Ministry of Foreign Affairs

PROGRAMME CONCEPT NOTE

Regional Economic Integration Support Programme in East Africa

− Phase two (REISP II) 2015-2019

Ref.no. 104.Østafrika.3

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Table of Contents Introduction ............................................................................................................... 1

Strategic questions ................................................................................................... 1

Summary of conclusions ........................................................................................... 1

Conclusions from Preparatory Analyses .......................................................................... 2

Key experiences and results of previous support .......................................................... 2

Preliminary Overview of Envisaged Programme Support .................................................. 3

Justification for the support ....................................................................................... 3

Brief outline of the support strategy and a description of design..................................... 3

Envisaged support modalities .................................................................................... 7

Preliminary budget ................................................................................................... 8

Envisaged management structure of the programme .................................................... 8

Relation to other donors............................................................................................ 8

Risks ...................................................................................................................... 8

Annex 1 Updated Process Action Plan

Annex 2 Results Framework

Annex 3 Risk Management Matrix

Annex 4 Assessment according to the budget support principles

Annex 5 Environmental and Climate Screening Note

Annex 6 HRBA/Gender Screening Note

Annex 7 Overview of Existing Danida PSD support in Kenya, Tanzania and Uganda

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Introduction

Strategic questions Question 1: Support to the East African Community (EAC) under the Regional Economic

Integration Support Programme phase one (REISP I) was provided through a joint donor

Partnership Fund. Under REISP II there is an option to provide (part of) the funding as core

funding disbursed as performance tranches to the EAC Secretariat. Does the Programme Committee agree

that the core funding option is considered as design moves forward?

Question 2: Danida has provided support for infrastructure development under REISP I as part of

its funding for Trade Mark East Africa (TMEA). Under REISP II it is proposed to strengthen focus

on infrastructure by including, in addition to TMEA support, a particular funding window to finance

preparatory work and facilitate financing for regional infrastructure projects. Does the Programme

Committee agree with the strengthened prioritisation of infrastructure?

Question 3: For regional integration to contribute to inclusive growth and job creation, the trade

activities of private business must be boosted. REISP II suggests support at the micro level to

demonstrate how the private sector can benefit from regional economic integration. Support will be

provided to help develop and strengthen regional value chains and encourage small and medium-

sized enterprises to enter new EAC markets. Does the Programme Committee agree with inclusion of support

in this area? Can the Committee offer views/advice on criteria that should govern support?

Summary of conclusions REISP I has supported EAC economic integration since 2011, and encouraging results have been

achieved. REISP II will build on the positive experiences from REISP I and continue the support to

the EAC integration process which will enhance trade and competitiveness. Improved opportunities

for the private sector will contribute to inclusive growth, job creation and poverty reduction.

Firstly, one of the prerequisites is that EAC reforms deliver harmonised rules and regulations which

are implemented and enforced. REISP II will support the capacity of EAC and Partner State

institutions. Secondly, there is a continued need to reduce transport costs and the barriers involved

with trading within the EAC. REISP II will continue to provide trade facilitation support which will

address 1) the reduction of non-tariff barriers and simplified processes and regulatory systems

connected with trading across-borders, e.g. customs procedures and one-stop border posts, 2)

additional support to realise a series of regional economic infrastructure projects. Thirdly, REISP II

will support regional value-chain projects to promote trade across-borders. Through catalytic

initiatives with strong demonstration effects, REISP II will encourage the private sector to enter new

markets and take advantage of opportunities created by regional integration.

REISP II will continue the partnerships developed in REISP I. If it is relevant to strengthen East

African ownership, additional partner organisations could be included in the design phase. REISP II

will complement support delivered through national programmes in Kenya, Tanzania and Uganda

(see Annex 7) and will explore synergies with Danida Business Instruments.

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Conclusions from Preparatory Analyses

Key experiences and results of previous support Danish support for EAC integration (2012-2015) is currently being delivered through the EAC

Partnership Fund and TMEA. Although it is too early to assess the outcomes of REISP I, emerging

results are encouraging. Trade indicators suggest that EAC trade is increasing.

REISP I aimed for a 10% annual increase in the total value of exports from the EAC region − this target was reached in 2010, 2011 and 2012. At the country level, the best performers were Rwanda, Burundi and Tanzania, where average annual exports (2008-12) increased by 23%, 18.6% and 16.4%.

REISP I targeted a 25% increase in the share of intra-regional trade in total trade. This is also increasing. Intra-regional exports as a share of total exports amounted to 20.92% in 2012, and total intra-EAC trade grew by 21.9% in 2011-12.

Based on the World Bank’s Doing Business Reports (2009 to 2013), there have been improvements in the “time required to export and import”. Burundi, Rwanda, Tanzania and Uganda have achieved reductions in the time it takes to export. The overall reduction for the EAC is 20% in 2010-2013.

The EAC Partnership Fund has contributed to positive progress on establishing functional EAC

organs and institutions, and there has been tangible progress on implementation of the Customs

Union and Common Market Protocols. A new protocol to establish the East African Monetary

Union was signed in November 2013, which signals a major milestone for continued integration.

Selected key achievements comprising: Four policies related to the Customs Union have been

harmonised, 56 non-tariff barriers have been resolved; a draft EAC non-tariff barriers bill was

adopted by the Council in November 2013, 79 new EAC standards have been harmonised and

declared, 67 obsolete EAC standards have been withdrawn and three new key regulations on product

certification, testing laboratories and enforcement of technical standards have been developed.

TMEA has mobilised funding of USD 590 million and is currently implementing around 170

projects. TMEA support has contributed to increasing trade and lowering trade costs through

investments in ports, transport observatories, one-stop border posts, improvedcustoms management,

and a reduction in non-tariff barriers and improvements in standards. A few selected key

achievements include:

TMEA has set a target of a 15% reduction in average time to import or export a container from Mombasa to Burundi or Rwanda. While data is pending, results include commencement of programmes to enhance the capacity of the two main ports at Mombasa and Dar es Salaam; simplification of the East African customs bond system and the completion of several visibility studies on enhancing trade facilitation and corridor performance.

TMEA has set a target of a 30% decrease in the average time a truck takes to cross selected borders. There is notable progress in the construction of one-stop border posts; the construction of six of them has already commenced and one has been completed. Further, integrated border management activities are proceeding in tandem with one-stop border post construction and will further be enhanced by the One-stop Border Post Bill, formulated with support from TMEA,

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which was passed by the East Africa Legislative Assembly in 2013, setting out the operations of the one-stop border posts regionally. Furthermore there has been enhanced efficiency through the establishment of electronic Single Window Information for Trade (SWIFT). In Uganda, initial results from Entebbe and Jinja show that 40%-60% of all goods on average are now cleared on the same day.

Finally, REISP I contains a pilot initiative which aims to stimulate trade across borders by supporting

regional value chains. The initiative will not be continued in its present form, but positive and

negative lessons will feed into the formulation of outcome 3 in REISP II.

Preliminary Overview of Envisaged Programme Support

Justification for the support REISP II will contribute to the implementation of Denmark’s 2012 development cooperation

strategy, “The Right to a Better Life, Denmark’s Strategic Framework for Priority Area: Growth and

Employment”, launched in 2011 and the new trade policy adopted in May 2014. The strategy will

help improve access to global and regional markets and enhance integration of EAC countries into

the global economy. Proposed support builds on Denmark’s strong track record of providing flexible

responsive support to the EAC. It will complement and add value to national programmes in Kenya,

Tanzania and Uganda and strengthen linkages to Danida Business Instruments – in particular Danida

Business Finance.

The justification for REISP II is its potential economic and development impact on regional

integration, alignment with Denmark’s strategic priorities and lessons from REISP I. The long-term

development of each EAC economy hinges on the success of the regional integration agenda.

Individual EAC economies are too small to compete effectively in international markets. Their

domestic markets are small. To sustain higher growth they need to expand, specialise and integrate to

achieve economies of scale. The integration process supports deregulation, harmonisation of rules

and regulations and reduction of non-tariff barriers. This reduces trade costs which will benefit EAC

businesses as well as Danish businesses with an interest in the region.

