AFRICAN DEVELOPMENT FUND RWANDA

39 

Loading....

Loading....

Loading....

Loading....

Loading....

Full text

(1)

AFRICAN DEVELOPMENT FUND

RWANDA

SKILLS, EMPLOYABILITY AND ENTREPRENEURSHIP PROGRAMME (SEEP) II

APPRAISAL REPORT

OSHD DEPARTMENT

(2)

Table of Contents

ACRONYMS AND ABBREVIATIONS ... i

LOAN AND GRANT INFORMATION ... ii

PROGRAMME EXECUTIVE SUMMARY ... iii

RESULTS-BASED LOGICAL FRAMEWORK ... iv

PROGRAMME TIMEFRAME ... vi

I. THE PROPOSAL ... 1

II. COUNTRY AND PROGRAMME CONTEXT ... 2

2.1 Government’s overall development strategy and medium-term reforms priorities ... 2

2.2 Recent socioeconomic developments, perspectives, constraints and challenges ... 2

2.3 Bank Group portfolio status ... 7

III. RATIONALE, KEY DESIGN ELEMENTS AND SUSTAINABILITY ... 7

3.1 Link with the CSP, country readiness assessment and analytical works underpinnings ... 7

3.2 Collaboration and coordination with other donors ... 9

3.3 Outcomes of past and on-going similar operations ... 9

3.4 Relationship with on-going Bank operations ... 10

3.5 Bank’s value added and comparative advantages ... 10

3.6 Application of good practice principles on conditionality ... 10

3.7 Application of Bank Group non-concessional borrowing policy ... 10

IV. THE PROPOSED PROGRAMME ... 11

4.1 Programme’s goal and purpose ... 11

4.2 Programme’s components, operational policy objectives and expected results ... 11

4.3 Financing needs and arrangements ... 14

4.4 Programme’s beneficiaries ... 15

4.5 Programme’s impact on gender ... 15

4.6 Environment and Climate Change ... 15

V. IMPLEMENTATION, MONITORING AND EVALUATION ... 15

5.1 Implementation arrangements ... 15

5.2 Monitoring and evaluation arrangements ... 17

VI. LEGAL DOCUMENTATION AND AUTHORITY ... 17

6.1 Legal documentation ... 17

6.2 Conditions associated with Bank’s intervention ... 17

6.3 Compliance with Bank Group policies ... 19

(3)

List of Appendixes

 Appendix 1 Letter of Development Policy

 Appendix 2 Press Communique by IMF

 Appendix 3 Key Economic Indicators, 2009-2018

 Appendix 4 Operational Policy Matrix List of Figures

 Figure 1 Significant Gains in Poverty Reduction, 2001–2011 and Target 2015

 Figure 2 Women remain Less-represented in Off-farm Jobs, 2013

 Figure 3 The Skills Gap Is Sizeable for Artisans and Technicians – A Magnitude Equivalent to 87% of the Private Sector Employment in 2012

List of Tables

 Table 1 Key Macroeconomic Indicators

 Table 2 Prerequisites for Sector Budget Support

 Table 3 Budget Projection in Billion RWF

 Table 4 Financial Gap of Skills and Entrepreneurship Development

 Table 5 Prior Conditions for FY 2013/14

 Table 6 Triggers for FY 2014/15 and 2015/16

 Table 7 Risk and Mitigation Measures

Currency Equivalents As of March 2014 1 UA = 1,028.56 RWF 1 UA = 1.55 USD 1 USD = 664.70 RWF Fiscal Year

GoR preferred disbursement currency: USD July 1st – June 30th

Weights and Measures 1metric 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 1 hectare (ha) = 2.471 acres

(4)

Acronyms and Abbreviations

12YBE Twelve-year basic education ADF African Development Fund AfDB African Development Bank Group AFD French Development Agency AU African Union

BDC Business Development Center

BDE Business Development and Employment Unit BDF Business Development Fund

BNR Banque Nationale du Rwanda (Central Bank) BoP Balance of Payment

CDF Community Development Fund CGF Credit Guarantee Fund

CEDP Competitiveness and Enterprise Development Project

CPC Community Processing Centers CPI Corruption Perception Index

CPPR Country Portfolio Performance Review CSP Country Strategy Paper

DFID Department for International Development DoL Division of Labour

DP Development Partner

DPCG Development Partner’s Coordination Group DRC Democratic Republic of Congo

DRM Domestic Resource Mobilization DSA Debt Sustainability Analysis EAC East African Community EC European Community

EDPRS Economic Development and Poverty Reduction Strategy

EICV Integrated Household Living Conditions Survey

ESSP Education Sector Strategic Plan

FAPA Fund for African Private Sector Assistance FCS Fiscal Consolidation Strategy

FRA Fiduciary Risk Assessment FY Fiscal Year

GDP Gross Domestic Product GoR Government of Rwanda HIPC Heavily Indebted Poor Country

ICGLR International Conference on the Great Lakes Region

IPRC Integrated Polytechnic Regional Center ICPC Integrated Craft Production Centers

ICT Information and Communication Technology IFMIS Integrated Financial Management and

Information System

IMF International Monetary Fund WDA Workforce Development Authority WGI World Governance Indicators

YEGO Youth Employment for Global Opportunities MIDR Multilateral Debt Relief Initiative

MIFOTRA Ministry of Public Service and Labour MIGEPROF Ministry of Gender and Family

Promotion

MINECOFIN Ministry of Finance and Economic Planning

MINEDUC Ministry of Education

MINICOM Ministry of Trade and Industry MSME Micro, Small and Medium Enterprise MYICT Ministry of Youth, Information, Communication and Technology NCBS National Capacity Building Secretariat NEP National Employment Programme NISR National Institute of Statistics of Rwanda OAG Office of the Auditor General

ODA Official Development Assistance OPEV Operations Evaluation Department PBO Policy Based Operations

PCR Programme Completion Report

PEFA Public Expenditure and Financial Accountability

PER Public Expenditure Review PFM Public Financial Management PROBA Proximity Business Advisory PRSP Poverty Reduction Strategy Paper PSDS Private Sector Development Strategy PSDYE Private Sector Development and Youth Employment

PSF Private Sector Federation PSI Policy Support Instrument

PRSSP Poverty Reduction Strategy Support Programme

RDB Rwanda Development Board ROR Republic of Rwanda

RWFO Rwanda Field Office

SACCO Saving and Credit Cooperative SBS Sector Budget Support

SDTP Skills Development, Science and Technology Project (SDTP)

SEEP Skills, Employability and Entrepreneurship Programme

SSA Sub-Saharan Africa SSC Sector Skills Council SWG Sector Working Group TSS Technical Secondary School

TVET Technical and Vocational Education and Training

VTC Vocational Training Center

(5)

LOAN AND GRANT INFORMATION

BORROWER: Republic of Rwanda (RoR)

EXECUTING AGENCY: Ministry of Finance and Economic Planning (MINECOFIN)

Financing plan for fiscal year 2013/14 – 2015/16

Source Amount (UA, million) Instrument Remarks

Commitment

ADF 49.0 Loan SBS SEEP

World Bank 30.0 Loan/credit Skills development, entrepreneurship and private sector development; DFID 45.3 Grant Pooled funding to Access to Finance

and SBS for agriculture (mainstreaming private sector).

