Document of The World Bank

Report No: ICR00003400

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD 81390 and IBRD 82480)

DPL1- DPL2

ON A SERIES OF

PRIVATE SECTOR COMPETITIVENESS

DEVELOPMENT POLICY LOANS

IN THE AMOUNT OF GBP 19.2 MILLION (US$30 MILLION EQUIVALENT)

TO THE

REPUBLIC OF MAURITIUS

June 15, 2015

Trade and Competitiveness Global Practice Eastern and Southern Africa Department Africa Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective as of June 15, 2015) Currency Unit Mauritius Rupee

US$1.00 = Rs34.70 FISCAL YEAR July 1 – June 30

ABBREVIATIONS AND ACRONYMS

AAA ADSL

Analytical and Advisory Activities Asynchronous Digital Subscriber Line (a fixed-line broadband technology)

AFD Agence Francaise de Development AfDB African Development Bank AFRITAC Africa Regional Technical Assistance Center South BDS Business Development Services BoI Board of Investment BoM Bank of Mauritius BPO Business Processing Operations BRICS CA CCM

Brazil, Russia, India, China and South Africa Certification Authorities Competition Commission of Mauritius

COMESA Common Market for Eastern and Southern Africa CPF CPS

Country Partnership Framework Country Partnership Strategy

DB DBM

Doing Business Development Bank of Mauritius

DDO Draw Down Option DCP Decentralized Cooperation Program DFA Development Finance Agency DPA Data Protection Act DPL Development Policy Loan DPO Data Protection Office DSA Debt Sustainability Analysis DSL Digital Subscriber Line E-GOV EU

Electronic Government European Union

FBTA Fee Based Technical Assistance FDI Foreign Direct Investment GB Gigabyte

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GDP Gross Domestic Product GoM Government of Mauritius G2B Government to Business G2G IBRD

Government to Government International Bank for Reconstruction and Development

IASCC Inter-Agency Strategic Coordination Committee ICA Investment Climate Assessment ICAC ICR

Independent Commission against Corruption Implementation Completion Report

ICT Information and Communication Technology ICTA Information Technologies Communication Authority IDA International Development Association IFC International Finance Corporation IFCC International Finance Consulting Group of Canada IL IMF

Investment Loan International Monetary Fund

ISP ISR

Internet Service Providers Implementation Status and Results

JSAN Joint Staff Advisory Note LAVIMS Land and Administration Valuation Information Management System M&E Monitoring and Evaluation MCIB Mauritius Credit Information Bureau METAP Mauritius Economic Transition (Technical Assistance) Project MIC Middle Income Countries MNF MoBEC

Moving the Nation Forward Ministry of Business, Enterprise and Cooperatives

MoFED Ministry of Finance and Economic Development MSDCP Manufacturing Services Development and Competitiveness Project MSME Micro, Small and Medium Enterprises NBP NDS

National Broadband Policy National Development Strategy

NICTSP National ICT Strategic Plan NISS National Information Security Strategy NLTA Non-Lending Technical Assistance OCW PDO PEFA

Out Of Court Workout Program Development Objective Public Expenditure Financial Accountability

PKI Public Key Infrastructure RFP Request for Proposals

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ROSC Report on the Observance of Standards and Codes SADC Southern African Development Community SCD Strategic Country Diagnostic STCR Secured Transactions and Collateral Registries SDR Special Drawing Rights SIDBI SIL

Small Industries Development Bank of India Specific Investment Loan

SMEs Small and Medium Enterprises SMP Significant Market Power TA Technical Assistance

Africa Vice-President: Makhtar Diop Country Director: Mark Lundell

Senior Global Practice Director: Anabel Gonzalez Practice Manager: Ganesh Rasagam

Task Team Leader: Smita Kuriakose ICR Author: Brinda Dabysing

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MAURITIUS

IMPLEMENTATION COMPLETION AND RESULTS REPORT

ON A SERIES OF PRIVATE SECTOR COMPETITIVENESS

DEVELOPMENT POLICY LOANS (IBRD 81390 and IBRD 82480)

CONTENTS

A: Basic Information...................................................................................................................... vi

B: Key Dates .................................................................................................................................. vi

C: Ratings Summary ...................................................................................................................... vi

D. Sector and Theme Codes .......................................................................................................... vii

E. Bank Staff ................................................................................................................................. vii

F. Results Framework Analysis ..................................................................................................... ix

G. Ratings of Project/Program performance in ISRs ................................................................... xiv

H. Restructuring (if any) (some fields are entered by the system) ............................................... xiv

1. Program Context, Development Objectives and Design ....................................................... 15

2. Key Factors Affecting Implementation and Outcomes ......................................................... 22

3. Assessment of Outcomes ....................................................................................................... 30

4. Assessment of Risk to Development Outcome ..................................................................... 40

5. Assessment of Bank and Borrower Performance .................................................................. 42

6. Lessons Learned .................................................................................................................... 43

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ....................... 44

Annex A. Bank Lending and Implementation Support/Supervision Processes ........................ 46

Annex B. Beneficiary Survey Results ...................................................................................... 48

Annex C. Stakeholder Workshop Report and Results .............................................................. 49

Annex D. Summary of Borrower's ICR and/or Comments on Draft ICR ................................ 50

Annex E. Comments of Co-financiers and Other Partners/Stakeholders ................................. 53

Annex F. List of Supporting Documents .................................................................................. 54

MAP IBRD 33446 ........................................................................................................................ 56

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Data Sheet A: Basic Information Program 1: Mauritius First Private Sector Competitiveness DPL Country: Mauritius Program Name: Mauritius First

Private sector Competitiveness DPL

Program ID: P126903 L/C/TF Number(s): IBRD- 81390 ICR Date: April 15, 2015 ICR Type: Core ICR Lending Instrument: DPL Borrower: Government of

Mauritius Original Total Commitment:

USD15 million equivalent

Disbursed Amount: USD15 million

Implementing Agencies: Ministry of Finance and Economic Development Co Financiers and Other External Partners: None Program 2: Mauritius Second Private Sector Competitiveness DPL Country: Mauritius Program Name: Mauritius Second

Private sector Competitiveness DPL

Program ID: P132510 L/C/TF Number(s): IBRD-82840 ICR Date: April 15, 2015 ICR Type: Core ICR Lending Instrument: DPL Borrower: Government of

Mauritius Original Total Commitment:

USD15million equivalent

Disbursed Amount: USD15 million

Revised Amount: USD15 million Implementing Agencies: Ministry of Finance and Economic Development Co Financiers and Other External Partners: None

B: Key Dates Process DPL1

Original Date DPL2 Original Date

Revised / Actual Date(s)

Concept Review 16-Sep-2011 27-Sep-2012 Appraisal: 09-Jan-2012 01-Feb-2013 Approval: 27-Mar-2012 27-Mar-2013 Effectiveness: 22-Jun-2012 12-Jul-2013 Na Restructuring(s): Na Na Na Mid-term Review: 19-Jul-2012 30-Jun-2014 Na Closing: 31-Dec-2012 31-Dec-2014 Na

C: Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory

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C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Quality of Supervision:

Satisfactory Implementing Agency/Agencies:

Overall Bank Performance:

Satisfactory Overall Borrower Performance:

Satisfactory

D. Sector and Theme Codes Sector Code (as % of total Bank financing) – DPL 1 Original Actual General finance sector 100% 100% Theme Code (as % of total Bank financing) – DPL 1 Regulation and competition policy 30% 30% Education for the knowledge economy 10% 10% Micro, Small and Medium Enterprise support 30% 30% ICT & e- Government 30% 30% Sector Code (as % of total Bank financing) – DPL 2 Original Actual General industry and trade sector (45%); (100%) Banking 0% 12% SME Finance (20%); 20% General information and communications sector (20%); 30% Credit Reporting and Secured Transactions (15%)

38%

Theme Code (as % of total Bank financing) – DPL 2 Other Private Sector Development (60%); 13% Other Financial Sector Development (20%); 12% e-Services (20%) 38% Micro, Small and Medium Enterprise support 25% State-owned enterprise restructuring and privatization 12%

E. Bank Staff Program 1: Mauritius First Private Sector Competitiveness DPL Positions At ICR At Approval Vice President: Makhtar Diop Obiageli Katryn Ezekwesili Country Director: Mark Lundell Haleh Z. Bridi Senior Global Practice Director Practice Manager: Ganesh Rasagam Irina Astrakhan Task Team Leader: Smita Kuriakose DPL1: Asya Akhlaque/ Khoudijah

Bibi Maudarbocus-Boodoo ICR Team Leader: Smita Kuriakose ICR Primary Author: Brinda Dabysing Program 2: Mauritius Second Private Sector Competitiveness DPL Positions At ICR At Approval Vice President: Makhtar Diop Makhtar Diop Country Director: Mark Lundell Haleh Z. Bridi

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Senior Global Practice Director Anabel Gonzalez Practice Manager: Ganesh Rasagam Irina Astrakhan Task Team Leader: Smita Kuriakose Smita Kuriakose ICR Team Leader: Smita Kuriakose ICR Primary Author: Brinda Dabysing

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F. Results Framework Analysis

Program Development Objective: The development objective of the programmatic series is to strengthen the policy and institutional environment in Mauritius to support competitiveness and enterprise development by supporting reforms around three integrated and mutually reinforcing pillars:

(a) Improving competitiveness and growth of enterprises;

(b) Improving access to finance; and

(c) Promoting ICT usage and e-Government for enhancing competitiveness and transparency. Revised Program Development Objective: Does not apply.

Indicator Baseline Value (27 Feb 2012)

Original Target Values (from approval documents)

30 June 2014

Formally Revised Target Values 30 June 2014

Actual Value Achieved at Completion or Target Years

Pillar I: ENTERPRISE GROWTH AND COMPETITIVENESS Indicator 1: Number of Enterprises accessing generic Business Development Services (BDS) increases. Value (quantitative or qualitative) 200 250 555 Date achieved 02/27/2012 06/30/2014 06/30/2014 Comments (incl. % achievement) Met 100% and surpassed by around 200 enterprises that received support. Indicator 2: Number of Enterprises accessing specialized BDS increases. Value (quantitative or qualitative) 80 120 247 Date achieved 02/27/2012 06/30/2014 06/30/2014

Comments (incl. % achievement) Met 100% and surpassed by 100%. This is mainly due to the higher than anticipated uptake of the specialized services.

Indicator 3: Development of an M&E Framework for BDS Schemes Value (quantitative or qualitative) No Yes Achieved Date achieved 02/27/2012 06/30/2014 06/30/2014

Comments (incl. % achievement) Has been 100% achieved. The M&E framework has been developed, but awaits cabinet approval which has been delayed due to preponed general elections in the country.

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Indicator 4: Number of insolvency practitioners registered Value (quantitative or qualitative) 0 50 61 Date achieved 02/27/2012 06/30/2014 06/30/2014 Comments (incl. % achievement) Achieved at 100% and surpassed. Indicator 5: Number of banks that have used Out of Court Workout guidelines Value (quantitative or qualitative) 0 4 2 Date achieved 02/27/2012 06/30/2014 06/30/2014

Comments (incl. % achievement) Partially Achieved (50%). International banks use the Insol guidelines rather than the Mauritian Out of Court Workout (OCW) guidelines.

Indicator 6: Number of businesses with an approved restructuring plan Value (quantitative or qualitative) 6 8 Dropped Date achieved

Comments (incl. % achievement) The indicator was amended to “number of banks using out-of-court workouts” which is a more reliable measure and deemed to be easier to obtain from the banks while restructuring plans are confidential, and therefore sensitive to being disclosed

Pillar 2: IMPROVING ACCESS TO FINANCE Indicator 7: Development Bank of Mauritius (DBM) restructured by the sale of its non-banking assets Value (quantitative or qualitative) No Yes In Progress Date achieved 02/27/2012 06/30/2014 06/30/2014

Comments (incl. % achievement) Restructuring plan approved by Cabinet on April 11, 2014. New board appointed to reorient the strategic direction of DBM in light of a new SME finance institution being set up under the Banking Act.