The preparatory analysis demonstrates that the needs and financing gaps associated with regional

integration are substantial. There are still restrictions on the free movement of goods, persons,

labour, capital and services and there is a need for stronger coordination and cooperation on

economic, trade and industrial policies to promote “harmonious balanced” development. The EAC

is under-funded, constrained in terms of staff resources and struggles to deliver on even its existing

mandate. EAC institutions are becoming stronger, but need to be developed to sustain and drive

integration. Implementation of the Customs Union and Common Market Protocols need to be

completed for integration to deliver the benefits it promises. Additional support is required to

address bottlenecks to trade, including high transport costs and informal barriers to trade. A massive

need for infrastructure investments remains.

Brief outline of the support strategy and a description of design The overarching objective of REISP II is to contribute to inclusive growth, job creation and poverty

reduction. The immediate objective is to support a sustainable EAC integration process which

enhances trade and competitiveness.

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The theory of change is that facilitating,

removing barriers to and reducing costs of

trade, expanding and integrating markets

and market access will improve

competitiveness and increase trade spurring

economic opportunities, which in turn is

expected to increase inclusive growth and

poverty reduction through employment and

income generation.

Box 1 illustrates the expected linkages from

enhanced EAC integration to poverty

reduction. It is well-documented that

regional integration and trade lead to economic growth. However, it is also increasingly clear that

trade does not automatically lead to inclusive economic growth and poverty reduction (OECD,

World Bank, ODI, etc.). A number of factors, such as productive capacities, access to market and

distributional impact, determine the benefit of trade for the poorest segments of the population.

These linkages will be considered carefully in the design phase and will be reflected in the logframe.

REISP II will follow good practice on aid effectiveness. It will promote ownership and sustainability

by aligning with partner’s priorities, results frameworks and building the core competence of partner

institutions. REISP II will help the EAC and Partner States address the identified challenges and

facilitate change by providing support to the EAC and a range of partner organisations focused on:

Building effective institutions to support coordination and delivery of the integration agenda

Consolidating implementation of the Customs Union and Common Market Protocols

Supporting evidence-based policy making and policy advocacy with a focus on making policy relevant to the needs of the private sector, responsive to the negative impact of regional integration and making trade-induced growth inclusive and pro-poor.

Making it easier and cheaper to trade across-borders with a focus on trade facilitation, elimination of non-tariff barriers and investment in economic infrastructure

Developing viable regional value chains which demonstrate how regional integration can benefit EAC small businesses and promote inclusive growth.

Outcome 1: Building effective institutions, policy and regulations to drive sustainable

EAC regional integration

Support aims to consolidate implementation of the customs union and facilitate full implementation

of the Common Market Protocol. Denmark’s assistance will help implement the findings of the

recently finalised EAC institutional review. Action and follow-up will be approved by the EAC

Council in Q3 2014. Expected results include implementation of measures to enhance the autonomy

and effectiveness of the EAC secretariat, establishment of new organisations critical to implementing

the core protocols union (e.g. Customs Authority, Competition Authority, Statistics Bureau),

improved accountability by enhancing the performance of organisations such as the East Africa

Legislative Assembly (EALA) and the East African Court of Justice (EACJ), progress on enhancing

Partner State budgetary provisions and growth in the number of established competent EAC staff.

Development Objective level

Poverty reduction

Job creation/income

Inclusive growth

Immediate Objective level Box 1

Increased trade

Improved competitiveness

Fewer barriers to trade and lower cost

Enhanced EAC integration

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During the design phase, Danida will review with the EAC Secretariat the target areas for support

from Denmark. Support to consolidate implementation of the Customs Union will include technical

and capacity building support to implement the EAC Non-Tariff Barriers Bill and to support

harmonisation and implementation of laws and regulations focused on standards.

Understanding the impact of regional integration: The preparatory analysis highlighted the need

to improve the understanding of the impact of regional integration. Improved regional integration

and increased economic activity will change the status quo, and there will be winners and losers.

From a human rights-based approach perspective it is imperative to understand the impacts of

regional integration better, to promote broad-based benefits from regional integration and to do

more to mitigate the negative impact of reforms. Civil and private sectors’ voices need to be heard

more clearly to make EAC reform priorities more inclusive and to respond more effectively to the

needs of the private sector and the poor. Under REISP II a dedicated effort will aim to strengthen

the knowledge base and stimulate advocacy with a view to providing the platform for targeted

initiatives.

The multi-donor EAC Partnership Fund supporting the EAC Secretariat will be the lead funding

channel under Outcome 1. As a point of departure it is expected to earmark funding to strengthen

the research capacity of the EAC Secretariat. If it is relevant to strengthen the knowledge base, grants

or technical support could also be provided to complementary partners. These are to be identified

during the design phase.

Outcome 2: Improving the environment for trade and reducing the cost of trading

across-borders.

This outcome addresses the need to reduce transport costs and the barriers and costs which erode

competitiveness and reduce trade. Support will continue to build on the successful partnership

established with TradeMark East Africa. Expected results by 2016 include:

10% increase in the total value of exports from the EAC

25% increase in the share of intra-regional trade in total trade

15% reduction in the average time to import/export a container from Mombasa to Rwanda

30% decrease in the average time a truck takes to cross selected borders.

REISP II will continue to provide support to address the high cost of trading across-borders.

Support will introduce new procedures and processes to make EAC borders “thinner”. REISP II will

consolidate work to improve the performance of the two main ports in Mombasa and Dar es Salaam.

It will replicate good practice, including consolidation of transport observatories across the EAC to

record data on constraints to corridor performance. It will continue to support innovation that uses

new technology, techniques or incentive systems to improve effectiveness, accountability and

compliance. This will include technical and capacity building support to consolidate and expand

construction of one-stop border posts, broadening the use of single electronic windows to speed up

goods clearance and extending the use of on-line customs services. In addition support will improve

the capacity of the EAC and Partner States to implement the 2013 Bali Trade Facilitation Agreement.

TMEA support will include monitoring and technical support to eliminate non-tariff barriers

(NTBs). Technical support will be provided at the EAC and national level to help to professionalise

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logistics and transport services which currently inhibit and increase the cost of trade. It will embed

effective dispute resolution processes at the regional level and focus in particular on reducing NTBs

facing small businesses and informal enterprises. Technical and capacity building support will help

implement standards at the national level. National monitoring systems will be consolidated so

progress on implementation of protocols can be tracked more transparently. This will complement

the higher level policy work and regulatory reform process supported through Outcome 1.

Enhanced infrastructure investment to reduce trade costs and improve competitiveness: A

particular effort is foreseen to catalyse new investments in regional economic infrastructure, which is

currently a major cause of weak competitiveness in the EAC. Preparatory analysis indicates that there

will be a massive demand for infrastructure investments to keep up with population growth and the

growth in the economies in East Africa. Currently a variety of funding sources are available. What is

lacking is the capacity to develop strong, bankable investment projects.

It is proposed to explore the opportunities for setting up a project preparation facility which can

finance feasibility studies and project preparation activities to develop bankable regional economic

infrastructure projects. These will have a regional dimension, but could cover sustainable energy,

roads, rail etc. The project preparation facility would actively facilitate the development of financing

packages which involves different financiers offering a mix of grants, loans, public funding and

private (commercial) funding for the respective projects. It is expected that Danida Business Finance

will be a potential source of financing.

The East African Development Bank (EADB) has been identified as a potential partner. EADB has

been given the mandate to realise regional infrastructure investments by setting up an infrastructure

development fund, but currently lacks the capacity to live up to its new mandate. The World Bank is

supporting EADB capacity development and moreover suggests that the main financing products to

be delivered by EADB should be project preparation and viability gab funding, which respectively

could be supported through REISP II and DBF. A preliminary institutional assessment of EADB is

positive and further assessment will draw on existing analysis carried out by the EU and other

partners during the design phase.

