AFRICAN DEVELOPMENT FUND

ZIMBABWE

GOVERNANCE AND INSTITUTIONAL STRENGTHENING PROJECT

(GISP)

OSGE/GECL

November 2013

TABLE OF CONTENTS

Acronyms and Abbreviations

Currency Equivalents

Fiscal Year

Weights and Measurement

Grant Information

Project Summary

Results-based Logical Framework

Project Timeframe

I - STRATEGIC THRUST & RATIONALE

1.1 Project Linkages with Country Strategy and Objectives

1.2 Rationale for Bank’s Involvement

1.3 Donors Coordination

II – PROJECT DESCRIPTION

2.1. Project Components

2.2 Technical Solution Retained and Other Alternatives Explored

2.3 Project Type

2.4 Project Cost and Financing Arrangements

2.5 Project’s Target Area and Population

2.6 Participatory Process for Project Identification, Design and Implementation

2.7 Bank Group Experience, Lessons Reflected in Project Design

2.8 Key Performance Indicators

III – PROJECT FEASIBILITY

3.1 Economic and Financial Performance

3.2 Environmental and Social Impacts

IV – IMPLEMENTATION

4.1 Implementation Arrangements

4.2 Financial Management, Disbursement and Audit

4.3 Procurement Arrangements

4.4 Monitoring and Evaluation

4.5 Governance

4.6 Sustainability

4.7 Risk Management

4.8 Knowledge Building

V – LEGAL INSTRUMENTS AND AUTHORITY

5.1 Legal Instrument

5.2. Conditions Associated with Bank’s Intervention

5.3. Undertakings

5.4 Compliance with Bank Policies

VI – RECOMMENDATION

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LIST OF TABLES

Table 1 Project Timeframe

Table 2 Project Components

Table 3 Project Alternatives Considered and Reasons for Rejection

Table 4 Project Cost Estimates by Component and Subcomponent

Table 5 Sources of Financing

Table 6 Project Cost by Category of Expenditure by Component and Subcomponent

Table 7 Expenditure Schedule by Year

Table 8 Lessons Learned from Previous Operation and Other Analytical Reports

Table 9 Implementation Schedule

Table 10 Risk and Mitigation Measures

Appendices

Appendix I. Zimbabwe Comparative Socio-Economic Indicators

Appendix II. Table of ADB’s Portfolio in the Country

Appendix III. Key Related Projects Financed by Other Development Partners

Appendix IV. Summary of Public Expenditure and Financial Accountability

Appendix V. Analytical Work and Underpinnings

Appendix VI. Map of Zimbabwe

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Acronyms and Abbreviations ACBF African Capacity Building Foundation

ADF African Development Fund

AfDB African Development Bank

CIFA Country Integrated Fiduciary Assessment

COMESA Common Market for Eastern and Southern Africa

DfID Department for International Development

FSF Fragile States Facility

GDP Gross Domestic Product

GISP Governance and Institutional Strengthening Project

GOZ Government of Zimbabwe

IMF International Monetary Fund

MDGs Millennium Development Goals

MoFED Ministry of Finance and Economic Development

MoMMD Ministry of Mines and Mining Development

MTP Medium Term Plan

PFM Public Financial Management

PMC Project Management Committee

PMU Project Management Unit

PSC Project Steering Committee

RBZ Reserve Bank of Zimbabwe

SADC Southern Africa Development Community

SMP Staff Monitored Program

STERP Short Term Emergency Recovery Program

UNDP United Nations Development Program

UNICEF United Nations International Children’s Emergency Fund

USAID United States Agency for International Development

ZAADDS Zimbabwe Accelerated Arrears Clearance, Debt and Dev. Strategy

ZEPARU Zimbabwe Economic Policy Analysis and Research Unit

Zim-Asset Zimbabwe Agenda for Socio-Economic Transformation

ZIMFUND Zimbabwe Multi-donor Trust Fund

ZIPAM Zimbabwe Institute of Public Administration and Management

ZIMSTAT Zimbabwe National Statistics Agency

ZANU-PF Zimbabwe African National Union – Patriotic Front

Currency Equivalents As of 21 October 2013

1 UA = USD 1.52017

Fiscal Year

1st January – 31

st December

Weights and Measurements

1 metric tonne = 2204 pounds (lbs)

1 kilogramme (kg) = 2.200 lbs

1 metre (m) = 3.28 feet (ft)

1 millimetre (mm) = 0.03937 inch (“)

1 kilometre (km) = 0.62 mile

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Grant Information

Client’s information

RECIPIENT: Republic of Zimbabwe

EXECUTING AGENCY: Ministry of Finance and Economic

Development

Financing plan

Source Amount (UA) Instrument

ADF1

5.2 Million

Grant

TOTAL COST 5.2 Million Grant

Timeframe - Main Milestones (expected)

Concept Note approval

October 2013

Appraisal October 2013

Project approval December 2013

Effectiveness February 2014

Mid-term Review June 2015

Completion December 2016

Last Disbursement June 2017

1 The Board of Directors approved, on 6

th November 2013, the use of the 50 percent of the performance-based

allocation (Ref: ADB/BD/WP/2013/142 and ADF/BD/WP/2013/115

iii

Project Summary Paragraph Topics covered

Project

Overview

Program name: Governance and Institutional Strengthening Project (GISP).

Geographic scope: Entire country

Implementation timeframe: 2014-2016

Project cost: UA 5.2 million

Expected Outcomes and Outputs: The expected outcomes are: (a) Enhanced effectiveness in

internal control and transparency in public procurement; and (b) Increased transparency in mining

revenue and effectiveness in banking supervision and stability. This will be achieved through the

following output level results: (i) Strengthened competition, value for money and control in

procurement; (ii) Strengthened internal audit functions; (iii) Increased transparency in the mining

sector; and (iv) Enhanced core banking system of the Reserve Bank of Zimbabwe. Project direct

beneficiaries: The project will strengthen the capacity of key institutions responsible for public

finance and economic management namely: the Ministry of Finance and Economic Development

(MoFED), the State Procurement Board (SPB), the Reserve Bank of Zimbabwe (RBZ), the

Ministry of Mines and Mining Development (MoMMD), the Zimbabwe Institute of Public

Administration and Management (ZIPAM), and the Zimbabwe Economic Policy Analysis and

Research Unit (ZEPARU). The indirect beneficiaries are the general population of Zimbabwe, and

the private sector who will also benefit from (a) a more transparent and competitive public

procurement practice, (b) improved internal control in public expenditure, (c) effective banking

supervision for a more stable financial sector, and (d) improved transparency in the management of

the mining sector which will attract investment and thereby increase government revenue for

infrastructure and better service delivery.

Needs

Assessment

The decade of economic decline which preceded the growth has severely compromised public

sector governance and capacity to deliver core functions. This has also negatively impacted the

Public Finance Management (PFM) system and institutional capacity through economic decline,

hyperinflation, and brain-drain. The Country Integrated Fiduciary Assessment (2012) report has

identified a range of weaknesses in the PFM system including the areas of procurement and

internal audit. In addition, the Procurement Capacity Building Need Assessment also highlights the

need to strengthen the institutional framework and capacity development targeted at procuring

entities and oversight bodies. Another major effect of the Zimbabwe’s economic collapse was

systemic weakening of key institutions due to dilapidated and outdated IT equipment, and weak

working system. The recent assessment shows that the RBZ requires robust information and

communication technology (ICT) systems to perform its mandate especially relating to national

payments, financial sector stability and production of national statistics to formulation and

implementation of credible macro-economic policies. Moreover, the 2012 Mining Sector Policy

Study has identified the main challenges and constraints facing the mining sector and recommends

measures for strengthening mining sector policies, institutions and procedures. In this regard,

Government has requested the Bank to provide additional capacity building support which was the

basis to design and prioritize interventions under this project.

Bank’s Added

Value

The project builds upon previous and on-going Bank supported PFM reforms and complements

other Development Partners’ interventions in Zimbabwe. The Bank’s added value in supporting

this project derives from a number of factors. First, the Bank’s previous experience in the country

(e.g. the range of interventions under the FSF Pillar III, and the ZimFund), and other operations

(audit, procurement and extractive industries governance) in Regional Member Countries have

generated lessons learned which have been incorporated into the project design. Second, the

presence of the Country Office has enabled a strong understanding of the political context and

technical issues which enriched the operational design. Third, the Bank enjoys support from

authorities as an African institution that is mandated to take a lead role in the country’s re-

engagement with the international community. And also having common implementation

arrangement for two Bank-supported public sector capacity building projects reduce the transaction

cost on government and the Bank.

Knowledge

Management

The project will contribute to knowledge building through skills and knowledge transfer from

consultants, training providers, upgrading systems (e.g. core banking systems) and research;

supplemented by experience sharing visits and partnership arrangements with peer institutions in

the region. The Bank will capture and disseminate knowledge and experience through sharing the

findings of supervision missions, progress reports, and the Project Completion Report. Lessons

learned and experience gained will be available to inform future operations. The provision of a

geological equipment and core banking system will expand the knowledge of nationals in mineral

resources and functions of the financial sector. The Bank will capture and disseminate knowledge

through M&E, and Project Completion Report.

