document of the world bankdocuments.worldbank.org/curated/pt/310711468089130961/pdf/icr000074.pdfntf...

Document of The World Bank

Report No: ICR000074

IMPLEMENTATION COMPLETION AND RESULTS REPORT ( IDA-35300 NETH-52501 )

ON A

LOAN / CREDIT IN THE AMOUNT OF US$ MILLION 5.90

(US$ 0.97 MILLION LOAN & SDR 3.75 MILLION CREDIT)

TO THE

FORMER YUGOSLAV REPUBLIC OF MACEDONIA

FOR A

COMMUNITY DEVELOPMENT & CULTURE PROJECT (LIL)

June 12, 2007

Sustainable Development Department South East Europe Country Unit Europe and Central Asia

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CURRENCY EQUIVALENTS ( Exchange Rate Effective 09/30/2006 )

Currency Unit = MKD MKD 1.00 = US$ 48.0960

US$ 1.00 = MKD 0.0208

Fiscal Year January 1 - December 31

ABBREVIATIONS AND ACRONYMS AG Association Grant ATA Aid to Artisans CAS Country Assistance Strategy CBO Community Based Organization CDCP Community Development and Culture Project CDD Community Driven Development CG Community Grants DCA Development Credit Agreement DGF Development Grant Facility DO Development Objective ECA Europe and Central Asia ECSSD Environmentally and Socially Sustainable Development IDA International Development Association IP Implementation Progress IRR Internal Rate of Return IT Information Technology KPI Key Performance Indicators LIL Learning and Innovation Loan LWG Local Working Group M&E Monitoring and Evaluation MOC Ministry of Culture MOCG Ministry of Culture Grants MTR Mid-Term Review NCB National Competitive Bidding NGO Non Governmental Organization NSC National Steering Committee NTF Norwegian Trust Fund PAD Project Appraisal Document PCU Project Coordination Unit PDO Project Development Objective PIP Project Implementation Plan PPF Project Preparation Facility RWG Regional Working Group

SNA Social and Needs Assessment SWOT Strength, Weaknesses, Opportunities, Threats TOR Terms of Reference USAID United States Agency for International Development VKS Virtual Knowledge-Sharing Space VPN Virtual Private Network

Vice President: Shigeo Katsu

Country Director: Orsalia Kalantzopoulos

Sector Manager: Maninder S. Gill

Project Team Leader: Mark C. Woodward

ICR Team Leader: Mark C. Woodward

Former Yugoslav Republic of Macedonia Community Development & Culture Project (LIL)

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design............................................... 12. Key Factors Affecting Implementation and Outcomes ............................................ 123. Assessment of Outcomes .......................................................................................... 254. Assessment of Risk to Development Outcome......................................................... 315. Assessment of Bank and Borrower Performance ..................................................... 326. Lessons Learned........................................................................................................ 357. Comments on Issues Raised by Borrower/Implementing Agencies/Partners........... 38Annex 1. Project Costs and Financing.......................................................................... 40Annex 2. Outputs by Component.................................................................................. 41Annex 3. Economic and Financial Analysis ................................................................. 45Annex 4. Bank Lending and Implementation Support/Supervision Processes............. 48Annex 5. Beneficiary Survey Results ........................................................................... 51Annex 6. Stakeholder Workshop Report and Results................................................... 52Annex 7. Borrower’s ICR............................................................................................. 53Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ....................... 61Annex 9. List of Supporting Documents ...................................................................... 64

MAP

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A. Basic Information Country: Macedonia Project Name:

Community Development & Culture Project (LIL)

Project ID: P063577 L/C/TF Number(s): IDA-35300,NETH-52501

ICR Date: 06/26/2007 ICR Type: Core ICR Lending Instrument: LIL Borrower: FYR MACEDONIA Original Total Commitment:

XDR 4.0M Disbursed Amount: XDR 3.8M

Environmental Category: F Implementing Agencies: Ministry of Culture Cofinanciers and Other External Partners: Government of Netherlands B. Key Dates

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

Concept Review: 05/04/2000 Effectiveness: 03/11/2002 03/11/2002 Appraisal: 03/12/2001 Restructuring(s): Approval: 06/21/2001 Mid-term Review: 12/07/2004 Closing: 06/30/2006 06/30/2006 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory

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: Satisfactory

Overall Bank Performance: Satisfactory Overall Borrower

Performance: Satisfactory

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C.3 Quality at Entry and Implementation Performance Indicators Implementation

Performance Indicators QAG Assessments (if any) Rating

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

No Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

No Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Satisfactory

D. Sector and Theme Codes

Original Actual Sector Code (as % of total Bank financing) Central government administration 14 14 Other social services 86 86

Theme Code (Primary/Secondary) Conflict prevention and post-conflict reconstruction Primary Primary Participation and civic engagement Primary Primary E. Bank Staff

Positions At ICR At Approval Vice President: Shigeo Katsu Johannes F. Linn Country Director: Orsalia Kalantzopoulos Christiaan J. Poortman Sector Manager: Maninder S. Gill Alexandre Marc Project Team Leader: Mark C. Woodward Mark C. Woodward ICR Team Leader: Mark C. Woodward ICR Primary Author: Marina Djabbarzade F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) To establish conditions that facilitate community-based socioeconomic development by leveraging one of the country's untapped resources, its cultural assets, to create culture-based industries (notably handicrafts and community-based tourism) in areas adjacent to cultural heritage sites, while improving the management of cultural assets, particularly at the local level. Revised Project Development Objectives (as approved by original approving authority) The PDO and Key Indicators were not revised.

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N.B. The results framework did not exist at the time the project was appraised. What follows is the key performance indicator matrix agreed upon during negotiations, which has been "retrofitted" into the results framework format. An explanation is provided in section 2.3 of the main text. (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Community associations created/supported at project sites remain viable.

Value quantitative or Qualitative)

N/A HS

HS - At least 60% of NGOs having implemented subprojects remain viable at end of project as measured by PCU surveys.

HS - Percentage of NGOs that continue to support activities related to sub-project: -Pilot location 75% - New Municipalities 82%

Date achieved 05/31/2001 06/30/2006 06/30/2006 06/15/2006 Comments (incl. % achievement)

Indicator 2 : Municipal governments work effectively with local communities

Value quantitative or Qualitative)

N/A HS

HS - At least 75% of participating municipalities demonstrate effective cooperation as indicated by PCU reports.

HS – Effective cooperation in all but pilot municipalities (82%). Cooperation included: * Defining strategies; *Assisting in filling out application forms and advocacy; *Covering VAT.


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(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Site plans implemented and industries developed

Value (quantitative or Qualitative)

N/A HS

HS - Social Needs and Cultural Heritage Assessments carried out at all sites. At least 70% of financed industries remain viable as measured by PCU surveys.

HS – Social Needs Assessments & Identification of Local Cultural Heritage & Action Plans made and partly implemented. PCU indicates nearly all financed activities remain viable.


Indicator 2 : CBOs and NGOs receive technical assistance/training


N/A HS

HS - NGOs involved in project will have received relevant training and technical assistance as indicated by PCU reports.

HS – Trainings conducted in all municipalities (e. g): *Project Cycle Management; *Project aims & objectives; *Strategic planning;*Filling application form for ideas and proposals.


Indicator 3 : National site inventory improved


N/A HS

HS - A National Site inventory that enables digitalized access to site information

HS – Inventory of immoveable heritage now fully operational. Expansion to include moveable heritage (not

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will be fully operational by the end of the project.

originally envisaged) now underway.


Indicator 4 : Policy studies carried out


N/A HS

HS - Policy studies will result in the development of new tourist activities and markets for handicrafts as indicated by PCU reports.

HS – Planned and completed activities: *Tourism assessment (2003) and *Handicrafts assessment (2004).


Indicator 5 : PCU receives training


N/A HS

HS - The PCU team will have gained capacity to manage project activities and be able to subsequently employ this capacity in the implementation of other government or NGO projects.

HS – Training in: *All 6 planned modules implemented. *Additional 5 modules also implemented.


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G. Ratings of Project Performance in ISRs

No. Date ISR Archived DO IP

Actual Disbursements (USD millions)

1 06/29/2001 Satisfactory Satisfactory 0.00 2 12/14/2001 Satisfactory Satisfactory 0.00 3 03/14/2002 Satisfactory Satisfactory 0.00 4 05/09/2002 Satisfactory Satisfactory 0.07 5 12/24/2002 Satisfactory Satisfactory 0.26 6 03/07/2003 Satisfactory Satisfactory 0.37 7 05/20/2003 Satisfactory Satisfactory 0.37 8 12/01/2003 Satisfactory Satisfactory 0.45 9 05/20/2004 Satisfactory Satisfactory 0.65

10 07/28/2004 Satisfactory Unsatisfactory 0.76 11 02/11/2005 Moderately Satisfactory Moderately Satisfactory 1.49 12 06/30/2005 Moderately Satisfactory Moderately Satisfactory 2.17 13 01/28/2006 Satisfactory Satisfactory 3.62 14 06/30/2006 Satisfactory Satisfactory 5.48

H. Restructuring (if any) Not Applicable

I. Disbursement Profile

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The Community Development and Culture Project (CDCP) was designed as an innovative effort to implement the ECA Region’s strategy for intervention in cultural heritage.1 The basic thrust of this strategy is that while the World Bank is not interested in cultural heritage for its own sake, when cultural heritage can be mobilized in support of the Bank’s objectives it is worth pursuing. Hence the project was designed as a Learning and Innovation project (LIL) to try to turn the Borrower’s cultural heritage into assets in support of community development. The project got off to a rocky start as conflict erupted in the country during the appraisal mission. This, aggravated by the political turmoil that ensued during the change of Government early on during implementation, meant that the project was initially slow to disburse and spent the rest of its implementation period catching up. Fortunately the LIL approach provided the necessary flexibility to successfully adapt to changing circumstances and resolve difficulties. By the time the project closed there was abundant qualitative evidence demonstrating, not only that the project’s development objectives had been achieved, but also that the project had had a significant impact in participating communities. This Implementation Completion Report documents both the positive results and the difficulties, drawing lessons along the way.

1. PROJECT CONTEXT, DEVELOPMENT OBJECTIVES AND DESIGN

(this section is descriptive, taken from other documents, e.g., PAD/ISR, not evaluative)

1.1 Context at Appraisal

(brief summary of country and sector background, rationale for Bank assistance) Country Background (from PAD): “Macedonia is situated at the geographic crossroads of the Balkans, Central Europe and the Mediterranean. Emerging from the dissolution of the former Socialist Republic of Yugoslavia and the impact of war in neighboring countries with high levels of poverty, the country lags behind others in the region and suffers from uneven internal development. Macedonia is short of obvious resources to support socioeconomic development. However, its unique cultural heritage, the visible evidence of its multicultural origins, is an asset which may be mobilized for socioeconomic regeneration and development. However, often these assets are deteriorating as a result of a serious lack of investment in conservation and management, the contraction of the Macedonian economy due to conflict in the Balkans, over reliance on the public sector, and lack of experience in transforming these resources into marketable assets. This project intends to lay the foundations for reversing this process and, in so doing, utilize them in support of community-driven socioeconomic development.

1 “Cultural Assets in Support of Transition in the Europe and Central Asia Region: An Operational Perspective”, prepared in 2000 and published as and ECSSD working paper (no. 29) in January 2001.

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In this context, the project will help achieve the following CAS goals: (i) Promote private sector growth and job creation by creating new poles of visitor and investment attraction at pilot cultural sites in less advantaged areas. This will be done primarily by supporting such cultural enterprises as handicrafts production and cultural tourism based on (a) defining participatory local development strategies; (b) revitalizing and diversifying culture-based products; (c) providing business advice and skill training services; (d) facilitating access to capital for start up businesses through existing micro-credit and other financing instruments; and (e) supporting marketing of local products. (ii) Enhance the efficiency of the state, local government, and communities in managing cultural assets through joint activities with local communities and associations and public/private partnerships that (a) develop appropriate, participatory forms of governance for the development of local development strategies and for participation in the management of cultural assets; (b) build project management skills at local and central level; (c) increase technical capacity; and (d) improve the condition and utilization of cultural assets. (iii) Alleviate poverty by giving preference to pilot sites in less advantaged areas of the country and to project activities that create jobs and revenue streams for those living in poverty regardless of ethnic origin. The principle underlying these activities is to create synergies between site management and culture-based activities at pilot sites, thereby developing new activities, including the diversification of local cultural enterprises and tourism, that will result in employment opportunities for local communities.” Sector Background (from PAD): “Cultural Assets Conservation and Management: The Ministry of Culture and its six Institutes for the Protection of Cultural Heritage are the institutions responsible for protecting national cultural assets. The Government has recently redrafted heritage legislation and is considering some form of institutional restructuring. In 1999 the number of staff in the Ministry of Culture was reduced as part of the overall public sector reform process. The Ministry has shown its willingness to work with the private and voluntary sectors in its museum, publications, and other activities. The Government places importance on its cultural assets and has asked the World Bank for assistance in improving their management and conservation. Among the chief sector issues are: determining priorities for Government spending; developing policies and incentives that promote cultural assets conservation and compatible adaptive use; integrating cultural heritage conservation into overall urban and land use planning decisions; securing non-budget sources of financing for cultural asset conservation; involving the voluntary and private sectors in the process; and developing appropriate forms of governance for such collaboration.

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Tourism: The structure of the tourism industry has changed radically since independence in 1990 when visitors’ levels were high and tourism contributed a considerable amount of foreign currency earnings. The Government is grappling with these new sets of circumstances but has yet to formulate a coherent strategy. Conflict in neighboring countries has led to drastic reductions in tourist visits. Today visitors are more likely to travel individually (including members of humanitarian delegations or peace keeping forces) than in large groups; the duration of stays had decreased from 7-14 days to 4-6 days. Information on the structure of the industry is lacking, as is a clear view of the country’s comparative advantages, regional position, and target market. Major sector issues are: formulation of a realistic strategy for domestic and international tourism development that would promote broad-based local development; definition of the appropriate Government role in promoting tourism and creating an enabling environment for private sector investment; determining and meeting infrastructure requirements, including in-country transport, road access, water supply and sanitation in tourist areas; raising standards of accommodations and services; identification of potential markets, such as ecological, cultural, and adventure tourists, and marketing strategies; and the role of community-based tourism. Microenterprise Development. The Government is aware that promoting start up businesses was essential to resuming growth and creating employment. The EU and the UK Know How Fund are financing micro enterprise projects that provide advisory and business training services through regional centers and new businesses are now coming on stream. There are few micro credit facilities in the country, although USAID and PHARE ran pilot micro credit schemes. These schemes are over subscribed and are growing rapidly, but do seem to be able to keep pace with demand. The Central Bank believes that existing commercial banks can provide a micro credit window, yet typically commercial banks required more collateral than those who need access to microcredit can provide. Access to capital for start up businesses remains a serious need. The sector issues in this case are: increase access to and availability of micro credit schemes/facilities as well as developing entrepreneurial and business management skills.” Rationale for Bank Assistance: The Community Development and Culture Project (CDCP) was conceived as a Learning and Innovation Credit (LIL), and therefore (in line with the procedures in force at that time) this section was not included in the PAD. Nonetheless, the rationale is implicit in paragraph (B: 3) pertaining to “Learning and Development issues to be addressed by the project”. The rationale was founded on the principle that cultural assets represented a potential area for growth of small enterprises and employment subject to the improvement of their management and conservation. By enhancing the contribution of cultural assets to the economy and well-being of local communities; involving local communities in managing their own socioeconomic development, particularly with respect to cultural protection and promotion; diversifying and expanding the tourist offering of Macedonia; and improving cultural conservation, the CDCP supported CAS priorities and provided a

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complement to other bank investments. Additionally it was considered a practical instrument for fostering partnerships with other donors to leverage support for long-term capacity building particularly in the context of private sector growth and decentralization efforts.

