the works for four years, but there i s s t i l l n o institutionalized forum for interaction wi th the Government. In addition, legal recognition o f associations by the Ministry o f the Interior takes a long time.

Box 5. Capacity Development for Civil Society Challenges: Many challenges hinder the effectiveness of Gabonese civil society as a development partner:

Most Civil Society Organizations (CSOs) in Gabon lack funding and equipment, have no permanent s ta f f or headquarters, and receive little donor assistance. Many organizations lack sk i l l s in project conception and implementation. They also often need to improve the transparency of their management. There i s a lack of associative culture in the country. People do not readily mobilize behind an associative structure, and membership fees are difficult to collect. Often, only the President and a small nucleus of people run the organization. The civil society movement i s strongly politicized. Very often, organizations are created by Government officials or other parties with political interests. This creates suspicion within civil society itself as well as on the part of the Govemment and development partners. Consequently, there i s a lack of dialogue and collaboration between the different structures o f civil society. Coordinating structures are not representative and often overlap one another. The Conseil Economique et Social, a council composed of high-level representatives from different sectors of society in charge o f advising the Government, has not been fully effective in promoting civil society participation. Many of these non-state actors lack a long-term vision of their role in Gabon’s development. Often their activities lack cohesion with their set objectives. Many organizations change their programs according to circumstances (new elections, availability of funds, intemational forum dealing with a specific issue). Such opportunism once more undermines their credibility. There i s reticence on part of the State to accept civil society as a real partner of development.

Bank Response: Consultations for the 2005-2008 CAS stressed the importance of Bank involvement in civil society capacity development. The Bank plans to pursue this objective through the following avenues, with the help o f Country Office resources and an IDF grant and/or a W B I training program.

Systematically involve civil society in the design, implementation, and evaluation o f Bank-led programs. Undertake an extensive outreach campaign (through bulletins, conferences, the Public Information Center) so as to present Bank procedures and activities and gather information on civil society organizations throughout the country (their objectives, interests and capacities). Encourage the Govemment to involve civil society actors in the conception, execution and monitoring of public programs and to establish a regulatory framework to guide government interaction with civil society. The GPRSP preparation and implementation process provides an important venue for collaboration between civil society and the Government. Provide or f iance training programs in project conception and execution, financial management, activity reporting, leadership, communication and cross-cutting issues. Promote civil society collaboration through setting up fora, activities and networks where different organizations can meet and discuss strategies to enhance their credibility and influence in shaping public policies. Establish a dialogue with, and support, existing coordinating structures within civil society (NGO networks and platforms) as well as within the Government and involve the Conseil Economique et Social. Support and Coordinate actions for civil society capacity-building undertaken by other development partners.

V. WORLD BANK GROUP ASSISTANCE STRATEGY

A. Lessons Learned

(i) Implementation of the Lust CAS

63. The 1998 CAS embraced an ambitious agenda for political and social reform, including significant attention to poverty alleviation. A Completion Report for the 1998 CAS (CASCR) was prepared in June 2004 (Annex 4). CAS performance i s rated as moderately unsatisfactory. The 1998 country assistance program was relevant to broad national goals, but was not well aligned with government views about how to achieve those goals. The country did not make acceptable progress towards a majority of the CAS outcomes, although it did make progress on privatization and some progress on macroeconomic management and capacity development. The CAS expectations were probably unrealistic under the best of circumstances, particularly in the area of poverty alleviation. Furthermore, the resources available to the country team were too limited to provide all the non-lending support foreseen in the CAS.

Box 6. Lessons L e a r n e d from the CASCR

Three key observations can be drawn from the CASCR: 1. 2.

3.

Gabon’s future depends on i t s capacity to better use i t s natural resource endowment Bank needs to remain present, maintain candid dialogue, and ensure wide dissemination and ownership of initiatives There i s a need to invest in capacity development within the civil society

3

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64. The lessons of the CASCR have been internalized by the country team and Bank management (see Box 6). Since 1999, the Bank has maintained a Country Off ice in Gabon, and the dialogue with Government and c iv i l society has improved significantly in recent years. Consultations on the CASCR and the present CAS started early, in parallel with ongoing GPRSP consultations. The present C A S aims to be more realistic and less ambitious, focusing on capacity development in Government, the private sector, and c i v i l society, while paying greater attention to the role o f development partners and the need to focus Bank interventions on areas o f comparative advantage.

(ii) Lessons from Client Surveys and OED Evaluations

65. Preliminary results of the client survey that was carried out in connection with this CAS indicate that the Bank’s mission of poverty reduction i s not well understood (see Box 7). I t i s generally believed that the interests o f the Bank and the Government are not the same and that the Bank imposes i t s vision of development on Government. However, the Government believes that the Bank can help strengthen i t s capacity and help i t to formulate realistic action plans. These findings point t o the need for the Bank to better communicate i t s vision and strategy and to clearly demonstrate the relationships between i t s planned activities and the desires o f i t s clients.

Box 7. 2004-2005 Client Survey Results of the client survey carried out in Gabon in December 2004-January 2005 showed clients and

partners would l i ke the Bank to be more visible, more active in the social sectors, and more diversified in i t s investments. The survey sample included 300 clients who received written questionnaires and 30 personal interviews, The interviews included members o f Parliament, other development partners, representatives o f the private sector and civil society, and local authorities. Overall the client survey was welcomed by the respondents as a signal that the Bank might be willing to consult on and consider changes in i t s activities in Gabon.

Preliminary results indicate that the image o f the Bank in Gabon i s rather negative. I t s mission o f poverty reduction i s not well communicated or understood by the clients. They feel that the Bank does not make adequate use o f the media and, when organizing information sessions, does not include a l l of i t s partners and clients. It i s believed that the interests of the Bank and the Govemment are not the same and that the Bank imposes i t s vision of development on Govemment. The clients also believe that the Govemment does not really have a poverty reduction strategy nor does it have a clear view of i t s own development goals and priorities.

According to clients, the Bank has not succeeded in establishing effective development partnerships. Whi le they recognize the achievement of a few micro projects, donor coordination i s seen as insufficient, particularly on co-financed projects. However, recent efforts to diversify Bank partnerships and activities, to finance micro-projects in other parts o f Gabon with the participation o f the local authorities and smal l enterprises, demonstrate that the Bank i s making progress in these areas.

Clients had many suggestions to make regarding capacity development activities that could be undertaken by the Bank. The Bank should have a clear policy on t h i s matter, allowing each sector to define i t s own needs and training program. The Bank should offer more seminars for the administration, NGOs, universities, local authorities, unions, associations, youth and women. The Bank should also encourage the Govemment to identify and use existing local capacity. There was a clear interest in NTICs (New Technologies for Information and Communication), a subject to which local clients felt they could contribute.

Clients acknowledged that Bank communications have greatly improved in the recent past. However, they are skeptical about the Bank’s new client orientation since they do not have much solid information about the Bank‘s work program. The Bank i s s t i l l believed to operate according to rigid policies and procedures. Bank procurement, disbursement, and audit rules are not known to the clients. These rules are believed to be complex, difficult to interpret, and unrealistic in the context o f Gabon. Clients also believe that the competence of local consultants i s not sufficiently recognized by the Bank. More public information on this subject would be appreciated.

Clients welcomed the improved relations with other development partners and Bank support for community micro-projects. However, they felt that the Bank s t i l l has not established good relations with the large enterprises of the private sector. Bank priorities are not seen as addressing the most important development issues. This i s a perception the Bank wi l l seek to rectify in i t s outreach activities.

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66. OED has not conducted a Country Assistance Strategy Evaluation for Gabon. Implementation Completion Reports for three completed projects have been evaluated by OED in the last five years (Transport Sector Technical Assistance, ForestryEnvironment and the Urban LIL). The overall performance for all three was rated Satisfactory or Moderately Satisfactory.

(iii) Portfolio Management

67. Portfolio performance, while generally satisfactory, has been uneven. Typically, project implementation has taken longer than expected, with an average of approximately 6 years. Some projects were slow to start because after a long period without Bank involvement in the sector, project staff was unfamiliar with Bank procedures. Timely availability of counterpart funding has been an issue, and the need for close control of procurement activities has also delayed disbursements. In the case of the ForestryEnvironment Project, the 1993 devaluation doubled the funds available (and the requirements for local counterpart funds), contributing to delays in implementation. The Privatization Project and the Urban LIL closed in June 2004, with a satisfactory performance rating for the Urban LIL. Currently there i s no World Bank Group active lending portfolio in Gabon, except for IFC’s exposure of US$3.8 million.

68. New country financing parameters were approved in April 2005, which provide for increased flexibility in the treatment of cost sharing, taxes, recurrent costs, and local costs (see Annex 6). This flexibility w i l l enable financing of local costs of investment projects in amounts appropriate for achieving project development objectives. One-hundred percent Bank financing could be provided for some projects and activities with strong evidence o f ownership and commitment. Recurrent cost financing w i l l be considered subject to strong demonstration o f arrangements to ensure sustainability after Bank financing ceases. Taxes and duties w i l l also be financed provided they are not excessive. The Bank may finance up to 100 percent of the costs of individual projects; however, in the planned investment projects (Local Infrastructure Development Project, Infrastructure Project, and Diversification operation) and the GEF grant, the Bank’s financing share i s l ikely to be about 90 percent of project costs. Integration of Bank financing in the budget process (e.g, the Natural Resources Management DPLs) w i l l ensure that increased recurrent cost financing would not jeopardize overall debt and fiscal sustainability.

B. Partnership and Participation

(i) Partner Roles and Donor Coordination

69. Since the Bank began strengthening its presence in Gabon, there has been much more active coordination with the other key development partners on the ground. Bilateral and multilateral donors meet regularly, and recently thematic groups have been created to improve the harmonization of donor support. In t h i s context, the present CAS was prepared in close collaboration with the donor community. Principal development partners include the European Union (EU), the African Development Bank, France, various UN agencies and Canada, with additional contributions expected during the CAS period from the US., Spain, and Italy. Much of the bilateral support comes in the form of technical assistance. The Bank and UNDP are actively involved in the GPRSP process, and all development partners are prepared to articulate their assistance strategies around the GPRSP program once i t i s completed and approved.

70. All operations and activities planned in this CAS will be carried out as a complement to, or in partnership with other development partners (see Annex 5). As governance i s a key issue in Gabon, the first pillar of this CAS complements the interventions of France, UNDP, the EU, AfDB, IMF, UNICEF, and Canada on capacity-building for macroeconomic reforms, public resources management, statistical capacity-building, and promotion o f the role o f the c iv i l society. The planned Public

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Expenditure Review wi l l be carried out together with the EU, AfDB, and France. There i s also active coordination between the EU, the Bank and AFDProparco on private sector development and economic diversification. The Bank has been working with AFD, EU, AfDB, and the U S on the preparation o f the national forestry and environment program (PSFE), and these partners are also planning to support the implementation o f the program. On the mining sector, the Bank i s working closely with the EU and France to improve the legal framework and attract investors in the context of economic diversification, put in place a regulatory and institutional framework, and improve mining administration capacity. The same can be said o f infrastructure, where EU, AFD, AfDB and the Bank have collaborated to support the Government on the creation of a second generation Road maintenance Fund. All of these development partners have clearly expressed to the Government the need to secure the financing of road maintenance before considering any new projects in this sector. The Bank coordinates i t s activities with the IMF and has close collaboration with the Fund on development and implementation of the structural reform programs. Finally, the World Bank Group works closely with the UN agencies on the fight against HIV/AIDS.

7 1. misinformation, and lack of information about the Bank’s role in Gabon’s development. Consultations with civi l society and other key stakeholders (Parliamentarians, academics, and the private sector) began during the preparation of the CASCR in March 2004. These consultations showed that expectations raised during the 1994-1997 Poverty Assessment and concretized in the 1998 CAS in terms o f expanded Bank operational support and presence in-country had not been met. More extensive consultations were held between October and December 2004 on the forthcoming CAS. Fourteen meetings were held, involving some 400 people, including one meeting with Parliamentarians led by the Country Director. Most of the meetings were held in Libreville, but meetings were also held in Port Gentil and Franceville (see Annex 3).

Consultations during the CAS process revealed widespread misunderstanding,

72. The outcomes of the CASCR and CAS consultations and the Client Survey are similar, even though different clients were consulted during each exercise. Many clients and civi l society members s t i l l wish the Bank to support the Government in providing welfare services, with little understanding o f the sustainability and external debt implications. Improvements in the management o f public resources and in the climate for private investment are prerequisites for success in other areas, and the Bank has a comparative advantage in working with Gabon in these areas. These views were shared by key decision makers in Government who do understand the problems and the role that World Bank Group support (including IBRD borrowing) should play. In some instances other development partners are better placed to assist Gabon in improving service delivery, often with grant resources. The client survey and consultations illustrate the need to better communicate the Bank’s strategy, demonstrating how improvements in the management of both fiscal resources and natural resources w i l l contribute to achieving the country’s development goals in a sustainable manner.

C. The World Bank Group Assistance Strategy

( i ) Strategic Focus and Selectivity

73. The Bank broadly shares the Government’s development goals and objectives. In consultation with the Government and other development partners, the Bank has identified two areas of comparative advantage for i t s assistance program. Both areas (or “pillars”) contribute to the central cross- cutting themes o f capacity development and governance. The first pillar o f the CAS i s strengthening the management o f public resources (both natural and financial) for improved social outcomes. The second i s improving the investment climate to foster sustainable, private-sector-led growth. The pillars w i l l be supported by the Bank through a combination o f lending and non-lending activities, as shown in Table 8.

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Table 8. Planned World Bank Group Program FY05-09

Base Case

FY05

Local Infrastructure Development US$25m Support GPRSP preparation

FIAS Study ,

(I" phase)

Note: The point of

FY06

GEF grant US$lOm

Support GPRSP preparation

Support for HN/AIDS prevention and control strategy14

NGOParliament capacity de~elopment'~ 1 st Natural Resources Management DPL US$15m

PEWCFAAKPAR

FIAS studies (Znd and 31d phase)

Infrastructure Framework Report

EITI implementation support

eparture for the Ch

FY07

Support GPRSP implementation

Support for HIV/AIDS prevention and control strategy

NGOParliament capacity development

Statistical capacity development

EITI implementation support

Mining Sector Review16

i s the Base Case

FY08

Support GPRSP mplementation

VGOParliament :apacity levelopment

Lnfrastructure Project US$25m

2nd Natural Resources Management DPL US$lOm

FY09

Support GPRSP implementation

NGOParliament sapacity levelopment

Poverty Assessment

Diversification pera at ion" US$18m

Low Case

High } Case

This represents an entry point for HIV/AIDS, to assist the Government to implement funds from other sources (e.g., the 14

Global Fund), and manage their National HN/AIDS strategy. I t i s unclear if the Government would consider using IBRD to finance an operation, but this option will be kept under review.

society; a targeted effort to increase learning opportunities, through WBI for example, and possibly an IDF grant.

requirements in the mining sector.

resource transparency and accountability in other sectors.

NGOParliamentary Capacity Building will be supported through an increased number of consultations with civil

The mining sector work will review the mining law, including specifically the environmental and regulatory

The planned Diversification operation could build on the FIAS and IFR recommendations act as an umbrella for natural

15

16

17

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74. The main criteria for selecting Bank interventions under the CAS have been whether or not the planned activity supports the two pillars, and whether or not the Bank is best placed to provide the needed assistance. The CAS includes, in addition to substantial non-lending support, three targeted lending operations that support both strategic pillars. The US$25 mill ion Local Infrastructure Development Project expected for Board presentation in June 2005, i s designed to develop small-scale infrastructure in response to community needs and to instill transparent financing and public works contracting practices. Through the planned Natural Resources Management DPL in FY06 (US$15 million), the Bank w i l l support the establishment of transparent natural resource governance and law enforcement practices in the forest sectors, capitalizing on the recent wave of reforms and opening the door for similar reforms in the fisheries and mining sector. This operation w i l l also help improve the environment for investment by leveling the playing field and providing clear rules o f access to investment opportunities (e.g. auctioning of forest permits). The US$10 mill ion GEF grant w i l l support the sustainable management and development of Gabon’s national parks. The US$25 mill ion Infrastructure Project planned for FY08 w i l l be designed to improve the management of basic infrastructure to meet transport needs in the country and w i l l be complementary to other partners’ programs. In the High Case, a FY09 US$18 mill ion Diversification support operation w i l l build on the recommendations of planned advisory work provided through FIAS, IFR, and EITI, and w i l l develop the capacity of Gabon’s private sector to contribute to economic growth. A FY08 Natural Resources Management DPL wi l l build on the progress in the forest sector, and pursue improved practices in the fisheries, and mining sector.

