AFRICAN DEVELOPMENT FUND ETH/PMMM/2001/01 LANGUAGE : ENGLISH ORIGINAL : ENGLISH

APPRAISAL REPORT

FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

CAPACITY BUILDING OF MINISTRY OF FINANCE AND ECONOMY (MFE)

NB: This document contains errata or corrigenda (see Annexes) COUNTRY DEPARTMENT OCDE EAST REGION OCTOBER 2001

TABLE OF CONTENTS

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PROJECT INFORMATION SHEET, ABBREVIATIONS AND ACRONYMS, CURRENCY EQUIVALENTS BASIC DATA SHEET, MPDE MATRIX CAPACITY BUILDING OF MFE AND EXECUTIVE SUMMARY i-vii 1. INTRODUCTION AND ORIGIN OF THE PROJECT 1 2. MINISTRY OF FINANCE AND ECONOMY’S (MFE) STRUCTURE AND FUNCTIONS, AND CAPACITY SITUATION OF COORDINATING AND IMPLEMENTATION AGENCIES 3 2.1 MFE Structure and Functions 3 2.2 Capacity Situation of Coordinating and Implementation Agencies 4 3. THE CAPACITY BUILDING PROJECT 6 3.1 Strategic Context 6 3.2 Impact of GOE restructuring of October 2001 on the proposed project 7 3.3 Project Objectives 7 3.4 Project Outputs 8 3.5 Detailed Description of Component 8 3.6 Cost Estimates 9 3.7 Sources of Financing 10 4. PROJECT IMPLEMENTTATION 10 4.1 Executing Agency 10 4.2 Organizations and Management 10 4.3 Implementation Schedule 11 4.4 Procurement Arrangements 11 4.5 Disbursement 13 4.6 Monitoring Review 13 4.7 Aid Coordination 13 5. JUSTIFICATION, IMPACT AND RISKS 13 5.1 Justification 13 5.2 Gender Impact 14 5.3 Risks 14

6. CONCLUSIONS AND RECOMMENDATIONS 15 6.1 Conclusions 15 6.2 Recommendations 15 ANNEXES ANNEX I Map of Ethiopia ANNEX II Summary of Bank Group on-going- Operations, October 2001 ANNEX IIIA Former Ministry of Finance Organizational Chart ANNEX IIIB Former Ministry of Economic Development and Cooperation (MEDaC) Organizational Chart ANNEX IV On-going Efforts to Strengthen Capacity of MCD&CSU ANNEX V Detailed Cost Estimates ANNEX VI Implementation schedule This appraisal Report was prepared by Mr. G. Namakando (Principal Macroeconomist, ETCO) Enquiries should be addressed to Messrs E. Shaaeldin (Resident Representative, ETCO), M.A. Ojelade (Division Manager, OCDE.1) and S. Olanrewaju, (Chief Economist, OCDE.1).

AFRICAN DEVLOPMENT FUND 01 BP 1387 ABIDJAN 01

Telephone: 225 – 20 20 44 44 Telex: 23717 AFDEV, 23498 AFDEV

Fax: 225 – 20 22 60 04; 225 – 20 21 65 45

PROJECT INFORMATION SHEET

The information given hereunder is intended to provide some guidance to prospective suppliers, Consultants and all persons interested in the procurement of goods and services for projects approved by the Boards of Directors of the Bank Group. More detailed information and guidance should be obtained from the Executing Agency of the Recipient. 1. COUNTRY : Ethiopia 2. NAME OF PROJECT : Ministry of Finance and Economy (MFE)

Capacity Building

3. RECIPIENT : Federal Democratic Republic of Ethiopia 4. LOCATION : Addis Ababa, Ethiopia 5. EXECUTING AGENCY : Ministry of Finance and Economy (MFE)

6. DESCRIPTION OF PROJECT: The project consists of:

(i) Human Resources Development; and (ii) Logistical support for the coordinating

Federal Ministries 7. TOTAL COST : UA 571,083 8. BANK GROUP GRANT : TAF – UA 519,171 9. Other Sources of Finance : GOE – UA 51,912 10. DATE OF APPROVAL : December 2001 12. ESTIMATED PROJECT DURATION: January 2002 – December 2004 (36 Months) 13. PROCUREMENT OF GOODS:

The Procurement arrangements will be in accordance with the Bank’s “Rules of Procedure for Procurement of Goods…” using the relevant Bank Standard Bidding Documents. The Project Implementation Team will be responsible for the procurement of goods and training services, and also for preparing the training schedule. Given the limited number of goods to be

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procured under the project and the availability of several suppliers on the local market, office equipment (UA 71,082) and office supplies (UA 10,920) will be procured on the basis of National Shopping (NS). The external institutions to provide short-term training (UA 390,751) will be selected using short list, with price as a factor whereas direct negotiations with suppliers will be used for securing conference hall facilities for all the local seminar training (UA 71,064) and for study tours (UA 20,336) to the Bank’s headquarters. Per diem for Federal staff (UA 5,859) traveling to the Regions to conduct seminars and fuel (UA 1,071) for the vehicle on the seminar trips will be provided by GOE using its regular procedures.

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ABBREVIATIONS AND ACRONYMS

ADB : African Development Bank ADF : African Development Fund CSU : Computer Systems Unit DAG : Development Assistant Group ETCO : Ethiopia Country Office EU : European Union GOE : Government of Ethiopia IFAD : International Fund for Agricultural Development IFDID : International Financial and Development Institutions Division MEDaC : Ministry of Economic Development and Cooperation MCD : Multilateral Cooperation Department MFE : Ministry of Finance and Economy OPEC : Oil Producing & Exporting Countries PER : Public Expenditure Review PRSP : Poverty Reduction Strategy Paper SIDA : Swedish International Development Cooperation Agency TAF : Technical Assistance Fund UNDP : United Nations Development Program

CURRENCY EQUIVALENTS October 2001

Currency: Ethiopian Birr

UA 1 = Birr 10.5444

Birr 1 = UA 0.0948370696 USD 1 = Birr 8.261046694 UA 1 = USD 1.27645

FISCAL YEAR : 08 July to 07 July

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ETHIOPIA MPDE Matrix: Capacity Building of MFE

Narrative Summary (NS) Verifiable Indicators (OVI) Means of Verification (MOV) Important Assumptions

Goal: (Goal to Supergoal) 1. To build implementation capacity in the public sector.

1.1 Timely completion of projects. 1.2 Improved performance rating

of projects.

1.1 GOE and donors’ publications

1.2 Bank Group’s Country Portfolio Review Reports and Supervision Reports.

Sustained GOE commitment to socio-economic development.

Project Objectives: (Project Object to Goal) 1. To strengthen the

capacity of MFE and the Ministries of Health, Education, Agriculture, and Water Resources.

2. To strengthen the capacity of Regional Bureaux.

1.1 Timely submission of good quality reports (audits and progress reports).

1.2 Improved and timely procurement and disbursement submissions.

1.1 Supervision reports. 1.2 Quarterly progress

reports..

Sustained GOE commitment to capacity building at both Federal Government level and Regional level..

Outputs: (Output to Project Obj._ 2. 1. Trained Federal

Ministries coordinators. 3. Trained Regional

Bureaux staff. 4. Procurement of office

equipment.