1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved)

PDO: “To establish conditions that facilitate community-based socioeconomic development by leveraging one of the country’s untapped resources, its cultural assets, to create culture-based industries (notably handicrafts and community-based tourism) in areas adjacent to cultural heritage sites, while improving the management of cultural assets, particularly at the local level.” PDO Indicators: 1. Community associations created/supported at project sites remain viable 2. Municipal governments work effectively with local communities Output Indicators: 1. Site plans implemented and industries developed 2. CBOs and NGOs receive technical assistance training 3. National site inventory produced; policy studies carried out; PCU receives training

1.3 Revised PDO and Key Indicators (as approved by original approving authority), and reasons/justification

The PDO and Key Indicators were not revised. Nonetheless it should be noted that the CDCP was designed before the adoption of the results framework (RF) and the subsequent migration from PSR (Project Supervision Report) to ISR (Implementation Status Report) in 2004. Key performance indicators (KPIs) with qualitative target values were established at negotiations based on the PAD logframe. When the ISR was introduced, the KPIs were retrofitted into the results framework keeping the integrity of the negotiated KPI table. This is further discussed in section 2.3 below.

1.4 Main Beneficiaries,

(original and revised, briefly describe the “primary target group” identified in the PAD and as captured in the PDO, as well as any other individuals and organizations expected to benefit from the project) The PAD stated: “The primary beneficiaries will be those individuals who associate together to produce sub-project ideas, benefit from technical assistance, and in many cases receive grant funding to implement their ideas. Those not selected will still benefit from technical assistance and will receive assistance in seek funding elsewhere. These

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beneficiaries are expected to be largely un- or underemployed people living near sites of cultural significance and will include youths, the elderly, and women. Special efforts will be made to include all ethnic groups.” Thus, by virtue of the participatory three tiered process of the Integrated Site Development component, which links local populations to local government and ultimately to line ministries with regards to strategic planning and decision making, the population as a whole at project sites was expected to benefit from the project. This includes local authorities, as the recipients of technical assistance and training to develop and carry out sub-projects. Additionally, by virtue of the associative pre-requisite that will motivate civil society’s improved performance, NGOs were also to be among the primary beneficiaries of the project. Through the second component (Institutional Development at the National Level), which called for the modernization of the national site inventory; a handicraft assessment and action plan; and a tourism assessment and action plan; the institutional capacity of agencies at the national level (Ministry of Culture, Institute for the Protection of Cultural Monuments) and local level (Local Institutes for the Protection of Cultural Monuments ) involved in managing and developing cultural assets were to be improved through the provision of technical assistance, goods, training, and studies; thus making these institutions a primary target group benefiting from the project.

Secondary beneficiaries were to include tourism industry services (operators, hospitality) and goods (handicrafts) providers.

1.5 Original Components (as approved - from PAD):

“The primary activity to be funded under the project is the development of sets of interrelated sub-projects clustered in and around a limited number of communities possessing sites and other assets of cultural importance. These activities and sites will be selected through a competitive, demand-driven process. Criteria for selection are designed (and over the course of the project will be refined) to encourage synergies and to promote community development and poverty reduction. These sub-projects will be supported with capacity building measures to help develop community-based site and business management skills. Component 1: Integrated Site Development. This component will seek to develop sets of cultural industries and actions in several pilot sites through priority investments, conservation measures, and local level capacity building. Sites will be selected by the Project Coordination Unit (PCU) together with the Steering Committee and in consultation with the World Bank, following a nation-wide public outreach campaign to solicit sub-project ideas. A prequalification process will then select possible candidates for assistance in developing proposals. Sub-projects will be selected in accordance with criteria designed to maximize the impact in terms of community development and poverty reduction and to produce groups of projects clustered around appropriate communities. Final responsibility for sub-project selection will reside with the Steering Committee, in consultation with the PCU and the World

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Bank. The selected communities will then receive assistance in the development of site management plans and managerial skills. The process is designed to allow for learning and correction over the course of project preparation and implementation. To this end, it begins with an initial pilot site, the town of Berovo in Eastern Macedonia, selected during project preparation to test the approach. Procedures and terms of reference will then be revised to reflect the lessons of this first experience before being implemented more broadly under the project. This process will result in clusters of sub-project activities of three main types: handicrafts; community-based tourism, and site improvements and conservation measures. Successful applicants will receive grant funding and technical assistance to carry out their proposed activities. Other appropriate applicants will receive assistance in gaining access to existing micro credit programs. At each site, successful applicants will be expected to work together with each other and with other community members. In addition to financing successful proposals, the project will support the development and implementation of community-based site management and community development plans at each beneficiary site. These plans would define necessary improvements and conservation measures, inter alia: improved site access and parking facilities, circulation systems, presentation and interpretation, visitor facilities, conservation and protective works, and training. They will be informed by social and economic assessment, assessment of needs related to site management, and environmental screening (and assessment where needed), which will be carried out at all project sites. These communities will also receive assistance in marketing their cultural assets. Pilot site development will be supported through a set of capacity building activities at the local level. These will include: (i) promotion and support of new or existing community-based organizations (CBOs) and local nongovernmental organizations (NGOs) to carry out local management of culture related activities; (ii) training of local governments for local planning and management of cultural sites; (iii) assistance in promoting partnerships between local-level communities and among associations, the private sector (notably enterprises and individuals with skills related to the preservation of Macedonian cultural heritage) and NGOs; and (iv) the development of marketing strategies. All these activities will be monitored and supervised by the PCU. The activities foreseen in this component provide an integrated approach to capacity building and accountability for improving cultural assets management at the local level. Promoting community-based tourism and crafts industries organized around cultural assets at pilot sites; and increasing local communities’ capacity to manage cultural assets and related activities by provision of technical assistance increase knowledge and ownership thus creating a favorable environment for sustainable socioeconomic development. Component 2: Institutional Development at the National Level. This component is limited to activities critical to the successful implementation of the integrated site development component. To this end it will support the local level activities by: providing needed information for the successful mobilization of cultural

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assets in support of community development; facilitating the marketing of cultural assets at project sites; and coordinating project implementation. In order to support the development of local level activities, three activities will be carried out: (1) the existing national inventory of cultural sites will be further developed as a multipurpose (national and regional) planning tool, by making it more accessible and operationally useful and by integrating community participation approaches; (2) a handicrafts assessment and action plan will determine the scope of existing handicrafts and make recommendations for future product and business development (including practical issues that may impede handicraft development, related to design, production, financing, marketing, and delivery); and (3) a tourism assessment and action plan will examine the current organization, performance, needs, and opportunities for the sector with regard to cultural and eco-tourism potential. These three activities will inform the work of the project’s Steering Committee as well as the local Working Groups to be set up at project sites. They will also contribute to on-going work at the national policy level sponsored by the Council of Europe. To facilitate the marketing of Macedonia’s cultural assets, after site development activities are well under way, a marketing strategy will be designed (under the auspices of the Ministries of Culture and Economy) and implemented to target both domestic and international markets (and linked to the local level strategies under the first component). As part of this process, professionals from the eco-cultural tourism industry will be invited to visit project sites with a view to brokering arrangements for tours to subsequently include these sites on their itineraries. To coordinate project implementation, a project coordination mechanism will be established in the Ministry of Culture. Among the tasks of this mechanism will be monitoring and evaluation. The project will provide training for the project team.”

Collecting, updating and analyzing data about cultural assets is crucial for formulating a strategy to improve their management and utilization in a market economy context to foster sustainable socioeconomic development. The output of this component, which consists of enhancing national level capacity to support the mobilization of cultural assets in support of community development through technical assistance/training, is therefore appropriate for achieving the PDO.

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1.6 Revised Components

The components were not revised.

1.7 Other significant changes

(in design, scope and scale, implementation arrangements and schedule, and funding allocations) Design: As noted on the OPCS website, LILs are designed to be flexible instruments for innovative activities that allow for adjustments during the course of implementation pursuant to the lessons learned during such time. Compared to other lending operations, the requirements of a LIL PAD are less stringent. In effect component and implementation mechanism descriptions are less rigid. Making extensive use of this possibility, the CDCP PAD provided a menu of options with regards to the selection of additional sites following the pilot experience. Having thus anticipated various scenarios and in light of the experience gained at the pilot site, the Project Coordination Unit proceeded to opt for the most appropriate site selection option from the proposed menu. As such, the design of the CDCP already incorporated alternatives and therefore there were no significant changes in the design of the project as appraised, with the exception of the introduction, at negotiations, of the Ministry of Culture Grants (MOCGs) activity in component 1. In order to complement the integrated site development component’s intention to undertake “conservation measures”, MOCGs were introduced to rehabilitate/conserve listed monuments in selected sites upon the request of the Ministry of Culture (MOC). In the wake of the Azerbaijan Cultural Heritage Project’s design that focused on restoration with inadequate attention to sustainability, the attention to monument restoration was minimized in the project design, but the borrower’s emphasis on the importance of this activity during negotiations led to its inclusion as part of the grants to be given out in component 1. Unlike the “competition”-based subprojects, MOCGs were selected by the MOC and were funded in an amount of 20% by the latter following the Bank’s No-Objection. Scale: While no significant changes took place with regards to the design of the project, it is notable that the scale, in terms of areas covered, expanded considerably. To create a critical mass of new socioeconomic activities around sites with cultural assets so as to have a significant impact on the livelihoods in surrounding communities, the task team expected the integrated site development component to cover approximately five sites at the time of preparation. Following pilot completion, shortly before mid-term, an advertisement was published for expressions of interest for new municipalities where special criteria were set and publicly published. It resulted in 52 applications. Based on these published criteria the National Steering Committee selected 15 new municipalities

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grouped in 6 regions, which thus proceeded to benefit from component 1. The large volume of applications received demonstrates the appropriateness the demand driven approach in the post conflict context. Implementation arrangements and schedule: There was no significant change in implementation arrangements. Nonetheless, there was some fluctuation in project selection mechanisms at the local level. Initially the plan was to create Local Working Groups (LWGs) in each participating municipality. However, when the decision was made (at the suggestion of the Country Manager) to add the neighboring municipalities of Delcevo and Pehchevo to the original pilot site of Berovo in the eastern part of the country, a Regional Working Group (RWG) was added. With a view to creating better regional coherence, this additional body, composed of the Mayors of the three municipalities and two members from each Local Working Group (LWG), was in charge of providing recommendations towards a regional strategy as well as evaluating subprojects submitted by the LWGs. However, fierce competition often kept individual municipalities’ visions restricted to their own constituencies and this biased the decision making process. Attributing this turn of events to the political peculiarities of the pilot sites the project initially kept the same framework, and although RWGs did function more coherently in the additional municipalities, they also considerably slowed down the implementation process. As a result RWGs were subsequently eliminated and the respective mayors joined their LWGs. Whereas the three stage process of grant selection and approval was kept in order to effectively apply the principle of local empowerment coupled with national level oversight, the responsibility of RWGs was delegated back to the LWGs, which also received support from the PCU at the pre-selection stage. The increase in the PCU workload caused by scaling up from one to seven regions led to hiring additional staff to increase effectiveness. In an effort to speed up subproject implementation and increase quality, it became clear that additional assistance in the application process and the various stages of implementation was needed. As a result, Regional Coordinators were hired to provide technical assistance to communities at the early stages of the subproject process. Consequently, the pace of subproject approval and implementation rapidly intensified leading to visible results. Once again, this increased efficiency is in no small part due to the nature of the lending instrument that allows for lessons learned to be incorporated during implementation. Similarly, during implementation, monitoring and evaluation processes were adjusted to correspond to the needs and capacity of the recipient. This is discussed in Section 2.3 below. The project suffered several setbacks, partially caused by external problems, which led to some delays in implementation and disbursement schedules:

• In the spring of 2001 unrest in the Northern part of the country (Tetovo region) led to instances of armed conflict and put the country in a security crisis. As a direct consequence of these events, the Borrower’s efforts were concentrated on

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resolving the political issues and thus the Parliament’s priorities and agenda were modified.

• Although the Board approved the project in June 2001, it only became effective in March 2002. The reason for this was that the Borrower could not sign the Development Credit Agreement (DCA) prior to Parliament’s ratification of the “Law on Indebtedness”, which was not approved until January 16, 2002 due to Parliament’s preoccupation with the security crisis.

• Consequently, the project’s Project Preparation Facility (PPF) advance that was set to close in December 2001 had to be extended by 3 months.

• The project witnessed three different administrations during its lifetime. Inevitably election seasons have repercussions of various intensities in the areas of: availability of stakeholders at the national level, exploitation of the project for electoral campaigns, and debriefing of the new administration which often leads to questioning certain aspects of the project and thus slows implementation.

Nearly two and a half years after the effectiveness of the credit the disbursement lag was in excess of 80%. However this was rapidly reduced by 27% in the first quarter of 2005 and a similar amount by the end of the second quarter; by the last quarter of that same year the lag was nil. The probability that this was in part caused by the external factors cannot be dismissed. However, it also shows weak institutional capacity as the first two years were spent in setting up the administrative, institutional and technical basis for successful implementation. The increase in the disbursement rate also coincides with scaling-up from the pilot site, where most of the arduous learning took place, to 15 additional municipalities.

Funding allocations: Three amendments were made to the Development Credit Agreement (DCA). The first one was caused by an error in the text of the DCA that had not been corrected to cover the MOCG when this type of grant was introduced at negotiations. Correcting this omission implied correcting the ceiling for grants as well as introducing National Competitive Bidding (NCB) as a procurement method. The appreciation of the SDR in 2004/5, combined with the additional funds granted by the Government of the Netherlands, increased the US dollar amount of the funds to be disbursed from $5 to $6.88 million (see table below). Conversion rates

Financing plan Equivalent in US$

(03/11/2002)

Equivalent in US$

(06/30/2005)

Equivalent in US$

(06/30/2006) Borrower US$ .660

million US$ 1 million US$ 1 million

IDA US$ 5 million US$ 5.85 million

US$ 5.889 million

NTH –52501 US$ .740 million

US$ .995 million

US$ .995 million

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The object of the subsequent two amendments pertained, in general, to re-allocations. The increase in funds available as shown in the table above, allowed increasing the goods allocation without causing any detriment to the outcome of sub-grants. Increasing the funds for the purchase of goods had an impact on both components. It enlarged the scope of the MOCGs, as requested by the MOC and at the urging of the Country Department, and it improved the sustainability of the Institutional Development component as funds were used to purchase additional goods, such as a 3-D scanner used to replicate small museum objects to be sold to generate income for museums. Reallocation Details Amendment Date

Amount allocated to cat. (1) sub-grants

Amount allocated to cat. (2) Goods

Amount allocated to cat. (4) in-country training

Amount allocated to cat. (6) Incremental operating costs

Amount allocated to cat. (7) Refunding of preparation Advance

December 14, 2004

August 17, 2005

- SDR 110,000

+ SDR 264,996.43

-154,996.43

April 6, 2006

- SDR 138,796

+ SDR 126,998

+ SDR 8,328

+ SDR 3,470

Spurred by the accelerated disbursement pace in the last year of the project, the 3rd amendment to the DCA, in addition to making reallocations, also raised the ceiling on the Special Account from SDR 1 million to SDR 1.6 million to avoid cash flow problems. It must be noted that reallocations do not normally require amendments to be made to the DCA. However, in this case (as is the Borrower’s common practice), the Ministry of Finance asked that they be done by amendment. All amendments were approved by the Country Director following the usual clearance process.