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VII. Results-based Logical Framework Country and project name: Zimbabwe: Governance and Institutional Strengthening Project (GISP) Purpose of the project : To Improve transparency and effectiveness in public finance and economic management

RESULTS CHAIN

PERFORMANCE INDICATORS MEANS OF

VERIFICATION

RISKS/ MITIGATION

MEASURES Indicator (including CSI)

Baseline Target

IMP

AC

T

Contribute to economic recovery and inclusive service delivery through strengthened public sector governance

GDP growth 4.4% (2012) 6% average (2017) Zim-Asset progress IMF report AfDB/AEO

Assumption: Maintain the multi-currency regime Risk#1: Macroeconomic instability. Mitigation: GOZ’s renewed commitment to prudent fiscal & monetary policy; continued implementation of the country’s development strategy. Enhanced efforts to maintain dialogue and support to the country to remain on track with the implementation of the debt and arrears clearance strategy and reform actions agreed under the SMP.

Assumption: No further restructuring of government ministries.

Risk 2: Implementation capacity constraints. Mitigation: PMU in place to manage and coordinate project implementation. Additional capacity building under the project. The Bank will continue undertaking capacity building initiatives and implementation support and supervision mission

Risk 3: Fiduciary risk. Mitigation: Project support will improve fiduciary environment. PMU capacity and complemented by the use of third party (ACBF) to administer the special account. Compliance with the Bank’s procurement of goods and services, annual audit reports and continues training.

CPIA score 2.23 (2012) 2.75 (2017)

OU

TCO

MES

Outcome 1: Enhanced effectiveness in internal audit and transparency in public procurement

PEFA PI 19 (Competition, value for money and control in procurement)

D+ (2012) P1-19 = C+ (2016)

PEFA self- assessment (2016)

PEFA PI 21 (Effectiveness of internal audit)

C+ (2012) PI-21 = B+ (2016)

Outcome 2: Improved transparency in mining revenue and effectiveness in banking supervision and stability

Disclosure of the mining sector revenue

Budget statement (2012)

2016 budget statement includes mining revenues from the largest companies

Budget Statements

Reduction in Non-performing loan

10% (2012) 5% (2016) RBZ annual report

Increase in Liquidity ratio 36% (2012) 40% (2016)

Component 1: Improved Transparency in Public Finance

OU

TPU

TS

Output 1.1 Strengthening competition, value for money and control in procurement

Legal framework revised

PPA act 1999

Revised Procurement Act submitted to Cabinet (2015)

PFM progress report Supervision report Audit committee periodic reports

Staff trained 5 in 2013 300 staff received procurement training incl. at least 90 females (2016)

Procurement Report published

None 2 procurement audit reports published (2015 and 2016)

Output 1.2 Strengthening internal audit functions

Audit committees established

None 24 Audit committee established in 24 line ministries (2016)

Staff trained 10 in 2013 250 internal auditors received training incl. 60 are females (2016)

Manuals and Guidelines published

Draft 2013 Internal audit manual and treasury instruction published (2015)

Component 2: Increasing Transparency and Capacity in Economic Management

Output 2.1 Increased transparency in the mining sector

Policy document submitted to Cabinet

Draft policy in 2013

Revised Mining and mineral acts submitted to Cabinet (2015)

Progress reports Supervision report RBZ Annual Report

Geological survey published None 1 Geological survey report published (2016)

Economic sector work published

None 5 mining sector studies published (2015/ 2016)

Output 2.2 Enhanced core banking system of the Reserve Bank of Zimbabwe

IT upgrade and installation operational

IT systems outdated in 2013

Updated GLOBUS version installed (2015). Internal network installed (2015).

Component 3: Project Management Support

Output 3.1: Improved project implementation and coordination

a) Annual audit report and quarterly progress submitted b) PEFA self-assessment report

a) None (b) 2012 CIFA

a) Annual audit and quarterly report submitted b) PEFA report by 2016

Progress reports Supervision report

AC

TIV

ITIE

S

COMPONENTS

Staff Training and Professional Development Programs

Technical Assistance for systems design and manual preparations

Procurement and Supply of IT equipment

Installation and upgrade IT systems, and network

Technical assistance to review legislations

Monitoring and evaluation, staff training, audit, and PEFA assessment

Input ADF Grant : UA 5.2 million Implementation support and supervision support

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Table 1: Project Time Frame/Implementation Schedule

Zimbabwe: Governance and Institutional Strengthening Project

Activities/Years

2013 2014 2015 2016 Action by

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Project Processing and Management

Grant approval AfDB

Signing Protocol of Grant Agreement AfDB & GoZ

Project Effectiveness and Launching AfDB & GoZ

Supervision and Monitoring AfDB

Mid-term Review AfDB

Project Completion Report AfDB & GoZ

Component 1: Improved Transparency in Public Finance

A. Procurement of Good GoZ

B. Training GoZ

C. Technical Assistance GoZ

Component 2: Increasing Transparency and Effectiveness in

Economic and Sector Management GoZ

A. Procurement of Goods GoZ

B. Training GoZ

C. Technical Assistance GoZ

Component 3: Project Management Support GoZ

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Box 1: National Development Priorities:

Infrastructure development;

Human development and poverty reduction;

Employment creation;

Entrepreneurship and investment promotion;

Maintaining macroeconomic stability;

Good governance and combating corruption;

Prudent/Transparent natural resource

management;

ICT and science and technology; and

Gender mainstreaming.

Source: MTP, 2011-2015

REPORT AND RECOMMENDATION OF THE MANAGEMENT TO THE BOARD OF

DIRECTORS ON A PROPOSED GRANT TO ZIMBABWE FOR THE GOVERNANCE

AND INSTITUTIONAL STRENGTHENING PROJECT

Management submits the following Report and Recommendation on a proposed ADF Grant for

UA 5.2 million to the Republic of Zimbabwe to finance the Governance and Institutional

Strengthening Project (GISP).

I. STRATEGIC THRUST AND RATIONALE

1.1 Project Linkages with Country Strategy and Objectives

1.1.1 The proposed operation is aligned with

the Country’s Medium Term Plan (MTP, 2011-

2015), and Zimbabwe Agenda for Socio-

Economic Transformation (Zim-Asset, 2013 -

2018). The overarching goal of the Plan is to reduce

poverty, create jobs, maintain macroeconomic

stability and restore the economy. To achieve this

objective, the Government has identified nine

priority areas including governance and natural

resource management (Box 1). The operation is

designed specifically to address governance, and

natural resource management which are critical for the implementation of the country’s

development plan. Following the election of the ZANU-PF party in the July 31st harmonised

election, the new administration embarked on the process of updating the MTP and formulated a

new plan known as the Zimbabwe Agenda for Socio-Economic Transformation for the next five

years. Zim-Asset aims to achieve sustainable development and social equity anchored on

indigenisation, empowerment and employment creation (Technical Annex A).

1.1.2 The project is also consistent with the Country’s Public Financial Management

(PFM) Improvement Roadmap (Draft, 2013-2015), and the 2013 Fiscal Policy Priorities.

The PFM improvement roadmap provides a comprehensive framework on which to base further

development assistance to ensure that the interventions are coordinated, and aligned with the

national priorities. The first priority and target of the roadmap is to establish core PFM functions

to strengthen financial compliance and control. The policy priorities for 2013 budget include

reducing financial sector vulnerability, dealing with infrastructure deficit, and natural resource

governance. The proposed project will contribute to the implementation of PFM roadmap and

policy priorities by focusing on (a) audit and procurement, (b) transparency in the mining sector

and (c) banking sector stability.

1.1.3 The project is firmly anchored in the objectives and priorities of the Zimbabwe

Country Brief (2013-2015). The Country Brief highlights the need to deepen and consolidate

Bank’s support for capacity building in the areas of Audit, Procurement, Reserve Bank of

Zimbabwe, and Mining Sector Development. By focusing on PFM, Financial Sector Stability

and Mining Sector Governance, the proposed operation is consistent with the Bank’s Strategy

(2013-2022), Governance Strategic Action Plan (Draft, 2013-2018), and ADF-12 operational

priorities. The project addresses the focus areas of support outlined in the Bank’s Strategy for

Enhanced Engagement in Fragile States (capacity building and economic management). It is also

aligned with the Bank’s Regional Strategy Paper for Southern Africa (2011-2015) and

particularly with Pillar II - strengthening institutional capacity of the Reserve Bank of Zimbabwe

will facilitate the financial transactions and integration initiatives within Southern Africa

Development Community (SADC).

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1.2 Rationale for Bank’s involvement

1.2.1 Although it was on the path to middle income status in the 1980s and much of the

1990s, Zimbabwe has since suffered from protracted fragility induced by recurrent cycles

of political and economic crises. The decade of significant economic decline (1999-2008)

severely compromised basic service delivery, public sector governance, infrastructure

maintenance and the investment climate for private sector. This has also negatively impacted the

PFM system and institutional capacity through economic decline, hyperinflation, and brain-

drain. However, during the past four years, relative political stability, the adoption of a multi-

currency regime and economic reforms generated vigorous economic growth. In this regard,

Zimbabwe requires capacity building support to sustain the gains registered in economic

management.