France 0.25 Grant Higher education

GIZ 11.5 Grant Skills development; Employment promotion; Private sector development

KfW 11.0 Grant TVET

Netherlands 70.0 Grant Private sector development (capacity development of cooperatives; local infrastructure including labour based public works)

USAID 33.9 Grant Youth workforce development, basic education, support to economic growth

Total 250.95

ADF key financing information

ADF Loan/Grant currency Unit of Account (UA)

Service Charge 0.75% per annum on amount disbursed

and outstanding

Commitment fee 0.50% per annum on amount disbursed and outstanding

Duration 40 years

Grace period 10 years

Timeframe - Main milestones

Programme approval May 2014

Loan Effectiveness May 2014

First Tranche Disbursement May 2014

Indicative Second Tranche Disbursement December 2014 Indicative Last Tranche Disbursement December 2015

(6)

PROGRAMME EXECUTIVE SUMMARY

Programme overview

The Skills, Employability and Entrepreneurship Programme II (SEEP II) is a 3 year Policy Based Operation. The programme cost is UA 49 million to be disbursed in three tranches over a three-year fiscal timeframe (2013/14 to 2015/16) based on disbursement triggers agreed with government and discussed with Development Partners. The SEEP II is a follow-up programme. In alignment with aid harmonization, the program was developed with government and in close consultation with key DPs including the World Bank, EC, Germany, DFID, Netherlands, Belgium, France, Sweden and the US. Specifically, SEEP II will address skills gaps, education relevance and promote job creation through innovative entrepreneurship.

Programme outcomes

The overarching goal of SEEP II is to support GoR policy reform effort to promote inclusive growth and poverty reduction. The expected outcomes are (i) enhanced employable skills and attitudes for labour market; and (ii) increased entrepreneurship and business development sustained. The expected outputs include: (i) Share of TVET enrolment as percentage of upper secondary stream will increase from 38% (2011) to 50% (2016); (ii) Proportion of employers who are satisfied with TVET graduates increased from 71.6% (2010) to 77% (2016); (iii) Proportion of TVET graduates employed after six months of graduation increased from 30% (2013) to 40% (2016); (iv) share of independent non-farm employment in total employment increased from 9.7% (2011) to 11.5% (2016) and number of MSMEs created annually as start-up increase from 9,000 (2012) to 13,500 (2016).

Needs assessment

Critical actions are needed to tackle limited skills and low labour productivity which prevail in all sectors of the economy, stifling private sector growth and competitiveness; and underemployment. A major factor contributing to youth underemployment is skills mismatch with an average skills deficit of 40% and limited job growth and expansion.

The skills and entrepreneurship sector has a gap of UA70.8 million. The Sector Budget Support will contribute to the implementation of reforms in skills and employability; and entrepreneurship and business development sectors to ensure that the notable achievements already made by GoR under SEEP are consolidated, sustained and scaled-up. Therefore, the challenge for the GoR is to sustain the reform agenda, translating policy action into tangible results and ensuring significant impact.

Bank’s added value

The Bank has considerable experience and expertise in PBO’s in Rwanda. The SEEP II has further gained from designing and implementing similar programs focusing on education and employability, fiscal consolidation, protection and promotion of basic services, and social inclusion including that for Ethiopia, Tunisia, Morocco, Malawi and Cote d’Ivoire. Through continuous policy dialogue, in particular through RWFO, the Bank informed GoR’s reform program and emphasised the need to deepen reforms in skills and entrepreneurship development. During EDPRS II (2013-2018) implementation, the Bank will continue the policy dialogue to help sustain the momentum of reforms on youth employment and productivity; and skills and entrepreneurship development. The Bank will also support implementation of the National Employment Programme (NEP) which operationalizes Pillar 3 of the EDPRS II. The programme will also have a catalysing role in improving domestic resource mobilization and leveraging additional resources to signal confidence in Rwanda, thereby contributing towards, inclusive growth and poverty reduction.

Institutional development and

knowledge building

SEEP II will also support better coordination and monitoring of employment promotion interventions at national and local level. Analytical knowledge building will also be promoted through the preparation of the Programme Completion Report (PCR) and through the Bank’s participation in joint analytical work. This will inform the Bank’s advisory services to Rwanda, and further lead to better design of other PBO’s going forward. The Bank, through RWFO, will play a significant role with GoR, DPs and other stakeholders by documenting the lessons learnt and disseminating this through a variety of channels to share learning on development practice.

(7)

RESULTS-BASED LOGICAL FRAMEWORK

Country and Programme Name: Rwanda- Skills, Employability and Entrepreneurship Programme II (SEEP II).

Purpose of the programme: To support policy reform addressing skills gap, education relevance and entrepreneurship development.

RESULTS CHAIN PERFORMANCE INDICATORS VERIFICATION MEANS OF RISKS/MITIGATION MEASURES Indicator Baseline Target (2016)

IM PA C T Inclusive growth and poverty reduction.

GDP per capita (current prices) USD 682 (2012) USD 1,053 (2018) IMF Economic Outlook % of population living below

poverty line

44.9% (2011) 30% (2018) NISR/EICV reports % of off-farm employment in total

employment 28.4% (2011): M 40.4%, F 18.5% 46% (2018): (M 50%, F 24%) .OU T C OM E S Outcome 1: Enhanced employable skills and attitudes for labour market.

Share of TVET enrolment as % of upper secondary stream1

Total 38% (2011): M 37.7%, F 38.3%)

Total 50%: (M 50%, F 50%)

MINEDUC, WDA 1. Risk: Regional political instability continues.

Mitigation measures: Enhanced international and regional cooperation and efforts to promote peace and regional stability with the framework of the ICGLR and the EAC. 2. Risk: A weak internal audit environment and high turn-over of qualified accountants in the public sector.

Mitigation measures:

Build capacity on financial management. In the short term, incentives in place for maintaining qualified accountants. In the long term, more accountants to be trained.

3. Risk:

Macroeconomic instability: reversal of the global economic recovery, external shocks).

Mitigating measures:

Implementation of IMF PSI programme and GoR’s commitment to sound fiscal and monetary policies, on-going efforts to diversify the economy, promotion of trade and increased DRM. Donor commitment to enhance aid predictability.

4. Risk:

Limited private sector development: Majority of companies are small, affecting the absorption capacity of skills. % of employers who are satisfied

with the TVET graduates

71.6% (2010) 77% MINEDUC, WDA % of TVET graduates employed

after six months of graduation (disaggregated by sex) 30% (2013) 40% MINEDUC, WDA Outcome 2: Increased entrepreneurship and business development sustained.