1. 51 external courses, 12 external study tours, and 3 local seminars attended by staff of MFE, and Ministries of Health, Education, Agriculture, and Water Resources.

2. 27 local seminars attended by staff of Regional Bureaux.

3. 13 PCs, 13 printers, and 5 copiers procured for MFE, and Ministries of Health, Education, Agriculture, and Water Resources.

1. Project’s quarterly reports and Bank supervision reports.

MEF and the Ministries of Health, Education, Agriculture, and Water Resources retain most of the trained staff.

Activities: (Activity to Output) Instal IT systems. 1. Training Federal Gov. staff in courses in project cycle activities and IT. 2. Training Regional Bureaux staff in procurement, dibursement and monitoring activities. 3. Procurement of office equipment & seminar halls.

Inputs/Resources Inputs: (UA ‘000) Human Res. Devt. 488.0 Office Equipment 71.1 Operating Costs 12.0 Total 571.1 Resources: ADF/TAF grant 519.2 GOE 51.9 Total 571.1

1. Project’s quarterly reports, audit reports, disbursement vouchers and Bank supervision reports.

4.1 Timely filling up of the two staff vacancies in ADB Desk.

4.2 Timely design of training program.

4.3 Timely preparation of computer-based monitoring system.

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ETHIOPIA MINISTRY OF FINANCE AND ECONOMY (MFE) CAPACITY BUILDING

EXECUTIVE SUMMARY

Project Background

1. The Government and the Bank have observed capacity weaknesses in the GOE organs

responsible for the coordination and implementation of Bank Group operations in the country. In this respect, the Bank’s Audit Mission which was in Ethiopia in October 2000 felt the issue was urgent and called for corrective action on the lines of its recommendations which included, in part, that GOE should submit a request to the Bank for financing a capacity project to benefit the then Ministry of Economic Development and Cooperation (MEDaC) and implementing agencies, including Regional Bureaux, should maintain updated monitoring systems on reporting (i.e. quarterly progress reports and annual audits).

Purpose of the Grant 2. The purpose of the grant is to provide resources amounting to UA 519,171 to meet all the

foreign exchange requirements (external training and procurement of office equipment) for the proposed capacity building and also part of the local costs for the seminars to be undertaken mainly in the Regions.

Sector Goal and Project Objective

3. The project seeks to build project implementation capacity in the public sector. In

particular, the project will strengthen the capacity of relevant Federal Ministries (including MFE in which the ADB Desk is located) which coordinate development projects, and the Regional Bureaux which implement the projects, so that these GOE organs could effectively coordinate and implement as well as monitor the development projects.

Brief Description of the Project's Outputs 4. In order to achieve these objectives, the project will provide the following:

• Local training of up to 1,080 staff of the Regional Bureaux (Health, Education,

Agriculture, Water Resources, and Finance Bureaux in the 11 Regions) through 27 seminars in procurement and disbursement procedures and monitoring.

• Local training of up to 120 staff of Federal Ministries (Ministries of Health, Education, Agriculture, Water Resources, and MFE) through 3 seminars in IT, Data Management, and Project Monitoring and Evaluation.

• External training of up to 51 staff of Federal Ministries (Ministries of Health, Education, Agriculture, Water Resources, and MFE) through 51 short-term courses in

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project cycle activities including project design, appraisal, planning, financing, and evaluation.

• External study tours for 12 Federal Ministries staff (Ministries of Health, Education, Agriculture, Water Resources, and MFE) to the Bank’s Headquarters in Abidjan to improve their skills in procurement, disbursement and monitoring.

• Office equipment (13 PCs, 13 printers,13 UPS power stabilizers, 5 photocopiers) to Federal Ministries - Ministries of Health, Education, Agriculture, Water Resources and MFE.

Project Cost 5. The total cost of the project, including price contingencies of 5% but net of taxes, is

estimated at UA 571,083 (US$ 728,930), of which foreign exchange costs account for UA 482,169 (US$ 615,441) and local costs are UA 88,914 (US$ 113,490).

Sources of Financing 6. The ADF’s contribution will be UA 519,171 (US$ 662,670, or 90.9% of total cost, from

TAF resources, whereas the Government will contribute UA 51,912 (US$ 66,260), or 9.1%. The TAF grant will finance the entire foreign exchange cost and part of the local cost whereas GOE will finance the balance of the local cost.

Project Implementation 7. The Multilateral Cooperation Department (MCD) of MFE will be the Executing Agency

of the project and will have the responsibility of implementing all the project activities. A Steering Committee comprising four Vice Ministers from the Ministries of Health, Education, Agriculture, Water Resources, and the Planning Director in MFE, chaired by the State Minister in MFE who is responsible for Sectoral Development and External Economic Cooperation, will be created and will have overall authority over the project. A Project Implementation Team comprising two staff, namely, the MCD Director, as Head of the Team, and a Finance Officer to be nominated by the State Minister from the Ministry’s Administrative and Finance Division, which is accountable to the State Minister, will be responsible for the day-to-day activities of project implementation. Implementation will be over a three-year period.

Conclusions and Recommendations 8. The capacity of Federal Ministries and the Regional Bureaux to coordinate and implement

development projects has been found to need strengthening. The proposed project will help to improve the quality of projects in the country, particularly in the critical poverty reduction sectors of health, education, agriculture, and water resources. It is recommended that a grant not exceeding UA 519,171 from ADF/TAF resources be provided to the Government of Ethiopia for the purpose of implementing the project as described in this report, subject to conditions specified in the Protocol of Agreement.

ETHIOPIA MINISTRY OF FINANCE AND ECONOMY (MFE) CAPACITY BUILDING 1. INTRODUCTION AND ORIGIN OF THE PROJECT 1.1 The Ministry of Finance and Economy (MFE), through its Multilateral Cooperation Department (MCD) is the Government of Ethiopia (GOE) organ responsible for the coordination of the Bank Group’s operations in the country. MCD also coordinates other multilateral cooperation and all bilateral cooperation development programmes. Both GOE and the Bank have detected capacity weaknesses in the MCD which have contributed to the department’s inability to satisfactorily execute the tasks required in the coordination of Bank Group operations. The present project proposal is in response to the recommendations of the Bank’s Audit Mission which visited Ethiopia 01-13 October 2000 which stated, in part, in its Back-To-Office Report that:

(a) GOE should submit a request to the Bank for financing a capacity project to benefit the then Ministry of Economic Development and Cooperation (MEDaC) and implementing agencies, including Regional Bureaux. MEDaC was merged in mid-October 2001 with the Ministry of Finance to form MFE; and

(b) MEDaC and implementing agencies should maintain updated monitoring systems

on reporting (i.e. quarterly progress reports and annual audits). 1.2 The report noted that the capacity weaknesses were at both the level of MFE and the line Ministries coordinating the implementation of specific projects within their sectors and the Regional Bureaux mandated to undertake the implementation of projects. The Federal Ministries in the sectors of Bank Group interventions lack monitoring systems for up-to-date information on the status of reporting requirements (quarterly progress reports and annual project audits). The capacity building effort should thus include the establishment of suitable monitoring systems in both MFE and the sector Ministries. 1.3 Similarly, in the decentralised system of the Government of Ethiopia, the Regions assume an important role in ensuring high quality of the Bank Group’s portfolio in the country. In accordance with Article 52 of Chapter 5 of the Constitution of the Federal Democratic Republic of Ethiopia (Proclamation No. 1/1995), the powers and functions of Regional States includes the formulation and execution of economic, social, and development policies, strategies and plans of the State. This decentralization policy of the Government has shifted a major portion of the implementation responsibilities for projects (including Bank Group projects) to the Regions. Thus, any capacity limitations within the Regional Bureaux, will have direct bearing on the performance of the Bank Group’s portfolio. Considering that a large proportion of staff in the Regional Bureaux are not adequately familiar with the Bank Group’s procurement and disbursement procedures and reporting processes, a capacity building operation intended to significantly raise the quality of the portfolio would require to also address these capacity weaknesses at the Regional level.

