Guatemala - Enhancing MSME Productivity Project...

Document ofThe World Bank

Report No: ICR00003999

IMPLEMENTATION COMPLETION AND RESULTS REPORT(IBRD-80000)

ON A

LOAN

IN THE AMOUNT OF US$32 MILLION

TO THE

REPUBLIC OF GUATEMALA

FOR AN

ENHANCING MICRO, SMALL AND MEDIUM ENTERPRISE PRODUCTIVITY PROJECT

March 1, 2017

Trade and Competitiveness Global PracticeCentral America Country Management UnitLatin America and the Caribbean Region

CURRENCY EQUIVALENTS

(Exchange Rate Effective January 31, 2017)

Q 1 = US$0.14US$1 = Q 7.38

FISCAL YEARJanuary 1 – December 31

ABBREVIATIONS AND ACRONYMS

BDS Business Development ServicesCEM Country Economic MemorandumCENAME National Metrology CenterESMF Environmental and Social Management FrameworkGDP Gross Domestic ProductICR Implementation Completion and Results ReportIPP Indigenous Peoples PlanIT Information TechnologyM&E Monitoring and EvaluationMFI Microfinance InstitutionMINECO Ministry of EconomyMSME Micro, Small, and Medium EnterprisePAD Project Appraisal DocumentPDER Rural Economic Development Program (Programa Desarrollo Económico

desde lo Rura)PDO Project Development ObjectivePIU Project Implementation UnitREM Registry for Non-Profit Microfinance InstitutionsSME Small and Medium EnterpriseTA Technical AssistanceUSAID United States Agency for International Development

Vice President:Country Director:

Senior Global Practice Director:Global Practice Director:

Jorge FamiliarJ. Humberto LopezAnabel GonzalesCecile Fruman

Practice Manager: Marialisa MottaProject Team Leader: Cristian Quijada

ICR Team Leader: Raha Shahidsaless

GuatemalaEnhancing Micro, Small and Medium Enterprise Productivity Project

ContentsData Sheet

A. Basic Information .......................................................................................................iB. Key Dates.....................................................................................................................iC. Ratings Summary.........................................................................................................iD. Sector and Theme Codes............................................................................................iiE. Bank Staff ..................................................................................................................iiF. Results Framework Analysis.......................................................................................iiH. Restructuring (if any).................................................................................................xi

1. Project Context, Development Objectives and Design....................................................12. Key Factors Affecting Implementation and Outcomes...................................................43. Assessment of Outcomes...............................................................................................124. Assessment of Risk to Development Outcome.............................................................185. Assessment of Bank and Borrower Performance..........................................................186. Lessons Learned............................................................................................................207. Comments on Issues Raised by Borrower/Implementing Agencies/Partners...............23Annex 1. Project Costs and Financing...............................................................................24Annex 2. Outputs by Component......................................................................................25Annex 3. Economic and Financial Analysis......................................................................32Annex 4. Bank Lending and Implementation Support/Supervision Processes.................33Annex 5. Evolution of Results Framework.......................................................................35Annex 6. Stakeholder Workshop Report and Results.......................................................37Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR..........................38Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders............................40Annex 9. List of Supporting Documents...........................................................................41

A. Basic Information

Country: Guatemala Project Name:GT Enhancing MSME Productivity Project

Project ID: P112011 L/C/TF Number(s): IBRD-80000ICR Date: 12/08/2016 ICR Type: Core ICR

Lending Instrument: SIL Borrower:REPUBLIC OF GUATEMALA

Original Total Commitment:

US$32.00 million Disbursed Amount: US$4.61 million

Revised Amount: US$7.00 millionEnvironmental Category: BImplementing Agencies: Ministry of Economy (MINECO)Cofinanciers and Other External Partners: None

B. Key Dates

Process Date Process Original Date Revised/Actual Date(s)

Concept Review: 04/05/2010 Effectiveness: 12/21/2012 12/18/2012

Appraisal: 11/30/2010 Restructuring(s):07/11/201402/03/2016

Approval: 03/03/2011 Mid-term Review: 05/11/2015 04/08/2015 Closing: 12/31/2017 06/30/2016

C. Ratings Summary C.1 Performance Rating by ICROutcomes: UnsatisfactoryRisk to Development Outcome: HighBank Performance: Moderately UnsatisfactoryBorrower Performance: Unsatisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)Bank Ratings Borrower Ratings

Quality at Entry: Unsatisfactory Government: Unsatisfactory

Quality of Supervision: Moderately Satisfactory Implementing Agency/Agencies: Unsatisfactory

Overall Bank Moderately Overall Borrower Unsatisfactory

i

Performance: Unsatisfactory Performance:

C.3 Quality at Entry and Implementation Performance IndicatorsImplementation

Performance Indicators QAG Assessments (if any) Rating

Potential Problem Project at any time (Yes/No):

NoQuality at Entry (QEA):

None

Problem Project at any time (Yes/No):

YesQuality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Unsatisfactory

D. Sector and Theme Codes Original Actual

Sector Code (as % of total Bank financing)Public administration - Industry and trade 24 24SME finance 7 7Other industry, trade and services 59 59Agricultural markets, commercialization and agri-business 10 10

Theme Code (as % of total Bank financing)Micro, Small and Medium Enterprise support 75 75Regulation and competition policy 25 25

E. Bank Staff Positions At ICR At Approval

Vice President: Jorge Familiar Pamela CoxCountry Director: J. Humberto Lopez Carlos Felipe JaramilloPractice Manager/Manager: Marialisa Motta Lily ChuProject Team Leader: Cristian Quijada Torres Michael GoldbergICR Team Leader: Raha ShahidsalessICR Primary Author: Raha ShahidsalessF. Results Framework Analysis

Project Development Objectives The objective of the project is to stimulate the growth of MSMEs in Selected Value Chains.

ii

Revised Project Development Objective (as approved by original approving authority)

There were no changes to the original PDO throughout the life of the project.

(a) PDO Indicator(s)1

Indicator Baseline Value

Original Target Values (from

Approval Documents)

Formally Revised Target

Values

Actual Value Achieved at Completion or Target

Years

DROPPED First PDO Indicator (R1)

Value increase per unit in respective value chains (US$)

Value (Quantitative or Qualitative) 0 TBD — —

Date achieved 15-Jun-2011 29-Dec-2017 — —

Comments (Incl. % of achievement)

Dropped during first restructuring in July 2014. Replaced with a PDO indicator to reflect the more reliably measurable concept of increase in revenue rather than increase in value added.

DROPPED Second PDO Indicator (R1)

Number of MSMEs participating in value chain working groups

Value (Quantitative or Qualitative) 0 TBD — —

Date achieved 15-Jun-2011 29-Dec-2017 — —


Dropped during first restructuring in July 2014. Replaced with a PDO indicator to include a broader range of MSMEs that have received support through project activities (including BDS).

ADDED Indicator (R1) REVISED Indicator (R2)

Number of MSMEs that have received support from at least one activity of support from the project

Value (Quantitative or Qualitative) 0 TBD 400 451

Date achieved 11-Jul-2014 29-Dec-2017 30-Apr-2016 27-Jun-2016


EXCEEDED. Target value exceeded by 13% at completion. Added during first restructuring in July 2014. New PDO indicator to include a broader range of MSMEs that have received support through project activities (including BDS).

Revised indicator during second restructuring in 2016. Target value identified and target date revised.

ADDED Indicator (R1) DROPPED Indicator (R2)

Increase in revenue of MSMEs in value chains selected for project support (%)

Value (Quantitative or Qualitative) 0 20 — —

Date achieved 11-Jul-2014 29-Dec-2017 — —

1 R1 refers to first restructuring and R2 refers to second restructuring.

iii



Approval Documents)

Formally Revised Target

Values

Actual Value Achieved at Completion or Target

Years


Added during first restructuring in July 2014. New PDO indicator to reflect the more reliably measurable concept of increase in revenue rather than increase in value added.

Dropped during second restructuring in 2016. Because the project could not implement most of its planned activities and closed early, the team updated the Results Matrix to reflect better the outcomes that were achievable within the reduced scope.

(b) Intermediate Outcome Indicator(s)2



approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

REVISED Indicator (R1) DROPPED (R2)

Number of calibration and testing services provided to MSMEs

Value (Quantitative or Qualitative)

0 230 450 —

Date achieved 11-Jul-2014 31-Dec-2017 31-Dec-2017 —


Revised during first restructuring in July 2014. Target value modified and name of indicator ‘number of calibration services provided to MSMEs’ revised. The new name more precisely reflects the services provided—both calibration and testing services.

Dropped during second restructuring in 2016. Because the project was unable to implement most of its planned activities and closed early, the team updated the Results Matrix to reflect better the outcomes that were achievable within the reduced scope.

REVISED Indicator (R1) DROPPED (R2)

Number of normalization, certification, accreditation, and metrology verification services provided to MSMEs


0 15 475 —

Date achieved 11-Jul-2014 31-Dec-2017 31-Dec-2017 —


Revised during first restructuring in July 2014. Target values modified and original indicator name ‘number of accreditations provided to MSMEs’ revised. Revisions conducted to more precisely state all services being provided, including metrology verification services.


2 R1 refers to first restructuring and R2 refers to second restructuring.

iv



approval documents)




DROPPED Indicator (R1)

Number of hits on online platform providing information on international standards and listing certified companies


0 90,000 — —



Dropped during first restructuring in July 2014. Replacement of two intermediate indicators measuring number of website hits for the Business Development Services (BDS) database with an indicator capturing the number of BDS providers registered in the new database.

DROPPED Indicator (R1) Number of hits on online directory of business development service providers


0 118,000 — —

Date achieved 11-Jul-2014 31-Dec-2017 — —Comments (Incl. % of achievement)

Dropped during first restructuring in July 2014. Replacement of two intermediate indicators measuring number of website hits for the BDS database with an indicator capturing the number of BDS providers registered in the new database.


Number of workers trained in the tourism value chain by programs supported by the project


TBD TBD — —



Dropped during first restructuring in July 2014. Replacement of intermediate indicators related to employment in the tourism industry, number of hits to tourism e-platforms, and number of tourists using project-supported tourism packages with an indicator having stronger attribution that captures the percentage of firms in selected tourism value chains receiving support.

DROPPED Indicator (R1) Number of hits in the project-supported e-tourism platforms


TBD TBD — —



Dropped during first restructuring in July 2014. Replacement of intermediate indicators related to employment creation in the tourism industry, number of hits to tourism e-platforms, and number of tourists using project-supported tourism packages with an indicator having stronger attribution that captures the percentage of firms in selected value chains receiving support.

DROPPED Indicator (R1) Number of tourists using project-supported tourism packages

Value TBD TBD — —

v



approval documents)




(Quantitative or Qualitative) Date achieved 11-Jul-2014 29-Dec-2017 — —


Dropped during first restructuring in July 2014. Replacement of intermediate indicators related to employment creation in the tourism industry, number of hits to tourism e-platforms, and number of tourists using project-supported tourism packages with an indicator having stronger attribution that captures the percentage of firms in selected value chains receiving support.

DROPPED Indicator (R1) Number of companies in value chain compliant with relevant SPS standards


TBD TBD — —


Dropped during first restructuring in July 2014.


Narrowing of price gap between U.S. import price of respective produce compared to other Latin American countries


TBD TBD — —


Dropped during first restructuring in July 2014. Elimination of indicator showing narrowing of the price gap between U.S. import price of respective produce compared to other Latin American countries due to attribution difficulties.

DROPPED Indicator (R1) Number of producers participating in project-supported training and outreach programs


TBD TBD — —



Dropped during first restructuring in July 2014. Replacement of indicator capturing number of producers participating in project-supported training and outreach programs with an indicator that captures the percentage of firms in selected agricultural value chains receiving support.


Percentage of project beneficiaries that implement clean production improvements


0 18 — —


vi



approval documents)





Added during first restructuring in July 2014. Introduction of a new indicator to track implementation of clean production practices among MSMEs benefiting from program resources.