Share of independent off-farm employment in total employment

9.7% (2011): (M 11.6%, F 8%),

11.5%: (M 13%, F 11%)

NISR No. of MSMEs created annually as

start-up 9,000 (2012) 13,500 MINICOM, RDB OU T PU T S

Component 1: Skills and Employability

1.1 Increased private sector participation in building employable skills and attitude for jobs.

No. of TVET curricula designed in collaboration with private sector

39 (2013) 79 MINEDUC, WDA

No. of sector skills councils established (and operationalized)

9 (0) (2013) 12 (12) NCBS Legal Framework, procedure

guidelines and action plan for SSCs developed. (trigger)

0 1 NCBS

Strategy to promote private sector provision of professional internship and industrial attachment approved by NCBS National Steering Committee

0 (2013) 1 NCBS, WDA

Assessment on Professional Internship Programme completed and validated by RDB Senior Management (prior action)

0 1 NCBS

No. of private sector enterprises hosting TVET trainees (companies and cooperatives)

5,636 (2013) 8,000 WDA

1.2 Increased availability of vocational skills

No. of TVET graduates (including TSS, VTC, IPRC) (% of female) 26,826 (2012) (44.5% female) 45,0002 (50% female) WDA National Apprenticeship Policy

developed and approved by Cabinet. (trigger)

0 (2013) 1 MINICOM

No. of unskilled and semi-skilled people trained, certified, and getting toolkits (disaggregated by sex)

6,100 trained (2013), 2,100 getting toolkits 15,000 trained (70% certified), 7,500 getting toolkits WDA, MIFOTRA, MINICOM

No. of TVET trainees enrolled in industrial attachment programs (disaggregated by sex)

36,919 (2013) 45,000 WDA

TVET Policy and Strategy approved by Cabinet. (trigger)

0 1 MINEDUC/WDA

Law establishing WDA revised and enacted by Parliament (trigger)

0 1 MINEDUC/WDA

Component 2: Entrepreneurship and Business Development

2.1 Enhanced MSMEs

competitiveness

Certification Programme for BDAs established and implemented

(trigger)

0 1 RDB

No. of business advisors trained and certified at level 1 and 2

0 (2013) 1,082 RDB

1 TVET includes VTC, TSS, and IPRC. The indicator = TVET enrolment / (TVET enrolment + upper-general secondary enrolment).

(8)

(disaggregated by sex) Mitigation measures: Dialogue between Government and Private sector to address bottlenecks affecting private sector growth. No. of BDAs attached to sectors

(umurenge)

416 (2013) 832 MINICOM

Assessment on the impact of local tax fixing and administration on MSMEs.

0 1 MINICOM

No. of ICPCs (Integrated Craft Production Centers) and CPCs (Community Processing Centers) equipped and operationalized

2 ICPCs, 1 CPCs (2013) 12 ICPCs, 10 CPCs MIFOTRA (for ICPCs), MINICOM (for CPCs) 2.2 Improved access to financial services for MSMEs

No. of start-up MSMEs for youth and women accessed to finance.

2,878 (2013) 30,000 MINICOM, BDF, RCA

Study report on women skills gap and existing opportunities in all districts completed and validated by the Permanent Secretary (MIGEPROF)

0 1 MIGEPROF

Guidelines on provision of seed start-up capital for youth and women developed.

0 (2013) 1 MINICOM

Component 3: Enhanced coordination

Improved policy and coordination mechanisms of job creation

interventions

A consolidated National Employment Programme validated by NEP National Steering Committee. (prior action)

0 (2013) 1 MIFOTRA

Productivity and Youth Employment (PYE) thematic steering committee established and functional. (prior action)

0 1 MINECOFIN

No. of Business Development and Employment (BDE) Units established and functional at district level.

0 12 MINICOM

Gender sensitive electronic M&E system developed. (trigger)

0 1 MIFOTRA

Coordination framework of business development programs at district level developed and approved by the Integrated Development Program Steering Committee (prior action)

0 1 MINICOM

A Working Technical Secretariat for the NEP established and functional. (trigger)

0 1 MIFOTRA

A consolidated database of potential youth and women entrepreneurs developed 0 1 MYICT KEY A C T IV IT IE S Components:

Component 1: Skills and Employability

Component 2: Entrepreneurship and Business Development Component 3: Enhanced coordination

Inputs- Funding in million UA

(9)
(10)

REPORT AND RECOMMENDATIONS OF MANAGEMENT TO THE BOARD OF DIRECTORS ON A PROPOSED LOAN FOR THE RWANDA SKILLS, EMPLOYABILITY AND ENTREPRENEURSHIP PROGRAMME II (SEEP II)

I. THE PROPOSAL

1.1 Management submits the following proposal and recommendation for a loan of UA49

million to the Republic of Rwanda to finance the Skills, Employability and Entrepreneurship

Programme II (SEEP II). This is the Bank’s fourth3 Sector Budget Support (SBS) programme in

Rwanda and is a continuation of SEEP I. SEEP II is a three year (2013/14 to 2015/16) operation, with three disbursement tranches. The programme was appraised after discussions with the Government of Rwanda (GoR), Development Partners (DPs), private sector and other stakeholders including civil society organisations (CSOs).

1.2 The programme is aligned with Rwanda’s “Vision 2020” and the Economic Development

and Poverty Reduction Strategy (EDPRS) II (2013-18), in particular pillar 3 “productivity and

youth employment”. The pillar emphasizes on appropriate skills and productive employment. The

programme also aligns to the National Employment Programme (NEP) which aims at: (i) creating sufficient jobs that are adequately remunerative and sustainable across the economy; (ii) equipping the workforce with vital skills and attitude for increased productivity for private sector growth; and (iii) providing a national framework for coordinating all employment related initiatives and activities in the public/private sector and civil society.

1.3 The SEEP II is anchored in the Bank’s Country Strategy Paper (CSP, 2012-16) for

Rwanda. The programme is consistent with pillar 2 of the CSP, which focuses on skills and innovative

entrepreneurial development. It conforms to the Bank’s Strategy for 2013-2022, objective of achieving growth that is more inclusive corresponding to poverty reduction and job creation. The SEEP II aligns to the core operational priorities of skills and technology; and private sector development. It also aligns with the upcoming Human Capital Strategy under pillar of skills and technology for competitiveness and jobs; and the Gender Strategy (2014-18) on the pillar of women’s economic empowerment. Furthermore, the SEEP II aligns to the Private Sector Development Strategy (2012-17), and Eastern Africa Regional Integration Strategy Paper (2011-15) which emphasizes capacity building through Higher Education, Science and Technology (HEST) that also includes Technical and Vocational Education and Training (TVET).

1.4 Prudent policies have played a key role in Rwanda’s continued success. The SEEP I has

achieved significant results including (i) increased private sector participation in TVET reforms, (ii) improved access to business advisory services and (iii) enhanced entrepreneurship skills through incubators. The significant results achieved under SEEP I are summarised in Technical Annex I. However, the challenge for the GoR is to sustain the reform agenda, translating policy action into tangible results and ensuring significant impact. The programme which is articulated within the Letter of Development Policy (appendix 1) will provide the needed resources to further deepen reforms, consolidate the achievements in SEEP I; and scale-up expenditures on skills and entrepreneurship development. The SEEP II operational policy objectives include (i) enhanced employable skills and attitudes for labour market and (ii) increased entrepreneurship and business development sustained.