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Indicator 8: A new licensed commercial Bank with a focus on the Micro, Small and Medium Enterprises (MSME) segment established

Value (quantitative or qualitative) No Yes In progress Date achieved 02/27/2012 06/30/2014 06/30/2014

Comments (incl. % achievement) Transaction Advisor prepared the application for submission to the Central Bank, end 2014. The application package includes a business model that depends on the selection of a strategic partner.

Indicator 9: Development Bank of Mauritius (DBM) meets prudential requirements of the Central Bank Value (quantitative or qualitative) No Yes Dropped Date achieved

Comments (incl. % achievement) The indicator was changed to reflect the fact that the options could include a new commercial bank taking over the assets of DBM and catering to the MSME space.

Indicator 10: Reduction in interest subsidy to DBM Value (quantitative or qualitative) MUR 80 million MUR 50 million Dropped Date achieved

Comments (incl. % achievement) The indicator was changed to reflect the fact that the options could include a new commercial bank taking over the assets of DBM and catering to the MSME space.

Indicator 11: Increase in the number of loans to SMEs of less than MUR150,000 Value (quantitative or qualitative) 24,532 15% increase Dropped Date achieved

Comments (incl. % achievement) The indicator was changed to reflect the fact that the options could include a new commercial bank taking over the assets of DBM and catering to the MSME space.

Indicator 12: Reduction in time taken to register property Value (quantitative or qualitative) 15 days 2 days 2 days Date achieved 02/27/2012 06/30/2014 06/30/2014 Comments (incl. % achievement) 100% achieved Indicator 13: Completion of necessary legal amendments to facilitate secured lending transactions Value (quantitative or qualitative) No Yes In progress. Date achieved 02/27/2012 06/30/2014 06/30/2014

Comments (incl. % achievement) Partially achieved. Legislation has been prepared, but Parliament was prorogued then dissolved, pending elections.

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Indicator 14: Increase in coverage of the Credit Information bureau Value (quantitative or qualitative) 50% 70% 74.56% Date achieved 02/27/2012 06/30/2014 06/30/2014 Comments (incl. % achievement) Met 100% and target surpassed by 4.56% Pillar 3: PROMOTING ICT AND E-GOV SUPPORT FOR ENHANCING COMPETITIVENESS AND TRANSPARENCY Indicator 15: Increase in number of broadband subscriptions with actual speeds of at least 10 Mbit/s Value (quantitative or qualitative) 300200 15.00 % 115.9% Date achieved 02/27/2012 06/30/2014 06/30/2014 Comments (incl. % achievement) Achieved 100% and surpassed. The actual number of subscriptions now stands at 648,300. Indicator 16: Decrease in the price per 1Mbit/s per month of fixed broadband service Value (quantitative or qualitative) USD 27.83 10.00% 10.0% Date achieved 02/27/2012 06/30/2014 06/30/2014 Comments (incl. % achievement) Achieved 100%. The price for this service is now USD 25.06 Indicator 17: Decrease in the price per 1Mbit/s per month of mobile broadband service Value (quantitative or qualitative) 17.38 10.00% 58.0% Date achieved 02/27/2012 06/30/2014 06/30/2014 Comments (incl. % achievement) Achieved and surpassed as the price dropped by 58% to 7.51

Indicator 18: Increase in the number of homes that have access to download speeds of at least 10 Mbps and upload speeds of at least 5 Mbps by 2013

Value (quantitative or qualitative) 87,500 87,500 Dropped Date achieved

Comments (incl. % achievement) After the closing of DPL1, the indicator was modified to reflect that progress has gone beyond the trigger and that tariff guidelines now published on ICTA’s official website will create competition, pushing prices down and making offers more dynamic and attractive

Indicator 19: Average monthly retail price of broadband Asynchronous Digital Subscriber Line (ADSL) 256kbps with 3GB allowance service to households decreases

Value (quantitative or qualitative) Rs316.52 25% decrease Dropped Date achieved

Comments (incl. % achievement) After the closing of DPL1, the indicator was modified to reflect that progress has gone beyond the trigger and that tariff guidelines now published on ICTA’s official website will create competition, pushing prices down and making offers more dynamic and attractive

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Indicator 20: Number of public services that can be executed via secured online transactions Value (quantitative or qualitative) 0 15 10 7 Date achieved 02/27/2012 06/30/2014 03/27/2013 06/30/2014

Comments (incl. % achievement) Modified and partly achieved (70%) Progress was slower than anticipated as at date of closing of DPL but has been achieved fully within 6 months following the closing

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G. Ratings of Project/Program performance in ISRs

No. Date ISR Archived

Progress towards Achievement of DPO

Overall Implementation Progress

Actual Disbursements (US$ mil.)

DPL 1/ 01 28-Oct-2012 Satisfactory Moderately Satisfactory

15.00

DPL 2/ 01 10-Jul-2013 Satisfactory Satisfactory 0.00 DPL 2/ 02 26-Dec-2013 Satisfactory Satisfactory 0.04 DPL 2/ 03 11-Jun-2014 Satisfactory Satisfactory 16.14

H. Restructuring (if any) (some fields are entered by the system) None

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1. Program Context, Development Objectives and Design

1. This Implementation Completion and Results Report has been prepared at the conclusion of the programmatic Private Sector Competitiveness (PSC) Development Policy Loan (DPL) series, comprising two annual single-tranche operations of US$15 million equivalent each to the Republic of Mauritius. The development objective of the PSC DPL series was to strengthen the policy and institutional environment in Mauritius to support competitiveness and enterprise development. The PSC programmatic DPL series was prepared in support of the Government’s medium-term reform program that centers on competitiveness and equity as its twin pillars. The way for Mauritius to continue its stride towards attainment of high income status through inclusive growth is to further enhance its competitiveness. Mauritius was a predominantly agricultural economy based on sugar production and has successfully diversified into textiles exports, tourism and more recently financial services, offshore global business and Information and Communications Technology (ICT). However, the manufacturing sector is facing competitive pressure from increasing global competition in the export markets, exacerbated by the ongoing slowdown in Europe, the main export market for the island economy. European woes are also depressing tourist arrivals and revenues. The services sector are currently not high value added sources of growth. The competitiveness agenda thus remains central. Mauritius needs to improve on the quality of exported goods and services to serve new markets and also needs to refocus on the SME sector, an important source of job creation and growth. 2. Prior to the PSC DPL series, the Bank was supporting the Government’s competitiveness and private sector development agenda through two investment loans (ILs): the Manufacturing and Services Development and Competitiveness Project (MSDCP), and the Mauritius Economic Transition Technical Assistance Project (METAP). METAP was approved on January 29, 2009, and became effective on April 6, 2009 while MSDCP was approved on January 21, 2010 and became effective on March 30, 2010. But in March 2011, these two sector ILs were still at an early stage of implementation and were cancelled. Acknowledging the value of the World Bank’s knowledge services, the Government requested the Bank to continue its support in the area of competitiveness and enterprise development by reallocating the undisbursed funds into a sector DPL operation. For the government, the main impetus for refashioning the delivery instrument from an investment project to sector Development Policy Operation was (i) to allow for the broadening and deepening the dialogue on a range of competitiveness issues facing the island nation; (ii) to use policy dialogue as a means to support reform champions that can help move forward politically challenging reforms and (iii) to align development partner support around the government’s reform program. A programmatic approach, it was envisioned, would help achieve the milestones required to make concrete advances in engendering a competitive environment. In addition, the DPL instrument could play a catalyst role in Mauritius whereby it brings together stakeholders from different government bodies and ministries, as well as the Development Partners, to have a dialogue around common themes. 3. The PSC DPL series was prepared in parallel with a Public Sector Performance (PSP) DPL series. The PSC DPL series focused on strengthening the policy and institutional environment for private sector growth, while the PSP DPL focused on improving the performance of the public sector. Thus the two stand-alone operations were designed to be mutually reinforcing and supported the twin competitiveness and equity pillars of the government’s reform program.

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1.1 Context at Appraisal: 4. At the time of appraisal of the first operation in 2011, the economy was showing signs of slowdown due to the current global economic uncertainty. Mauritius is a small open economy and exports (i.e. textile, tourism and ICT-BPO sectors) are very dependent of the euro zone. There was also some evidence that fiscal consolidation in advanced economies and increasing debt and financial worries in Europe was having an impact on the Mauritian economy, with a substantial fall in FDI in the first half of 2011; a decrease of 13 percent in total exports during the first quarter of 2011 over the previous quarter; unemployment increasing to 8.3 percent during the first quarter of 2011 compared to 7.2 percent at the fourth quarter of 2010; and the stock market index value slightly reducing by 4 percent since June 2011. 5. The predicted GDP growth though positive, remained below the level necessary to achieve the country’s aspiration to become a high-income country by the next decade. Growth prospects were vulnerable to the pace of implementation of domestic reforms as well as external factors. The negative impact of the 2008/2009 global economic crisis was partially contained as a result of a short-term fiscal stimulus package that also aimed to build long-term competitiveness and enhance the investment climate. This package was made possible by the Government‘s relatively comfortable fiscal position prior to the onset of the crisis. This fiscal space allowed the Government to adopt an expansionary macroeconomic policy, with both fiscal and monetary components. One salient feature of these targeted programs was the close coordination between the public and private sectors in which the Government agreed to support firms as they restructured while the private sector did its utmost to preserve employment. As a result, jobs were maintained during the crisis, and the unemployment rate remained stable at 7.3 percent in 2009 compared to 7.2 percent in 2008. Critical constraints to economic development, particularly with regard to competitiveness agenda, had become increasingly evident. 6. The DPL series is consistent with the objectives of the Country Partnership Strategy (CPS) (2007-13) and the CPS Progress Report of May 2011 that underlines improving competitiveness and investment climate as its central theme of reforms, along with promoting inclusion and fiscal consolidation. Although, the DPL series is the principal instrument identified in the Bank’s Country Partnership Strategy for supporting the government’s reform program, a sector DPL loan was not originally envisaged. However, it was recognized that in a middle income country like Mauritius, the Bank had to maintain the flexibility to respond to the Government‘s evolving priorities. The approach of the DPL series was to focus on reforms that could be completed in the short-term while building the necessary foundations for broader reform over the medium-term. 1.2 Original Program Development Objectives (PDO) and Key Indicators (as approved): The development objective of the programmatic series was to strengthen the policy and institutional environment in Mauritius to support competitiveness and enterprise development. 7. The operation would achieve this by supporting reforms around three integrated and mutually reinforcing pillars (i) improving competitiveness and growth of enterprises; (ii)

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improving access to finance; and (iii) promoting ICT and e-Gov for enhancing competitiveness and transparency. The key outcome indicators were: Pillar 1: Improving Competitiveness and Growth of Enterprises

• Number of enterprises accessing ―generic and specialized business development services (BDS) increases;

• Number of insolvency practitioners registered; • Number of businesses with an approved restructuring plan.

Pillar 2: Improving Access to Finance

• Development Bank of Mauritius meets prudential requirements of the Central bank; • Reduction in the interest subsidy to DBM; • Increase in the number of loans to SMEs of less than Rs150,000; • Reduction in time taken to register property; • Increase in coverage of the credit information bureau.

Pillar 3: ICT and e-Gov Reforms

• Increase in the number of homes that have access to download speeds of at least 10 Mbps and upload speeds of at least 5 Mbps;

• Decrease in average monthly retail price of broadband ADSL 256 kbps with 3 GB allowance service to households;

• Increase in the number of public services that can be executed via secured transactions. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification: 8. The PDO was not revised during the implementation of the series. The results framework was, nonetheless modified, to include more specific measurements which would be more relevant to the reform undertaken. 9. In Pillar 1, the Number of banks using out-of-court workouts replaced the Number of businesses with an approved restructuring plan. This was considered to be a more reliable indicator and easier to measure. Whereas restructuring plans are confidential, and therefore difficult to count, it was easier to ask the banks whether they would use any out-of-court process in order to achieve restructuring. 10. In Pillar 2, the Development Bank of Mauritius (DBM) related indicators were replaced by (i) DBM restructured by the sale of its non-banking assets; and (ii) A new licensed commercial Bank with a focus on the Micro, Small and Medium Enterprise (MSME) segment established. The indicators were changed to reflect the fact that the options could include a new commercial bank taking over the assets of DBM and catering to the MSME space. 11. The indicators for the third pillar were further refined as the prior actions went beyond what was originally envisaged and made more elaborate. One of these was a supply side indicator whereas the indications were that Mauritius’s problems were more on the demand side.