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1.4 It is noted that other donors have also experienced similar problems with their portfolios and, indeed, the World Bank stated in its Ethiopia Fifth Country Portfolio Performance Review of October 2000 that to attain improved portfolio performance, the following should be among the several actions to be taken: upgrading the quality of project management; and strengthening procurement skills (methodology, processing, contract management) of project staff. The World bank has since stepped up the utilization of its capacity building components in some of its projects to undertake limited training of Regional Finance Bureaux and also provide them with a few PCs. 1.5 The Bank Group has a large portfolio in Ethiopia numbering 15 operations (UA 389.07 million) and there are several new projects envisaged under the ADF-IX replenishment in the period 2002-2004. (Annex 2 provides the Bank Group’s portfolio in Ethiopia). Therefore, the proposed capacity building project would be an important factor in the efforts to enhance development impact and ensure the enhancement of Ethiopia’s socio-economic development. As Ethiopia is the largest beneficiary of ADF resources, the portfolio in the country has significant impact on the quality of the global ADF portfolio and, similarly, any appropriate measures to improve the performance of the operations in Ethiopia have the effect of raising the overall effectiveness of ADF interventions. Furthermore, the proposed capacity building would benefit not only Bank Group operations but also other donors’ development projects as the targeted Federal Ministries and Regional Bureaux are also engaged in the implementation of projects funded by other donors and GOE. The project will address the immediate needs in capacity building in these GOE organs to ensure adequate capacity in project coordination, implementation, monitoring, reporting, and sustainable development activities focusing on the key elements of gender, poverty and environmental analysis. Thus, the project would have far-reaching impact extending beyond Bank Group operations to cover a wide range of development programmes in several sectors. 1.6 Preparations are underway for the Poverty Reduction Strategy Paper (PRSP) of Ethiopia which is expected to be finalized in March/April 2002. When the on-going GOE consultations with stakeholders around the country is completed in a months time, it is expected that the four sectors of health, education, agriculture and water will be reconfirmed as among the major sectors for reducing poverty and that the Regional Bureaux implementing projects in these sectors have a key role to play. Thus, the capacity building of the Bureaux under the proposed project will be a timely development which will complement the overall efforts of both GOE and other donors in addressing poverty during PRSP implementation. 1.7 Meanwhile, the Bank has played a major role in the on-going PRSP preparation process by preparing the Benishangul-Gumuz Regional Public Expenditure Review (PER) report. The Regional PERs gave a lot of emphasis to the poverty situation at the Regional level and the poverty monitoring systems being developed in the context of the social sector (health and education) programmes under implementation by the Regional Bureaux. The PER prepared by the Bank as well as the other two prepared by the World Bank and the EU, were extensively discussed at a GOE/donors seminar in mid-2001 with the view to taking into account some of the PERs’ findings and recommendations in the PRSP preparation. Furthermore, through its field office (ETCO), the Bank is actively participating in monthly meetings of the Addis Ababa-based Development Assistance Group (DAG) and its sector sub-committees, both of which seek to

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provide financial and technical support to the PRSP preparation process and also to share with GOE the vast and diverse donor experience in PRSP. GOE and the DAG meet once every quarter to review progress in the PRSP preparation process. At the first such meeting in mid-2001, the PRSP Plan of Action prepared by GOE was reviewed. 2. MINISTRY OF FINANCE AND ECONOMY’S (MFE) STRUCTURE, AND

FUNCTIONS; AND CAPACITY SITUATION OF COORDINATING AND IMPLEMENTING AGENCIES

2.1 MFE Structure and Functions 2.1.1 The Ministry of Finance and Economy, which was created in mid-October 2001 from the merger of the former Ministry of Finance and the former Ministry of Economic Development and Cooperation (MEDaC), is basically still maintaining for a while the structures under the three Vice-Minister Complexes of the former Ministries. Thus the Ministry’s structure, for the time being, reflects two separate structures from the Vice ministers levels downward as indicated in Annex 3. The Minister of Finance has three Vice Ministers under him: one for Finance responsible for all the units under the previous Ministry of Finance such as Budget, Treasury, Planning and research, Central Accounts, Audit services, Credit and Investment, Legal, Administration, Systems and data services, etc.; the second Vice Minister is for Macroeconomic Development Affairs and has the following four departments under his charge: Development Projects Evaluation; Macro-Planning and Policy Analysis; Regional Development Planning; and Development Finance and Budget Departments; the third Vice Minister is responsible for Sectoral Development and External Economic Cooperation supervises the Agriculture Department, Mines, Energy & Water Department, Manpower Development and Social Affairs Department, Economic Infrastructure Department; the Bilateral Cooperation Department; and the Multilateral Cooperation Department. This last department has three Sections, namely, International Financial and Development Institutions Division (IFDID), the UN Agencies and Regional Organizations Division, and the European Union Division. The ADB Desk or Section is located in the IFDID Division. In addition, there are three divisions attached to the Minister’s office, namely, Audit Service, Information and Conference Service, and Women’s Affairs. The Ministry’s organizational structure is given in Annex 3. 2.1.2 MFE is the GOE organ responsible for, among other things, consolidating and presenting the national budget, acting as treasurer to the Government, initiating development policy proposals and formulating relevant long-term development strategy. The departments under the Macroeconomic Development Affairs Vice Minister complex (Macro, Development Finance, Regional Planning and Development Project Evaluation) are responsible for initiating policy proposal that help to define the country’s long term development plans consistent with the Government’s development priorities and strategies. The other functions of these departments are the consolidation of the Federal and Regional capital budgets and estimation of the macroeconomic indicators. The departments in the Sectoral Development and External Economic Cooperation Vice Minister complex, in cooperation with respective line ministries prepare long, medium and short-term plans and are responsible for the preparation of feasibility studies and sectoral projects, review the annual sectoral development programs and capital budget proposals submitted by respective Federal organs, and present the approved programs and capital budget to