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2. KEY FACTORS AFFECTING IMPLEMENTATION AND OUTCOMES

2.1 Project Preparation, Design and Quality at Entry

(including whether lessons of earlier operations were taken into account, risks and their mitigations identified, and adequacy of participatory processes, as applicable) The identification of this project took place shortly before the end of FY 2000 and, since the Borrower was due to graduate from IDA in FY 2001, management requested the Task Team to process preparation before June 2001 so that the project could benefit from IDA financing. In light of the nature of the project and the sector concerned – a relative newcomer in Bank operations –a LIL was deemed the most appropriate lending instrument. With the exception of the 1979 Luxor Tourism Project in Egypt where 15% of the loan was used towards the cultural component, between 1973 and 1989 the portion of funds allotted to cultural property in all other Bank-financed investments physically affecting cultural heritage only allotted 3% of the total amount of the loans on average towards addressing that issue. Lending for Cultural Heritage only began in earnest in 1999. Thus operations in the sector of Cultural Heritage were still “exploratory” and the possibility of learning from previous operations, including the Azerbaijan Cultural Heritage Support Project and the Georgia Cultural Heritage Projects that were in early phases of implementation, limited. As mentioned previously, the former failed to substantially link conservation to economic development. This led the region to re-examine its activities in the heritage sector and to develop a policy document for integrating culture in socioeconomic development as well as defining sustainable approaches to the utilization of cultural assets for poverty reduction in the ECA region. The guidance provided in this policy document was duly taken into account at the time of the CDCP preparation. Consequently, the original concept, which was strictly focused on the Borrower’s regional development through cultural heritage conservation, was revised at the Project Concept Document (PCD) review meeting to better correspond to the Bank’s Regional objectives. Thus it introduced a community development dimension to enhance the creation of synergies for socioeconomic development and cultural assets; and introduced the competitive grants mechanism as a means of developing the handicrafts and tourism industries. An economic analysis of the Berovo pilot site was carried out during project preparation to estimate the economic rate of return yield. The analysis excluded multiplier effects and benefits difficult to quantify such as the non-use values associated with the conservation of nature and culture, nonetheless it estimated that the economic rate of return would be the equivalent of 18%. In this context, project preparation and design were more than adequate. In less than a year the task team conducted the appraisal of the project. This was made possible, in part, by the commitment of the Government and civil society organizations, which assigned qualified individuals to support preparation by assessing available resources and developing the project design accordingly. However, by the same token, it

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unintentionally led the task team to misjudge the overall capacity of the Ministry of Culture, particularly with regards to weak management capacity at both the local and the national levels that had some bearing on implementation. Risks and their mitigation. While external risks were accurately identified, certain aspects of the mitigation measures pertaining to marketing and external markets were not fully applied.

• Marketing. The project recognized that marketing crafts and tourist destinations would be difficult and could put the PDO at risk. As a countermeasure it proposed to include an assessment of crafts potential and technical assistance for crafts development and marketing. This measure was fully and successfully applied through close collaboration with the local chapter of an international NGO (Aid to Artisans), a local NGO (Macedonian Artisan Trade Association), the recruiting of experts to carry out the assessment, and continuous technical assistance in product design and development, marketing and training overseen by a crafts dedicated staff member at the PCU.

With regards to marketing tourist destinations, the mitigating measure envisaged included: (i) establishing links with eco-cultural tourism operators, and (ii) technical assistance for marketing. The undeveloped nature of the tourism sector in the country and the lack of institutional capacity initially impeded the establishment of links with national eco-cultural tourism operators. The project could have however invested more efforts in linking subproject beneficiaries to the international market. The fact that operators demonstrated a thorough understanding of linking their activities with one another, and did create synergies for marketing their services at the regional level indicates that they had sufficient capacity to scale these same activities up to the international context. While technical assistance for marketing tourist destinations locally was provided to some extent, it remained relatively weak on the international plane. It must be noted that the Bank team had arranged for technical assistance in this area under the Development Grant Facility (DGF), but due to delays in project implementation this opportunity was lost.

• “Political conflict in Macedonia impedes implementation”. As a mitigating measure, the project relied on its ability to create an environment where “it would enjoy widespread support bolstered through community involvement at the local level and scrupulous attention to transparency”. In fact, thanks to a well thought out participation mechanism, the project successfully realized community engagement and accountability. The scrupulous attention to transparency was indeed concretely put into effect at the pilot site where allegations of “rigged” selection of subprojects for politically motivated reasons were made by three NGOs whose projects had been rejected. In investigating the veracity of this claim, the project reviewed the screening and evaluation criteria of the selection process. In so doing it identified three issues: 1) decisions of the RWG were taken on non-technical grounds; 2) critical selection criteria were ignored; and 3)

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the National Steering Committee (NSC) overstepped its authority, substituting for the regional level, in deciding the allocation of grants. Subsequently, several changes where introduced including: 1) screening of all projects against the agreed criteria by the PCU; 2) inclusion of a limited number of LWG members in the RWG; and 3) reconstitution of the NSC. This approach proved successful and the complaint was retracted.

• “Political environment does not allow appropriate responsibility to be devolved to the local level.” The mitigating measure for this risk relied on the project’s participatory approach to institutional learning embodied in the project to create a demand for better policies and transparency as a means to mitigate the risks of politicization. The fear that central authorities would be reluctant to delegate responsibilities and prevent empowerment, as the incident described above reveals, points to the accuracy in anticipating the risk and the measures taken to mitigate it.

• “Unrest and political instability will reduce Macedonia’s attractiveness as a tourist destination”. This risk was rated as substantial and the project’s stated mitigating measure was: “to focus on internal as well as external markets”. While the decision to focus on internal markets was wise, as it reduces the risks of volatility and dependence on external consumers’ preferences, and was indeed executed; it would not have been possible to “focus” on external markets in a context of unrest. Furthermore, as mentioned above, the project did not mobilize sufficient expertise to market the country as a tourism destination in external markets.

Adequacy of participatory processes. In general terms, participation, as a process through which stakeholders influence and share control over development objectives and the resources and decisions that affect them, may be divided into four distinct intensities: information (one-way flow of information), consultation (two-way flow of information), collaboration (shared control over decision making) and finally empowerment (transfer of control over decisions and resources). Information: During identification the task team focused its efforts on obtaining information on the different thematic areas to ensure that project design and activities would adequately address needs, not replicate ongoing activities and create synergies with existing programs in a complementary fashion. Thus it investigated the status of handicrafts and tourism, as well cultural institutions. This was done through observation, field visits and interviews with stakeholders at all levels (community, institutional, governmental, private sector and donor community). An initial social assessment at the onset of the project for the pilot site of Berovo provided poor results due to: (i) the late start of the assessment, which failed to inform the project in a timely fashion, (ii) the weak analytical competence of the firm recruited,

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and (iii) the guidance provided by the Terms of Reference. This experience provided a useful lesson for the project and the PCU subsequently modified, refined and tailored the TORs so as to obtain effective information. Thus the following social assessments, systematically carried out for all the additional municipalities that qualified for grants, proved very useful as demonstrated by the performance of the additional sites. To complement these activities, information dissemination was undertaken by means of an effective outreach campaign via the media including television, radio, newspapers and leaflets, as well especially designed packages for subproject applications. Consultation: For the first component, other instruments such as focus groups and meetings with the mayors and municipal councils of relevant sites to provide support in defining local and regional strategies, as well as discussions with LWGs and RWGs took place on a regular basis. This opportunity was also used to build local capacity through the provision of a dedicated Community Development agent in the Pilot region for bi-lateral consultation on the subproject process and to provide support for the grant application process. When the project was scaled up, the project provided each region with a Regional Coordinator who fulfilled the original community development agent’s role. Consultation with regards to the second component involved discussions with the private, the public, and the non-governmental sectors at first, and with institutional stakeholders embodied by the NSC during implementation. Collaboration: The design of the project to address participation was well thought out as it called for linkages at three levels: local, regional and national. The feedback and participation in decision-making processes were interconnected and interdependent, thus integrating activities and particularly their outcome into a coherent whole. Stakeholders were asked to develop strategies, be they at the regional or national levels, and have them validated through discussions. Some participatory monitoring elements were also built into the Institutional Learning aspect of the project. Empowerment: The technical assistance provided to beneficiaries of the first component, coupled with the strategy requirement, set the stage for decentralization and corresponded to the government’s policy as embodied in the Law on Local Self Government that was adopted on July 1, 2005 during the implementation of the CDCP. Furthermore the handicrafts and tourism assessments undertaken under the second component provided information and recommendations by external experts in these areas aimed to strengthen the performance of these economic activities. Likewise the standardization of the inventory enabled Macedonian experts to expand their communication capacity with the regions and beyond national borders to international institutions. The inventory activity improves the management of resources, both intellectual and physical, through informed decision-making.

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2.2 Implementation

(including any project changes/restructuring, mid-term review, Project at Risk status, and actions taken, as applicable) The project was not restructured and there were no major changes made to the design. The only noteworthy change consists in the fact that, while respecting components and overall design, a greater range of activities (i.e., a larger number of participating municipalities and more MOCGs) was undertaken than initially anticipated thus enlarging the scope of the project Among the additional activities the most notable was the decision to undertake some rehabilitation works in the area of Old Town Skopje known as the Old Bazaar. Two main motives led to this decision: (i) providing a visibility window for the project in the most densely populated city and most important administrative center of the Borrower, so as to promote heritage with a wide range of stakeholders (local citizens, NGOs, institutions and donors) in an effort to increase post-project sustainability; and (ii) improve security perceptions, in a neighborhood traditionally populated with a majority of ethnic Albanians and Turks, revive the city center suffering from noticeable emigration as a repercussion of the 2001 conflict, and maintain the multicultural quality of Skopje to enhance peace building efforts. These activities, in full compliance with the PDO, provided a remarkable demonstration of the manifold utilization and potential impact of cultural assets and their causal effect. At the request of the Ministry of Culture, and in order to recognize and safeguard cultural property, a signage activity was proposed to be funded through the MOCGs to manufacture and place the Hague Convention’s distinctive emblem at selected sites. This element was introduced as an afterthought nearly a year before project completion and several samples were submitted to both the Ministry of Culture and the Ministry of Transportation and Communication for approval. The latter was given only a month prior to project closing date, thus limiting the scope of the activity; nonetheless a substantial number of panels were installed at selected sites by the end of the project. The implementation of the project suffered notable delays due to a number of events and factors, all of which were remedied successfully. These are as follows: Civil unrest The project witnessed initial delays due to factors external to Government’s control caused by the civil unrest of 2001. As a consequence of the time lapse between Board approval and effectiveness, project implementation was delayed. This initial set back in turn influenced the disbursement rate and subsequently contributed to an unsatisfactory project performance rating in one instance, regardless of the attenuating circumstances. The unexpected unrest made the optimistic disbursement schedule, a function of the generous estimation of overall capacity, less realistic. Political exploitation The project was also the victim of attempted political exploitation for a time during a change of Government. As the ruling party increasingly lost footing in the 2002

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elections, the RWGs and the NSC approved US$ 500,000 worth of sub-project grants – twice the agreed spending envelope - at the pilot site apparently in an attempt to gain votes. It was discovered (before the funds were disbursed) that the selection criteria and the decision-making mechanism had been disregarded and, in its wake, that the community development process had been subverted. The possibility of such “capture” had been somewhat foreseen in the risk evaluation and, in addition to applying the intended mitigation measures, additional discussions with the newly elected government to remedy the situation were undertaken. Subsequently the Government appropriately addressed the problem by reconstituting the NSC and reevaluating the proposals. The entire process however was time consuming and caused more than half a year’s delay in implementation. Competitive versus Non-Competitive Selection and Issues of Governance Due to its small size and historical/national identity, the Borrower’s environment is highly politicized and, nepotism and the attempt to divert programs for personal and/or political benefits are not absent. While some moderate instances relative to this behavior occurred intermittently, they were adroitly managed by the PCU director and the task team who successfully kept the delicate balance between adhering to the project and avoiding alienation of beneficiaries. In some cases this was realized post-factum as in the case of the pilot site. As part of project preparation two sites, Kriva Palanka and Berovo, were short listed for piloting. Both were in the underdeveloped eastern part of the country, and both possessed monasteries. Berovo was selected by the NSC because it appeared to have more opportunities for tourism development. The initial aim of the Borrower was solely the promotion of monastery tourism, but since this would not have satisfied the community-development aspect of the project an intermediate and reasonable solution to avoid a deadlock was to consider the monastery as an interesting catalyst for tourism development in the region adjacent to it. However, although Berovo had good cultural, religious and ecological tourism potential as well as motivated community leaders, unbeknownst to the task team, it was later discovered that this region was also the birthplace of the then prime minister and that his family was from the neighboring municipality of Delcevo, which was subsequently incorporated into the pilot area (along with the municipality of Pehchevo) on the urging of the Country Manager. This fact could be insignificant as criteria were duly fulfilled, however as further problems occurred during the selection of subprojects (see section 2.1) that coincided with national elections, one could conclude that decision making at the local level disregarded procedures and transparency. Furthermore, comparison of results between the Berovo-Pehchevo-Delcevo triumvirate that was non-competitively selected with the other municipalities that were competitively selected shows that the former consistently underperformed. This appears to confirm that, notwithstanding the successful resolution of the allegations by three NGOs mentioned earlier (section 2.1), it is difficult for stakeholders to behave in good faith once trust, the pivot of social capital, has been harmed. And this experience provided important lessons (notably with respect to the importance of competitive processes) that helped the PCU prevent similar problems in subsequent sites.

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Information Communication Technology Certain aspects of implementation were not carried out in their entirety, such as the overly ambitious plans for Institutional Learning (see Section 2.3 below). Furthermore about a year into project implementation, the task team considered obtaining funds from the Norwegian Trust Fund (NTF) to pilot an Information Technology (IT) component and create a Virtual Knowledge-Sharing Space (VKS) comprising the PCU website and community websites. The VKS’s purpose would have been to reinforce empowerment through communications and access to various databases. Although, in principle, this added activity would have enriched the project and supported the attainment of the PDOs, in practice however, although the website was indeed created (funded from another trust fund), the VKS portion was not undertaken because the proposal was never submitted. Human Resources and PCU Staff While the core PCU demonstrated excellent capacity and was praised throughout the project especially for its financial administration (see mid-term review below), the performance of consultants was uneven particularly with regards to the Social Assessments. The PCU judiciously increased its staff as the need arose; however a lot of turnover took place, for a variety of reasons, causing some setbacks. Mid-term Review A very thorough and high quality independent evaluation was undertaken for the mid-term review (MTR), which led to considerable improvements. To conduct a SWOT2 analysis, the evaluation surveyed 15 Association Grants (AGs) and 5 MOCGs and conducted several interviews. To its credit, the recommendations for strengthening project performance were found to be so apposite that the PCU adopted them prior to the official hand-over of the report. While the report praised the “excellent financial management” and the credibility of both project and PCU as well the commitment of stakeholders, it also identified weaknesses with respect to the impact of the project on tourism and handicrafts development and CBO sustainability. To address these concerns it proposed an increase in PCU staff combined with targeted training, as well as improved sub-project cycle management for both the AGs and the MOCGs. To the detailed analysis produced, an equally detailed set of recommendations covering all aspects of sub-project cycle management was proposed. The review found that the project was in compliance with procedural provisions made in the Project Appraisal Document (PAD) and the Project Implementation Plan (PIP). A few months after the mid-term review, concerns about the disbursement lag led to an Unsatisfactory IP (Implementation Progress) rating. This rating my have been given hastily, as it was at a time when the project was in the process of scaling up to 15 additional municipalities and thus, by the following supervision mission, disbursements increased significantly and the rating was upgraded.

2 Analysis of strength, weaknesses, opportunities, and threats.

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Other measures taken to upgrade the project status after mid term review include:

• The PCU was asked to prepare a credible program for carrying out the project within the allotted time frame;

• in order to contribute to project objectives while disbursing more quickly than could be done through small grants, more rehabilitation of cultural property was envisaged; and

• it was agreed that more equipment could be purchased in the context of the National Inventory activity, if necessary.