Pillar 1: improved social outcomes

Strengthening the management of public resources (both natural and financial) for

Improving efficiency and equity in public expenditures

75. The main instrument to achieve this outcome will be a combined Public Expenditure ReviewKountry Financial Accountability AssessmentlCountry Procurement and Audit Review, planned for completion in FY06. The aim of th i s activity i s to improve public expenditure management and control systems, ensuring that allocated funds are used for the purposes they were intended and that they achieve the expected results. I t i s also expected that the exercise would incorporate a focus on poverty analysis, based on the results of the CWIQ survey and the GPRSP. The process i s planned to reinforce early implementation of the GPRSP by aligning budget planning to the GPRSP objectives. This exercise w i l l be reinforced by statistical capacity development activities to improve governance and accountability and measure progress in achieving results.

76. The implementation of the recommendations of the combined PEWCFAAKPAR report will be followed up through continuing dialogue between Government, other participating donors, the Bank and the IMF. A PER limited to expenditures in infrastructure across sectors, was carried out in 2000/2001 under the Urban LIL. Among the findings, three are o f particular interest in the context o f the current exercise: (i) more than 50 percent o f the public investment program (PIP) i s allocated to infrastructure, but the execution rate i s very low (less than 20 percent of infrastructure projects were actually carried out among those identified in the PIP); (ii) given the significance o f infrastructure in the PIP, the PER made some specific recommendations on how to carry out forthcoming PERs with a particular focus on infrastructure; and (iii) due to the low execution ratio, much attention i s needed in the management of public expenditures and public works contracts, which i s one o f the objectives of the new Local Infrastructure Development Project. The last recommendation i s particularly important for ensuring the sustainability o f SMEs, as contracts have suffered from poor management in the past (e.g., delays in payments of greater than 250 days).

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77. Under the Local Infrastructure Development Project (US$25 million) expected to be presented to the Board in June 2005, the capacity of local Governments and community groups will be strengthened to address local needs with their own resources. This would help relieve an unsustainable burden on central Government. The project has been prepared by PAPSUT, a semi- autonomous technical unit under the Ministry of Planning and Economy. PAPSUT was previously responsible for the successful implementation of the Transport Sector Technical Assistance Project (approved in FY95 and closed in FYOO), under which strategies were prepared for transport and urban sectors, and for the Urban LIL which tested key policy features of the urban strategy. This technical unit has now acquired considerable experience in promoting community-based upgrading of poor urban neighborhoods in Gabon.

78. Through consultation and training programs, the Bank will help strengthen the role of Parliament and civil society to monitor resource revenues and public expenditures. Capacity development exercises and continued information sharing through consultation w i l l help civi l society acquire more effective ways and means to exercise their oversight role (for example, by participating in the EITI consultative committee, the Forestry oversight body, forest zoning processes and the management o f community forests, and the public disclosure of relevant information, as well as the Urban Project’s community consultations). WBI support w i l l be mobilized to provide training to Parliamentarians and civi l society leaders. An IDF grant w i l l also be sought for t h i s purpose.

Improving revenue mobilization and ensuring sustainable management of natural resources

79. Under the EITI, the Bank will support government efforts to increase the share of oil revenues transferred to the Treasury (see Box 4). The intermediate output of EITI w i l l be the publication o f a report comparing all relevant extractive industry revenues received by Government with amounts paid by E1 companies, in a readily accessible and easily understandable format. An independent audit wil l ensure the integrity of the exercise, and appropriate legal, institutional, and financial arrangements w i l l be put in place to ensure the sustainability o f the process. The Bank w i l l continue to provide advice and assistance to the Government in the various steps of the implementation process by providing information on the EITI, advising on the design o f the associated information campaign, facilitating the dialogue with other stakeholders (civil society, companies), sharing other countries’ implementation experience, and providing comments on the reporting template and procedure.

80. The expected benefit of EITI will include an improved business environment, hence greater attractiveness of Gabon as an investment destination in the o i l and gas and mining sector. In addition, the participatory approach involved in the Initiative w i l l help initiate a broad-based debate on better use o f the country’s natural resources. The training associated with the implementation of the Initiative wil l help improve the ability of the Executive to devise sector policies and of Parliament to oversee the implementation of these policies.

8 1. The two Natural Resources Management Development Policy Loans (FY06, US$15 million and FY08, US$10 million) planned for the CAS period, will help to cement the implementation of reforms for more efficient, transparent and sustainable exploitation of natural resources, thereby also contributing to public revenue mobilization. The first operation w i l l build on the significant recent reforms already achieved in the forest sector (see paragraph 49), including the implementation o f the reform agenda set forth in the 2004 Forestry Letter o f Sector Policy which requires overcoming long- time vested interests. The operation w i l l help continue to improve tax collection from the forestry sector, and w i l l also lay the groundwork for future revenue growth from fishing and mining. Related key areas for improvement in managing natural resources which the operation w i l l assist in implementing are: (a) improving pricing mechanisms and transparency in allocating and managing exploitation rights, licenses and concessions; (b) securing collection of fiscal revenues; (c) managing the resource base sustainably;

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and (d) monitoring and enforcing contracts and laws, and applying penalties to reduce the appeal of non- compliance and secure a level-playing field. The choice of development policy loan as the instrument of Bank assistance i s based on the desirability of linking financial support to implementation o f reforms. The planned program wi l l strengthen the voice of reformers and increase their capacity to overcome resistance from vested interests. The choice of two DPLs for natural resources management, with the second being in the High Case, w i l l also help mitigate the risk of waning reform momentum.

82. The Natural Resources Management DPLs are also a f i r s t step in support of the Government’s efforts to build a sustainable and responsible fisheries sector and to complement activities of other development partners in the sector, such as AfDB, EU and Japan. The operations would focus on: upstream analysis to prepare a coherent strategy for the sector’s management and development; effective implementation of fisheries governance; greater transparency in order to lay the groundwork for sustainable management of fish stocks; building awareness o f responsible fisheries; and building the human and institutional capacity required to effectively manage the sector.

Completing and implementing the GPRSP

83. The Bank will continue to support the GPRSP process by participating in the final stages of preparation and the early stages of implementation, in collaboration with other development partners and civil society. The focus of Bank assistance w i l l continue to be expanding public participation in the process, improving the poverty database, supporting the development of statistical capacity, and developing mechanisms for future monitoring and evaluation, including strengthening their results-based orientation. These activities w i l l be expanded and strengthened over time as the momentum of GPRSP implementation picks up.

84. As part of this program, a new Poverty Assessment would be undertaken for completion in FY09. This assessment w i l l provide the basis for a more reliable analysis than was possible under the first Poverty Assessment. Together with the programs and sectoral strategies to be developed under the GPRSP, i t w i l l provide a stronger foundation for directing resources to poverty alleviation under the successor to t h i s CAS.

Addressing the challenge of HZV/AZDS

85. The Bank will seek to mobilize an IDF grant in FY06 to support institutional capacity development for the implementation of the National Strategy to Fight HIV/AIDS. The grant would be used to help strengthen government capacity to deploy resources secured from the Global Fund for HIV/AIDS control and prevention, to manage these resources efficiently, and to mobilize additional assistance.

Pillar 2: Improving the investment climate to foster sustainable, private sector-led growth

Improving the investment climate

86. The principal instruments for achieving this outcome will be the IFR and FIAS studies and implementation of the i r recommendations, together with monitoring critical business indicators. A first phase study has been conducted (see Box 1) and the Government has already held a workshop to agree on an action plan for implementing the recommendations. Work on the investment climate would also, as needed, address the remaining financial sector issues (see paragraph 23). In addition, the Government has set up a Good Governance Commission that i s designing a comprehensive Governance/Rule of Law Strategy. Government i s actively exploring donor interest in supporting, technically and financially, some of the components and activities of th i s strategy. Several donor-funded initiatives (AfDB, IMF, EU, and Canada) have components that address governance issues as well.

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87. In a high-case lending scenario (see paragraph 102), preparation of an operation to support diversification and associated capacity development would be undertaken during the CAS period. Aside from policy and institutional reforms, possible components of such an operation would include capacity development initiatives for the private sector in selected growth sectors, including oil, mining and timber-related industries, and tourism where public and private partners w i l l agree on specific measures to accelerate growth. In this context, the Government has expressed interest in replicating Bank-assisted experiences in supporting export diversification in other countries, such as Tunisia.

88. The diversification agenda will need to be accompanied by regulatory changes as well as technical skills upgrading in critical industry sectors. An overhaul of Gabonese technical training institutes and mechanisms to re-tool labor are needed as part o f the investment climate reform. The MIGA guarantee supporting the vocational training project w i l l support th is need. International experience shows that the collaboration of the private sector in the implementation o f national competitiveness enhancing measures i s essential. To facilitate t h i s collaboration, a private-public dialogue platform would need to be established. Government's capacity in economic planning and policy making needs to be strengthened, as well as the information base for such policies. Capacity development and streamlining o f public sector functions in economic policy-making are equally important. Under the planned Diversification operation, appropriate resources wi l l also be earmarked for activities aimed at strengthening the functioning o f Gabon's law and justice sector.

89. The two Natural Resources Management DPLs will help create more favorable conditions for future private investment in sustainable forestry and wood transformation industries. In addition, i t w i l l support the policy reforms and administrative capacity development needed to encourage future private investment in sustainable fisheries and mining. Parallel initiatives for biodiversity-related tourism activities w i l l be supported through a GEF grant for the National Parks. Through t h i s instrument of support, the Bank w i l l help Gabon improve the incentive framework for attracting socially and environmentally responsible investors and creating more jobs, especially in the forest sector. The two operations w i l l also support the promotion of national entrepreneurship, small-scale enterprises, and community forests. The potential of biodiversity and national parks to support the emergence o f a Gabonese eco-tourism industry and create jobs in rural areas s t i l l needs to be developed. In addition, by removing distortions and encouraging law enforcement the two DPLs w i l l contribute towards a level- playing field for private sector development in the forest, fisheries and mining sectors.

90. Ways to strengthen the environment for public private partnership in infrastructure development will be analyzed in an Infrastructure Framework Report scheduled for FY06. Based on successful implementation of the recommendations from t h i s report, it would be followed by an Infrastructure operation o f some US$25 mill ion in FY08.

91. The Mining Sector Review and support for EITI implementation will help to improve overall sector governance and efficiency and sustainability of investments in the mining sector. In addition i t w i l l assist with setting up and improving a framework and mechanisms for benefits sharing, and for the development of local communities. This Mining Sector Review, which would be undertaken only in a high-case lending scenario and would build on recent informal work by the World Bank Group on the mining sector, would promote the organization and formalization o f artisanal and small-scale mining and encourage socially and environmentally responsible practices. Under the High Case lending scenario, these non-lending activities would be followed by lending for a second Development Policy Loan (US$lO million) for Natural Resources Management, and a Diversification support operation (US$18 million, FY09).

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Building local capacity in the private sector

92. The Local Infrastructure Development Project will help develop capacity among small private contractors to carry out small-scale construction activities financed by neighborhood groups and local Governments. The Project w i l l continue strengthening the sk i l l s of local contractors and consultants, and w i l l assist them to find steady employment by earmarking portions o f the Public Investment Program to be awarded through local competitive bidding for implementation by small contractors.

(ii) Regional Dimension of the World Bank Group Strategy

93. I t i s important for Gabon to continue to exercise its leadership and to honor i ts commitments to the sub-region. Gabon’s rich reserves and prime coastal location give i t a fundamental role in continuing to improve the depth of regional integration in the CEMAC region. First, Gabon w i l l need to help ensure that the CEMAC macroeconomic convergence criteria continue to be adhered to and that the system o f multilateral surveillance functions effectively. Second, Gabon, together with Cameroon, w i l l have to ensure that large transit taxes and administrative barriers to trade are progressively dismantled, and that transport logistics are strengthened (or facilitated), in order to improve the efficiency of the sub regional transit corridors and to protect the interests of the landlocked countries. Third, Gabon w i l l need to honor i t s commitments to the regional compensation fund, which was set up to compensate the poorer, land-locked countries (e.g., the Central African Republic and Chad) for the loss o f tariff revenues when they joined the CEMAC union. Finally, Gabon can act as a facilitator for sub- regional projects and initiatives in order to accelerate the momentum of regional integration.

D. Scenarios and Triggers

94. Gabon is currently in the Base Case, based on the sustained recent improvements in macroeconomic and fiscal management under the IMF-supported program, and parallel progress in implementing reforms and GPRSP preparation. In the Base Case, the lending program planned for FY05 to FY09 i s around US$65 million, together with US$11.5 mill ion in IDF and GEF grants. Lending in FY05 includes the US$25 mill ion Local Infrastructure Development Project which builds on the successful experience of the Urban LIL. The first US$15 mill ion Natural Resources Management Development Policy Loan (DPL) in support of the 2004 Letter of Sector Policy i s planned for FY06, associated with a US$10 mill ion GEF grant which would support the sustainable management and development of Gabon’s national parks. A US$25 mill ion Infrastructure Project i s planned in FY08 in response to the client’s request to receive Bank assistance to improve dilapidated infrastructure, notably roads. The Bank’s support wi l l complement projects financed under other donor programs, and wil l focus notably on the enabling policy and institutional framework for infrastructure services. Finalization o f the project w i l l be predicated on measures to ensure i t s success being in place (e.g., a working second generation road fund). In addition, three IDF grants of US$500,000 each would be sought in FY06 and FY07 to support (i) institutional capacity development for the implementation of the National Strategy to Fight HIV/AIDS; (ii) capacity development to monitor the GPRSP; and (iii) capacity development for parliamentarians and civi l society.

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95. Non-lending activities in the Base Case include continuing support for GPRSP preparation, public financial management, private sector development, and capacity development. Specifically, informal work wil l include monitoring the macroeconomic environment, strengthening statistical capacity, and providing support for the national GPRSP process. Building on the Bank’s current involvement, this support w i l l focus on improving the quality of poverty data, building a performance monitoring and evaluation system with enhanced results focus, and improving the scope and effectiveness o f public consultations. The Country Office wi l l continue to provide leadership in disseminating information about the Bank’s program and carrying on continuing consultations with all relevant stakeholders, including development partners. Scheduled AAA outputs include, in FY05, the first-phase FIAS study (already completed) to improve the business environment, and support for the implementation o f the EITI. Planned FY06 outputs include second- and third- phase FIAS studies, an Infrastructure Framework Report, continued support for EITI implementation (leading to the publication of EITI compliant revenue reports), and a combined Public Expenditure Review, Country Financial Accountability Assessment and Country Procurement and Audit Review, as well as support from W B I for NGO capacity development. In FY09, the Bank would continue support to NGO and Parliamentary capacity development and the GPRSP implementation process, and assist the Government in completing a comprehensive assessment of poverty.

96. Up to now, IFC’s direct investments have been modest, and have mainly involved natural resources operations where Gabon has a competitive advantage. IFC cumulative commitments in Gabon total US$226 mill ion and have been in oi l development, mining and pulp and paper. IFC also advised on the successful privatization of SEEG, the National Electricity and Water Company. In line with i t s strategic initiative for Africa, IFC’s program i s centered on three major pillars: (i) a proactive role in the pursuit of direct investments; (ii) active support to enhance the business environment; and (iii) enhanced support to SMEs. In addition to the existing projects, IFC has a portfolio exposure for direct investments in Vaalco (a small offshore o i l project) and Olam (a multi-country trading sector investment that includes forestry activities in Gabon). IFC i s currently processing a regional US$18 mill ion infrastructure financing operation for a company whose largest operation i s in Gabon, and a proposed US$35 mill ion financing for o i l production expansion project with Vaalco. While the future focus w i l l be on infrastructure and support to the sustainable development of the country’s natural resources, IFC plans to enhance i t s field promotion activities in order to pursue bankable opportunities regardless o f sector.