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the Finance Vice Minister complex for consolidation into the Federal Government Budget. The departments are also responsible for formulating strategies with a view to increasing the type and volume of external development assistance. Furthermore, they participate in project formulation, appraisal, negotiation and monitoring of donor-funded projects and prepare status reports on these activities for the Government’s consideration. These tasks are undertaken through the Bilateral and Multilateral Cooperation Departments. The Bilateral department focuses on fostering bilateral cooperation in the form of grant and concessional loans, whereas the MCD covers cooperation with multilateral development partners that include the EU, UN, and International Financial and Development Institutions. 2.1.3 The IFDID division, which is responsible for development cooperation with the ADB, the World Bank, IFAD, BADEA and OPEC, is responsible for providing essential technical expertise which may be required in project design, appraisal and also in developing performance indicators for project monitoring. Furthermore, it is responsible for monitoring of project implementation, consolidating analytical reports and generating recommendations, thus providing essential advice to the Government on subsequent actions that need to be taken to enhance project performance. The IFDID also has the responsibility of creating a database on the lessons learned from past projects in order to enhance project designs. 2.2 Capacity Situation of Coordinating and Implementing Agencies MCD 2.2.1 While the department is entrusted with the task of aid coordination and management, it is operating under enormous constraints of capacity weaknesses such that it cannot sufficiently deliver on its responsibilities. Many of the 20 professional staff of MCD gained their first degrees in the last few years and are assigned junior professional tasks as they are short on analytical skills and also lack experience in aid coordination and management. This is particularly the case for the ADB Desk, most of whose staff have less than three years post-degree experience. Consequently, they lack competence in the areas of project planning, design, appraisal, monitoring and evaluation. Furthermore, their information technology skills need to be upgraded if they are to be proficient in using computer-based project monitoring systems. These capacity weaknesses have inhibited the MCD from assuming a more pro-active role in project cycle activities and the staff lack adequate skills which could help them to provide guidance to sector Ministries and the implementing Regional Bureaux in procurement, disbursement and monitoring. 2.2.2 A further handicap the MCD faces is the lack of office equipment such as desk-top computers, printers, and photocopier. The 5 professional/sub-professional staff of the ADB Division share one computer and one printer, and have no photocopier at all. Under these circumstances, the Division cannot undertake timely processing of data which is readily accessible in various projects reports received from both the Executing Agencies and the ADB. Furthermore, the MCD finds it difficult to maintain updated database on on-going and closed projects relating to data on commitments, disbursements and cancellations of the loan balances. This situation requires remedial action in the form of appropriate office equipment that would facilitate project information and data management.

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2.2.3 The ADB Desk has an establishment of seven professional/sub-professional officers. However, only five of these positions have been filled, leaving two vacant positions. The GOE has indicated its commitment to fill these two positions soon such that the Section is at full strength during the project’s implementation. Such timely action is essential so that all the staff benefit from the training and also to allow for reasonable staff strength in the office while some officers are away undertaking short-term training and study tours. 2.2.4 The proposed project will benefit from the capacity building provided by other donors such as the portfolio monitoring systems to be developed under the UNDP project and the improved expertise of Computer Services Unit (CSU) staff who will lead the IT and monitoring seminars under the project. Annex 4 provides other donors’ capacity building activities benefiting MFE’s MCD and CSU. Federal Ministries coordinating Sectoral Operations 2.2.5 The Coordinating units for development projects at the Federal level (Ministries of Health, Education, Agriculture, Water Resources, and MFE) comprise fairly well trained staff who have largely been the driving force for the progress attained by the projects. These officers coordinate procurement, disbursement and reporting activities of the project and are constantly in touch with all other relevant parties, namely, the Regional Bureaux, the ADB desk, and the relevant units at the Bank Group Headquarters (Task managers in the Country Operations Department and the Disbursement Officers). These Federal Ministries staff would perform even better if they undertook short-term external courses on a selective basis in order to address individual officers’ shortcomings in terms of specific skills (project planning, design, finance, appraisal, monitoring and evaluation). Furthermore, they would consolidate their procurement, disbursement, and monitoring skills by undertaking study tours to the Bank’s Headquarters and also attending Bank Group seminars on procurement and disbursement whenever they are held in Ethiopia such as the one planned for January 2002. 2.2.6 The potential expertise that these officers could attain in a fairly short time through the training described above would not only greatly enhance their performance on project cycle tasks but would also make them extremely suitable for leading the training courses envisaged for Regional Bureaux staff and make them more prepared to assist in conducting monitoring systems seminars. In this manner, the project will create a group of cadres capable of carrying the Regional training programmes way beyond the proposed project’s life and therefore ensuring sustainability of the project benefits. However, in view of the lack of adequate office equipment at the disposal of these coordinating staff, the full potential of their capabilities and benefits from training cannot be realised unless appropriate capacity strengthening is undertaken. Regional Bureaux implementing Bank Group projects 2.2.7 Ethiopia has 9 Regions and two City Administrations, namely, Addis Ababa and Dire Dawa. Each Region has Zones (roughly similar to Districts) which are themselves divided into Woredas (or Villages). The Regional Bureaux structures are like departments, which are part of the administrative and technical headquarters of the Region. These Bureaux are relatively new to the responsibilities of project implementation which were passed on to them as a result of the

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Government decentralization policy. Each Region has a Finance Bureau, a Planning Bureau, a Health sector Bureau, an Education sector Bureau, an Agriculture sector Bureau, and a Water resources Bureau. Whereas the Bureaux have capacity weaknesses both in terms of human resources, logistics and office equipment, the project will seek to focus on human resources as the most urgent capacity issue. A total of 27 seminars will be held at Regional centers under the project for Bureaux staff and will emphasise procurement and disbursement procedures and monitoring. This effort would enhance the quality and timeliness of procurement and disbursement submissions from the Bureaux to Federal Ministries for processing and consolidation before forwarding to the Bank. The quality and timeliness of reporting would also improve. This capacity building would be welcome despite other daunting capacity issues such as lack of adequate number of vehicles to cover the vast countryside of the Regions where project sites are located and also lack of PCs which could help to facilitate information and data processing.

Civil Service Reform Program 2.2.8 Under the Civil Service Reform Program launched in 1994, a Task Force comprising local experts and an expatriate consultant reviewed the civil service from Federal to Woreda level and reported its findings in 1996 which include, among others, (a) the problem of poorly trained and demoralised staff; and (b) the issue of inadequate and/or inappropriate skills among managers and staff. The Government recognises the need to improve the quality of its staff and also to motive civil servants through better conditions of service, including improved emoluments. In this regard, a job classification exercise is being undertaken in the context of the on-going reform programme under the Interim Poverty Reduction Strategy Paper (I-PRSP) with the view to providing capacity building and necessary incentives to enhance the performance of the public sector. Complementary donor assistance in capacity building forms part of the overall GOE efforts to strengthen the civil service and make it more productive and effective. The new Ministry of Capacity Building established in mid-October 2001 will benefit from the capacity building programme of the Government. 3. THE CAPACITY BUILDING PROJECT

3.1 Strategic Context 3.1.1 The project will address Bank Group projects as well as other development projects: The proposed project adopts a broad approach in tackling the issue of capacity deficiencies within the main GOE organs involved in the economic development effort by enhancing the public sector’s capability to effectively utilise development resources. In this regard the skills mix required for appropriate coordination and implementation of project cycle activities will be given close attention. The project recognises that the GOE organs and staff directly engaged on the Bank Group operations have wide responsibilities of fostering general socio-economic development in the country and, as such, the capacity building to be provided under the project will directly impact on both Bank Group projects and other development programmes in the country. 3.1.2 The project will strengthen the Capacity of the Regions implementing development programmes: The project’s heavy concentration on human resources development at both the