It should be noted that the Bank standards for rating changed over the course of project implementation. Initially the IP indicator was used to rate the performance of the implementation agency. Subsequently, the Country Department asked the Task Team to use this indicator to rate implementation progress relative to what had been planned. Under the former standard the unsatisfactory IP rating was not justified (because the PCU was taking appropriate measures to address problems), while under the latter it should have been rated unsatisfactory much earlier.

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

Institutional Learning The CDCP capitalized on the opportunities offered by a LIL to explore innovative methods and devised an elaborate Monitoring and Evaluation (M&E) system that catered to Institutional Learning by emphasizing the participatory process. Thus, stakeholders at all three tiers of the Integrated Site Development component (national policy level, local strategy level and community operational level) were all given the dual role of evaluator and evaluated. In practice this meant replacing predetermined frameworks for M&E with an on-going process that would gradually, through self-assessment, communication, feedback and correction build the knowledge gained into the monitoring and evaluation process. The M&E system was too ambitious and not suited to the Borrower’s context where central authorities had been responsible for decision-making for several decades. By virtue of its abstract quality, which did not provide a sufficiently concrete and detailed up-front framework for M&E, the complex feedback system failed to give the expected results. Consequently, at the mid-term review it was agreed to establish a simplified M&E system that was subsequently implemented throughout the remainder of the project. The simplification allowed the PCU to accurately monitor sub-project performance and contributed to the overall assessment of the project at its closing. Key Performance Indicators (KPIs) and Results Framework It should be noted that the results framework did not exist at the time this project was appraised. Instead a matrix of key performance indicators, based on the logframe in the PAD, was agreed upon at negotiations. In line with the participatory approach to M&E

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outlined above, the KPI matrix was designed as a system of qualitative ratings (highly unsatisfactory, unsatisfactory, satisfactory, and highly satisfactory) to be regularly reported by the PCU accompanied by a justification for the ratings. While this approach is not consistent with today’s standards of impact assessment and M&E, it was considered innovative at that time. Over the course of the project two things caused this approach to be partly modified. First, when the Implementation Status Report with its results framework replaced the Project Supervision Report, the Task Team “retrofitted” the matrix into the results framework. This was done respecting the integrity of the negotiated framework, which means that it is rather weak as a results framework. And second, recognizing this weakness and as part of the efforts to strengthen M&E described above, the Team agreed with the PCU on quantitative measures to justify the KPI ratings (the target ratings already in the matrix were not changed). Therefore, over the course of implementation the reporting mechanism was strengthened but in a manner that continued to respect the negotiated agreement. Association Grants Monitoring The PCU created a very thorough database that included basic data on the sub-project, financial information, schedule, classification of the type (5) of activities undertaken with the grant, several indicators, and a rating system to evaluate the outcomes. Data was entered based on application forms, field visits, data collection, and reporting from the Regional Coordinators and the Community Development specialists. The indicators were mostly quantitative and there were very limited qualitative indicators. Ministry of Culture Grants Monitoring The implementation of the MOCGs was fraught with difficulties at their onset. This was caused by a scarcity of human resources both at the PCU level and at the level of the Institutes for the Protection of Monuments that was identified fairly rapidly. Whereas the PCU did not have an assigned architect to verify the technical documentation submitted by the Institutes; the Institutes in turn did not respect the responsibilities that were assigned to them, namely to submit complete technical project documentation in a timely manner and supervise the quality of the works adequately. While the PCU could have addressed its staffing issue fairly rapidly, it was nonetheless bound by the agreed MOCG implementation framework that, upon the MOC’s insistence, devolved most operational aspects to the Institutes and apportioned solely an administrative role to the PCU. By 2005, faced with a situation where only 5 out of 15 selected rehabilitations had been implemented, and following the MTR’s recommendations and the creation of the Head Institute for the Protection of Cultural Heritage, the entire monitoring system of the MOCGs was revised. The PCU recruited two qualified staff members and external expertise was hired to verify the thoroughness and adequacy of the technical documentation submitted by the relevant Institutes. Since there was only one civil engineer at the Institutes and no expertise available for aspects such as heating and plumbing; the external experts often completed the documentation. Furthermore, the PCU staff now had the human resources to supervise the quality and timely delivery of works. Indeed, the modification of the

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framework and the new monitoring arrangements proved entirely adequate as by the end of the CDCP the rehabilitation of 29 buildings had been completed. Handicrafts Monitoring Quarterly reports made by the PCU handicraft specialist based on field visits summarized all activities linked to handicrafts be they association grants’ outputs or activities generated by the PCU such as qualitative assessments of NGOs, trainings, participation in local trade shows, product design and marketing facilitation. Each report, in addition to providing a qualitative review and responding to the needs identified, also itemized the sales for individual beneficiaries thus keeping track of the progress in terms of income generation and trends in the economic outputs. Whereas the handicrafts monitoring was well designed and implemented, the unfortunate lack of baseline data limited the impact evaluation of such activities.

2.4 Safeguard and Fiduciary Compliance

(focusing on issues and their resolution, as applicable) Safeguard compliance The project triggered two safeguard policies: Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) and Cultural Property (OPN 11.03). Whereas the project category was F (Financial Intermediary Assessment), no major environmental or cultural issues were associated with the activities proposed under project. Indeed, it was deemed that the project would have a positive impact on the natural and cultural environment by giving communities a stake in their preservation. Furthermore, since these impacts could only be identified during the course of implementation of the specific sub-projects funded through the small grant program, no environmental assessment was carried out at the onset of the project; instead the following provisions were made to ensure compliance with the safeguards.

a) A mechanism was designed including the screening of sub-project proposals, based on a checklist, to assess the environmental impact and the potential need for an environmental assessment, or simple review, based on the sub-project’s typology. This mechanism was built into the operational manual for the small grant program. b) During preparation, an assessment of local regulations on the protection of cultural property at the national and local levels was carried out and confirmed that the project would safeguard rather than harm cultural property.

Shortly after the beginning of the implementation of the MOCGs, which were introduced during negotiations, notice was taken of inappropriate restoration and shoddy workmanship. Initially and upon the Ministry’s insistence, it had been agreed that the responsibility for the design and the supervision of quality control would lie with the Institute for the Protection of Monuments. The results however showed that the Institute neither had the impetus nor the capacity to be endowed with such a responsibility and,

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subsequent to discussions with the PCU and the Ministry, it was agreed to verify both by independent experts. This substantially improved the quality of subsequent works. Fiduciary compliance

The financial management function of the project was outsourced to a local company with demonstrated knowledge of Bank procedures. Internal controls and yearly audits carried out by international auditing firms issued satisfactory opinions. With the exception of transfer delays in counterpart funding in the last year of the project, which caused a Moderately Unsatisfactory (MU) rating at the last ISR, the project did not have significant fiduciary issues during implementation. The counterpart funds were subsequently made available in time to allow for all disbursements to take place in due time.

2.5 Post-completion Operation/Next Phase

(including transition arrangement to post-completion operation of investments financed by present operation, Operation & Maintenance arrangements, sustaining reforms and institutional capacity, and next phase/follow-up operation, if applicable) The measures taken by CDCP to ensure operations and maintenance are fairly adequate and it is likely that the project’s operations and institutional capacity will be sustained. Operation and Maintenance The operation and maintenance of activities funded by the AGs was built into the application process. Subject to the nature of the sub-project, budgets submitted with the application form included the financing of operation and maintenance. Furthermore the sustainability of sub-projects was one of the criteria against which the applications were assessed. The majority of the restored monuments acquired new functions as venues for cultural activities such as performances and commercial art exhibitions, museums, multimedia cultural centers and/or visitors’ information centers. These activities simultaneously provide new employment opportunities as well as income through ticket sales, sales of souvenirs, and, in some cases, the establishment of cafes within the premises, thereby linking cultural events with economic viability to ensure the partial funding of operations and maintenance of these venues. Nonetheless, more could have been done to ensure long-term sustainability through greater attention to thorough planning regarding the operational and maintenance costs of these public assets. This could possibly have allowed, for example, budget lines to be opened either in respective municipalities or at the MOC, depending on jurisdiction, to partially defray such costs. In the context of the Institutional Development component and particularly with regards to the Inventory activity, the beneficiaries received training regarding (inter alia) operations and maintenance. Particular emphasis was placed on the weekly backing up

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of data and its recording on disks. Arrangements for the payment of interconnectivity fees have also been emphasized. To this effect the CDCP has paid one year’s subscription fees for the Head Office for the Protection of Cultural Heritage and obtained the commitment of the MOC State Secretary that the Ministry will include the costs for the VPN (Virtual Private Network) lines in 2007. Additionally, and in anticipation of the smaller budgets of the regional institutes, it has also covered the regional institutes’ subscription costs for one year. Furthermore the computer company that designed the software trained several staff including a systems administrator who can benefit from back up support and further training by the company for the following three years. In the context of the entire project, the magnitude of this activity is not comparable to those in component 1. Nonetheless, there is a concern about the insufficient number of staff trained at the Regional Institutes (i. e., one individual at each institute). Notwithstanding repeated requests by the PCU for the MOC to assign more trainees this was not done, which exposes the Ministry to the risk that capacity could be lost if these individuals leave. Sustaining reforms and institutional capacity In addition to the capacity built within the MOC, the CDCP improved the local NGOs’ capacity significantly through the constant support provided by the project’s Regional Coordinators and Community Development Specialists who helped local communities and NGO’s to define the subprojects, complete project documentation, and implement the awarded subprojects. They also monitored sub-projects and collected data for assessing the economic and social benefits of the sub-projects. As a result a number of municipalities have chosen to avail themselves of this expertise for financial planning, fund raising, and project development with international donors as well as for continued support to local NGOs. Most of the coordinators have been hired by the local authorities, either on a salary or on a commission basis, thus sustaining the institutional capacity of the municipalities and their constituencies. In accordance with the National Program for Culture for the period 2004-2008, the Ministry of Culture will:

• Cooperate with NGOs in joint projects for creating a favorable climate and for creating national programs intended for specific areas of culture;

• Promote their achievements; • Provide financial and human resources to support partnership projects between

NGOs.

A ripple effect of project implementation was the noticeable empowerment of the PCU whereby the PCU as an entity gained institutional respect and was given increasing voice in its transactions with the government. This is further evidenced by the fact that subsequent to the closing of the project, the PCU, retaining its core staff, registered as an NGO dedicated to the same line of work undertaken under the auspices of the CDPC. Furthermore the NGO has been permitted to retain the office equipment and premises, which are being subsidized by the MOC. More significantly, the latter also agreed to finance projects deemed of national importance submitted by the NGO for the next

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twelve months. While the NGO has been using the experience it gained through the CDCP to generate new projects in collaboration with former and new donors, it is also in the process of refining a 4 year Memorandum of Cooperation with the MOC. This collaboration between the NGO sector and the MOC should substantially increase the Ministry’s ability to carry out its mandate.

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3. ASSESSMENT OF OUTCOMES

3.1 Relevance of Objectives, Design and Implementation

(to current country and global priorities, and Bank assistance strategy) Following the break-up of Yugoslavia, the Borrower’s cultural assets had been neglected and were perceived as a liability rather than an asset. The project was ground breaking in using tangible and intangible cultural heritage to attract domestic, regional and international visitors to relatively undeveloped areas in order to facilitate local socioeconomic development. By adding a community development emphasis and empowering local stakeholders, it supported the Government’s efforts of decentralization. The requirement for participating municipalities to elaborate local strategies effectively helped build their capacity and enhance local self government. As some of the difficulties encountered with the Institutes for the Protection of Monuments bear witness, there was a need to improve the management of cultural assets. The activities undertaken under the MOCGs together with the Institutional Development component coherently addressed this issue. A short survey conducted by the PCU at sites that benefited from the AGs, together with the handicrafts expert’s reports and the M&E database, reveal that the project did provide a catalyst for private sector growth and job creation. Thus, not only was the PDO in line with the CAS sector related goals (see section 6.1), but the innovative approach of the project allowed for improvements during implementation to ensure that the objectives would be met. The highly participatory implementation mechanisms that engaged local government in the decision-making processes significantly contributed to the current country priority on decentralization. The project also indirectly contributed to the realization of the Framework Agreement (i.e., the peace agreement that ended the conflict of 2002) through its nonbiased valorization of the common heritage of the Borrower’s population regardless of its ethnic connotations, as a means to reduce social tensions. Therefore we can conclude that the objectives, design, and implementation were relevant to country and global priorities and to the Bank’s assistance strategy. Nonetheless, the project design and implementation would have benefited from better policy dialogue with the national institutions in charge of tourism and their stronger involvement, as well as better synergies with sectoral ministries, such as Ministry of Transportation and Communication, whenever applicable to induce an impact multiplier effect.

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3.2 Achievement of Project Development Objectives

(including brief discussion of causal linkages between outputs and outcomes, with details on outputs in Annex 2) The project successfully “established conditions to facilitate community-based socio-economic development by leveraging its cultural assets to create culture-based industries, while improving the management of cultural assets particularly at the local level.” The use of a competitive grants program revolving around the topic of culture proved to be very effective for community mobilization and for promoting the creation of handicrafts and tourism industries. In so doing it furthermore raised local communities’ awareness of the economic value of their heritage by demonstrating that their preservation could be efficiently associated with income generation. Thus not only did the project stimulate economic development in depressed areas of the country but, through targeted technical assistance, it also improved the management capacity of a range of institutions, thereby facilitating community-based socio-economic development. A total of 204 association grants were implemented, of which 54 focusing specifically on physical cultural heritage, 72 on cultural events (intangible heritage), 11 on natural heritage, 33 on promotion and signage, and 34 on handicrafts (for more information on project outputs cf. the Borrower’s ICR in Annex 7). While 30% of the grants provided largely intangible welfare benefits (as measured by the PCU), over 70% contributed to tangible economic benefits through the development of tourism industries including goods and services. This healthy socio-economic mix of benefits, together with the generally positive internal rates of return (see below), suggests that the community associations/NGOs will remain viable (even in the one case where the IRR is not positive the association has a positive cash flow). Additional data from a short survey shows that 50% of the grants were instrumental in providing employment. Thus the aspect of the PDO that pertains to facilitating the development of culture-based industries by leveraging cultural assets was satisfactorily achieved. Institutionally, the establishment of NGOs, in itself a positive progression from simple association and/or CBO status, and the provision of tools for them to have a concrete impact, legitimized them in the eyes of local governments and helped develop an effective dialogue. Nearly two thirds of the NGOs closely collaborated with local authorities, and as a result a number of municipalities retained individuals for continued support to the development of tourism activities linked to cultural assets. While technical support was provided to local governments for developing local strategies, they in turn worked with their constituencies to define their cultural and natural assets. In bridging governments to their communities civil society was given a stake and, when both ownership and risk are shared, the probabilities for improved management of cultural assets inevitably increase. Lastly, one of the most important elements necessary to achieve assets’ management in the context of historic structures is the provision of targeted expertise. In this context, the combined activities of: a) the digitization of the national inventory of sites and b) the MOC grants effectively supported better management of cultural assets at both the local and national levels.