Outcome 3: Development of viable regional value chains involving SMES

Support under this outcome aims to demonstrate how regional integration can generate tangible

benefits for business and support inclusive growth. It will facilitate development and expansion of

cross-border value chains which contribute to growth in employment, investment and cross-border

trade. There will be a strong focus on supporting SMEs and the agricultural sector, both of which are

key to enhancing livelihoods and reducing poverty in the EAC. Support is expected to address

“niche areas” (regional trade/value chains) not supported through Danish country programmes or,

alternatively, areas which hold a particular potential for complementing Danish country programmes.

The Danish funding would finance cross-border agri-business ventures with the potential to

stimulate production and trade across the EAC. Results would include higher levels of intra-regional

trade, increased investment, employment and turnover within target markets and value chains. It

would stimulate small business development and leverage new private sector finance. It would grow

sustainable agri-based value chains and establish new EAC trading routes and markets. Support

would develop markets and value chains that are not targeted at the national level. When designing

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the activities under this outcome, one focus will be to initiate activities that stimulate broad-based

benefits of increased trade. Potential partners identified to date include AgDevCo and Kilimo Trust

– two organisations which work with value chains in East Africa.

Denmark’s green growth priorities will be mainstreamed across the programme

components. The EAC has a protocol on environment and natural resources, a climate change

master plan, climate changes policy and EAC disaster risk reduction and management strategy. They

have been adopted by the Council and are currently being implemented. The EAC has expressed

some interest in Denmark supporting work on renewable energy. Support to partners or specific

project grants will include appraisal of environmental impact and sustainability.

The programme will incorporate a human rights-based approach. The EAC has established an

EAC Forum of National Human Rights Commissions and the EAC Bill of Rights is being passed by

the East African Legislative Assembly (EALA). As indicated above it is foreseen to initiate work to

understand better the impact of regional economic integration and initiate measures to mitigate

negative consequences for particular groups. To achieve development impact, regional integration

must facilitate inclusive growth. Key to this is the impact of reforms on the private sector and the

stimulus that regional integration brings to sectors such as agriculture which involves close to 80% of

the EAC’s population. The support to develop regional value chains contributes to ensuring that the

population employed in agriculture also benefit from increased trade opportunities.

REISP I supported the mainstreaming of gender into EAC projects and includes a gender

mainstreaming strategy, action plan and guidelines. The fourth EAC Development Strategy included

gender-sensitive outcome indicators. TMEA has adopted a gender policy, gender action plans for all

programmes/departments and a gender unit is being established. Support to new and existing

partners will include strategies to ensure women benefit from support delivered through partners.

Envisaged support modalities During REISP I funding was provided through two relatively well-functioning multi-donor vehicles.

While REISP II foresees to continue the funding of these vehicles, there is a desire to strengthen

more directly the EAC organisations which will have to drive the EAC integration agenda in the

future.

As during REISP I, the support to the EAC secretariat is expected to be delivered through the multi-

donor Partnership Fund which has developed into a robust funding mechanism. As a supplement, it

is proposed to explore the feasibility of providing core funding to the EAC Secretariat. During the

formulation of REISP I, a number of critical fiduciary risks were identified and as a consequence, it

was decided not to provide core funding to EAC institutions. Since then, the EAC secretariat has

carried out a number of reforms to strengthen financial management and control functions. The

secretariat is expected to undergo a fiduciary risk assessment in the last half of 2014. This assessment

will provide an important input to a Danish decision to provide core funding to the EAC. Currently

no other donor is providing direct funding. Further information is provided in Annex 4.

The support to TMEA would be in accordance with the procedures established during phase one.

Denmark would be part of TMEA’s governance structure. It is foreseen to continue providing un-

earmarked funds to TMEA. If EADB is feasible as a partner, support would most likely be in the

form of ear-marked funding to the realisation of the Infrastructure Development Fund and

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accompanied by a solid Technical Assistance input. Options for delivering support under Outcome 3

will be considered further during the design phase.

Preliminary budget

Mio DKK 2015 2016 2017 2018 2019 Total

Outcome 1 20 20 20 20 20 100

Outcome 2 40 40 40 40 40 200

Outcome 3 5 15 15 20 20 75

Technical Assistance/reviews 5 5 5 5 5 25

Total 68 83 83 83 83 400

Envisaged management structure of the programme REISP II will build on the experiences from REISP I which has functioned relatively well. The

embassy in Dar es Salaam, as the EAC-accredited embassy, will take overall responsibility for

implementation of the programme. The embassy will lead on policy dialogue with the EAC and will

coordinate dialogue with other partner institutions. This may involve delegation of some

responsibilities to other embassies. The embassy in Nairobi will represent Denmark in the TMEA

management structure. The Department for Africa (AFR) will lead on programme formulation and

its approval. AFR will continue to steer overall policy and strategic direction on regional integration

and act as a link with other headquarter departments as required. AFR will engage embassies

continuously during the project formulation stage. Under REISP I, a regional advisor was placed in

Arusha. The advisor has helped improve coordination and has raised Danida’s profile and influence

on regional integration issues. Based on the good experience from REISP I, as well as the increased

ambitions of REISP II, day-to-day programme management, advisory and coordination support will

also be sub-contracted to a consultancy company under REISP II. Similar technical assistance related

to outcome 3 is foreseen.

Relation to other donors REISP II aims to complement country support provided to TMEA in Kenya and Uganda. A wide

range of other donors also support TMEA and the EAC. There is scope to enhance coordination

and sharing of information between REISP II and related donor programmes. The most relevant and

important donor programmes will be identified and, when appropriate, coordination will be built into

project design. High-level coordination already takes place through Danida’s membership of

committees in the EAC and TMEA.

Risks Annex 3 summarises critical risks. Overall, REISP II is a continuation of REISP I and the risks are

well known. Contextual risks include a deterioration in political commitment to regional

integration, a deterioration in the security situation, external economic shocks which distract leaders

from regional integration and slow growth. Programmatic risks include EAC lack of mandate,

capacity and finance to effectively coordinate and drive regional integration, competing priorities and

weak capacity in Partner States, weak private sector response to opportunities created by regional

integration and lack of inclusive growth resulting from regional integration. Institutional risks relate

to financial mismanagement of funds by partner organisations, and the risks that TMEA spread its

activities too thinly. The risks will be monitored at the embassy level, and the REISP II Technical

Assistance will provide input to this process. The Tanzanian Embassy will oversee policy dialogue on

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political issues and actively monitor risks in consultation with other embassies in the region. REISP

II will support analysis to better understand and manage the impact, costs and benefits of regional

integration.

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Annex 1 – Process Action Plan

ACTIVITY TIMELINE

Retreat with EAC Ambassadors, REISP Adviser, AFR and Saana

Consulting

March 2014 – Completed

Consultation with EAC Secretary General – Tanzanian

Ambassador

Early May – Completed

Institutional reviews of EAC, TMEA and EADB

Theory of Change discussions on outcomes and outputs

May/June 2014 – Completed

Draft Concept Note and Annexes including initial technical

consultation with Tanzania, Kenya, Uganda

Consultation with EAC embassies

Concept Note Finalised

June 2014 - Completed

June/July - Completed

July 2014 - Completed

Policy Advocacy and Research needs assessment: Review of

existing research on regional integration, review of institutions active in

this area including potential partners. Review of policy advocacy

support. Identification of gaps, opportunities and mechanisms for

linking research to policy advocacy mechanisms and policy

development within the EAC.

ToR – July

Aug-Nov

Report: Dec

Concept Note and Annexes submitted to Programme Committee,

Public Consultation

August 2014

Programme Committee Meeting 4 September

Formal feedback to embassies September 2014

ToR for programme design based on issues highlighted in concept

note, feedback from Programme Committee and public consultation.

Tender

Design Activities

September

October

Nov 2014-Jan 2015

Consultation/workshop with HQ/embassies – to review strategic

focus and options for Outcome 3 (development of regional value chains

and advisory support)

November 2014

Draft programme document finalised Feb 2015

Prepare ToR for appraisal Jan/Feb 2015

Consultation on the Programme Document March-April 2015

Appraisal (Technical Advisory Service) May 2015

Post Appraisal Video Conference June 2015

External Grant Committee September 2015.