97. There i s potential for IFC to play an increasing role in the promotion of small and medium enterprises in Gabon. IFC’s most recent contribution on the SME front has included the delivery of nine training programs to women entrepreneurs, in collaboration with Gabon’s national employment office. Further involvement i s being considered following the phase-out o f the Africa Project Development Facility (APDF) and the introduction of Private Enterprise Partnerships for Africa (PEP Africa). PEP Africa w i l l be a more sector-focused initiative where new programs w i l l be designed and prioritized based on criteria such as impact, integration with direct investment activities, and support from local authorities. Although in the short term direct investments w i l l be IFC’s primary focus in Gabon, over the medium term IFC wi l l rely also on the contribution o f FIAS to the improvement of the business environment. I t should be noted that given Gabon’s status of “resource-rich’’ country with more than 50 percent of government revenues coming from extractive industries, favorable consideration by IFC of investments in the oil, gas, and forestry sectors also depends on the country’s progress in improving transparency in the extractive industries. Government engagement in the EITI process i s an important step forward in t h i s respect.

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98. Gabon became a member of M I G A in 2003. Since then, two projects have been presented to MIGA for consideration. One, the US$61 mill ion Vocational Training Centers Rehabilitation Project, i s expected to be presented to the Board in May 2005. This project i s MIGA’s first in the education sector.

99. Other development partners plan lending and grant support in areas that complement the Bank’s areas of comparative advantage (see Annex 5). Major lending by other development partners foreseen for the CAS period includes €14 mill ion from AFD (France) for priority drainage and sanitation improvements in Libreville, and €33.5 mill ion from the African Development Bank (€20 mill ion for improving technical and professional education, and €13.5 mill ion to support the social costs o f privatization). AFD i s also interested in investing in the mining, forestry, fisheries, and transport sectors. The AfDB i s considering additional support to improve the business environment in the wake o f privatization. Apart from these projects, most o f the planned donor support w i l l come in the form o f grants, including substantial amounts from the EU, GEF, and France in support of forestry and biodiversity initiatives, rural water supply, education and health services, improved governance, and capacity development.

100. The above work program corresponds to the Base Case, which would be marked in particular by Gabon maintaining satisfactory macroeconomic performance and continued progress on the key sectoral reform agenda, notably in forestry. Under t h i s scenario, i t i s expected that the GPRSP would be completed and approved by Government and by Parliament before the CAS Mid-Term Review. Criteria for remaining in the Base Case would be:

0 Satisfactory macroeconomic performance as evidenced by, inter alia, a successor arrangement with the IMF following the expiration of the Stand-By in June 2005 and continued satisfactory performance under such an arrangement;

Continued progress in the implementation o f the forest reform agenda as evidenced notably by continued implementation of the moratorium on allocation o f new permits until the new transparent auction procedures are implemented.

In addition, even if the base-case criteria continue to be met, moving forward with the planned € T O 8 Infrastructure project would require that a working second-generation road fund be in place.

101. Failure to meet the above criteria would trigger the Low Case. The Low Case would involve no new lending and a reduced level of AAA support. However, the Bank would continue to support the GPRSP process and civi l society consultation and capacity development activities of the Country Office. An IDF for HIV/AIDS would s t i l l be sought in FY06.

102. The High Case would involve a modulated approach. In the f i rst instance, i f a track record o f satisfactory performance in the Base Case i s established and, beyond this, significant progress on reforms in the natural resources sector i s made, a second Natural Resources Management DPL (US$lO million) would be prepared for Board presentation in FY08. This operation would help sustain and further deepen transparency and accountability in natural resources management. Inputs for this project would include the Mining Sector Report in FY07. Criteria for moving forward with this operation would be:

Full and effective abolition of SNBG export monopoly by January 2006, following the decision that was taken by Government to this effect in December 2004 (see paragraph 49); Full implementation of EITI as evidenced by publication of the reconciled reports of payments and revenues audited by an independent auditor, as well as establishment of an EITI compliant mechanism for civi l society oversight (see Box 4).

0

0

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103. accelerate improvement in the business climate are met, a Diversification operation (US$18 million) would be prepared for Board presentation in FY09. This operation would act as an umbrella to promote diversification and job creation in non-oil sectors (both natural- resource-based and others). Inputs for this project would include the second and third phase of the FIAS report, as well as the Infrastructure Framework Report. Criteria for moving forward with t h i s operation would be:

In the High Case, assuming performance continues to be satisfactory and conditions to

0

0

Completion of the privatization of Gabon Telecom as evidenced by the conclusion of a transfer agreement; and Implementation of FIAS first-phase main recommendations (see Box 1) on procurement and property rights:

(i) Regular publication of public procurement opportunities and contract awards, or implementing an equivalent measure to improve transparency in procurement proposed by the joint PEFUCFAA/CPAR; and Clarifying procedures and reducing delays to secure definitive real estate titles, and informing the public of the revised procedures.

(ii)

104. objectives, instruments, outputs and outcomes are shown in the Results Matrix in Annex 1. Progress toward achieving the outcome indicators w i l l be followed by the Country Office twice-yearly through systematized consultations and review of national economic and poverty indicators. A mid-term CAS review w i l l be undertaken and a progress report prepared by early FY07 (earlier if warranted). On the basis of this review, a move to the high-case lending scenario would be considered if the assessment justifies it.

Monitoring and Evaluation. The relationship between government goals and objectives, Bank

105. The World Bank Group’s work program will be coordinated with those of the other development partners, through the GPRSP process, sector-wide operations, and ongoing communication and consultation with other development partners present in Gabon, who also see capacity development as a key objective. The monitoring and evaluation system proposed in the GPRSP, once implemented, w i l l serve to monitor future government performance on an agreed basis for the entire donor community.

106. Bank Exposure. The portfolio r i s k s are manageable in the CAS period. Creditworthiness indicators are moving in the right direction although the preferred creditor ratio w i l l continue to increase due to bilateral debt being paid down and new financing from bilateral sources principally in the form o f grants. To mitigate this risk new IBRD lending w i l l be aligned to continuity of reform, including those in the forestry, mining and fisheries sector.

Table 9: IBRD Debt Exposure Indicators 2001 2002 2003 2004 2005 2006

IBRD DS/ public DS 1.9 2.6 2.5 2.5 2.3 2.3 Preferred creditor DS/ public DS (%) 13.2 3.8 25.2 15.7 17.5 17.1 IBRD DS/ XGS 0.7 0.7 0.7 0.7 0.9 1 IBRD TDO ($US million) 55 50 49 38 37 52

Sources: Government of Gabon, IMF, and Bank staf f estimates

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VI. MANAGING RISK

107. A key external risk affecting the ability of this CAS to achieve the desired results would be a sharp drop in petroleum prices. This would undermine government revenues and put the country at risk of being unable to meet i t s commitments to the IMF and the Paris Club. Conversely, the persistence of high oi l prices (above US$40 per barrel) could reduce the incentive for transparency and trigger a sh i f t to the low-case scenario. The current outlook i s for world petroleum prices to remain stable (at the average o f last year’s levels), though there may be short-term fluctuations due to temporary imbalances between supply and demand. A related risk has to do with the ability o f Gabon to maintain i t s current production levels. Production i s projected to decline and these projections have been taken into account in establishing the medium-term framework. The risk of a sharper decline i s relatively small, whereas the upside risk o f discovering new reserves or new ways of increasing petroleum production from current fields i s more significant.

108. There i s a risk that Gabon’s debt burden would again become unsustainable. The debt burden of Gabon i s substantial, but the country has recently improved i t s overall debt management strategy, particularly through Paris Club rescheduling, and the planned IBRD lending w i l l not materially affect the country’s debt position. The assumptions underlying the medium-term outlook however, are extremely sensitive to the development of oi l production and prices and to non-oil output growth. I f o i l revenue windfalls are applied to debt reduction, this w i l l help mitigate the risk that the debt burden would again become unsustainable. Continued donor coordination, as well as IMF oversight, should help to ensure that the Government does not embark on financing o f overly large investment projects or again become involved in unsustainable borrowing.

109. A key internal risk i s a departure from the recently-recovered sound fiscal management practices, which may occur in the context of the upcoming Presidential election or for other reasons. This could also disrupt relations with the IMF and limit the ability of the Treasury to meet budget requirements, with a consequent reduction in public expenditures for poverty alleviation or other development purposes. To mitigate this risk, the Bank and the IMF wi l l seek to maintain a constant dialogue with Government to ensure that public expenditures remain on track. Failure in t h i s area would mean that Gabon would move to a Low Case and would receive less support from the Bank. At the project level, training for project staff and effective supervision should maintain portfolio performance in satisfactory status. The PER-related exercise in FY06 should also help reduce the risk of delays in counterpart funding.

110. A related risk i s that the commitment of Government to structural reforms will falter and/or that vested interests will succeed in preventing such reforms from being implemented. Currently, in part owing to the increasing urgency of o i l reserve depletion and o f diversifying the country’s sources of income, a critical mass o f government commitment to reform implementation i s apparent, with leadership from the senior-most authorities. Success in privatizing public enterprises, bringing the debt problem under control, gradually improving the transparency of forest resource management, and restoring the Road Fund has strengthened the hand o f the reformers in Government. And unless the upcoming Presidential election brings about major change in the policy direction espoused by the current administration, an eventuality viewed by most political observers as unlikely, government commitment to the ongoing reform process i s likely to be strengthened rather than weakened over the next five years. Technocrats, particularly younger ones, are increasingly aware that reforms are necessary to avoid a progressive undermining o f the system and to preserve social peace, which i s viewed as increasingly fragile in many circles. A stronger role for Parliament, the private sector, and civil society w i l l also help to hold the Government more accountable. This role w i l l be underpinned by Bank and other donor activities to support improved governance and capacity development.

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11 1. There is nevertheless some risk that the upcoming Presidential election would result in a major change of Government, bringing a new set of stakeholders to the table and slowing the pace of reform. While this risk i s considered to be small, in the event that i t does occur, the Bank would undertake extensive consultations with members of the new Government to determine i t s commitment to the strategy outlined in the present CAS and the appropriate course of action for the Bank to pursue.

VIII. CONCLUDING REMARKS

112. Gabon i s facing a great challenge. Replacing declining petroleum production with other sources of income w i l l prove difficult: Gabon w i l l have to dramatically increase the efficiency with which it uses i t s existing public resources; i t w i l l also need to improve the business climate to foster private investment in the non-oil sectors. The World Bank Group has been asked to help Gabon implement the right policies to ensure that the current window of opportunity - clear signs of commitment on the part of the country’s top leadership to sound macroeconomic management and to implement difficult, far-reaching reforms - i s not lost. In partnership with other development partners, the Gabonese civi l society and private sector, the World Bank Group i s well-placed to help Gabon succeed in diversifying i t s economy and improving social outcomes.

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00 c

I Q\ 3

-0 I- 9

ANNEX 2. Capacity Building for Parliamentarians

Challenges: constituents’ needs and i t s contribution to designing and overseeing government-led initiatives.

The Gabonese Parliament faces challenges in terms of i t s capacity to voice i t s

The first challenge i s political: in both chambers, the ruling party (Parti Democratique Gabonais (PDG) holds an overwhelming majority of seats. The remaining seats are held by weak opposition parties or parties that have allied with the PDG. Substantial amendments to government-submitted laws are rare, i t s policies are hardly ever questioned and very few legislative propositions are introduced by the Parliament. The credibility o f both chambers i s therefore weakened, particularly that o f the Senate which was created in 1996 and i s perceived as a venue for retired friends of the ruling regime. Their capacity to represent their constituent’s needs and concerns i s questioned.

The lack of information available to the Parliamentarians constitutes a second challenge. They are poorly informed on key issues (such as NEPAD, the GPRSP process, and the HIPC initiative, including eligibility criteria) and on Government policies. Parliamentarians do not have easy access to negotiated agreements between the Government and third parties and are not aware o f the international institutions’ procedures and follow-up mechanisms. This situation undermines the Parliament’s ability to question the executive and it also weakens i t s role of communicating and explaining policies and issues to member constituencies.

The lack of institutional training of the members of Parliament represents a third challenge. Some members do not have a lot of experience in parliamentary procedure or in dealing with policy issues and are not fully aware of their functions and responsibility. Some members o f the Finance Committee lack the necessary training to analyze the budget.

Bank Response The Bank plans to assist the Parliamentarians by enhancing their capacity to shape public policy and represent the population through programs supported by WBI and/or the Country Office. These programs w i l l consist o f

1.

2.

3.

4.

5.

6.

7 .

8.

Organize roundtables with both Chambers of Parliament to present the Bank, i t s procedures, and i t s relationship with Government and c iv i l society. The members of Parliament asked for a sustained dialogue with the Bank during the CAS consultations. Quarterly meetings were suggested. Finance training programs for Parliamentarians (on how to read a budget, on good governance, on control mechanisms, on issues relating to responsibilities, etc.). Previous field visi ts to other countries have been much appreciated by the Parliamentarians who find them useful in terms of networking, knowledge-building and information gathering. Encourage the Government to thoroughly involve Members of Parliament in the formulation and implementation of the GPRSP. Assist Parliamentarians to better represent the interests of citizens in the policy process, particularly in the context of the GPRSP. Promote dialogue and interaction between Civ i l Society Organizations and members of Parliament. Assist in strengthening the internal organization o f Parliament (for example, strengthening committee system, investing in Information and Communication Technology (ICT) so as to improve the research capacity o f Parliamentarians). Enhance public awareness o f the role o f Parliamentarians. Support and coordinate actions towards Parliamentary capacity-building undertaken by other donors (UNDP for example).

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ANNEX 3. CAS Consultations

The consultations for the CAS 2005-2008 were carried out between October 27, and December 20, 2004. Fourteen meetings were held in which more than 410 people participated. The reasons behind this very extensive consultation process were two-fold: first, the World Bank wanted to obtain a wide range of views and opinions from all sectors of society on the development needs and issues faced by the country and on suggestions on how the Bank could assist in addressing those needs. Second, the Bank sought to respond to the necessity made apparent in the evaluation of the previous CAS (1998-2004) o f making itself more known on the ground and extending i t s outreach.

The groups consulted included members of the Government, the Senate, the National Assembly and the Judiciary. The Bank also organized a significant number o f meetings with civi l society (non- governmental organizations, associations, unions, academia, private sector and the media). I t was decided to hold separate meetings with national business associations and foreign employers, although both representing the private sector, as their concerns differ extensively. The Social and Economic Council, a constitutionally-entrenched advisory council composed of high-level representatives from every sector o f society also took part in one meeting.

In addition, the Bank sought the opinion of Gabonese residing outside the capital. Two consultations took place in cities in the interior of the country, in both cases with a cross-section of stakeholders. The first one was held in Port-Gentil, Gabon’s second most important city and the country’s petroleum and financial capital. The other was held in Franceville, Gabon’s third main city and the center o f the country’s mineral industry. Besides representing Gabon’s economic poles, these two cities were pertinent for the consultation process as they are both beneficiaries of Bank-financed projects.

The consultations, conducted by the Country Representative, were facilitated by a highly- respected member of civi l society. The Country Director, on a mission from Washington, was present for the meeting with the National Assembly. The feedback from the consultations has been shared with the government whose representatives participated in some o f the events.

Each o f the consultations followed the same process. Either the Country Representative or the Resident Economist made a short presentation explaining the strategic pillars of the draft CAS 2005- 2008, i t s measurements and the r isks that could impede i t s implementation. A brief presentation o f the workings of the World Bank and a report of the conclusions of the last CAS (1998-2004) were also included in the presentation. A discussion followed, aimed at obtaining feedback on (1) the pertinence of the proposed Bank interventions to assist the Government’s ongoing efforts to diversify the economy, generate employment in the private sector and address poverty; (2) the appropriateness o f the proposed assistance scenarios and triggers; and (3) whether the development of a stronger civi l society constitutes a means to increase transparency, good governance and better planning for social services delivery.

To summarize briefly the main conclusions of the consultations, the direction and pillars of the draft CAS were broadly endorsed. However, the participants emphasized the need to improve the education system, invest in roads, develop the agriculture sector and curve the spread o f HIV/AIDS. In addition, the people consulted repeatedly asked the Bank to establish a direct partnership with civi l society, without the involvement of the Government of which they distrust the capacity and w i l l to implement development-related projects and reforms. Because the World Bank’s presence in the country has not been sustained over the last decade, the participants also took the opportunity to voice their questions and concerns regarding the World Bank, i t s procedures and i t s relationship with the Government. I t was thus an occasion for the Gabonese to air grievances and for the World Bank to explain misunderstandings. I t was agreed that the Bank needed to extend the dialogue and the outreach and inform the public of i t s activities in Gabon.