(11)

II. COUNTRY AND PROGRAMME CONTEXT

2.1 Government’s overall development strategy and medium-term reforms priorities

2.1.1 The country’s overarching development goal is to transition from a subsistence based

economy to a private sector-led economy by 2020. This development goal is articulated in Vision

2020 which presents the framework for achieving Rwanda’s aspirations4; thus ensuring that growth benefits the majority while fostering unity and reconciliation. Medium term development strategies are the primary vehicle for implementing Vision 2020. The Poverty Reduction Strategy Paper (PRSP) (2002–05) contributed to restoring peace and provision of basic services. The EDPRS-1 (2008– 2012/13) prioritised poverty reduction and inclusive growth.

2.1.2 Medium-term priority reforms: EDPRS II (2013–18) aims to consolidate gains in

economic growth, poverty reduction and reduced income inequality. It focuses on four thematic

areas: (i) Economic Transformation, (ii) Rural Development, (iii) Productivity and Youth Employment, and (iv) Accountable Governance. Achieving the EDPRS II objectives is contingent on sustained investments in education, health, social protection, public financial management and private sector development.

2.2 Recent socioeconomic developments, perspectives, constraints and challenges

Economic context

2.2.1 Rwanda has sustained strong economic progress, in spite of external shocks. Real GDP

growth during the first three quarters of 2013 averaged 5.3% compared to 7.7% during the same period in 2012 yielding an estimated 6.6% GDP growth in 2013 down from 8.0% in 2012. This slow-down is due to the effects of aid suspension experienced in 2012 which amounted to 3% of GDP. The Government’s response to the aid cut-backs included suspending some public spending and borrowing from the domestic financial markets which contributed to a reduction in investment and also slowed growth in private sector credit. The 2013 GDP growth was mainly led by industry sector, while services sector was slowed down due to the weak private sector credit growth and agriculture sector just grew moderately due to adverse weather conditions.

Table 1: Rwanda - Key Macroeconomic Indicators (% of GDP, unless otherwise indicated) 2011 2012 2013 (e) 2014 (p) 2015 (p)

Real GDP growth (%) 8.6 8.0 6.6 7.5 7.5

Headline inflation (%, period average) 5.7 6.3 4.2 6.3 5.8

Current account, incl. official transfers gggggGDPGDP)GDPGDPGDP)GGDPGDP)

-7.3 -11.4 -10.3 -10.9 -10.3

External debt (end period) 18.0 17.1 20.8 21.4 23.1

Gross international reserves (months of imports) 5.1 3.7 3.8 4.0 4.0 Fiscal balance, including grants (fiscal year)* -3.4 -1.2 -5.0 -4.9 -4.3 Fiscal balance, excluding grants (fiscal year) -14.2 -12.4 -12.9 -13.7 -12.1

Note: * On fiscal year basis 2010 represents year 2009/10.

Source: IMF Country Report 13/372; National Bank of Rwanda Monetary Policy and Financial Stability Statement February 2014.

2.2.2 Prudent macroeconomic management has contributed to the county’s resilience to

external shocks. The three-year IMF Policy Support Instrument (PSI) programme approved in 2010,

underpins the country’s macroeconomic management.

4 The vision has six pillars: (i) good governance and a capable state; (ii) human resource development and a knowledge-based economy;

(iii) a private sector–led economy; (iv) infrastructure development; (v) productive and market-oriented agriculture; and (vi) regional and international economic integration. It also emphasises the need for progress on four cross-cutting issues: (i) gender equality; (ii) natural resources; (iii) the environment; and (iv) Science, Technology, and Information and Communication Technology (ICT).

(12)

The PSI is designed to support the implementation of the EDPRS II while ensuring macroeconomic stability. The final review under the PSI was successfully completed in December 2013 and a successor 3-year PSI was approved (appendix 2).

2.2.3 The monetary policy stance has remained focused on price stability and expansion in

private sector credit. The central bank’s key policy rate was reduced from 7.5% in June 2012 to 7.0%

in June 2013 on the back of receding inflationary pressures. Headline inflation decreased from 5.7% year-over-year in January 2013 to 3.7% in December 2013 as a result of robust macroeconomic management and reduction in food prices. Average headline inflation is projected to remain within the medium term range of 5% on account of an expected increase in food production and stable oil prices in 2014.

2.2.4 The government fiscal policy stance aims to prioritize public spending, reduce domestic financing and increase public revenue in line with its Fiscal Consolidation Strategy (FCS).

Revisions to the public expenditure plan were made to accommodate this financing shortfall. However, several of the suspended public investments in transport, energy, and agriculture were implemented with the resumption in aid disbursements in March 2013. As a result, the share of capital spending in GDP increased from 11.8% in 2011/12 to 13.4% in 2012/13 while GDP share of recurrent spending decreased from 15% to 13.6% during the same period. The fiscal deficit, including grants, increased from 1.2% of GDP in 2010/11 to 5.0% in 2012/13 but was less than the programmed 6.1% as a result of good performance in domestic revenues. Public revenues (tax and non-tax) increased from 15.1% of GDP in 2011/12 to 16% in 2012/13 with tax revenues increasing from 13.6% to 14.2% during this period.

2.2.5 Strong export growth has contributed to a narrowing of the trade and current account

deficits, albeit marginally. Export earnings increased by 18.7% to USD 573 million in 2013 compared

to USD 482.7 in 2012 due to increased production of coffee and tea and favourable prices for minerals in particular coltan and cassiterite. Imports increased by 2% to USD 2.2 billion during the same period resulting in a trade deficit of 17.9% of GDP in 2013 compared to 19.4% in 2012. Improvements in (i) trade balance, (ii) the resumption of budget support disbursements, and (iii) an increase in transfers to private sector including remittances contributed to reduction in current account deficit. However, rising imports5 and narrow export base remains key driver of external vulnerability.

2.2.6 The overall Balance of Payments (BoP) position improved from a deficit of USD 205.5

million (2.9% of GDP) in 2012 to a surplus of USD 223.4 million (1.2% of GDP) in 2013. Tourism

remains the leading foreign exchange earner for the country, with receipts increasing to USD 293.6 million in 2013 up from USD 281.8 million in 2012. Remittances have also increased from USD 175.3 million in 2012 to an estimated USD 184.9 million in 2013. The BoP surplus resulted in an increase in the gross official reserves by 10.9% to USD 935.5 million at end-2013 compared to end-2012, consequently increasing the import cover from 3.7 months of goods and services imports in 2012 to 3.8 months in 2013.

2.2.7 Rwanda’s risk of debt distress has been downgraded from moderate to low.6 Public debt as

a share of GDP increased from 25.5% in 2012 to an estimated 28.7% in 2013 in part due to the issuance of the country’s first sovereign bond in April 2013. The 10-year USD 400 million Eurobond with a yield of 6.875% was nine times oversubscribed.

5 Primarily of food, construction materials, industrial products and fuel.

(13)

The proceeds will be used to repay more expensive private sector debt and to finance the government’s strategic investments including the 28MW Nyabarongo hydro power project and completion of the Kigali Convention Centre. However, the robustness of Rwanda’s debt profile is contingent upon the sustained implementation of the country’s prudent debt management strategy.