Programme Start November 2015

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Annex 2 - Results Framework

Thematic Programme

Regional Economic Integration Support Programme in East Africa II (REISP II)

Thematic Programme Objective

Development Objective: Increase in EAC trade which contributes to inclusive growth and poverty reduction. Immediate objective: Improved EAC integration which enhances trade and competitiveness.

Impact Indicator Development Objective Indicators: 1) Real average GDP growth per annum in the EAC region reaches at

least 7-8% 2) GDP per capita increases in line with EAC targets (EAC

Industrialisation Strategy) 3) Reduction in EAC poverty ratio (share of population living below

USD 1.25 per day - to be aligned with targets of the EAC secretariat). Immediate Objective Indicators:

1) Consolidation of the Customs Union and full implementation of the Common Market Protocol (EAC Partnership Fund)

2) 5% increase in the total value of exports from the EAC region (TMEA)

3) 25% increase in the share of intra-regional exports compared with total exports in the region (TMEA)

4) Growth in selected sectors/value chains benefitting from regional integration (e.g. value of trade, employment and income).

Engagement Title Effective Institutions, Policy and Regulations to drive sustainable EAC

regional integration

Outcome indicator Consolidation of the Customs Union and full implementation of the Common

Market Protocol

Baseline Year 2014 Baseline established from the EAC Common Market Scorecard and the EAC Common Market Framework.

Target Year 2018 Improved implementation and compliance based on the EAC Common Market Scorecard. Specific target to be agreed with the EAC Secretariat.

Output indicator Enhanced EAC capacity to implement the 5th Development Strategy

Baseline Year 2014 Baseline set for budget, staffing levels, institutional capability based on institutional review

Target Year 2018 Positive progress on EAC institutional reforms including enhanced budget provision, growth in established competent EAC staff and other key actions agreed by the Council in 2014

Output indicator Harmonisation and implementation of new policies, regulations, market

instruments and standards

Baseline Year 2014 Baseline established using EAC Common Market Scorecard, the EAC common market framework and tracked through the East African Monitoring System (EAMS)

Target Year 2018 Target number of regulations for both Customs Union and Common Market Protocol will be agreed during design phase with

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a strong focus on reform in the service sector

Output indicator Improved systems for mainstreaming impact analysis into EAC policy making

Baseline Year 2014 Agree with EAC how impact analysis can be mainstreamed more effectively. This will set the baseline and target areas for action. Light touch institutional reviews of potential partners (most likely the EAC Secretariat) will recommend whether or how to improve research capacity and development of evidence to support impact analysis.

Target Year 2018 Impact analysis effectively mainstreamed into development and delivery of the 5th EAC Development Strategy Institutional capability of key partners enhanced based on institutional reviews (before and after). Enhanced body of research and data available to policy makers

Output indicator Research on regional economic integration effectively influences the

EACs approach to policy and shapes EAC priorities

Baseline Year 2014 Establish baseline on % of Research capacities of relevance for impacting policy and decision making.

Target Year 2018 Increase in the proportion of research that influence EAC policy and practice

Engagement Title Improved environment for trade and reduced cost of trade

Outcome indicator WB Doing Business indicators for EAC countries on trading across-borders

25% increase in the share of intra-regional exports compared with total exports in the region (TMEA)

Baseline Year 2014 Establish baselines from WB Doing Business and TMEA

Target Year 2018 All EAC countries have an improved on trading across-borders

Output indicator Reduction in non-tariff barriers

Baseline Year 14 Set baseline for resolution of non-tariff barriers with EAC/TMEA during design

Target Year 18 Effective implementation of the NTB Bill resulting in elimination of Non-Tariff Barriers

Output indicator Time savings resulting from better processes, systems at borders, lower regulatory costs and improvements in infrastructure

Baseline Year 14 Agree baseline to be used during design phase with EAC/TMEA

Target Year 18 30% decrease in the average time a truck takes to cross selected borders 15% reduction in average time to import or export a container from Mombasa or Dar es Salaam to Burundi or Rwanda

Output indicator Regional infrastructure projects agreed and financing in place

Baseline Year 2014

Target Year 2018 Regional infrastructure projects worth USD 2.5 billion have been developed and financed as a result of Denmark’s technical support

Engagement Title Development of viable regional value chains involving SMES

Outcome indicator Value of goods/services exported/imported regionally within target markets

Baseline Year 2014 To be agreed with selected partner organisations

Target Year 2018

Output indicator Increased investment, employment and turnover within the target markets

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Number of small holders engaged in value chains Finance leveraged into companies/value chains

Baseline Year 2014 To be agreed with selected partners

Target Year 2018

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Annex 3- Risk Management Matrix

Risk summary for grant proposal

Programmatic and Institutional Risks Risk factor Likelihood Impact Risk response Combined

residual risk

Programmatic Risks

EAC lacks mandate, capacity and finance to effectively coordinate and drive regional integration

Likely Significant Provide sufficient financial support to build and strengthen capacity. Track and monitor progress on institutional reform and modify action accordingly. Maintain good contact with the Secretary General EAC.

Significant

Competing priorities and weak capacity in Partner States means that reforms are not implemented effectively at the national level

Likely Significant RESIP II will help build capacity of key national institutions and strengthen monitoring systems (through TMEA). REISP II will identify synergies with country programmes on capacity development. Design will explore if more needs to be done in this area.

Significant

Private sector response to opportunities created by regional integration is weak. The impact of reforms on growth and trade is muted

Unlikely Major REISP II will provide support to enhance understanding of impact and to help stimulate a private sector response. RESIP II will explore synergies with country programmes to enhance competitiveness and help promote private sector development.

Significant

Institutional Risks

Financial mismanagement of funds by partner organisations

Likely Major Only provide budget support to the EAC if a robust fiduciary analysis is carried out to guide support to improve public financial management support. Fiduciary capacity development as part of institutional support.

Significant

Contextual Risks

Context:

REISP II

File No:

Risk factor

Likelihood Background to assessment

Impact Background to assessment

Risk response if applicable / potential effect on development cooperation in context

1 Political commitment to regional integration diminishes. This slows reform and the integration process.

Unlikely Although there are differences in view on the pace of regional integration there is a general political consensus that integration is the right way for the EAC to evolve economically. There is less consensus on political union

Significant If political commitment is not sustained it will be very difficult to make progress as Partner States will not be willing to implement the necessary reforms. It would be very difficult to achieve impact under this scenario.

If political commitment were to deteriorate then a point may be reached where support should be scaled back. The Tanzanian Ambassador will maintain regular policy dialogue with the Secretary General in the EAC and regional Ambassadors will coordinate and share information across Partner States. The REISP II Technical Assistance will provide regular political updates with a focus on the implications for integration. This acts as an early warning system.

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2 Security situation deteriorates substantially due to elections or conflict linked to having difficult neighbours (DRC, South Sudan etc). This impacts on investor confidence and disrupts trade.

Unlikely There is a risk that elections will bring unrest as this has happened in Kenya and Tanzania in the past and to a lesser extent Uganda. There is a risk that spillover from conflict in neighbouring countries impacts on the EAC. This could affect trade and development particularly in border regions.

Minor This needs to be watched but pockets of security problems are unlikely to undermine the integration process. If there were major disruption due to an election in one country then this could have a more significant impact. To date, political stability has been regarded as an attractive feature of the EAC.

As above there is a need to monitor political developments in each EAC country and to track how regional conflict is impacting on trade. Good political analysis delivered through the REISP II Technical Assistance and regular communication with Embassies should be sufficient to track this risk.

3 External

economic shocks (global economic environment, commodity shocks etc) damage growth and distract policy makers from the regional integration agenda

Likely The global crisis in 2008 followed by commodity shocks impacted negatively on EAC economies. However, all economies sustained growth but at lower rates. There is a risk this will happen again given these economies are still not resilient, however, growth is now increasing and the global economy is recovering.

Minor The main impact of shocks is that it distracts decision makers from the process of integration. In many ways the recent crisis strengthened the focus on regional integration as a way of building resilience in the face of shocks.

REISP II supports measures to support economic development. It addresses factors which will improve competitiveness (transport costs) and make EAC economies more resilient. REISP II will also explore how it can contribute to enhancing regional trade in agriculture as this would enhance food security and improve flexibility in the face of commodity price shocks. Economic developments will be tracked through the REISP II Technical Assistance and within Embassies. This will also feature in coordination meetings and reports to Ambassadors so issues can be reviewed and discussed at an early stage.