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3.3 Efficiency

(Net Present Value/Economic Rate of Return, cost effectiveness, e.g., unit rate norms, least cost, and comparisons; and Financial Rate of Return) The economic analysis carried out after project completion adopted similar methods as the analysis made at preparation. As such it sampled five sites and it did not include hard to quantify benefits such as the non-use value associated with the conservation of nature and culture, nor those associated with the learning and innovation resulting from the community based demand driven design of the project. Thus the cost benefit analysis was based on the primary monetary benefits from increased tourist visits and expenditures and did not consider multiplier effects. Therefore, what is described here is essentially a simple financial analysis and would be a lower bound on the economic benefits of the subprojects. The results of the analysis are summarized in the table below and further discussed in Annex 3. In four out of five cases the results are positive. And even in the one case with a negative net present value, since the initial investment was paid from the project, from the financial perspective of the beneficiary association the results are satisfactory given that the project has a positive cash flow. Net Present Value (MKD) Internal Rate of Return Base case Pessimistic Optimistic Base case Pessimistic Optimistic Project 1: 09-340-08 3,817,721 3,578,000 3,883,829 29% 28% 30%Project 2: 09-340-12 506,361 424,302 534,134 15% 14% 16%Project 3: 11-341-69 1,226,247 1,108,292 1,264,395 22% 21% 23%Project 4: 09-219-01/06 -1,448,058 -1,485,712 -1,432,348 0% 0% 0%Project 5: 11-223-04 150,937 96,765 169,071 11% 10% 11%

3.4 Justification of Overall Outcome Rating

(combining relevance, achievement of PDOs, and efficiency) Rating: Satisfactory Given that the design of the CDCP was relevant and that the PDO was achieved, combined with the generally positive results of the economic analysis that demonstrate reasonable efficiency, the overall outcome is rated Satisfactory.

3.5 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 Through employment creation and income generation the CDCP’s activities had an impact on poverty alleviation. It must be observed however that unemployment was prominent in the project sites and that there were relatively few opportunities for income generation. In order to have any impact at all, the project had to capitalize on existing skills that were not necessarily found in the poorest sections of society. Yet the CDCP made judicious use of training and thus through both the enhancement of skills and the

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provision of grants, it did begin to have an impact on poverty reduction as evidenced by the PCU’s survey results (see Annex 2 for further details) stating that 17% of CDCP sub-projects contributed to the creation of permanent employment, while 33% contributed to seasonal employment (cf. Annex 7 for more details). With regards to gender aspects, the project respected its original design whereby proposals submitted in the context of component 1 had to correspond to a number of criteria, including equity, and therefore it kept a reasonable gender balance. While it did not particularly favor either gender, the facts that it was demand driven and that the nature of the activities eligible for funding, such as handicrafts and hospitality industries, are not gender specific domains, provided equal opportunities for both genders. While the activities foreseen in component 2 were pre-established and their implementation was based on expertise, they too did not preclude the participation of women. The CDCP paid particular attention to youth throughout the project. At the onset, it consulted youngsters through focus groups in the context of the Social Assessment to inform grant design. As such, it took their priorities into consideration and ensured that they would equally benefit from project activities. Whereas the implementation of activities seldom involved youth attending school, they often did have a direct and positive impact on such youth (see (c) below). The most notable achievement of the CDCP however is its contribution to fostering peace building. The Borrower’s population comprises a variety of ethnic groups, including (inter alia) Slavs, Albanians and Roma, as well as religious denominations, notably Orthodox Christians and Muslims. Detailed observation shows that access to funding was not restricted, that support was provided to more disenfranchised segments and that activities benefiting all groups were implemented. In addition to the impact of the previously mentioned activities in Skopje, another notable example includes the financing of works at St. Jovan Bigorski Monastery and at St. Giorgi Pobedonoset Nunnery, both located in the western part of the country, which is now mostly populated by ethnic Albanians, and the financing of musical activities in Debar, located in the immediate vicinity of the latter, to maintain the traditional Albanian folkloric customs. The culmination of peaceful co-habitation of various cultural identities was evidenced in the kayaking center, financed by a sub-project, located on Debar Lake that is frequented by youngsters of both ethnicities.

(b) Institutional Change/Strengthening (particularly with reference to impacts on longer-term capacity and institutional development) The activities under component 1 have demonstrated substantial institutional change and strengthening of local governments and NGOs as previously mentioned. Whereas the nature of the problems that initially troubled the MOCGs were related to the unexpected lack of capacity of the Institutes for the Protection of Monuments, full remediation within the context of the CDCP would not have been realistic. Nonetheless, the project, while

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addressing technical and monitoring issues, by way of additional expertise and sustained dialogue, also improved the Institutes’ lax attitude towards responsibility. Therefore while the CDCP was not intended to substantially address the long-term capacity and institutional development of the Institutes; it did however sensitize them to the importance and the methods of controlling quality. The inventory activity has, without doubt, strengthened the institutional capacity of the authorities in charge of monuments in the country. Its impact on longer-term capacity and institutional development however will depend on the Ministry’s willingness to train more staff. Finally, the fact that the PCU succeeded in keeping its current coherent structure for continued activities in the sphere of culture and development indicates that institutional capacity has been strengthened in a sustainable manner. The MOC’s commitment to support this new NGO, to finance a number of projects, and to entrust it with monitoring others suggests that a more efficient cooperation is unfolding. By relying on demonstrated expertise and outsourcing specific activities and responsibilities to NGOs, the MOC can improve the use of its resources and focus more exclusively on policy issues. This more cost effective way of operating denotes the beginning of a remarkable institutional change. (c) Other Unintended Outcomes and Impacts (positive or negative) The CDCP had two extremely positive impacts that cannot quite be qualified as unintended but rather as not explicitly elaborated in the project documents. The first pertains to the involvement of youth and the impact of certain sub-projects on education and integration. Taking into account that “recreational” activities were among the list of eligible activities for sub-project approval, it is the approach taken by NGOs to recreational activities that is rewarding. In one case, for example, the sub-project consisted in making underground caves accessible to visitors, thus satisfying the criteria of natural heritage preservation. The promotion of these natural assets in turn guaranteed sustainability while creating employment. More interestingly, however, it allowed teachers to take their classes to these premises in their native country as a complement to geography classes for the very first time. For, whereas school trips to caves in Yugoslavia had been standard practice, these trips were always beyond the current borders as none of the national caves were exploited. Thus since the dismantling of Yugoslavia, Macedonian school children of the last decade no longer had the possibility of benefiting from their own resources until the CDCP grant to a local NGO working in Mavrovo National Park. The impact on social, racial, and ethnic integration of a number of CDCP activities has already been elaborated previously. Another important positive impact of the CDCP consists in the fact that the project provoked a remarkable change in the perception of tangible heritage and cultural assets.

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While the project reclaimed the historic environment by rehabilitating noteworthy buildings and putting them to new uses, the ensuing ripple effect produced in the wake of the rehabilitations led certain municipalities to take a leading and proactive position in improving the urban fabric. This was, for example, the case in Debar where. subsequent to the restoration and rehabilitation of the Hamam (Turkish bath), the municipal authorities decided to remove a series of newer constructions that obscured the view of the Hamam roofline and to rebuild them at a height below that of the Hamam. This demonstrates that the concern for a given panorama as an integral part of site conservation (something that has been recently introduced by UNESCO as in equal need of preservation as monuments themselves - the view across the river from the Taj Mahal in Agra is the most cited example in this case) is being spontaneously adopted by some of the Borrower’s municipalities thanks to the CDCP. However, the impact has not been entirely positive. In the specific area of conservation and restoration, inappropriate interventions in some cases either failed to appropriately address authenticity aspects or resulted in structural inadequacies. On the one hand the concept of restoration is often equated with that of re-building, with no differentiation between conservation, restoration, and reconstruction activities. On the other, the authorities are not always familiar with newer developments and international practices in the field of conservation. As a consequence, rigid behavior and lack of knowledge are often accompanied by a lack of standards and skills. In view of this context, the CDCP can still be credited for improving the perception of local practitioners, although correcting some of the original technical inaccuracies would require additional funds.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

(optional for Core ICR, required for ILI, details in annexes) No Beneficiary Survey was carried out.

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4. ASSESSMENT OF RISK TO DEVELOPMENT OUTCOME

Rating: Moderate The CDCP has successfully developed the capacity of various stakeholders namely: NGOs, local government, and the Institute for Monuments and its subsidiaries. In the process it has increased the accountability of these stakeholders and empowered the communities in which it was active. All evidence shows that these positive changes are well rooted and are unlikely to change and thus unlikely to put the development outcome at a significant risk. Political volatility however could affect good governance and, subsequently, the economic sector that in turn could diminish the project’s technical and institutional achievements. Therefore, the rating of Risk to Development Outcome is deemed moderate.

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5. ASSESSMENT OF BANK AND BORROWER PERFORMANCE

(relating to design, implementation and outcome issues) 5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry (i.e., performance through lending phase) Rating: Satisfactory The Bank’s performance during identification, preparation and appraisal was satisfactory. During identification it thoroughly reviewed similar activities carried out in the field of cultural heritage by the government of the Borrower and other donor agencies, and identified the gaps in the existing interventions. At preparation it assessed the capacity of the MOC perhaps a little too optimistically, but by the same token it also effectively introduced the concept of community development for greater impact and sustainability. Although a Social Assessment would have been more useful if carried out during preparation, the time constraints did not allow it and this was remedied by the integration of social and needs assessments into project implementation. The preparation and appraisal of the project were undertaken in record time. In addition, the Bank’s exploration throughout preparation of co-financing possibilities was relentless. (b) Quality of Supervision (including of fiduciary and safeguards policies) Rating: Satisfactory The Bank’s performance during the implementation of the project was satisfactory. Evidence is provided not only by the regular supervision missions that were undertaken as scheduled but also by the close monitoring and additional efforts to discuss outstanding issues with the Borrower during additional short missions, especially during the first two years of the project. Furthermore, this was realized within the limits of the allotted budget. There were no outstanding fiduciary and safeguards issues and project execution problems, when they arose, were effectively arbitrated. All project documentation was objective, effective (Aide-Memoires, ISRs, etc.) and prepared and submitted in timely fashion.. The Mid-Term Review was particularly effective in producing practical recommendations that were subsequently implemented by the PCU. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory Information was gathered in a thorough manner during identification and the Bank incorporated its findings in project preparation effectively. Shorter than average deadlines prevented the SA from being carried out prior to appraisal, a minor shortcoming. Based on these observations together with the quality and timeliness of supervision, overall bank performance is rated as satisfactory.

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5.2 Borrower Performance

(a) Government Performance Rating: Satisfactory The Government of the Borrower was highly committed to the project and stayed engaged in the design and preparation process, providing competent counterparts who contributed effectively to project preparation. Ownership and commitment were demonstrated in the rapid establishment of a National Steering Committee composed of key institutional stakeholders. Project effectiveness was delayed due to the political crisis affecting the Borrower in 2001 and the subsequent realignment of the Government’s priorities (to address the crisis). However, the DCA was signed shortly after the new “Law on Indebtedness”, which was holding up effectiveness, was approved by Parliament. A new Government was elected during implementation in 2002, which questioned the project briefly and necessitated extra discussions to clarify the relationship between the components and the way in which they had been implemented to attain the PDO. This was smoothly resolved as a productive dialogue ensued between the Bank and the Borrower. With the exception of the last few months prior to closing, Government contributions were undertaken in a timely fashion. The MOC of the Borrower, like MOCs worldwide, experiences limited budget allocations. Nonetheless, it manifested its commitment to finance operations after Credit closing as evidenced by its support to the PCU for the coming year. Should the duration of this commitment be extended to four years, the transition arrangements could be considered more than adequate. With regards to the National Inventory of Sites activity, a staff member of the Head Office for the Protection of Cultural Heritage has received extensive training as a systems administrator. Furthermore, the MOC has accounted for the costs of the VPN in its 2007 budget, and the maintenance terms of the equipment procured for this activity are built into the warrantee that is valid for three years from the time of purchase. (b) Implementing Agency or Agencies Performance Rating: Satisfactory

The Performance of the PCU, which implemented the project, was satisfactory. While the project was besieged by a number of primarily external challenges that at times slowed implementation, the PCU was able to successfully address such issues and recover from the delays incurred, thereby achieving positive developmental results.

Under the leadership of its highly committed and capable Director, the PCU assumed its tasks professionally. Whereas the initial PCU staff was small, targeted additional expertise was recruited at a pace that corresponded to the increase in the workload. Administrative activities such as procurement, disbursement and financial management were carried out faultlessly. However, the PCU encountered serious problems in obtaining qualified individuals in certain areas of expertise such as Community

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Development and Institutional Learning, both of which are fairly novel fields in the Borrower’s employment arena resulting in a countrywide deficiency of specialists on these specific topics. Nonetheless, these difficulties were addressed either by selecting individuals with equivalent experience as in the case of the Community Development specialist; or by revising the content and purpose of the Institutional Learning activity that was absorbed, to an extent, in the monitoring mechanisms. This confirmed the PCU’s capacity to take initiatives, which was crucial for the successful implementation of the CDCP.

As is often the case, the PCU was driven by a concern to ensure that the majority of credit proceeds be invested in activities to benefit local populations. Yet as staffing problems were often driven by a lack of capacity, the PCU could have enhanced its effectiveness by making more extensive use of earmarked funds for targeted training. Although guidance was provided to staff and the overall office environment at the PCU was convivial with staff managed in an informal manner, a more structured approach to complement the weekly staff meetings might have improved the efficiency of the PCU and avoided reporting delays.

The PCU demonstrated superior negotiating and problem solving skills in a difficult political environment, and as such acted as an effective intermediary between the Bank and the Government as well as between Local Governments and Central Government. Thus the CDCP was implemented in accordance to the PAD and successfully reached the PDOs in compliance with the covenants and agreements.

(c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory The Government demonstrated ownership and commitment to achieving the development objectives at all stages of the project and complied with its fiduciary responsibilities. More thorough post-project transition arrangements could have improved sustainability. With the exception of some reporting delays that constitute a minor shortcoming, the PCU performance was satisfactory. Based on the above, overall borrower performance is rated as satisfactory.

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6. LESSONS LEARNED

(both project-specific and of wide general application) LESSONS SPECIFIC TO CULTURAL HERITAGE Cultural Assets, Community Development, and Economic Development The project has demonstrated that cultural assets can function as a positive magnet for community mobilization, which is the pre-requisite to successful community development. Through the latter, ownership and consequently stewardship may be improved. The CDCP has shown that participatory processes combined with targeted capacity building can indeed change perceptions and actively bring local history and heritage into the arena of economic development, thereby promoting employment and income generation as well as assets management. The World Bank’s Comparative Advantage in Culture and Development Of all multilateral actors, the Bank possesses the best tools to effectively intervene on Cultural Heritage and, as a consequence, to increase the developmental impact of such operations. Cultural Heritage, as a public asset that often has proportionally more non-use value than it has use value, may be disregarded by those who focus only on short-term economic impacts. However the impact of culture is wide ranging and contributes to the sustainability of projects. By virtue of the direct dialogue the Bank is engaged in with its borrowers, it is in a unique position not only to encourage policy changes but it is also the only institution capable of assisting developing countries effectively in the management of their heritage since UNESCO, a non lending institution, is short of funds and the private sector in developing countries is often either nascent or growing in fiscal environments that have yet to foster private-public partnerships. Cultural Heritage and Reputational Risk Conservation and restoration of built heritage is complex, costly and requires very specific expertise that the Bank should mobilize to ensure that its interventions are appropriate. Whereas the Bank has demonstrated consistent expertise in the administrative areas of cultural heritage management such as collections management, museum management and inventories, tackling conservation and restoration of monuments implies greater risks. While the Bank has made efforts to engage specialists in projects where the bulk of activities concerned restoration, as was the case in Azerbaijan, it still has a tendency to minimize such a need in operations where conservation is peripheral. To this end it should not only engage experts to oversee all such operations, regardless of the proportion of funds allocated within the project to conservation and/or restoration, but it should avoid them unless an assessment has been made by a peer review panel, preferably international in the case of significant works, lest a reputational risk be incurred. If adequate allocations cannot be awarded for the proper expertise and overseeing of conservation and restoration of monuments, the Bank should not finance such activities/operations.