1.2.2 The Bank has taken a lead role to support the country’s re-engagement with the

international community. The Bank has been given unique mandate of taking leadership in

economic policy advice and dialogue to sustain reform implementation and the momentum

attained during the life of the Government of National Unity. The Government also signed-off a

Staff Monitored Program (SMP) with the IMF in June 2013 to support the country’s reform

program and re-engagement with the international community to resolve the outstanding debt

arrears. The new government has recently confirmed its commitment to the SMP. The proposed

operation will, thus, provide targeted technical assistance critical for effective implementation of

reform programs supported under the SMP.

1.2.3 The proposed operation will consolidate the previous and on-going Bank’s

intervention in PFM. Previous Bank’s interventions under FSF Pillar III have enabled the Bank

to deliver technical assistance in the areas of debt management, information technology, and

statistics. The Bank’s on-going Capacity Building for Public Finance and Economic

Management (CBPFEM) Project2 aims to strengthen capacity in accounting, debt management,

public sector investment program, revenue management, and statistics. To achieve the strategic

objective of PFM reform, the proposed operation complements CBPFEM by focusing on internal

audit and procurement to strengthen financial compliance and control, and also to ensure the

existing PFM legal and regulatory framework is fully enforced to deliver fiscal stability and

improved service delivery.

1.2.4 The Country Integrated Fiduciary Assessment (CIFA, 2012) examined public

financial management and procurement systems in Zimbabwe (Technical Annex A.2). The

report noted some progress with the introduction of a medium term expenditure framework, and

the electronic Public Financial Management (PFM) systems. A new Public Financial

Management Act came into effect in 2011. The report has identified a range of weaknesses in the

PFM system including in the areas of procurement and internal audit (Box 2), which are the basis

to design and prioritise interventions under this project. In response to the CIFA findings and

recommendations, the Government has developed a PFM reform roadmap that present a broadly

credible program for improvement. The Procurement Capacity Building Need Assessment and

Capacity Development Plan also highlight the need to strengthen the legal and institutional

framework and procurement capacity targeted at procuring entities and oversight bodies.

Through well-targeted institutional capacity building intervention, this project will make a

significant contribution to addressing institutional and human capacity constrains in internal

audit and public procurement.

2 Approved by the Board of Directors on 5

th December 2012, Ref: ADF/BD/WP/2012/59

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Box 2: Key challenges in Public financial management

The Country Integrated Fiduciary Assessment (CIFA) report indicated that the present internal audit function in

Government is characterized by a number of constraints including: (i) inadequate resources to implement

planned internal audit activities; (ii) limited auditing skills; (iii) inadequate capacity to effectively audit

procurement transactions; (iv) absence of internal auditing manuals and guidelines, and (v) inability to

systematically follow up management responses and audit recommendations. It recommends that internal audit

departments must be strengthened at Ministry level with an appropriate oversight function overseeing their

work. Establishment of Audit Committees (a requirement of the Public Finance Management Act) must also be

speeded up. Internal auditors must be assisted to gain membership of the Institute of Internal Auditors, and

invest in professional development of internal auditors.

The Country Procurement Assessment Review (CPAR) and other diagnostic reports have identified a number of

challenges, including: (i) deviations and omission in the Public Procurement Act and regulations in comparison

to international best practices (ii) lack of standard bidding documents and manuals, (iii) institutional capacity

constraints in the State Procurement Board and Procuring Entities, and (iv) limited procurement information for

decision making. In addition, a capacity needs assessment identified areas for technical assistance including

support to legal and regulatory reform, strengthening the capacity of State Procurement Board, and professional

development of procurement officers across government.

1.2.5 The Reserve Bank of Zimbabwe (RBZ) is implementing measures to further

enhance the financial sector stability and reduce vulnerabilities. Recent bank failures

highlighted persistent vulnerabilities in the financial sector stemming from weak capitalization,

low liquidity, poor asset quality and related-party exposures, persistent losses and weak

corporate governance and internal control deficiencies. The Banking Supervision and

Surveillance Division aims to foster and maintain the stability and soundness of the financial

system through rigorous regulation and supervision in line with international best practice.

However, RBZ requires robust information and communication technology (ICT) systems to

perform its mandate especially relating to national payments, financial sector stability and

production of national statistics to formulation and implementation of credible macro-economic

policies. In this regard, the proposed project will upgrade and strengthening the core banking

system and ICT infrastructure with the aim to strengthen the supervision functions of the RBZ

and thereby enhances banking stability (Technical Annex A).

1.2.6 The project aims to address governance and institutional constraints in the

management of the mineral resources. Progress has been made with the Kimberly Process

Certification and the Government of Zimbabwe should continue to work on improving

transparency and accountability in the extractive industries. To this end, Government has

approved a new diamond policy (2012) with the aim to increase transparency and accountability.

It has also prepared a draft Minerals Policy and plans to (a) amend the mines and mineral acts,

(b) implement EITI, (c) establish natural resource charter, and a sovereign wealth fund to

manage natural resource rents such as royalties to finance development programs. In this regard,

Government has requested the Bank to provide capacity building support to strengthen (a) the

Geological Survey to better manage and disseminate publish geological information, and (b)

capacity for mining sector policy making and implementation including the revision of the mines

and minerals act (Technical Annex A).

1.3 Donor coordination

1.3.1 Donor engagement in Zimbabwe is coordinated but aid financing is currently being

channelled through a wide range of procedures and modalities that mostly bypass

Government’s systems3. Much Overseas Development Assistance is channelled through the

programmatic Multi-Donor Trust Fund (Zim-Fund) administered by the African Development

Bank; the Analytical Multi-Donor Trust Fund (A-MDTF) managed by the World Bank; and the

Health and Education Transition Funds managed by UNICEF. The Bank also continues to

3 Zimbabwe Public Expenditure Notes: Strengthening Institutions for the Preparation of Government Budget, 2011

4

maintain a close working relationship with the World Bank, and the IMF on Zimbabwe’s arrears

clearance and debt relief.

1.3.2 There is strong commitment by cooperating partners to support capacity

development in Zimbabwe. The main donors supporting capacity development in the areas of

financial and economic management, apart from the Bank, include the World Bank, UNDP,

European Commission, DFID, USAID, and African Capacity Building Foundation, (Technical

Annex A). The Bank participates actively in the Economic Management and Governance

Technical Review Group (EMGTRG) of the A-MDTF and the Government-led PFM Working

Group, and will continue deepening its collaboration and coordination with other development

partners in providing a coordinated support to capacity building.

II. PROJECT DESCRIPTION

2.1 Project Components

2.1.1 Project Objectives: The project’s broad development objective is to support the

Government of Zimbabwe to sustain economic recovery and inclusive service delivery through

improved public sector capacity. The specific objective is to improve transparency and

effectiveness in public finance and economic management with emphasis on four mutually

complementary interventions: (a) increasing transparency and competition in public

procurement; (b) improving effectiveness in internal audit functions; (c) increasing transparency

in mining revenue to create fiscal space for public investment; and (d) strengthening banking

supervision for financial sector stability and economic recovery.

2.1.2 Project Components: The major activities under each component are summarized in Table

2 below while the detailed description of project components and costs is presented in Technical

Annex B.2.

Table 2: Project components

Components Estimated

Total

Cost

Description

Component 1:

Improved

transparency in

public finance

UA 1.6

million

Subcomponent 1.1: Transparency and competition in public procurement

(UA 856,000): The objective is to strengthen procurement capacity in the State

Procurement Board and Procuring Entities. Key activities under this

component are: (a) support to the on-going review process of the procurement

legal framework including experience sharing visits/study tour to 2/3 countries

in the region; facilitate peer learning and partnership with COMESA; provision

of short-term technical assistance to facilitate the review process and

stakeholder consultations. (b) professional training for State Procurement

Board (SPB); (c) provision of computers, printers, copiers to SPB; (d)

provision of technical assistance to develop SPB website; (e) technical

assistance to strengthen the procurement audit and oversight capacity of SPB;

(f) support to Zimbabwe Institute of Public Administration and Management to

develop training curriculum, training of trainers, and provision of training

equipment (computers and projectors) to ensure sustainability of training

provision; and (g) provision of training for procurement and non-procurement

officers in Procuring Entities.

Subcomponent 1.2: Effectiveness in internal audit (UA 744,000): The

objective is to strengthen effectiveness in internal audit functions across

government to ensure compliance with the PFM Act and its enabling

regulations. Activities under this component will include (a) training of internal

audit officers; (b) provision of computers to enhance IT audit; (c) experience

sharing visits/study tours to facilitate the establishment of internal audit

committees in all Government ministries; (d) technical assistance to develop

audit manuals and treasury instructions, (e) workshop to validate the audit

manual and treasury instruction, and (f) Public awareness raising workshops.

5

Components Estimated

Total

Cost

Description

Component 2:

Improved

transparency

and capacity in

economic

management

UA 3.1

million

Subcomponent 2.1: Transparency in the mining sector (UA 1,406,000): The project objective is to enhance transparency and accountability in the

management of mineral resources through capacity development support to the

Geological Survey Department; support to strengthening mining sector legal

framework; and support to developing strategic partnership arrangements

between the Ministry of Mines, and Mining Development, and a local think-

tank ((ZEPARU) to strengthening mining sector policies, and regulations.

Key activities under this component will include: (i) provision of geological

equipment; (ii) provision of cartography equipment; (iii) provision of training

for the Geological Survey Department personnel; (iv) support for editing and

printing bulletin and maps; (v) support to the Mines and Minerals Act review

and stakeholder consultation process; and (vi) support to ZEPARU to

undertake mining sector analytical and advisory activities to strengthening

mining sector policies and governance arrangements.