Social context

2.2.8 Rwanda has made remarkable progress in reducing poverty and inequality. Income

poverty decreased to 45% in 2010/11 from 57% in 2005/06 (Figure 1) and is projected to reduce to 30.2% by 2015. However, poverty remains high in rural areas (49%) than in urban areas (22%). Up to 72% of employment is in agriculture; and 62% of waged farm workers are in poverty compared to 22% of waged off-farm workers. Poverty reduction has been driven by a combination of improved agriculture income, off-farm job creation, reduction in household sizes and public and private transfers. Inequality decreased with the Gini coefficient falling from 0.52 in 2005/06 to 0.49 in 2010/2011. Rwanda is also on track to meet 5 MDGs (1, 2, 4, 6 and 8) and likely to meet the other 3 (3, 5 and 7) by 2015 (annex II).

2.2.9 Despite the significant progress, challenges remain particularly in maternal health,

nutrition, quality of education and access to clean water. Maternal mortality ratio remains high at

487 deaths per 100,000 live births. About 26% of the population lack access to improved drinking water. Rwanda ranks 167 out of 187 countries on HDI.7 The government is committed to poverty reduction with focus on access to land, skills, infrastructure and connectivity.

2.2.10 Vision 2020 and EDPRS II indicate the GOR’s strong commitment to promoting gender

equality and women economic empowerment. The 2010 Gender Policy reaffirms commitment to

women’s economic empowerment especially rural women. Women constitute about 52% of the population. Affirmative actions include: (i) the Law on Matrimonial Regimes, Donations, Succession and Liberalities (1999), which gives women the same rights of succession as men; (ii) the 2003 Constitution that reserves at least 30% of posts in the public sector for women; (iii) the Organic Land Law (2005) which ensures equal access to land for men and women; (iv) the Girls Education Policy (2008), which ensures access and retention; and (v) the 2009 Labour Law. Rwanda has been lauded for the significant women political representation in Parliament, which increased from 17% in 1994 to 63.8% in 2013. Rwanda has also been implementing gender responsive budgeting since 2008 and operating Gender Monitoring Office, further promoting gender equality.

2.2.11 About 81.5% women are in the agricultural sector,

compared to 59.6% of men (figure 2). Women accounted for

33.9% of the estimated 525,000 off-farm jobs created (2006-11). This is partly explained by job creation in construction (17.2% annual growth; compared to 2.9% for the whole economy) which may entail high physical demands.

7 According to United Nations Human Development Index (2012),

58,9% 56,7% 44,9% 30,2% 40,0% 35,8% 24,1% 17,0% 10% 20% 30% 40% 50% 60% 70% 2000/01 2005/06 2010/11 Target 2015 Poverty rate (%) Extreme poverty (%)

Figure 1: Significant Gains in Poverty Reduction, 2001-2011 and Target 2015

Source: NISR (2013a)

71.1% 59.6% 86.3% 81.5% 28.9% 40.4% 13.7% 18.5% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Male, 2005/06 Male, 2010/11 Female, 2005/06 Female, 2010/11 Off-Farm jobs Farm jobs

Source: Author's computations based on NISR (2013b)

Figure 2: Women remain less-represented in off-farm jobs; however, some improvements are evidenced

(14)

Governance and political developments

2.2.12 Rwanda continues to make significant progress in governance and anticorruption. The

World Governance Indicators (WGI) has shown a positive trend, with significant progress in rule of law, regulatory quality and anticorruption. However, in 2011-12 the governance effectiveness and political stability indicators dropped from the 92 to 100 and 126 to 129, respectively. Rwanda is among top-5 most improved African countries and is one of two countries that have registered consistent overall governance improvements since 2000 8. Progress in anticorruption is reflected in the Corruption Perception Index (CPI), with one place up to 49th (among 177 countries) in 2013. Under the zero tolerance policy on corruption, Rwanda has now ranked 4th least corrupt country in sub-Saharan Africa (SSA).

2.2.13 Rwanda has made considerable progress in streamlining the business enabling

environment and improved its Doing Business ranking from 52nd in 2012 to 32nd in 2013.

Although retaining its third place in SSA, the Competitiveness Index of the World Economic Forum downgraded Rwanda from 63 (2012) to 66 (2013), recognizing its insufficient infrastructure, low secondary and university enrolment rates. Service delivery in public and private sectors remains a concern. The Rwanda Governance Board’s assessments9 highlighted inadequate problem solving skills and poor customer service care as main challenges for improved service delivery especially at the local Government level.

2.2.14 Rwanda has recorded significant achievements in political stability and rule of law. The

2011 local government and senatorial elections and the 2013 parliamentary elections were declared free and fair. Rwanda was elected to the United Nations (UN) Security Council in 2012 to represent Eastern and Southern Africa for the period 2013-14. Rwanda has also taken measures to further improve political rights, civil liberties, voice and accountability.10

2.2.15 The instability in eastern Democratic Republic of Congo (DRC) has subsided following

proactive efforts to seek lasting peace and security. Rwanda has fully participated in measures to

identify lasting solutions to insecurity in DRC and the broader Great Lakes Region (GLR). The signature of a peace agreement between the DRC and the M23 rebels in December 2013 and other peace initiatives under the framework of the African Union Commission and the International Conference on the Great Lakes Region (ICGLR) provide key foundations for peace and security in the region.

Prospects, constraints and challenges

2.2.16 Medium-term prospects:11 The medium-term outlook indicates prudent growth, reflecting

soft landing in aid flows. With the recovery of aid inflows and warranted by continued

macroeconomic stability, growth is expected to be driven by recovery of construction and services sectors in line with foreseen high public spending and increasing credit to the private sector. Real GDP growth is projected to increase to 7.5% in 2014-2016. However it will be influenced by (i) increased capital spending to finance government’s strategic investments; and (ii) reduced government borrowing from the domestic financial sector and stability in donor aid flows is also expected to support growth in private sector credit.

8

The 2013 Ibrahim Index of African Governance (IIAG).

9

These assessments include the Citizens Report Cards, Citizens Voice on Service Delivery, Assessment of Service Delivery in the Private sector and the Score Card of Service delivery in Public Sector.

10

Three media legislation were ratified to improve regulation, promote transparency, and encourage citizen economic and political participation.

(15)

The high dependence on donor aid and a weak global economic recovery present the major downside risks. It is estimated that fiscal deficit (excluding grants) will increase from 12.9% in 2012/13 to 14% in 2013/14 and reduce to 9% by 2015/16, fostered by continued fiscal consolidation through accelerated domestic resource mobilization and expenditure prioritization. External debt to GDP is projected to drop from 21% in 2013 to 19.5% by 2015/16, with increased recourse to concessional borrowing. With an improved risk rating, Rwanda faces better fund raising prospects on international financial market. Rwanda will need to keep the momentum for strong policies that preserve fiscal sustainability, enhance growth through structural reforms and accelerate inclusive growth.

Constraints and challenges

2.2.17 The Vision 2020 aims to have 50% workforce in off-farm jobs by 2020, up from 28.4% in

2011. The GoR is committed to develop relevant skills, particularly for youth and women, to ensure

existing workforce and new entrants increase labor productivity and foster economic growth. As part of measures to create 200,000 off-farm jobs per year for unemployed and improve labor productivity, the GoR has been implementing about 25 job creation initiatives covering training, mentoring, equipping and financing. However, these initiatives have not been properly coordinated to monitor impact effectively.