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Property Title Clarification of title prior to interventions on historic structures diminishes risks of contention and ensures effectiveness of investments. While encouraging public/private partnerships can support economic development, the use and/or management of public assets by private entities and the provision of subsidies/grants to public assets linked to private utilization should be carefully orchestrated and monitored. Even more importantly, subsidies for improving privately owned property without a clearly defined rationale can harm the dynamic in communities and ultimately undermine a project’s success. In order to avoid the type of problems that occurred in the Skopje Bazaar with the building known as the “French Bank” (where, after the restoration works had been completed and the project embarked on seeking ways to make the investment sustainable, the title was contested), all the necessary administrative procedures to clarify ownership, utilization and beneficiaries should be clarified prior to making investments. Administration of cadastres is slowly being updated in many ECA countries, but as a general rule the registration process and documentation can at times be challenging and a little murky as the regulations are not systematically applied. Therefore to improve transparency, any project that chooses to invest in the restoration of a private edifice in the context of a culture related project should observe the following: a) ensure that the property is listed by the national institution in charge of monuments; b) obtain all documentation relevant to the title prior to undertaking any works; c) create a partnership whereby the stakeholder will be accountable and/or transfer the management of the property for a given time to a professional body for a fee until such time as the costs have been recovered; and d) disseminate this (a, b and c) information publicly. Financial Planning for Public Assets Comprehensive approaches to heritage assets management should not disregard financial planning lest long term sustainability be put at risk. Notwithstanding some of the remarkable achievements obtained through the MOCGs, the financial sustainability of the rehabilitated historic structures largely depends on NGOs’ performance and the spending power of consumers (Macedonians and foreigners alike). While this is a good example of applying private sector tactics, the assets concerned in this case are generally public. The project could have made use of its ample training budget to provide relevant financial planning tools, ranging from simple budgeting of maintenance and operations to cost benefit analysis, to the authorities in charge of these assets. Signage for Cultural Heritage Signage components are more complex than they appear and are more likely to be better implemented by roads and transportation projects. The CDCP is not the only Cultural Heritage project to have included a signage component and the unsuccessful outcome is not only attributable to the fact that it came as an afterthought. Rather, prior experience shows that this is almost a sector specific activity that necessitates close collaboration with transport authorities and sometimes, depending on the institutional set-up of a given country, with the police. This experience was not readily available at the time the CDCP decided to add the signage activity and therefore it could not have been

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forewarned about the complexity of the undertaking. It might however have availed itself of the Transport Sector Project that was still active at that time. LESSONS OF GENERAL APPLICATION Benefits of Additional Funding The benefits of additional funding should be carefully weighed against the opportunity cost and the time and efforts to obtain such funding. While seeking additional funds and obtaining them often enlarges the scope of a project and legitimizes it in the eyes of institutional stakeholders, the use of trust funds can sometimes be distracting as they often take considerable human resources away from main objectives without necessarily adding value to the project (as was the case of the Information Communication Technology activity). In contrast, the Dutch Government Grant did allow a significantly greater number of physical works to be carried out. Nonetheless, a careful assessment of the pros and cons should have been undertaken prior to embarking on the time consuming and resource straining search for additional funding. Policy reform Integrating policy dialogue for reforms, whenever appropriate, is important for positively influencing outcomes and the sustainability of investments. The project was very much focused on the effective management of its activities with a view to achieving the proposed objectives, which it indeed did. However the important role of policies was somewhat overlooked at the design stage. Whereas there was a conscious decision not to intervene at the policy level in order to simplify the LIL, the results obtained could have been better anchored and more sustainable had they been complemented by a stronger emphasis on policy dialogue with the borrower as an integral part of the project. One of the numerous motivations for policy reforms is rooted in tested operations that manifest tangible and positive results. The Bank has the ability, and to a certain extent the authority, to create a platform for policy discussions as well the tools – e.g., the operations – that provide the evidence necessary for reforms. Disbursement Schedules There is a direct correlation between the nature of a project and its disbursement flows, and disbursement schedules can be more adequate if designed accordingly. Disbursement schedules should be more realistic and correspond more closely to the nature of the investments concerned. Task Teams often come under pressure to prepare disbursement schedules that correspond to Country Units’ priorities and programs; and projects get downgraded if schedules have not been adhered to, reflecting negatively on both lenders and borrowers. One way to remedy this would be to set varying disbursement benchmarks according to the nature of projects. The Bank has ample data and an analysis, along the lines of the “Standard Disbursement Profiles” that used to be produced until 1993 and provided guidelines for Task Team Leaders, would allow task teams to devise disbursement schedules accordingly. In any case, Task Teams should spend more time on preparing credible disbursement projections, which should reflect country experience.

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Consistency in the Application of Standards Changing standards “mid-stream” can have detrimental results. Over the course of CDCP implementation, the basis for rating Implementation Progress shifted from rating the performance of the Implementing Agency to rating implementation progress relative to what had been planned. As noted in section 2.2, this resulted in downgrading the project when performance was actually improving. While the new standards may well have been more realistic, this had a significant detrimental impact on counterpart morale.

7. COMMENTS ON ISSUES RAISED BY BORROWER/IMPLEMENTING AGENCIES/PARTNERS

(a) Borrower/implementing agencies None. (b) Cofinanciers Comments on issues raised by the Government of the Netherlands (cf. Annex 8): The World Bank’s Task Team acknowledges the significant contribution of the Government of the Netherlands in enlarging the initial scope of the project and providing support to successfully attaining the project’s development objectives. Some of the comments provided by the co-financier suggest a degree of confusion with respect to responsibilities regarding project implementation. When the Bank agrees to manage donor co-financing, this financing is implemented on exactly the same basis as projects where the World Bank is the only external financier. Project implementation is primarily the responsibility of the Borrower and Implementing Agency, not the Bank. The role of the World Bank, as a lender, is to supervise and provide guidance for project implementation. Our responses to some of the specific issues raised by the co-financier are given below: 1. The Task Team visited the Netherlands Embassy on every supervision mission (and local staff were more frequently in contact) to brief the co-financiers on project implementation progress and review outstanding issues. However the Team did not discuss the extension request while it was being internally processed prior to receiving a communication on this from the Netherlands Embassy. 2. The National Steering Committee (NSC) was established as a decision making entity by the Borrower. Initially it took on inappropriate responsibilities. This problem was identified by the Bank’s Task Team. This led to the reconstitution of the NSC by the Borrower with a more clear and appropriate mandate. The Operations Officer referred to by the co-financier was selected by the Bank precisely so as to be able to increase the intensity of supervision for this and two other projects co-financed by the Dutch. As noted by the co-financier, this increased intensity of supervision contributed to

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strengthening the capacity of the Borrower’s Project Coordination Unit to more efficiently manage the project. 3. The CDCP implementation coincided with the decentralization of the Loan Department of the Bank. As in many transitions, this resulted in some problems of communication. Indeed operational staff at Bank headquarters also experienced communication problems during this transition phase. The Embassy’s comment has been duly noted and will provide an important lesson learned for future operations. 4. Aide-mémoires are intended to report on the status of implementation and key issues that need to be addressed at the time of a given mission. The very reason why the Bank tries to undertake regular and frequent supervision is that the implementation situation and issues that need to be resolved do evolve and change, often over a short span of time. 5. The Task Team continually acknowledged certain PCU weaknesses and worked with the PCU to help it build its capacity. In particular, the Task Team focused on helping the PCU focus and report on outcomes and project impact. 6. The Task Team agrees with the co-financier that while significant results were achieved, as mentioned in section 2.5, some reservations remain about the measures taken by the Borrower for following up on the project’s physical and human investments.

(c) Other partners and stakeholders (e.g. NGOs/private sector/civil society)

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ANNEX 1. PROJECT COSTS AND FINANCING

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

Components Appraisal

Estimate (USD million)

Actual/Latest Estimate (USD

million)

Percentage of Appraisal

INTEGRATED SITE DEVELOPMENT 5.20 6.30 121.15

INSTITUTIONAL DEVELOPMENT AT THE NATIONAL LEVEL 0.92 2.20 239.13

Total Baseline Cost 6.12 8.50 Physical Contingencies 0.00 Price Contingencies 0.00

Total Project Costs 6.12 Front-end fee PPF 0.25 0.00 0.00 Front-end fee IBRD 0.00 0.00 0.00

Total Financing Required 6.37 8.50

(b) Financing

Source of Funds Type of Financing

Appraisal Estimate (USD

million)

Actual/Latest Estimate (USD

million)

Percentage of Appraisal

Borrower 0.66 1.00 151.52 Local Communities 0.42 0.00 INTERNATIONAL DEVELOPMENT ASSOCIATION

5.00 5.90 118.00

ITALY: DEV. COOP. DEPARTMENT (MOFA)

Trust Fund 0.04 0.00

NETHERLANDS: MIN. OF FOREIGN AFFAIRS / MIN. OF DEV. COOP.

Trust Fund 0.74 0.99 133.78

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ANNEX 2. OUTPUTS BY COMPONENT

The project successfully established conditions to facilitate community-based socioeconomic development by leveraging its cultural assets to create culture-based industries, while improving the management of cultural assets. The PDO was achieved. To measure the impact of the CDCP, the following KPIs were devised: i) community associations created/supported at project sites remain viable, and ii) municipal governments work effectively with local communities. Component 1, which addressed Integrated Site Development through Community Grants (CGs), Association Grants (AGs) and the Ministry of Culture Grants (MOCGs), aimed at creating employment and income, while increasing local and institutional capacity. One of the expected outputs was that community-based tourism and crafts industries would be organized around cultural assets at the selected sites. This was measured by the implementation of site plans and the number and types of industries developed. The Association Grants were classified into 5 categories and the data show that of the 204 AGs implemented, 72 were dedicated to cultural events, 54 to cultural heritage, 11 to natural heritage, 34 to promotion and signage, and 33 to handicrafts, thus covering a significant range of culture-based activities that fostered income generation and tourism development. Additionally, the PCU devised a set of attributes to evaluate the type of benefit these grants provided. These included: economic benefits, educational benefits, recreational benefits and tourism development. While certain grants produced dual benefits, approximately 70% contributed to tourism development and 30% provided welfare benefits such as recreational or educational opportunities. More importantly, 25% of the sub-projects cooperated with private enterprises and the 33 handicrafts projects generated a total income of US$ 144,000 for an investment of US$ 329,710. Referring to the disbursement profile and considering that the majority of sub-projects began implementation in the first quarter of 2004, these results, showing that 50% of the investments were recovered within a year and a half, are extremely positive since as a rule of thumb it takes no less than 3 years for a business to break even. The Community Grants, a second grant line for small grants under US$ 500, were awarded for community services such as park cleaning, scouts’ activities, and student projects related to cultural and natural heritage. More flexible both in terms of the entities that could apply for them (CBOs, NGOs, individuals, etc.) and in terms of the simple application procedure, their underlying purpose consisted of providing a boost to community development. As auxiliary projects that complemented the local cultural and tourism community offer, they were useful in filling small gaps and enhancing local strategies. Although no more than 5 % of the amount given for the association grants was allocated for the community grants projects and although they bore high administrative costs, their proportional impact was very high as they fostered welfare and provided a springboard for the more sustainable Association Grants. Most of the projects were connected with publishing promotional material, while some of them were used for community urban equipment such as park fountains, garbage boxes, benches, access

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paths, and similar low cost/high impact activities yielding visible benefits for the entire community. Within this same component, the second expected output aimed at achieving improved management of cultural assets and related activities by increasing communities’ capacity through technical assistance and training. In addition to the participatory processes described in section 2.1 that ultimately contributed to local empowerment, stakeholders received training that aimed to raise the level of proficiency of NGOs as beneficiaries of the grants including: the development of adequate business skills, strategic planning, procurement, financial management, product development, costing and pricing of consumer articles, as well as marketing strategies to enable the livelihood initiatives to be sustainable. The impact of the trainings is manifested by the fact that surveys conducted in 6 regions with 49 NGOs show that 82% continue to support activities related to CDCP financed sub-projects and that 89% have applied for other sources of funding. To the merit of the implementation design, the Social and Needs Assessment and Action Plan encouraged municipalities to define their cultural and natural assets and develop local strategies. Furthermore, through the establishment of local working groups, the project encouraged local decision-making and accountability. Finally, through the AGs it gave municipalities the opportunity to work with NGOs and vice-versa. For the purpose of assessing the project’s impact and performance, the PCU undertook a short survey (30 questions) with NGOs in all the municipalities that benefited from the CDCP. While most of the questions were directed towards assessing the performance of the PCU, the design of the small grants, and the effectiveness of administrative procedures it is nonetheless interesting to note that 66% collaborated with the local authorities during the application preparation. Furthermore, when questioned about increased project development skills, 67% believed that they gained new skills and experience and 25% stated that they gained fund raising skills. The survey also shows that of the interviewed NGOs that implemented CDCP financed sub-projects, 17% contributed to the creation of permanent employment, while 33% contributed to seasonal employment. Indeed not only did the project impart associative principles successfully but it actually contributed to enlarging the NGO sector and strengthening their organizational capabilities. In the context of the Borrower where, at the onset of the project capable CBOs and NGOs were scarce and competing for funds, and planning and scheduling activities were not well developed, 95% of the sub-projects that included civil works had written commitments from their municipalities. This not only demonstrates the capacity to efficiently forecast activities and the support from the municipalities, but also indicates a healthy state of the constructive relationship between local governments and NGOs. Furthermore, 80% of the NGOs that applied for a second round of grants saw them approved thus demonstrating acquired knowledge and practical application of this acquisition to operational uses. Other findings such as the incidence of cooperation either amongst NGOs (10%) or with authorities (20%) at the municipal or national level indicate strengthened civil society. The change of behavior from the pilot sites to the

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subsequent interventions at the 15 additional sites, and from rivalry to joint planning, is remarkable and significantly increased the qualitative and quantitative achievements of the project. It demonstrates that the CDCP established the necessary foundation for real community development and for building synergies and cooperation between various stakeholders. In all likelihood, the fact that municipal governments work effectively with local communities will ensure that the community associations created and/or supported at project sites will remain viable. While the MOCGs did not have a specific output indicator associated with them by virtue of the fact that they were introduced at negotiations, they supported the PDO and complemented both components of the CDCP since a pre-requisite of the MOCGs was that they be linked to the local integrated tourism and community development strategies, or provide linkage between the various elements of the strategy. On the one hand they provided venues for cultural activities and local tourism products and services, thus fostering local economic development and community benefits. They also contributed to sense of local identity and raised communities’ and local governments’ level of awareness of the benefits associated with preserving cultural assets. On the other hand, they provided an opportunity to directly make use of the tools provided by the Institutional Development component as the latter was being implemented. Thus, the MOCGs satisfied both of the expected outputs, namely: community-based tourism and crafts industries would be organized around cultural assets at the selected sites; as well as improved management of cultural assets and related activities by increasing the communities’ capacity through technical assistance and training. By the closing of the CDCP, 38 MOCGs were completed. Through the project historic buildings were saved from ruin and put to new uses thus making them accessible to Macedonians and international visitors alike. The edifices restored by the project include manifestations of religious as well as vernacular architecture in areas that vary in terms of ethnicity. Some example of new uses afforded by the MOCG rehabilitations include:

• The Old Magaza in Bitola. Restoration allows it to function as a multimedia cultural center enriching the cultural life of the city and its tourist offer.

• The Officer’s Club in Bitola. The restoration of the roof and façades and rehabilitation of the building now permit the premises to be used as a small theater for various performances including traditional music and lectures.

• The Hamam (Turkish bath) in Debar. A unique monumental structure that, following restoration, will be used as an art gallery.

• The Clock Tower in Kratovo. One of the outstanding architectural monuments in the country, it now functions as an ethnology museum and houses a café and a shop selling local handicrafts on the ground floor.

• The Culture Center Dragi Tozija in Resen. The rehabilitation allowed for new functions to be introduced, including a tourist information bureau, a souvenir shop, and a permanent art gallery.