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Federal and Regional levels of Government is consistent with the country’s urgent need for skilled and experienced manpower in the critical GOE positions involving the coordination and implementation of development projects. In Ethiopia’s decentralised system of Government, the Regional Bureaux find themselves assuming heavy responsibilities of implementing and monitoring development projects funded by both GOE and various donors and yet the Regions generally lack adequately skilled and experienced staff for this task. By addressing the capacity issues, particularly manpower, of the relevant Federal and Regional structures in a sustained manner throughout the project’s 3-year implementation period, the proposed project will enhance the sustainability of development projects and their impact on economic development. 3.1.3 The project will directly impact on the poverty reduction sectors: The strategic significance of the project is further demonstrated by the disproportionately vast attention to be given to the main poverty reduction sectors, i.e. health, education, agriculture, and water, which will be the main targets of the capacity building in the Regions. Furthermore, the Bureaux close collaboration with the Zones and Woredas ensure that these poverty reduction projects are designed and implemented in a participatory manner thus again enhancing their sustainability. 3.2 Impact of GOE restructuring of October 2001 on the proposed project 3.2.1 In mid-October 2001, a restructured Government was unveiled revealing some merged Ministries and new or enlarged Ministries which have taken over some of the forty or so units that were attached to the Prime Ministers Office. The Ministry of Finance was merged with the Ministry of Economic Development and Cooperation (MEDaC) to become the Ministry of Finance and Economy (MFE) whereas the Civil Service Reform Unit which was in the Prime Minister’s Office is now part of the new Ministry of Capacity Building whose creation is manifestation of GOE’s recognition that capacity weaknesses transcending the Government system are a major bottleneck in the economic development process and need to be addressed in a more focused manner. Some of the changes were meant to create streamlined Ministries with minimum fragmentation of responsibilities while relieving the Prime Minister’s Office of units which sometimes tended to be parallel structures to line Ministries. 3.2.2 The creation of the new MFE will ensure that the mobilization of domestic and external development resources and the coordination of development programmes are the responsibility of the same Ministry. Thus, the proposed project and, indeed, all development projects and programmes will benefit from the streamlined structure and this augurs well for the project and its impact on the economic development process. 3.3 Project Objectives

The project seeks to significantly enhance the quality of development projects funded by both donors (including the Bank Group) and GOE. In particular, the project will strengthen the capacity of relevant Federal Ministries (including MFE in which the ADB Desk is located) which coordinate development projects, and the Regional Bureaux which implement the projects, so that these GOE organs could effectively coordinate and implement as well as monitor the development projects.

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3.4 Project Outputs

The project’s outputs are expected to be as follows: • Local training of up to 1,080 staff of the Regional Bureaux (Health, Education,

Agriculture, Water Resources, and Finance Bureaux in the 11 Regions) through 27 seminars in procurement and disbursement procedures and monitoring.

• Local training of up to 120 Federal Ministries staff (Ministries of Health, Education, Agriculture, Water Resources, and MFE) through 3 seminars in IT, Data Management, and Project Monitoring and Evaluation1.

• External training of up to 51 staff of Federal Ministries (Ministries of Health, Education, Agriculture, Water Resources, and MFE) through 51 short-term courses in project cycle activities including project design, appraisal, planning, financing, and evaluation.

• External study tours for 12 staff of Federal Ministries (Ministries of Health, Education, Agriculture, Water Resources, and MFE) to the Bank’s Headquarters in Abidjan to improve their skills in procurement, disbursement and monitoring.

• Provision of office equipment (13 PCs, 13 printers,13 UPS power stabilizers, 5 photocopiers) to Federal Ministries - Ministries of Health, Education, Agriculture, Water Resources and MFE.

3.5 Detailed Description of Component 3.5.1 The project will have the following components:

• Human Resource Development • Logistical Support for the coordinating Federal Ministries

A. Human Resource Development

3.5.2 In view of the large number of Federal and Regional Government staff to be trained and also the many courses and seminars, a training programme will be submitted to the ADF at the start of the project in order to ensure that the training is fairly evenly spread out over the project period and does not disrupt the work of the Government organs concerned. 3.5.3 Short-term External Training: The relevant technical staff of coordinating Federal Ministries of MFE, Health, Education, Agriculture, and Water Resources will undertake external short-term training ranging from one to six months in various project cycle activities. During the project’s 3-year period, the staff will take one to three courses, depending on the individual’s current level of education, experience, and job responsibilities. The courses will include project planning, design, appraisal, financing, management, monitoring, and evaluation. Other external training will involve study tours by staff drawn from the same Federal Ministries to the Bank Group’s Headquarters to familiarise themselves with procurement and disbursement procedures and project monitoring processes. These Federal Ministries’ staff already possess valuable 1 The computer-based monitoring system and project monitoring manual will be developed outside the project with the guidance of MFE and other projects coordinating Ministries. See Annex IV.

9

practical experience gained while working on Bank Group projects and, in some cases, World Bank or other donors operations. By undergoing external training and the study tour, their knowledge and skills in project activities will be consolidated such that these staff will be able to form the core of the trainers that will lead the training of Regional Bureaux staff. This will enhance sustainability of the Regional training programmes after the project has been completed. Other trainers will be drawn from the ETCO field office staff and, occasionally from the Bank’s Headquarters. 3.5.4 Short-term Local Training: The Regional Bureaux staff of Finance, Planning, Health, Education, Agriculture, and Water Resources will undergo training in procurement, disbursement, monitoring and reporting through one week seminars which will be conducted during the period of the project once or twice a year as determined by the number of people to be trained at the particular centre. The training centres will be: Addis Ababa centre: one seminar a year for Addis Ababa City Administration and two seminars a year for Oromia Region; Awassa centre: one seminar a year for SNNP Region; Bahir Dar centre: one seminar a year for combined Bahir Dar and Benishangul Region; Dire Dawa centre: twice a year for combined Dire Dawa City Administration, Harar and Somali Regions; Gambella centre: once a year for Gambella Region; Mekele centre: once a year for Tigrai and Afar Regions. By focusing these seminars in this manner, project staff will be able to address some of the major weaknesses in project implementation and monitoring and thereby enhance the quality of the Bank Group’s portfolio and the performance of all development programmes implemented by the Bureaux. The project will provide for the operating costs in terms of office stationery for MCD for use in preparing material for the 27 Regional seminars and 3 seminars for relevant Federal Ministries coordinating Bank projects. Furthermore, the project will provide fuel for a vehicle that will transport the Federal staff to the various Regions where they will organise and lead seminars for Regional Bureau staff. The MFE, which will provide the vehicle from outside this project (e.g. from UNDP-funded vehicles), has assured the availability of such a vehicle as and when required for the Regional seminars. Per diem for the Federal Ministries staff travelling to the Regional seminars will be provided under the project.