2.2.18 Rwanda has made notable progress in skills development and job creation for youth but

key challenges remain. In the last decade, 139,000 new

jobs were created annually, which contributed to maintaining the unemployment rate under 2%. However, critical challenges of skills gap and mismatch as well as low labor productivity persists. In 2012, a survey on 8 key priority sectors revealed an average skills gap at 40%, while 89% from artisans and technicians (figure 3). In 2011, about 28.5% of modern firms identified inadequate skilled workforce as major constraint, compared to an average of 14.7% in the East Africa Community (EAC). Between 2010-13, TVET enrolment rate increased by 50%, showing trend to produce the employable skills for the economy. The main challenge is increasing labour productivity, creating decent jobs and reducing underemployment, which is about 58% (63% for youth).

2.2.19 Private sector growth is constrained by low skills, low labour productivity and limited

access to finance. Firms reporting inadequate skills as a major constraint have doubled since 2006. The

majority of new off-farm jobs are in MSMEs in the informal sector and they form about 92.3% of all enterprises. Access to finance by MSMEs is low: only 25% of MSMEs have ever accessed bank loans.12 Although reforms have been undertaken to improve financial accessibility under special programmes and initiatives, the sustainability of these financial arrangements needs further review.

2.2.20 Sector and development programme. The GoR has put in place sector policies and

strategies relevant to SEEP II. The Education Sector Strategic Plan (ESSP, 2013-18) is aligned to

EDPRS II. The ESSP aims to increase the coverage and quality of twelve-year basic education (12YBE). It also prioritizes skills development to strengthen the relevance of education, with a focus on core literacy and numeracy skills in basic education while strengthening TVET and higher education provision.

12AfDB, 2013, Rwanda – Leveraging Capital markets for the Financing of Small and Medium Enterprises.

96% 46% 83% 51% 97% 38% 96% 93% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Skills gap as % of total employment % of Artisans and Technicians in total skills gap

Source: Based on "RDB, 2012, Rwanda Skills Survey 2012", various reports.

Figure 3: The Skill Gap is Sizeable for Artisans and Technicians - A magnitude equivalent to 87% of the Private Sector employment in 2012

(16)

Also, a Private Sector Development Strategy (PSDS, 2013-18) has been developed to “unleash” the country’s nascent private sector to champion broad-based and inclusive growth. The PSDS will enhance creation of an entrepreneurial, innovative and competitive private sector that is characterized by adequate and well remunerated jobs. The Private Sector Development and Youth Employment (PSDYE) Sector Working Group (SWG) provides the framework for coordination, monitoring and reporting on employment promotion interventions. In order to ensure a holistic approach to skills development and employment creation, a National Employment Programme (NEP, 2014-18) has been developed. The NEP aims to guide the creation of 200,000 off-farm jobs annually; equip the workforce with required skills for private sector development; and consolidate and coordinate all employment interventions in both public and private sectors.

2.3 Bank Group portfolio status

2.3.1 The Bank’s portfolio comprised 23 operations as of January 2014 (see Annex III). There

are 19 sovereign loans and grants and 4 private sector operations amounting to a total commitment of UA 334.74 million. The Bank’s portfolio shows that infrastructure (energy, transport and water) accounts for 62.4% of the total commitments, followed by agriculture (14%), private sector (11%), multi-sector (8.6%) and human development (4%). The Joint Rwanda CSP & CPPR Mid Term Review (2014) demonstrated improvement in portfolio performance from overall rating of 2.43 (2012) to 2.53 (2013). There have also been remarkable improvements in the disbursement rate, from 32% (2012) to 45.9% (2013). There were no problematic or potentially problematic projects. The active sovereign portfolio has an average age of 3.5 years with no ageing projects.

III. RATIONALE, KEY DESIGN ELEMENTS AND SUSTAINABILITY

3.1 Link with the CSP, country readiness assessment and analytical work underpinnings

3.1.1 Link with CSP: The SEEP II is anchored in the Bank’s CSP for Rwanda, specifically pillar 2. The overarching objective of the CSP is to promote economic competitiveness for inclusive growth and poverty reduction through two strategic and complementary pillars: (i) Infrastructure Development and (ii) Enterprise and Institutional Development. The SEEP II aligns with the second pillar which emphasizes skills and innovative entrepreneurship development. As mentioned in Section 2.1 (para 2.1.2), SEEP-II is aligned with the EDPRS II thematic area of productivity and youth employment which emphasizes the development of relevant skills and productive employment. It also aligns with (i) the Bank Strategy for 2013-2022, (ii) upcoming Human Capital Strategy, (iii) Gender Strategy and (iv) Private Sector Development Strategy (see paragraph 1.3).

3.1.2 Country readiness assessment—full compliance with Bank Group safeguards policy.

Rwanda fulfils all prerequisite conditions for a Programme Based Operation (PBO) as outlined in table 2.13 Rwanda enjoys overall political and economic stability. The GoR’s commitment to poverty reduction is strong, with a well-designed EDPRS II being implemented within a viable macroeconomic and financial framework. There is a strong partnership and policy dialogue between the GoR and DPs, and an effective aid coordination mechanism is in place. The seventh review under the PSI was successfully completed in December 2013 and confirmed that the macroeconomic framework is stable.

13

(17)

Table 2: Prerequisites for Sector Budget Support

3.1.3 Analytical work underpinnings.14The design of SEEP II has been informed by key findings

from several diagnostic studies and reports carried out by the Bank, GoR and other DPs. These include the CSP 2012-16; the SEEP I PCR; AfDB Gender and Youth Employment study, AfDB’s draft analysis of Rwanda’s Education System; the AfDB studies on Rwanda energy and transport sector review and action plan; the AfDB/GoR study on Leveraging Capital Markets for SME Financing in Rwanda; the 2010 PEFA;15 the 2008 and 2012 FRA; the 2013 Doing Business report; the 2013 Rwanda Business and Investment Climate Survey; The 2013 Finscope study; IMF country reports; EICV 3 reports; EDPRS II; the RDB 2012 Skills survey reports. Key recommendations include: (i) sustain improvements in the expansion of the education system while paying attention to quality and the relevance of training for the labour market; (ii) harness the capabilities of youth and women and create employment opportunities, while addressing the issue of low labour productivity that the country faces; and (iii) improve the coordination of various business and entrepreneurship programmes implemented by various ministries and agencies, for a better impact on productive job creation for out-of-schools, school leavers and the unemployed. These recommendations have informed the programme components.

14 See comprehensive list in Technical Annex IV.

15 See Technical Annex V.

Prerequisites Comments on the current situation

Government commitment to poverty reduction

The GoR’s commitment to poverty reduction is strong. This is reflected in Rwanda’s long term strategy – the Vision 2020; the EDPRS medium-term framework, used for achieving the country’s long-term development goals; and the budget priorities (paragraph 2.2.1). During the EDPRS 1 implementation there has been a significant poverty reduction of 12 percentage points between 2005/06 and 2010/11. EDPRS II has a strong strategic thrust on rural development and productivity and youth employment.