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4 Economic Development triggered by Regional Integration does not result in inclusive growth

Unlikely It is possible that regional integration will generate growth that does not reach the poorest. A great deal depends on Partner States own economic development strategies as well as the approach in the EAC to mitigating the negative impacts of integration

Significant If this materialises then it will impact on higher level goals relating to inclusive growth and poverty reduction. It will limit the short to medium term development impact of REISP II support. There are difficult tradeoffs between opening markets, enhancing trade and managing the downside risks associated with growing inequality.

REISP II will support more robust impact analysis and will work with the EAC and other partners to mainstream this into policy and strategy. Action is also required at the country level to enhance competitiveness and address inequality. REISP II promotes synergy with country programmes and will encourage dialogue on how regional and country level support can improve the business environment and encourage broad based growth. Agricultural reforms are key. REISP II will explore providing support to enhance regional trade in agriculture - this will aim to complement programmes at the national level.

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Programmatic and Institutional Risks Title:

REISP II

File No:

Programmatic Risks

Risk factor

Likelihood Background to assessment of likelihood

Impact Background to assessment to potential impact

Risk response

Combined residual risk

P1 EAC lacks mandate, capacity and finance to effectively coordinate and drive regional integration

Likely This is a significant risk given the EAC mandate is still evolving, it is underfunded and has limited capacity. However, the situation is improving and an institutional review has proposed measures to address these problems.

Significant Significant if no action is taken as this will undermine the EAC's ability to drive and enforce the regional integration process. However, whilst there is short term risk there are encouraging signs that the situation will improve over the medium term.

Provide sufficient financial support to build and strengthen capacity. Track and monitor progress on institutional reform and modify action accordingly. Maintain good contact with the Secretary General EAC.

Significant

P2 Competing

priorities and weak capacity in Partner States means that reforms are not implemented effectively at the national level

Likely Implementation at the national level is a real risk as domestic reform agendas are crowded and key institutions are often weak.

Significant The impact is significant as it slows implementation of EAC reforms at the national level which limits impact

RESIP II will help build capacity of key national institutions and strengthen monitoring systems (through TMEA). REISP II will identify synergies with country programmes on capacity development. Design will explore if more needs to be done in this area.

Significant

]

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P3 Private sector response to opportunities created by regional integration is weak. The impact of reforms on growth and trade is muted

Unlikely There is clear evidence that intra-regional trade is increasing and that the private sector is looking to access new markets. However, this is a slow process and many businesses, particularly SME's remain unaware of the potential benefits of regional integration.

Major If there is no private sector and trade response then support to regional integration will not generate the expected returns in terms of growth and poverty reduction

REISP II will provide support to enhance understanding of impact and to help stimulate a private sector response. RESIP II will explore synergies with country programmes to enhance competitiveness and help promote private sector development.

Significant

s

P4 Weak coordination across regional integration programmes limits impact and undermines value for money

Unlikely There is a risk of donors duplicating support and overloading partner organisations. This will undermine the impact of support.

Minor Regional integration is not a crowded field. There is scope for donors to provide more and not undermine one another. Many donors deliver support through joint mechanisms.

REISP II will provide most of its support through basket funds or established institutions which are specialist in their field and deliver support provided by a range of different donors. This means that Danida is not adding to transaction costs and is supporting broad based reform agendas which are more likely to have impact and achieve results.

Insignificant

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P5 Financial mismanagement of funds by partner organisations / beneficiaries

Likely All partners identified for support will need to demonstrate that they have sound financial systems. There is a heightened risk if budget support is provided to the EAC where there are concerns about fiduciary risk. These are presented more fully in the budget support assessment annex.

Major The direct impact on the programme of some element of financial mismanagement is likely to be small. However, if this resulted in termination of support then the impact could be significant if problems in one area resulted in termination of all elements of support.

There is a risk of financial mismanagement if budget support is provided to the EAC. Although there has been significant investments in improving systems there has not been a formal fiduciary assessment for some time. To mitigate the risk more substantially this would need to be carried out in the course of 2014/15 and capacity development support enhanced to address remaining risks. All other partners will need to be similarly assessed during the design phase but initial assessments suggest all other proposed partners have sound financial systems in place. The level of risk should be re-evaluated following the design phase.

Significant

Annex 4 - Assessment According to the Budget Support Principles

Criterion Comments

1. Fundamental values Fundamental values, encompassing a minimum respect for human rights, pluralistic democracy and rule of law, including independence of the judiciary.

The Community’s constitutive document – the 1999 Treaty for the Establishment of the East African Community (EAC Treaty) details the objectives of the Community as including attainment of sustainable growth and equitable economic development of the EAC Partner States. Article 3 of the Treaty provides that membership in the Community requires adherence to universally acceptable principles of good governance, democracy, the rule of law, observance of human rights and social justice. Article 6 (d) of the Treaty obligates Partner States to achieve, ‘good governance including adherence to the principles of democracy, the rule of law, accountability, transparency, social justice, equal opportunities, gender equality as well as the recognition, promotion, and production of human and people’s rights in accordance with the provisions of the African Charter on Human and People’s Rights’. Furthermore, the Partner States have undertaken to cooperate in social welfare matters, including in the development and adoption of a common approach towards the disadvantaged and marginalised groups, including children, the youth, the elderly and persons with disabilities through rehabilitation and provision of, among others, foster homes, health care education and training (Art.120). To operationalise these provisions, the Community has developed various legal instruments and initiatives which seek to deepen application of governance and human rights principles within the region. These include:

EAC Human Rights Bill (2012), which was passed by the East African Legislative Assembly (EALA) in April 2012. It awaits assent by the EAC Heads of State. The Bill, which went through several public hearing before it was passed, seeks to give effect to the provisions of the Treaty and consolidates the various principles on human and people’s rights found in the Charter on Human Rights and various conventions and agreements including the African Charter on Human and Peoples’ Right as well as the UN Charter on Human and Peoples Rights (Banjul Charter). The Bill further provides an institutional framework for research in the area of human rights and will lead to harmonization of applicable principles and rules across the EAC Partner States. The Bill further enables the formation of an East African Community Human Rights Commission (EACHRC), whose mandate is to ensure the protection of human and peoples’ rights in the EAC. The EAC Bill is said to complement gaps in the rights enshrined in Partner States national constitutions, which are said not to have incorporated all fundamental rights and freedoms. Further, the Bill is said to go beyond the Banjul Charter by inserting other new rights and freedoms relating to youth, minority, privacy, housing, food, water and fair administrative action.

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EAC Good Governance Protocol (2012)– currently in draft form, awaiting Council adoption, the Protocol has 7 key pillars namely Constitutionalism; Rule of Law and Access to Justice; Protection of Human Rights and Promotion of Equal Opportunities; Democracy and Democratization process; Combating Corruption and enhancing Ethics and Integrity; Separation of Powers; Economic Governance; and Private Sector Development and Corporate Governance. The Protocol once adopted will evolve a dispensation that cements the recognition of good governance as a prerequisite for successful regional integration, peace and stability. In addition, the EAC has been hosting an annual regional Conference on Governance, now in its 5

th year. The

Conference deals with a range of issues, including corruption, fair and transparent elections human rights, among others.

To enhance pluralistic democracy, the 4th EAC Development Strategy has identified harmonisation of democratic policies, processes and practices; election observation and evaluation; and support to National Electoral Commissions as key strategic interventions. Among others, the EAC has since 2010 fielded Electoral Observer Missions (EOM), aimed at strengthening political accountability and providing an opportunity for EAC Partner States to document best practices and learn from each other with the view of improving their conduct in their own elections. Thus far, the EAC has deployed EOMs to Burundi in 2010, Rwanda in 2010, Tanzania in 2010; referendum in Kenya in 2010; Uganda in 2011 and; Kenya in 2013 (which Denmark supported through the Kenya Country programme).