B. Logistical support for the coordinating Federal Ministries 3.5.5 Coordinating Federal Ministries: The ADB Desk will be provided with 5 PCs and accessories, 5 printers, and one photocopier whereas the Ministries of Health, Education, Agriculture, and Water Resources will each get 2 PCs, 2 printers and one copier. The copier for the ADB Desk will be a heavy duty one to facilitate reproduction of material for the 30 seminars to be held during the 3 year implementation period. The capacity strengthening will enable installation of project monitoring systems and facilitate timely production of accounting reports and quarterly progress reports. The project monitoring systems for these computers will be developed by experts under the on-going UNDP project (see paragraph 2.2.4) who will closely work with CSU staff so that the latter will train ADB Desk staff and line Ministries Project Coordinators in their use. 3.6 Cost Estimates

The total cost of the project, including price contingencies of 5% but net of taxes, is estimated at UA 571,083 (US$ 728,930), of which foreign exchange costs account for UA

10

482,169 (US$ 615,441) and local costs are UA 88,914 (US$ 113,490). The detailed cost estimates by category of expenditure are given in Annex V and summarized in Table 3.1 below.

Table 3.1: Cost Estimates by Category of Expenditure

(UA) TAF GOE Total

Category of Expenditure

Foreign Exchange

Local Cost

Total

Local Cost

Foreign Exchange

Local Cost

Total

% 1.Training 391,512 24,840 416,352 48,420 391,512 73,260 464,772 85.5 2. Office equipment 67,697 - 67,697 67,697 67,697 12.4 3. Operating Costs - 10,400 10,400 1,020 - 11,420 11,420 2.1 Total Base Cost 459,209 35,240 494,449 49,440 459,209 84,680 543,889 100.0 Contingencies (5%) 22,960 1,762 24,722 2,472 22,960 4,234 27,194 Grand Total 482,169 37,002 519,171 51,912 482,169 88,914 571,083

3.7 Sources of Financing 3.7.1 The ADF’s contribution will be UA 519,171 (US$ 662,670, or 90.9% of total cost, from TAF resources, whereas the Government will contribute UA 51,912 (US$ 66,260), or 9.1%. The TAF grant will finance the entire foreign exchange cost and part of the local cost whereas GOE will finance the balance of the local cost. The sources of finance are given in Table 3.2 below:

Table 3.2: Summary of Sources of Financing (UA)

Foreign Exchange Local Cost Total Source of Financing Amount % Amount % Amount % ADF/TAF 482,169 100.0 37,002 41.6 519,171 90.9Government - - 51,912 58.4 51,912 9.1Total 482,169 100.0 88,914 100.0 571,083 100.0 3.7.2 The UA 51,912 GOE contribution will finance the following items: all the local short-term training seminars (except for the Addis Ababa and Oromia seminars which will be financed by ADF/TAF), all per diem for the Federal Ministries staff conducting Regional seminars, and all fuel for the vehicle conveying Federal Ministries staff to the Regional seminars. The vehicle will be provided outside the project. (see paragraph 3.5.4). 4. PROJECT IMPLEMENTATION 4.1 Executing Agency

The Multilateral Cooperation Department (MCD )of MFE will be the Executing Agency of the project and will have the responsibility of implementing all the project activities.

4.2 Organizations and Management 4.2.1 A Steering Committee, chaired by the State Minister in MFE who is responsible for Sectoral Development and External Economic Cooperation, will be created and will have overall authority over the project while a Project Implementation Team comprising two staff, namely, the MCD Director, as Head of the Team, and a Finance Officer to be nominated by the State Minister

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from the Ministry’s Administrative and Finance Division, which is accountable to the State Minister, will be responsible for the day-to-day activities of project implementation. The other members of the Steering Committee will be one Vice Minister each from the Ministries of Health, Education, Agriculture, Water Resources, and the Head (Director Level) of Planning and Project Department in MFE. The Director of MCD will be Secretary of the Steering Committee. The minutes of the Steering Committee meetings will be submitted to the ADF. The Project Implementation Team will report regularly to the Steering Committee and receive feedback, and also prepare project accounts, quarterly project reports and ensure the preparation of annual audit reports for submission to the Bank, and undertake all procurement and disbursement functions under the project. 4.2.2 The staff of the Federal Ministries (Health, Education, Agriculture, and Water resources) to be trained under the project will, apart from effecting their various coordinating functions, also the trainers of Regional Bureaux staff as the 27 Regional Seminars targeting Bureaux staff will be conducted mainly by the Federal ministries staff. ETCO and Bank staff (when feasible) on mission in Ethiopia will participate in these seminars to provide valuable insights into Bank Group procedures. 4.3 Implementation Schedule

The implementation schedule is as follows: December 2001 : Board Approval January 2002 : Signature of Protocol of Protocol January 2002 : Entry into Force February 2002 : Launching February-March 2002 : Procurement of office equipment April 2002-September 2004 : Local and External Training of Staff December 2004 : Completion

4.4 Procurement Arrangements 4.4.1 The Procurement arrangements are given in detail in paragraph 4.4.2 and summarized in Table 4.1 below. All the procurement of goods and services financed by the Bank will be in accordance with the Bank’s “Rules of Procedure for Procurement of Goods…” using the relevant Bank Standard Bidding Documents. The Project Implementation Team will be responsible for the procurement of goods and training services, and also for preparing the training schedule.

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Goods 4.4.2 Given the limited number of goods to be procured under the project and the availability of several suppliers on the local market, office equipment (UA 71,082) and office supplies (UA 10,920) will be procured on the basis of National Shopping (NS). Training 4.4.3 The external institutions to provide short-term training (UA 390,751) will be selected using short list, with price as a factor whereas direct negotiations with suppliers will be used for securing conference hall facilities for all the local seminar training (UA 71,064) and for study tours (UA 20,336) to the Bank’s headquarters. Per diem for Federal staff (UA 5,859) traveling to the Regions to conduct seminars will be provided by GOE using its regular procedures. Operating costs 4.4.4 Fuel (UA 1,071) for the vehicle to be used on the trips to the Regional seminars will be provided by GOE using its regular procedures.

Table 4.1: Summary of Procurement Arrangements

Category NS Shortlist

Other Non-Bank

Funded Total

1. Goods 1.1 Office equipment 1.2 Office supplies

71,082 (71,082) 10,920 (10,920)

71,082 (71,082) 10,920 (10,920)

2. Training 2.1 External - short-term 2.2 External study tours 2.3 Local – conf. facilities 2.4 Local per diem

390,751 (390,751)

20,336 (20,336) 71,064 (26,082)

5,859

390,751 (390,751)

20,336 (20,336) 71,064 (26,082)

5,859 (0) 3. Operating costs 3.1 Fuel

1,071

1,071 (0)

Total: 82,002 (82,002) 390,751 (390,751) 91,400 (46,418 6,930 571,083 (519,171) In bracket is Bank Group’s TAF contribution to the cost of the particular item.

Procurement Notice 4.4.5 The text of a General Procurement Notice (GPN) will be agreed with the Ministry of Finance and Economy during negotiations and it will be issued for publication in Development Business, upon approval by the Board of Directors of the Grant Proposal.

Review Procedures

4.4.6 The following documents are subject to review and approval by the Bank before promulgation: Shortlists; Tender documents/Requests for Proposals; Tender Evaluation Reports; and Draft Contracts if these have been amended from the drafts included in the tender invitation documents.