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Overall, the stakeholders consulted appreciated the fact that they could express their concerns and give suggestions directly to representatives of the World Bank. This enthusiastic response to the consultations made i t clear that a more systematic and sustained participatory process was in demand within c iv i l society and was necessary to achieve the proposed goals.

See the table below for a detailed description of the points discussed during each consultation, the comments regarding the Bank’s involvement in Gabon as well as the underlying issues that shaped the orientation of the debate.

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e m

ANNEX 4. Country Assistance Strategy Completion Report

Country: Gabon Date of CAS: September 22, 1998 N o Progress Reports

Period Covered by the CAS CR: September 22, 1998 to June 30,2004

CASCR Completed by: Mehrnaz Teymourian, Country Manager Cynthia Cook, Consultant

Date: September 16,2004

Background

Gabon i s a country of some 268,000 km2 with a population currently estimated at 1.3 million. An estimated 75% of the population i s concentrated in two cities (Libreville, pop. 450,000, and Port Gentil, pop. 100,000) and some 50 smaller towns. The country i s r ich in natural resources, including petroleum, manganese and other minerals, and tropical forests. The rural areas are virtually empty (population density <2 persons/km2) as many residents have migrated to urban centers in order to access public services and to participate in an economy based largely on the redistribution o f rents from resource extraction. The country has also received a significant stream of migrants from other countries along the coast, who are active in the formal and informal sectors o f the economy. There i s a significant presence of foreign investors, mainly French, who have developed the nation’s natural resources in partnership with the Government.

Located on the west coast of former French Equatorial Africa, Gabon has played a strategic role in maintaining peace and stability in that region since i t s independence in 1960. Gabon has experienced extraordinary continuity in i t s domestic political regime. I t s Independence hero and first president, Leon M’ba, died in office in 1967. The presidency was then assumed by Albert-Bernard Bongo (now known as El Hadj Omar Bongo Ondimba), the leader of the nation’s single political party. In 1990 a new constitution was approved, establishing a multiparty system of democracy. President Bongo was re- elected in 1993 and again in 1998. In addition to maintaining relative social peace internally, the regime maintains close links to France and has played an important part in mediating conflicts in neighboring countries. Gabon aspires to become a leader in the emerging Central African economic community.

Gabon i s a rich country by African standards. With a GNP equivalent to about U S $4 billion, Gabon’s per capita income i s over $3,000, making i t ineligible for IDA borrowing. Revenues are derived largely from petroleum exports, with additional contributions from manganese mining, wood and wood products. Agriculture adds less than 10% to GDP, with the balance about evenly divided between industry and services. During the o i l boom o f 1973 to 1985, the government adopted a paternalistic approach to poverty reduction by promoting full employment, providing generous wages in the public and parastatal sectors, and establishing an elaborate social security system. This approach brought benefits to the urban elite, which were further shared through family networks, and helped to trigger a massive rural exodus.

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This approach was successful in reducing the incidence of extreme poverty in the country, but did little to reduce relative poverty. Furthermore, i t encouraged the growth of a dual economy, in which rural areas were marginalized and the output of tradable goods, particularly agriculture, decreased (the “Dutch syndrome”). The government invested heavily in capital projects and industries, assuming substantial debt in the process. Despite high education and health expenditures, the regressive design and inefficient management o f these services made little impact on social indicators, making them comparable to those for poorer IDA-eligible African countries.

The World Bank was involved with Gabon in the early years of independence through projects in roads, education, urban water supply, and manganese mining. During the o i l boom, however, Gabon did not see a need for IBRD borrowing. After the o i l crisis in 1986, the Bank again supported Gabon through a Structural Adjustment Loan, a Technical Assistance Project aimed at improving macroeconomic management, and a Road Maintenance Project. However, due to deteriorating terms of trade for i t s principal exports and overvaluation of the CFA franc, Gabon’s economic performance continued to weaken. The devaluation of 1993, accompanied by an Economic Recovery Loan and an IMF Stand-by arrangement, enabled Gabon to restore macro-economic stability. Gabon took the lead among Central African countries in revising trade and investment incentives, reducing or eliminating barriers to trade and special privileges. In 1995 Gabon embarked on a more ambitious reform program supported by a three- year extended arrangement with the IMF. Though th is program encountered internal and external difficulties in execution, i t demonstrated the commitment of the authorities to improved macroeconomic management and restored growth.

Gabon’s first CAS was prepared in 1994 and accompanied the Economic Recovery Loan (ERL). A prior operation, the Forestry and Environment Project (FY 93), supported institutional reform and capacity building in the forestry sector. The CAS also envisaged for FY 94 and FY 95 a quick-disbursing Public Sector Restructuring Loan, a Transport and Urban Infrastructure Technical Assistance Project, and an Agriculture Services Project. For the outer years of FY 96 and FY 97, i t anticipated lending support for human resource development, a policy-based operation in the transport sector, and investment operations in transport and urban development. The ERL closed on time with satisfactory ratings. The TransportAJrban TA Loan was approved as foreseen in FY 95, and was s t i l l under implementation at the time o f the 1998 CAS. Progress on privatization was slower than expected, and the Privatization and Regulatory Capacity Building Project was only approved in FY 97. An Urban LIL, based on a successful pilot under the TransportAJrban TA Project, was approved in early FY 99. In addition, a Regional Environmental Information Management Project funded by GEF and based in Gabon was approved in FY 97. In other sectors, the anticipated operations did not materialize.

In 1995, the World Bank carried out a Poverty Assessment (PA) in Gabon. I t analyzed data from the 1993 General Population Census and the 1994 Household Expenditure Survey (the latter limited to about 400 households in Libreville and Port Gentil), as well as from participatory discussions with poor people in Libreville and some towns o f the interior. An urban absolute poverty line was established, based on the HES results, at about U S $700 per capita income or approximately twice the rural absolute poverty line of a dollar a day (US $365 per capita). The relative poverty line was set at the legal minimum wage, corresponding to a per capita income of about U S $1,450. Using these definitions, the study showed that while absolute poverty had dropped from 66% to 23% between 1960 and 1994, relative poverty had declined only slightly, from 87% in 1960 to 83% in 1994. There were dramatic differences in standards of l iving between the elite minority and the vast majority of the population, including many public employees who had to make their incomes stretch to meet the needs of large extended families. There were also important rural-urban and inter-provincial disparities in poverty and social indicators.

The report proposed the broad outlines o f a poverty reduction strategy for Gabon. The priority goals proposed for such a strategy were: (a) reducing unemployment, (b) raising incomes for small

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farmers, (c) improving basic public health, (d) rehabilitating the urban environment, (e) reforming social protection policies, and (f) establishing a reliable statistics system. The Bank study identified several preconditions for the success of such a program: disengaging the state from industrial and commercial activities and redirecting the resources saved to programs directly benefiting the poor; creating an enabling environment for private sector development that would promote the growth of labor-intensive rather than capital-intensive activities; and improving the transparency and efficiency of budget management by promoting community involvement in service provision and facilitating the emergence o f NGOs.

The Poverty Assessment was carried out under the guidance of an Inter Ministerial Technical Committee chaired by the Ministry of Planning, and in collaboration with other donors, notably UNDP and France. The PA and proposed strategy were discussed and disseminated at a national seminar in 1997, and i t s recommendations were formally adopted. Nevertheless it remained an externally driven study, with little real ownership from Government for the poverty alleviation agenda.

Dialogue between the Bank, the IMF, and the Government of Gabon was made more difficult by the lack o f local representation. In 1996 the Bank opened a small office in Libreville and assigned a Resident Economist to improve contact and communications with the country. In 1997/98, with Presidential elections approaching, the Resident Economist led the team that prepared the 1998 CAS, in consultation with other donors and with reform-minded members of the Government.

A. Long Term Strategic Goals

The Government’s long term strategy, as described in the CAS, was to reduce i t s dependency on o i l revenues and foster private sector-led growth in other areas.’ This strategy had three pillars: (a) maintaining a stable macroeconomic framework, (b) providing an enabling environment for private sector development, and (c) developing policies to diversify the economy. Under macroeconomic stability, the Government’s stated goals were to broaden the tax base, reduce the tendency to respond “pro-cyclically’’ (that is, by increasing public expenditures and employment rather than decreasing them) to external shocks, and complete the ongoing program o f trade liberalization. The program for private sector development included increasing the pace of privatization, improving the legal and regulatory environment, implementing a National Employment Plan, and reducing infrastructure bottlenecks, in particular, adopting a strategy to guide urban development. Action to diversify the economy would be based on a rural development strategy that would address the potential for smallholder development o f perennial crops in connection with the privatization o f Gabon’s major agro-enterprises, promoting the wood transformation industry, and exploring the potential for further development of fishing and tourism, as well as support services for extractive industries. Poverty alleviation and the other Multilateral Development Goals (not yet articulated in 1998) did not appear among the Government’s long term objectives.

The CAS states that the Gabonese authorities wished Bank support in preparing a medium-term development strategy that would be based not only on the goals outlined in Gabon 2025, but also on the poverty reduction strategy proposed by the Bank and adopted by Government in 1997. Based on the assumption that the Government agreed with and accepted the Bank’s analysis, the CAS described the second and third objectives o f the Government’s development agenda as “addressing deficiencies in human development” and “reinforcing the capacities o f c iv i l society.” To implement the second objective, i t would be necessary to improve the delivery and management o f public goods and services, including health and education, social protection, environmental management, and poverty monitoring.

The documentary basis for this strategy i s not clear. The CAS cites Gabon 2025, a long-term vision study prepared 1

with UNDP financing.

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In addition, the management of public finances would need to be improved, and civi l service reform would be needed to build the capacity to implement poverty-oriented reforms. The third objective, reinforcing the capacity of civi l society, was seen as a key element in improving governance and the sustainability of economic reforms.

During the CAS period and beyond, the Government made limited progress towards achieving i t s long-term goals. Economic growth stagnated, although non-oil revenues increased slightly replacing somewhat the declining o i l revenues. The tax base was broadened marginally and the program of trade liberalization was largely completed. However, the Government did not succeed in adopting countercyclical expenditure policies, nor did i t succeed in convincing lenders to restructure or reduce i t s external debt. Progress on privatization was slow and uneven, despite strong support from the Bank and the IMF. Various reforms designed to improve the legal and regulatory environment for the private sector have been prepared, and some have been adopted. However, they are yet to become effective due to capacity constraints as well as resistance from vested interests. An autonomous Road Fund was established to manage and maintain the nation’s road network, and concessions were awarded to the private sector for the management of key ports. Major difficulties were encountered in an attempt to privatize the operations of the railway, and pre-privatization restructuring has only just started for Air Gabon. An urban development strategy was adopted in 2000, but it has not yet been implemented. As a result, relatively little progress has been made on diversification of the economy.

During this same period, a dialogue was initiated and maintained between the Bank, supported by the IMF, IFC, and other donors, and the Government, through which some progress has been made towards developing a commitment to poverty alleviation and good governance as proper roles for the State. This process culminated in the preparation of an Interim Poverty Reduction Strategy Paper adopted by Government in late 2003.

The poverty alleviation agenda as outlined in the CAS was clearly too ambitious given the limited Bank resources that could be devoted to supporting t h i s effort. Although current data are largely unavailable and existing data are unreliable, social indicators seem to have worsened, if anything, over the CAS period. Members of the Government o f Gabon were consulted during the preparation of the CAS, but the Government never formally agreed to accept i t as their own.

B. CAS Objectives

Based on previous experience, the CAS team concluded that policy dialogue, ESW, technical assistance, and an active presence in Gabon had been more effective instruments o f assistance than project lending. Thus, the CAS recommended that the Bank’s assistance should be aimed at catalyzing domestic and international partners to help the Government address poverty. The objectives of the CAS were stated as:

0

0

0

0

Support reforms in public finance management with a focus on poverty alleviation sectors, Help establish or reorient sector strategies in key areas where they would have a direct impact on poverty, Foster transparency and improved governance, and Support the privatization process while leveraging other donor resources in support of private sector development.

The CAS envisaged two assistance scenarios for the period 1999-2001. Under the Base Case, macro-economic stability would be maintained as evidenced by compliance with an IMF program; the Government would make satisfactory progress in formulating a Medium-Term Expenditure Framework

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for health, education, and rural development; progress on privatization would continue; and the Bank portfolio would remain in satisfactory status. Given t h i s scenario, the Bank envisaged two new lending operations, a Public Sector Reform TA Loan and a Railway Rehabilitation Project, as well as substantial non-lending support to improve budget management and the effectiveness of social sector expenditures. The Low Case would be triggered by a lack of compliance with any of the above criteria, and would involve no new lending operations and a more limited provision of non-lending services.

Specific actions and progress indicators were set out in an annex table, organized around the three pillars of (i) fostering non-oil private sector led growth, (ii) strengthening public sector effectiveness and efficiency, and (iii) building civi l society capacity (see Annex A to this report). The matrix showed proposed outcomes and progress indicators for the Government of Gabon as well as for the Bank program. In fact, the achievement of the Bank program depended heavily on the Government’s doing i t s part; the Bank program was mainly to provide technical advice and to comment on Government proposals. The matrix shows that the strategy relied heavily on policy advice to accomplish the objectives, and also on the cooperation of other development partners. A summary table on the following page shows the CAS objectives and the instruments that were expected to help achieve those objectives. Although little new lending was proposed, the strategy relied on sector dialogue that was ongoing under existing projects (Transpof l rban TA, Forestry and Environment, and Privatization TA) and the demonstration effects expected from the recently approved Urban LIL. In addition, an IDF grant had recently been approved to help the Government increase capacity in the civi l service.

The lending and non-lending programs foreseen in the CAS and actual results are shown in Annexes 2 and 3. The CAS promised that key parameters, including shifts in the numbers of people below the poverty line, increases in educational attainment, l i fe expectancy, and changes in infant mortality and AIDS morbidity would be monitored in collaboration with Gabonese authorities, while semi-annual joint IMF/Bank missions would monitor macroeconomic performance. In summary, the CAS called for the Bank to play the role of “Knowledge Bank” for Gabon rather than that o f a traditional lender.

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Objectives Instruments Partners

service

management

Fostering non-oil private sector-led growth

stability Public Sector Reform TA WWF (for debt swap)

Promote trade Policv advice IMF

Maintain macroeconomic Policy advice LTvlF

UNDP (training) ~

I Ensuring effective provision of

Promote the private sector (a) Continue privatization (b) Rural sector strategy (c) Institutional framework

(b) Education

Privatization TA Public Sector Reform TA Policy advice

IMF, IFC, AfDB, UNDP France, AfDB, other donors L O , IMF, AFD, UNDP, FIAS,

(d) Environmental protection

Forestry and Environment Project Transport/Urban TA Privatization TA Policy advice Privatization TA Urban LIL Policy advice

Policy advice

Transport/Urban TA Privatization TA

(d) Financial sector deepening

(e) Readapt labor force to market needs Public Sector Reform TA (f) Improve efficiency of the transport system Railway Rehabilitation

e) Information and knowledge i management

MIGA, UNDO

IMF, NGOs, Canada, UNDP, AfDB

IMF, L O

IMF, AFD, AfDB

Capacity Building Initiative Public Sector Reform TA Policy advice Public Sector Reform TA Support from ED1 (WBI) Capacity Building Initiative Transport/Urban TA Urban LIL

Strengthening public sector effect Building capacity in the civil

Policy advice Public Sector Reform TA Policy advice Public Sector Reform TA Policy advice

enem and efficiency Policy advice

Privatization TA Policy advice

Capacity Building Initiative ED1 (WBI)

Forestry and Environment Public Sector Reform TA Policy advice Privatization TA Railway Rehabilitation

UNDP, UNESCO, UNFPA, UNDP

EU, AfDB, AFD

WHO, France, EU, AfDB, Canada, UNFPA, UNICEF France, EU, AfDB, UNICEF, UNESCO, Canada, ILO, UNDP L O , IMF

IMF, GEF, UNDP, France, Canada, WWF, AfDB

GEF, IMF, UNDP, WHO, UNICEF, UNFPA

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Implementation. Gabon has wavered in and out of the Base Case since 1998. Compliance with IMF programs has been uneven; substantial slippage occurred in the implementation of the 1995-97 Extended Fund Facility and the 18-month Standby Arrangement approved in 2000. Problems in macroeconomic management were experienced in 1998 when o i l revenues exceeded expectations, and again in 2002/3 in connection with municipal and parliamentary elections. However, in each case the authorities took steps to put the country back on track. The Bank and the IMF have worked closely together to carry out the macroeconomic dialogue and to support the development of domestic budget management capacity. Progress on privatization has continued, albeit slowly, and the Bank small portfolio has generally remained in satisfactory status. However, counterpart funding o f ongoing projects has been slow to materialize, and disbursements have been slow, necessitating the repeated extension o f existing projects in order to accomplish their objectives. The Government, with the support of UNDP, has taken initial steps towards preparing a poverty reduction strategy, but has not yet reached the point of formulating a Medium-Term Expenditure Framework for health, education, and rural development.