Volume of Bank Support: Enabling Environment - SME (US$)


0 815,000 — —



Added during first restructuring in July 2014. Retrofitting of Component 1 of the project to include two core indicators as advised by OPCS for MSME projects (Volume of Bank Funding: Institutional Development–MSME, and Volume of Bank Funding: Enabling Environment–MSME).



Volume of Bank Support: Institutional Development–SME (US$)


0 645,000 — —



Added during first restructuring in July 2014. Retrofitting of Component 1 of the project to include two core indicators as advised by OPCS for MSME projects (Volume of Bank Funding: Institutional Development–MSME, and Volume of Bank Funding: Enabling Environment–MSME).



Number of BDS providers validated, categorized and registered in the new BDS online database

Value (Quantitative or

0 300 — —

vii



approval documents)




Qualitative) Date achieved 11-Jul-2014 29-Dec-2017 — —


Added during first restructuring in July 2014. New indicator to replace two intermediate indicators measuring number of website hits for the BDS database.


ADDED Indicator (R1) REVISED Indicator (R2)

Number of MSMEs that receive business development services provided by BDS Units


94 185 370 396

Date achieved 11-Jul-2014 29-Dec-2017 30-Apr-2016 27-Jun-2016


EXCEEDED. Target value exceeded by 7% at completion. Added during first restructuring in July 2014. Introduction of a new indicator ‘number of municipalities where MSMEs can receive BDS provided by the MSME directorate’ to capture geographic outreach (in terms of number of municipalities covered) by services provided by the MSME directorate.

Revised during second restructuring in 2016. Changed the indicator to ‘number of MSMEs that receive business development services provided by BDS Units.’ Adjusted target value and completion date.


Number of Microfinance Institutions registered in the new Microfinance Registry


0 80 — —



Added during first restructuring in July 2014.



Percentage of MSMEs receiving services from project activities relative to the total number of firms in selected value chains–agribusiness


0 30 — —

viii



approval documents)






Added during first restructuring in July 2014. New indicator replacing indicator capturing number of producers participating in project-supported training and outreach programs to capture a broader range of beneficiary firms (including non-producers).



Percentage of MSMEs receiving services from Project activities relative to the total number of firms in selected value chains-tourism


0 20 — —



Added during first restructuring in July 2014. New indicator with stronger attribution captures the percentage of firms in selected value chains receiving support, replacing intermediate indicators related to employment in the tourism industry, number of hits to tourism e-platforms, and number of tourists using project-supported tourism packages.

Dropped during second restructuring in 2016. Because the project was unable to implement most of its planned activities and closed early, the team updated the Results Matrix better reflect the outcomes that were achievable within the reduced scope.

ADDED Indicator (R2) MINECO Personnel Trained


0 175 — 188

Date achieved 01-Jan-2014 30-Apr-2016 — 27-Jun-2016


EXCEEDED. Target value exceeded by 7% at completion. Added indicator during second restructuring in 2016. Because the project could not implement most of its planned activities and closed early, the team updated the Results Matrix to reflect better the outcomes that were achievable within the reduced scope.

ADDED Indicator (R2) Training in Good Manufacturing and Business Practices


0 28 — 28



ACHIEVED. Added during second restructuring in 2016. Because the project could not implement most of its planned activities and closed early, the team updated the Results Matrix to reflect better the outcomes that were achievable within the reduced scope. Target met at completion.

ix



approval documents)




ADDED Indicator (R2)

Value Chain Strategic Plans


0 6 — 6



ACHIEVED. Added during second restructuring in 2016. Because the project could not implement most of its planned activities and closed early, the team updated the Results Matrix to reflect better the outcomes that were achievable within the reduced scope. Target met at completion.


Competitiveness Sub-Project Proposals


0 12 — 17



EXCEEDED. Target value exceeded by 42% at completion. Added during second restructuring in 2016. Because the project could not implement most of its planned activities and closed early, the team updated the Results Matrix to reflect better the outcomes that were achievable within the reduced scope.


Formalization of MSMEs


0 30 — 27



PARTIALLY ACHIEVED. Target partially achieved (90%). Added during second restructuring in 2016. Because the project could not implement most of its planned activities and closed early, the team updated the Results Matrix to reflect better the outcomes that were achievable within the reduced scope.

G. Ratings of Project Performance in ISRs

No. Date ISR Archived DO IP

Actual Disbursements (US$,

millions)1 07/09/2011 Satisfactory Satisfactory 0.002 01/15/2012 Moderately Satisfactory Moderately Satisfactory 0.003 06/13/2012 Moderately Unsatisfactory Moderately Unsatisfactory 0.004 02/13/2013 Moderately Satisfactory Moderately Satisfactory 0.005 10/21/2013 Moderately Satisfactory Moderately Unsatisfactory 1.406 05/07/2014 Moderately Satisfactory Moderately Unsatisfactory 1.40

x

7 11/25/2014 Moderately Satisfactory Moderately Unsatisfactory 1.408 06/30/2015 Moderately Unsatisfactory Moderately Unsatisfactory 2.339 12/28/2015 Unsatisfactory Unsatisfactory 4.4810 06/30/2016 Unsatisfactory Unsatisfactory 4.53

H. Restructuring (if any)

Restructuring Date(s)

Board Approved

PDO Change

ISR Ratings at Restructuring

Amount Disbursed at

Restructuring in US$, millions

Reason for Restructuring & Key Changes MadeDO IP

07/11/2014 MU MU 1.40

A Level 2 restructuring at the request of the Government of Guatemala. The restructuring amended the Legal Agreement to: (1) modify the definition of beneficiaries to better reflect the targeted audience of the project interventions, (2) broaden the objective of the technical assistance (TA) and training provided to beneficiaries, (3) amend the definition of Steering Committee to clarify domains of responsibility for committee members, and (4) alter the World Bank’s role in the selection process of value chains to benefit from Component 2.

Also, the results framework was revised to make adjustments to indicators to capture project outcomes better and more reliably.

02/03/2016 U U 4.48 This Level 2 restructuring sought a partial cancellation of loan proceeds in the amount of US$25 million and a change in the closing date from December 2017 to June 30, 2016, as agreed with the government. Also, the project’s sub-components, their cost, the results framework, the disbursement estimates, the implementation schedule, and the economic and technical appraisal summaries were adjusted to

xi

Restructuring Date(s)

Board Approved

PDO Change

ISR Ratings at Restructuring

Amount Disbursed at

Restructuring in US$,

Reason for Restructuring & Key Changes MadeDO IP

reflect the cancellation and the early closing date.

I. Disbursement Profile

xii

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal

1. At appraisal, Guatemala had a stable macroeconomic environment. The country had weathered the global financial and economic crisis comparatively well, with positive real gross domestic product (GDP) growth from 2008 to 2010. Owing to prudent fiscal management, the public debt to GDP ratio remained at 24 percent of GDP, and inflation dropped to 3–5 percent annually (2009–2010). However, poverty stayed comparatively high in Guatemala, especially among the indigenous population in rural areas. In 2008, about 47 percent of the population lived in poverty, and 16 percent in extreme poverty. Guatemala ranked 116 of 169 countries on the Human Development Index.

2. Despite this favorable macroeconomic environment, the changed global environment reduced the access of micro, small, and medium enterprises (MSMEs) to affordable financial services and increased instability in their markets. MSMEs employed about 75 percent of the active population. At project appraisal in 2008, tourism and agribusiness accounted for 11 and 34 percent of foreign exchange earnings, respectively. Agriculture alone accounted for 12 percent of GDP. These two sectors were large providers of employment in rural and indigenous areas of the country.

3. Rationale for World Bank involvement. Because MSMEs play critical roles in the labor market, analytical studies have highlighted the need to enhance their productivity, facilitate their access to financing, and link them to new markets and technologies. The World Bank’s Country Economic Memorandum (CEM) of 2010, for example, focused on barriers to the growth of SMEs and analyzed bottlenecks using a value chain approach. As barriers, the CEM highlighted (a) the need to promote a culture of innovation and quality, (b) the poor availability and slow uptake of the national quality system, (c) the lack of adequate education, (d) low levels of technology transfer and few productive relationships between the private sector and academia, and (e) most importantly, a lack of integration of MSMEs into production, processing, and marketing networks. Further analytical work included cluster work carried out by the Guatemalan Exporters Association (Asociación Guatemala de Exportadores) and the U.S. Agency for International Development (USAID). The studies indicated that support for MSME growth would strengthen their participation in regional and global markets and generate healthy, positive economy-wide benefits. These benefits would, in turn, reduce poverty in the country, because MSMEs were the core providers of employment to rural poor.

4. Support for MSME growth was part of the government’s economic growth strategy led by the MINECO and was a priority area of the Country Partnership Strategy.3 MINECO’s national policy for MSME development, under implementation at the time of appraisal, focused, among other things, on developing economic clusters. Furthermore, the productivity enhancement pillar of the World Bank’s strategy focused on supporting MSME development.

1.2 Original Project Development Objectives (PDO) and Key Indicators (As Approved)

5. The PDO was to stimulate the growth of MSMEs in selected value chains.

6. The PDO was to be measured by:

(a) Value increase in value per unit of outputs produced in the respective value chains

3 World Bank Group’s Country Partnership Strategy (Report Nº 44772-GT), discussed by the Board of Executive Directors on September 23, 2008.

1

(+20 percent)

(b) Number of MSMEs participating in value chain working groups (TBD)

1.3 Revised PDO (As Approved by Original Approving Authority) and Key Indicators, and Reasons/Justification

7. The PDO of the project remained unchanged.

8. The main performance indicators and the intermediate outcome indicators were adjusted twice during project implementation:

The first restructuring modified the two primary performance indicators. As shown in Annex 5, the restructuring changed the wording of the first indicator to clarify that a ‘value increase’ would be measured by an increase in revenue of MSMEs in the selected value chains. The restructuring dropped the second performance indicator, replacing it with a broader indicator: Number of MSMEs that have received support from at least one activity implemented by the project.

The intermediate outcome indicators were also fine-tuned or revised (see Annex 5), and baseline and target indicators determined where possible. Establishing baseline and target indicators was necessary because the Results Framework of the PAD did not provide any baseline and target indicators and some of the indicators were not sufficiently clear (see indicators on quality services). Furthermore, the intermediate results framework for Component 2 was revamped to bring it in line with actual outputs and to add support for clean production improvements.

Triggered by the early closing of the project and the resulting cancellation of about 80 percent of project funds, the second project restructuring, in 2016, adjusted the results framework. This second restructuring dropped the first main performance indicator because it was no longer feasible to measure an increase in revenue in the value chains during the project’s lifespan. Furthermore, it adjusted the intermediate outcome indicators to reflect the reduced scope of project activities.

1.4 Main Beneficiaries

9. The project’s target beneficiaries were MSMEs in the selected value chains. Project implementation broadened this focus to all MSMEs that received support under the project.

1.5 Original Components (As Approved)

10. The project consisted of three components:

(i) Component 1: Improving and Promoting Business Development Services (estimated US$9.7 million). Component 1 was closely linked with Component 2 to reap synergies. The component aimed to strengthen MINECO’s capacity to lead and coordinate the development efforts of public and private sectors to support MSMEs based on national policies. The focus was on improving BDS and quality services and conducting pilots to increase MSMEs’ access to BDS and financial services. Component 1 included four subcomponents:

a. Subcomponent 1.1: Improving and Promoting Quality Services Relevant to MSMEs’ Needs

2

b. Subcomponent 1.2: Strengthening BDS Provided by MINECO

c. Subcomponent 1.3: Supporting Pilots for the Development and Implementation of New Products

d. Subcomponent 1.4: Strengthening MINECO’s Vice Ministry for MSMEs

(ii) Component 2: Creating Productive Value Chains (estimated US$19 million). The component provided support for increased competitiveness of MSMEs through (a) TA and training to beneficiaries to facilitate the design of subproject proposals and (b) sub-grants to beneficiaries in the selected value chains for carrying out subprojects.

(iii) Component 3: Project Management and Monitoring (estimated US$2.52 million). Under this component, the project included funds for TA, equipment, training, and operational costs of the Project Implementation Unit (PIU), as well as for carrying out the financial audits of the project.

