• Reference: P-NG-K00-005
• Appraisal Date: 09/11/2012
• Board Presentation: 20/02/2013
• Status: LendingLEND
• Implementing Agency: GOVERNMENT OF NIGERIA
• Location: Nigeria

Programme description

4.2.2 Program Components: The program will have two components:

(i) strengthening public expenditure management; and

(ii) improving transport sector governance to enhance accessibility and sustainability of public investment in road infrastructure. The rationale for the choice of these components is two-fold: they are complementary and they are areas in which the GoN needs to urgently accelerate the implementation of reforms to support its development agenda. Weakness in PFM has impact on the road transport development in terms of investment planning, expenditure execution, transparency and accountability, as well as efficient procurement. These weaknesses lead to an increase in the fiduciary risk, deterring investment in infrastructure or not allowing for adequate maintenance. On the other hand improved budget planning and execution and procurement capacity will accelerate implementation of quality road transport development programs and projects in the country. Component 1: Strengthening Public Expenditure Management

4.2.3 Challenges and Constraints: The initial Country Financial Accountability Assessment (CFAA) conducted on Nigeria in 2000 concluded that the systems for planning, budgeting, monitoring and controlling public resources had deteriorated to levels that did not provide assurance that resources would be used for the intended purposes. At that point, the risk of misuse, waste and diversion was considered high. The CFAA (2000) kick- started a series of Public Financial Management (PFM) reforms that are today still ongoing. The Government has been pursuing fiscal and public financial management reforms since 2003. Initial progress in implementing the CFAA (2000) recommendations was confirmed in a follow up review conducted in January 2005, which in turn was followed closely by a Public Expenditure Management and Financial Accountability Review (PEMFAR) conducted in 2006. Recommendations of these studies, which were well received by government, culminated in the enactment of the Fiscal Responsibility Act 2007, the Public Procurement Act 2007, and later in the Financial Reporting Council of Nigeria Act 2011. However, the implementation of these Acts has been slow, although there has been a marked improvement during the last year.

4.2.4 In 2012, to gauge progress in implementation of the ongoing PFM reforms, a Federal level Public Expenditure Financial Accountability (PEFA) assessment was conducted by the government with the assistance of the Development Partners. The PEFA is still at the draft stage, but preliminary indications are that the pervasive weaknesses still exist, especially as regards the critical area of external oversight and legislative scrutiny of the annual audit, with the Public Accounts Committee still considering the 2006 and 2007 Audit Report. While awaiting the approval of a new and up-dated Audit Act by the National Assembly for approval, the Office of the Auditor General (OAuG) still operates on the basis of an outdated Audit Act passed way back in 1956. Government Internal Audit is still integrated in the Office of the Accountant General of the Federation (OAGF), contrary to the dictates of good practice. The 2013 Budget is largely prepared outside the new Government Integrated Financial Management Information System (GIFMIS), however being the expectation is that a few MDAs will pilot the use of the new system for both budget preparation and execution.

4.2.5 Recent Government Actions: The government has introduced a National Strategy for Public Service Reform with one of the pillars being PFM reform. In order to get the best results, there is a need to sustain and sequence the reform measures. To this end, the government approved a new Chart of Accounts, and is implementing the GIFMIS, which went live in April 2012, with resultant improvements in Cash Management (through the introduction of the Treasury Single Account (TSA), Budget M onitoring, and Financial Reporting among other. This is, however, only the first year of implementation of the system (with the TSA now covering about 48% by value of all payments). A lot more still needs to be done to fully roll out the GIFMIS, as well as implement other critical reforms.

4.2.6 Program Activities: Under this component, the proposed operation will support government action to deepen PFM reform in the areas of public spending in infrastructure, treasury management, procurement and audit.