Subcomponent 2.2: Effectiveness in Banking Supervision (UA 1,701,000):

The project objective is to enhance financial sector stability through enhancing

the core banking systems of the Reserve Bank of Zimbabwe. Key activities

under this component will include: (i) upgrading and installation of internal

network; (ii) upgrade and installation of core banking systems or GLOBUS

upgrade; and (iii) provision of IT infrastructure.

Component 3:

Project

management

support

UA 0.5

million

Component 3: Project management support: This will finance coordination,

monitoring and evaluation activities, staff training and salaries, audit, and fund

administration fees

2.2. Technical solution retained and other alternatives explored

During project preparation and appraisal, several options were explored regarding the

areas of intervention; the scope and focus of activities; the implementation modalities and value

for money. Based on previous experience and lessons learned as well as the other donor’s

planned activities, it was agreed that in order to build on the gains achieved in the previous set of

Bank interventions, the proposed operation will adopt a mix of capacity building activities

through (a) developing strategic partnership with local training institutions and think-tanks; (b)

experience sharing visits, twinning arrangements, and provision of technical assistance; and (c)

focusing on rebuilding systems, legal framework, and governance arrangements, to enhance

ownership and sustainability. A summary of the technical consideration and project design

options is presented in Table 2 below.

Table 3: Project Alternatives Considered and Reasons for Rejection

Alternative Brief Description Reason for Rejection

Establishing a

parallel project

implementation

unit (PIU) solely

for the project

Instead of setting up a parallel

PIU, the PAR proposed to use the

existing Project Management Unit

and Coordination Arrangements

with ACBF for the on-going

operation (CBPFEM).

The proposed arrangement will increases synergy and

achieve value for money as it allows effectively

utilising existing staff and enhancing structures,

reducing transaction costs, and coordination more

effective. The existing arrangement complies with the

Bank’s fiduciary and legal requirements.

Pooling of

resources

through Trust

Fund

ADF resources to be channelled

through a Multi-donor Trust Fund

(MDTF). The current funding

arrangements are targeted to

infrastructure, service delivery,

and analytical work.

The Bank is currently managing programmatic MDTF

(ZimFund) for infrastructure and the World Bank in

managing the MDTF for analytical work. Though

there are opportunities for the Bank to take a lead in

setting up and administering MDTF for PFM and

capacity building program, at present there are no

pooled funding arrangements in Zimbabwe that can

provide funding for a comprehensive PFM reform and

capacity building program.

6

ISP that include

support to

tourism and

youth

employment.

Government requested for a

capacity building project that

involves support to seven

components and several

institutions, this include:

procurement, internal audit,

Reserve Bank of Zimbabwe,

Ministry of Mines and Mining

Development, Tourisms, Youth

Development, and Infrastructure

flagship report.

There is a risk of spreading Bank’s support too thinly

across many institutions which may increase

transaction costs, minimize impact of the intervention

and coordination challenge for the Bank and partners.

The recent OPEV evaluation and lessons from

previous operation suggest that the Bank should

reduce fragmentation by designing individual projects

which are focused, particularly where the overall

funding envelope is limited. The Bank suggest to split

the proposed capacity building support to two project

– GISP and Tourism and Youth Enhancement Project

2.3. Project type

The proposed operation is an institutional support project designed to complement

the on-going CBPFEM and other donors’ interventions, including the World Bank

managed A-MDTF and IMF Staff Monitored Program. Through the GISP, the GoZ has

clearly identified reform areas requiring redress. The Bank will thus play a major role in

facilitating implementation of the program by focussing on improved capacity and transparency

in public finance and economic management and directly addressing weaknesses in internal audit

and procurement functions, Reserve Bank and mining sector governance. Other partners will

continue their support to budget preparation, revenue, accounting and reporting, external audit

and legislative oversight components of the PFM roadmap (Technical Annex A).

2.4 Project Cost and Financing Arrangements

2.4.1 The estimated total cost of the project, net of taxes and duties, is UA 5.2 million. A price

and physical contingency of 7% has been factored in the project cost. Tables (4) and (5) present

the estimated project cost by component and sources of finance, whereas Tables (6) and (7)

present the estimated project costs by Category of Expenditure. Details of the project cost by

component and expenditure category are presented in Technical Annex B2.

2.4.2 The Bank will finance 100% of the total cost of the project in line with the Bank’s Policy

on Expenditures Eligible for Bank Group Financing4. Technical Annex C1 provides justification

for 100% financing.

4 (ADB/BD/WP/2007/106/Rev.2-ADF/BD/WP/207/72/Rev.2 dated 02 May 2008

7

Table 4: Project cost estimates by component and subcomponent

Component (US$ ‘000) (UA ‘000)

1. Improving Transparency in Public Finance

1.1 Improved Transparency and Competition in Public Procurement 1,302 856

1.2 Improved Effectiveness in Internal Audit 1,130 744

Subtotal Component 1 2,432 1,600

2. Strengthening Transparency and Effectiveness in Economic Management

2.1 Increased Transparency in the Mining Sector 2,138 1,406

2.2 Enhanced Effectiveness in Banking Supervision 2,585 1,701

Subtotal Component 2 4,723 3,107

3. Project Management Support

3.1 Project Coordination, M&E and Audit 650 427

3.2 Fund administration fees 100 66

Subtotal Component 3 750 493

TOTAL PROJECT COSTS 7,905 5,200 Note: Exchange Rates 1UA= 1.52017 USD and *All figures includes price and physical contingencies

Table 4: Sources of financing

Sources of Financing Total (US$ ‘000) Total (UA ‘000) Percentage

ADF Grant 7,905 5,200 100%

Total 7,905 5,200 100%

Table 5: Project cost by category of expenditure

Table 6: Project Expenditure Schedule

Components

US$ ‘000 UA ‘000 Total

UA 2014 2015 2016 Total

2014 2015 2016

1. Improving Transparency in Public Finance

1.1 Improved Transparency

and Competition in Public

Procurement

500 700 102 1,302 329 460 67 856

1.2 Improved Effectiveness

of Internal Audit

Effectiveness

300 700 130 1,130 197 460 85 744

Subtotal Component 1 800 1400 232 2,432 526 920 152 1,600

2. Strengthening Transparency and Effectiveness in Economic Management

2.1 Increased transparency

and capacity in the mining

sector

1,000 1,000 138 2,138 658 658 91 1,406

2.2 Enhanced core banking

systems 1,000 1,585 0 2,585 658 1,042 0 1,701

Subtotal Component 2 2,000 2,585 138 4,723 1316 1,700 91 3,107

3. Project Management

3.1 Project Coordination,

M&E and Audit 200 250 100 550 132 164 66 362

3.2 Fund administration fees 50 100 50 200 33 66 33 131

Subtotal Component 3 250 350 150 750 165 230 99 493

Total Project Cost 3,050 4,335 520 7,905 2,006 2,852 342 5,200

Category of Expenditure Total (US$ ‘000) Total (UA ‘000) Percentage %

A. Goods 3,965 2,608 50.1%

B. Services 3,190 2,099 40.4%

C. Operating cost 750 493 9.5%

TOTAL PROJECT COSTS 7,905 5,200 100%

8

2.5. Project’s target area and population

The direct project beneficiaries are: the Ministry of Finance and Economic Development,

the State Procurement Board, the Reserve Bank of Zimbabwe, the Ministry of Mines and Mining

Development, the Zimbabwe Institute of Public Administration and Management (ZIPAM),

Procuring Entities across MDAs (Ministries, Departments & Agencies), and the Zimbabwe

Economic Policy Analysis and Research Unit (ZEPARU). The indirect beneficiaries are the

general population of Zimbabwe, and the private sector who will also benefit from (a) a more

transparent and competitive public procurement practice, (b) improved internal control in public

expenditure, (c) effective banking supervision which aims to enhance stability in the financial

sector, and (d) improved transparency in the management of the mining sector which will attract

investment and thereby increase government revenue for infrastructure and better service

delivery.

2.6 Participatory Process for Project Identification, Design and Implementation

A wide stakeholder consultation was held with MDAs, private sector, development

partners, and civil society organizations. The proposed operation is prepared in line with the

CIFA, the Medium Term Plan and Bank’s Country Brief (2013-2015) which are products of

consultative processes conducted through seminars, workshops and candid debates among all the

key stakeholders. Issues raised that informed the design of the GISP include: country ownership

and alignment with the country’s development priorities as well as sustainable capacity building

through training delivered by local training institutions in the areas of audit and procurement.

The appraisal mission also met key PFM stakeholders including donors group to debrief them as

well as solicit their inputs on the scope of the operation to ensure synergy and complementarity.

A stakeholder analysis was carried out to understand the role of key actors and inform project

design (Technical Annex B.7)

2.7 Bank Group Experience and Lessons Reflected in Project Design

2.7.1 The main vehicle for financing Bank support to Zimbabwe over the last five years

has been the ZimFund, Fragile States Facility, African Water Facility and Private Sector

Window. As of 31st October 2013, the Bank’s on-going portfolio in Zimbabwe comprises eight

(8) operations with a total value of UA 86.5 million (Appendix I). Water Supply and Sanitation

accounts for 47.6%, Power Sector for 26.3%, Multi-sector (Governance) for 20.1%, and

Agriculture for 6% (under private sector, OPSM). At present, the average supervision rating

stands at 2.0 (on a scale 0 to3) for projects supervised under the country portfolio. The average

age of the portfolio is 1.5 years, disbursement rate of 18.4%, and no outstanding PCR as at end

October 2013. The proposed operation will build on the previous and ongoing Bank Group

programs including the Capacity Building Project for Public Finance and Economic

Management5, and ongoing operations funded under the FSF. Lessons have been drawn from the

ongoing and previous operations and lessons learned are summarized in Table 8 below.