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12. The key outcome indicators were as follows: Pillar 1: Improving Competitiveness and Growth of Enterprises

• Number of enterprises accessing “generic” and specialized business development services (BDS) increases;

• Development of a Monitoring and Evaluation Framework for BDS schemes;

• Number of insolvency practitioners registered; and

• Number of banks using out-of-court workouts.

Pillar 2: Improving Access to Finance

• Development Bank of Mauritius restructured by the sale of its non-banking assets;

• A new licensed commercial Bank with a focus on the MSME segment established;

• Reduction in time taken to register property;

• Completion of the necessary legislative amendments for the facilitation of secured lending transactions; and

• Increase in coverage of the credit information bureau.

Pillar 3: ICT and e-Gov Reforms

• Increase in number of broadband subscriptions with actual speeds of at least 10 Mbit/s;

• Decrease in the price per 1Mbit/s per month of broadband service, fixed and mobile; and

• Increase in the number of public services that can be executed via secured online transactions.

1.4 Original Policy Areas Supported by the Program (as approved): 13. The program supported three main policy areas: 14. Enterprise Growth and Competitiveness. The entry of new firms, their expansion in the initial years in the life-cycle, and the exit of weak or obsolete firms is part of firm dynamics. Research based on firm-level data supports the assertion that the continuous process of reallocation of resources plays an important role for aggregate productivity and output growth. The 2009 Mauritius Investment Climate Assessment (ICA) underlined skills and technology deficiencies as one of the key constraints faced by enterprises. In this context, the Government had undertaken several market-completing interventions in the form of Business Development Services (BDS) to SMEs focusing on skills and training, technology development, and information services gaps. 15. These programs were considered as not meeting market needs of SMEs and were of mixed quality. The effectiveness of these programs was further hampered by coordination challenges among the multiple agencies and between programs with overlapping objectives, roles and cumbersome procedures. There was also widespread agreement - both within the

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private and public sector - that a multiplicity of service providers with overlapping roles and responsibilities hindered the ability of firms to identify and obtain the required support. Fragmented BDS assistance programs to small enterprises raised the overall cost and reduced effectiveness of the programs. 16. With a view to undertake a strategic reorientation of SME programs, Ministry of Business, Enterprise, and Cooperatives (MoBEC) sought cabinet approval of consolidation of its SME programs which was the agreed prior action for the first PSC DPL. The DPL was intended to support the Government‘s efforts on the strategic reorientation of SME programs – through Non-Lending TA and Fee-Based TA. It was envisaged that the output from this work would (i) define a new strategic orientation of SME support institutions that are harmonized among the concerned institutions so that there is limited overlap and duplication. Among other things, this would include: (a) establishing an inter-agency strategic coordination mechanism; (b) developing a framework that sets up guidelines on target groups and criteria, types of services, and where applicable, cost-sharing rules; and (c) setting up a robust M&E system that monitors performance and results. 17. Facilitating firm exit: With firm exit being a necessary condition for economic growth, there is a need to reduce the barriers to close a business and establish a cost effective and efficient regime to allow business to exit a market or give the possibility of rehabilitating the businesses without forcing them into bankruptcy. Under the Insolvency Act 2009, a number of regulations, to supplement the primary legislation, were outstanding: Register of Insolvency Practitioners (Section 374), Conduct and Performance of Insolvency Practitioners (Section 375) Statement of Affairs (Section 25), Statutory Demand (Section 180), and the Proof of Claim (Schedule 2). 18. The Bank supported the Government‘s efforts on the following priority areas of reform:

(i) Approval of the registration guidelines and prescribed application form to register Insolvency Practitioners in Mauritius;

(ii) Publication of a code of ethics for Insolvency practitioners and establishment of procedures by the Director of Insolvency Service for the suspension and removal of Insolvency Practitioners from the register.

19. Improving Access to Finance. Access to credit is an important driving force in economic growth, and it ranked high on the list of factors emphasized by individual entrepreneurs as critical to the survival and growth of their businesses. From the Mauritius ICA (2009), almost 50 percent of all the firms surveyed considered access to finance as one of the top three constraints to doing business in Mauritius and 59 percent of total SMEs cited access to finance as a major constraint. Further analysis and consultation with stakeholders indicated that the constraint may be linked to both supply side issues along with the demand side factors outside the credit market. Insufficient suitable collateral was cited as among the top reasons for difficulty in accessing credit. 20. The PSC DPL supported demand side factors through reforms in land titling procedures and through secured transactions laws and registries. An institutional assessment of the land registries undertaken as part of the Doing Business (DB) Survey 2008 showed that it took 210

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days to register land title in Mauritius. Among the government reforms supported by the Bank would be to (i) amend the Transcription and Mortgage Act in order to prescribe a time limit consistent with business standards to register property and (ii) enact legislative amendments to the Civil Code and any other laws to allow the setting up of a modern movable collateral registry. 21. While addressing the demand side issues is a necessary condition for addressing access to finance constraints, it may not be sufficient to get SME financing needs met. Directed and subsidized credit programs offered by the public sector institution, DBM have done little to achieve the fundamental objective of increasing the access of small enterprises to financial services. DBM had performed poorly and over time fostered a nonpayment culture, as indicated by the high volume of non-performing loans. To better respond to its policy development objectives, the Government decided to restructure the DBM and turn DBM into a full-fledged commercial bank with a focus on the MSME segment of the market. 22. Credit bureaus play an important role in financial stability by helping control over-indebtedness and are critical to the expansion of credit for both individuals and small businesses. In particular, effective credit reporting can help by increasing the availability of financial services and expanding access to credit, supporting the growth of MSMEs, replacing collateral needs with reputational collateral in small ticket lending, improving borrower‘s repayment behavior and reducing over-indebtedness which was a major issue with Small and Medium Enterprises (SMEs) and decreasing the overall cost of credit. The Mauritius Credit Information Bureau (MCIB) was established in December 2005 by the BoM as a public registry of borrower information with the main objective to ensure the development of an overall sound credit environment in Mauritius. 23. To further reinforce its contribution to the financial stability of the economy, the MCIB needed to expand its coverage to include non-banking financial and credit-granting institutions, and utility companies. Lack of information on overall consumer indebtedness was an area of concern from the perspective of financial stability as borrowers may have accumulate large debts through small facilities from credit providers other than those falling under the purview of the Bank and related liabilities could remain hidden from lenders and lead to flawed creditworthiness assessment. 24. The priority areas of reform, agreed with the Government, were (i) the coverage of the credit information bureau expanded to include all non-banking financial institutions and (ii) The Bank of Mauritius to establish and publish eligibility criteria and licensing guidelines for the setting up of private credit information; and (iii) Regulation from Ministry of Public Utilities to enforce the billing accuracy so that the name of the actual end user is reflected on utility bills. 25. Enhancing ICT and e-Gov Support for Increased Efficiency and Transparency Gains. ICT is considered a key pillar for supporting competitiveness. Given its potential to have significant positive spill-over effects on the other sectors of the economy, the Government of Mauritius prioritized the development of an interconnected broadband infrastructure on which ideas and services could be transmitted. To develop an interconnected broadband infrastructure Mauritius would have to rely on large private sector investments in high bandwidth networks. These networks have long lives, so investors have to see a long, stable and profitable future if

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they are to invest. An unpredictable business and regulatory environment makes operators more risk averse and generally unwilling to invest. To entice operators to invest in these networks, Governments have to signal their long-term intentions clearly, credibly and convincingly. The purpose of the National Broadband Policy (NBP), whose recommended adoption by the Government was the first prior action of this component of the DPL, was to signal the Government‘s intentions clearly, credibly and convincingly. 26. The following were the priority areas of reform, agreed with the Government: (i) Cabinet approval of National Broadband Policy and (ii) Establish protocols to strengthen the independence of ICTA. The second area of reform was to bring an amendment to the Information and Communications Technology Act (ICTA) of 2001 that would provide ICTA the required authority to regulate markets where an operator was deemed to have Significant Market Power (SMP). SMP authority was a particularly appropriate regulatory tool to be applied in the developing Mauritian ICT sector because there were substantial differences in the development of many market segments across the country. SMP authority allows for competition to discipline incumbents where possible and this authority to do the work where it is not. It allows the regulator flexibility to react to recent market performance and does not constrain its actions since it does not prescribe the regulatory remedy ex ante. 27. While SMP authority would be an important tool to apply to correct market failures, the objectivity and independence of ICTA can be called into question unless it can better separate itself from the Government‘s policymaking and promotional bodies that exist for the ICT sector. The Bank thus supported the Government to design and initiate reforms to make ICTA a more independent and transparently objective applicator of regulations. This was achieved through amendments to ICT Act to introduce a definition of SMP and equip the ICT Authority with the appropriate tools to regulate markets in which there is evidence of SMP and the setting up of system to collect market-level data to be able to assess the existence of significant market power in five markets in Mauritius. 28. This DPL also supported the Government‘s efforts to promote the widespread adoption and use of public key infrastructure (PKI) to execute secure electronic transactions. Accomplishing this would finalize a series of actions and initiatives that the Government had undertaken to enable it to provide improved access, increased transparency, and more efficiency to the Government‘s transactions with businesses and its citizens. 29. To enable a secure electronic transactions operating environment, the Electronic Transactions Act was amended and the Electronic Transactions (Certification Authorities) Regulations 2010 came into effect on December 1, 2010, providing for the licensing framework as well as the regulation of Certification Authorities (CA) activities in Mauritius. Parts of the Electronic Transactions Act have also been proclaimed to enable ICTA to exercise the powers of the Controller of Certification Authorities (CCA) and make the PKI operational. It was an important step in providing for safe, trusted and secure electronic transactions and establishing Mauritius as a trusted hub for e-commerce. In addition, a Data Protection Commissioner was responsible for upholding the rights of individuals as set out in the Data Protection Act, 2004. 30. In order to give momentum to the Government‘s data and information security initiatives, the Ministry of ICT (MoICT) would take steps to ensure the widest adoption of the PKI

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technology and to set targets to increasing paperless Government to Business (G2B) and Government to Government (G2G) transactions. 1.5 Revised Policy Areas (if applicable): 31. The policy areas were not revised. 1.6 Other significant changes (in design, scope and scale, implementation arrangements and schedule, and funding allocations): 32. There were not any significant changes in design, scope and scale, implementation arrangements and schedule, or funding allocations.

2. Key Factors Affecting Implementation and Outcomes 2.1 Program Performance: 33. The program was supported by two single tranche operations. The First and Second Private Sector Competitiveness DPLs were approved subject to the implementation of the respective prior actions (shown in the Table below). All prior actions were satisfactorily met before their respective Board approvals on March 27, 2012, and March 27, 2013. 34. The Private sector competitiveness DPL series was designed in the context of a broader reform program that started in 2006 and addressed the need to boost competitiveness and to ensure fiscal sustainability over the medium term. It was fully aligned with the priorities of the Government’s reform agenda. 35. The table below summarizes the prior actions for both operations, all of which were met by the Government of Mauritius ahead of Board presentation. First Private Sector Competitiveness DPL List prior actions from Legal Agreement Status Pillar 1: Enterprise Growth and Competitiveness Prior Action 1: Cabinet approval of consolidation of SME programs under Ministry of Business, Enterprise and Cooperatives (MoBEC)

Completed on 21-Dec-2012.

Prior Action 2: Ministerial approval of the registration guidelines and prescribed application form to register Insolvency Practitioners in Mauritius

Completed on 01-Sept-2012.