1.6 Revised Components

11. The restructuring in 2016 changed the cost and scope of all three components to reflect the early closing of the project and the cancellation of about 80 percent of the project funds (Table 1). The cost of Component 1 fell from US$9.7 million to US$2.58 million. As a result, many activities under Component 1 were cancelled. The cancelled activities included those under subcomponents 1.1 (quality system) and 1.2 (BDS). The cost of Component 2 dropped from US$19 million to US$2.95 million because, realistically, the project could only fund one or two subprojects for each of the selected value chain Action Plans before closing. The cost of Component 3 declined from US$2.52 million to US$1.39 million also to reflect the shorter duration of the project due to, among other things, lower planned operational costs of the PIU.

Table 1. Revision of Costs by Component

Component

Estimated Costs (PAD, March 2011 - US$,

millions)

%Revised Cost

(January 2016 - US$, millions)

%Costs at closing (July 2016 -US$,

millions)%

Component 1: Improving and Promoting Business Development Services

9.70 30 2.58 37 2.18 47.29

Component 2: Creating Productive Value Chains 19.00 60 2.95 43 1.16 25.16

Component 3: Project Management and Monitoring 2.52 8 1.39 20 1.19 25.82

Unallocated 0.70 2 0.00 0 0.00 0.00

Front-end Fee 0.08 0 0.08 0 0.08 1.73

TOTAL 32.00 100 6.92 100 4.61 100.00

I.7 Other Significant Changes

3

12. The project was restructured twice. The first restructuring (Level 2) in July 2014 amended the Legal Agreement in four ways. (1) It modified the definition of beneficiaries to reflect the targeted audience of the project interventions better. (2) It broadened the objective of the TA and training provided to beneficiaries. (3) It replaced the Steering Committee with an Advisory Committee and clarified the responsibilities of members of the Advisory Committee. Finally, (4) it modified the World Bank’s role in the selection process of value chains to benefit from Component 2.

13. The second restructuring (Level 2) in 2016 included cancelling US$25 million in loan proceeds and changing the project closing date from December 2017 to June 30, 2016. The early closure of the project was due to problems associated with design and readiness, which made implementation challenging; procurement and disbursement-related issues, which persisted and had caused delays in disbursements; and challenges that presented themselves during implementation, which slowed down disbursements. These are expanded further in the following sections of the report. The second restructuring also adjusted the project’s sub-components and costs, the results framework, the disbursement estimates, the implementation schedule, and the economic and technical appraisal summaries to reflect the cancellation and early closing date.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

14. While the overall project objective was backed up by strong analytical work, including the CEM mentioned earlier, the preparation of the project was hastened to benefit from the outgoing government’s commitment to pass the project through the Congress, prior to the September 2011 elections. Consequently, the team postponed to project implementation many important design issues that would have required longer than 11 months to prepare. Also, at the time of the appraisal of this project, the World Bank did not have much experience providing support to value chains through lending operations beyond matching grant schemes. This project was a pioneer. Due to a combination of a rushed preparation and lack of experience with comprehensive support for value chains through lending operations, project preparation closed without having completed critical analytical work. For example, project preparation did not define the methodology for selecting value chains and did not fully assess potential value chains. Instead, defining the methodology and analyzing and selecting value chains remained for project implementation. Developing the methodology and selecting the value chains during implementation delayed disbursement under Component 2. The project did not select the six value chains it would support until early 2015. Special interests and lobbying groups advocating for particular value chains—together with the unstable and opaque political environment associated with corruption scandals (see section 2.2) —exacerbated the delay.

15. Selecting value chains during implementation left many aspects of project design undefined. In particular, defining baselines, targets, and the M&E framework depended upon the prior completion of critical steps under Component 2 (see section 2.3). Component 2 required implementing a sequence of activities, which included identifying the methodology to select value chains, using the methodology to choose the value chains to be supported, preparing Action Plans and subproject implementation plans for the selected value chains, and

4

implementing the subprojects. Because the value chains were not selected during project preparation, finalizing the design of the project (the M&E framework, the financial and economic analysis model, and so on) depended upon first selecting the value chains, delaying implementation.

16. Inadequate implementation arrangements at preparation also delayed implementation. The project design envisaged establishing a Steering Committee—led by the Vice Minister of MSME in MINECO—that would make decisions about the project, including the selection of value chains. It was the borrower’s responsibility to create the Steering Committee. The Steering Committee would comprise representatives of academic institutions and civil society, as well as specialized technicians. However, Guatemalan law prohibited individuals who were not government staff from decision-making. The Steering Committee was not a government entity, and the law prohibited MINECO from sharing or delegating decision-making to a non-state entity. Consequently, establishing the Steering Committee had to wait until the 2014 restructuring had amended the Legal Agreement. Moreover, the restricting transformed the Steering Committee into an Advisory Committee, whose primary responsibility was to make recommendations rather than decisions. As a result, the final decision-making authority remained with MINECO. Also, due to internal decisions within MINECO, the PIU never carried out its role in budget execution. Instead, the PIU could only complete the initial contracting paperwork and submit it to the Vice Minister for approval through a multi-layered process that caused significant implementation delays.

17. Appraisal assessed the overall risk of the project as High. While the project adequately identified many of the risks, the proposed mitigation measures were not effective in practice. The rating was adequate, and most of the identified risks materialized during project implementation, including the stakeholder and institutional risks. The proposed mitigation measures were not effective in addressing the materialized risks. For example, the PAD acknowledged that the client’s commitment might change because elections were approaching in September 2011. The World Bank held discussions with the members of congress and relevant ministers to emphasize the importance of the project and the expected impact of value chain activities by relying on the CEM and its focus on SMEs and value chains. However, it took a long time to build the political buy-in and momentum after the change in Government, and the sectors that were expected to be supported needed to be slightly modified (for example, tourism was no longer included) for either due to shifts in Government priorities, requests for changes to project approach and design or due to influences by the private sector elites.

18. Moreover, implementation risks, in particular, those associated with procurement and financial management, turned out to be far more complex than envisioned (see section 2.4). The lack of an adequate Operations Manual at project effectiveness to address the bottlenecks in fiduciary arrangements exacerbated these implementation risks.

2.2 Implementation

19. Project implementation suffered several setbacks, delaying the project start date and causing an impasse in project execution. The 22-month lag between loan approval and the effectiveness of the project delayed the start of project implementation because there were no provisions in place to advance project implementation before congressional approval (such as through a project preparation advance facility or retroactive financing).

20. Political economy and local regulations proved to be significant bottlenecks. Project

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implementation spanned three administrations that had different priorities related to rural development and support for value chains. Also, project implementation spanned three separate Vice Ministers of Economy, as chairs of the Advisory Committee for the implementation of Component 2. With each shift in government or Vice Minister, the process of familiarizing the new staff with the project and the identification of new champions caused a significant delay in implementation. The political and institutional crisis of 2015 exacerbated the challenges related to implementing this project. For example, bidding on contracts went slowly and took a long time, because, due to corruption scandals and fear of being associated with them, the private sector was afraid to enter into transactions with the government.

21. The project also faced several implementation challenges, especially due to procurement issues and weak implementation capacity that hindered execution. The implementation agency ignored many procurement-related recommendations from the World Bank throughout the project cycle. Shortcomings in both the procurement processes and contract administration procedures followed by the implementing agency limited the timely achievement of critical outputs. Although the implementing agency received substantial support from the World Bank, it was not able to implement the project activities effectively.

22. The PIU’s lack of understanding of what the project was and what it aimed to do compared to the PDER project, and lack of internal World Bank coordination to provide clarification on the status and future of the two projects, hampered implementation. To ensure smooth implementation, the team chose an experienced PIU to implement this project. However, the PIU was also responsible for executing another World Bank project, the Rural Economic Development Program (Programa Desarrollo Económico desde lo Rura, PDER) in parallel and was focused on completing activities under that project. Once the PDER closed (in late 2014), and the attention of the PIU staff turned towards this project, the staff of the PIU faced a challenge in understanding the particular features of the new project (including the fact that the project was designed to finance subprojects that the PAD had not defined). At the request of the government and the PIU, the World Bank considered restructuring the project to align it with the PDER. The PIU was already familiar with the PDER and, therefore, could have more quickly implemented a similar project. However, aligning this project with the PDER would have required a Level 1 restructuring and Congressional approval. In the fragmented political context of Guatemala, approval could have taken another 22 months. At the same time, the World Bank could have done more to support a smoother transition and coordination between the two Projects, and to settle the discussions on whether this project was to be a PDER 2.0 or a distinct Project as it was designed. While these discussions were ongoing, different sectors of the World Bank were communicating at times contradictory messages to the Government on the status and fate of this Project. It is likely that a clearer communication with the Government could have avoided confusion and helped more effectively in Project implementation.

23. Options for improving Project performance were considered. During the Mid Term Review of April 2015, a comprehensive restructuring was proposed but never materialized because the Ministry of Economy, in the end, decided that they did not want to cancel any funds. This restructuring was to cancel US$15 million, revise the scope of Components and activities, realign the results framework, and simplify the fiduciary arrangements to ensure a more agile implementation. The restructuring was also to support one of the Government’s priorities related to financing activities aimed at improving the economic and social well-being of communities

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that were affected by the construction of the Chixoy dam4. The Government also requested the World Bank to finance feasibility studies for another dam, which would have triggered additional safeguards. However, this restructuring never happened. Instead, the Government and the World Bank decided to close the project early, and to cancel US$25 million of Project funds.

24. The peripheral requests distracted Project implementation, and impacted key decisions about the fate of the Project. Although there is some benefit in flexibility and responsiveness of the team within a project, there should be awareness that issues outside the agreed scope of the project reduce focus on implementing the Project’s core activities. During the implementation of the Project, a peripheral request was received from the Government to assess whether some of the Project’s resources could be utilized to support the Chixoy communities. Given the strategic importance of Chixoy for the government and the World Bank’s willingness to provide support to this community, the government and the World Bank agreed that the Project -- that was already experiencing implementation challenges – should not be closed at the mid-term review, as it was the only instrument that the World Bank had, at the time, to possibly, provide such support. In addition, the government requested feasibility studies for irrigation projects, which had pre-feasibility studies completed under the PDER Project. As a social safeguards specialist from the World Bank was able to conduct a field visit to the proposed site of the projects, critical issues were identified, which led to the team’s decision not to proceed with the support to feasibility studies. The proposed projects, though irrigation focused, were essentially dam projects. While these additional requirements were manageable and critical, carrying out this work would have required a restructuring and processing through the lengthy national Congress approval. In the end, given that the restructuring proposed in the mid-term review did not go through, support to Chixoy was not provided under the Project. The decision to close the Project was made by the government and the World Bank shortly thereafter (July, 2015).

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

26. M&E design. The design of the M&E framework remained deficient throughout the project and is assessed as Highly Unsatisfactory. Only the first of the two PDO indicators measured the achievement of the objective. However, its wording (‘increase in value added’) lacked specificity and measurability. The second PDO indicator (defined as the number of firms ‘participating in value chain working groups’) was better suited as an intermediate indicator because it failed to capture the much higher development objective of stimulating the growth of MSMEs. Moreover, the PDO and the associated indicators did not adequately measure activities under Component 1.

27. The M&E framework was redefined twice during project implementation (see section 1.3), but deficiencies in the design remained. The restructurings introduced baseline and target indicators for the intermediate outcome indicators and reformulated them to make them more specific and attributable to project support. However, the first restructuring, did not introduce a target for the second PDO-level indicator, weakening the indicator’s link to the PDO.5 The revision of the M&E framework under the second restructuring eliminated the only

4 After four decades, the Government agreed on both an individual and collective reparations plan for 33 communities displaced by the construction of the Chixoy dam.

5 Following the first restructuring, the indicator measured participation of any MSME in Project activities, which

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true outcome indicator and changed the indicators into output measurements. While this was understandable given the reduced scope of activities due to early closing and the limited time to capture the impact of the activities, the redefined results framework was no longer relevant to measuring progress toward the PDO.