2.7.2 The design of this operation is guided by various analytical and diagnostic reports

as well as consultations during the project preparation and appraisal missions (Appendix

III). The main analytical underpinning is provided by the CIFA, Draft Road Map for PFM

Improvement, Good Practice Note on Sequencing PFM Reforms, the 2012 OPEV Joint PFM

Evaluation Report, and OPEV Evaluation of Institutional Support in Governance, IMF Staff

Monitored Program, and Mining Sector Policy Study (2012). The proposed project has also

benefitted from the experience and lessons from Bank operations in the areas of PFM and

5 This project was approved in December 2012 with the aim to support Public Financial and Economic Management

by strengthening the capacity for debt, revenue and financial management; strengthening the legal and institutional

framework for Public Private Partnerships, national statistics, and regional integration.

9

institutional support projects in other countries. Analysis of Bank experience is outlined in

Technical Annex B.1 and serves to add strength to the messages summarized below.

Table 8: Lessons learned from the previous and ongoing Bank interventions

Lessons learned Actions taken to integrate lessons into the PAR

Strengthen country ownership,

coordination and leadership for

managing reforms.

Areas of interventions identified in this project are demand driven.

Beneficiary departments were requested to submit capacity building

proposals to inform the design of the operation and ensure ownership. In

addition, the Bank carried out extensive consultation with the government

and non-state actors, and put in place mechanisms to enhance coordination

and leadership in managing the capacity building interventions. The

project therefore focuses on rebuilding systems (core banking systems,

reviewing the legal and institutional framework (procurement and mining

sector), putting in place new structures (internal audit committee) and skill

development to enhance use of country systems. It also promotes

partnership and collaboration with the training institutions and local think-

tanks to sustain the capacity building efforts in the country.

Inadequate implementation

capacity and limited awareness

of project implementation

procedures and requirements.

A specific project management support component has been incorporated

into the project to enhance implementation capacity. In addition a detailed

project operations manual will be prepared to clearly outline procurement

processes, controls, review and approval, and administrative

arrangements. The Bank has delivered two training sessions on

procurement, financial management and disbursement and result

management and reporting requirement. Mechanisms are in place to

increase coordination and knowledge sharing among the project

stakeholders. The Bank through the ZWFO will continues to provide a

regular implementation support. In the medium term the two components

of the project (audit and procurement) will further enhance project

implementation capacity across government.

Limiting the number of

conditions which tend to put

excessive burden on

Government leading to the risk

of slippages in project

execution

The project has been carefully designed by limiting the number of

conditions so that partner organizations are able to focus on

implementation of the capacity building activities within the project

timeframe. A specific project management component has been

incorporated into the project to enhance implementation capacity.

Avoid spreading projects too

thinly across a large number of

institutions.

The project is closely aligned with the Bank’s Country Brief and the

Country’s development plan. The Bank suggest to split the proposed

capacity building support into two separate projects – GISP and Tourism

and Youth Enhancement Project to reduce fragmentation across large

number of beneficiary institutions. The GISP is more focused and each

component involves one/two beneficiary institutions.

Understanding the local context The project has adopted an incremental approach and country-led mining

sector governance initiatives. This involves support to quick win measures

(e.g. Geological Survey, and cooperation with local think-tanks) to gain

trust and promote local knowledge and partnership as well as activities

that promotes home-grown transparency initiatives before embarking on

international initiatives such as EITI.

Getting the Sequence of reform

right

The PFM improvement roadmap provides a comprehensive framework on

which to base further development assistance. It also shows the overall

sequencing strategy and the first prioritiy is to establish core PFM

functions with emphasis on financial compliance and the control aspects

of PFM. The proposed project will contribute to effectively implement

the PFM roadmap and directly address weakness in internal control and

procurement components of the roadmap, which are critical in enhancing

financial compliance and internal control functions,

10

2.8 Project’s performance indicators

The key performance indicators identified and the expected outcomes on project

completion are set out in the Logical Framework, and Results Monitoring Framework (Technical

Annex B7). A summary of the expected outcomes and related outputs for each project

components is summarised below:

Key Performance Indicators (KPIs) Impact – Level 1

6% Average GDP Growth rate

Improved CPIA score from 2.23 to 2.75

Outcome - Level 2

Component 1: Enhanced effectiveness in internal

control and transparency in public procurement

Component 2: Increased transparency in mining sector

and effectiveness in banking supervision and stability

Improved PEFA score relating to:

competition, value for money, and controls in

procurement (PI-19) from D+ in 2012 to C+ in

2016

effectiveness in internal audit (PI-21) from C+

in 2010 to B+ in 2016

Increased transparency in revenue from the mining

sector.

Increased banking stability through effective banking

supervision:

Reduction in non-performing loans from 10% in

2012 to 5% in 2016

Liquidity ratio increased from 36% in 2012 to 40%

in 2016

Output Indicators – Level 3

Comp. 1: Improved transparency in public finance Comp. 2: Improved transparency and capacity in

economic management

Procurement

Revised procurement act submitted to Cabinet

Procurement audit report prepared & published

Procurement curriculum development

300 staff received procurement training incl. 90

females

Internal Audit

Internal audit units established in 24 ministries

Internal audit manual and treasury instructions

published

250 internal auditors received training incl. 60

females. This include 25 certified internal auditors

of which 10 will be females

Mining sector

Revised mining & minerals act submitted to

Cabinet

Geological and cartographic equipment delivered

10 staff of the geological survey department

received training including 3 females

5 mining sector studies published to enhance

evidence-based policy making

Banking sector / Reserve Bank of Zimbabwe

Local area network installation completed

Core banking system /GLOBUS upgraded

Source: GISP Result Measurement Framework.

11

3. PROJECT FEASIBILITY

3.1 Economic and financial performance

The economic and financial benefits from the project will be much higher than UA

5.2 million. Identifying and quantifying the direct and indirect economic and financial benefits

of capacity building interventions are not straightforward. It is difficult to carry out credible and

rigorous cost-benefit and financial analyses. On the other hand, the benefits of such reforms are

widely agreed to be large. While the costs are quantifiable (section 2.4), the benefits are indirect,

ultimately seen in improved capacity and performance in public finance, banking supervision

and surveillance, and mining development. The economic justification of the proposed project is

its contribution to a better functioning government through improved capacity. The benefits of

the project will be derived from (a) enhanced competition, efficiency and controls in public

procurement; (b); improved effectiveness in internal audit; (c) effective functioning of the core

banking system and banking supervision; and (e) effectiveness in geological survey function and

new legal framework to enhance mining sector transparency and increase in revenue for public

investment. The project will also support the development of sustainable human resource

capacity, thereby ensuring that the benefits will be sustained over time.

3.2 Environmental and Social impacts

3.2.1 Environment and Climate Change: The proposed project is environmentally classified as

Category 3 by ORQR. The project will not have a negative impact on the environment as its

activities are limited to training, technical assistance, studies and procurement of logistic

resources, office automation and computer hardware. Furthermore, the provision of geological

and cartographic equipment to the Geological Survey Department will help to strengthen the

environmental assessment and monitoring capacity of the Ministry of Mines and Mining

Development. Project activities that are focused on human and institutional capacity building

have no negative impact on the climate (Technical Annex B.7).

3.2.2 Social: The project is intended to contribute to economic recovery through improved

transparency and capacity of key institutions responsible for the economy. The project will

contribute to strengthening transparency and competency in procurement, mining development,

and banking sector. Transparent and accountable management of resources will lead to increased

civic confidence in government. This will enhance and leverage the impact of the country’s

development strategy on economic recovery and poverty reduction through increasing

effectiveness of internal controls, procurement, enhanced financial sector stability and

transparency in management of mineral resources. The impact on poverty and all other cross

cutting areas will therefore be indirect, but significant. No negative social impacts are expected

from the project implementation (Technical Annex B.7).

3.2.3 Gender: The GoZ is committed to the promotion of gender equality to ensure that all

gender groups are able to fully contribute to the country’s development and benefit from it. The

National Policy on Gender is in place and provides for the promotion of full and equal

participation of all gender groups. In line with the policy, the project will ensure that 100% of

women professionals (internal auditors and procurement officers) are benefitted from the training

and provision of computers. The project also address gender issues in project management

through the appointment of a Project Manager (female), and increasing the participation of

women in the project steering and coordination committees (Annex B.7).