Pillar 2: Improving Access to Finance Prior Action 3: Cabinet Approval of a decision to transform DBM into a financially viable MSME Bank, licensed by the Central Bank, and with private sector involvement.

Completed by Cabinet approval on August 26, 2011 and budget announcement in November 2012.

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Prior Action 4: The Transcription and Mortgage Act is amended in order to prescribe a time limit consistent with business standards to register property

Completed on through amendment made in the Economic and Financial Measures (Miscellaneous Provisions) Act 2011 proclaimed to come into effect on 11 November 2011.

Prior Action 5: The coverage of the credit information bureau is expanded to include all non-bank financial institution

Completed through amendment made in the Economic and Financial Measures (Miscellaneous Provisions) Act 2011 proclaimed to come into effect on 11 November 2011.

Pillar 3: Enhancing ICT and e-Gov Support for Increased Efficiency and Transparency Gains. Prior Action 6: Cabinet approval of National Broadband Policy.

Completed on 03 February 2012.

Prior Action 7: Cabinet approval to amend ICT Act to introduce a definition of Significant market Power (SMP) and equip the ICT Authority with the appropriate tools to regulate markets in which there is evidence of SMP.

Completed through amendment made in the Economic and Financial Measures (Miscellaneous Provisions) Act 2011, proclaimed to come into effect on 11 November 2011.

Prior Action 8: Cabinet approval of the Action Plan to ensure the widest adoption of the PKI technology.

Completed on 03 February 2012.

Second Private Sector Competitiveness DPL List prior actions from Legal Agreement Status Pillar 1: Enterprise Growth and Competitiveness Prior Action 1:Establishment, in operational form, of the Inter-Agency Strategic Coordination Committee (IASCC) and under MoBEC and (b) the issuance of the Request For Proposals (RFP) to develop an overall M&E Framework for the 6 of the 22 NRF schemes that deal with BDS.

Completed as evidenced by letter MBE/SME/380 from MoBEC dated February 6, 2013 and the IASCC’s first meeting notes dated January 22, 2013; and (ii) the online publication by Ministry of Finance and Economic Development (MoFED), verified by the Bank, of requests for proposal to develop an overall monitoring and evaluation framework for BDS schemes.

Prior Action 2: Publication of the amendment to Insolvency Act 2009 to include the Rules relating to the Performance and Conduct of Insolvency Practitioners in the national gazette.

Completed by publication by the Insolvency Services of the rules relating to the performance and conduct of insolvency practitioners in the National Gazette, as per copy of the relevant release in the National Gazette of October 27, 2012 via its General Notice

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No.2260 of 2012.

Prior Action 3: Publication of Regulations related to the registration and removal of insolvency practitioners in the national gazette.

Completed by the publication of regulations relating to the registration and removal of insolvency practitioners in the National Gazette, as per copy of the relevant release in the National Gazette of September 01, 2012, via its General Notice No.157 of 2012.

Prior Action 4: Publication of the Out-Of-Court Workout (OCW) Guidelines to promote safeguarding viable businesses on the insolvency website upon endorsement from Bank of Mauritius (BoM).

Completed by the publication, on the Insolvency Services official website, as verified by the Bank, of Out-Of-Court Workout Guidelines endorsed by the Bank of Mauritius through letter dated December 28, 2012 addressed to the Director of Insolvency Services.

Pillar 2: Improving Access to Finance Prior Action 5: DBM restructuring initiated by the appointment of a transaction advisor, endorsement by steering committee of an inception report and the issuance of letters of invitation to potential investors for the sale of DBM’s non-banking assets.

Completed by the initiation of the restructuring plan for DBM to be implemented through the selection and appointment of a transactions advisor, the endorsement of the inception report by the Steering Committee on December 13, 2012 and the issuance by DBM management of letters of invitation to potential investors for the sale of DBM’s non-banking assets, all as per copy furnished to the Bank of, respectively: (i) the letter of engagement dated October 31, 2012 addressed to the transaction advisory firm retained following the selection process, (ii) the December 13, 2012 Steering Committee meeting notes providing relevant endorsement and (iii) letters of invitations for right to first offer made on January 3, 2013 to existing DBM’s land tenants.

Government approval to further facilitate the use of movable and intangible assets as collateral and the establishment of a modern movable collateral registry with the completion of the necessary legislative amendments.

Action met by Borrower’s decision to complete all pertinent legislations to: (i) ensure the establishment of a modern movable collateral registry and (ii) facilitate the use of movable and intangible assets as collateral, as

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evidenced by letter from MoFED to the Bank referenced CF/92/4/B and dated December 12, 2012 along with copy of the parliamentary debates (Hansard) of the 5th national assembly’s second session dated November 28, 2012 which include in its Annex B pertinent details concerning the establishment and operationalization of said registry.

Prior Action 6: Amendment of the Bank of Mauritius Act in provide for the definition of ‘Utility Body’ to further increase coverage of the Credit Information Bureau.

Completed on 22 December 2012 through amendment made in the Economic and Financial Measures (Miscellaneous Provisions) Act 2012.

Pillar 3: Enhancing ICT and e-Gov Support for Increased Efficiency and Transparency Gains. Prior Action 7: Draft legal changes to pertinent sections of the ICT Act 2001 related to licensing adopted by the ICTA Board and submitted to parliament for approval.

Completed through ICTA Board’s approval of draft legislative amendments to the pertinent sections of the ICT Act of 2001 in order to achieve the liberalization of the ICT sector, thereby allowing the issuance of class licenses and the reform of the spectrum management under which auctions and secondary trading can take place, as evidenced by letter from MoICT referenced MIC/279/1V3 dated February 5, 2013 which confirms the approval by ICTA Board on November 1, 2012 of the said draft legislative amendments which were also furnished to the Bank.

Prior Action 8: Publication of guidelines for tariff setting on ICTA website.

Completed on 15 May 2012 by the publication of guidelines for tariff setting on ICTA’s official website.

Prior Action 9: Contract with a commercial contractor to develop a Government Services Platform for eGovernment services, protected by a Public Key Infrastructure (PKI).

Completed on the conclusion of a contract between MoICT and a competitively selected partner for the development of a government services platform for E-Government services protected by a public key infrastructure, as evidenced by copy furnished to the Bank of the parliamentary debates (Hansard) of the 5th national assembly’s second session dated October 30, 2012.

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2.2 Major Factors Affecting Implementation: 36. Among the factors that contributed to the successful implementation and outcome of the DPL series, we note (i) the adequacy of the Government’s commitment, (ii) the soundness of the background analysis supporting the environment which incorporated lessons learnt from the programmatic DPL series of 2006-2009 and flexibility in rapidly responding to the new Government’s priorities to engage in a policy lending operation rather than an investment lending one, (iii) appropriateness of the operation design, (iv) a strong coordination with other development partners to deliver towards government priorities and (v) adequate identification of risks at appraisal stage and effectiveness of mitigation measures. 37. Adequacy of government’s commitment: The Government continues to regard DPLs as an important tool for supporting policy reform in Mauritius, as opposed to an IL with a focus on public investment and capacity building measures. While financing may not be a necessary requirement, it is the technical assistance, policy dialogue and additional support to reform champions that the Government most values in the World Bank engagement through DPLs. 38. The DPL series was part of a reform continuum of the previous DPL series 2006-2009 which was very successful and effective. Progress in the current series was more challenging on two fronts. First, compared to the previous DPL program in which MoFED played an active role in leading and coordinating the reform, this new set of reforms was led in many cases by sector ministries, who in many cases have less experience with such instruments. Second, a broader set of stakeholders meant enhanced efforts for proper coordination. Moreover, some of the stakeholders suffered from weak implementation capacity, which meant that the pace for reform was slower. 39. There were also challenges on the political economy front following a change in borrower circumstances triggered by the resignation of the main partner in the ruling coalition in June 2011. Development priorities for the government broadly remained same, but the focus was more on political reform and amendment of the Constitution to create a Second Republic with enhanced powers for the President. These political changes led to a delay in the implementation of some of the activities under the DPL Series such as the implementation of the legislative changes for the Secured Transaction Law and the restructuring of the Development Bank of Mauritius. 40. Sound background analytical work: The preparation of the PSC-DPL series was based on analytical work carried out by the Bank, the Government and other development partners. In addition, the design of the PSC DPL series benefited from the extensive dialogue and analytical work that underpinned the Manufacturing Services Development and Competitiveness Project (MSDCP) and Mauritius Economic Transition (Technical Assistance) Project (METAP) investment operations that focused on private sector competitiveness, enterprise growth and business environment matters. 41. The second 2009 Investment Climate Assessment (ICA) for Mauritius identified obstacles that hinder firms’ competitiveness, particularly access to finance for small firms and the lack of skilled labor. The Skills and Technology Absorption in Mauritius Report 2011

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pointed out constraints to increase the skills of the workforce to enable them to use new and emerging technologies, including both the education system, and on-the-job training. 42. With regards to the Development Bank of Mauritius (DBM), there has been a number of diagnostic reviews undertaken among which by the International Financial Consulting Group of Canada (IFCC) in 2008 and the International Finance Corporation (IFC) in 2010. The 2004 Report on the Observance of Standards and Codes (ICR ROSC) which benchmarked Mauritius’ insolvency and creditor rights framework against international standards, found that many aspects of the insolvency framework in Mauritius were inconsistent with international best practice and the recommendations therein were partly used to design the DPL reform program. The IFC had also provided a review of the legal framework governing credit information reporting in Mauritius through the Feasibility Assessment for the Expansion of the Credit Reporting Infrastructure in 2007. 43. For the prior actions in pillar 3 of both operations, the Government’s mid-term review of the National ICT Strategic Plan (NICTSP) 2007-2011, carried out with the support of the African Development Bank (AfDB), and served to guide the preparation of the ICT and e-Gov component of this operation.

44. The Government of Mauritius (GoM) is aware of the challenge of coordinating development partner assistance to unify policy recommendations and ensure that prior actions and indicators are harmonized with Government priorities. The World Bank and European Union (EU) collaborated closely on a joint diagnostic and results matrix for the World Bank‘s CPS and the EU 10th EDF Country Strategy Paper and EU performance indicators of budget support operations reinforce DPL triggers wherever possible. The AfDB showed interest in collaborating in joint knowledge products, particularly in the ICT and e-Gov areas. The Agence Française de Development (AFD) focused on complementary areas: financing green technology projects for the private sector and infrastructure (road infrastructure, water and wastewater sectors). The EU coordinated their education dialogue with the World Bank DPL series. The United Nations Development Program (UNDP) supported the government in, inter alia, the formulation of strategic plans at targeted ministry/ department level and in their performance-based budgeting processes.