28. M&E implementation and utilization. Design issues hampered implementation of the M&E framework, which is rated overall as Moderately Unsatisfactory. Because of the delay in project implementation, reporting on intermediate outcome indicators in the M&E framework only started after the first restructuring. Moreover, only the last Implementation Status and Results report in June 2016 captured data for the second PDO indicator. Delays in selecting the value chains and problems obtaining regular, reliable data on the revenue of the participating MSMEs were the main causes of the lack of reporting on the first PDO indicator. However, the project could have established a target for the second PDO indicator early on and measured progress toward its achievement. The early closing of the project prevented a planned final evaluation to measure its effects.

29. Efforts to capture the potential impact of individual activities and bridge problems in data availability were incomplete. For Component 1, a feasibility assessment for the mobile laboratory identified different routes and uptake scenarios for implementation and calculated the expected costs and revenue generated under each scenario. This assessment established the approach and a baseline against which to measure results. The value chain diagnostics and Action Plans included preliminary calculations of investment needs and potential returns of investment, against which the team could have measured results. However, the early closing of the project prevented measurement of the de facto impact of these activities. The PIU also tried to assess the impact of the business development pilots (web page design, formalization) on the supported businesses but faced challenges in collecting information on growth from the participating MSMEs.

2.4 Safeguard and Fiduciary Compliance

30. Safeguards Compliance. The project was given a B category and triggered six social and environmental safeguards. The safeguards triggered included Environmental Assessment (OP/BP 4.01), Natural Habitats (OP/BP 4.04), Pest Management (OP 4.09), Physical Cultural Resources (OP/BP 4.11), Indigenous Peoples (OP/BP 4.10), and Involuntary Resettlement (OP/BP 4.12). Project appraisal included an Environmental and Social Management Framework (ESMF). The ESMF provided a framework for sound management of environmental and social risks.

Social Safeguards

31. At project closing, compliance with social safeguards was satisfactory. Because indigenous peoples live in the areas of project intervention, an Indigenous Peoples Planning Framework (IPPF) was prepared in November 2010. The IPPF was to guide the preparation of individual Indigenous Peoples Plans (IPPs) for the selected value chains. The IPPF outlined the country context, possible impacts, and risks for indigenous peoples, and recommendations to ensure that subprojects incorporate indigenous peoples’ needs and concerns. To identify and

was broader than the stated PDO of ‘growth of MSMEs in selected value chains’. This disconnect is more attributable to an unfortunate wording of the Project objective, which did not adequately cover work to be provided under Component 1 (see section 2.1).

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mitigate potential adverse effects and proactively support measures to enhance inclusion of indigenous peoples and women within each value chain subproject, the Operations Manual mandated carrying out social assessments and preparing IPPs. A social specialist was hired in the PIU to coordinate the completion of the social assessment and consultations for IPPs for two value chains (export vegetables and potatoes). The social assessment included stakeholder mapping of each value chain, socialization workshops with the value chain committees to communicate the importance of the activities, and carrying out surveys and consultations with indigenous producers and women participating in each of the value chains. These assessments served both to socialize the potential benefits of the project and to highlight issues faced by women and indigenous people that the IPPs could address. The project would have supported specific actions designed in the IPP, had implementation moved forward. As with the other project investment activities, cancellation of support to the value chains for which the IPPs had been prepared prevented implementation of the IPPs.

32. During the social assessment of the export vegetable value chain, concerns about child labor arose, given that children were assisting their families in post-harvest activities. During the social assessment, it was observed that children were assisting their families in post-harvest activities. The family unit of labor, where production activities are carried out by the entire family and produce sold to intermediaries is a very common practice among indigenous communities in rural Guatemala and other rural areas of Latin America. This observation was documented by the client and communicated to the World Bank. As a result, the World Bank decided that no disbursements were to be made under Component 2 until the extent of the issue was known and mitigation measures in place. Given that the implementation support to subprojects (investment projects for each value chain) had not yet been rolled out, a strategy to mitigate this potential risk was developed, including (i) adding a clause in the grant sub-agreements which committed beneficiaries to not utilizing the labor of any child under 18 years of age, in accordance with national law; (ii) including the issue of child labor in a social management module to be in included in training that was to be offered to the value chains before Project closing; (iii) including explicit screening criteria to identify and assess child labor issues in the social assessment for each value chain. In cases where it was determined there was violation of children’s fundamental rights to security, recreation, or education, those parts of the value chain would be excluded from participating in the Project; and (iv) encouraging the client to collaborate with relevant national agencies to increase awareness and actions to promote the rights of children. The issue was first brought to the attention of the World Bank in early April, 2015, and guidance as to how to manage this risk was given in July, 2015, and recorded in the ISR of July, 2015. In November, 2015, a request to use funds for value chain training was submitted to the Bank, which in response provided recommendations to project team about how to operationalize the earlier guidance (by including training on child labor issues for value chains), therefore, resume disbursements under component 2 in November, 2015.

33. Although the project did not anticipate funding any projects that could lead to voluntary or involuntary resettlement, the World Bank prepared a Resettlement Policy Framework in November 2010. The framework included a checklist and screening criteria for determining whether involuntary resettlement was occurring and whether a subproject could be approved. The project did not carry out any involuntary land acquisition, and therefore did not prepare any Resettlement Action Plans.

Environmental Safeguards

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34. At project closing, compliance with environmental safeguards was rated Satisfactory. The project had completed—on time and satisfactorily—all environmental management tasks required by national regulations and World Bank policies. The ESMF identified no environmental issues initially. As project implementation got under way, updates and revisions to the ESMF outlined the responsibilities of major participants, including the value chain working groups, the environmental specialist contracted by MINECO, and the Ministry of Environment and Natural Resources. MINECO obtained environmental licenses for two of the value chain subprojects that managed to initiate activities before project closing. The project also focused on environmental management to increase the quality of products and enhance the competitiveness of MSMEs. To facilitate environmental management within the value chains, the PIU planned to continue the work initiated under the PDER to create product-specific environmental guides, in collaboration with the value chain committees. Persistent delays in defining the value chain activities and slow procurement processes affected the drafting of the environmental guides, and the attempt to contract a firm to draft the guides faced procurement challenges. Ultimately, the PIU prepared two product-specific Environmental Management Plans, for the potato and bean value chains.

35. Fiduciary compliance. Fiduciary performance was weak despite the technical support and intense supervision by the World Bank.

Procurement

36. Overall procurement arrangements were Moderately Unsatisfactory, largely because of the misinterpretation regarding the World Bank Procurement and Consultant Guidelines prevailing for this operation, as stated in the Legal Agreement. MINECO repeatedly requested documents that were not applicable or differed from those agreed with the World Bank. Additionally, the legal and administrative requirements in the national law caused delays and contributed to process inefficiencies. During several missions, the World Bank discussed with the borrower its lack of knowledge and improper application of the World Bank’s guidelines. However, the borrower continued certain practices that hindered contract administration, impeded the participation of potential bidders, and delayed the delivery of goods and the products. For example, for the selection of subprojects, MINECO insisted on using direct selection to shorten the time frames. However, the World Bank determined that this was neither cost-effective nor transparent. In other cases, when the work touched on the jurisdiction of several Ministries, the contract required the approval of more than one Vice Minister to approve each contract. Every disagreement on procurement methods or misunderstanding of the WB procedures would add to the delays in procurement and project implementation. There were some concerns throughout project implementation that the implementing agency was not following the guidelines the World Bank team recommended and were instead relying on internal process within MINECO, which sometimes required more than 20 steps.

Financial Management

37. At project closing, financial management was rated Moderately Satisfactory. This rating was mainly due to cumbersome internal procedures and processes in MINECO, as well as some delays in the submissions of statements of expenses. MINECO complied with the timely submission of financial reports and audited financial statements. An assessment of financial administration in February 2016 found that project records were up to date and that the PIU had complied with the reporting requirements. The reports contained the required information and

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were acceptable. However, internal processes and administrative requirements within MINECO were complicated and lengthy. Additionally, there were delays in the submission of withdrawal applications, which could have presented a challenge to the liquidity available to attend to project needs.

38. MINECO established a PIU without the authority to directly execute the budget, which caused delays and affected execution. MINECO was responsible for approval of the budget. Its approval processes were inefficient and sometimes discretionary, affecting contracting and payment procedures. MINECO required the PIU to break down all contracts—regardless of the duration of their associated activities—into one-year phases, with separate contracts for each year. This procedure delayed the project, created budgeting challenges, and required signing multiple contracts with the same firms, with each contract subject to the lengthy approval processes. A fiduciary management guide prepared during project implementation was to serve as a guide for the implementing agency’s implementation of the value chain subprojects. It included guidelines on reporting, monitoring, and evaluation of subproject investments by the implementing agency. These restrictive processes further constrained the implementation of activities under the subprojects. The World Bank team explored the possibility of providing TA to review budget management procedures, but the client did not pursue this. Moreover, implementation risks, in particular, those associated with procurement, turned out to be far more troublesome than initially envisioned. For example, the PIU was not a real budget execution unit. The Operations Manual prepared at the beginning of the project assumed that the PIU was a budget execution unit and did not cover the processes under MINECO’s control. Lacking the power to execute the project budget forced the PIU to follow the timelines MINECO set. Though the PIU could complete the initial contracting paperwork, the Vice Ministry of MINECO had to approve all processes through a long, multistep process that was hard to predict. The Operations Manual updated in 2014 clarified some of these steps. However, the World Bank Project implementing team learned of many of the procedures and steps only while procuring the contracts.

39. The MINECO contracting processes were bureaucratic. When the work touched on the jurisdiction of different Ministries, each contract required the approval of more than one Vice Minister. Such multiple approvals resulted in delays in contracting and made the arrangements for disbursements complicated and cumbersome. Especially following the first restructuring in 2014, when time to implement the subcomponents was limited, these complicated processes limited what the project could accomplish in the remaining period of the project. While the PAD broadly identified the procurement risks, the World Bank project implementation team only learned about the risks mentioned here during implementation. As a result, project preparation had not recommended effective mitigation measures for addressing them early on in the project. These challenges were critical contributing factors to project implementation delays that the project preparation phase could have better mitigated. A completed Operations Manual was not in place at effectiveness, and the implementation team had to help the PIU prepare one. The combined team completed the manual only in 2014, contributing to these implementation risks and challenges.

2.5 Post-completion Operation/Next Phase

40. No follow-up operations have been contemplated for this project.

3. Assessment of Outcomes

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3.1 Relevance of Objectives, Design and Implementation

41. The PDO remains relevant. Communities and rural areas in the country remain poor, and, although there have been disagreements about the means, tackling poverty through supporting the private sector remains a priority for the government, as evidenced by the government’s 2030 vision. Similarly, the PDO aligns with the Country Partnership Framework FY17–206 in which enhancing the enabling environment and increasing access to finance for MSMEs is a priority.

42. The design and implementation are both rated modest. While the PDO remains relevant, the project design and the PDO indicators are inconsistent—the PDO indicators do not measure the achievements the project envisioned. The project design was flexible, allowing for adjustments during implementation. Nevertheless, in Guatemala, defining the methodology for selecting value chains and selecting the value chains as part of project design would have yielded better results. Also, the challenging implementation arrangements—in particular, as they relate to the PIU and multi-layered approval processes and procedures—the role of implementation in the project’s limited achievement is modest. The poor design and implementation of this project are in part responsible for the limited achievement.

43. Furthermore, it should also be mentioned that a number of activities supported under component 1 were not fully linked to value chain and MSME development, so including them was not the most effective approach to reaching the Project development objective. This is most evident in the area of access to finance, where for example the creation of a MFI registry can be a good tool for enhancing financial soundness and regulatory compliance of financial entities, but the link towards increasing MFI’s outreach to the target beneficiaries is weak.

3.2 Achievement of Project Development Objectives

Rating: Negligible

44. The progress toward achieving the PDO is rated negligible. It was not possible to measure the project’s contribution to stimulating the growth of MSMEs in selected value chains (the PDO objective) at project closing because the supported reforms are either incomplete or have just completed implementation. Therefore, no impact data on the growth of the supported MSMEs is yet available. Some the supported reforms, however, have the potential to increase the growth of MSMEs. Annex 2 provides a detailed description of the project support under each component.