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• St. Jovan Bigorski Monastery. The installation of central heating in a wing dedicated to overnight visitors to one of the country’s most famous sacred sites now possesses increased accommodation capacity.

• The House of Jordan Hadzi Konstantinov Dzinot in Veles. Following restoration, this noteworthy example of vernacular architecture (formerly the residence of the first journalist in the country) will now house the Association of Macedonian Cities with Architectural Heritage and a journalism museum.

Component 2 produced a computerized and digitalized inventory for registered historic buildings, a Handicrafts Assessment and a Tourism Assessment. The inventory activity included the creation of a database and training for its application that resulted in the development of management skills at local and central levels while increasing technical capacity. The critical advantage of this new format for keeping records is that it provides a central database accessible to the regional institutes, which are no longer isolated and can share data while working with a standardized information system. This will facilitate condition reports and improve the management of assets. Although a great deal of data has been collected, it has not all been entered in the database. Nonetheless, the process has begun and having a digitalized inventory capability puts the Borrower at the forefront of Ministries of Culture of the region. The inventory results will be accessible on a new website automatically created by the database and intended for public presentation. Thus, not only will management of assets be more efficient, but the assets will also be promoted thus enlarging the activity’s scope and impact by providing an additional attraction pole for potential visitors. This activity surpassed expectations and has also encouraged improved computer literacy and use in the Institutes. By providing an analysis of the situation at the onset of the project, the Handicrafts Assessment considerably contributed to the strategy for the development of related industries at all levels, and it allowed the PCU to assess handicrafts sub-projects efficiently. The assessment also initiated a dialogue with Aid to Artisans (ATA) and the concrete results described previously are a testimony to how such studies can be beneficial not only in terms of their content but also as conduits for collaboration. Regrettably, although a workshop, which gathered 150 participants from all sectors to present and discuss the findings of the Tourism Assessment, was undertaken; it did not yield any notable changes in terms of policy. This may be on account of the weak capacity and the lack of commitment of the institution in charge of tourism.

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ANNEX 3. ECONOMIC AND FINANCIAL ANALYSIS

(including assumptions in the analysis) Analysis of Economic rate of return/Net Present Value The five project sites which were selected for the cost benefit analysis (see table 2 below) include production of both goods and services. The cost benefit analysis is based on the incremental primary monetary benefits which come from increased tourist visits and expenditures on food and lodging, and sale of handicrafts (knitted products). The analysis does not include multiplier effects on businesses that would support these primary sectors. It also does not include non-monetary benefits such as environmental protection, conservation of culture, and effects on quality of life (as a result of recreation in a healthy environment). Nor does it include such sunk costs as the value of existing buildings. Additional investments and business expansion effects have also not been included, even though at least two of the five sample projects are planning to expand their operations, one of which is at an advanced stage of this process. The boarding school in Bogomila (project 1), which now has capacity of about 30 beds, will be expanded with another floor, increasing the capacity to some 60 beds. The mountain hut Cheples (project 2) is planning to attract foreign tourists by adding several upper rooms. This suggests that good rates of return are indeed prompting further investment. The data in table 1 is based on real data from project beneficiaries for the first year. The sensitivity analysis then makes differing assumptions about the future evolution of costs and revenues. Derived from information from the project beneficiaries, it primarily reflects differing number of visitors. The analysis reveals significant divergence in the estimated IRR: from a high of 30% for project 1 under the optimistic scenario to 0 for project 4 under all scenarios. It should be noted however that even in this latter case the association has a positive cash flow. Although the IRR figures should be treated as only indicative, four out of the five project sites have positive IRRs and two have an IRR greater than the expected IRR of 18% in the CDCP project appraisal document (PAD). Net Present Value (MKD) Internal Rate of Return Base case Pessimistic Optimistic Base case Pessimistic Optimistic Project 1: 09-340-08 3,817,721 3,578,000 3,883,829 29% 28% 30%Project 2: 09-340-12 506,361 424,302 534,134 15% 14% 16%Project 3: 11-341-69 1,226,247 1,108,292 1,264,395 22% 21% 23%Project 4: 09-219-01/06 -1,448,058 -1,485,712 -1,432,348 0% 0% 0%Project 5: 11-223-04 150,937 96,765 169,071 11% 10% 11% Three of the project sites provide services (accommodation), one is a manufacturing business (souvenirs and accessories), and one is a mix of products and services offered to the visitors of the cultural site (mosque). Project 5, the production of souvenirs and accessories, is the most inclusive in terms of the monetary benefits generated by the project, thus it could be considered as being most representative for the estimation of the economic rate of return. The sites that provide accommodation do not include spending

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on food and drinks (as such data is not available), and the site based on visits to the mosque does not include tourist spending outside the mosque. Table 2 below identifies the projects selected for the economic analysis along with the baseline data on which the projections and scenarios are based. Table 2

Project Reference number

Project description Revenue source Number of stays

Price per day for board (in denars)

Total Revenue

Project 1: 09-340-08

Adaptation of a boarding school for students

service (food and lodging) 1,436 650 933,400



Price per day for accommodation (in denars)

Total Revenue

Project 2: 09-340-12

Mountain hut Cheples

service (lodging) 3,240 120 388,800 Project Reference number

Project description Revenue source Number of visitors

Average amount spent per visitor (in denars)

Total Revenue

Project 3: 11-341-69

Haxi Ramadan sale of goods 6,000 90 540,000 Project Reference number


Price per day for accommodation (in denars)

Total Revenue

Project 4: 09-219-01/06

Mountain Hut Papradiste

service (lodging) 1,490 150 223,500


Project description Revenue source Number of visitors

Average amount spent per visitor (in denars)

Total Revenue

Project 5: 11-223-04

Production and sale of homemade accessories

sale of goods 1,200 190 228,000

The economic analysis was done on five sample project sites, which were selected on two criteria: (1) ability to measure direct effects and (2) availability of data. Data on revenue and expenditures, as well as the future projections, are based on the financial data submitted by beneficiaries to the project, supplemented by interviews to provide a basis for future projections. In order to determine the various scenarios, the sensitivity analysis referred to the number of visitors while assuming fairly constant costs, thus the number of visitors is the variable that determines overall revenue. With this assumption (costs will be more or less fixed at the revenue level under the base scenario): i) under a pessimistic scenario, revenues will drop as a result of fewer visitors while costs remain constant; and ii) under an optimistic scenario, a higher number of visitors/revenues will also lead to higher costs. These assumptions are summarized in the table below.

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Table 3 Assumption/Scenario Base case Pessimistic Optimistic Discount rate 8% 8% 8% Revenue growth rate 2% -2% 3% Costs growth rate 2% 0% 2%

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ANNEX 4. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION PROCESSES

(a) Task Team members

Names Title Unit

Responsibility/Specialty Lending Dilek Barlas Sr. Counsel LEGEC Lawyer Emilia Battaglini Sr. Operations Off. ECSSD Co-Task TL, preparation.

Irene Bomani Senior Program Assistant ECSSD Sr. Program Assistant

Rajna Cemerska-Krtova Operations Officer ECSHD Operations Officer

Nicholay Chistyakov Senior Finance Officer LOAG1 Disbursement Officer Philippe Dongier Sector Manager CITPO Peer Reviewer

Kreszentia M. Duer New Business Development Leader WBICD Peer Reviewer

Elena Galliano Consultant ECSSD Community Dev. Specialist

Hans Jurgen Gruss Chief Counsel LEGEC Lawyer

Naushad A. Khan Lead Procurement Specialist ECSPS Lead Proc. Specialist

Julian A. Lampietti Lead Specialist ECSSD Economic Analysis Arben Maho Procurement Analyst ECSPS Procurement Specialist Bremala Nathan Operations Officer AFTRL Operation Assistance Beaulah C. Noble Program Assistant ECSSD Program Assistant Daphne Sawyerr-Dunn Program Assistant ECSSD Program Assistant Kenneth E. Sigrist Consultant PRMPS Inst. Devel. & Learning Gurdev Singh Consultant ECSSD Procurement Samir M. Suleymanov Sr. Operations Off. ECSSD Operations Analyst June Taboroff Consultant ECSSD Cultural Res. Specialist Seema Tikare Consultant ECSPE Institutional Assessment

Jasminka Varnalieva Private Sector Development Specialist ECSPF Project Officer

Mark C. Woodward Senior Social Development Specialist ECSSD TTL since 07/03/2000

Supervision/ICR Elmas Arisoy Sr. Procurement Spec. EAPCO Procurement supervision

Alina Bakunina Consultant ECSSD Inform. Com. Technology

Nicholay Chistyakov Senior Finance Officer LOAG1 Disbursement Officer

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Olav Rex Christensen Sr. Financial Management Specialist ECSPS Fin. Manag. Specialist

Aleksandar Crnomarkovic

Financial Management Analyst ECSPS Fin. Manag. Specialist

Marina Djabbarzade Consultant ECSSD Heritage Man. & Com. Dev.

Katrinka Ebbe Consultant EASUR Integr. Site Development

Elena Galliano Consultant ECSSD Community Dev. Specialist

Bekim Imeri Social Scientist ECSSD Operations Officer Kenneth E. Sigrist Consultant PRMPS Inst. Devel. & Learning Nikolai Soubbotin Sr. Counsel LEGEC Lawyer June Taboroff Consultant ECSSD Cultural Res. Specialist

Jasminka Varnalieva Private Sector Development Specialist ECSPF Project Officer

Mark C. Woodward Senior Social Development Specialist ECSSD TTL since 07/03/2000

Sandro Zanus Michiei Lead Financial Management Specialist ECSPS Fin. Manag. Specialist

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(b) Staff Time and Cost

Staff Time and Cost (Bank Budget Only)

Stage of Project Cycle No. of staff weeks

USD Thousands (including travel and

consultant costs) Lending

FY99 5.23 FY00 5 42.69 FY01 42 194.59 FY02 1.21 FY03 0.00 FY04 0.00 FY05 0.00 FY06 0.00 FY07 0.00

Total: 47 243.72 Supervision/ICR

FY99 0.00 FY00 0.00 FY01 0.00 FY02 18 53.93 FY03 15 48.38 FY04 14 39.36 FY05 23 75.06 FY06 20 92.74 FY07 3 24.44

Total: 93 333.91

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ANNEX 5. BENEFICIARY SURVEY RESULTS

(if any) No beneficiary survey undertaken.

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ANNEX 6. STAKEHOLDER WORKSHOP REPORT AND RESULTS

(if any) No stakeholder workshop undertaken.

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ANNEX 7. BORROWER’S ICR

Project’s objective On June, 2001 the Board of World Bank Executive Directors approved the Community Development and Culture Project, while the Parliament of Republic of Macedonia approved it at the beginning of 2002. The main project objective of the Community Development and Culture Project was to establish conditions that facilitate community-based socio-economic development by leveraging one of the country’s untapped resources, its cultural assets, to create culture-based industries (notably handicrafts and community-based tourism) in areas adjacent to cultural heritage sites, while improving the management of cultural assets, particularly at local level. Project’s design The primary activity that was planned to be funded under the project was the development of sets of interrelated sub-projects clustered in and around a limited number of communities possessing sites and other assets of cultural importance. These activities and sites were selected through a competitive, demand-driven process. Criteria for selection were designed to encourage synergies and to promote community development and poverty reduction. These sub-projects were supported with capacity building measures to help develop community based and business management skills. Thus the first component was integrated site development. However, for such measures at the community level to have maximum effect, national level capacity also needed to be built, therefore a component for institutional development at national level was included. Integrated Site Development This component aimed at developing sets of cultural industries and actions in several pilot sites through priority investments, conservation measures and local level capacity building. Sites were selected by the National Steering Committee and in consultation with the World Bank, following a nation-wide public outreach campaign. After selecting the sites, within the selected communities social needs assessments, identification of local heritage and action plans were carried. This resulted with financing clusters of sub-project activities of three main types: handicrafts, community-based tourism and site improvements and conservation measures. Three lines of financing for grants were envisaged: the main grant fund was for sub-projects requiring grants in an amount fixed to 30,000 US$ (during the project implementation the amount was enlarged up to 40,000 US$). A second grant line was for smaller grants till 500$(after 2 years of implementation it was decided to cut this grant line due to the small scale activities and big administration work). The third one was for activities related to the preservation of cultural monuments that were proposed by the Ministry of Culture, in the sites where CDCP was implemented.

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Institutional Development at the National Level This component was planned to support the local level activities by providing needed information for successful mobilization of cultural assets in support of community development, particularly at project sites. Therefore, three activities were carried out: (1) the existing national inventory of cultural sites to be further developed as a multipurpose planning tool (2) a handicraft assessment and action plan to determine the scope of existing handicrafts and make recommendations for future product and business development (3) a tourism assessment and action plan to determine the current organization, performance, needs, and opportunities for the sector with regard to cultural and eco-tourism potential. Project’s implementation Achievement of Objective/Outcome During the four year period of implementation of this project, the Government of Republic of Macedonia successfully implemented the objectives envisaged with the Community Development and Culture Project, thus creating conditions for faster community development and poverty reduction, through activating the cultural and natural heritage and developing new cultural industries. The implementation of 352 subprojects (38 Ministry of Culture Grants; 204 Association Grants and 110 Community Grants) in 17 municipalities + Skopje Old Bazaar, resulted with average of 12,000 handicraft products sold in the last year, development of 4268 new products, 300,000 visitors in the sites, 122 new employments, participation by 60 NGO’s on 3 national and 6 international fairs, more than 1600 accommodations in the renovated houses-cultural heritage monuments, improved management of more than 40 cultural heritage monuments, creation of new 46 NGO’s that were granted by the CDCP etc. The indicators are collected on a monthly basis in the last year of the projects life cycle, while many subproject activities were still running. It is expected that these figures will significantly increase after the completion of the project. The preparation of the assessment and action plan for handicrafts and tourism were a good base for defining the priorities to be financed under the project. Also those studies reflected the different needs for training and marketing which were afterwards implemented by the CDCP. At the same time, another huge impact on the country’s development was made by implementing the project for digitalization and modernization of the existing inventory for cultural heritage. A very advanced digital system was deployed that enables digital registration and data collection of the movable and immovable cultural heritage, more efficient monitoring, protection and maintenance of the cultural heritage, instant and easy access to information about Macedonian cultural heritage not only by the institutions, but by the broad public as well. This initiated a creation of a regional center for digitalization, by UNESCO.