3.2.4. Involuntary Resettlement: The project will not result in any population displacement.

12

4. IMPLEMENTATION

4.1 Implementation arrangements

The project will be implemented over a period of three years between January 2014 and

December 2016. The Ministry of Finance and Economic Development (MoFED) is the lead

executing agency. The existing implementation arrangements for the on-going capacity building

project will be used to manage the proposed operation. A Project Steering Committee (PSC) and

Project Management Committee (PMC) are already in place to provide strategic oversight and

policy guidance. A focal point will be appointed from each beneficiary institution to participate

in the PMC and spearhead the implementation of their respective activities. The ACBF is an

integral implementation partner under the on-going project, being responsible for the

management of the Special Account. This arrangement will be extended to the new project. In

addition, an adequately staffed Project Management Unit6 (PMU), has been established within

the MoFED to oversee day-to-day project implementation, and coordinate portfolio management

including procurement, financial management, and monitoring and results reporting. The PMU

will also provide secretarial service to facilitate the functions of the PSC and PMC. Technical

Annex B3 provides details of the implementation arrangements.

4.2 Financial Management, Disbursement and Audit Arrangements

4.2.1 An assessment of the financial management arrangement and capacity for the ongoing

project indicates that it is satisfactory to Bank’s requirements. The assessment looked at

budgeting, accounting, internal controls, reporting and external audit, a full assessment report is

in Annex B4. To this end, the implementation of the proposed project will use existing

arrangements and legal instruments. This include: the PMU will be responsible for all financial

management aspects of the project including budgeting, a sound internal control environment,

preparation of quarterly Interim Financial Reports as well as annual Financial Statements.

Project financial management will be overseen by the Finance and Budget officer within the

PMU, under the supervision of the Program Manager.

4.2.2 Disbursement shall be predominantly through the Direct Payment method, particularly so

for technical assistance and equipment related expenditure. A separate USD Account shall be

opened by a selected third party (the African Capacity Building Foundation) with a commercial

bank acceptable to the Bank. This Account shall be meant for other expenditure for which the

direct Payment method will be unfeasible, and will cover mainly per-diem and travel expenses

for beneficiary institution staff going for training and workshop related expenses.

4.2.3 This Account shall be opened and managed by the ACBF on a ‘pass through’ basis, i.e. the

PMU will be submitting all request to the ACBF for payments to be made directly to

beneficiaries and funds from and/or to this account shall not be co-mingled with funds in any

other accounts. Bank disbursement rules as contained in the Disbursement Handbook shall be

complied with by the ACBF in managing the Special Account. This arrangement shall be

governed by an Agreement to be entered into by and between the Bank and the ACBF. Such an

arrangement, i.e. where a third party (ACBF) manages funds on behalf of the Bank has been

implemented for the ongoing project (CBPFEM) and previous project funded under the Fragile

State Facility Pillar III (support to Zimbabwe National Statistics Agency).

4.2.4 An external qualified audit firm will be recruited in conjunction with the Office of the

Comptroller and Auditor General under Terms of References and procurement procedures

acceptable to the Bank. The annual audited financial statements together with the auditor’s report

and management letter submitted to the Bank no later than six months after the end of each

financial year. A separate audit opinion will be issued with respect to project Financial

6 The PMU is funded by the Bank and the ACBF and it is staffed with a Project Manager, Procurement Specialist,

PFM Specialist, M&E Specialist, Budget & Finance Officer, a Program Assistant, Program Secretary and a Driver.

13

Statements, Statement of Expenditures (expenditure eligibility testing) and internal controls

environment. Technical Annex B4 provides further details on the financial management,

disbursement and audit arrangements.

4.3 Procurement Arrangements

All procurement of goods, and acquisition of consulting services financed by the Bank

will be in accordance with the Bank’s Rules and Procedures: “Rules and Procedures for

Procurement of Goods and Works”, dated May 2008 (revised July 2012); and “Rules and

Procedures for the Use of Consultants”, dated May 2008 (revised July 2012); as amended from

time to time, using the relevant Bank Standard Bidding Documents, and the provisions stipulated

in the Financing Agreement. The Ministry of Finance and Economic Development through the

Project Management Unit (PMU) will be responsible for and the procurement of goods,

consulting services, and training. An assessment of the capacity of the Ministry and PMU to

implement procurement actions for the project has been carried out by the Bank. The assessment

reviewed the organizational structure for implementing the project and the interaction between

the project’s staff responsible for procurement activities and the various Implementing Agencies.

The PMU is staffed by a Program Manager, Procurement Specialist, Monitoring and Evaluation

Officer, PFMS Specialist, Finance and Budget Officer and a Program Assistant. The

Procurement Specialist has been recently recruited; therefore the resources, expertise and

experience are adequate to carry out procurement. A Project Implementation Manual will be

developed to clearly outline roles and responsibilities of the various actors and control

environment. Detailed procurement arrangements are presented in Technical Annex B5.

4.4 Monitoring and evaluation

The project is scheduled for implementation over a 36-month period, from January 2014

to December 2016. This schedule is reasonable, given the scope of activities to be implemented

and project implementation capacity in Zimbabwe. The PMU will be responsible for project

monitoring and evaluation, using the GISP Result Monitoring Framework (Technical Annex B7)

and the project result based logical framework. The PMU has a dedicated M&E staff in place.

The periodic performance assessment and result reporting will be carried out by the PMU, in

collaboration with the beneficiary institutions. Quarterly and annual activity reports will also be

prepared and submitted to the Bank. The Bank will carry out a rigorous monitoring and

supervision mission at least twice a year, to the extent possible with other development partners

in Zimbabwe. The Zimbabwe Field Office will play an active role in the coordination, country

dialogue, and project supervision and monitoring. A project completion report will be undertaken

to evaluate progress against outputs and outcomes and draw lessons for possible follow-up

operation. Table 7 presents project implementation and monitoring schedule.

Table 9: Project Implementation Schedule Task / Milestone Responsible Party Time Frame

Grant Approval AfDB December 2013

Grant Effectiveness AfDB/GoZ January 2014

Project Launching AfDB/GoZ February 2014

Procurement of goods and services GoZ January 2014 – June 2016

Technical assistance and training GoZ June 2014 – June 2016

Annual Audit Report GoZ June 2014, 2015, 2017 and

Supervision Mission AfDB June/December 2014, 2015 & 2016

Mid-term Review AfDB June 2015

Project Completion Report AfDB/GoZ December 2016

14

4.5 Governance

4.5.1 Robust governance arrangements have been put in place to manage the implementation,

monitoring, review and audit of this project, as outlined in sections 4.1, 4.2 and 4.2 above. The

implementing entity has been assessed as having enough capacity to implement the project,

utilizing the existing project management arrangements. Controls and oversight will be further

strengthened through support to Internal Audit Unit. Lastly, the implementation of the agreed

action plan will further enhance the financial management arrangements in place. The proposed

project will contribute towards strengthening transparency and accountability practices in public

procurement and increasing effectiveness in internal audit, and transparency in mineral resource

development which are critical in improving governance and tackling corruption in Zimbabwe.

4.5.2 The risks to project governance arise in procurement decisions, use of project assets and

selection of persons to attend training and capacity building events. Risks will be mitigated

through the preparation of a detailed procurement plan, robust processes for contractors and

participant selection and application of the agreed procurement rules and procedures. Further

training will be provided to PMC core staff to ensure that they are fully aware of all requirements

and regulations during the launching mission. Compliance with these controls will be reviewed

during supervision missions. An independent audit of project financial reports and procurement

reviews will be undertaken every year.

4.6 Sustainability

An important contributing factor to the sustainability of the proposed project interventions

is the GoZ’s commitment to economic recovery program. The GISP responds to demand-led

capacity building initiatives. Significant attention has been paid to sustainability in the project

design through greater focus to rebuilding systems, legal framework, governance structures and

skills and competencies. Support to the mining sector aims to enhance institutional capacity to

harness the utilisation of mineral resource and increase revenue collection, thus contributing to

positive long term development outcomes. Under the procurement component, the project

employs a holistic approach, building capacity of the State Procurement Board, Procuring

Entities, review of the legal framework (Procurement Act), curriculum development and capacity

building of the capacity building institutions, training of trainers to ensure that knowledge and

skills are transferred. The project will help a local training institution (ZIPAM) to develop and

deliver training programs in a sustainable manner. The project will also strengthen institutional

systems and processes (e.g. through the strengthening core banking systems, internal audit

manuals and treasury instruction) so that reforms are embedded within the Ministries.

4.7 Risk Management

The potential risks and mitigation measures for the project is summarized Table 8.

Table 10: Risk and mitigation measures

Description of Risk Probability/

Impact

Mitigation

Risk 1: Macroeconomic instability

due to policy reversals, failure to

continue with on-going policy

reforms and meeting the agreed

SMP targets and benchmarks. This

may lead to slow pace towards

sealing a deal with international

community.

Medium /

High GOZ’s renewed commitment to prudent fiscal and monetary

policy; and continued implementation of the country’s

accelerated arrears clearance, debt and development strategy.

Enhanced efforts to maintain dialogue between government,

and donor community as well as support to reform

champions will help the country to remain on track with the

implementation of the debt and arrears clearance strategy

and reform actions agreed under the SMP.

15

Risk 2: Implementation capacity

constraints: High attrition

continues leading to lack of

manpower to coordinate and

implement reforms.

Medium /

Medium Project Implementation Unit is in place and fully staffed to

manage and coordinate project implementation. Targeted

capacity building training and government’s performance

management initiatives will provide incentive to retain

competent staff in the key government departments. It is also

envisaged that beneficiaries of the training programs will be

required to serve on the job for a certain period beyond the

end of their training programmes. The Bank, through

ZWFO, will provide hands-on project implementation

support together with ACBF. Government plans to revise the

salary scale and implement result-based performance

management system in the civil service to attract and retain

competent staff as well as motivate good performance.