45. The evaluation follows progress made towards the achievement of each intermediate result. To overcome the weaknesses in the results framework and the lack of data on achievements toward the initial PDO indicators, the assessments focus on the intermediate results indicators. No disbursement-weighted split rating was applied because the second restructuring, which significantly changed the results framework, only took place after most disbursements (US$4.48 million of US$4.61 million).

Intermediate Result 1: Improving and Promoting Business Development Services (Modest)

46. Component 1 aimed at enhancing MINECO’s capacity to lead and coordinate the

6 Report No. 103738-GT discussed by the Board of Executive Directors on November 17, 2016.

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development efforts of the public and private sectors in support of MSMEs and through this, strengthen the national business environment in which MSMEs operate. As discussed in the following paragraphs, the project made limited progress toward enhancing MINECO’s capacity. We, therefore, rate the outcome modest. No PDO indicator was included to measure the results of the support under Component 1. The assessment, therefore, focuses on the achievement of each subcomponent as measured by the available intermediate outcome indicators related to Component 1.

47. Improving and promoting quality services relevant to MSME needs (not achieved). The funded mobile laboratory is operational. The Minister of Economy publicly announced it in July 2016. However, it has not yet deployed, because CENAME had to shift the trained staff into verification of the legal compliance with calibration standards of gas stations upon request from the Consumer Protection Agency (DIACO) and the Ministry of Energy. The new management of CENAME, which took over in August 2016, is also assessing whether the mobile laboratory can offer additional services.7 Pending availability of staff and some fine-tuning, CENAME aims to provide services with the mobile laboratory from mid-2017 onwards. Until then, CENAME’s services will remain limited to Guatemala City. The staff capacity building of staff and the outreach events have not yet translated into an increase in calibration services provided by CENAME. As Table 2 shows, the number of services for mass and temperature calibrations decreased since 2014. CENAME provides the services to 53 companies from different sectors, most of them located in Guatemala City. The reduction in calibration services was in part due to frequent turnover of staff in CENAME, but also due to a shift toward more accreditation and legal metrology services. Data on the calibration and accreditation services does not include the size of the entity, precluding the assessment of outreach to MSMEs. However, because the mobile laboratory was to be the primary vehicle to reach out to MSMEs, this subcomponent of component 1 has not met the intermediate outcome indicators on quality services to MSMEs.

Table 2. Evolution of Calibration and Accreditation Services in CENAMEMass Temperature Volume Accreditation

2012 671 532 — 21

2013 680 611 — 26

2014 518 376 — 30

2015 472 292 25* 34

Note: * at the end of October 2016.

48. Strengthening BDS (not achieved). The project only financed the development of a platform on which qualified business service providers can register. The web page went live in mid-November 2016. At the time of the ICR mission, none of the 204 identified BDS providers had yet registered on the platform (target 300). The project has, therefore, not yet met the intermediate outcome indicator. Absent funds for outreach campaigns, the promotion of the platform will hinge on dissemination by the regional offices of MINECO and search engines like Google. Limited dissemination will reduce the visibility and impact of the platform. However, stakeholders who have visited the platform confirmed that the availability of such a database of

7 The laboratory is fitted to undertake calibration services of instruments and carry out phyto-sanitary assessments Additional services could include “force”, “dimensions”, “pressure” and “viscosity”, which CENAME now also offers.

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BDS providers would fill a significant information gap and facilitate uptake of these services.

49. Supporting pilots for the development and implementation of new products (partially achieved). Most of the reforms supported under this component aimed at promoting the sound growth of microfinance institutions in the country, with only an indirect link to MSME growth. Due to the state of the reforms and their indirect links to MSME growth, the impact will take a few years to materialize:

The project has developed the registry for non-profit microfinance institutions (REM) as stipulated by the recently passed MFI law. However, launching the registry requires prior approval of the regulations for the microfinance law. Because the new regulatory framework will make it mandatory to register and regularly share financial and outreach information, it is likely that the project will meet and surpass the expected intermediate outcome indicator of 80 registered entities in the medium term.

The project made progress toward automating the administration of the MSME development trust fund. The project helped develop an information technology (IT) platform to facilitate uploading data and reports of microfinance institutions that receive funds for on-lending to MSMEs. In parallel, the FIRST trust fund8 and MixMarket9 supported the government in assessing the second-tier lending procedures and criteria, but this is not yet formally regulated. The registry launched in November 2016, allowing participating MFIs to upload the required data online through the platform. Using the platform will become mandatory once the regulation for the platform is developed. Lack of funds has delayed latter because the project could not finance it. The FIRST trust fund is exploring options to support this work. Once implemented, the platform will facilitate and rationalize selection of participating MFIs and supervision of the Q 500 million (US$66 million) of funds available for disbursements. Furthermore, it will likely reduce costs for compliance for MFIs in the medium term.

The project-supported feasibility study helped initiate the work on a Credit Guarantee Facility, while the FIRST trust fund supported the set-up and specifications of the Guarantee Facility. The MSME Credit Guarantee Fund is now operational and in the process of signing contracts with three financial institutions for a total guarantee amount of US$20 million (out of the earmarked US$30 million).

The formalization of 27 producer groups, as part of a pilot, enabling them to access international markets. The producer groups are in ten departments of Guatemala and have 244 members of mostly indigenous background. Thirty-five MSMEs received support for the design of a web page. However, concrete data was not available to show an impact of these activities on producer groups or MSMEs. In the meantime,

8 The Trust Fund “Developing Diversified and Responsible Financing for Micro, Small, and Medium Enterprises in Guatemala” was launched in 2015, and support the implementation of recommendations made as part of the Financial Sector Assessment Program in 2014.9 MixMarket is a data platform, that provides data, as well as graphic and analytical tools to assess the soundness and outreach of 2000 microfinance oriented institutions in over 100 countries worldwide.

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lack of funding for these types of activities has led to the discontinuation of both pilots.

50. Strengthening MINECO’s Vice Ministry for MSMEs (partly achieved). The subcomponent helped reorient MINECO toward a results management and to improve the quality of its processes and services. Some 188 employees received training or participated in study tours, surpassing the intermediate indicator of 175. Based on unstructured feedback received from about ten employees of MINECO during the ICR preparation, the capacity building had a positive impact and helped lay the groundwork for a significant culture change in MINECO. Managers also confirmed that MINECO is now better able to monitor its work program and has started tracking results. The interviewed staff confirmed that they benefitted from the training for improving project management, collaborating between units, and setting up work plans.

51. To enhance regional service provision, the project financed equipment, audiovisual facilities, and vehicles, helping showcase MINECO’S services in trade fairs and regional centers. To date, 395 MSMEs benefitted from BDS from MINECO, almost reaching the target of 396. 10 However, MINECO’s regional offices remain understaffed, with only one employee in most regional offices. To address this issue, MINECO is now reorganizing. The regional offices will focus on disseminating information and facilitating business linkages, while the 11 Small Business Development Centers, operated by nongovernmental organizations and other stakeholders, will provide direct business support services.

Intermediate Result 2: Creating Productive Value Chains (Negligible)

52. Component 2 aimed at directly helping MSMEs in selected value chains improve competitiveness, foster innovation, increase quality, and, through support for implementing Action Plans, boost productivity and facilitate integration into national and international markets. The achievement under this Component is negligible because it implemented very few action plans.

53. The project supported the development of Action Plans in six value chains, achieving the intermediate outcome indicator. The Action Plans laid out a road map identifying capacity building activities and investments to enhance the quality and output of the respective value chains. The six plans involved 205 producer associations, indirectly benefiting over 30,000 members (see Table 3). Stakeholders from the public and private sectors confirmed that the approach has helped create a shared vision in the value chain and link the various actors along the value chain. Of the six value chain committees established under the project, the ICR confirmed that the potato value chain community is still operational after project closing still operates and conducts regular meetings. While some of the stakeholders also reported that at least two other value chain committees are still active, it was not possible to confirm this because MINECO no longer has any contact with the value chains. (The cancellation of the project funds created some tension between MINECO and the value chains.)

10 The ICR mission did not receive data to assess the increase in outreach by municipality, as stipulated in the initial formulation of the intermediate outcome indicator.

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Table 3. Number of Producer Organizations to Benefit Under the Value Chain Action Plans

Value Chain Geographical Location Number of Involved Producer Organizations Number of Members

Vegetables for export Sacatepéquez, Chimaltenango 26 n.a.

PotatoesHuehuetenango, Quetzaltenango, San Marcos

52 5,915

Beans (pulses) Chiquimula, Jalapa, Jutiapa 25 9,601

Cocoa Alta Verapaz, Isabal, Petén, Quiche

19 producer organizations and 13 pre-cooperatives 3,912

Cardamom Alta Verapaz 52 Over 10,000

Papaya Petén 18 2,168

Total 205 31,596

Source: Value chain Action Plans.

54. Support for the implementation of the Action Plans was limited to the potato value chain, and the project procured and implemented few investments in the potato value chain. To date, 335 members of eight potato producer organizations received training in good practices in agriculture and manufacturing, and another 217 members from four seed producer organizations attended five training modules on seed production. Three producers of the potato value chain, and the federation of producers (ASUCUCH11), reported that the training helped them understand quality requirements and implement organic farming techniques. However, they would have appreciated further technical support and ongoing guidance to facilitate the implementation of the changes. The project also financed equipment to improve the sanitary standards of production, benefiting 28 producer organizations with 1,029 members. Based on the feedback received from the value chains, the equipment is now widely utilized.

55. Overall, the training and investments have helped producers improve the quality of production. The beneficiaries emphasized that they are now washing potatoes, which will help increase the quality of produce. Some participating farmers have also switched to using certified seeds, and a few fields were certified. The ICR mission also learned about efforts from various stakeholders to continue some of the activities related to value chains and to link producers to funding sources (both donations and credit) for implementation of investments suggested in the Action Plans.

3.3 Efficiency

56. The ICR does not attempt to quantify the benefits of the small part of the Project that was implemented. Nevertheless, the cost-efficiency of implementation is considered modest. Benefits that are expected to accrue to the project from the sub-components of the project that were implemented are discussed below.

57. Overall, the cost-efficiency of implementation was modest. On the one hand, the slow implementation of the value chain work hampered efficiency, so synergies between components

11 Asociación de Organizaciones de los Cuchumatánes

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1 and 2 could not materialize. For example, the training on good business practices in the value chains—which was to increase awareness among farmers of the need to adhere to quality standards and raise demand for quality services via the mobile laboratory—should have benefitted the work in the area of quality standards. The same holds for linking members of the value chain to BDS via the BDS platform and for facilitating their access to finance through participating financial institutions. On the other hand, the slow project start, the implementation delays (see section 2.2), and the early project close limited achievements in the project areas. These limitations hampered implementation of the Action Plans in five of the six supported value chains that did not receive project funds.

58. Finally, some activities funded under component 1 did not relate directly to value chain and MSME development, so including them was an inefficient approach to reaching the project development objective. Such an independent activity is most evident in the area of access to finance, where for example the creation of an MFI registry can be a useful tool for enhancing financial soundness and regulatory compliance of financial entities, but the link toward increasing MFI’s outreach to the target beneficiaries is weak.

59. Overall, regarding cost-effectiveness, the bundling of some of the purchases led to a reduction of prices and the ability to procure higher-quality products that are not typically available in the local markets. For example, the purchase of spray pumps and plastic containers led to cost savings of 20–30%.

60. The project also would likely have had a positive return, had it been implemented all the way through. Based on 2015 calculations, for example, the expected rate of return of the investments and capacity building in the potato value chain was around 17%, with 4 years needed to regain the invested funds. The remaining project support went to a number of small capacity building activities, for which a return on investment calculation is not feasible.

3.4 Justification of Overall Outcome

Rating: Unsatisfactory

61. The overall outcome rating is unsatisfactory. While the relevance of objectives remains high, there were serious shortcomings in the design, implementation, and efficacy of the project. The design and implementation rating is modest; the progress towards achieving the PDO is negligible; and while it is not possible to quantify the efficiency of the project, cost-efficiency of implementation is modest.

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

62. Not available. However, most of the value chain activities focused on producer organizations whose members had a significant share of indigenous populations.