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More precisely the following activities were undertaken: Integrated Site Development As planned within the design of the project three lines of grants were implemented: Ministry of Culture Grants The Ministry of Culture Grants’ aim was to revitalize the cultural heritage buildings of outstanding national importance in the municipalities where the project was implemented. The monuments were chosen in accordance with the priority list defined by the Ministry of Culture. The Institutes for Protection of Cultural Heritage were in charge and responsible for preparation of studies and designs for reconstruction and rehabilitation of the buildings. Through this activity 38 important cultural monuments in 17 municipalities + the Skopje Old Bazaar were revitalized meaning that they were not only restored but at the same time a special attention was given to their function i.e. use in order to became sustainable and produce certain economic benefit for the municipalities. Buildings such as the Clock Tower in Kratovo, Amam in Debar, Magaza and House of Army in Bitola, the houses of Kasapovi and Djinot in Veles, the French Bank, Oldest Shop and Illumination Project in the Old Bazaar in Skopje, the monastery of St. Jovan Bigorski in Mavrovo and Rostusa, monastery in Slepce, are some of the important cultural monuments of national importance that were restored. Since sustainability was an important issue of the CDCP, before approving the MoC grants, the use of the buildings upon restoration, was decided by the municipalities and the MoC, i.e., Institutes for Protection of Cultural Heritage. It was decided that they are going to be given to NGO’s or private firms to use them for activities that are connected with cultural issues however also to include some function that would create income (restaurant for traditional food, cafeterias, tourist bureau, souvenir shop etc). However some of the municipalities prioritized certain cultural monuments to be restored that the first year might not be economically sustainable. In such a case it was negotiated and approved from the municipalities to include the maintenance of the building and certain subsidiary within their budget for the next year. This implementation of this activity also resulted with strengthening the capacity of the national institutions i.e. Institutes for Protection of Cultural Heritage. Namely, for the first time the projects prepared by those institutes were subject of “revision” which resulted with a positive impact on working procedures of the institutes. Association grants The main grant fund was allocated for realization of sub-projects submitted by NGO’s. In the 17 municipalities 204 projects were implemented and they became a good source for economic development in these municipalities. They were connected with the following fields: cultural heritage (54 projects implemented); natural heritage (11 projects

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implemented); traditional cultural events (72projects); promotion and signage (34); and handicrafts (33). Besides promoting the cultural and natural heritage, renewing the old handicrafts and initiating new income in the communities, the CDCP also played an important role in strengthening the local capacities. Namely, the municipalities were developing their planning capacities, being actively involved within preparation of the Social Needs Assessments, Identification of the Local Heritage and preparing Action Plans which were base for financing subprojects. The communities were encouraged to define their own cultural and natural assets, increase access to their heritage and provide local support for endangered heritage, as well as seek national recognition for it. They were also becoming more aware for their responsibility regarding the decision making for the selection of granted sub-projects. A cooperation between most of the municipalities and NGO’s was initiated that resulted with support of the activities of the NGO’s through covering the VAT, the expenses for the premises of the NGO’s, documentation, supervision of conservation works. As part of the activities carried out by the CDCP were the trainings that aimed to raise the level of proficiency of the NGO’s as beneficiaries of the grants. The following trainings were carried: strategic planning, procurement, financial management, new trends, product development, the process of costing and pricing, market promotion, participation at fairs and other. The handicraft projects were supported through adequate trainings for market readiness trainings and promotion at fairs. Special accent was given to improve the traditional Macedonian forms, designs and materials in order to develop product lines attractive for the local and foreign market and at the same time to keep the traditional Macedonian handicraft skills. During the project life in spring and Christmas time in 2005 and 2006 handicrafts fairs were organized by the PCU in cooperation with a USAID Project/ATA where the artisans financed by the PCU had an opportunity to promote and sell their products. Special role in successful implementation of the subprojects played the 7 regional coordinators who helped the municipalities and NGO’s apply, implement and monitor the activities. They were trained by the PCU staff as well as by consultants hired by the PCU and become very useful for the municipalities in implementing other projects financed by international donors. Community grants 110 community grants were implemented in 17 municipalities. In accordance with the allocated amount of money they were granted for small scale of activities. They were implemented at the beginning of the project and were a good experience for the local people that previously have never been in contact with implementation of projects and donors.

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Institutional Development at the National Level In order to support the local level activities the following activities were carried out: 1) Digitalization of cultural heritage and the inventory of cultural heritage The digitalization of the cultural heritage was a nation wide project that included all of the institutions concerned with the protection of the cultural heritage. The project was designed to establish a sophisticated digital system for digitalization with a centralized servers, software and equipment for field and office work. The software consists of “of the shelf” software which will be used for digital production of data and digitalization of the existing data, and a custom made database software for recording the digital data in a central location that will be available to all institutions. The custom tailored software was designed to be developed according to the guidelines and rulebook produced by the Head Office for Protection of Cultural Heritage in cooperation with a cultural protection heritage expert and an IT expert, both hired by the PCU. The policies and procedures for protection of cultural heritage established in the rulebook were developed in accordance with the Council of Europe’s “Core Data Standard”. In addition, the centralized database has a module that creates dynamic integral web-site of cultural heritage which will contribute for a popularization of the cultural heritage and will be used in the country’s tourism offer. The digitalization of the cultural heritage activity was implemented in two separate phases. The first phase was digitalization of the Immovable Cultural Heritage and the second one was digitalization of the Movable Cultural Heritage. The first phase of the project resulted in establishing a sophisticated digital system with centralized servers at the Head Office for Protection of Cultural Heritage and 7 regional centers connected to the servers through VPN. All of the institutions and the Head office for protection of cultural heritage were provided with necessary IT equipment and software. The staff received certified trainings for specific types of software installed as well as training on specific hardware use. The second phase of this project included the institutions responsible for protection of movable cultural heritage in the existing system. The project included 20 institutions for protection of movable cultural heritage which were supplied with the necessary equipment for digitalization. They were provided with software for digitizing and additions to the existing custom software were made to include the movable cultural heritage. Dedicated staff members from every institution were trained to use the specific hardware and software that were installed in the institutions. Additions to the existing web site for immovable cultural heritage were made and a new dynamic web site with data about stolen cultural heritage was created. The overall effects from this project are expected to present Macedonian cultural heritage to the world, to draw attention to Macedonian historical sites and to attract tourists from all over the world. The second type of benefit from this project is establishing practice in

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use of advanced techniques and equipment in registration and data gathering, data production and manipulation and data protection. That will inevitably lead to better protection of the cultural heritage. The third component which is equally significant is upgrading the institutions to a respectable technological level. Everyday use of most advanced technologies, training the employees on how to use the latest equipment and software, producing high quality data according to world standards and the ability to share the data with the broad and expert public brings the employees, the internal procedures in the institutions, the Ministry of Culture and the Country as a whole on a much higher level and presents a significant step in Macedonia’s development. 2). Handicrafts Assessment and Action Plan Within this study the scope of existing handicrafts per regions was identified, especially a stress was given to the traditional handicrafts that were almost extinct but could have been renewed through Community Development and Culture Project and could become attractive for the domestic and international market in order to become means of creating sustainable income and long term employment. A plan of trainings and marketing plan was recommended, which was implemented by the CDCP. 3). Tourism Assessment and Action Plan Since the Master Plan of Tourism was carried at the same time, the Tourism Assessment and Action Plan were mainly focused for the pilot location - Berovo, Pehchevo and Delchevo. The proposals from the Italian consultant firm for developing cultural tourism in the pilot-location were proposed to the municipalities and local people/NGO’s and was partly implemented by them. The study also determined the current organization, performance and needs and gave recommendation for other possible locations for developing cultural tourism which were considered while selecting the new municipalities where the CDCP was to be implemented. Outcomes The initial design of the project was to establish conditions that facilitate community-based socio-economic development by leveraging one of the country’s untapped resources, its cultural assets, to create cluster of culture-based industries (notably handicrafts and community-based tourism) in areas adjacent to cultural heritage sites, while improving the management of cultural assets, particularly at local level. Therefore the following activities were achieved - Improved strategic planning and technical capacity - into the initial design of the project a creation clusters of activities based around cultural and natural heritage in order to increase economic activity was envisaged. As a result of strategic planning and technical capacity a number of clear cases of linkage between the activities among the associations as well as with the Ministry of Culture projects were achieved.

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- Improved Recognition and Management of Cultural and Natural Heritage - The CDCP influenced the municipalities to become more aware of the scope of their local heritage and its importance for economic development, as well as the importance of promoting it. Therefore, the creation of two new websites - http://www.virtualmacedonia.co.mk and www.exploringmacedonia.com and the story of Macedonia at http://adventures.yahoo.com/b/adventures/adventures9173 is an indication that the interest in the countries cultural and natural assets is growing. - Support for Decentralization – The CDCP has introduced several important elements to municipalities in the context of decentralization: through the Social Needs Assessment and Action Plan it encouraged them to define their cultural and natural heritage and develop local strategies; through the establishment of local working groups it encouraged local decision making and accountability; through the Association Grants it gave the municipalities opportunity to work with local NGO’s and vice versa; through hiring regional coordinators the municipalities have an extra resource to help with locating funding possibilities and preparing applications The CDCP conducted questionnaires with the NGOs that were implementing sub-projects and the municipal authorities in the 17 municipalities were CDCP conducted the sub-projects. The questionnaires were about the conducting of the projects by the CDCP. As the questionnaires showed, there is a widely spread support for continuance of the CDCP project among both NGOs and municipal authorities. Though there are differences in opinions about the directions in which CDCP should proceed, the effect of the CDCP in the implementing municipalities was marked hugely positive. Borrower’s performance The CDCP was implemented both at national and local level therefore different actors were responsible for the implementation of the project: the Government of Republic of Macedonia, Ministry of Culture, Ministry of Finance, PCU, National Steering Committee, national institutions for protection of cultural heritage, municipalities, local working groups, local NGO’s, construction firms etc. It can be concluded that most of them were dedicated in implementing the activities that they were responsible for. Even though at the beginning of the project certain problems occurred with the slow implementation/disbursement, the PCU managed in relatively short time to speed the whole process of implementation, to finish the project on time and to have sustainable projects. Namely, it was concluded that after the “learning” period when the municipalities that did not have any previous experience with foreign investments gain some knowledge for implementing projects financed by international donors, the project had a “snow ball effect” and successful projects were implemented in a short period of time. The regional coordinators were trained and they helped the municipalities and NGO’s apply, implement and monitor the activities. After finishing the project almost all of them are employed by the municipalities as key persons responsible for fundraising, cooperation with foreign donors, cooperation with NGO’s, etc.

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The National Steering Committee played an important positive role, however at the beginning of the project all members were checking the selections of the Local Working Groups that resulted with slow implementation. However the project was a LIL therefore this was a good learning process for both national and local level. Namely the municipalities found out that they should became responsible for their decision making while the NSC became aware that the local authorities are gaining the experience needed for the process of decentralization. On the local level, a cooperation between most of the municipalities and NGO’s existed through support of the activities of the NGO’s through covering the VAT, the expenses for the premises of the NGO’s, documentation, supervision of conservation works. During the implementation of the project the PCU experienced difficulties due to the fluctuating exchange rates of all currencies involved. The credit agreement was signed in SDR currency and the transferred fund to the PCU account were in US$ calculated by the exchange rate of the US$ against the SDR at the day of the transfer. Apparently, the exchange rate on the day of the transfer was much different that the rate on the day the agreement was signed which caused discrepancies with the annual financial plans and obligations taken by the PCU. Another cause for financial disparities was the fluctuating exchange rate of the US$ against the Macedonian Denar. PCU was signing almost all of the contracts in US$ and some in Euro, but the payments were made in Macedonian Denars calculated on the day of the invoice. One other issue is the time interval between the funds request made by the PCU and the actual transfer of funds to the PCU account. The lengthy procedure caused pile-up of obligations (invoices) that sometimes have to wait for a longer period of time to be paid. This inflicted project implementation problems and affected the relationships with the implementing partners. It also affected the financial discrepancies because the invoices waiting to be paid were in Denars calculated on the day of the invoice. In order to cover all the undertaken activities, and having in mind that due to the exchanging rate less funds from the IDA and Dutch Grant were available, it was decided that the difference will be covered by the Governmental Contribution. This created at the end of the project the categories not to be financed according to the Credit Agreement. Bank’s and Dutch Embassy performance The Bank and the Dutch Embassy provided substantial support to the PCU. The regular supervision missions resulted in improvement in the operations of the PCU. The PCU have been supported by the Bank with the appropriate documents, explanations and expert help. Certain delays in the disbursement of the funds occurred especially at the end of the project.

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ANNEX 8. COMMENTS OF COFINANCIERS AND OTHER PARTNERS/STAKEHOLDERS

Comments by the Cofinanciers: the Government of the Netherlands The Netherlands Government pledged a grant of USD 990.000 to the Community Development and Culture Project, under a common TF with Community Development Project and Children and Youth Project. This construction has shown to have presented a bureaucratic obstacle rather than an easier financing tool (which the Netherlands Embassy in Skopje originally anticipated) and is a lesson learnt, as mentioned in Embassy’s earlier comments to Community Development Project ICR. While in general the project managed to catch up in its later stages and compensate for the slow start, and produce significant output, the Embassy would nevertheless point out the following issues: 1. There was a general lack of proactive approach towards the Embassy as a co financier both on the side of WB management and PCU. Information had to be asked and reminders for reports sent by the Embassy (although it was always provided upon request). Another example is the fact that it was the Embassy rather than WB management that identified the need for project period extension and urged that it is timely handled. Moreover, the Embassy did the overall calculations and sent reminders to WB to effectuate calls for funds. 2. Efficiency of project management could have been better. While lessons learnt were taken into consideration in the course of the project, WB needed some time to implement them. For example, the whole mechanism of the National Steering Committee was used to approve grants as low as USD 1,000 at the start of the program; PCU valuable human resources and time were spent to review community grants as low as USD 500; little or no interaction/cohesion existed among Community Development Programs of the WB itself, etc. It has to be stressed, though, that the overall efficiency of the project greatly improved with the appointment of the new Operations Officer, Mr. Bekim Ymeri in September 2004. 3. Insufficient (quality of) communication between WN Washington office and the PCU in Skopje. The Embassy found itself in situations to explain to the PCU mechanisms and principles of spending grant money, provide timely information to the PCU on grant transfers and remind them to send withdrawal requests to WB office. The Embassy strongly advises WB to take this aspects more into consideration for any future projects – PCUs require more substantial support and more timely information on the side of WB on daily basis during the life-time of any project to be able to manage it in a more competent way. 4. The subsequent aide memoires of WB were at times contradictory to each other, or at least not following up on previously mentioned issues. For example, during its 29.09-03.10.2003 visit, WB mission was favourably impressed by the new CDD specialists and the overall quality of the expanded staff of the PCU. However, just months later, the

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PCU Director did not renew their contracts because “they were considered to lack adequate motivation and initiative”. The latter quotation if from the aide memoire on the visit of 23-29.03.2004. However, the Task Team Leader’s role/comments with respect to this obvious twist is unclear. 5. Project implementation set-backs. While the PCU provided regular narrative reports, they were mostly quantitative and with little analysis/explanation on some issues that reflected on the overall project implementation, such as: unclear division (in terms of contents) between Minister of Culture grants and some Association Grants; lack of capacity within borrower’s institutions and proposals/actions on dealing with it (as in the case with ownership problems and unclear legal arrangements between government institutions and individuals); at one point PCU stated that 7 out of 30 approved Association Grants were not active – this was a significant ¼ of the total grants approved, but no explanation for the reasons for this situation was given. While in general the project managed to cover a significant part of the territory of Macedonia, and its results are visible in terms of improved infrastructure and stimuli for further activities in the area of culture/tourism, some issues related to sustainability remain open. These are: How is the catchy concept of Integrated Site Development which is so frequently mentioned in the paper work actually functioning in practice? What are (if any) medium and longer-term effects of the association grants? Is the borrower following up on the activities/results of the Community Development and Culture program? Comments by Aid to Artisans (ATA) / Macedonia Aid to Artisans (MATA) Outreach/Partnership Aid to Artisans developed support for the MADE in Macedonia project by pursuing outreach opportunities and leveraging partnerships with Macedonian government institutions, nonprofits, international initiatives and USAID and other projects. Last two years of the project (2004 – 2005) ATA partnered extensively with Community Development and Culture Project in several ways:

• Training and capacity building; (Some of the topics: How to develop successful product collection, Pricing and costing, Preparation and participation on craft fair);

• Product development (direct or distant design with local and international designers);

• ATA and PCU were partners in organizing several local craft bazaar (Spring and Christmas Bazaar);

• ATA Retail outlets were used as a “arena” for selling and promoting craft product from project beneficiaries.

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Made in Macedonia project “spin off” MATA (Macedonian Artisan Trade Association) also built alliances with Community Development and Culture Project and in spring 2006 they organized the Spring Craft Bazaar in Skopje.

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ANNEX 9. LIST OF SUPPORTING DOCUMENTS

Project Appraisal Document Project Implementation Plan Aide Mémoires, Back-to-Office Reports and Project Status Reports Mid-Term Review PCU Annual Reports Financial Management Report Tourism Assessment (F&M)