45. Assessment of operation’s design: The program was aligned to the priorities of the Government and offered continuity in the reform areas. Implementation required the buy-in from a number of actors, several agencies/ institutions/ ministries, some of which had weak implementation capacity. During the design phase, areas where implementation capacity was limited were identified and technical assistance was provided. Additionally, the DPL itself helped to build bridges between the different ministries involved in the reform program, thereby enhancing coordination. 46. The project design was consistent with the project’s objectives and remains relevant in the current context. The components and related activities were designed after consultations with the beneficiaries, and addressed what needed to get done, closely aligned with the Government’s own program. The operation was also flexible and adequately incorporated changes to the indicative triggers to reflect the delayed time frame for the program while ensuring that the outputs were of high quality and aligned with the substance of the reform. The program made

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efficient use of non-lending technical assistance (NLTA) through which support was provided to develop a pipeline of financial and private sector development policy reforms for the series. This proved to be a very useful tool, as it helped provide technical expertise and global best practice on policy and institutional issues informing policy dialogue 47. Assessment of risks: Four risks were identified during the appraisal stage of the operations and mitigating measures were proposed. They were (a) the challenge of maintaining macroeconomic stability as a result of uncertain global developments; (b) a slowdown in the momentum of reforms, exacerbated by the withdrawal of one of the parties from the Government coalition in July 2011; and (c) limited institutional capacity within sector ministries to lead and implement the reforms; and (d) corruption. The risk of corruption was dropped during the second operation, taking into consideration the 2010 PEFA assessment that the Mauritian financial system was robust and entailed minimal risks to the proceeds of the loan. 48. On the fiscal front, the government has made efforts to consolidate the fiscal deficit and reduce public debt. Current account deficits, although high, have been adequately financed, mostly by high FDI and inflows to the financial sector. To mitigate the risk of slowdown in reforms, the DPL series took a pragmatic approach by supporting reforms that were backed by a broad consensus and that would yield immediate benefits, while laying the necessary foundations required to accelerate other reforms in the future. 49. With regards to the risk of limited institutional capacity, the Bank helped the government to mitigate this risk by involving specialized Bank staff in the DPL dialogue on selected areas and by encouraging a public debate by publishing articles and technical notes. Additionally, the DPL itself is a catalyst between the different ministries involved in the reform program, thereby enhancing coordination. Also, the Bank’s portfolio in Mauritius is designed to strengthen capacity in a way that is tailored to the needs of a middle-income country. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization: 50. M&E Design: The indicators selected by this operation were carefully chosen to monitor progress towards the program development objectives and were designed in collaboration with the Government (MoFED and other sector ministries involved in the implementation). As such, the M&E design was fully client driven and built on the development strategy of the country. The accountability framework in the matrix was fully congruent with the Government’s Assessment Framework developed for budget support operations. By aligning the reform deliverables with the budget cycle, the series ensured that all sector ministries took direct responsibility for the policy agenda. The operation and associated policy measures were specifically tailored to the Government’s needs while the number of policy actions was limited and sequenced to keep the momentum going. A few indicators were amended in the second DPL. Under the first pillar, the indicator of “number of businesses with approved restructuring plans” was amended to “number of bank using out-of-court workouts” as this is a more reliable measure. Whereas restructuring plans are confidential, and therefore difficult to count, it is easier to ask the banks whether they will be using any out-of-court process in order to achieve restructuring, making the indicator more measurable. Under the second pillar on access to finance, the DBM indicators were changed to reflect the fact that the options could include a new commercial bank taking over the assets of DBM and catering to the MSME space. The indicators

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were changed from (i) Development Bank of Mauritius meets prudential requirements of the Central Bank; (ii) Reduction in interest subsidy to DBM and (iii) Increase in the number of loans to SMEs of less than MUR150, 000 to (i) DBM restructured by the sale of its non-banking assets; and (ii) A new licensed commercial Bank with a focus on the MSME segment established. 51. Under the third pillar, two indicators were re-stated. The original indicator “Increase in the number of homes that have access to download speeds of at least 10 Mbit/s and upload speeds of at least 5 Mbit/s by 2013.” was not technologically-neutral as it failed to address competitiveness because it is concerned only with residential usage rather than business usage. Furthermore, it is a supply side indicator, whereas, the indications are that Mauritius’s problems are more on the demand side. For these reasons, an alternative statement of this outcome indicator was defined as “Increase in number of broadband subscriptions with actual speeds of at least 10 Mbit/s”. 52. The second indicator was “a decrease in average monthly retail price of broadband ADSL 256 kbps with 3 GB allowance service to households”. Again, this indicator is not technologically-neutral in that it presupposes that Asynchronous Digital Subscriber Line (ADSL) is the relevant technology as opposed to fiber to the home (offered by Bharat Telecom) or 4G mobile (offered by EMTEL and Mauritius Telecom and soon by MTML). Furthermore, the indicator accepts the notion of a 3GB per month bandwidth cap, whereas such caps are being lifted in most competitive markets around the world. The subsidized entry level broadband price also uses a cap of only 2GB per month. A restatement of this outcome indicator was “a decrease in the price per 1 Mbit/s per month of broadband service (fixed) and/or per GB of data (mobile)”. By using a unit price rather than a price based on a current service, it should be easier to make comparisons between different services and to “future proof” the indicator for the days when data caps are lifted and slower speed services are no longer available. 53. M&E Implementation: MoFED was responsible for coordinating the supervision and monitoring of the reform program supported by this DPL series. MoFED liaised with the appropriate staff in the ministries, departments, and agencies involved. The Bank carried out periodic monitoring every 6 months through 3 Implementation Status and Results (ISRs), and conducted a dialogue with relevant line ministries and other stakeholders involved in the implementation of the reforms through field missions and through staff based at the Bank’s country office. MoFED, as the primary counterpart agency of these operations, was responsible for providing the Bank with the information required to follow progress on all indicators and monitor outcomes in the policy matrix. The data used for M&E purposes were all official data collected from the sector ministries, the Bank of Mauritius and Tele geography for the ICT indicators. 54. M&E utilization: Overall, the data was received in a timely manner and provided good indicators where reform was lagging which allowed for closer monitoring. The data and information provided by the MoFED and other implementing agencies on the status of the indicators was received in a timely manner. The continuous monitoring allowed for the identification of critical areas to focus on to move forward the agenda at a faster pace.

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2.4 Expected Next Phase/Follow-up Operation (if any): 55. Following the successful completion of both programmatic series, the one focusing on the public sector competitiveness and the other focusing on private sector development, the government engaged with the Bank to prepare a new series with three annual single-tranche DPLs of US$20 million with effectiveness date in June 2016. The new lending operations will build on the reforms supported by the previous programmatic DPL series and will support the country’s priorities identified through the Strategic Country Diagnostic (SCD) and incorporated in the new Country Partnership Framework (CPF).

3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation: Objectives: High 56. The program’s objectives remain relevant in the current country context. To pursue its vision of making Mauritius a higher value added, more diversified, and a skill-and-knowledge intensive economy (Country Partnership Strategy (CPS update, 2011), the Government is continuing to strengthen the institutional and policy environment for business growth while developing an overarching strategic policy framework for knowledge development and technology. In April 2012 the Government presented its new program for 2012-15, “Moving the Nation Forward” (MNF). The MNF program for 2012-15 sets the ball rolling for the economy to be part of the league of globally competitive economies and contains six pillars covering economic, political, social, and environmental issues. The Government intends to steer the economy away from its traditional export-reliance on European markets and to focus on the new centers of economic gravity, namely the emerging economies, the BRICS1 and geographically closer, continental Africa. 57. The high relevance of the objectives is also reinforced by the strong demand by Government for continued support in the Doing Business and Business Licensing reforms. Moreover, the preliminary findings of the Systematic Country Diagnosis report, currently under preparation, also point towards the need for continued reforms in the realm of business facilitation and enterprise development. Design: Substantial 58. The operation aimed at supporting competitiveness and enterprise growth in Mauritius through strengthened policy and institutional environment in three integrated and mutually reinforcing pillars (i) improving competitiveness and growth of enterprises; (ii) improving access to finance; and (iii) promoting ICT and e-Gov for enhancing competitiveness and transparency. The project design was consistent with the project’s objectives and remains relevant in the current context. The choice of the actions within each pillar was selected after in depth consultations with the government and the private sector on their relevance and was closely

1 BRICS is an acronym for the emerging economies of Brazil, Russia, India, China and South Africa

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aligned with the Government’s own program. Moreover, they were also based on analytical work carried out by the Government, other development partners and the Bank, most specifically from the extensive dialogue and analytical work that underpinned the MSDCP and (METAP) investment operations that focused on private sector competitiveness, enterprise growth and business environment matters.

59. To improve competitiveness and growth of enterprises, the operation supported the government’s objectives of improving entry, survival and growth of innovative and entrepreneurial firms and facilitating firm exit through strategic reorientation of SME support institutions so as to eliminate fragmented BDS assistance programs and improve the effectiveness of the program and to reduce the barriers to close a business through the establishment of a cost effective and efficient regime to allow business to exit a market or give the possibility to rehabilitate distressed businesses without forcing them into bankruptcy. To improve access to finance, the operation aligned with the government reform agenda of enhancing the credit visibility of entrepreneurs though the credit bureau reforms and facilitating registration of fixed and current assets as collateral through land titling reforms and secured lending transactions reforms to remove demand side hurdles, and on the supply side through the restructuring of the DBM into a MSME bank. On the pillar that relates to promoting ICT and e-Gov for enhancing competitiveness and transparency, the DPL actions supported the reform agenda of the government in signaling its long-term intentions clearly, credibly and convincingly though the adoption of the national broadband policy and some of its implementation measures such as (i) amendments to the ICT Act to introduce a definition of SMP and to equip the ICT Authority with the appropriate tools to regulate markets in which there is SMP and to encourage the development of independent ISPs, to streamline licensing and introduce spectrum management; (ii) the publication of guidelines for tariff setting that will promote transparency and, in the longer term, reduce the requirement for preapproval of tariffs by non-dominant operators; and (ii) introducing online payment of government services. 60. There was adequate government ownership of the DPO apparent through strong Borrower emphasis on ensuring high quality outputs. The program made efficient use of non-lending technical assistance (NLTA) through which support was provided to develop a pipeline of financial and private sector development policy reforms for the series. This proved to be a very useful tool, as it helped provide technical expertise and global best practice on policy and institutional issues informing policy dialogue. From the previous DPO series and cancelled Investment lending operations, it was clear that, in Mauritius, lending operations must include only reforms that are aligned with Government priorities and Government leadership and that are owned by line ministries. Moreover, flexibility to adjust and respond to Government’s evolving agenda is a key driver of success. In some areas, the reform process required more sustained dialogue and assistance, while in others the implementation was faster and smoother. The current DPL series successfully incorporated these lessons and proactively adjusted where needed. Implementation: Substantial 61. MoFED was responsible for monitoring the reforms, reporting progress and coordinating actions with the various ministries, department and agencies involved. The expected outcomes were outlined in the development policy matrix, which indicated the prior actions to be taken by

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the Government for each stage of the programmatic series. As indicated above, the World Bank team provided technical assistance and analytical support where appropriate to help achieve some of the triggers for the second operation. Even then, some reforms took longer than anticipated due to their highly political sensitivity and different government priorities. However, the Government ensured that the thematic content of the DPL was fully consistent with its development objectives. There were also instances where some reforms went further than anticipated due to strong stakeholder commitment. 3.2 Achievement of Program Development Objectives (including brief discussion of causal linkages between policy actions supported by the operation and outcomes): 62. The Program Development Objectives of the programmatic series is to strengthen the policy and institutional environment in Mauritius to support competitiveness and enterprise development. The operation would achieve this by supporting reforms around three integrated and mutually reinforcing pillars (i) improving competitiveness and growth of enterprises; (ii) improving access to finance; and (iii) promoting ICT and e-Gov for enhancing competitiveness and transparency. Pillar 1: Enterprise Growth and Competitiveness

63. The achievements under Pillar 1 toward the development objective have been substantial. Improving entry, survival and growth of innovative and entrepreneurial firms and facilitating firm exit are an important part of the creative destruction process that underpins economic growth. To support SME creation and survival, the Mauritian government already had undertaken several ―market completing interventions, focusing on skills and training, technology development, and information services gaps. However, many of the programs were considered as not meeting market needs of SMEs, were of mixed quality and were hampered by coordination challenges among the multiple agencies and between programs with overlapping objectives, roles and cumbersome procedures. Hence, the DPLs included the MoBEC engagement to strategically reorient SME support institutions so as to eliminate fragmented BDS assistance programs and improve the effectiveness of the programs. In the same vein, since firm exit is a necessary condition for economic growth, the DPL series also supported the government’s agenda to reduce the barriers to close a business through the establishment of a cost effective and efficient regime to allow business to exit a market or give the possibility to rehabilitate distressed businesses without forcing them into bankruptcy. 64. Under the first operation, MoBEC sought and obtained cabinet approval for the consolidation of its SME programs, including the establishment of the Inter-Agency Strategic Coordination Committee (IASCC) with the mandate to, inter alia, strategically reorient all the existing SME programs. The IASCC was to be guided in its work by the establishment of an M&E system to ensure that the Government receives value for money for its support through BDS schemes to enterprises. There are two types of BDS support. Generic support include including training and skills development; hand-holding services like business planning and coaching; product development and marketing support, quality control and standards, and support in technology upgrading. Specialized support include reimbursable financing, on cost-sharing basis, to buy specialized expertise in areas of skills and training, technology upgrading, standards and marketing that constrain firm growth and productivity. During the second

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operation, the IASCC was made operational and the Request for Proposal for the consultancy of the M&E framework was issued. The latter did not attract any international consulting firms as it was not published internationally. MoFED had to reissue the RFP with an emphasis on wider outreach to the international consultancy pool. An international consultant was eventually hired on October 01, 2013. The M&E framework was completed in May 2014. 65. These measures directly cause the availability of information and coordination among the various providers of business development services to increase which in turn will allow them to better direct entrepreneurs to the most appropriate SME agency. In this manner, the entrepreneurs can avail of the most appropriate SME programme tailored for their specific needs as evidenced by the meeting and surpassing of indicators 1 and 2. The number of enterprises accessing generic BDS increased to 555 showing that the target was met by 100% and overpassed by around 200 enterprises that received support. The number of enterprises accessing specialized BDS increased to 247, confirming that the target was met by 100% and surpassed by 100%. This is mainly due to the higher than anticipated uptake of the specialized services. The 2013 census on business activity show that while SMEs as a percentage of total enterprises has remained stable at around 90 percent, the number of SMEs has increased by nearly 36 percent. Employment by SMEs has also risen by 33 percent and has grown from employing 40 percent of the total labour force in 2007 to over 52 percent of the labour force in 2013. These measures demonstrate compelling progress towards the strengthening of the institutional framework in the SME sector as evidenced by achieving and exceeding the targets to increase the number of enterprises accessing both generic and specialized business development services.