(b) Institutional Change/Strengthening

63. The project supported a number of activities that have a potential to enhance the institutional capacity of MINECO over time. However, these activities have not yet achieved concrete results, which will depend on the availability of financing and human resources. The support for developing the value chains is unlikely to lead to lasting institutional structures. The course on ‘Good Practices in Agriculture and Manufacturing’ has not become a standardized training tool, although all the value chain diagnostics identified substantial capacity building

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needs in this area. This is mainly because the association in charge of training does not have enough funds to continue rolling out the training. The culture of paying for training services is still undeveloped.

4. Assessment of Risk to Development Outcome

Rating: High

64. The overall risk to project Development Outcome is rated High. For results to materialize from the activities supported by the project, MINECO’s follow up is required on many fronts. For example, while there are strong indications that MINECO will use the mobile laboratory to provide critical BDS outside Guatemala City, fundamental issues remain related to staffing and financing. Also, approving the regulations for the microfinance law will be essential for ensuring that the registry for microfinance institutions is operational. Although MINECO is committed to completing all the outstanding steps, changes in priorities, lack of ownership and financing, high staff turnover, lack of capacity, and fragmented decision-making may prevent the results from materializing. The implementation and funding of Action Plans will depend on the availability of financing, both donor and credit. The potatoes value chain will likely sustain the good practices in agriculture and manufacturing due to their positive impacts on beneficiaries.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry


65. The World Bank’s performance in ensuring quality at entry is unsatisfactory. The serious shortcomings in the project that preparation did not address determined the ICR rating. Although the World Bank was piloting a new approach to value chain support, and few lessons existed at the time of preparation, a more defined project design would have ensured a smoother implementation. In addition, a number of the main analytical pieces that would have contributed to the better design of the project slipped to implementation. The analysis of the value chains and the design of the methodology for selecting value chains were critical for timely implementation. Moreover, the link between the PDO and Component 1 was not clear. Finally, lack of implementation, readiness, including an Operations Manual that did not capture and address the fiduciary arrangements of the project, an inadequate M&E framework, and the absence of an economic and financial analysis, contribute to the Unsatisfactory rating.

(b) Quality of Supervision

Rating: Moderately Satisfactory

66. The World Bank’s quality of supervision is rated moderately satisfactory. Supervision missions were timely and focused on identifying and resolving bottlenecks to implementation. To ensure hands-on support, one team member was located in the Country Office. A comprehensive Mid Term Review was carried out in April 2015. The World Bank and MINECO reached an in principle agreement on a substantial restructuring and an Action Plan intended to remove identified bottlenecks to successful Project implementation. However, the restructuring resulting from the mid-term review did not proceed, and the project was closed early. Procurement and financial management were also supervised well, though fiduciary challenges remained throughout implementation. On the other hand, there were some issues

18

related to supervision as well: the selection of the value chains to support under the Project was completed only in the first quarter of 2015 largely, due to the cumbersome selection methodology that was incorporated in the design. The shortcomings in methodology were not addressed under the first restructuring, or at any time during Project implementation. Moreover, the project went through three TTLs during a two-and-a-half year period of implementation. With every change, the relationship between the TTL and the client had to be established, and the TTL needed to become fully proficient in the Project design. With the arrival of the fourth and final TTL, who led the Project for two years, there was consistency in decision-making that expedited the process of implementation.

(c) Justification of Rating for Overall Bank Performance

Rating: Moderately Unsatisfactory

67. Overall World Bank performance is rated Moderately Unsatisfactory given that the quality at entry was unsatisfactory and the quality of supervision was moderately satisfactory.

5.2 Borrower Performance

(a) Government Performance


68. Government performance is rated unsatisfactory. The ICR rating reflects the political economy and institutional constraints that made the implementation of this project difficult, including delays due to the need to develop an understanding of the objectives of the project with every incoming government or change in Vice Ministers of Economy. The government displayed its commitment to the project during the mid-term review and as evidenced by Aides Memoire, However, in light of the institutional and implementation issues that the project faced, more central effort would have been desirable. Delays due to limited implementation capacity remained a significant challenge throughout the project.

(b) Implementing Agency or Agencies Performance


69. The Performance of the PIU is unsatisfactory. The implementing agency’s performance is rated Unsatisfactory due to shortcomings, including (a) inadequate attention to the project until late in the life of the project and (b) the deficiencies in carrying out procurement and contracting activities (some of it being due to the complex institutional arrangements that slowed down decision-making). Although there was some improvement in implementation after the 2014 restructuring, procurement and other institutional shortcomings, as discussed in this ICR, prevented timely delivery of outputs and completion of activities according to the implementation plan.

(c) Justification of Rating for Overall Borrower Performance


70. The Borrower performance is rated Unsatisfactory given that both the government performance and the implementing agency performance was unsatisfactory.

6. Lessons Learned

19

71. In addition to the political turmoil that engulfed Guatemala during the life of the project and distracted from implementation, the essential reasons this project closed early are:

a. Problems associated with design and readiness, which made implementation challenging;

b. Key implementation challenges, in particular, procurement- and disbursement-related issues, which persisted and had caused delays in disbursements; and

c. Other challenges that arose during implementation that contributed to further delays in disbursement.

Lessons learned associated with each will be discussed below.

6.A. Design and Readiness Issues:

72. Sequential project designs—like that used in this project—can significantly delay activities and disbursements if the project faces obstacles in one phase. Component 1 encompassed a series of activities that could have taken place in parallel. Therefore, the slow progress in one would not necessarily slow down disbursements in other aspects of the component. However, Component 2 involved a sequence of activities. If the process faced hurdles in one step, the whole component could not disburse. Given that Component 2 was the largest part in U.S. dollars and since the project did not finalize the process for selecting value chains until approximately a year before the closing of the project, this sequential project design contributed significantly to delays in the implementation of activities, disbursements, and achieving objectives. In a country like Guatemala, value chain work could focus on targeted interventions (such as linking local producers to markets). If a lending operation envisions comprehensive value chain work, substantial preparation would be required to ensure that the project is ready for implementation. This preliminary work would mean that TA or other means should fund identifying the supported value chains, the Action Plans, and the eligible subprojects. In that case, the lending operation can support the implementation of subprojects. Doing so would reduce delays in disbursement. This preparatory work would, of course, require sufficient budget.

73. While leaving some flexibility in project design is good, projects should have a defined design and set of M&E indicators, a sound economic and financial analysis, and an adequate Operations Manual before presentation to the Board. Postponing definition of core activities (in this case, developing the methodology for selecting value chains and identifying the value chains to be supported and the investments needed to support them) to project implementation has follow-on effects. For example, it entails that the associated M&E indicators, financial economic analysis, and Operations Manual also cannot be defined in the project preparation phase.

74. Establishing an adequate institutional framework during project preparation is critical. The PIU within MINECO was responsible for executing the project activities. However, because the PIU had no real budget execution powers, it could not implement the project effectively. Also, the staff of executing units, particularly those for complex projects, should feel ownership of projects they are implementing, fully understand them, and be willing to execute them before the commencement of implementation activities. In this project, the PIU staff were dedicated to their work on the PDER, and only after the closing of PDER did the PIU staff pay

20

the needed attention to the present project.

75. When designing a project, World Bank teams should review the country portfolio and identify possible synergies with other projects to avoid duplication and streamline of implementation. There were some overlaps in the topics and areas covered by the PDER and the MSME project. Consequently, there may have been some value in building on the existing project and expanding upon the lessons learned and the existing relationships and institutional infrastructure. This approach might have mitigated the challenge to project implementation caused by the multiple demands on the PIU staff, as well as internal World Bank issues that resulted in sending mixed signals to the Government of Guatemala from two different practice groups of the World Bank.

76. Detailed social assessment and safeguards analysis early on in project design can produce critical information for the implementation of project activities. The project could have benefitted from an evaluation of the implementation context. Such an evaluation would include, for example, (a) assessing the participation of women, children, indigenous peoples, and vulnerable populations in rural activities; (b) documenting potential risks and impacts related to supporting particular sectors (for example, agribusiness), and (c) identifying more inclusive indicators and fundamental social issues. This type of detailed assessment could have identified the issues regarding the family unit of labor in agricultural practices, for example. This kind of evaluation could also affect project design by flagging issues that are important in a particular context—for instance, the issue of food security was also of concern in regions implementing agribusiness projects and the design of the activities could have considered it in detail.

77. Projects should be designed with the aim to transcend political parties and remain a priority regardless of the government in power, and after each election, the incoming government should be sensitized and informed about the project very early on (even before the new administration takes office officially, and immediately after elections). Support to value chains could be politically sensitive, even if there is robust analytical work to support particular interventions. Different administrations may favor some sectors over others. Detangling the lines of interest and going beyond lobby groups to support value chains in a satisfactory manner requires a stable and transparent political environment and strong public (and private) sector champions. The different administrations that were in power over the life of this project disagreed about how Guatemala should develop and support rural areas (one supported MSMEs in rural areas, and the other supported assistance to large firms with a trickle-down effect on the rest of the economy). Also, given that election cycle is every four years and the average project life cycle is six years, it is inevitable for projects to span across governments and elections. If a project has to be negotiated and approved by an outgoing government, it is critical to ensure that, as soon as elections have taken place, the project team has engaged the incoming administration and sensitized it to the project. The team needs to identify champions for the project early, ideally, even before the government has taken office. The Country Management Unit of the World Bank would be a critical partner in this regard.

6.B. Implementation Challenges: Procurement and disbursement

78. Detailed discussions regarding the prevalence of the World Bank Procurement Guidelines before implementation and a thorough understanding of the processes on both the client side and the World Bank side are necessary to streamline the procurement processes. Procurement was one of the areas that presented the greatest challenges in this

21

project. Confusion regarding the use of policies underscores the need for a detailed Operations Manual that should be prepared and agreed upon between the government and the World Bank in the early stages of the project. The PIU relied on a mixture of procurement policies, some that complied with the national law and others that followed World Bank guidelines. Some of these policies conflicted with each other, whereas others were duplicates. The risk of having two sets of policies that could potentially conflict with one another, causing confusion and delays in the project, would have been mitigated by agreeing with the World Bank on an Operational Manual where roles, responsibilities, and flow of processes were clearly defined. The current World Bank procurement framework and strategy, which will apply to future projects, addresses these risks by analyzing all possible constraints before implementation. The project procurement strategy will identify at an early stage all known factors, both enablers and limitations, which may impact either the delivery of the project or the procurement approach. The team should thoroughly plan all technical aspects of subprojects before implementation.

6.C. Other Challenges that Arose During Implementation:

79. When key risk issues arise during implementation, it is important for the World Bank to react with agility. As it relates to child labor, the issue was first brought to the attention of the World Bank in early April, 2015, general recommendations were included in the ISR of July, 2015. Final guidance that would allow the project team to operationalize the decisions and, therefore, start disbursements again under component 2, was made in November, 2015. From June until the issue was resolved in November, 2015, the project implementation team did not make any disbursements under Component 2, which contributed to some of the delays in disbursement.

80. Focusing on peripheral projects or proposals during implementation can distract the team from essential project objectives and delay implementation. The assessment of the potential work on productive activities in Chixoy was a valuable and important effort that could have added greater dimension to the project. At the same time, an attempt to incorporate activities related to Chixoy also diverted some efforts from the other project activities. Support to Chixoy did not end up materializing, given that the mid-term restructuring proposed, which would have provided support to this community, did not materialize. Similarly, the consideration of the client’s request to produce feasibility studies for irrigation projects required efforts that were outside the original scope of implementation. Attention to these peripheral projects meant that the World Bank and the client could not fully focus on implementing the core activities of the project.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners

(A) Borrower/Implementing Agencies

81. The borrower and implementing agencies confirmed their overall agreement with the ICR.

(b) Cofinanciers

Not applicable.

(C) Other Partners and Stakeholders

Not applicable.