In terms of independent judiciary, each of the Partner States has a judiciary that are relatively independent of the legislative and executive arms of the government. At the Community level, the EAC established the East African Court of Justice (EACJ) as one of the organs of the Community. Amongst its roles is to ensure adherence to law in the interpretation of the EAC Treaty; to preside over trade and investment issues disputes as well as matters associated with the monetary union.

2. Solid Regional policies and plans for poverty reduction, good governance and sustainable development; including assessment of relevance, progress and political will as well as public sector capacity to implement policy and reforms; policy framework for monitoring

The objectives of the Community is to widen and deepen cooperation among the EAC Partner States in political, economic, social, cultural fields, research and technology, defences, security and legal and judicial affairs in order to enhance accelerated harmonious, balanced development and sustained expansion of economic activities, in order to raise the standards of living and improve the quality of life of its population (Art. 5 (1-3)). In pursuit of these objectives, the EAC aims to move towards political federation through a four-stage process, beginning with a Customs Union (focusing on movement of goods), progressing to a Common Market (extending to free movement of services, labour, capital, etc.) and then monetary union, with the ultimate goals of establishing a federated state in East Africa. Protocols have been signed to establish both the EAC Customs Union (2004) and EAC Common Market (2010) and EAC Monetary Union (2013). The EAC is currently in the process of implementing its 4th EAC Development Strategy (2011/12-2015/16). The second

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progress of public policies should also be assessed; the partnership between the development partners and the receiving country and experiences from cooperation up to date.

EAC Development Strategy (2001-2005) prioritised the establishment of the Customs Union while the third Strategy (2006-2010) focused on the introduction of the Common Market. The fourth focuses on implementation of the EAC Common Market and establishment of the EAC Monetary Union. However, a number of strategic interventions are also included to ensure the region benefits from the integration commitments made (namely, greater liberalisation) – for instance, developing regional infrastructure (road, rail, energy, ICT, air and maritime transport), developing and strengthening the productive sectors (agriculture, industry, tourism), and harmonising and strengthening education and social services sectors. In addition to the development strategies, the EAC has both an EAC Industrialisation Policy and EAC Industrialisation Strategy (spanning 2012 to 2032). The main objective of both is “structural transformation of the manufacturing sector through value addition and product diversification based on comparative and competitive advantages of the region”. The policy identifies many of the challenges facing the region and aims to build a more diversified regional economic structure in order to reduce vulnerability to shocks and ensure more rapid development. The policy outlines 14 strategic measures that will achieve this including promoting regional strategic industries; strengthening the business and regulatory climate; enhancing access to finance; facilitating the development of micro, small and medium enterprises; developing support infrastructure along identified development corridors; promoting sustainable industrialisation; and increasing access to markets. The strategy goes on to elaborate key interventions necessary for effective implementation of the policy. It is underpinned by national industrialisation policies and strategies, and draws lessons from best practices. Six strategic sectors in which the region has potential comparative advantage are identified: iron-ore and other mineral processing; fertilisers and agrochemicals; pharmaceuticals; petro-chemicals and gas processing; agro-processing; and energy and bio-fuels. The strategy outlines several interventions through which the region will realise enhanced competitiveness, economic transformation and higher quality of life for East African citizens. Implementation of both the policy and strategy is guided by a set of principles relating to issues such as: equitable industrialisation; strengthening and exploiting policy synergies; promotion of targeted industry value chains; and pursuing industrialisation based on market principles and on comparative and competitive advantage. To enhance sustainable development, the EAC Treaty (Art 112-4) obligates Partner States to cooperate on environment and natural resource management as prerequisites for sustainable development. The EAC has operationalised this through various policies and directives that are being implemented, including:

EAC Protocol on Environment and Natural Resources Management (2006), which seeks to promote sustainable growth and development of the Partner States through sustainable use and management of the environment and natural resources; foster closer cooperation for sustainable and coordinated management, conservation, protection and utilization of the environment and natural resources; promote shared responsibility and cooperation and promote development and harmonization of policies, laws and strategies for environment; and natural resources management to support sustainable development.

EAC Climate Change Policy, Strategy and Master Plan (2010/11), which seeks to provide a comprehensive,

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effective and integrated framework for responding to regional climate change adaptation and mitigation in line with the EAC Protocol on Environment and Natural Resources Management and with international climate change agreements. Further, the three policies seek to strengthen regional cooperation through responding to climate change as a shared challenge; to enhance the mitigation potential of Partner States in the energy, infrastructure, agriculture and forestry sectors; to streamline and harmonise existing and on-going trans-boundary mitigation and adaptation projects or activities; among others.

EAC Summit Declaration on Climate Change and Food Security (2011), which among others, reiterated the commitment and the political support to address climate change issues as a region and ensure food security by accelerating the marketing and trade of strategic food commodities and products from all sources including crops, livestock, fishery and marine resources and forestry systems; and develop critical infrastructure especially in the rural areas to facilitate production, handling, storage, bulking and transportation of strategic food products across the region at minimal marketing cost.

EAC Disaster Risk Reduction and Management Strategy (2012-16), which provides a framework for collaboration and partnership for the EAC Partner States in Disaster Risk Reduction and Management, with the aim of enhancing the capacity of EAC to effectively prevent, prepare and respond to disasters both nationally and regionally. Among others, it seeks to promote preventive actions based on analysis of vulnerability, risk evaluations, and situational assessments before the disasters occur and to put early warning systems in place. The Strategy is modelled in line with the Hyogo Framework for Action (HFA) 2005-2015, the Africa Regional Strategy for Disaster Risk Reduction and those successor documents.

Other provisions on sustainable development are contained in the 4th Development Strategy and the EAC Common Market Protocol.

In terms of monitoring progress of policies, the EAC has a variety of Monitoring and Evaluation (M & E) systems in place, which include:

A quarterly internal M&E of the Annual Operational Plan’s implementation, which is reported bi-annually to the Sectoral Council of Ministers for EAC Affairs and Planning (SCMEACP) for information, advice, and corrective measures;

A semi-annual monitoring of implementation of Council and Summit decisions, relying on input fed by the Partner States via East African Monitoring System (EAMS); an on-line system that has been installed and is gradually being implemented in each of the Ministries in charge of EAC Affairs with the support of the GIZ and TMEA;

National Implementation Committees (NICs) set up in each Partner State to monitor the implementation of the Common Market Protocol (CMP) – these have been holding national and regional quarterly meetings since 2012;

Operational Plan M&E, and a system of “Performance Contracting” at individual staff level;

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Bi-annual reporting of implementation of EAC decisions to the Summit and the Council, including incidences of non-compliance. This was a directive issued by the Summit during its November 2013 meeting. This in effect raises the level of engagement and turns implementation into a priority legislative agenda, thereby allowing the Heads of State to hold each other accountable / peer review each other.

It is difficult to assess the efficacy of these systems since they are in their initial stages of operation/ implementation, with some still being installed. However, these measures can be seen as EAC’s commitment to achieving results.

However, more generally, the capacity of the EAC to implement the full range of policies and measures included under the 4

th Development Strategy is limited. The EAC lacks resources and high quality staff to deliver on all its goals and policies.

An institutional review carried out recently will be discussed by the Council in August 2014. The outcome of this discussion will be critical in terms of determining the future evolution of the EAC and ensuring it is fit for purpose. A key focus of REISP II will be on helping to develop core capacity and competence within the EAC with a focus on the Secretariat.

In terms of partnerships, the Community has had a long standing cooperation with various development partners (DPs), Denmark included. Currently, the EAC Secretariat has 23 donors contributing to its annual budget, with most of the funds going to support projects and programmes. A separate Annex on current EAC DPs is available.

To the best of our assessment, the EAC has maintained cordial relations with all its DPs and thus far, no DP has withdrawn support from the EAC for any untoward reasons like misappropriation of funds. Furthermore, the EAC acknowledges that the current donor dependency for programmes and projects is neither desirable nor sustainable; and is in the process of identifying alternative financing mechanisms from the Partner States to enable them cater for the bulk of the EAC budget.

3. Stable macro-economic framework. Main macroeconomic aggregates identified including potential sources of instability; macroeconomic and fiscal policies are in place and the quality of these, vulnerability to external shocks and efforts to strengthen macroeconomic resilience; efforts to strengthen domestic revenue mobilisation.