To assist the Government in preparing the proposed Public Sector Reform TA Loan, the Bank secured a PHRD grant of $750,000 to Gabon in August 1999. A unit was set up within the Planning Ministry to coordinate project preparation. The grant was to be used (1) to help finance the development of social sector strategies, (2) to support an expenditure programming and debt management workshop and a pilot debt swap, and (3) to develop poverty indicators and projections as a baseline for the future PRSP. The grant was administered by the Bank and financed the contributions of several international consultants. However, the Government did not consider that the work of these consultants responded to their priority needs. In response, the Bank agreed to reorient the agenda more towards macroeconomic management than poverty alleviation. Ultimately, however, the Government informed the Bank that i t did not intend to follow through with a request for a Public Sector Reform TA Loan. The Bank then offered to help prepare and supervise the project (which the Government said it would finance with domestic resources), i f the Government would reimburse the Bank’s costs. The Government refused t h i s offer, and the Bank closed the PHRD grant on June 30,2001. The Public Sector Reform TA Loan did not materialize.*

Policy dialogue continued through ongoing consultations with the BanMIMF team and through the implementation of ongoing projects. The Transpof l rban TA Project was closed in March 2000, four years after the original closing date, with a satisfactory rating. The project supported the development of transport and urban sector strategies and led to a Transport Sector Donor Roundtable in July 1998 which was expected to serve as a model for similar roundtables in other sectors to be carried out under the 1998 CAS. The project also carried out a pilot program of community-based, labor- intensive urban infrastructure improvement in the AvCa neighborhood of Libreville. T h i s program became the basis for the Pilot Community Infrastructure Works and Capacity Building Project (Urban LIL) approved in August 1998.

The ForestryEnvironment Project, started in FY 93, closed on June 30, 2002, four years after i t s original closing date. I t s outcome was rated satisfactory3 but i t s sustainability unlikely unless followed up by a second project. The project aimed to restructure and strengthen the Ministry of Water and Forestry and the Ministry of Environment, Tourism, and National Parks, as part o f the Government’s overall effort to diversify sources of revenue away from oil. I t also included research, training, and pilot activities in sustainable forest management. I t supported the development o f a revised Forestry Code, which was adopted in 2001, and a reform o f forestry taxation, reflected in the Budget Laws of 2002 and 2003. I t prepared a number of further proposals for administrative reform and capacity building whose

Earlier, Gabon received a similar grant to prepare an Agricultural Extension Project, which was fully disbursed, but the

This rating was revised to “Moderately Satisfactory,” an option not available to ICR authors, by OED reviewers.

2

froject was dropped.

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implementation would be supported by the Forestryhvironment Sector Program currently in preparation.

The Privatization TA project, approved in FY 97, carried much of the burden of implementing the 1998 CAS goals related to private sector development. I t was moderately successful in doing so, although progress was slower than anticipated. The project has funded studies and direct technical assistance to the Government, not only in the field of privatization, but also in broader capacity building activities related to the creation of an enabling environment, including a legal framework, for private sector development. Goals that were established for FY 01 are nearing accomplishment towards the end o f FY 04. Originally scheduled to close in June 2001, the project was extended three times and closed in June 2004.

The Urban LIL, approved just prior to the 1998 CAS, has made a substantial contribution with a strong demonstration effect in mobilizing urban neighborhoods to improve their l iving conditions and in strengthening the capacity of small contractors. Expected to close in December 2001, the project was extended twice and closed in June 2004. I t has successfully modeled a participatory approach to small- scale infrastructure planning with the involvement of local (chefs de quartier) and municipal authorities. I t has succeeded in generating employment in the urban neighborhoods selected for the project and in stimulating the growth of small enterprises. Recently, the project unit (formerly the unit in charge of the Transpof l rban TA Project) has conducted a review of planned public expenditures in the health and education sectors to identify additional infrastructure projects that could be carried out using a similar approach, thus providing sustainability to the project. I t i s believed that a new lending operation w i l l be needed to sustain Government commitment and scale up the program to meet the needs of Gabon’s urban population.

Dialogue in the transport sector has continued with the aim of preparing the ground for the proposed Railway Rehabilitation Project or a similar operation. However, the process of concessioning the railways encountered numerous difficulties. Other problems cropped up in the management o f the public expenditure program in transport, which has not always been consistent with the transport sector strategy adopted under the Transport/Urban TA Project. In short, the policy environment never reached the point where an investment in railway rehabilitation could be justified, and the project was finally dropped from the lending program. Thus, there has been no new lending to Gabon since the 1998 CAS was approved.

Non-lending support has been provided through continuing policy dialogue involving the IMF and the World Bank, as well as a joint Financial Sector Assessment carried out in FY 03. The Bank also assisted the Government in developing a new Procurement Code, adopted in FY 03. The planned Rural Development Strategy was never budgeted by the Bank, as the Government expressed no interest in it. Internal Bank resources were allocated for a Country Economic Memorandum, but no memorandum has yet been produced. The position of Resident Economist was upgraded to Resident Representative in 1999, and staff and logistical support were added to the Country Office. However, the new Resident Representative did not succeed in establishing a constructive dialogue with Government. H e returned to Washington in 2001, and the post remained vacant until January 2003, when the current Resident Representative arrived in Gabon.

Generally, the ongoing projects have remained in satisfactory status. Overall some policy dialogue has been carried out, and certain policy changes have been accomplished. Some projects had a slow start because of the unfamiliarity of project s taf f with Bank procedures after a long period when the Bank had not been involved in that sector. Timely counterpart funding has always been a problem, and

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the need for close control of procurement activities has also slowed disbursement^.^ As a result, all the ongoing projects have been extended to the limit, typically taking three more years to complete than originally planned.

The CAS identified three short-term risks to the Bank’s strategy: (1) delays following the forthcoming presidential elections; (2) regional instability due to civi l unrest in neighboring countries, and (iii) further declines in oi l and commodity prices. Over the longer term, major risks related to progress (or lack thereof) on governance and institutional capacity issues. The short-term risks did not materialize. Presidential elections took place as scheduled and did not cause major delays, although they may have been related to some slippage in the implementation of the IMF program. Unrest did occur in neighboring countries, particularly Congo and CAR, but this has not resulted in significant spillovers, either of conflict or of refugees, into Gabon. O i l and commodity prices have fluctuated but have not declined enough to jeopardize the implementation of the Government’s expenditure programs. I t was slow progress on governance and institutional capacity building that impeded the implementation o f ongoing projects and the development of new lending.

The CAS did not foresee the risk of the Government’s taking advantage o f Bank technical assistance and grant support without following up by borrowing. I t was correct in identifying the longer- term risks, but failed to recognize that these same r isks could have significant short-term effects that would impede the realization of CAS objectives.

Fostering non-oil private sector-led growth. Performance in this area was mixed. Many of the specific actions identified in the CAS as performance indicators have in fact been carried out (although many would not have been done by the end o f the official CAS period in October 2001). With respect to the maintenance of macro-economic stability, the Government has performed reasonably well on the revenue side, but has not succeeded in controlling expenditures or in significantly reducing external debt. Some capacity building has taken place, but more i s probably needed; more important i s the fact that technically competent civi l servants are unable to impose financial discipline on political decision- makers. On trade promotion, the necessary actions have largely been taken. The privatization program has continued with moderate success, although substantial resistance has been encountered with respect to transport, telecommunications and postal services. One goal that seems unlikely to be met before the end o f 2004 i s the creation of a mutual fund for the placement of Government-owned minority shares with the public.

With regard to the legal, regulatory, and institutional framework for private sector development, the results are also mixed. New Mining and Forestry Codes (but no Petroleum Code) have been adopted, and revisions to the Law on Competition, the Labor Code, and the Social Security Code have been studied and discussed, though not yet adopted. Studies are s t i l l underway for the restructuring o f the National Social Security Fund. Price controls have been largely eliminated, but remain on items o f “primary ne~essity.”~ The Department of Price Controls has been legally renamed as the Department o f Competition, but i t s administrative culture remains unchanged and the public i s unclear about i t s new responsibilities. Some training has been provided to the judiciary, and the Journal oficiel has been published regularly. New institutions have been established to regulate and promote the private sector, but their capacity requires considerable strengthening in order for them to be effective. No regulatory agency has yet been established for the recently privatized water and electricity services.

4 In the case of the ForestryEhvironment Project, the 1993 devaluation also doubled the funds available (and the

The continuation of price controls on primary commodities (including pharmaceuticals, petroleum products, bread, requirements for local counterpart contributions), which contributed to delays in implementation. 5

sugar, school materials and supplies) i s part of a recently negotiated agreement between Government, industry, and labor, whereby labor has promised to refrain from strikes for a period of three years, and Government will pay i t s debts to the private sector.

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The situation of the financial sector i s relatively satisfactory, although banks remain exposed to risk from loans to public enterprises and government suppliers, as well as from the narrow (non- diversified) base of private investment. Access to micro-credit has very recently improved, with support from AfDB and bilateral donors. However, the situation with respect to credit for small and medium enterprises and industries i s s t i l l not very satisfactory. Large numbers o f loans outstanding and new requirements for group guarantees limit the capacity of banking institutions to respond to the needs o f t h i s sub-sector. Litt le progress has been made with respect to adapting the labor force to meet market needs. In the transport sector, the reform agenda set forth in the transport sector strategy has been only partly implemented. As a result, transport costs related to international trade have not declined significantly.

Strengthening public sector effectiveness and efficiency. Performance in t h i s area has been disappointing. With respect to administrative reform, the program i s proceeding slowly. This i s partly due to a recognition that changes in administrative structure should follow, rather than precede, the elaboration o f sector strategies in the context of a national development strategy based on poverty reduction as well as economic growth. The CAS assumed that sector strategies would be prepared shortly after the PA workshop, and that administrative reforms would follow in due course. In fact, the preparation of sector strategies related to poverty reduction has been slowed by data difficulties, partly reflecting a lack o f political will, and has not been followed closely by the Bank.

Relatively little has been accomplished in terms of improving the management of public finances. Some studies which were to have been financed under the PHRD grant, concerning development of a debt management strategy and promotion of the country’s competitiveness, did not take place because the grant was cancelled. Lacking sectoral strategies, the Government was unable to develop a Medium-Term Expenditure Framework. A budgetary information system has been put in place with support from the Bank and IMF. However, i t i s s t i l l too soon to say if this system wi l l effectively improve expenditure control. A poverty monitoring system has not been put in place, although funds from the PHRD grant were used to support a Demographic and Health Survey carried out in 2000 which could provide some data elements for such a system. The Africa Capacity Building Foundation has carried out some training for parliamentarians, but t h i s support has not enabled Parliament to exercise real budgetary oversight so far.

In the health and education sectors, progress was also limited by the lack of action on sector strategies. Under the PHRD grant, support was provided for the preparation o f a carte scolaire and a carte sanitaire, as well as for a study on education unit costs. The unit cost study was completed, but the two cartes are s t i l l in preparation. When the Bank was no longer actively involved, other U.N. agencies stepped in to help the Government work on these sector strategies. Unfortunately, severe data deficiencies have greatly constrained the effectiveness of their support. Meanwhile, social indicators appear to have worsened over the CAS period.6 With respect to social protection, the only progress made was the reassignment of financial responsibility for three hospitals from the National Social Security Fund to the Ministry of Health. The continued viability of Gabon’s social protection system i s now seriously in question, with declining revenues and rising rates of unemployment. On environmental protection, despite an ambitious CAS agenda, little has been done either by the Bank or by Government, except in the context of the ForestryEnvironment Project.’

Data on these indicators shown in Annex A are drawn from the Government’s Tableau de Bord Social, no. 2

However, the recent creation by the Government of thirteen new National Parks and proposals to set up an autonomous

6

(September 2003), covering 1996-1999.

agency for park management should be commended here. 7

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The Bank did not follow through on i t s promise to conduct an Information Assessment for Gabon. In addition to the Demographic and Health Survey mentioned above, the Government conducted i t s decennial census in 2003; however, this did not include household budget information, and the results w i l l not be available for some time. A recent Bank mission in the context of the PRSP assisted the Government in defining a survey which could be carried out quickly and could provide the basic data on which a poverty monitoring strategy could be built. The Bank i s now helping the Government seek grant funds to carry out such a survey, in order to prepare a satisfactory PRSP before the end of calendar 2004. However, the broader agenda o f promoting transparency and public involvement through dissemination o f government information has hardly been addressed, as shown by the consultations undertaken in- country for this report.

Building civil society capacity. The CAS agenda in this area was not very explicit, and it depended to a great extent on the activities of other partners. Two clearly stated objectives, the adoption o f a Family Code and the adoption of a National IEC Strategy, were not accomplished. The Bank did not provide any practical support for these objectives. Litt le was done to build the capacity of domestic NGOs, either by the Bank or by other donors.’ The program o f the Africa Capacity Building Foundation did not extend to NGOs. The Bank team did not take action, as promised, to involve ED1 (WBI) in t h i s area. Without any particular help from the Bank, the Government succeeded in maintaining civi l peace and providing leadership for the resolution of regional conflicts.

Exogenous factors. The implementation of the Government’s program has been perturbed from time to time by fluctuations in o i l revenue and by civi l conflict in neighboring countries. However, these events were not o f sufficient magnitude to be considered major external shocks. The Government has remained remarkably stable over the period (and indeed, over the last forty years). It has become increasingly aware of the burden of external debt and the limitations that this imposes on i t s ability to alleviate poverty, especially in the context of declining o i l revenues and the inherent weaknesses o f the rent redistribution system. The Government, with the support of UNDP has prepared an Interim PRSP and i s currently working on a full PRSP with assistance from the Bank.

Unintended impacts. Because of the relatively light “footprint” o f the Bank’s program in Gabon, there have not been any unintended negative consequences, social or environmental, during the period covered by the CAS. The ForestrylEnvironment Project made a small contribution to improving the management o f existing protected areas, complemented by the activities o f other donors. Implementation o f sustainable forest management practices through application of the revised Forestry Code may be o f greater significance to Gabon’s future. The failure to develop a Petroleum Code means that an opportunity to address the environmental aspects of this key sector has been missed. The TransporWrban TA project was expected to support preparation of environmental assessment guidelines for the transport and urban sectors, but these were given a lower priority than other planned outputs and were not accomplished under the project.

On the social side, there i s considerable public concern about the privatization program going ahead in the absence of funding for social plans for affected employees. In fact, this has not happened, but it i s one of the reasons for delayed implementation of the privatization program. Originally the social plans were to have been funded by an AfDB loan. For a while, th is funding was interrupted due to non- payment o f Gabon’s arrears to AfDB, and consequently some privatization activities could not be completed according to schedule. This problem has now been resolved and AfDB funding has been resumed; while the Bank‘s project w i l l come to an end in June 2004. In contrast, the community

8 The Regional Environmental Information Management Project, funded by GEF and other donors, provided some capacity building support to environmental NGOs in Gabon and elsewhere.

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mobilization activities pioneered by the Urban LIL has empowered some of the relatively poor to take responsibility for meeting their own infrastructure needs.

C. Measuring Bank Performance

Quality of products and services. Generally, where the Bank managed to be present, i t s contributions in the areas of both lending and non-lending are regarded as having been of high quality. The Urban LIL has received numerous commendations for excellence. The two projects closed during the CAS period (Transpodurban TA and ForestryEnvironment) have been rated as satisfactory, though sustainability i s believed to depend on follow-on lending operations. The Bank has worked closely with the IMF and also with IFC and MIGA to assist the Government in achieving i t s objectives o f diversification away from oi l and promoting growth through private sector development.

There have been three QAG reviews of operations in Gabon during the CAS period: a Quality at Entry review of the Urban LIL in 1998, a Quality of Supervision assessment of the same project in 2002, and Quality o f Supervision o f Risky Projects review o f the ForestryEnvironment Project in 2000 (previously reviewed by QAG in 1997). The Urban LIL was rated Highly Satisfactory at entry and Satisfactory in supervision. The ForestryEnvironment Project was rated Marginally Satisfactory in light of the Government’s lack o f early commitment and substantially delayed implementation.