Improving public spending in road transport development

4.2.7 The proposed operation will provide support to the 2013-2014 budgets' objective of maintaining fiscal stability and continuing emphasis on prioritizing investment in infrastructure development. Public investment in infrastructure is a top priority since infrastructure is considered as a major constraint to economic growth and poverty reduction in Nigeria. One of the main reasons for Nigeria's poor road infrastructure is its poor use of public funds and ineffective budgeting. In view of this, the government require US$ 20 billion investment in infrastructure over the next 10 years, and a total of sixteen (16) flagship road projects have been identified as priority for the next 2-3 years. The medium term investment needs for the road transport sector shows an overall funding gap of approximately 44% which is expected to be financed through borrowing from external sources, infrastructure bonds, public private partnership concessions and federal government budget (Technical Annex 7). The proposed operation will help to add value through the additionality of the increased disbursements, and fund additional spending by federal governments in road transport sector, in FY2013, and FY2014 through sustained increase in the federal budget. The government will be expected to fulfil these commitments during the life span of the proposed project. The additionality principle further implies that the Federal Government will maintain the sectoral allocation as a minimum, starting from the base year of FY 2012. Additionality review will be carried out to ensure that agreed increases in resources are made available to road sector increases commensurately.

Improving practice in cash management, accounting and reporting

4.2.8 The proposed Operation will complement the on-going Government work and expand the practical implementation of the GIFMIS, and the Treasury Single Account (TSA) in all MDAs (except for foreign missions and Unit schools). It also envisages the adoption of International Public Sector Accounting Standards (IPSAS) with the aim of improving management of public resources. This will result in predictable and timely disbursement of budgeted fund to MDAs through the effective operation of the Cash Management Committee and facilitate timely reconciliation of cash balances, and the concomitant accounting and reporting. In this context, the specific reform measures supported under the TSEGRP include: (a) strengthening the implementation of GIFMIS with particular emphasis on Budget Preparation and Budget Monitoring of the full 2014 Budget on GIFMIS;

(ii) Extension of the TSA to all the remaining 225 MDAs in Abuja in 2013, and all MDAs outside Abuja by 2014; and

(iii) adoption of IPSAS in all MDAs by 2014.

Improving compliance in procurement and audit practice

4.2.9 The proposed Operation will further support government reform actions with the aim to improve integrity in the use of public funds through strengthening Internal Audit, implementation of Public Procurement Act, and improving External Audit. The Government is currently implementing public procurement reform and capacity building program with support from the World Bank and UNDP. In the area of procurement, the proposed operation will complement on-going efforts and further support enforcing compliance through

(i) publication of all contract awards that received no-objection by Bureau of Public Procurement (BPP);

(ii) annual procurement compliance audit report for 2011, and 2012 fiscal year in line with the Act; and

(iii) support to ten (10) states for the adoption of procurement act and regulations. In the areas of internal audit, the program will support (a) adoption of an internal audit modernisation strategy, and (b) risk-based internal auditing. In the area of external audit, the program will support (a) approval of the new audit law to strengthen the independence of the Office of the Federal Auditor General in 2013, (b) adoption of new audit methodology and preparation of performance audit by 2014, and (c) adoption of a medium term strategic plan and annual audit plans by 2014.

Component 2: Improving transport sector governance to enhance accessibility and sustainability

4.2.10 Challenges and Constraints: Insufficient infrastructure is among the major constraints to business performance and productivity growth and thus a serious development challenge that Nigeria needs to address urgently. After decades of neglect, road infrastructure in Nigeria is in a dilapidated state with nearly 30% of the Federal Road network in good condition. The poor condition of roads has led to reduction in average vehicle speeds to about 60 km per hour instead of 100 km per hour on the Federal Highways, with associated increase in vehicle operating costs. Undue bias towards new road construction and rehabilitation at the expense of maintenance over the last three decades has led to severe under-funding of road maintenance which has in turn resulted in heavy road maintenance backlog. Other factors that have affected road management in general have included irregular releases of budgetary allocations and absence of a strategic planning process coupled with poor road management information system. In an attempt to address road maintenance backlog, the government created the Federal Road Maintenance Agency (FERMA) in 2002 as an ad-hoc measure which has operated as a department of the Ministry responsible for roads maintenance. This intervention slightly improved the road maintenance situation but fell short of the permanent institutional framework required to execute efficient road management. This calls for putting in place an institutional framework that separates policy and oversight from operations and funding of the road sector.