The East Africa region has since 2005 been growing faster on average than the rest of sub-Saharan Africa, with real GDP averaging 5.16 in 2012. Growth is predicted to rise, fuelled by booms in construction, services, telecommunications, and consumption coupled with decreased cost of doing business. The table below highlights the main macroeconomic aggregates for the EAC for 2012 and 2013 (estimate) and 2014 (projected):

Burundi Kenya Rwanda Tanzania Uganda

12 13 14 12 13 14 12 13 14 12 13 14 12 13 14

Real GDP 4.2 4.6 5.2 4.6 4.9 5.7 7.3 4.6 7.0 6.9 7.0 7.2 2.8 5.2 6.6

Real GDP per Capita 1 1.5 2.1 1.9 2.2 3.1 5.2 3.3 4.7 3.9 3.9 4.2 -0.6 1.9 3.2

CPI Inflation 7.8 5.4 9.4 5.7 5.0 6.2 4.2 4.4 16 7.9 5.8 14.6 5.5 4.7

Budget Bal % of GDP

-9.1 -2.0 -3.6 -

.4.7 -4.8 -3.8 -1.2 -5.1 -4.8 -4.6 -5.8 -5.2 -3.0 -2.6 -4.6

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Current A/ct bal % of GDP -

15.3 -

14.6 -

15.0 -

10.4 -8.8 -8.2 -

11.4 -

10.2 -

10.7 -

14.2 -

13.7 -

15.0 -9.0 -5.9 -4.4

Tax revenue as % of GDP (excl. grants) 14.1 13.7 13.6 20.1 20.5 20.1 13.6 14.2 15.1 14.4 14.6 14.1 13.1 13.4 12

Source: African Economic Outlook; AfDB, OECD, UNDP 2014 In terms of domestic revenue mobilisation, all Partner States have in place reforms aimed at broadening the tax base and increasing the efficiency of tax collection. In addition, through the Resource Mobilisation Strategy, the EAC engages regularly with potential funders such as DPs. At the regional level, the Partner States are expected, as a prerequisite for attainment of the monetary union/ single currency, to harmonise and coordinate their fiscal policies to support long-term growth. Among others, they are expected to phase out national central bank lending and they must fulfil the macroeconomic convergence criteria and maintain them for at least three consecutive years prior to attainment of the single currency. The indicative convergence criteria are: a ceiling on core inflation of 5%; a ceiling on the fiscal deficit, excluding grants of 6% of Gross Domestic Product (GDP); and a tax to GDP ratio of 25%. The Protocol has set performance convergence criteria of a ceiling on headline inflation of 8%; a ceiling on fiscal deficit, including grants of 3% of GDP; a ceiling on gross public debt of 50% of GDP in Net Present Value terms; and reserve cover of 4.5 months of imports. This is expected to enhance fiscal discipline across the five EAC Partner States. Partner States begun in 2013 to harmonise the compilation practices for key macroeconomic indicators. In terms of vulnerability to external shocks, the EAC region remains vulnerable to various exogenous shocks including, but not limited to world fuel prices (as the region is net importer); vagaries of weather (given the importance of agriculture to GDP, employment, food prices); and insecurity, both internally (fragile democracies) and externally from neighbours such as South Sudan, Somali and Democratic Republic of Congo.

4. Public financial management Expert appraisal of quality and capacity in public finance management, including credibility of the budget, anti-corruption measures, comprehensiveness and transparency, policy-based budgeting,

In 2006 and 2008, the European Commission (EC) carried out the Auditors Institutional Assessment and the EAC Institutional Assessment respectively. This was later followed by the Fiduciary Risk Assessment (FRA) that was carried out by the UK Department for International Development (DFID) in 2008. The three assessments identified a number of areas of weakness which required strengthening of financial systems and processes. The Capacity Development Action Plan (CDAP) was then collaboratively developed by the EAC and DPs in June 2009 to address these challenges. The CDAP, whose implementation begun in July 2010, sought to address and strengthen the institutional capacity of the EAC Secretariat in the following areas - Internal Audit, Procurement, Financial Systems including Sun Systems, Human Resources Management, Planning, and Functional Review. Further, it sought to ensure that the EAC Secretariat financial management systems are fully integrated and are compliant with current international best practices including the International Public Accounting Standards (IPSAS) and Government Financial Statistics (GFS) and are strong enough to

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predictability and control in budget execution, accounting, recording and reporting and external scrutiny and audit.

ensure EAC’s accountability and efficiency in managing its resources effectively and to build the confidence of the EAC’s Partner States and DPs. In addition, it sought to strengthen the capacity of the EAC staff working on the different components by providing practical hands-on training to improve their knowledge, skills and performance. Various financial management and control functions have thus been improved and or enhanced as part of the CDAP programme. These include:

The internal audit function, where improvements were been made in several areas including formulation of an Internal Audit Charter, Audit and Risk Committee Charter; Internal Audit Manual and Risk Management Framework, Policy and Strategy; development of a risk-based Internal Audit Plan for 2012/13; establishment of the Audit and Risk Committee, complete with the procedures for the committee; and the generation of an EAC Risk Profile, development of a risk management framework and formulation of the Internal Controls Framework.

The procurement function, where a Procurement Manual has been approved, but the rules and regulations require approval by Council; standard bidding documents, templates and forms have been developed; procurement and tender committees are in place and operational; the procurement system is integrated with financial Sun Systems (with some procurement processes being automated and integrated in sun systems such as ticketing and LPOs); procurement Regulations, which are part of the Financial Rules and Regulations, have also been revised and updated; and the Complaints Review Manual has been finalised.

The financial management function, under which the following improvements have been made:

Integration of the Financial Management Information Systems (FMIS) including designing a new Chart of Accounts (COA) that is compliant to the International Public Accounting Standards (IPSAS) and the World Bank recommended Government Financial Statistics (GFS);

Revision and updating of the Financial Rules and Regulations including regulations relating to Procurement;

Development of a Financial Policies and Procedures Manual;

Reconfiguring the Sun System based on the IPSAS & GFS Compliant Chart of Accounts;

Standardizing the financial reporting systems;

Strengthening the reporting package (Vision) and rolling it out across EAC Directorates;

Upgrade of the accounting system - the EAC started using Sun Systems Accounting software beginning with Sun systems version 5.2.2, and then upgrading to version 5.3.1, to the current version in use - 5.4.1 that has been reconfigured to support the newly financial management integrated system;

The Sun Systems TAs cleaned up the system, developed user manual for the different modules in sun systems and trained accountants and accounts assistants in the Directorate of Finance in Sun Systems related processes and administration;

The audit management software with CAATs has already been procured and implemented; and

The budget allocation software to support the MTEF budget has also been procured, installed and is being used.

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In the absence of recent formal assessment, it is difficult to comment whether these measures have made the financial systems and controls effective and credible enough. The Secretariat is however expected to undergo a FRA in the last half of 2014, which will, among others, provide the necessary assessment. This will be an essential stepping stone if Denmark decides to provide core funding to the EAC. External audit of the EAC is carried out annually by the EAC Audit Commission (which comprises the 5 Auditors Generals of the Partner States). It is an independent Commission that reports to the Council of Ministers, who in turn cause such reports to be laid before the Assembly within six months of receipt, for debate and for such other consultation or action as the Assembly may deem necessary. The role of the Commission is to ensure that the EAC financial statements comply with international accounting standards and the set financial procedures and regulations. In terms of anti-corruption measures, all EAC partner States have ratified the UN Convention against Corruption (UNCAC) and the African Union Convention on Preventing and Combating Corruption; and have established anti-corruption/ombudsman agencies. At the regional level, commitment to enhancing anti-corruption measures can be seen in the decision by the EAC Council of Ministers to negotiate the Protocol on Preventing and Combating Corruption, whose objective is, among others, to promote and strengthen the development of mechanisms needed to prevent, and combat corruption both nationally and regionally; to promote, facilitate and regulate cooperation among the Partner States to ensure the efficiency and effectiveness of these measures; and to develop and harmonise laws, policies and strategies relating to prevention, and combating corruption. The Protocol provides for preventive measures, enforcement, acts of corruption, asset recovery; and forfeiture, jurisdiction, fair trial and transfer of criminal proceedings, financial intelligence units and development and harmonization of policies and national legislation. The draft Protocol is undergoing stakeholders’ consultations at both national and regional levels.