66. On the credit environment front, the achievement made towards the development objectives has been substantial. The Insolvency Act 2009, while representing a significant advancement in the development of Mauritius’ insolvency framework, needed to be fully operationalized and implemented through significant secondary legislation that had remained outstanding. As part of the Prior Actions for DPL1, the GoM introduced regulations pertaining to Insolvency Practitioners’ qualifications and appointment. DPL2 further build upon these reforms to enhance the overall effectiveness of the country’s insolvency regime, and supported i) the Publication of rules of professional conduct for insolvency practitioners; and (ii) the establishment of procedures by the Director of the Insolvency Service to deal with the suspension and removal of insolvency practitioners from the Registry. These measures were under the original design of the DPO series and had already proved to be satisfactory. During the implementation of the second program, the country went further and published Out-of-Court Workout (OCW) guidelines to establish protocols on how to expedite reorganization of ailing business corporations which have viable future prospect by means of debt restructuring at an early stage. The OCW guidelines can be also accessed on the Insolvency Services official website. 67. The publication of the regulation on the professional conduct for insolvency practitioners ensure a more streamlined, transparent regulation of the profession and encourages professionals to engage in this field. This is evidenced through increase in the number of professionals who registered as insolvency practioners which went up by 100% and was also surpassed. With regards to the out-of-court workouts, the publication of these guidelines enables banks to use these as a means to renegotiate bad debts or non-performing loans while restoring liquidity and

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restoring the enterprise so that it can continue operating as a going concern. However, on the latter indicator, the uptake of the Mauritian guidelines by banks has been partially achieved (50%). International banks use the Insol guidelines rather than the Mauritian OCW guidelines. However, the reform further enhances the strengthening of the insolvency regime framework as also recognized by the improvement in the recovery rate for businesses from 35 cents in 2012 to 67 cents last year, under the Doing Business Resolving Insolvency indicator Indicators for Pillar 1 with baseline, target and actual values. Pillar Monitoring Indicators Baseline

value Target Value

Actual Value

ENTERPRISE GROWTH AND COMPETITIVENESS

Number of Enterprises accessing generic BDS increases.

200 250 555

Number of Enterprises accessing specialized BDS increases.

80 120 247

Development of an M&E Framework for BDS Schemes

No Yes Yes

Number of insolvency practitioners registered

0 50 61

Number of banks that have used the Out of Court Workout guidelines.

0 4 2 International banks use the Insol guidelines rather than the Mauritian OCW guidelines

Pillar 2: Improving access to finance 68. Access to credit is an important driving force in economic growth. The government reform priority is to increase access to finance to SMEs as well as micro enterprises. Although, aggregate data show that Mauritius is well banked relative to its peers and to sub-Saharan countries, granular analysis reveal a different picture. Indeed, almost 50 percent of all the firms surveyed and 59 percent of total SMEs consider access to finance as one of the top three constraints to doing business in Mauritius. Further analysis and consultation with stakeholders indicate that the constraint may be linked to both supply side issues along with the demand side factors outside the credit market. Therefore the DPL series has supported the policy objectives of the government through both demand and supply side measures. On the demand side, enhancing the credit visibility of entrepreneurs though the credit bureau reforms and facilitating registration of fixed and current assets as collateral through land titling reforms and secured lending transactions reform, and supply side through the restructuring of the DBM into a MSME bank as per the Government‘s intention as announced in the Budget speech of 2012. Through complimentary policies aided by this DPL’s dialogue on access to finance, the government has provided further funding of Rs 7 billion to SMEs throughout 2011 to 2015, notably by setting up a scheme for manufacturing companies to modernize their equipment through Foreign Currency

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Leases for an aggregate amount of Rs 1 billion; bank lending to SMEs totaling Rs4.8 billion for the same period and the setting of a specialized financial institution, under the Banking Act, that will serve the micro to small enterprise niche segment. Under this pillar, the DPL has been modest in achieving the development objective of strengthening the policy and institutional environment.

69. This component addressed both the demand and the supply side constraints to access to finance. On the supply side, the DPL series supported an increased access to SME finance through the establishment of a licensed bank with a focus on MSMEs through restructuring the existing state-owned Development Bank of Mauritius by (i) getting rid of its non-performing loans and real estate activities and (ii) looking for a strategic partner for equity injection and managerial participation. Under DPL1, Cabinet approved the decision to transform DBM into a financially viable MSME Bank, licensed by the Central Bank, and with private sector involvement. Under the second operation, the restructuring was initiated by the appointment of a transaction advisor, endorsement by steering committee of an inception report and the issuance of letters of invitation to potential investors for the sale of DBM’s non-banking assets. The Mauritian authorities were in talks with the Government of India in view of a strategic participation of the Bank of Maharashtra in the equity of the Mauritian SME bank. With elections leading to a change in government in India in April/May 2014, there have been delays to the ongoing negotiation talks between the two governments. Following failed negotiations between the Mauritian authorities and Small Industries Development Bank of India (SIDBI), the new government decided to go ahead with a new institution, an SME bank oriented towards micro and small enterprises, under a new type of license, that of a Specialized Financial Institution under the Bank of Mauritius. Legislations for this purpose have already been passed and MoFED is working towards operationalising the SME Bank in August. Hence, while the strategic partnership with DBM did not materialise, the restructuring exercise within DBM has been and is still ongoing. A new Board is in place and emphasis in being placed on reviewing the role of DBM within the new landscape. Since the reforms have been delayed and given that the two results indicators were not met, the program of support towards restructuring DBM is deemed to be negligible.

70. On the demand side, the DPL series provided support to the credit environment through (i) under DPL 1, an improvement in the time taken to register property from 15 days to 2 days through the enactment of legislation amending the Transcription and Mortgage Act in order to prescribe a time limit consistent with business standards to register property and (ii) under DPL 2, Government approval to further facilitate the use of movable and intangible assets as collateral and to establish a modern movable collateral registry with the completion of the necessary legislative amendments. Although all the necessary amendments have been carried out and all stakeholders have been consulted, the laws have not yet been passed as the parliament has been on leave. The amendment of the Transcription and Mortgage Act in order to statutorily prescribe time limits to register property has brought down the number of days to register immovable property to 2 days. The second indicator is in progress as legal amendments to enable secured transactions have been completed but have not yet received cabinet approval since the parliament has been on leave. The results are favorable and point that the success towards achieving the development objective of strengthening the policy environment has been modest.

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71. The DPL also aimed to support a healthy credit environment though an expansion of borrower information collected by the Mauritius Credit Information Bureau (MCIB) that was established in December 2005 by the BoM as a public registry. Under DPL1, The coverage of the credit information bureau is expanded to include all non-bank financial institution and under DPL2, information from utility bodies was added through amendments to the Bank of Mauritius Act. Further, in order to facilitate the transfer of data from the utility companies to MCIB, there have been system enhancements that have been undertaken to facilitate data transfer and decrease the transactions costs involved. The statutory increase in data capture has led to an increase in coverage from 407,160 customers in June 2011 representing 49.8 percent of the adult population to covering 554,809 registered entities representing 67.8 percent of the population in December 2012, whereby the indicator 14, i.e. the increase in the coverage of the credit bureau, was met by 100% and surpassed by 4.56 percentage points The achievement on this front is substantial. Indicators for Pillar 2 with baseline, target and actual values. Pillar Monitoring Indicators Baseline

value Target Value

Actual Value

IMPROVING ACCESS TO FINANCE

DBM restructured by the sale of its non-banking assets

No Yes No- In Progress

A new licensed commercial Bank with a focus on the MSME segment established

No Yes No- In Progress

Reduction in time taken to register property

15 days 2 days 2 days

Completion of necessary legal amendments to facilitate secured lending transactions

No Yes No In progress

Increase in coverage of the Credit Information bureau

50% 70% 74.56%

Pillar 3: Enhancing ICT and e-Gov Support for Increased efficiency and Transparency Gains 72. ICT is considered a key pillar for supporting competitiveness and has proved to have significant positive spill-over effects on other sectors of the economy. The DPL series aimed at strengthening the policy landscape and support the objective of the government to make ICT the “fifth pillar” in the national economy contributing at least 7 percent of national GDP. For this to happen, operators need to invest in these networks, and to reassure and entice them, governments have to signal their long-term intentions clearly, credibly and convincingly. In this vein, the Mauritian authorities have spelt out a national policy that will guarantee the predictability to the business environment while at the same time aims to achieve robust competition that will improve consumer welfare through lower prices, more abundant offerings and an increased set of choices. The DPL actions supported the reform agenda of the government in this area and achievement of objective is high in strengthening the policy and institutional environment.