4.2.11 Recent Government Actions: Reforming the Road Sector has been high on the Federal Government's Agenda over the last decades with minimal progress for effective and sustainable management structures for the Road Sector. The reform process was re-activated in 2008 when the Government held a workshop on "Road Sector Reform in Nigeria-the Way Forward". The 2008 workshop identified the need to establish appropriate institutional and legal frameworks for the establishment of various Road Authorities and Funds. The Implementation pace of the 2008 workshop recommendations has been slower than anticipated. However, as a follow-up on the 2008 workshop recommendations, in 2011, a Road Sector Reform Committee (RSRC) was inaugurated by the current Federal Minister for Works to spearhead and fast-track the road sector institutional reforms. The RSRC has reviewed the Draft Bills and carried out Study Tours to India and Ghana. In May 2012 the RSRC recommended presentation of the Draft Bills for approval by Parliament. The track record of recent reforms in other sectors, particularly ports and railways as well as numerous successful privatization efforts demonstrate credible political willingness to finally tackle Nigeria's road transport problems.

4.2.12 Program Activities: The government is committed to re-engineering this sector through institutional and policy reforms with the aim to make road transportation more efficient, affordable, and sustainable. In this regard, the proposed operation will support reform in the following areas:

a)Policy and regulatory reform - support the development of key reforms in the road sector including approving and implementation of the Federal Roads Authority Bill, National Road Fund Bill, Tolling Policy and the Axel Load and Control or Weigh Bridge Policy.

b)Improved capacity to deliver in this area - this involves supporting the Government plans to:

(i) undertake a road sector resources assessment which will provide an overview of the short, medium and long term human capacity building needs of the sector;

(ii) prepare a fully costed sector strategy for the road sector;

(iii) prepare a comprehensive Ten Year Road Sector Development and Maintenance Plan; and

(iv) adopt Roads Asset Management and Monitoring and Evaluation Systems

The operational policy objective is to improve transparency and accountability in managing public resources, and increase public spending in road infrastructure development essential for inclusive growth.

Rationale and objectives of the Programme

Programme rationale. The Government is committed to implement sector governance and public financial management reform as one of its policy priority under the Nigeria's Transformation Agenda and Long term vision. The proposed operation is an integral part of the draft Country Strategy Paper as it directly supports fostering a good policy environment and investment in critical infrastructure.

PRSP and CSPs priorities, key development issue(s) project is aiming to address.

Nigeria's long-term development agenda is outlined in its Vision 20:2020, and its strategic direction is articulated in the Government's Transformation Agenda (TA 2011 -2015). Nigeria aspires to be among the top 20 economies in the world by the year 2020. The primary objectives are:

(i) create an enabling environment for sustainable economic growth;

(ii) diversify the Nigerian economy;

(iii) create employment opportunities; and

(iv) reduce poverty. The TA is articulated around nine thematic objectives including macroeconomic stability through fiscal prudence and appropriate monetary policies; good governance and effective institutions; human capital development; and infrastructure development. The TA identifies critical infrastructure development, i.e. power, roads transportation, and railways; and agricultural transformation, as key to its operational success. The proposed operation will help government to effectively implement and deliver some of the priorities on infrastructure and good governance, by enhancing the infrastructure network, while strengthening the framework conditions to attract foreign and local investments and encourage Public-Private Partnership (PPP) arrangements. On agriculture, the strategy is to transform the agricultural sector to drive income growth, ensure food security, generate employment, and create wealth for Nigerian farmers.

The Bank's Country Strategy Paper (CSP) for Nigeria aims to provide the framework for AfDB support to Nigeria's development efforts over the period 2012-16. The CSP is aligned with the long-term development agenda of the Government, as anchored in the Transformation Agenda and within the overarching framework of the Country Assistance Framework. The CSP aims primarily at promoting inclusive and green growth and focuses on

(i) promoting the development of a sound policy environment and

(ii) investing in critical infrastructure to promote the development of the real sector of the economy.

The proposed operation is aligned with the new Bank's Country Strategy Paper (CSP, 2012-2016) which is presented simultaneously to the Board with this operation. The CSP provides a framework for the Bank to facilitate the implementation of the Nigeria's development strategy (Transformation Agenda) and focuses on two pillars:

(i) support the development of sound policy environment through targeted support that are critical for government effectiveness including public financial management; and

(ii) investing in critical infrastructure to promote the development of the real sector of the economy. The TSEGRP components are aligned with the two pillars of the CSP. Specifically, the proposed operation is linked with the CSP strategic deliverables - public financial management (Pillar I Result 2); and road transport infrastructure (Pillar 2 Result 1). For this purpose, the CSP envisages the provision of budget support as one of the instruments for strengthening economic governance (PFM) to manage public resources better, and to create fiscal space for government to finance the completion of the major road transport flagship projects. By focusing on governance and the road transport sector, the program is also consistent with the Bank's Long-Term Strategy and operational priorities (i.e. Infrastructure and Governance) which will unlock the growth and development potential of the private sector.