The CAS outlined an ambitious agenda which was supported by a small, though well-placed, cadre of reform-minded members of the Gabon Government. I t did not have broad based ownership at the time, particularly with respect to the objectives of promoting greater transparency in government and a stronger focus on poverty alleviation in public expenditure management. While the Government agreed in principle, i t was unwilling to borrow (on IBRD terms) for the implementation of such activities. There was also likely to be strong resistance on the part of vested interests in the different sectors, as illustrated by the experience of ongoing projects in transport and forestry as well as by the privatization program. During the CAS period, the Bank wisely refrained from pushing the Government to prepare new lending operations, instead devoting i t s limited budget to policy dialogue and supervision o f ongoing operations. Over time, through extended dialogue with the Bank and IMF and other members of the donor community, and with grant support extended by other bilateral or multilateral donors, the Government has gained greater understanding of the need for improving transparency, as part of i t s efforts to promote private investment, and for addressing relative poverty.

From the Bank’s point of view the need to limit intervention to those sectors in which Gabon i s wil l ing to accept help from the Bank means that in practice Bank support i s concentrated in the infrastructure and PSD sectors, while education, health, and rural development (except for forestry) go unsupported by the Bank. Continuing poor performance by Gabon on the development indicators used to program Bank budgets l i m i t s the resources available to provide “free” technical assistance. A large share of these resources i s consumed by joint s ta f f work with the IMF and by the costs o f maintaining a fully equipped Country Office. Limited resources also have a demoralizing effect on the Bank country team. Lack of opportunity to work on Gabon means that the country gets a low priority from sector managers and high turnover among technical staff. Gabon has had six different Country Economists over the past six years, and for two years was without a Country Economist all together.

In-country consultations on the results o f the CAS reveal that i t s structure and contents were virtually unknown outside the Ministry of Planning, and even by some mid-level officials within the Ministry. Although the CAS was translated into French, no copy in French could be found anywhere in Government, in the Resident Mission files, or in Washington. The English copy in the Ministry of Plan files did not include Annex B9, the performance matrix. Given this lack o f information, most interlocutors refused to comment directly on the results o f the CAS. Their comments revealed a mistaken belief that the Bank (in collaboration with the IMF and the international community) i s only concerned

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about opening Gabon markets to international trade and cares l i t t le about the consequences in Gabon. They thought the Bank had abandoned the poverty agenda. They see little benefit to Gabon from privatization, and fear the consequences in terms of unemployment and social unrest. A common theme was resentment about not being considered eligible for IDA funding (including for HIV/AIDS) or for the HIPC Initiative.

The Bank did not meet the lending targets established in the CAS, as they were not consistent with the real intentions o f the Government (Annex B). Country dialogue and coordination with other donors has continued, when a bank representative was present in the country, in an effort to prepare the ground for future lending operations that may be more likely to prove sustainable. In the meantime, the successful execution of ongoing operations has developed support for their continuation, and created domestic capacity to prepare and carry out new operations in these sectors.

The 1998 CAS did not present clear targets and dates for non-lending deliverables (see Annex C). The promised Rural Sector Strategy and Information Management Assessment were not delivered. A Country Economic Memorandum was not promised, but was budgeted, although not delivered as a document. On the other hand considerable unplanned non-lending support has been provided in response to requests from the Government and other development partners (notably the IMF). The subjects of this support (financial sector assessment, review of the procurement code , budget management information system, poverty monitoring) were consistent with CAS objectives, although they are different from what was foreseen in the CAS. They reflect a growing emphasis on governance issues, with a corresponding decreased emphasis on poverty issues.

Portfolio assessment. With four projects in the portfolio in 1999, and only two after 2001, portfolio indicators based on averages could be misleading. Disbursement ratios reached a high of 48.2 in 2001 when the ForestryEnvironment Project came to a close, dropped to 28.9 in the next year and rose to 35.5 in 2004. Both ongoing projects (Privatization TA and Urban LIL) were rated as projects at risk and problem projects in 2003, but these problems were resolved and the risk rating removed by 2004. Typically, projects have taken longer than expected to be implemented, with a current average o f 6.2 years. Three completed projects have been evaluated by OED in the last five years (Transpodurban TA, ForestryEnvironment, and the Regional Environmental Information Management) and have been rated Satisfactory or Moderately Satisfactory.

Country dialogue. The 1998 CAS was developed with the support of a Country Director who placed a priority on Gabon as a potential economic leader and guarantor of social peace in the Central African sub-region. As one tangible indicator of t h i s priority, the position of Resident Economist was upgraded to that o f a Resident Representative, and the Bank officially opened a Country Office in Gabon. The new Resident Representative was faced with the task of implementing a CAS that did not enjoy widespread Government ownership. At the same time, the Country Director left the position and a year later left the Bank and was replaced by a Director who did not share h i s views. Misunderstandings arose between the Bank and the Government concerning the extent and nature of planned Bank support. To complicate matters, both the Bank and the Government were sending mixed messages through the variety of interlocutors involved in the dialogue. The Resident Representative was unable to manage t h i s process and had no control over the allocation o f the country budget. There was only partial commitment on the part of the Country Team, since the administrative budget was unable to cover al l their costs. The Resident Representative returned to Washington in 2001 and the position remained vacant until a new Resident Representative took up the assignment in January 2003.

Under the circumstances, i t i s remarkable that policy dialogue has continued as well as it has. This seems to be mainly due to continued close collaboration between the Bank and the IMF, even though

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there has been l i t t le continuity in the Country Economist position. The Bank has continued to provide direct support to help the Government meet IMF conditions, through such activities as preparation of a Procurement Code and a Financial Sector Assessment. The Bank‘s Foreign Investment Advisory Service (FIAS) i s preparing a diagnostic review as part of a program to help improve the investment climate for the private sector. The Bank has backed away from the poverty alleviation agenda, recognizing that the Government would not be ready to receive Bank support in this area for a long time. Consequently, much of the necessary preparation work has been left to other donors. However, now that Gabon has adopted an I-PRSP, the Bank has begun to provide support for the preparation o f a full PRSP which w i l l be actionable and acceptable to the donor community.

D. Consultation and Coordination with Development Partners

Coordinated action with other development partners was absolutely essential to achieving the CAS goals. Considering that Gabon’s requirements for international assistance are relatively limited, a remarkable number of donors are present in the country, including several U.N. agencies. France, the European Union, and Canada are key bilateral partners. The African Development Bank (AfDB) i s also active in Gabon. Indeed, the implementation of some privatization activities were delayed when the AfDB, which had approved lending in support of training and “social reinsertion” of retrenched workers, suspended disbursements to Gabon due to accumulated arrears. The problem was resolved and AfDB lending to Gabon resumed only in 2003.

UNDP has assisted the Government in preparing i t s National Environmental Action Plan, and, more recently, i t s Interim PRSP. I t has also assisted in strengthening economic management capacity by conducting seminars and workshops in technical ministries. WHO provided support for the development of a health sector strategy and action plan. UNESCO has carried out some studies in support of a future education sector strategy. The U.N. Fund for Population Activities (UNFPA) planned to provide support for the development o f a national IEC strategy and for NGO capacity building. However, these activities did not materialize. The ILO has been involved in revising the Labor Code but it has not been able to participate in planning educational reforms to produce a labor force better adapted to meet the needs of private investors.

During the CAS period, Gabon agreed to “host” the Regional Environmental Information Management Project (REIMP) supported by GEF. The Government of Gabon was the official grant recipient, but the funds were immediately forwarded to an international NGO (ADIE) established under Gabon law, but independent o f the Government, to execute the project. The REIMP collaborated closely with the ForestEnvironment Project in i t s later stages, and this collaboration i s l ikely to spill over into a GEF grant for Gabon associated with the future ForestEnvironment Sector Program. An anticipated collaboration with WWF to execute a debt-for-nature swap did not materialize, due to the unwillingness of Government to use PHRD funds to support the necessary studies, and the inability o f the Bank to supply the services of an expert.

Gabon also plays a leading role in the Central African Economic and Monetary Union (CEMAC), and in t h i s context i s a linchpin for the Bank’s strategy to promote regional integration in Central Africa. This strategy w i l l provide technical assistance to the CEMAC countries for trade facilitation, customs reform, banking sector monitoring and market development, microfinance, road infrastructure, air safety, and institutional strengthening. Consultations in Gabon showed that stakeholders are expecting that Gabon w i l l benefit from Bank financial participation in regional road infrastructure improvements and in microfinance initiatives. I t i s to be hoped that these expectations w i l l not be disappointed due to the fact that Gabon i s required to borrow on IBRD terms.

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Some initiatives that were expected to be undertaken together with partners did not materialize, due to changes in Bank and Government priorities. For example, the Bank did not pursue the preparation o f a Rural Development Strategy for Gabon, with which France was willing to assist. Similarly, UNDP and Canada were prepared to support efforts to improve access to micro-credit and credit for small and medium enterprises, in tandem with Bank efforts to develop a local market for government shares in former public enterprises. As this agenda has not progressed very far, the framework for such collaboration has not yet been established. France and the European Investment Bank had expressed interest in cofinancing the Railway Rehabilitation operation. It i s now proceeding with their funding but without Bank participation. Several bilateral donors have expressed willingness to support future operations in the social sectors, once the Bank has determined that sound and sustainable sector strategies are in place.

Gabon has played a leading role in the implementation of the Africa Capacity Building Foundation (ACBF), and ACBF was expected to contribute significantly to institutional strengthening in Gabon during the CAS period. A project for capacity building in economic and financial management (PRECAGEF) was put in place but performed poorly under i t s first project manager. Information about opportunities provided by the project was not widely disseminated, and programs were not well designed to meet real needs for s k i l l development. This project i s currently being restructured. The CAS also promised that the country team would solicit ED1 support for a parliamentary capacity building program in Gabon. Apparently this did not take place. IFC holds significant investments in Gabon in the o i l and mining sectors, and provided technical support during the privatization of electricity and water services. During the CAS period, IFC made a $18 mill ion investment in the operations of VAALCO Gabon, a subsidiary o f VAALCO Energy, Inc., responsible for developing the Etame Marine offshore oilfield.

During CAS preparation, a participatory process was followed which i s described in Annex D of the CAS. I t portrays the CAS as a direct outcome of the Poverty Assessment participatory process, as well as participatory strategic planning undertaken under the Transport/Urban TA project. I t also refers to a Public Expenditure Review undertaken by the Resident Economist which helped focus the policy dialogue in the education, health, and social protection ~ec tors .~ The CAS mission itself had limited opportunity to consult with c iv i l society, although it did meet with central government officials, the donor community, and representatives of Parliament. These discussions provided a forum for airing grievances on both sides, but did not result in a recognition o f fundamental differences that would later impede the implementation of the CAS. The Country Office sought a broader distribution o f the CAS document once i t was made final, but this did not take place.

The Government broadly agreed with the Bank and the donor community about the need to address poverty in Gabon. Where it disagreed was on the mechanics of how to do th is . The Bank’s informal public expenditure review showed that the main problem was not a lack o f resources allocated to the social sectors, but rather the poor management of those resources. Too much was spent on “high end” services available only to the elite, at the expense of programs in primary health care and basic education. Reorienting social services and social protection to increase their impact on poverty would require fundamental administrative reforms and improved governance. Much could be achieved without increasing the fiscal burden or changing the present pattern of income distribution. However, the Government preferred to pursue an approach based on disengaging the state from productive activities and hoping that the private sector would generate sufficient, and sufficiently remunerative, employment so that the social status quo could be maintained. The links between the corrective actions needed in the

But which was never published by the Bank due to deficiencies in the underlying data. However, the review was 9

circulated in draft form and was much appreciated by the clients, according to information received during the CASCR consultations.

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health and education sectors and the outcomes desired by Government were not sufficiently explained, and are s t i l l not ful ly understood by many highly placed decision makers.

The Government also developed an HIV/AIDS Action Plan and would have liked Bank support in implementing the plan. However, i t was not prepared to borrow on IBRD terms for that purpose. I t felt that the findings o f the Poverty Assessment ought to justify concessional lending. If such terms were not available from the Bank, i t would go elsewhere, or as a last resort, would finance social programs from i t s own resources. The result, of course, i s that relatively little has been done to combat HIV/AIDS in Gabon, and no attempt has been made to mobilize and empower groups outside the Ministry o f Health for th i s purpose.

The extent to which the goals and objectives of the CAS were really shared by the Bank and the Government i s illustrated by the extent to which progress has been made during CAS implementation. Where the Bank has been able to provide support, progress has been made, although more slowly than originally planned. Where the Bank has not been able to provide support, some progress has also been made, although possibly not in directions that the Bank would have preferred. Other donors have been key to achieving t h i s progress. Also, the commitment of many high-level c iv i l servants to the reform agenda should not be underestimated. Civi l society has not yet been able to play much of a role in holding government to account, but i t s capacity i s growing and i t s voices are increasingly being heard.

Overall assessment. In summary, the CAS performance can be rated as “moderately unsatisfactory”. The country assistance program was relevant to broad national goals, but was not well aligned with government views about how to achieve those goals. The country did not make acceptable progress towards a majority o f the proposed CAS outcomes, although it did make significant progress on privatization and some progress on macroeconomic management and capacity building. The CAS expectations were probably unrealistic under the best of circumstances, particularly in the area o f poverty alleviation. Furthermore, the resources available to the country team were far too limited to provide all the non-lending support foreseen in the CAS.

This raises an issue related to Bank performance which i s not within the direct managerial responsibility of the Country Team. The CAS presented a vision of what could be done in Gabon. Indeed, i t was recognized as a “best practice” CAS. In reviewing the draft CAS, regional management failed to point out the discrepancy between i t s ambitious objectives and the resources which management was prepared to put at the disposal of the Country Team. While i t i s not certain that more resources would have produced a more satisfactory outcome, i t i s certain that inadequate resources forced the Bank to withdraw from several sectors where i t should have been providing leadership which slowed the pace of change in many areas.

E. Lessons Learned for Subsequent CAS Design

The CAS would have benefited from a more frank and open dialogue between the Bank and the Government during i t s preparation. On the Bank side, there should have been a more accurate appraisal of the amount of support that could l ikely be delivered, given budget constraints. Stakeholder analysis might also have revealed the likely strength o f opposition to the reform agenda, and the weak capacity o f civi l society, especially the relatively poor, to hold the Government accountable in any meaningful way. The Bank’s strong commitment to pursue poverty alleviation may have prevented recognition of the Government’s views about the relative unimportance of t h i s problem in comparison to the problem of managing external debt. At the same time, the Government allowed the Bank to believe that i t agreed with the CAS agenda, in order to mobilize “free” TA and grant resources, while in fact i t had no intention of borrowing for public sector reform or poverty alleviation.

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The Bank was also not very straightforward in i t s description of the poverty situation in Gabon. In an attempt to heighten consciousness of the problem of inequity or relative poverty, which indeed may present a political challenge at some point in Gabon’s history, the Bank has tended to overstate the problem in comparison to other countries of Sub-Saharan Africa. While it i s true that Gabon’s social indicators are much lower than they ought to be, given i t s income level, they are no worse than, and in many cases better than, those of most low-income countries. The incidence of extreme poverty, according to international income-based definitions, i s lower than in many countries, calling for a more targeted approach to poverty alleviation. The solutions in Gabon may not be the same as in most of Sub- Saharan Africa. In fact, the Bank’s approach has largely focused on improving the distribution o f wealth through redirecting public resources to social services more directly targeted to the poor. The Bank has done relatively little to address the need for economic diversification and employment generation to increase the productivity of the poor. Furthermore, the Bank has paid surprisingly little attention to HIV/AIDS in Gabon, which i s a genuine concern of the country and which has reached prevalence levels (above 7%) that ought also to be of concern to the Bank.

The CAS did not address directly Government concerns about “social peace,” which l ie at the heart o f the rent redistribution system. The delicate balance of power among social groups which has been built through this system i s a significant source of resistance to change and the problems which have been experienced in implementing and sustaining reforms. This balance w i l l of course grow more difficult to maintain as Government’s discretionary revenues decrease over time. Furthermore, there i s a real risk that improved economic performance w i l l result in rising expectations and increasing demand for services from c iv i l society. The challenge to the Government i s to manage t h i s transition so that human needs are more effectively and efficiently met while social peace i s maintained. Defining the challenge in this way might better capture the area of shared concern between the Bank and the Government.