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4.5. Disbursement

The disbursement methods to be used will be direct payment and special account. A foreign exchange account will be opened in a local bank acceptable to the Fund into which the ADF's contribution to the local costs will be deposited to meet four months of such expenditure based on an expenditure schedule prepared by the project. Replenishment of this account will be made after submission of a request and proof of utilization of at least 50% of the amount previously deposited. 4.6 Monitoring Review 4.6.1 To ensure effective project monitoring, quarterly progress reports will be prepared by the Executing Agency and forwarded promptly to the Bank for review. These reports will highlight key implementation issues and recommend actions for their resolution. Similarly, the Bank will also closely monitor the project by undertaking regular supervision missions to evaluate implementation progress. The Ethiopia Country Office (ETCO) will undertake regular follow-up of the project. 4.6.2 The Executing Agency will ensure that the accounts of the project are audited at the end of every year and that the audit report is submitted to the Bank promptly in accordance with the ADF’s General Conditions relating to the activities of Technical Assistance. 4.7 Aid Coordination As the project will strengthen the capacity of the Federal Ministries (Finance and Economy, Health, Education, Agriculture, Water Resources) which coordinate both Bank Group and other donors’ development projects and programmes, the implementation of the project will constantly be reviewed by the DAG members. In this coordination process, the Bank will be able to secure information on the effectiveness of the project and also provide feedback on other donors’ assistance facilitating the project such as the monitoring systems to be developed under a UNDP component. Similarly, at the Regional level, the Bureaux implement a large number of social sector projects financed by both the Bank Group and other donors. The GOE/donors Annual Review meetings focusing on the effectiveness of interventions in the social sector will provide further opportunity for donor coordination on the project’s progress. 5. JUSTIFICATION, IMPACT, AND RISKS 5.1 Justification 5.1.1 Ethiopia is the leading beneficiary of ADF resources and the Bank Group’s portfolio in the country is among the largest, in terms of both amount of investments and the number of such interventions. There are 15 on-going Bank Group operations (UA 389.07 million) in Ethiopia and more interventions are envisaged during the ADF-IX period. The quality of this portfolio is, therefore, of major significance to the overall quality of the global ADF portfolio. As capacity weaknesses in the Ministry responsible for the coordination of all Bank Group operations in the

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country (MFE) have been detected by both the Government and the Bank, corrective measures have become necessary. This would help to improve the quality of the portfolio. The project will enhance the capacity of MFE to cope with the enlarged portfolio. 5.1.2 The project will address the capacity weaknesses of MFE and other relevant Federal Ministries which together coordinate Bank Group operations, as well as Regional Bureaux which implement projects in the main poverty reduction sectors of health, education, agriculture, and water resources within Ethiopia’s decentralized system of government. As GOE is processing the Poverty Strategy Paper (PRSP) for finalization in March/April 2002, the project is timely as the strengthening of Regional Bureaux capacity will facilitate the implementation of poverty reduction programmes that will emerge from the PRSP. The project’s benefits will go beyond Bank Group’s operations and impact positively on all other development projects coordinated and implemented by the GOE organs that will be strengthened under the project. 5.2 Gender Impact

Gender inequality is one of the greatest challenges in Ethiopia as women are frequently discriminated against or marginalized from participating effectively in socio-economic life. The project will contribute to addressing this issue as two out of the five staff of the ADB Desk are women and they will be trained in the area of project formulation, design, monitoring and evaluation. Thus the project has favourable gender dimensions. Also, as there are women staff in the coordinating units of the relevant Ministries and, more importantly, as the Bureaux’s activities at Zonal and Woreda levels will bring Bureaux staff directly into contact with women economic agents in the communities, the latter will more proactively participate in project formulation and design of projects and thereby ensure that programs under formulation are gender-sensitive. The training programme under the project will include a gender module sensitising trainees on gender issues. 5.3 Risks 5.3.1 The project benefits may not be sustained if the staff trained externally do not return to their Ministries after completing their studies abroad. However, this risk is mitigated by an effective measure which is already in place. In order to encourage trainees to return to the country and serve their institutions after completing studies, GOE has established a bonding system whereby the prospective trainee is required to present a guarantor who would reimburse all direct and indirect costs incurred by the institution should the trainee fail to return. This arrangement has, so far, been successful in minimizing the number of absconding trainees as only an insignificant proportion of trainees has failed to return. 5.3.2 A second risk that could arise relates to the training programme not being finalized in time. In view of the large number of external and local courses, seminars, and study tours to be undertaken in just three years, any delay in drawing up the training programme could lead to its implementation being too tightly packed and thus disrupt the smooth running of day-to-day business in the concerned GOE organs. This risk is mitigated by GOE’s assurances that the training programme will be prepared and finalized up-front. (See condition B (ii) for the grant’s first disbursement).

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5.3.3 The third risk that could arise concerns the monitoring systems which will be developed by the IT firm, in collaboration with CSU, under the UNDP project as this activity is outside the proposed project. This risk is mitigated by the fact that the UNDP project has already made significant progress on the MFE component and is set to complete the monitoring systems by March 2002. Besides, that UNDP project’s relevant component in MFE of strengthening management information systems is closely followed by the senior officials of the Ministry as it will modernize the MFE’s management information system. 6. CONCLUSIONS AND RECOMMENDATION

6.1 Conclusions

Both GOE and the Bank have over the years tried to ensure satisfactory operations in the country but improvements have been sometimes been slow and non-sustainable. Meanwhile, given the Bank Group’s large portfolio in the country and the expected increase as more operations are approved during ADF-IX replenishment period over the next 3 years, the quality of the portfolio could deteriorate. Such an unfavourable development is a realistic possibility as the Regional Bureaux charged with the responsibility of implementing projects in the main poverty reduction sectors (health, education, agriculture, and water) in which Bank Group operations are heavily concentrated, are fairly inexperienced in procurement, disbursement and monitoring. Similarly, the lack of adequate human resources capacity and office equipment in the Federal Ministries coordinating Bank Group operations need to be addressed to avoid negative impact on the portfolio. The thrust of the proposed project is to contribute significantly to the rectification of the capacity situation in all these GOE organs. In the process, the benefits would accrue not only to Bank Group operations but to all development projects coordinated and implemented by the strengthened Federal Ministries and Regional Bureaux.

6.2 Recommendation It is recommended that a TAF grant not exceeding UA 519,171 be granted to the Federal Democratic Republic of Ethiopia for the purpose of implementing the project as described in this report, subject to the following specific conditions:

A. Conditions Precedent to Entry into Force of the Grant Protocol

The entry into force of the Grant Protocol shall be subject to the fulfillment by the Recipient of the provisions of Section 5.01 of the General Conditions of the fund;

B. Conditions Precedent to First Disbursement of the Grant The obligations of the Fund to make the first disbursement shall be conditional upon the entry into force of the Protocol of Agreement and the fulfillment by the Recipient of the following conditions: The Recipient shall have, to the satisfaction of the Fund:

16

(i) Provided satisfactory evidence to the Fund that the two vacancies in the ADB Section of MFE have been filled. (paragraph 2.2.3);

(ii) Submitted to the Fund, for clearance, a schedule for all the training to be

undertaken under the project. (paragraph 3.5.4); (iii) Submitted to the Fund, satisfactory evident that the Steering Committee has been

created, together with the first minutes of its meeting. The Steering Committee will comprise the State Minister in MFE (Chairman), one Vice Minister each from the Ministries of Health, Education, Agriculture, Water Resources, and the Head (Director Level) of Planning and Project Department in MFE (paragraph 4.2);

(iv) Provided evidence that the Finance Officer to be responsible for the day-to-day

activities of the Project has been nominated by the State Minister. (paragraph 4.2);

(v) Provided evidence that a foreign exchange special account, to be credited periodically with proceeds from ADF's contribution, has been opened in a local bank acceptable to the Fund. (paragraph 4.4).