22

Annex 1. Project Costs and Financing

(a) Project Cost by Component (in US$, millions equivalent)

(b) Financing

(a) Project Cost by Component (in USD Million equivalent)

Components Appraisal Estimate (USD millions)

Actual/Latest Estimate (USD

millions)

Percentage of Appraisal

Component 1 9.7 2.108 21.73Component 2 19 1.147 6.03Component 3 2.52 1.167 46.30Unallocated 0.70 0 0Designated account 0 0.103 -Front end fee 0.08 0.08 100

Total Project Cost 32 4.605

(b) Financing

Source of Funds Type of Cofinancing

Appraisal Estimate

(USD millions)

Actual/Latest Estimate

(USD millions)

Percentage of Appraisal

Borrower - - - - IBRD - $32 $4.605 14.5Total - $32 $4.605 14.5

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Annex 2. Outputs by Component

Component 1: Improving and Promoting Business Development Services

Subcomponent 1.1: Improving and Promoting Quality Services

1. The project supported a number of activities to (a) enhance the human capacity in CENAME, (b) create the necessary infrastructure to provide quality services, and (c) promote quality services in the country:

A. Enhance Human Capacity in CENAME

2. The project financed capacity building for the staff of CENAME to help them study and understand the available equipment. Furthermore, the project-funded capacity building for staff to operate the mobile laboratory and a field visit to Argentina to study the functioning of a mobile laboratory and build consensus on the needed equipment and technical specifications of the mobile laboratory.

B. Create the Necessary Infrastructure to Provide Quality Services

3. To help CENAME provide services outside Guatemala City, the project financed (a) feasibility studies for the mobile laboratory, (b) the elaboration of routes for the cost-efficient rollout of the lab, and (c) the purchase of a panel truck and equipment. Furthermore, the project paid for some electrical equipment (hardware and software) for CENAME and financed a pre-investment study and building permit for a new CENAME annex.

C. Promote Quality Services in the Country

4. To disseminate information on why quality control is important and assess demand for mobile labs, the project supported several workshops. Dissemination included support for the annual national quality fair, which attracts around 400 stakeholders and 15 other outreach activities. Furthermore, study carried out with project support assessed demand for calibration and assay services in individual departments of Guatemala.

Subcomponent 1.2: Strengthening Business Development Services

5. To provide a better overview of available BDS, the project supported the design and creation of a platform for the Registry of Suppliers of Business Development Services. Furthermore, the project carried out a first categorization and assessment of needs training and TA for the Suppliers of Business Development Services.

Subcomponent 1.3: Supporting Pilots for the Development and Implementation of New Products

6. To facilitate access to financing, the project supported various reforms to create more transparency about microfinance institutions operating in the country and facilitate their access to funding for on-lending purposes. The supported reforms included (a) designing a platform to automate second-tier funds of the MSME financing trust fund managed by MINECO, (b)

24

designing a registry for non-profit microfinance institutions, (c) purchasing hardware and software for the two aforementioned platforms, and (d) financing a validation workshop with national stakeholders on design of Registry of Microfinance Entities (REM). Finally, the project supported the design of a credit guarantee fund that MINECO would manage and financed a three-day study tour for three staff members to Peru, to study the credit guarantee scheme FOGAPI. The FIRST trust fund financed the development of the Operational Manual and regulations.

7. The BDS Unit of the MINECO also piloted support for the legalization of 27 MSME producer group, and supported the design, creation, and implementation of 35 websites for MSMEs.

Subcomponent 1.4: Strengthening Capacity in the MINECO Vice Ministry for Micro, Small, and Medium Enterprise Development

8. The project funded a substantial amount of training for the staff of MINECO to enhance the delivery of quality services by the Vice Ministry and its regional offices.

A diploma in ‘Development of Managerial Skills and Competencies’ was created for personnel in the central offices and the regional headquarters of BDS. Thirty-nine people received diplomas in administrative management after participating in 158 hours of training. The training included a broad range of components, like effective communication, negotiation skills, conflict resolution, and time management.

Personnel in the Vice Ministry of Economy received training in ‘The Seven Habits of Highly Effective People’, with 112 people participating in the course. The course spanned 10 weeks and covered 28 hours of teaching material.

Eighteen people also received IT training to enhance IT project management.

Finally, seven people received training for high impact presentations.

9. To enhance regional service provision, the project funded study tours, capacity building, and office upgrades.

The offices of the regional MINECO headquarters received new furnishings, equipment, and audiovisual facilities. Some regional offices also received motorcycles to facilitate outreach to remote areas.

To develop Small Business Development Centers similar to the ones operating in the United States, the project financed a three-day study tour for nine stakeholders and MINECO staff to Texas, United States.

Component 2: Creating Productive Value Chains

A. Project-Funded Technical Assistance to Facilitate and Guide the Selection of Value Chains and the Elaboration of Action Plans

25

10. In 2013, the Advisory Committee was created with the Vice Minister for MSME Development as chair and representatives from academic institutions, civil society, and the public and private sectors. Furthermore, with project support, a process started to identify productive value chains for the initial technical evaluation phase. The Advisory Board identified ten value chains for a quantitative evaluation:

(a) Avocado

(b) Sesame

(c) Cocoa

(d) Cardamom

(e) Beans

(f) Milk

(g) Mango

(h) Potato seeds

(i) Papaya

(j) Vegetables

11. In 2014, the project funded the analysis of the ten selected value chains based on four criteria for evaluation:

(a) The dynamic of demand and competitiveness

(b) The assessment of potential impact

(c) Preconditions for success/assessment of risks

(d) Geographic factors

12. Written reports detailed the results of the evaluation. The reports included information on the size of the value chain, locations, share of formal and informal MSMEs in each sector, and emerging weaknesses and challenges. Based on these reports, the Advisory Committee, in early 2015, selected six value chains and recommended them for further project support to MINECO.

13. In 2015, the project supported a detailed strategic planning exercise and the development of subprojects that each of the six selected value chains would execute. The planning exercise involved a broad consultation process with stakeholders along the value chain (suppliers, producers, and buyers). A Value Chain Committee of 12–32 members for each of the value chains led the planning exercise. An action plan for each value chain consolidated the findings. The findings comprised (a) a qualitative evaluation, (b) a situation analysis and development of a strategic vision for the chain, (c) a baseline, (d) an action plan per se, and (e) subprojects for the

26

involved producer organizations. For the potato value chain, the action plan involved, for example, stakeholders from Quetzaltenango, Huehuetenanco, and San Marcos, areas that together account for 77 percent of the national potato production and 85 percent of the productive units. It included detailed assessments of 19 potato producer organizations to identify weaknesses and strengths in their production techniques and infrastructure (storage and so on). This approach was new in Guatemala, where cluster work had mostly focused on individual locations and producers but had not involved stakeholders throughout the value chain.

Table 2.1. Number of Producer Organizations to Benefit Under the Value Chain Action Plans

Value Chain Geographical Location Number of Involved Producer Organizations Number of Members

Vegetables for export Sacatepéquez, Chimaltenango 26 n.a.

Potatoes Huehuetenango, Quetzaltenango, San Marcos 52 5.915

Beans (pulses) Chiquimula, Jalapa, Jutiapa 25 9.601

Cocoa Alta Verapaz, Isabal, Petén, Quiche

19 producer organizations and 13 pre-cooperatives 3.912

Cardamom Alta Verapaz 52 Over 10.000Papaya Petén 18 2.168Total 205 31.596

Source: Value chain Action Plans.

B., Project Support for Technical Assistance and Investment Funding to Implement Value Chain Action Plans

14. In light of the termination of the project, support for the implementation of the Action Plans was limited to the potato value chain. The support aimed at enhancing the use of certified seeds and improving adherence to sanitary standards and requirements. Other measures sought to increase quality and safety of the potato production and improve market access.

Provision of Training

15. In the first half of 2016, the project contracted BDS provider ASOCUCH for the Huehuetenango region and FUNDASISTEMAS for the San Marcos-Quetzaltenango region. The training program for all the beneficiary organizations included environmental and social safeguards training, as well as good practices in agriculture and manufacturing. The latter focused on quality standards and organic farming techniques.

16. Three hundred and fifty-five members of eight producer organizations in the potato value chain received training on good agricultural and manufacturing practices. Seventy members were female (20 percent). Two hundred seventeen potato seed growers received training on potato seed production.

Table 2.2. Project-Funded Training Provided to Members of the Potato Value Chain

Course Duration (Hours)

Number of

Courses

Number of Participating

RPO

Number of Participant

sGeneral Potato Value Chain Training (delivered by ASOCUCH)Module 1: ‘Basis concepts of good agricultural 3 10 8 289

27

Course Duration (Hours)

Number of

Courses

Number of Participating

RPO

Number of Participant

sGeneral Potato Value Chain Training (delivered by ASOCUCH)practices’Module 2: ‘Sources of food contamination and value chain concept training’ 3 10 8 289

Module 3: ‘Clean production plot’ 3 10 8 291Module 4: ‘Good practices in potato growing (Part I)’ 3 10 8 293Module 5: ‘Good practices in potato growing (Part II)’ 3 10 8 334

Module 6: ‘Good practices in potato growing (Part III)’ 3 10 8 334

Module 7: ‘Basic concepts of good manufacturing’ 3 10 8 289Module 8: ‘Hygiene and standards for cleanliness in storage/collection centers’ 3 10 8 289

Potato Seed Value Chain Training (delivered by ASOCUCH)Module 1: ‘Technical concepts of potato seed production’ 3 9 4 217

Module 2: ‘Legal framework for potato seed production’ 3 9 4 211

Module 3: ‘Good practices in growing seeds’ 3 6 4 172Module 4: ‘Good practices in processing seeds’ 3 6 4 171Module 5: ‘Principles in agricultural management’ 3 9 4 217

Financing of Subprojects

17. The project directly benefitted the 1,209 members of the producer organizations. The estimated rate of return on the invested project funds was over 20 percent, with the recuperation time of the invested funds below four years, but the calculations also included also investments into upgrades of the storage facilities. The latter were no longer feasible to finance in the remaining time frame of the project.

Table 2.3. Investments Financed in Potato Value Chain

SubProject Title Region Supported

Beneficiary RPO

Beneficiary Members of

RPO

Investment Support Received

Production of potato seed and implementation of good manufacturing practices in potato management

Huehuetenango, San Marcos, Quetzaltenango

28 1,209

5,046 plastic containers, 35 stainless steel tables, 287 plastic pallets, 411 spray pumps for chemicals, 1 potato washing equipment, 296 aprons,296 nets, 21 signposts, 17 scales, 21 medical chests and cleaning kits,

Table 2.4. List of the 28 Beneficiary Organizations that Received Investment Support in the Potato Value Chain

Name of MSME Geographical Location MembersPotato Seed Producing Value Chain

1 Cooperativa Agrícola Integral Joya Hermosa de las Tres Cruces, R. L. (Joya Hermosa de las Tres Cruces Unified

Aldea Climentoro, Aguacatán, Huehuetenango

65

28

Name of MSME Geographical Location MembersAgricultural Cooperative)

2Asociación de Comunidades Rurales para el Desarrollo Integral (Rural Communities Association for Integrated Development)

Aldea La Capellanía, Chiantla, Huehuetenango 50

3Asociación de Desarrollo Integral Unión Todosantera (Unión Todosantera Association for Integrated Development)

Cantón El Calvario, Todos Santos Cuchumatán, Huehuetenango 50

4 Cooperativa Integral Agrícola Paquixeña Cuchumateca, R.L. (Paquixeña Unified Agricultural Cooperative)

Aldea Paquix, Chiantla, Huehuetenango 50

5 Asociación de Desarrollo Integral La Pradera (La Pradera Association for Integrated Development)

Caserío El Plan Calapté, Ixchiguán, San Marcos 40

6 Asociación de Desarrollo Social Ixchiguanense (Ixchiguán Association for Social Development)

Cantón San Cristóbal, Ixchiguán, San Marcos 30

7 Asociación Integral Papicultores Ostuncalco (Ostuncalco Unified Association of Potato Growers)

Caserío Los Alonzo, San Juan Ostuncalco, Quetzaltenango 30

8 Asociación Agricultores Esquipulas-Boxoncán (Esquipulas-Boxoncán Farmers Association)

Aldea Boxoncán, Tajumulco, San Marcos 20

9 Asociación de Desarrollo Integral La Comarca (La Comarca Association for Integrated Development)

Aldea Laguna Chica, San José Ojetenam, San Marcos 20

General Potato Value Chain

10 Asociación de Desarrollo Integral Piedra de Fuego (Piedra de Fuego Association for Integrated Development)

Aldea Piedra de Fuego, Comitancillo, San Marcos 52

11Asociación de Desarrollo Integral Flor San José la Ciénaga (Flor San José La Ciénaga Association for Integrated Development)