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73. ICT is considered a key pillar for supporting competitiveness and has proved to have significant positive spill-over effects on other sectors of the economy. The DPL series aimed at strengthening the policy landscape and support the objective of the government to make ICT the “fifth pillar” in the national economy contributing at least 7 percent of national GDP. Under DPL 1, Cabinet approved (i) the National Broadband Policy, and (ii) amendments to the ICT Act to introduce a definition of SMP and to equip the ICT Authority with the appropriate tools to regulate markets in which there is SMP and to encourage the development of independent ISPs. Under DPL 2, ICTA published the guidelines for tariff setting that will promote transparency and, in the longer term, reduce the requirement for preapproval of tariffs by non-dominant operators, thereby promoting greater price innovation. Draft legal changes to pertinent sections of the ICT Act 2001 related to licensing were adopted by the ICTA Board and submitted to parliament for approval. The amendments were made to recognize class licenses and introduce a new section 24B on spectrum management. This inter alia has created a framework for allowing spectrum auctions, spectrum sharing and even secondary spectrum trading. The achievement of the objective of strengthening both the policy and institutional environment in this area is high. Progress has gone beyond the intended trigger as collection of market level data was completed, market assessments for significant market power in two markets considered bottlenecks were completed, followed by stakeholder consultations, feedback from which were incorporated into the tariff guidelines that have been published on ICTA’s official website. 74. The strategy and legal reforms gave a clear signal to the private sector on the way the authorities will govern the sector and hence guaranteed predictability of the business environment. The market responded by more abundant offerings and an increase in consumer welfare through lower prices. Consequently, consumers responded by a higher uptake of broadband subscriptions as evidence through the targeted indicator ‘Increase in number of broadband subscriptions with actual speeds of at least 10 Mbit/s’ being achieved at 100% and surpassed by 15.9%. Similarly indicators 17 and 18 show that the prices of broadband services have decreased: fixed broadband prices have dropped by 10%, as per target and mobile broadband prices have dropped by 58%, over the target of 10%. All indicators were either achieved or exceeded. Moreover, Mauritius is doing relatively well in the information and communications technology (ICT) sector in terms of price, access, and coverage as benchmarked against other upper middle-income countries. The country’s domestic operators accounted for a total of 167,000 high-speed Internet subscribers as of June 2014, up from 147,000 in 2013. The overall broadband household penetration rate is 47.3 percent, above the upper middle-income average of 32.7 percent and well above the African average of 4.3 percent 75. For the E-Government Component, the prior action for DPL1 was intended to support the Government’s efforts to promote the widespread adoption and use of public key infrastructure (PKI) which is a secure encryption technique, to execute secure electronic transactions. In order to do so, the Electronic Transactions Act was amended and the Electronic Transactions (Certification Authorities) Regulations 2010 came into effect on December 1, 2010, providing for the licensing framework as well as the regulation of Certification Authorities (CA) activities in Mauritius. ICTA was nominated as the Certification Authority for PKI and serves as the root authority for issuing digital signature certificates. To build on this progress, the MoICT concluded a contract with a competitively selected partner for the development of a Government Services Platform, based on PKI, which will support a wider range of government services, some of which may replace paper-based alternatives (such as secure email replacing memos) but

37

others of which are new (for instance, permitting the use of credit cards to pay for services such as online business registration). The adoption of public key infrastructure (PKI) makes electronic transactions safe and secure and consequently it was meant to encourage the uptake of online payment of government services. For this to happen, public services had to be made available online. The availability of these services was lower than anticipated by closing date of DPL, as the introduction of the key public services that can be executed online include online application and payments of services for incorporation of a company, annual registration fees of a company, and ePayment for the lease of state land was introduced in a phased manner and required extensive communication efforts. Results are, however, meant to be demonstrated through the number of public services that can be executed via secured online transactions and while, the DPL original target was to have 15 such eservices available, the target was modified downwards to 10, and was still partly achieved (70%), due to cautious uptake. Despite the number of e transactions as measured by the lending series indicators are below target, the government has made good progress on other fronts such as achieving a 95% uptake in the e-filing of income tax and an overall broadband household penetration rate of 47.3 percent, above the upper middle-income average of 32.7 percent and well above the African average of 4.3 percent. Both policy and institutional environment reforms have been assessed as high in achievement of objectives and are a concrete stepping stone for future developments.

Indicators for Pillar 3 with baseline, target and actual values. Pillar Monitoring Indicators Baseline

value Target Value Actual Value

ENHANCING ICT AND E-GOV SUPPORT

Increase in number of broadband subscriptions with actual speeds of at least 10 Mbit/s

300’200 +15%, i.e. 345’230

648’300 (+115.9%)

Decrease in the price per 1Mbit/s per month of fixed broadband service to business

US$27.83 -10%, i.e. US$25.05

US$25.06 (-10.0%)

Decrease in the price per 1Mbit/s per month of mobile broadband service

US$17.83 -10% , i.e. US$16.05

US$7.50 (-58%)

Number of public services that can be executed via secured online transactions

0 10.00 7

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3.3 Justification of Overall Outcome Rating: 76. Based on the combined assessment of achievement of development objectives and relevance of objectives/design, the program overall outcome rating is Satisfactory. This rating takes into account that while the current relevance of objectives was high, relevance of both design and implementation was substantial and that the achievements under two of the three pillars were either high or substantial, the achievements of the other pillar were modest. 77. The achievements under Pillar 1 toward the development objective have been substantial. There has been compelling progress towards the strengthening of the institutional framework in the SME sector as evidenced by achieving and exceeding the targets to increase the number of enterprises accessing both generic and specialized business development services and on the improvement in the insolvency framework and regulation. Reforms under the second pillar have been modest in their contribution towards the development objective with negligible results on the restructuring of the SME bank, modest results with the consolidation of the secured transactions framework and substantial results achieved in the provision of credit information. The contribution of the DPL actions under the third pillar towards the development objective has been high. Progress has gone beyond the intended triggers and all indicators were either achieved or exceeded for the provision of internet and partly achieved for the uptake of the ePayment facilities for services 3.4 Overarching Themes, Other Outcomes and Impacts (if any, where not previously covered or to amplify discussion above): (a) Poverty Impacts, Gender Aspects, and Social Development 78. The DPL Series was expected to have the potential to deliver positive impacts on poverty over the medium term. Both the improvement of investment climate, strengthening of SME programs and improving access to finance are expected to have significant, if indirect, poverty and social benefits. Employment generated by SMEs has increased by 13 percentage points to represent 53% of total employment from 2007 to 2013. Over the period 2011 to 2014, the Global Competitiveness Index also makes mention of the progress of Mauritius in rank (from 55th to 39th), in score (from 4.3 to 4.5 out of 7) and in stage of development (from the efficiency driven stage 2 to the transition stage between 2 and 3). The measures aimed at raising private sector competitiveness and eventually increasing investment, including FDI, are designed to support a virtuous cycle of growth, employment generation and productivity gains. Reform measures supported by the three pillars are targeted at decreasing business costs and creating better conditions for private local and foreign investments and ultimately leading to job creation. The rationalization of SME programs was aimed at improving the capacity of GoM to provide targeted business development services. The progress that has been made in implementing these reforms supported by the DPL series will yield direct benefits to lower income segments of the population.

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(b) Institutional Change/Strengthening (particularly with reference to impacts on longer-term capacity and institutional development): 79. This DPL series was instrumental in advancing reforms that have led to a substantial amount of institutional development and capacity building, especially in the areas of coordination among BDS provision to SMEs, and enhancement of the regulatory powers of the ICT Authority. The capacity of utility bodies to transfer data to MCIB has also improved through system enhancements. Workshops were carried out for all relevant stakeholders on the registration and deregistration of Insolvency Practitioners. The Registrar General now takes 2 days to register immovable property, in line with international business standards. The access to finance dialogue as part of the DPL has also contributed to other reforms undertaken by the government under this component, the most notable one being the amendment to the Banking Act to introduce a new class of financial institutions to serve the SME niche segment. 80. These developments were important to enable the Government to ensure that policy decisions are indeed institutionalized and implemented. (c) Other Unintended Outcomes and Impacts (positive and negative): 81. In some areas, the implementation of the reform program has realized much more benefits than was anticipated during the design of the program (insolvency practice, MCIB, ICT related measures. In others, it emphasized the need to strengthen coordination among the various departments/ministries to avoid duplication of efforts and waste of resources (provision of BDS for SMEs). The DPL also enabled exploring new areas of engagement, such as on deposit insurance, included in the preparation of the 2013 DPL on Competitiveness. 3.5 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops (optional for Core ICR, required for ILI, details in annexes):

4. Assessment of Risk to Development Outcome Rating: Moderate 82. The risks that development outcomes or expected outcomes will not be maintained or realized are moderate. This assessment takes into account both the probability and likely impact of threats to outcomes. It considers how these have been mitigated in the operation’s design or by actions taken during its initial implementation. 83. Macroeconomic stability was identified as a moderate risk. On the external side, the Mauritian economy was (and still is) exposed to uncertainty in the global economic climate which will impact negatively on the growth of GDP and tax revenues. The concentration of the country’s exports on a few markets (Europe) and products (tourism and textiles) and its large share of imported commodities could further increase the current account deficit. Despite this difficult environment, the government started consolidating the fiscal deficit and reducing public debt.

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84. The Mauritian economy has proven its resilience in 2012 with 3.4 percent GDP growth despite all the headwinds to growth. Furthermore, the increasing levels of foreign exchange reserves (projected to be at six months of imports in the medium term) provided an additional buffer against a potential deterioration in the balance of payments. Mauritius’ floating exchange rate also facilitated correction of external imbalances. The recent trend towards reorienting exports towards new markets (particularly Africa) also helped. On the fiscal front, the slowdown in the growth of public revenues has been more than compensated by the containment of public expenditure, with a reduction of the fiscal deficit and public debt. The government also extended the maturity of the public debt, further reducing roll-over risks, as the majority of debt is domestic and there is currently excess liquidity in the domestic capital markets. Macroeconomic stability was maintained. 85. Slowdown of reforms because of political risks is significant: The pace of reform in Mauritius slowed in recent years and the appetite for further aggressive reform appears modest at this time. This reflects the fact that many of these second generation reforms are meant to have a redistributive effect, sometimes eliminating the rents, subsidies and privileges of certain groups. This complexity is further compounded by the withdrawal of one party from the Government coalition in July 2011 which has translated into only a slim Government majority in Parliament. 86. To mitigate this risk, the DPL series coincided with the remainder of the current majority’s term of office and was aligned with the country’s priorities on supporting an SME agenda for inclusive growth and reforms for engendering competitiveness and growth to generate better conditions for job creation. Going forward, the Strategic Country Diagnostic (SCD) that is currently under preparation, in partnership with national authorities and other stakeholders, is expected to aid the government in defining its engagement with the Bank and possibly inform their own reform agenda. Finally, better communication is critical to building consensus around the reforms, using visits to Mauritius by high level practitioners and management to raise awareness and understanding about the reforms and their benefits. 87. Capacity constraints posed a moderate risk: The DPL series required an active role of sector ministries such as the MoBEC and MoICT. Institutional capacity of sector ministries to design and implement these sector reforms was limited, particularly in the newly created ministries. To mitigate this risk, the DPL positioned itself as a way to build bridges between the different ministries involved in the reform program, thereby enhancing coordination. Going forward, the Services Agreement for NLTA to support institutional capacity that was signed between the Bank and the Government would also help mitigate this risk. 88. The fourth risk relates to corruption with high-level allegations of corruption e under investigation by the Independent Commission Against Corruption (ICAC). The risk of corruption was mitigated by the fact that Government appears to be supportive of ICAC and respectful of its independence as well as the fact that the financial systems in Mauritius, as documented in the 2010 Public Expenditure Financial Accountability (PEFA) report, appear robust, suggesting relatively minimal risk to the proceeds of the loan. This risk is negligible, and did not affect the implementation of the lending series and was removed as a risk in the second operation.

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5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry (i.e., performance through lending phase): Rating: Satisfactory 89. Bank performance in ensuring quality at entry was satisfactory. The program supported a comprehensive structural reform program which remained the priority of the Government throughout the operations and is of relevance to date. The policy changes in the reform program responded to the medium term challenges that the country faced at the time of the start of the program, as well as short term challenges at the beginning of each operation. Prior to and during the start of the preparation of this programmatic series, the Bank and other donors carried out extensive AAA work. The DPL and the CPS are closely linked and the great majority of the DPL’s actions and triggers are drawn from the CPS. The design of this operation applied lessons learned from the Bank’s previous engagement. The program adequately evaluated institutional, fiduciary and environmental aspects. In each operation, risk assessments were made and mitigating steps were implemented. The programmatic DPL series was both client-driven and client-focused and was the result of a fast and efficient response to the Government when it cancelled two Investment Lending operations. (b) Quality of Supervision (including M&E arrangements): Rating: Satisfactory 90. The focus of supervision was on the development objectives and outcomes indicators, which was facilitated by locally-based staff. Since this program was a programmatic series, the program benefited from the supervision of DPL1 being conducted side by side with preparation of DPL2. This has allowed for the progress of the reform program to be adequately documented and for the need for technical assistance to advance the program to be well- defined. It also allowed the Bank to understand the political economy and capacity at different ministries/ agencies and the reasons why reforms advance faster in some areas. At the same time, there were areas where reform went beyond envisaged triggers and more was achieved than originally set forth. In these areas, the Bank was responsive in providing assistance and desk review of documents to ensure quality control. Progress on the program was also being tracked during the annual business planning meetings between the Government and its development partners. (c) Justification of Rating for Overall Bank Performance: Rating: Satisfactory 91. Overall Bank performance was satisfactory. According to ICR Guidelines, the overall ratings are dictated by the combination of ratings for Quality at Entry and Quality of Supervision. A combination of satisfactory ratings at quality at entry and for supervision implies a combined rating of satisfactory.