Macro-economic stability

Macro stability is ensured and the medium-term macroeconomic financial framework is viable. Economic management has improved significantly and is continually being strengthened, allowing for implementation of adequate macroeconomic policy. Macroeconomic management is anchored in the three-year IMF PSI-supported programme which was approved on 2 December 2013.

Satisfactory fiduciary risk assessment

Several fiduciary risk assessments done in the last eight years point to a relatively strong and improving Public Financial Management (PFM) system. Overall, the fiduciary risk remains moderate due to challenges in financial reporting and internal auditing in the PFM system. Budget transparency is ensured with a budget classification in conformity with international standards, and an adequate level of information in the budget and the budget execution reports regularly published on MINECOFIN’s website.

Political stability

The 2011 political stability indicator of the WGI for Rwanda scored –0.05 (–2.5 is the worst and 2.5 the best), and Rwanda’s percentile ranking of 45.8 compared to a regional average of 34.2. This indicator has also evolved positively over the last decade. The 2012/13 Global Competitiveness Report ranked Rwanda 6th out of 144 countries in terms of public trust in politicians. Presidential elections were organised in 2010 in a calm atmosphere and with a high turnout. Local elections and indirect Senate elections were held in February and September 2011 respectively, while Parliamentary elections were held in 2013. All elections were peaceful and orderly.

Harmonization

There is strong partnership between the GoR and DPs, Various levels of dialogue forums exist including the Development Partners Coordination Group (DPCG) and SWGs. The government developed a new division of labour (DoL) to enhance coordination. SEEP will benefit from various aid coordination mechanisms, including the SWG meetings.

(18)

3.2 Collaboration and coordination with other donors

3.2.1 The aid architecture was revised in 2013 to ensure alignment to EDPRS II priorities. The

revised Aid Architecture reinforces the DPCG as the core forum for dialogue on aid coordination, harmonization and alignment but also in monitoring the implementation of EDPRS II. A major change to the Aid Architecture is the shift from general budget support to sector budget support. In spite of the changes, the revised Aid Architecture provides adequate scope for dialogue between the government and DPs. Another key change is the revision of the 2010 DP DoL to ensure alignment with the EDPRS II priorities. Similar to the 2010 DoL, the new DoL (2013) (see Annex VI) limits DP participation to three core sectors based on a particular DP’s track record in a sector, mandate, and expertise. The AfDB has retained two of its core sectors under the new DoL (energy and transport) and “private sector development and youth employment” is new. The Bank co-chairs the transport and PSDYE-SWG.

3.2.2 The Bank is among the leading development partners in Rwanda. Official Development

Assistance (ODA) increased to US$ 1.17 billion in 2011/1216 from US$ 938 million in 2010/11, and was provided by 16 DPs. The share of ODA provided through budget support increased from 29% to 33% during this period, indicating a corresponding increase in the use of country systems. The share of total ODA provided by multilateral donors increased from 44% to 52% during this period.17 The seven major development partners, including AfDB, accounted for 85% of total ODA in 2011/12.

3.2.3 Key stakeholders consulted. The SEEP-II was jointly designed with the GoR in close

consultations with major DPs, including the World Bank, EC, France, Germany, Netherlands, Sweden, DFID and the United States; and other stakeholders, including the private sector and civil society. The consultations confirmed that the SEEP-II is critical and in line with the country’s objective of creating productive employment. Several DPs programmes (World Bank, GIZ, KfW, DfID, USAID, AFD, Netherland and Sweden) indicated focus on/or skills development, job creation, enterprise development and access to finance.

3.3 Outcomes of past and on-going similar operations and lessons

3.3.1 The Previous PRSSPs I–IV achieved significant results and key lessons learned were

integrated into the design of the SEEP. The four Poverty Reduction Strategy Support Programme

(PRSSPs) funded by the Bank contributed to strengthening PFM; improving the business environment, including the financial sector; and enhancing institutional capacity. They also informed the design of SEEP I which laid foundation for reforms in skills and enterprise development, improving private sector participation in skills development and enhancing productivity of SMEs. Key achievements of SEEP I include: (i) increased private engagement in skills development, (ii) increased access to business advisory services and (iii) increased TVET enrolment. Although considerable progress has been made, reforms need to be pursued. Lessons learned from SEEP I have informed the design of the SEEP II. These include consideration on programme duration in relation to measuring impact, enhanced role of private sector in skills development and improving gender monitoring in the programme (lessons learned - Technical Annex I).

16

The 2012/13 ODA report has not yet been finalized.

17

These ODA figures only include development cooperation and exclude humanitarian assistance provided by UN agencies such as UNHCR, and WFP. Only 16 development partners that participated in the Donor Performance Assessment Framework assessment in 2010/11 and 2011/12 are covered and these include (listed here from largest to least contributor to ODA): World Bank, US, Global Fund, UK, African Development Bank, European Commission, One-UN (9 UN agencies), Belgium, Netherlands, Germany, Japan, Sweden, Canada, South Korea, Luxemburg, and Switzerland.

(19)

3.4 Relationship with on-going Bank operations

3.4.1 SEEP II integrates and compliments other on-going Bank operations. These include the

line of credit to Bank of Kigali and the Rwanda Development Bank for lending to private sector in the tourism, manufacturing, telecommunications, microfinance and agribusiness sectors. The other projects include the Competitiveness and Enterprise Development Project II (CEDP-II), and the Fund for African Private Sector Assistance (FAPA) to the Energy Sector. The programmes are strengthening public and private sectors’ technical capacity in financial sector, enterprise development, policy design and implementation. Given its policy focus, SEEP II is complementary to the Support to Skills Development, Science and Technology Project (SDSTP), the Regional ICT Center of Excellence Project, the Bank’s operations in financial and energy sectors,18 as well as the infrastructure projects that are addressing key bottlenecks to growth. Finally, the Bank is providing capacity-building support to Rwanda’s National Institute of Statistics (NISR) to strengthen the country’s monitoring and evaluation capacity.

3.5 Bank’s value added and comparative advantages

3.5.1 The Bank’s value added: The Bank has considerable experience and expertise in PBOs in

Rwanda. It has also gained experience from designing and implementing similar programs focusing on education and employability, fiscal consolidation, protection and promotion of basic services, and social inclusion including that for Ethiopia, Senegal, Zambia, Tunisia, Morocco, Malawi and Cote d’Ivoire. Through continuous policy dialogue, in particular through RWFO, the Bank informed GoR’s reform program and the need to deepen reforms targeting improved skills, employability and entrepreneurship development. Through SEEP II, the Bank will engage in policy dialogue and contribute to the implementation of the Paris Declaration, the Accra Agenda for Action and the Bussan Partnership by increasing the level of aid on budget, using of national systems, avoiding parallel PIUs, and enhancing aid predictability.