I t i s possible that in the end results would not have improved by a more realistic CAS and may have simply further reduced the resources available to the country team. Resources that were eventually redirected towards policy dialogue and technical support on issues that were important both to the Bank and to the Government. B y articulating the agenda for poverty alleviation, in consultation with the donor community, the CAS, however, established a work program that was pursued by the Government and other donors at a more realistic pace, driven by the hope of debt rescheduling and IMF balance of payments support. This work has laid a foundation for continuing dialogue and may eventually result in agreement on sound sector strategies and a medium term expenditure framework. The Bank may then be able to play a role in mobilizing resources for poverty alleviation, by convening donor roundtables or by direct lending.

Sustainability. Achievements in macroeconomic management are mixed but l ikely to be sustainable, with occasional interruptions, at least as long as Gabon requires the support of the IMF. The country has made progress in debt reduction and has nearly eliminated the fiscal burden o f parastatal enterprises. I t w i l l remain dependent on oi l revenues in the short to medium term. Should o i l revenues fal l dramatically (which does not seem immediately l ikely in view of the prevailing high o i l prices), the Government could become eligible for blend or even IDA borrowing. However, the sustainability of present levels of public expenditure w i l l depend in the long run on successful development o f the private sector.

The achievements of the CAS in the area o f private sector development should be sustainable, as in most cases they are irreversible. The unfinished privatization agenda i s l ikely to be finished in the not very distant future. However, regulatory and institutional capacity remains very weak, and substantial additional support w i l l be needed to internalize these changes. Improved transparency in procurement and the rule of law w i l l be necessary to sustain growth in the private sector. More attention needs to be paid to the supply side in addressing the critical problem of youth unemployment.

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On strengthening public sector efficiency and effectiveness, particularly in sectors critical for poverty alleviation, the CAS outcomes are mixed and in general disappointing. So far, the Government’s approach to poverty alleviation has been to seek additional investment more than to improve the management of existing resources. I t has been noted that real public sector reform would require “nothing less than a culture change on the part of Gabon’s public sector.”” The Bank has not yet learned how to induce such a culture change in the absence of strong economic or political imperatives.

One program that seems to have been successful in promoting culture change i s that undertaken under the Urban LIL. Though limited in scale, t h i s program has succeeded in improving l iving conditions in underserved urban neighborhoods with broad community participation and the collaboration of local authorities. I t also helped to build capacity among small contractors and temporarily alleviated the pressing problem of unemployment. However, the small-scale works undertaken by the project do not fully meet the aspirations o f the people, especially local politicians. Whether this approach can be successfully “scaled up” remains to be seen.

The agenda on building the capacity o f civi l society was almost entirely placed in the hands of other donors or institutions. I t was not strongly supported by Government, and so i t did not become a priority for the donor community. Consequently, little was accomplished in th i s area. Still, there i s an emerging civi l society in Gabon, which wants and needs to become a true partner in development. In particular, i t w i l l be necessary to involve civi l society (as well as Parliament, and the private sector) more fully in the preparation of the forthcoming PRSP, as their commitment and participation w i l l be needed in i t s implementation and monitoring. The Bank has recently taken steps to assist the Government in developing a participatory process for the PRSP. This initiative needs to be supported and sustained by the Bank as well as the rest of the donor community.

Institutional capacity. There were, indeed, major issues concerning country institutional capacity, that emerged both in the attempts to implement agreed policy reforms and in ‘the implementation o f ongoing projects. The CAS agenda focused largely on creating the legal and institutional frameworks for change. Where such efforts have been successful, capacity constraints have become evident, and it i s clear that future programs should focus even more strongly on capacity building in government, in small and medium size enterprises, and in civi l society. Capacity building means more than training and equipment, although these may well be necessary. Both attitudinal and behavioral change w i l l be needed, and these wi l l have to “trickle down,” at least in government institutions, from the top. Improved communications and a freer flow o f information w i l l be essential to success. On a more mundane level, to the extent that Bank projects (including grants) are implemented by people unfamiliar with Bank procedures, i t w i l l be necessary to ensure that appropriate training i s provided and strong support i s given to the teams responsible for project implementation. Annual Public Expenditure Reviews would be helpful in ensuring that adequate counterpart funds are budgeted and available when needed.

The consultation process for the 1998 CAS created expectations which neither the Government nor the Bank was prepared to fulfill. Participation by c iv i l society was s t i l l a new idea, and there was l i t t le analysis by the Bank of the stakes or the stakeholders. Consultation took place around a vision for the future, perhaps not fully grounded in the realities of the past. Consultation was also largely limited to selected agendas such as the transport sector strategy or the poverty alleviation program. The overall design of the CAS and the relationships of i t s different parts were not apparent to a wide audience. To improve on this, i t w i l l be necessary to start consultation much sooner (as has been done) and to base it on a shared assessment of past programs and results. Many misunderstandings may need to be expressed and explained. More extensive and sustained communication with the public w i l l be needed, including

Minutes of the PCD review for the Public Sector Reform TA Project, October 1, 1999. 10

-68-

identifiable groups such as labor, university students, small businessmen, women, traditional authorities, and local government officials. A truly participatory CAS process in Gabon w i l l take a long time (as w i l l a participatory PRSP process), but i t i s likely to produce more sustainable programs and more realistic targets for the next CAS.

Summary. The performance of the 1998 CAS has been rated “moderately unsatisfactory”. This result i s due to deficiencies on the part of both the Bank and the Government. In the first place, the CAS did not represent a realistic assessment o f what the Government was prepared to do or what the Bank was prepared to support over the next three years. This can partly be explained by sh i f t s in high-level management in both the Bank and Government that intervened shortly after the CAS was completed. However, Bank management bears the responsibility for approving and sending forward a CAS which it was not prepared to support with adequate resources. The lesson for the future may be that a CAS should be costed, at least internally, and compared to foreseeable budget allocations. A corollary i s that when the Bank i s called upon to play the role of a “Knowledge Bank,” country budgeting should not be based solely on the size of the lending program.

A second factor affecting CAS performance was the extended hiatus in Bank presence in the field. After setting up a Country Office with a Resident Representative, the Bank (and the Government) sent mixed signals which undermined his effectiveness. After his return to Washington, more than a year passed before a suitable replacement could be found. Meanwhile, there was little continuity in the Country Economist position, although the dialogue seems to have been maintained at a fairly consistent level. There has been rather more continuity in the Country Team as a whole, and supervision o f ongoing projects has, by and large, been effective. Close collaboration between the Bank and the IMF, with a growing emphasis on governance, has been a factor in the relative success of the macroeconomic management component. In contrast, the inability of the Bank to deliver much support in areas related to poverty reduction probably has much to do with the slow pace o f progress in th i s area. The lack of an effective Bank presence in the field also constrained collaboration with other donors during t h i s period.

Finally, the CAS agenda was congruent with Government objectives when seen in the long run. Some progress has been made, but not at the pace that was expected. More stakeholder analysis, and a more restricted reform agenda for each operation, might have improved the chances for success. For the future CAS, i t w i l l be necessary to set even sharper priorities and to concentrate Bank resources on areas of real comparative advantage. Continued collaboration with other donors, and broadened consultation and communication with c iv i l society, w i l l be essential. These are likely to develop further through the process of PRSP preparation.

-69-

3

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c E 2 3

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8 8 5

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0

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Annex B Gabon: Planned Lending Program and Actual Deliveries

CAS Plans (September 22, 1998) F Y I Project I IBRD

CAS Completion Report (April 30,2004) FY I Project I lBRD

99 00

(US$M) (US$M) Urban LIL(1) 5.0 99 UrbanLIL(1) 5.0 Public Sector Reform Loan 15.0 Dropped

(1) Pilot Community Infrastructure Works and Capacity Building Project. This FY 99 project had already been approved (August 1998) before the date of the CAS.

01 02 03 04

Total

-81-

Railway Rehabilitation 15.0 Dropped

35.0 Total 5.0

Annex C Gabon: Planned Non-Lending Program and Actual Deliveries

CAS Plans (September 22, 1998) FY

99( 1 )

00

01

02 03

04

Product IDF Grant for Capacity Building in the

Public Sector and Civil Society

PHRD Grant for Preparing a Public Sector Reform Loan

Economic policy dialogue in collaboration with IMF

Informal policy notes to be prepared on request on maritime transport, financial sector strengthening, and a CEMAC common tariff regime

Rural Development Strategy

Possible GEF grant for Biodiversity Conservation

Information Management Assessment

Training for parliamentarians to be provided by ED1 (WBI)

NGO capacity building to be provided by EDI(WB1)

T A from FIAS to help implement the one-stop shop for private investors

Donor Round Tables for urban and rural development, health, and education

CA: FY

Zompletion Report (April 30,2004) Status

Secured prior to CAS

Grant secured - outstanding balance

cancelled in F Y 9 1

Done

Not requested

Not done

Postponed to F Y 05

Not done

Not done - some training provided by ACBF

Not done

Not done - FIAS study on infrastructure now programmed for F Y 05

Not done (sector strategies and expenditure programs not prepared)

Support to IMF,Statistical support through PHRD Grant (Demographic and Health survey, consultants in health & education) Support to IMF Management of Forest Resources TE P H R 6 Grant cancelled Support to IMF Financial Sector Assessment (with IMF) Support for Procurement Code Support to IMF, PRSP mission on (1) participatory process and (2) poverty monitoring

(1) No specific fiscal year i s established in the CAS for these non-lending inputs. The CAS was only intended to cover F Y 99-01. (2) This IDF grant had already been approved before the date of the CAS.

-82-

ANNEX 5. Development Partner Coordination

Iacroeconomic Reforms JMF

ublic finance management revenuelfiscal administration

oil resources management Budget management Expenditure management

France WB AfDB IMF

Public expenditure review

statistics

Iicrofinance mployment and enterprenership

France WB AfDB EU France AfDB EU UNDP

labitat France !ommunity Development

Canada

UNICEF

WB WBIGEF EU FFEM France France GEFRTNDP WBIGEF

orestry and Environment

rivate sector Development

griculturflisheries

Instrument*

Proparco BE1 WB WB AFD AfDB Japan EU

BS BS BS

TA

ransports

lining sector

,nergy

Bater and sanitation

TA TA

TBS TA

USA

AfDB AFD BE1 EU France EU WB France AFD WB AFD EU UNDP France

Spain

TA TA TA

BS+TA TA

Project Project Project Project Project

TBS Project

TA Project Project Project

P r o j e c m S Project

TA Project Project Project Project Project Project Project

TA Project BSRA

TA Project

TA Project Project Project

TA Project

TA Project Project Project Project Project

BS Project

ProjecnA Project Project

TA Project Project Project

Grant

Loan

+!E&@ annual

Grant Grant X

Grant Grant Grant

Grant

Grant Grant(*)

Grant

Grant Grant

Grant(*) Grant(*)

Period

t

x x x x

i -83-

ANNEX 5. Development Partner Coordination

sector Donor Instrument*

,ducation AfDB Project EU 1 Project France TA France Project UNHCR Project USA Project

[ealth /others social sectors GFTAM Project Canada ProjecnA Italy ProjecVTA UNDP ~ Project France , ProjecflA

Project Project Project

AtDB WB UNICEF WHO/A~DB Project WHOiCANADA Project

Project Project Project

iUSA Project Spain Project

:ulture Project

;overnance I I National Governance Program lAfDB TA PRSP /AfDB I T.4

UNDP France

~ WB

TA TA

~ TA IIMF TA

AudiVProcurment 1 WB TA lAfDB 1 TA/BS

Fight against coruption IIMF I TA IAfDB TBS

Public sector capacity building AfDB TBS Mining administration EU Project Minisuy of planning EU Project Public works administration EU Project Parliament WB ~ TA

UNDP TA

UNFPA TA Population census EU Project

Children traffic EU Project Unicef Project

Civil society EU Project Canada Project UNICEF Project

1 WR T A refugees HCR gender Justice. law and order France ProiectlTA

UNFPA

UNICEF l AfDB TA

~ T B S I d Y TA

Civil security France TA medias UNICEF TA

France TA Privatizations AfDB ProjectKBS Youth and sport France TA

L o a d 1 Period Grant

Loan(*)

Grant Grant Grant Grant Grant Grant

Grant(*) Grant(*) Grant(*) Grant Grant Grant Grant

x x x x

X

x x

Grant 1 X Grant x x Grant annual

Grant Grant(*) Grant x x Grant Grant Grant annual Grant x x Grant X

Grant Grant(*)

Grant X

Grant x x Grant X

Grant X

Grant annual Grant annual Grant annual Grant Grant mual

__ -

Grant(*)

Loan(*)

after -

(*) legend : BS: Budget support TBS: Targeted budget suppon T A Technical assistance G R A M The Global Fund to Fight A I D S , Tuberculosis and Malaria FFEM French Enviromntal Fund (Fondsfrangais pour I'environnemenf mondial) (*) Under preparation

-84-

ANNEX 6. Gabon: Country Financing Parameters (April, 2005)

The country financing parameters for the Gabonese Republic below have been approved by the Regional Vice President, Africa Region.

Cost Sharing. Limit on the proportion o f individual projects that the Bank may finance

Recurrent cost financing. Limits, if any, to the overall amount of recurrent expenditures that the Bank may finance

Local costfinancing. Are the requirements for Bank financing of local expenditures met, namely that: (i) financing requirements for the country’s development program would exceed the public sector’s own resources (e.g., from taxation and other revenues) and expected domestic borrowing; and (ii) the financing of foreign expenditures alone would not enable the Bank to assist in the financing of individual projects

Taxes and duties. Are there any taxes and duties that the Bank would not finance

I

Parameter 100%

No country-level limit

Yes

None

ExplanatiodRemarks The actual Bank financing share would be determined during the preparation of each new project and are likely to be about 90% of the project cost in most cases. Financing up to 100% wi l l be applied on a selective case by case and meridjustification basis, particularly for activities supported by IDF grants.

In individual projects, the Bank would take into account sustainability issues at the project and sector level, including: (i) the sustainability o f project achievements and Bank-financed recurrent costs; and (ii) the implied future budgetary outlays. The level of Bank financing of recurrent costs i s expected to be a relatively low share of total project costs, and i s mainly expected to be for salaries and operating costs associated with project implementation.

The requirements for local cost financing are met. The Bank may finance local costs in any proportions required by individual projects.

There are no unreasonable taxes and duties. The Bank may finance all taxes and duties associated with project expenditures. At the project-level, the Bank would consider whether taxes and duties constitute an excessively high share of project costs.

-85-

Gabon at a dance middle- income

911 5/04

Development diamond' POVERTY and SOCIAL

2003 Population, mid-year (millions) GNI per capita (Atlas method, US$) GNI (Atlas method, US$ billions)

Average annual growth, 1997-03

Population (%) Labor force (%)

Moat recent estimate (latest year available, 1997-03)

Poverty Urban population (% of total population) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Child malnutrition (% of children under5) Access to an improved water source (% ofpopuiation) Illiteracy (% of population age 154 Gross primary enrollment (% of school-age population)

of population below national poverty line)

Male Female

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

GDP (US$ billions) Gross domestic investmenVGDP Exports of goods and servicesiGDP Gross domestic savingJGDP Gross national savings/GDP

Current account balance/GDP interest payments/GDP Total debffGDP Total debt servicelexports Present value of debffGDP Present value of debffexports

1983

3.4 35.2 61.3 53.0

2.1 1.6

27.0 10.9

1983-93 1993-03 (average annual growth) GDP 1.6 2.3 GDP per capita -1.6 -0.2 Exports of goods and services 5.9 -0.7

Gabon

1.3 3,580

4.8

2.3 1.8

84 53 63 12 86

134 135 134

1993

4.4 22.4 40.8 36.7 21.4

-1.3 0.8

88.1 5.9

2002

3.0 0.8 3.1

sub- Saharan

Africa

703 490 347

2.3 2.4

36 46

103

58 35 87 94 80

2002

5.0 28.4 59.5 48.4 28.7

6.1 3.2

71.3 12.0 70.9

103.4

2003

3.4 1.2 3.2

335 5,340 1,788

1.2 1.8

76 73 19

89

Life expectancy

T

Gross

capita enrollment

I Access to improved water source

-Gabon Upper-middle-income group

104

2003

5.6 31.3 67.4 54.5 44.1

6.1 2.3

67.7 10.3

2 0 0 3 - 0 7

-0.1 -2.2 3.4

Economic ratios'

Trade

T

I

Indebtedness

-Gabon - Upper-middle-income group

STRUCTURE of the ECONOMY

(% of GDP) Agriculture Industry

Services

Private consumption General government consumption Imports of goods and services

Manufacturing

(average annual growthJ Agriculture Industry

Services

Private consumption General government consumption Gross domestic investment Imports of goods and services

Manufacturing

1983 1993

6.5 8.5 56.8 43.0

4.5 7.1 36.7 48.5

29.8 48.0 17.2 15.3 43.5 34.5

1983-93 1993-03

0.1 1 .o 2.2 2.3 0.0 1.2 2.5

0.7 4.4 -4.3 2.9 -6.7 3.3 -4.4 1.2

2002

7.6 46.4 4.7

46.0

39.5

2002

4.9 2.7

3.1

5.3 2.0

-0.8 2.8

2003 i Growth of investment and GDP (%)

8.7 67.1 5.3

24.1

-GDI +GDP .. i 44.3 j

I 2003 ~ Growth of exports and imports (%)

1.6 -Exports +Imports 3.3

Note: 2003 data are preliminary estimates. This table was produced from the Development Economics central database. * The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will

be incomplete.