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5.2 Borrower Performance 92. In this operation, the Government and implementing agency cannot be distinguished separately. Therefore the rating in this section should be considered as an overall rating for the borrower. The Ministry of Finance was the driver and coordinating body for the reform program. It was responsible for the overall management of the reforms. 93. The overall Borrower’s performance is rated Satisfactory. 94. The satisfactory rating reflects the determination exhibited by the Government to implement a politically difficult (but economically essential) reform program and the steady progress achieved therein by the time of project closure. The program built on the reforms supported by the previous programmatic DPL series, with which the government was familiar. The Ministry of Finance continuously ensured that the substance of the reform program was kept on track and identified funding requirements for the reform implementation, so that these requirements were included in the budget. 95. Given the bold and far-reaching nature of some of the reforms being implemented and the associated political sensitivities, the passage of key legislation through the National Assembly was bound to take time. Stakeholders were adequately consulted for all major reforms, as per the agreed process and the provision of the legislation. Given that some line ministries showed weak capacity in the implementation of the reform program, the Sector Ministry Support Team at the MOFED were instrumental in the opportune resolution of implementation hurdles, the reformulation of some actions for the DPL and the timely collection of data for the M&E framework. 96. Fiduciary arrangements in the country were already reliable when the first operation was designed. The Ministry of Finance also organized regular meetings with development partners to take stock of on-going engagement and ensuring that there were no duplications of efforts and resources. The private sector was always fully involved at all stages of the program.

6. Lessons Learned

97. Lesson 1: The new programmatic DPL series was prepared in tandem with the Public Sector Performance (PSP) DPL series and led to an integrated dialogue with the client, and joint internal processing, and targeting with better results. This Project thus showcases the remarkable tripartite collaboration among three sectors – FPD, HDN and PREM - under a tight time line. Simultaneous preparation and processing of the two projects, allowed the two teams to cross-fertilize ideas and foster partnership in the interest of a higher quality product for the client. This was recognized by the Board at the time of presentation. Moreover, the Bank team also worked with other development partners such as African Development Bank, and the European Union (EU) to leverage on dialogue and concerted messages (e.g. ICT and e-Gov). 98. Lesson 2: The PSC DPL series serve as an example of the Bank’s responsiveness and agility to meet a Middle Income client’s development priorities more geared towards policy and institutional support as opposed to public investment and capacity building. The Bank team used

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this as an opportunity to adopt an innovative approach to successfully transform two low-disbursing investment loans into a DPL series while still focusing on the competitiveness agenda. It may be noted that the PSC DPL I team received the Africa VPU award in 2012 as recognition of the Bank’s responsiveness to the client and innovative approach. 99. Lesson 3: The loan was designed to include a certain degree of flexibility to allow the government to adapt the reform program as needed over time. In this manner, the lending series acknowledged areas where the country made significant efforts beyond what was expected. In the lagging areas, the necessary building blocks were put in place to ensure that the reforms take place progressively as in the case of the restructuring of the DBM where consensus for reform existed but the timeline was extended to take into consideration negotiations with another government on the selection of a strategic advisor. 100. Lesson 4: Throughout the process of Project design and preparation, the government placed great value on the knowledge package accompanying the DPL which contributes to reform planning and implementation. The Mauritian Government had recently cancelled two ILs but continued to request the Bank for technical assistance, analytics and policy dialogue. This brings to the forefront the issue of Middle Income Countries that can raise finds on the open market but still wish to maximize access to the Bank’s advisory services, analytics and technical assistance without the associated administrative requirements of lending instruments. This calls for continuous improvement of Bank lending instruments to suit the requirements of this ‘emerging’ client segment. 101. Lesson 5: The Results Framework was realistic and with clear baseline data and targets that allowed proper monitoring of progress towards performance. Implementation and monitoring of progress of the series was facilitated by regular updates from the ISRs. The supervision of the project with frequent missions and field based staff was pivotal to timely resolution of issues encountered.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing Agencies: The Borrower received a copy of the draft document and responded jointly to both this ICR and the ICR for the Public Sector Performance DPO series. The authorities concurred with the overall gist of the reports. They agreed that the results and monitoring framework were well aligned with the budget and cycle and policy actions were reasonable and enable strong sector ministry accountability. They agreed that the lessons learned were useful and should be incorporated in the future when other such operations are designed. The other issues raised by the Borrower on the DBM have been dealt with in the main text. (See Annex D below for the official comments received on June 2105 from the Ministry of Finance and Economic Development). (b) Co-financiers: Not applicable

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(c) Other partners and stakeholders (e.g. NGOs/private sector/civil society): None received

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Annex A. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members

P126903 - MU – FIRST PRIVATE SECTOR COMPETITIVENESS DPL

Names Title Unit Responsibility/ Specialty

Lending Asya Akhlaque Senior Economist GTCDR Task Team Leader Mariella Beugue Program Assistant AFMMU Fadila Caillaud Education Economist GEDDR Wolfgang Chadab Senior Finance Officer Alvaro Gonzalez Senior Economist GTCDR Dorothy Judkins Program Assistant AFTFP-HIS

Patrick Kabuya Senior Financial Management Specialist GGODR

Smita Kuriakose Economist GTCDR Khoudijah B. Maudarbocus-Boodoo PSD Specialist GTCDR Co- Task Team

Leader Rafael Munoz Moreno Senior Economist GMFDR Vasish Ramkhalwon Operations Officer AFMMU-HIS Lova Niaina Ravaoarimino Procurement Specialist GGODR Sawkut Rojid Economist AFTP1-HIS Raj Soopramanien Lead Counsel LEGAF-HIS P132510 - MU – SECOND PRIVATE SECTOR COMPETITIVENESS DPL

Names Title Unit Responsibility/ Specialty

Lending Asya Akhlaque Senior Economist GTCDR Solange Alliali Lead Counsel AFCRI Wolfgang Chadab Senior Finance Officer Brinda Devi Dabysing PSD Specialist GFMDR Yeshareg Dagne Program Assistant GFMDR Shahrzad Mobasher Fard Research Analyst GTCDR

Aurora Ferrari Service Line Manager, Financial Inclusion Practice GFMDR

Patrick Kabuya Senior Financial Management Specialist GGODR

Tim Kelly Senior ICT Policy Specialist GTIDR

Smita Kuriakose Economist GTCDR Task Team Leader

Andrew Lovegrove Consultant GSPDR Antonia Preciosa Menezes PSD Specialist GFMDR Rafael Munoz Moreno Senior Economist GMFDR

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Nataliya Mylenko Senior Financial Sector Specialist GFMDR Khurshid Banu Noorwalla Program Assistant GSPDR

Vasish Ramkhalwon Operations Officer AFMMU-HIS

Kailash Sharma Ramnauth Senior Investment Officer CAFE6 Andrew Singer Consultant GTCDR Mahesh Uttamchandani Lead PSD Specialist GFMDR Supervision

(b ) Staff Time and Cost: P126903: MU Private Sector Competitiveness DPL Staff Time and Cost (Bank Budget Only)

Stage of Project Cycle No. of staff weeks USD thousands (including travel and consultant costs)

Lending FY11 6.95 78.36 FY12 40.65 194.49 Total 47.6 272.85 Supervision/ICR FY12 0 0.08 FY13 0 -0.89 Total -0.81 P132510: MU Second Private Sector Competitiveness DPL Staff Time and Cost (Bank Budget Only)

Stage of Project Cycle No. of staff weeks USD thousands (including travel and consultant costs)

FY13 34.53 212.56 Total 34.53 212.56 Supervision/ICR FY14 0.73 3.04 FY15 1.24 12.94 Total 1.97 15.98

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Annex B. Beneficiary Survey Results

Not applicable

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Annex C. Stakeholder Workshop Report and Results

Not applicable

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Annex D. Summary of Borrower's ICR and/or Comments on Draft ICR

50

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From: I. Bonomaully [mailto:ibonomaully@govmu.org] Sent: Wednesday, June 10, 2015 2:41 PM To: Brinda Devi Dabysing Cc: Smita Kuriakose; 'Gerard Bussier' Subject: ICR for Mauritius Private Sector DPL Series for your review and comments

Dear Brinda

Plz see my comments on para 69 as under:

The decision not to go ahead with SIDBI/Bank of Maharashtra was not from Mauritian Government. In fact, Mauritian Authorities had meetings with Indian counterparts in India to push forward the project and a follow up letter was even sent. However, the Reserve Bank of India did not approve the request from SIDBI to invest in Mauritius.

Following this event, the Mauritian new Government decided to go ahead with a new SME Bank, which will be essentially MSME oriented and which will operate as a Specialised Financial Institution under the Bank of Mauritius. Legislations for this purpose have already been passed. MoFED is working towards operationalising the SME Bank in August.

Though the strategic partnership with DBM did not materialise, the restructuring exercise within DBM has been ongoing. A new Board is now in place and emphasis in being placed on reviewing the role of DBM within the new landscape.

Hope above meets your expectations.

Rgds

Vikash Bonomaully

Lead Analyst, MoFED

201 2491/ 5756 9110

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Annex E. Comments of Co-financiers and Other Partners/Stakeholders

None received

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Annex A. List of Supporting Documents

Bank of Mauritius Website, accessed at https://www.bom.mu

International Monetary Fund, IMF Country Report No.12/62, 13/97 and 14/107, Mauritius, Staff Report for the 2012 Article IV Consultation, March 2012.

International Monetary Fund, IMF Country Report No., 13/97 and 14/107, Mauritius, Staff Report for the 2013 Article IV Consultation, April 2013.

International Monetary Fund, IMF Country Report No.14/107, Mauritius, Staff Report for the 2014 Article IV Consultation, May 2014.

Legal Agreement for Loan numbers 8248-MU and 8139-MU

Letter of Development Policy for Loan numbers 8248-MU and 8139-MU

Mauritius, Ministry of Finance and Economic Development, Statistics Mauritius on line at: http://statsmauritius.govmu.org/English/Pages/default.aspx

http://statsmauritius.govmu.org/English/Publications/Pages/2013-CEA-Small.aspx

http://statsmauritius.govmu.org/English/Pages/2007-Census-of-Economic-Activities---Phase-I-(Small-Establishment)-.aspx

Mauritius, Ministry of Finance and Economic Development, on line resources at: http://mof.govmu.org/English/Legislation/Documents/Finance%20(Miscellaneous%20Provisions)%20Act%202015.pdf

Mauritius, Revenue Authority press communiqué on line at: http://www.mra.mu/index.php/media-centre/communique

TeleGeography report on Mauritius, July 31, 2014 accessed at www.telegeography.com

World Bank Country Partnership Strategy for Mauritius, Report 37703-MU, October 12, 2006

World Bank Country Partnership Strategy Progress Report for Mauritius, Report No. 59966-MU, April 11, 2011

World Bank Doing Business Reports for 2012, 2013, 2014 and 2015 accessed at www.doingbusiness.org

World Bank Note of Cancelled Operations for Manufacturing and Services Development and Competitiveness Project, P112943, December 13, 2012

World Bank Note of Cancelled Operations for the Mauritius Economic Transition Technical Assistance Project, P105669, 25 June 2013

World Bank Implementation Status Reports for the first and second Private Sector Competitiveness Development Policy Loan: Sequence 1, August 06, 2012; ISR 11086, July 10, 2013; ISR 13085, 26 Dec 2013

World Bank, Program Document for the Public Sector Reform Development Policy Loan, Report No. 61571-MU, February 27, 2012.

World Bank, Program Document for the Second Public Sector Reform Development Policy Loan, Report No. 61571-MU, February 25, 2013.

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World Bank, Program Document for the Private Sector Competitiveness Development Policy Loan, Report No. 65915-MU, February 27, 2012

World Bank, Program Document for the Second Private Sector Competitiveness Development Policy Loan, Report No.73083-MU, February 25, 2013

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MAP IBRD 33446

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