3.5.2 The Bank’s comparative advantages: The Bank’s main comparative advantage is through its

role in facilitating dialogue and analytical work under the Youth Employment Initiative for Africa. The Bank makes important contribution through participation in DPCG. The 2010 OPEV evaluation on Budget Support noted that the Bank benefitted from participating in aid coordination, particularly budget support. The Bank through RWFO has continued to participate and contribute actively as co-chair of the new PSDYE-SWG established in 2013 and policy dialogue both with GoR and DPs. This has enabled the Bank to provide technical advice on GoR priorities, facilitate dialogue between GoR and DPs, and support aid coordination mechanisms.

3.6 Application of good practice principles on conditionality

3.6.1 Good practice principles on conditionality have been applied (annex VII). SEEP II is fully

aligned to the EDPRS II (paragraph 1.2) and its prior actions are harmonised with government policy action (appendix 4), focusing on critical action relevant and achievable within the programme’s timeframe.

3.7 Application of Bank Group non-concessional borrowing policy

3.7.1 Rwanda is classified as an ADF country, eligible for only ADF financing. The country is also a

beneficiary of the Heavily Indebted Poor Country (HIPC)/Multilateral Debt Relief Initiative (MDRI).

(20)

Consequently, and in line with its Medium Term Debt Strategy, the public sector has restricted its funding request from Rwanda to only the ADF window in recent years. The design of the programme has taken into account the Bank Group’s non-concessional borrowing policy adopted in 2008 and the 2010 amendments to the Bank Group Policy on Non-Concessional Debt Accumulation.

IV. THE PROPOSED PROGRAMME

4.1 Programme’s goal and purpose

4.1.1 The overarching goal of the programme is to support Rwanda’s efforts to promote

inclusive growth and poverty reduction. The purpose of the programme is to consolidate and sustain

achievements and momentum to reforms in (i) skills development and employability; and (ii) entrepreneurship and business development. Specifically, the operation is designed as a Sector Budget Support (SBS) to reinforce policy measures aimed at addressing employable skills gaps, education relevance to the labour market and innovative entrepreneurship.

4.2 Programme’s components, operational policy objectives and expected results

4.2.1 To achieve the above-mentioned objectives, the programme prioritises three components.

These are: (i) Skills Development and Employability; (ii) Entrepreneurship and Business Development; and (iii) Enhanced Coordination. The three components are complementary and will reinforce reforms and initiatives in promoting productive and sustainable jobs.

Component 1: Skills development and employability

4.2.2 Context: Rwanda recognises that a skilled workforce is critical to the transformation of

the economy. The GoR’s agenda of moving from low productivity-based agriculture to a more

industrial and diversified economy requires developing a workforce with relevant skills. Rwanda is implementing a 12 year basic education policy in order to build a pipeline of skilled labour to support innovation, enhance economic growth and accelerate poverty reduction. The government has placed emphasis on TVET and higher education. To ensure the relevance of training for jobs, the government is implementing a multi-pronged strategy including (i) promotion of entrepreneurial culture in secondary school; (ii) promotion of TVET by increasing its share within upper secondary education; (iii) diversification of higher education with incentives for priority programmes; and (iv) promotion of a demand driven approach with an increased private sector participation in education reforms and work experience

4.2.3 Rationale: Despite notable progress in education reforms, Rwanda still faces challenges in

skills gap and education relevance for the labour market. The 2008 TVET Policy does not

articulate apprenticeship intervention. The 2013 business and investment climate survey showed that graduates lack basic skills needed for jobs, due to lack of linkages between education system and industry. For example, in manufacturing, tourism and ICT, school leavers lack practical experience. The education sector faces the challenge to keep pace with changing needs and demands of the private sector in order to provide meaningful employment to young graduates. The 2012 skills survey revealed a skills gaps averaging 40% of the total labour force, especially in TVET. Majority of agricultural workers have no education qualifications and adult illiteracy remains an issues. Up to 68.3% of labour force have never attended school or have attended but have no qualification19 which is a major contributor to youth under-employment and low labour productivity in the informal sector, hence prioritization of TVET in EDPRS II.

(21)

Many off-farm jobs require employability enhancing skills or prior experience in order to be productive and employable. Therefore local level initiatives to increase access to skills and training will help to equip rural people to acquire relevant skills and better business management including access to finance.

4.2.4 Measures Supported: The SEEP II focuses on the involvement of the private sector in

training. The programme will support: (i) the assessment of the on-going “professional internship

programme” with the aim to develop a strategy to promote private sector provision of training and work experience; (ii) operationalization of Sector Skills Councils (SSCs) which were established in SEEP I through “development and adoption of a legal framework, operational guidelines and actions plans”; and (iii) “curriculum review with private sector participation”20

, thus continuation from SEEP I. Furthermore, SEEP II will promote a holistic approach to skills development; activities supported to include: (i) the “design of an apprenticeship programme targeting unskilled and semi-skilled people”. Graduates will be certified and provided with toolkits for productive self-employment; (ii) the design of a “National apprenticeship policy” as a framework for short-term skills delivery; (iii) “review of TVET Policy and strategy”; and (iv) “revision of the law establishing WDA” in order to extend its mandate in apprenticeship.

4.2.5 Expected Results: (i) increased private sector participation in building employable skills and

attitude for jobs; and (ii) increased availability of vocational skills. These specifically will: (i) increase the TVET share of upper secondary enrolment from 38% (2011) to 50% (2016); (ii) improve employers’ satisfaction with the TVET graduates from 71.6% (2010) to 77% (2016); and (iii) increase employment rate of TVET graduates after 6 months of graduation from 30% (2013) to 40% (2016).

Component 2: Entrepreneurship and business development

4.2.6 Context: Creating off-farm jobs requires strong entrepreneurship and business development.

However, entrepreneurship culture is weak. Business entry has increased (0.78 new firms per 1,000 adults in 2011), but remains lower than regional comparators such as Kenya or Zambia (1.26). The private sector remains small and nascent, dominated by micro and small enterprises (92.6% of firms), with low returns to investment and high rates of failure.21 A large number of MSMEs is in commerce and services sector (93.1%, in contrast to only 1.7% in Arts & Crafts and 1.3% in industry). Many

MSMEs are operated by young entrepreneurs with an average age of 34 and 80% with primary education. Lack of access to finance is also a challenge. The ratio of private credit to GDP is 15.7%. Women take up 40% of membership but account for only 27% of loan beneficiaries especially of SACCOs.

4.2.7 Rationale: GoR has prioritized innovative entrepreneurship, access to finance and

business development to unlock the potential for sustainable job creation. Under SEEP I, business

development centers (BDCs) were rolled out at district level and one PROBA attached to each Umurenge. These helped to reduce the gap of supply and demand for Business Development Services (BDS). However, provision of BDS is still underdeveloped. MSMEs have basic production facilities and underutilize technologies. The banking system is extremely collateral based, requesting for collateral at 275% of average loan value. This is restrictive for youth and women who lack collateral. Although the Business Development Fund’s (BDF) Credit Guarantee Fund (CGF) runs a special program targeting youth and women, the scale of the Fund is very limited.

20

The TVET instructors are continuously trained on the revised curriculum before implementation

21

While 46% of large firms export, just 12% of small firms do so. Further, the value added per worker of larger firms is three times as high as smaller firms, while employing double the capital stock.

Figure

Updating...

Related subjects :