C. Other Conditions

In addition, the Recipient shall: (i) Within six months of signature of the Protocol of Agreement, submit to the Fund

for clearance the project monitoring manual associated with the computer-based monitoring system. (2.2.4 & 3.4).

ANNEX I

MAP OF ETHIOPIA

Audit Services

Organization and Methods

Public Relations

Legal Services

Planning & Research

ANNEX IIIA: FORMER MINISTRY OF FINANCE's ORGANIZATIONAL CHART

Inspection Department

Treasury Department

Compensation Studies & Negotiation Dept.

Credit & Investment Department

Budget Department

Vice Minister

Minister

Counterpart Fund Administration Unit

Systems and Data Survey

Administration and Finance

ANNEX IIIB: FORMER MINISTRY OF ECONOMIC DEVELOPMENT and COOPERATION's (

ORGANIZATIONAL CHART

Audit Service Information andConference Service

Women's Affairs

Computer Service Administration andFinance Service

V/MinisterMacro-Economic Development

Legal Service

Agricultural DevelopmentDepartment

Trade & Ind.DevelopmentDepartment

EconomicInfrastructureDepartment

Mines, Energy& Water Res.Department

BilateralCoop.

Department

ManpowerDevelopment

and Social Affairs

ADB Desk World BankDesk

Int'l Fund forAgricultural Dev't Desk

Arab Bank forEconomic Dev't (BADEA)

Desk

NDFDesk

Org'n of PertoleumExporting Countries

(OPEC) Desk

Int'l Financial& Dev't Instit

UN Agencies& RegionalOrg. Div.

EuropeanUnionDiv.

MultilateralCooperationDepartment

V/Minister Sector, Development &Co-operation

V/MinisterFinance

Minister

ANNEX IV: ONGOING EFFORTS TO STRENGTHEN CAPACITY OF MCD & Computer Services Unit

Consultations held with the World Bank, EU, UNDP and some bilateral aid agencies on the suitability of this project confirm the need for the further strengthening of MFE’s capacity. As indicated earlier (Annex IV), some of these organizations are already providing resources towards capacity building of the Ministry. The proposed Bank Group technical assistance project has been welcomed by these donors who point to the important role which the Ministries play in the country’s economic development process and that the capacity building will further enhance MFE’s performance. Donors generally feel that capacity building is one of the major areas of assistance that could be of much benefit to GOE Federal institutions and the Regions. There are three ongoing operations funded by the UNDP, EU and SIDA involving the capacity building of MCD:

UNDP: The UNDP’s capacity building operation at MCD and Computer Services Unit (CSU), which started in 1997 and is due to be completed in 2002, is part of the UN Agency’s large public sector project involving about US $20 million to strengthen GOE capacity in customs administration, decentralization, civil service reforms, resource management, and capacity building activities in several other GOE agencies. The portion of the project addressing MCD focuses mainly on the UNDP Desk, the National Accounts unit, training, provision of vehicles and equipment, and close collaboration with CSU in providing assistance in Management Information Systems. A local firm has already been engaged to provide computer services expertise. The firm, which is assisted by the Ministry’s CSU, has installed cables for the local area network (LAN) and is also in the process of designing suitable software for the Ministry. In conjunction with CSU, the firm will develop monitoring systems for the ADB Desk by March 2002 and they will together prepare the associated monitoring manual. The UNDP operation will also finance the following training activities: one-week study tours to other African countries to enrich MCD staff’s capabilities in Aid Coordination and Management; and short-term external training in project management, monitoring and evaluation. So far, only two-study tours involving six staff from the department have been undertaken. EU: The EU’s three-year (1999-2002) capacity building assistance is providing €670,000 (approximately USD 568,163) for technical assistance, training, logistical support, audit, and contingencies. Although several units of MCD will benefit, the assistance seeks mainly to enhance the capacity of the EU Desk in MCD to efficiently and effectively execute coordination of aid from that donor agency. Technical assistance is the largest component and provides experts to prepare specific project proposals for implementation. The capacity building component involves activities involve study tours, short-term training, seminars, workshops and also the provision of office equipment. Both GOE and EU find the project to be making satisfactory progress.

SIDA: The SIDA capacity building involves the training of officials from GOE Ministries, including MFE. This program, which has been running for several years now, comprises short-term courses of up to one month undertaken in Sweden and covers a wide range of specialized disciplines and such specializations as water management, economic planning, and various fields in the social sciences. A SIDA evaluation of this program a few years ago concluded that it is very successful and, indeed, the GOE holds similar views.

Annex VI ETHIOPIA

IMPLEMENTAION SCHEDULE

Year/Month 2001 2002 2003 2004

Activity

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

12

Board Approval

Signature/Entry into Force

Launching

Procum. Of Office Equip.

Local & External Training

Project completio n

Annex

ETHIOPIA

CAPACITY BUILDING OF MINISTRY OF FINANCE AND ECONOMIC DEVELOPMENT

1. Cover page and in the document The name of the project has been changed to ‘Capacity Building of Ministry of Finance and Economic Development’ (MoFED) in conformity with the official name of the new Ministry formed in October 2001 following the merger of the Ministry of Finance and Ministry of Economic Development and Cooperation. 2. Paragraph 4.2.1 on page 10 has been revised to read as follows: A Steering Committee, chaired by the State Minister in the MoFED, who is responsible for Sectoral Development and External Economic Cooperation, will be created and will have overall authority over the project. The other members of the Steering Committee will be one Director of Planning or Programming Department from each of the Ministries of Health, Education, Agriculture, Water Resources, the Director of MCD, and the Head of ADB Desk who will act as Secretary. The day-to-day management of the project will be the responsibility of a Project Implementation Team comprising the Director of MCD (Head of the Team) and a Finance Officer from MoFED Administrative and Finance Division. The Project Implementation Team will report regularly to the Steering Committee and receive feedback, and also prepare project accounts, quarterly project reports and ensure the preparation of annual audit reports for submission to the Bank, and undertake all procurement and disbursement functions under the project. 3. Condition B (iii) under paragraph 6.2 on page 16 has been revised to read as follows: Submitted to the Fund, satisfactory evidence that the Steering Committee has been created, together with the first minutes of its meeting. The Steering Committee will comprise the State Minister in MoFED (Chairperson), one Director of Planning or Programming Department from each of the Ministries of Health, Education, Agriculture, Water Resources, the Director of MCD, and the Head of the ADB Desk in MoFED as Secretary. (paragraph 4.2.1).