4.4 Beneficiaries of the Program

4.4.1 The TSEGRP is designed to assist the GoN to implement its Transformation Agenda and reform priorities in the areas of PFM reform and road transport sector. The direct beneficiaries are Nigeria's key public institutions of PFM responsible for fiduciary control, and ministries responsible for the delivery of the road transport infrastructure development. The indirect beneficiaries are the population of Nigeria in general, who will benefit from better public financial management and improved fiscal space for infrastructure.

4.5 Impact on Gender

4.5.1 The operation will have a positive impact on gender equity, which remains a major concern in Nigeria. The 2012 Gender Nigeria Report shows that female constitute 49% of the population which is over 80 million girls and women but are generally less empowered than men and are underrepresented in public and political life as well as in formal sector employment. Nigeria's future must necessarily entail consideration of girls and women, the role they play and the barriers they face in making the future. Nigeria ranks 118 of 134 countries in the Gender Equality Index. Women are politically under represented. The upper and lower house representation is only 6% (the African average is 19%) and these are only 7 of 109 Senators and 25 of 360 Representatives are women. The President of the Federal Republic has recently appointed 13 women among the 42 member cabinet. This demonstrates a high level commitment to take the National Gender Policy, however, more needs to be done to translate the existing favorable policy frameworks and strategies into action to improve gender equality.

4.5.2 The focus on empowering women and youth is part of the Transformation Agenda, and the proposed operation will support gov ernment plan and efforts to improve the position of women in society and empower them economically. It has developed an innovative approach to mainstreaming gender issues starting with 5 pilot ministries (including the Ministry of Works. For example: in 2013, the Ministry of Works plans to increase the number of women that are employed in public works programs as contractors, workers and project evaluators, setting itself a target of 35% for women in FERMA rehabilitation work. In every geopolitical zone, at least 3 roads leading to areas where women's socio-economic activities are concentrated, will be prioritised and completed. Through direct provision of resources into the national budget, the operation will support government effort and plan to women empower and enhance gender mainstreaming into budget process and development programs. Since one of the components focuses on improving the institutional and policy environment for road transport sector, a reform measure has been included in the policy matrix that seeks to increase the number of women that are employed in public works programs as contractors, workers and project evaluators as well as improved accessibility by road will improve access to markets for agricultural produce and inputs since women constitute a significant proportion in the agricultural sector, and thereby increase women's productivity in various economic ventures. To address youth unemployment, the Government has, since 2011, launched the Youth Enterprise with Innovation in Nigeria program designed to encourage youth entrepreneurship and provide grants for small and medium scale enterprises. SURE-P has also launched the Public Works for Women and Youth Empowerment Program, designed to employ 370, 000 youths per annum, with 30% of the jobs especially reserved for women. 4.6 Environmental Impacts

4.6.1 The TSEGRP is classified as category III according to the Bank's procedure for the environmental and social impact assessment. The policy and institutional reforms to be supported by the proposed operation are not expected to have any direct negative impact on the environment. Improvements in policies and institutions for managing public resources, and improving sector governance in road transport as outlined above cannot in themselves have any direct negative impact on the environment. However, it is possible that indirectly, the budget support to be provided could be spent on road construction activities that have the potential to damage the environment. On this account, there are adequate legal and institutional frameworks to ensure compliance with environmental and social safeguards policies. In Nigeria, the Federal Ministry of Environment is responsible for setting policy guidelines on environmental issues and ensuring compliance with national environmental standards. The Nigerian Environmental Impact Assessment (EIA) Act 86 of 1992 makes it mandatory for an EIA to be conducted prior to the construction of road transport projects to identify and mitigate negative impact that may arise as a result of the project.

GEBRE-SELASSIE Kalayu - OSGE1

Amount
USD 195,000,000