Risk 3: Fiduciary risk due to weak

public financial management

system.

Medium /

Medium The project will contribute to improve fiduciary

environment. PMU capacity complemented by the use of

third party (ACBF) to administer the special account.

Compliance with the Bank’s procurement rules, annual audit

reports and training.

4.8 Knowledge Management

The GISP will build knowledge and develop skills on specific areas related to public

procurement, internal audit, core banking systems and minerals governance. The implementation

of the GISP will focus in rebuilding systems, legal framework, governance structures and skills

and competencies. This will be achieved in a number of ways including: (i) the procurement

capacity building initiatives which involves curriculum development, professionals training

program, and capacity building of the local training institution; (ii) internal auditors professional

development program in collaboration with the Institute of Internal Auditors; (iii) the use of new

technology and systems to strengthen the core banking functions, (iv) the development of

websites, working manuals and guidelines through technical assistance, (v) support to peer

learning and partnership with local and regional institutions; and (vi) capacity building support to

local think-tank to undertake analytical and advisory services for evidence-based policy making

in Zimbabwe. Knowledge will also be acquired through skill transfer using local and external

experts and developing partnership with peer institutions in the region. In addition, basic and

specialised training on procurement and internal audit matters will be developed to improve

knowledge and skills across MDAs. A sensitisation and public awareness raising program will

be organised to broaden understanding of the new Public Procurement Act, Treasury Instruction

and Internal Audit Manual. The joint supervision and result reporting and project completion

report will contribute towards knowledge management and lessons learnt to inform future

interventions.

V – LEGAL INSTRUMENTS AND AUTHORITY

5.1 Legal instrument

The legal framework of the project will be governed by a Protocol of Agreement between

the Republic of Zimbabwe and the African Development Fund for an ADF Grant of UA 5.2

million.

5.2 Conditions associated with Bank’s intervention

5.2.1 Conditions Precedent to Entry into Force: The Protocol of Agreement shall enter into

force on the date of its signature by the Republic of Zimbabwe and the African Development

Fund.

16

5.2.2 Conditions Precedent to First Disbursement: The first disbursement of the grant shall be

conditional upon the entry into force of the Protocol of Agreement, and the Recipient providing

evidence of the fulfilment of the following conditions, in form and substance satisfactory to the

Fund:

(a) the nomination of focal persons from each beneficiary institutions (State Procurement

Board, Reserve Bank of Zimbabwe, and Ministry of Mines and Mining Development) to

participate in the Project Steering Committee and Project Management Committee;

(b) entry into an agreement between the Fund and the African Capacity Building Foundation

(ACBF) that sets out the terms and conditions upon which the ACBF will facilitate

disbursements to the Recipient that are not made by direct payment from the Fund; and

(c) the opening of a USD special account with a bank acceptable to the Fund by the ACBF

dedicated to receive proceeds of the Grant that will not be directly disbursed by the Fund.

5.3 Other Conditions

Within six (6) months of the signing of the Protocol of Agreement, the Ministry of Mines and

Mining Development, and ZEPARU shall establish a memorandum of understanding to govern

their partnership and collaboration arrangements, in form and substance acceptable to the Fund.

5.4 Undertakings

The Recipient shall maintain the existence and functioning of the Project Steering Committee for

the Capacity Building for Public Finance and Economic Management Project (CBPFEM), and

the joint Project Management Committee for the CBPFEM and the ACBF funded Zimbabwe

Capacity Development Program, the Project Management Unit (PMU) each in a form and with a

composition acceptable to the Fund, with their respective terms of reference extended to cover

this project

5.5 Compliance with Bank Policies

The project complies with all applicable Bank policies.

VI. RECOMMENDATION

Management recommends that the Board of Directors approve the proposed Grant of UA 5.2

million to the Government of the Republic of Zimbabwe for the purposes and subject to the

conditions stipulated in this report.

I

Year Zimbabwe Africa

Develo-

ping

Countries

Develo-

ped

Countries

Basic Indicators

Area ( '000 Km²) 2011 391 30,323 98,458 35,811Total Population (millions) 2012 13.0 1,070.1 5,807.6 1,244.6Urban Population (% of Total) 2012 39.3 40.8 46.0 75.7Population Density (per Km²) 2012 32.6 34.5 70.0 23.4GNI per Capita (US $) 2011 640 1 609 3 304 38 657Labor Force Participation - Total (%) 2012 51.0 37.8 68.7 71.7Labor Force Participation - Female (%) 2012 49.0 42.5 39.1 43.9Gender -Related Dev elopment Index Value 2005-2011 0.505 0.502 0.694 0.911Human Dev elop. Index (Rank among 186 countries) 2012 172 ... ... ...Popul. Liv ing Below $ 1.25 a Day (% of Population)2005-2011 … 40.0 22.4 ...

Demographic Indicators

Population Grow th Rate - Total (%) 2012 2.0 2.3 1.3 0.3Population Grow th Rate - Urban (%) 2012 3.4 3.4 2.3 0.7Population < 15 y ears (%) 2012 37.6 40.0 28.5 16.6Population >= 65 y ears (%) 2012 4.2 3.6 6.0 16.5Dependency Ratio (%) 2012 71.6 77.3 52.5 49.3Sex Ratio (per 100 female) 2012 97.6 100.0 103.4 94.7Female Population 15-49 y ears (% of total population) 2012 25.8 49.8 53.2 45.5Life Ex pectancy at Birth - Total (y ears) 2012 52.7 58.1 67.3 77.9Life Ex pectancy at Birth - Female (y ears) 2012 51.8 59.1 69.2 81.2Crude Birth Rate (per 1,000) 2012 28.8 33.3 20.9 11.4Crude Death Rate (per 1,000) 2012 12.1 10.9 7.8 10.1Infant Mortality Rate (per 1,000) 2012 48.6 71.4 46.4 6.0Child Mortality Rate (per 1,000) 2012 73.8 111.3 66.7 7.8Total Fertility Rate (per w oman) 2012 3.1 4.2 2.6 1.7Maternal Mortality Rate (per 100,000) 2010 570.0 417.8 230.0 13.7Women Using Contraception (%) 2012 60.1 31.6 62.4 71.4

Health & Nutrition Indicators

Phy sicians (per 100,000 people) 2004-2010 16.0 49.2 112.2 276.2Nurses (per 100,000 people)* 2004-2009 148.5 134.7 187.6 730.7Births attended by Trained Health Personnel (%) 2009-2010 60.2 53.7 65.4 ...Access to Safe Water (% of Population) 2010 80.0 67.3 86.4 99.5Access to Health Serv ices (% of Population) 2000 85.0 65.2 80.0 100.0Access to Sanitation (% of Population) 2010 40.0 39.8 56.2 99.9Percent. of Adults (aged 15-49) Liv ing w ith HIV/AIDS 2011 14.9 4.6 0.9 0.4Incidence of Tuberculosis (per 100,000) 2011 603.0 234.6 146.0 14.0Child Immunization Against Tuberculosis (%) 2011 98.0 81.6 83.9 95.4Child Immunization Against Measles (%) 2011 92.0 76.5 83.7 93.0Underw eight Children (% of children under 5 y ears) 2011 10.1 19.8 17.4 1.7Daily Calorie Supply per Capita 2009 2 219 2 481 2 675 3 285Public Ex penditure on Health (as % of GDP) 2001-2010 0.0 5.9 2.9 8.2

Education Indicators

Gross Enrolment Ratio (%)

Primary School - Total 2010-2012 … 101.9 103.1 106.6 Primary School - Female 2010-2012 … 98.4 105.1 102.8 Secondary School - Total 2010-2012 … 42.3 66.3 101.5 Secondary School - Female 2010-2012 … 38.5 65.0 101.4Primary School Female Teaching Staff (% of Total) 2011 … 43.2 58.6 80.0Adult literacy Rate - Total (%) 2010 92.2 67.0 80.8 98.3Adult literacy Rate - Male (%) 2010 94.7 75.8 86.4 98.7Adult literacy Rate - Female (%) 2010 89.9 58.4 75.5 97.9Percentage of GDP Spent on Education 2008-2010 2.5 5.3 3.9 5.2

Environmental Indicators

Land Use (Arable Land as % of Total Land Area) 2011 10.6 7.6 10.7 10.8Annual Rate of Deforestation (%) 2000-2009 1.5 0.6 0.4 -0.2Forest (As % of Land Area) 2011 39.5 23.0 28.7 40.4Per Capita CO2 Emissions (metric tons) 2009 0.7 1.2 3.1 11.4

Sources : AfDB Statistics Department Databases; World Bank: World Development Indicators; last update :

UNAIDS; UNSD; WHO, UNICEF, WRI, UNDP; Country Reports.

Note : n.a. : Not Applicable ; … : Data Not Available.