San Juan Ixcoy, Huehuetenango 50

12 Asociación de Agricultores y Artesanos La Nueva Jerusalén (La Nueva Jerusalén Association of Farmers and Artisans)

Aldea Chicoy, Todos Santos Cuchumatánes, Huehuetenango 40

13Cooperativa Integral de Ahorro y Crédito El Altiplano Mam, R. L. (El Altiplano Mam Unified Savings and Loan Cooperative)

Aldea Chemal, Todos Santos, Chuchumatánes, Huehuetenango 40

14 Asociación de Silvicultores Chancol (Chancol Association of Foresters)

Aldea Siete Pinos, Chiantla, Huehuetenango 40

15Cooperativa Integral de Ahorro y Crédito Flor Milpense, R. L. (Flor Milpense Unified Savings and Loan Cooperative)

San Juan Ixcoy, Huehuetenango 40

16Cooperativa Integral Agrícola Flor Guadalupana Bacuense, R. L. (Flor Guadalupana Bacuense Unified Agricultural Cooperative)

Aldea Bacu, San Juan Ixcoy, Huehuetenango 60

17Asociación de Desarrollo Integral Comunitario Tejutlense (Tejutla Association for Integrated Community Development)

Tejutla, San Marcos 50

18 Asociación de Campesinos Forestales Buena Vista (Buena Vista Association of Farmers and Foresters)

Caserío Buena Vista. Aldea Chichim, Todos Santos Cuchumatánes, Huehuetenango

40

19 Asociación de Autogestión Turística (Touristic Self-management Association)

Todos Santos Cuchumatánes, Huehuetenango 37

20Asociación Civil, no Lucrativa de Desarrollo Integral del Altiplano Tutuapense (Non-profit Civil Association for Integrated Development of the Tutuapa Highlands)

Concepción Tutuapa, San Marcos 30

21 Asociación de Desarrollo Integral Nimal Tnam (Nimal Tnam Association for Integrated Development) Concepción Tutuapa, San Marcos 35

22 Cooperativa Integral Agrícola Tuichanenses, R. L. (Tuichán Integrated Agricultural Cooperative)

Aldea Tuichán, Ixchiguán, San Marcos 60

29

Name of MSME Geographical Location Members

23 Asociación de Desarrollo del Occidente de Guatemala (Western Guatemala Development Association)

Cantón Tojchoc Grande, Aldea El Rosario, Tacaná, San Marcos 50

24Asociación de Desarrollo Integral de Comunidades Ojetecas (Association for the Integrated Development of Ojeteca Communities)

San José Ojetenam, San Marcos 40

25Asociación Vida, Padres y Amigos de Personas Discapacitadas de Tejutla (Tejutla Life Association of Parents and Friends of the Disabled)

jutla, San Marcos 50

26Asociación de Desarrollo Integral de Medianos Agricultores de Guatemala (Association for the Integrated Development of Medium-size Farmers in Guatemala)

Tacaná, San Marcos 30

27Asociación de Desarrollo Integral Sinaí, Palestina de los Altos (Sinaí-Palestina de los Altos Integrated Development Association)

Concepción Chiquirichapa, Quetzaltenango 50

28Asociación de Agricultores para el Desarrollo Concepción Chiquirichapa (Concepción Chiquirichapa Association of Farmers for Development)

Palestina de los Altos, Quetzaltenango 60

Total Beneficiaries 1,209

30

Annex 3. Economic and Financial Analysis(including assumptions in the analysis)

Not applicable.

31

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team MembersNames Title Unit Responsibility/Specialty

LendingCristian Quijada Torres Senior Private Sector Specialist GTC04 Team LeaderMonica Lehnhoff Procurement Specialist GGO04 Procurement Specialist

Lourdes Consuelo Linares Loza Senior Financial Management Specialist GGO02 Financial Management

SpecialistCarlos Fernando Paredes Solorzano Senior Operations Officer LCCGT Team Member

Daniel Ortiz del Salto Operations Officer GTC04 Team Member

Dianna M. Pizarro Senior Social Development Specialist GSU04 Safeguards Specialist

Jaime Andres Uribe Frias Economist GTCIE Team MemberJimena Garrote Senior Counsel LEGOP CounselLuz Berania Diaz Rios Senior Agribusiness Specialist GFA04 Team MemberTuuli Johanna Bernardini Environmental Specialist GEN04 Environmental SpecialistMichael Goldberg Lead Operations Officer GFMSO Team LeaderRekha Reddy Senior Financial Sector Economist GFM04 Team LeaderThomas Edward Haven Senior Private Sector Specialist GTC03 Team LeaderTomas Socias Procurement Specialist GGODR Procurement Specialist

Antonio Leonardo Blasca Senior Financial Management Specialist GGO22 Financial Management

SpecialistAbdelaziz Lagnaoui Lead Environment Specialist GEN06 Team MemberAndres Mac Gaul Senior Procurement Specialist GGOGI Team MemberBenjamin Schapiro Safeguards Specialist LCSDE Safeguards SpecialistJohannes Werner Christia Schuster Consultant LCSPE Safeguards Specialist

Kristyna Bishop Senior Social Development Specialist GSU01 Team Member

Kwang Wook Kim Consultant CASSB Team MemberOliver James Rogers Safeguards Specialist LCSPF Safeguards Specialist

Patricia De la Fuente Hoyes Senior Financial Management Specialist GGO22 Team Member

Pilar Elisa Gonzales Rodrigues Senior Counsel LEGLE Team MemberSandra Monica Tambucho Perez Senior Finance Officer WFALA Team MemberSunita Varada Special Assistant GGEVP Team MemberValeri Hickey Practice Manager GEN03 Safeguards SpecialistSupervision/ICRRaha Shahidsaless Senior Private Sector Specialist GTC04 TTL/Co-AuthorIlka Funke Consultant GTC04 Author of Zahra Alleyne Consultant GTC04 ContributorJulie Barbet Gros Private Sector Analyst GTC04 Contributor

(b) Staff Time and Cost

Stage of Project Cycle

Staff Time and Cost (Bank Budget Only)

No. of Staff WeeksUS$, Thousands (Including

Travel and Consultant Costs)

LendingFY09 2.03 11.25

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Stage of Project Cycle

Staff Time and Cost (Bank Budget Only)

No. of Staff WeeksUS$, Thousands (Including

Travel and Consultant Costs)

LendingFY10 15.30 56.23FY11 38.93 57.12

Total: 56.26 124.6Supervision/ICRFY11 0.30 0.00FY12 17.29 23.16FY13 15.41 18.24FY14 39.00 22.65FY15 77.98 104.49FY16 26.00 23.01FY17 4.48 14.60Total: 180.46 206.15

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Annex 5. Evolution of Results Framework

PAD First Restructuring July 2014) Second Restructuring (February 2016)

Key Performance Indicators

Value increase per unit in respective value chains (US$)

Modified: Increase in revenue of MSMEs in value chains selected for project support

Dropped

Number of MSMEs participating in value chain working groups Dropped

Added: Number of MSMEs that have received support from at least one activity implemented by the project

Number of MSMEs that have received support from at least one activity implemented by the project

Intermediate Outcome IndicatorsComponent 1

Number of calibration services provided to MSMEs

Modified: Number of calibration and testing services provided to MSMEs

Dropped

Number of accreditations provided to MSMEs

Modified: Number of normalization, certification, accreditation, and metrology verification services provided to MSMEs

Dropped

Number of hits on online platform providing information on international standards and listing certified companies

Dropped

Number of hits on online directory of BDS providers

Modified: Number of BDS providers validated categorized and registered with the new BDS online database

Dropped

Added: Number of MFIs registered in the new MFI registry Dropped

Added: Number of municipalities in which MSMEs can receive BDS provided by the MSME directorate

Dropped

Added: Volume of World Bank Support: Institutional Development–SME

Dropped

Added: Volume of World Bank Support: Enabling Environment SME

Dropped

Added: MINECO personnel trained (number of staff)Added: Number of MSMEs that receive BDS provided by the BDS Unit

Component 2

Number of workers trained in the tourism value chain by programs supported by the project

Modified: Percentage of MSMEs receiving services from project activities relative to total number of firms in selected value chain - tourism

Dropped

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PAD First Restructuring July 2014) Second Restructuring (February 2016)

Added: Percentage of MSMEs receiving services from project activities relative to total number of firms in selected value chain - agribusiness

Dropped

Number of hits in the project-supported e-tourism platforms Dropped

Number of tourists using project-supported tourism packages

Dropped

Number of companies in value chain compliant with relevant SPS standards

Dropped

Narrowing of price gap between U.S. import prices of respective produce compared to other Latin American countries

Dropped

Number of producers participating in project-supported training and outreach programs

Dropped

Added: Training in Good Manufacturing and Business Practices (number of beneficiary MSMEs)

Added: Percentage of project beneficiaries that implement clean production improvements

Dropped

Added: Value Chain Strategic Plans (Number of plans elaborated)Added: Competitiveness SubProject Proposals (Number of subprojects developed under the project)

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Annex 6. Stakeholder Workshop Report and Results

Not applicable.

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Annex 7. Summary of Borrower’s ICR and Comments on Draft ICR

AVISO DE CONFIDENCIALIDAD La información contenida en este correo electrónico es considerada privilegiada y confidencial, y debe ser utilizada única y exclusivamente por el destinatario. Si usted no es el destinatario, empleado o el encargado de llevar este correo al destinatario, por este medio se le notifica que cualquier publicación, revelación, copia, distribución o cualquier acción que se tome o realice en relación con el contenido del presente correo, está estrictamente prohibida. Si recibe este correo por error, por favor repórtelo a [email protected] con el objeto de arreglar la devolución del correo, documentos e información.

De: Ada Azucena Ramírez Villatoro Enviado el: jueves, 19 de enero de 2017 06:54 p.m.Para: Rosa María Ortega de Ramazzini; Luis Javier Ortíz JerezCC: Juan Jose Véliz Olivet; David Estuardo González FurlánAsunto: RE: Reenv: Urgente: Banco Mundial: Informe de Clausura ICR - Proyecto Fortalecimiento de la Productividad de la Micro, Pequeña y Mediana Empresa

Estimada Rosa María:

En atención a las instrucciones recibidas, me permito remitir los comentarios al documento recibido:

En sentido, se indica que la calificación de la gestión del Banco es moderadamente insatisfactorio y la del prestatario es insatisfactorio.

En comentarios específicos, al documento se incluye lo referente a que el cierre anticipado y desobligación de recursos del préstamo fue un acción consensuada entre ambas partes, en virtud que en el documento se incluye la solicitud del Gobierno únicamente. Asimismo, se indica que debe revisarse lo indicado referente a que el Gobierno solicitó que la ejecución del préstamo se detuviera hasta que estuviera cerrado el préstamo PDER.

Es importante indicar que los comentarios se encuentran incluidos en el documento adjunto.

Atte.

Azucena Ramírez

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mailto:[email protected]

Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders

Not applicable.

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Annex 9. List of Supporting Documents

World Bank, Country Economic Memorandum, 2010, http://documents.worldbank.org/curated/en/docsearch/report/4195

World Bank, Guatemala Country Partnership Strategy, 2009–2012, http://documents.worldbank.org/curated/en/893701468250878107/Guatemala-Country-partnership-strategy

World Bank, Project to support the Rural Economic Development Program (PDER), http://projects.worldbank.org/P094321/project-support-rural-economic-development-program?lang=en

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http://projects.worldbank.org/P094321/project-support-rural-economic-development-program?lang=en

http://projects.worldbank.org/P094321/project-support-rural-economic-development-program?lang=en

http://documents.worldbank.org/curated/en/893701468250878107/Guatemala-Country-partnership-strategy

http://documents.worldbank.org/curated/en/893701468250878107/Guatemala-Country-partnership-strategy

http://documents.worldbank.org/curated/en/docsearch/report/4195

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