-86-

Gabon

PRICES and GOVERNMENT FINANCE

Domestic prices (% change) Consumer prices implicit GDP deflator

Government finance (% of GDP, includes current grants) Current revenue Current budget balance Overall surDlus/deficit

TRADE

(US$ millions) Total exports (fob)

Oil Timber Manufactures

Total imports (cif) Food Fuel and energy Capital goods

Export price index (1995=700) Import price index (1995=100) Terms of trade (1995=100)

BALANCE of PAYMENTS

(US$ millions) Exports of goods and services imports of goods and services Resource balance

Net income Net current transfers

Current account balance

Financing items (net) Changes in net reserves

Memo: Reserves including gold (US$ millions) Conversion rate (DEC, local/US$)

EXTERNAL DEBT and RESOURCE FLOWS

(US$ millions) Total debt outstanding and disbursed

IBRD IDA

Total debt sewice IBRD IDA

Official grants Official creditors Private creditors Foreign direct investment Polffoiio equity

World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers

Composition of net resource flows

1983

10.7 2.9

1983

2,000

725

1983

2,201 1,757

444

-283

72

-189 117

361.1

1983

91 5 15

0

243 3 0

31 7

-65 112

0

0 1 2

-1 1

-2

1993

-8.9 1.1

22.9 -0.6 -5.7

1993

2,326 1,776

318

635 166

11 320

100 50

202

1993

2,637 1,868

770

-633 -195

-58

-2 1 79

349.6

1993

3,861 66

0

157 8 0

65 60 -2

-114 0

23 8 5 3 4

-1

2002

0.1 5.9

24.4 9.1 3.6

2002

3,080 2,138

442

1,266 158 199 363

2002

3,394 2,201 1,192

-713 -175

305

-273 -31

697.0

2002

3,546 50

0

407 12 0

54 -170

16 123

0

0 2 8

-6 4

-10

2003

0.5 -9.1

26.9 10.7 4.5

2003

3,278 2,203

517

1,345 168 21 2 386

2003

3,632 2,295 1,337

-818 -160

340

-274 -66

561.2

2003

3,792 49

0

375 8 0

-124 -73

0 2 6

-3 2

-6

Inflation (%)

45 T

-15

-30

I -GDP deflator -CPI I

j Export and import levels (US$ mill.)

~ 4,000

87 88 88 00 01 02 03

Exports w Imports

I Current account balance to GDP (?h)

' O T

Composition of 2003 debt (US$ mill.)

49 339 59

2734

A - IBRD E . Bilateral 8 - IDA D . Other multilateral F - Private C . IMF G - Short-term

Note: This table was produced from the Development Economics central database. 9/15/04

-87-

CAS Annex 82 - Gabon Selected Indicators* of Bank Portfolio Performance and Management

As Of April 20,2005

Indicator 2002 2003 2004 2005 Porffolio Assessment Number of Projects Under Implementation a 2 2 2 0 Average Implementation Period (years) 4.5 5.5 6.0 0.0 Percent of Problem Projects by Number 0.0 100.0 0.0 0.0 Percent of Problem Projects by Amount 0.0 100.0 0.0 0.0 Percent of Projects at Risk by Number 0.0 100.0 0.0 0.0 Percent of Projects at Risk by Amount a, 0.0 100.0 0.0 0.0 Disbursement Ratio (%) e 28.9 32.4 52.8 0.0 Portfolio Management CPPR during the year (yesho) no no no no Supervision Resources (total US$) 166 208 182 0 Average Supervision (U S$/p roject) 83 104 91 0

Memorandum Item Since FY 80 Last Five FYs

Proj Eva1 by OED by Amt (US$ millions) 144.6 27.8 57.1 0.0 60.3 0.0

Proj Eva1 by OED by Number 7 2

Yo of OED Projects Rated U or HU by Number Yo of OED Projects Rated U or HU by Amt

a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the

beginning of the year: Investment projects only. * All. indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio,

which includes all active projects as well as projects which exited during the fiscal year.

-88-

CAS Annex 8 3 - IBRD/IDA Program Summary - Gabon As Of April 20,2005

Proposed IBRD/IDA Base-Case Lending Program a

Fiscal year Proj ID Strategic Rewards Implementation (H/M/L) Risks (H/M/L) US$(M)

2005 Local Infrastructure Development 25.0 M M

2006 First Natural Resources Management DPL 15.0 H H

2008 Infrastructure Project 25.0 M M Second Natural Resources Management DPL 10.0 H H Result 35.0

2009 Diversification 18.0 H H Result 18.0

Overall Result 93.0

Result 25.0

Result 15.0

-89-

CAS Annex B3 (IFC & MIGA) for Gabon Gabon - IFC and MlGA Program, FY 2002-2005

2002 2003 2004 2005

IFC approvals (US$m) 10.00 0.00 0.00

Sector (%) Oil, Gas and Mining 100 Total 100 0 0 0

Investment instrument (%) Loans Equity Quasi-Equity Other Total

MlGA guarantees (US$m)

100

0 0 0 0 0

0 0 0 0

-90-

CAS Annex B4 - Summary of Nonlending Services - Gabon As Of April 20,2005

Product Completion FY Cost (US$OOO) Audiencea Objectiveb

Recent completions FSAP Gabon

FlAS Investment Climate Assessment

Underway Infrastructure Framework Report

P ER/C FANC PAR

Planned Mining Sector Report

Poverty Assessment

2003 230.5 Government Knowledge Generating

2005

2006

2006

2007

2009

40.0 Govern men t Knowledge Generating, Public Debate, Problem Solving

20.0 Bank & Knowledge Government Generating

100.0 Bank & Knowledge Government Generating

50.0

250.0

Bank & Knowledge Government Generating Bank & Knowledge Govern men t Generating

a. Government, donor, Bank, public dissemination. b. Knowledge generation, public debate, problem-solving.

-91-

CAS Annex B5 - Gabon Social Indicators Latest single year Same regionlincome group

POPULATION Total population, mid-year (millions)

Urban population (Yo of population) Total fertility rate (births per woman) POVERTY (“A of population) National headcount index

Urban headcount index Rural headcount index

Growth rate (Yo annual average for peric

INCOME GNI per capita (US$) Consumer price index (1 995=100) Food price index (1 995=100) INCOMEEONSUMPTION DISTRIBUTION Share of income or consumption Gini index Lowest quintile (% of income or consumptic Highest quintile (?/. of income or consumpti SOCIAL INDICATORS Public expenditure

Health (YO of GDP) Education (% of GDP) Social security and welfare (YO of GDP)

Net primary school enrollment rate (“A of age group)

Male Female

Access to an improved Water source (“A of population)

Urban Rural

Total

Total

Immunization rate (“A of children ages 12-23 months)

Measles DPT

Child malnutrition (YO under 5 years) Life expectancy at birth (Years)

Total Male Female

Mortality Infant (per 1,000 live births) Under 5 (per 1,000 live births)

Male (per 1,000 population) Female (per 1,000 population)

Adult (15-59)

Maternal (modeled, per 100,000 live birtl

1970-75

0.59 3.3

40.0 4.3

3,130 26

1.9

46 45 48

521 421

1980-85

0.81 3.1

59.2 4.8

3,930 76 76

4.6

58 48

50 49 52

75 105

474 387

1997-2003

1.3 2.3

83.7 4.1

3,580 105 116

1.7 3.9

78 79 78

86 95 47

55 38 12

53 52 54

63 85

380 330 420

Sub-Saharan Africa

702.6 2.3

36.1 5.1

490

2.5 3.4

58 83 45

58 54

46 45 47

103 174

51 9 46 1

Upper-middle- income

334.9 1.2

75.8 2.4

5,340

3.7 4.4

93 93 94

77

94 90

73 70 77

19 22

197 103

Births attended by skilled health staff (%) Note: 0 or 0.0 means zero or less than half the unit shown. Net enrollment rate: break in series between 1997 and 1998 due to change from ISCED76

86

to ISCED97. Immunization: refers to children ages 12-23 months who received vaccinations before one year of age. World Development Indicators database August 2004, World Bank

-92-

CAS Annex B6 - Gabon Key Economic Indicators

Actual Estimate Projected Indicator 2000 2001 2002 2003 2004 2005 2006 2007 2008

National accounts (as % of GDP) Gross domestic producta

Agriculture Industry Services

100 100 6 8

53 51 40 42

Total Consumption 72 50 Gross domestic fixed investment 26 31

Government investment 5 6 Private investment 21 25

E X P O ~ ~ S (GNFS)~ Imports (GNFS)

Gross domestic savings Gross national savings'

37 60 35 41

28 50 11 34

Memorandum items Gross domestic product 4932 4334 (US$ million at current prices) GNI per capita (US$, Atlas method) 3190 3160

Real annual growth rates (%, calculated from 1991 prices) Gross domestic product at market price 2.0 2.5 Gross Domestic Income 1.2 16.9

100 8

46 46

52 28

5 23

59 39

48 29

4971

3060

0.0 0.4

Real annual Der capita arowth rates (Yo, calculated from 1991 prices) . - Gross domestic product at market price Total consumption Private consumption

Balance of Payments (US$ millions) E X P O ~ ~ S (GNFS)~

Merchandise FOB Imports (GNFS)~

Merchandise FOB Resource balance Net current transfers Current account balance

Net private foreign direct investment Long-term loans (net) Official Private

Other capital (net, incl. errors & ommissions) Change in reservesd

Memorandum items Resource balance (Yo of GDP) Real annual growth rates (YR91 prices) Merchandise exports (FOB) Primary Manufactures

Merchandise imports (CIF)

-0.6 0.8 3.2

301 8 2750 2034 887 984

128 -1 64

-15

-150

-39

20.0

2.2

2.5

0.0 0.4 2.4

31 75 2897 21 35 934

1040 -1 69 168

- 33

-218

-31

24.0

1 .8

2.5

-2.3 2.0 2.9

3394 3080 2203 988

1190 -174 303

-39

-172

-31

23.9

2.5

3.0

100 8

62 30

50 24 4

20

62 41

50 33

5957

3380

2.6 3.1

0.4 2.0 2.6

3633 3278 2295 1049 1338

341

-44

-172

-1 81

-66

22.5

2.6

3.5

100 8

60 28

48 25 5

20

61 40

52 35

6498

371 0

1.9 2.1

-0.2 2.6 3.0

3872 3472 2400 1121 1472 -1 87 397

-51

-213

-68

22.6

2.7

4.0

100 9

64 27

50 23 5

18

53 50

50 38

7026

2.0 -8.5

5237 5237 3820 1594 1417 -102 55 1

342

-385

-597

20.2

-5.8

1 .8

100 9

66 25

50 22 5

18

44 50

50 38

701 6

0.2 -2.0

4776 4776 3788 1790 988

-1 02 142

305

-388

5

14.1

-8.0

0.2

100 9

68 23

50 22

5 17

39 50

50 39

71 07

0.7 0.7

4359 4359 369 1 1907 668

-102 -1 52

283

-403

26

9.4

-7.3

0.6

100 9

70 21

48 21

5 17

34 50

52 40

7219

1 .o 1.5

4601 4601 3771 1980 831

-1 02 20

254

-401

-16

11.5

-8.8

0.9

-93-

CAS Annex B6 - Gabon Key Economic Indicators (Continued)

Actual Estimate Projected Indicator 2000 2001 2002 2003 2004 2005 2006 2007 2008

Public finance (as % of GDP at market prices)e Current revenues 22.1 Current expenditures 16.1 Current account surplus (+) or deficit (-) 6.0 Capital expenditure 5.4 Foreign financing -2.7

Monetary indicators M2/GDP 14.8

Private sector credit growth I 184.8 total credit growth (YO)

Growth of M2 (YO) -0.3

Price indices( YR91 =loo) Merchandise export price index 97.7 Merchandise import price index 147.6 Merchandise terms of trade index 66.2 Real exchange rate (US$/LCU)' 64.4

Real interest rates Consumer price index (% change) 1.4 GDP deflator (% change) 28.5

25.2 19.8 5.4 4.1

-0.9

17.5 7.5

144.4

101.1 151.5 66.7 64.5

2.0 -1 1.7

24.4 15.4 9.1 5.5

-1.5

17.2 6.9

104.9 155.6 67.4 65.1

0.1 9.1

29.8 17.4 12.4 3.7

-2.0

18.2 7.4

108.8 159.7 68.1 65.2

3.5 -1 .o

30.0 17.4 12.6 4.2

-2.0

17.6 5.6

112.3 164.0 68.5 65.3

2.0 7.0

32.4 22.4 10.0 4.5

-2.1

16.9 -4.3

128.0 154.9 82.7 65.3

1 .o -2.6

32.2 23.9

8.4 4.5

-2.1

16.9 2.2

115.4 154.3 74.8 65.3

2.0 2.0

32.2 24.4 7.7 4.5

-2.2

16.9 2.7

111.1 155.2 71.6 65.3

1.4 2.0

32.1 24.5 7.6 4.5

-2.2

16.9 3.0

107.4 156.1 68.8 65.3

1.5 2.0

a. GDP at market prices b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes use of IMF resources. e. Consolidated central government. f. "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation.

-94-

CAS Annex B7 - Gabon Key Exposure Indicators

Actual Estimate Projected Indicator 2000 2001 2002 2003 2004 2005 2006

Total debt outstanding and disbursed (TDO) (US$m)"

Net disbursements (US$m)"

Total debt service Paid (TDS) (us$m)"

(Yo)

Debt and debt service indicators

TDO/XGS~ TDO/G D P TDS/XGS ConcessionaVTDO

IBRD exposure indicators (%) IBRD DS/public DS Preferred creditor DS/public

IBRD DS/XGS DS (Yo)'

IBRD TDO (us$mld Of which present value of guarantees (US$m)

Share of IBRD portfolio (Yo) IDA TDO (us$m)d

Loans Equity and quasi-equity /c

IFC (US$m)

MlGA

3618

34 1

34 1

82.9 64.1 18.0 0.0

1.8 10.2

0.7 50

0

3449

657

657

106.7 63.1 24.2 0.0

1.9 13.2

0.7 55

3449

207

207

112.0 62.7 9.8 0.0

2.6 3.8

0.7 50

0 0

3.8

MlGA guarantees (US$m)

a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short-

b. "XGS" denotes exports of goods and services, including workers' remittances. c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the

Bank for International Settlements. d. Includes present value of guarantees. e. Includes equity and quasi-equity types of both loan and equity instruments. NA: Not available

term capital.

339 1

44 1

44 1

98.0 55.9 13.7 0.0

2.5 25.2

0.7 49

0

3249

NA

546

92.1 50

14.1 0.0

2.5 15.7

0.7 38

0

3451

NA

670

89.2 45.5 12.8 0.0

2.3 17.4

0.9 37

0

3455

NA

645

88.7 42.4 13.5 0.0

2.2 16.7

1 52

0

61

-95-

m 3 C .- E 2 m D

CAS Annex B8 (IFC) for Gabon

Gabon Statement of IFC's

Held and Disbursed Portfolio As of 12/31 /2004

(In US Dollars Millions)

Held Disbursed

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 2002 VAALCO Gabon 3.75 0 0 0 3.75 0 0 0

Total Portfolio: 3.75 0 0 0 3.75 0 0 0

Approvals Pending Commitment Loan Equity Quasi Partic

-97-