Appendix I : Zimbabwe Comparative Socio-economic Indicators

May 2013

0

10

20

30

40

50

60

70

80

90

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

Infant Mortality Rate( Per 1000 )

Zimbabwe Africa

0

200

400

600

800

1000

1200

1400

1600

1800

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

GNI Per Capita US $

Zimbabwe Africa

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

Population Growth Rate (%)

Zimbabwe Africa

1

11

21

31

41

51

61

71

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

Life Expectancy at Birth (years)

Zimbabwe

Africa

II

Appendix II. Bank Group Active Operations in Zimbabwe as at October 31st, 2013

ZIMFUND: The Board approved the establishment of the ZimFund on 31 May 2010, which became

effective on 19 October 2010, after mobilizing USD 40 million. Its aim is to contribute to economic

recovery and development efforts in Zimbabwe by mobilizing donor resources towards key

infrastructure rehabilitation and promoting donor coordination. The ZimFund contributing countries

include the United Kingdom, Australia, Denmark, Norway, Sweden, Germany and Switzerland.

Donors’ commitments to the ZimFund has reached an equivalent of USD 124.66 million, out of

which an actual amount of USD 121.82 million had been released by end of June 2013.

Sectors/OperationsApproval

DateClosing Date Funding Type

Approved

Amount (UA m)

Disbursement

(UA m)

Disbursement

RateRating Age

WATER SUPPLY & SANITATION SECTOR41.2 5.5

13.3%

1 Urgent Water Sup. and Sanit. Rehabilitation (UWSSR) Project 4/7/2011 12/31/2014 ZMDTF Grant 19.28 5.50 28.5% 2.5 2.6

Supplementary Financing to UWSSR Project 7/17/2013 6/30/2015 ZMDTF Grant 9.07 0 0.0% 0.3

2 UWSSR Phase2-Stage2 10/7/2013 12/31/2017 ZMDTF Grant 12.85 0 0.0% 0.1

POWER SECTOR22.8 3.0

13.4%

3 Power Infrastructure Rehabilitation Project 6/30/2011 6/30/2014 ZMDTF Grant 22.76 3.05 13.4% 1.9 2.3

MULTI SECTOR17.4 2.2

12.7%

4 ZIM-FUND Procurement Agent 6/24/2011 12/31/2013 FSF Grant 1.00 0.75 74.5% 2.4

5 Technical Assistance to ZADMO 8/9/2011 12/31/2013 FSF Grant 0.19 0.08 41.6% 2.2

6 T.A FOR HIPC ELIGIBILITY ASSESSMENT 7/30/2013 6/30/2014 FSF Grant 0.07

7

Capacity Building Project for Public Financial &

Economic Management12/5/2012 6/30/2016 FSF Grant 16.12 1.39 8.6%

Not Yet

Rated0.9

AGRICULTURE SECTOR5.2 5.2

100.0%

8 Lake Harvest Project 26/10/11 26/11/20 ADB Loan 5.2 5.20 100.0% 1.5 2.0

TOTAL 86.5 16.0 18.4% 2.0 1.5

Grant 81.3 10.8 13.2%

Loan 5.2 5.2 100.0%

Not

Supervised

III

Appendix III: Similar Projects Financed by the Bank and other Development Partners in

Zimbabwe

DONOR PROJECT TITLE AMOUNT INTERVENTION AREAS

AfDB Capacity Building for

Public Finance and

Economic Management

under the Fragile State

Pillar I (2012-2015)

UA 16.12

million

To strengthen accounting and reporting functions

of the Accountant General Department, debt

management, public sector investment, revenue

management, statistics and regional integration.

Status: Implementation started in August 2013

and it is well underway.

Technical assistance to

Zimbabwe Aid and Debt

Management Office, under

the Fragile State Facility

Pillar III (2011-2014)

UA 190,000 Targeted technical assistance to strengthen

implementation of the debt management strategy.

IMF Technical Assistance and

Staff Monitored Program

- Technical assistance in the areas of PFM reform,

modernizing the payroll and human resource

management systems, tax policy and

administration, and increasing transparency in

diamond revenues

World Bank Support to PFM reform

through the Analytical

Multi-Donor Trust Fund

(2010-2014)

USD 2.3

million

2010 - 2015

Public Expenditure Review (2012-13), CIFA

(2012), payroll, e-procurement, procurement

training and standard bidding document,

accounting and reporting/PFMS/IFMIS, external

audit, parliamentary committee, and budget

management

UNDP Strengthening Institutional

Capacity for Development

Effectiveness and

Accountability (2013 –

2016)

US$18.5m Support to IFMS, accounting and reporting

function of the Accountant General, Human

Resource and Skill Development (training of

accountants), aid management and coordination,

Results Based Management (RBM) systems,

MTP monitoring and evaluation, national

statistics, external audit and parliamentary

committee.

EC Aid coordination - Capacity building support to strengthen aid

management and coordination

DFID UK Strengthening capable

government program

US$ 19m

(2010-2013)

Support to budget planning and result based

budgeting, parliamentary committee, aid

management, skills development and analytical

(including contribution to A-MDTF)

Australian

Aid

Revenue management.

Project completion date

end 2013

- Capacity building support to ZIMRA to enhance

tax administration and collection.

USAID Support to evidence-based

economic policy analysis

and management

- Capacity building support to ZIMSTAT and

ZEPARU to enhance capacity for evidence-based

policy analysis and management

Netherlands Budget oversight and

participation

- Support to Parliamentary Budget and Finance

Committee

ACBF Public sector capacity

building

Support to IPFMS, budget formulation and

monitoring, public sector training

institutions/ZIPAM, aid coordination and

regional integration.

IV

Appendix IV. Summary of the CIFA/PEFA 2012 Assessment

Indicator Description SCORE

2012

PI-1 Aggregate expenditure outturn compared with original approved budget NR

PI-2 Composition of expenditure outturn compared with original approved budget D

PI-3 Aggregate revenue outturn compared with original approved budget D

PI-4 Stock and monitoring of expenditure payment arrears C+

PI-5 Classification of the budget C

PI-6 Comprehensiveness of information included in budget documentation B

PI-7 Extent of unreported government operations D+

PI-8 Transparency of inter-governmental fiscal relations NA

PI-9 Oversight of aggregate fiscal risk from other public sector entities C

PI-10 Public access to key fiscal information C

PI-11 Orderliness and participation in the annual budget process B

PI-12 Multi-year perspective in fiscal planning, expenditure policy, and budgeting C

PI-13 Transparency of taxpayer obligations and liabilities B

PI-14 Effectiveness of measures for taxpayer registration and tax assessment C+

PI-15 Effectiveness in collection of tax payments D+

PI-16 Predictability in the availability of funds for commitment of expenditures D+

PI-17 Recording and management of cash balances, debt, and guarantees B

PI-18 Effectiveness of payroll controls C+

PI-19 Competition, value for money, and controls in procurement D+

PI-20 Effectiveness of internal controls for non-salary expenditure C+

PI-21 Effectiveness of internal audit C+

PI-22 Timeliness and regularity of accounts reconciliation C

PI-23 Availability of information on resources received by service delivery units D

PI-24 Quality and timeliness of in-year budget reports A

PI-25 Quality and timeliness of annual financial statements D

PI-26 Scope, nature, and follow up of external audit C+

PI-27 Legislative scrutiny of the annual budget law C+

PI-28 Legislative scrutiny of external audit reports D+

D-1 Predictability of direct budget support NA

D-2 Financial information provided by donors for budgeting and reporting on

project and program aid

A

D-3 Proportion of aid that is managed by use of national procedures D

V

Appendix V: Analytical Work and Underpinnings

Component/Reform

Areas

Analytical Work Institution

Strategy Medium Term Plan (2011 – 2015) MoF

Zimbabwe Agenda for Socio-Economic

Transformation (Zim-Asset, 2013-2018)

President Office

Country Brief (2011 – 2013 and 2013-

2015)

AfDB

Zimbabwe Accelerated Arrears

Clearance, Debt and Development

Strategy (ZAADDS, 2012)

MoF

Public Finance Act, 2010 MoF

The Mid-Year Fiscal Policy Statement,

July 2013

MoF

Public Financial

Management

Country Integrated Fiduciary Assessment,

(2012)

MoF

Procurement Capacity Needs Assessment

and Capacity Development Plan (2013)

World Bank

Roadmap for Public Financial

Management Improvement (2013)

MoF

OPEV Evaluation of Institutional Support

in Governance (draft 2013)

AfDB

OPEV Joint PFM Evaluation Public

Financial Management Reform (2011)

AfDB

OPEV Evaluation of Bank’s Assistance to

Fragile States (2012)

AfDB

Zimbabwe Public Expenditure Notes:

Strengthening Institutions for the

Preparation of Government Budget (2011)

World Bank

Survey on the Practice of Internal Audit

in Zimbabwe (2010)

Institute of Internal

Auditors

Good Practice Note on Sequencing PFM

Reforms (2013) PEFA Secretariat,

IMF, and EU

Others Positioning the Zimbabwe Tourism Sector

for Growth: Issues and Challenges (2013)

ZEPARU

Mining Sector Policy Study (2012) ZEPARU

IMF Staff Monitored Program (2013) IMF

VI

Appendix VI: Map of Zimbabwe

VII

OUTCOME OF NEGOTIATIONS

1. The delegations of the Republic of Zimbabwe and the African Development Fund have

successfully completed the Negotiations on 20th

November 2013.

2. The two parties agreed on the project objective, components, financing plan, disbursement

conditions as stated in the Project Appraisal Report (PAR), draft Protocol of Agreement and

Disbursement Letter for the Governance and Institutional Strengthening Project.