5. Transparency and oversight of the budget Disclosure of all relevant fiscal information in a timely and systematic manner. Scrutiny by parliament, auditors, local authorities, civil society organisations and media.

The EAC has a budgeting process which begins with a pre-budget conference where the key stakeholders (Secretariat and representatives from the Partner States) meet and agree on the priorities for a given financial year in line with the current medium-term Development Strategy. After the pre-budget conference, a draft budget is prepared and submitted to the Council of Ministers for broad accent. The Finance and Administration (F & A) Committee then reviews it in details and resubmit it to the Council for onward submission to EALA, the legislative organ of the Community. The Budget is debated by EALA and an appropriation bill is passed. EALA in addition carries out a post audit review and scrutiny of the expenditure incurred by the EAC Secretariat, the Organs and Institutions of the sums appropriated in annual budgets; a post audit review and scrutiny of the expenditure on the basis of an annual audit report of the Audit Commission; and a post audit function that encompasses the need to monitor the implementation of the budget in a manner similar to internal audit, as mandated by the EAC Treaty. Civil Society and the Media have no oversight of the budget, though they may comment on it and it is made available to them.

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The Danish Mission’s conclusion – is it assessed to be feasible to provide budget support and if not which major obstacles have been identified.

An increasing body of relevant legislative framework is evolving at EAC level. In terms of providing a stable macro-economic framework, the EAC depend to a large extent on the institutions in the five member countries. In November 2013 the member states signed a Monetary Union protocol. Partner States begun in 2013 to harmonise and coordinate their fiscal policies to support long-term growth. Major issues remain outstanding. A main concern relates to the financial management capacity of EAC. During the formulation of REISP I a number of critical fiduciary risks were identified and as a consequence, it was decided not to provide core funding. Since then the EAC secretariat has carried out a number of reforms to strengthen financial management and control functions. No formal assessment has been made recently and it is difficult to comment whether these measures have made the financial systems and controls effective and credible enough. The EAC Secretariat is however expected to undergo a Fiduciary Risk Assessment in the last half of 2014, which will, among others, provide the necessary assessment. This will be an essential stepping stone if Denmark decides to provide core funding to the EAC.

Annex 5 - Environmental and Climate Screening Note

Basic Information

Programme title: Regional Economic Integration Support Programme in East Africa, Phase 2 (REISP II)

Country/region: East African Community (EAC)

Estimated allocation: 400 Million DKK

Brief description of the Programme support:

The proposed second phase of Regional Economic Integration Support Programme in East Africa (REISP II) will support a sustainable EAC integration process which enhances trade and competiveness.

Outcome 1 – Building Effective Institutions, Policy and Regulations to drive Sustainable Regional Integration

Outcome 2 – Improved the environment for trade and reducing the cost of trading across-borders

Outcome 3 – Development of viable regional value chains involving SMEs

Dates (expected): Programme committee: 4 September 2014 Appraisal: May 2015

Climate change screening

Assess the status of policies and strategies to respond to climate change in the country and sector. If the issue is inadequately dealt with (indicated by a tick in the “no” box), please add comments and assess the potential impact on the program (see also “next steps” section, below).

Issue: Yes No Comments and further work to be done:

1. Are the processes and impacts of climate change documented (e.g. in national communications to the UNFCCC)?

Not at regional level.

2. Is there a national climate change policy or strategy, including estimates of the economic costs of adaptation?

EAC Climate Change Policy, Strategy, and Master Plan (2011-2031)

EAC Protocol on Environment and Natural Resources

3. Have nationally appropriate mitigation actions (NAMAs) and or Low Carbon Development Plans been identified (e.g. targets for renewable energy production)?

EAC Climate Change Master Plan (2011-2031)

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4. Has a national adaptation programme of action (NAPA) been approved identifying key sectors where adaptation is required?

All EAC partner states have adopted NAPAs and the EAC Climate Change Master Plan (2011-2031) commits the EAC to support partner states with their implementation

5. Are there effective and operational meteorological and disaster preparedness organizations?

Meteorological and disaster preparedness organizations exists in each EAC partner state but unclear how effective and operational these are

Summarize the overall assessment of climate change impacts and responses:

EAC has a Protocol on Environment and Natural Resources; a Climate Change Master Plan and Climate Change Policy and an EAC Disaster Risk Reduction and Management Strategy. These documents are geared towards sustainable development across the region. They have been adopted by the Council and are currently being implemented. Support under this programme will aim to mainstream climate change impact into appraisal of partners and projects where relevant (e.g. TMEA already has a strategy for climate change and appraises the climate impact of all projects). There may also be scope to work with the EAC on renewable energy issues as part of our cooperation under outcome areas 1 or 2. Overall the impact of engagement is therefore likely to be positive as it will help to support and embed EAC policy in this area.

Screening of Country Green Growth Framework

Assess the status of policies and strategies for green growth and the procedures for environmental impact assessment in the country and sector. If an issue is inadequately dealt with (indicated by a tick in the “no” box), please add comments and indicate further work to be undertaken (see also “next steps” section, below).

Issue: Yes No Comments and further work to be done:

1. Do national procedures and legislation for Strategic Environmental Assessment (SEA) and Environmental Impact Assessment (EIA) exist?

No legislation exists on regional level but EAC has adopted the “Transboundary Environmental Assessment Guidelines For Shared Ecosystems In East Africa”

2. Are there operational Green Growth Strategies/actions plans and/or National Environmental Action plans?

None that are operational, although there are plans to develop an EAC Regional Renewable

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Energy Master Plan (to support partner states by developing innovative renewable energy policies). Policies and plans do exist within Partner States.

3. Are there regularly updated state of the environment reports and green growth monitoring systems with indicators?

Updates yes, but not on a regularly basis.

4. Is there sufficient institutional and human capacity for green growth and environmental management in the sector concerned?

Capacity within the EAC is limited. A key focus of REISP II is to build EAC institutional capacity.

Summarize the overall impression of the Country Green Growth Framework:

EAC Regional Renewable Energy Master Plan is currently being formulated. EAC also has various ingoing projects on green growth, including a Centre of Excellence on Renewable Energy & Energy Efficiency. However, resources and capacity are limited. Some initial support is being considered under REISP I to work with the EAC on these issues. Depending on how this evolves there may be scope to broader or deepen support under REISP II. Options will be explored more fully during design.

Climate change and Green Growth opportunities and risks of programme

Assess how climate change and environmental opportunities and risks will arise through the programme:

Will the programme ... Oppor-tunity:

Risk: None:

1. ... support green growth initiatives including livelihood improvements and resource efficiency

2. ... support the creation of decent and green jobs?

3. ... contribute to effective management and efficient use of natural resources

4. ... have direct or indirect impact on climate change (e.g. through increasing or reducing emissions of greenhouse gases)?

5. ... have direct or indirect impact on occupational health and safety?

6. ... lead to changes in land and resource tenure and access rights, including the rights of indigenous peoples?

7. ... include activities within or adjacent to protected or environmentally sensitive areas?

8. ... have direct or indirect impact on the resilience of

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communities in the face of natural disasters?

Summarize and explain climate change and green growth opportunities:

Outcome Areas 1 and 2 – Support to regional integration has the potential to lead to more effective management and efficient use of natural resources, as more open trade leads to specialisation and countries producing and exporting goods and services they have comparative advantages in. EAC and TMEA support also provide opportunities to build and embed competence and knowledge in these areas within EAC institutions. Under outcome 2 – support to prepare economic infrastructure projects, there may be possibilities to support investment in sustainable energy. Denmark will ensure best practice is applied.

Outcome Area 3 – regional value chains focused on agriculture. Potential support to partners will help to enhance use of clean, modern and effective farming techniques can lead to significant long-term opportunities with regards to climate change and green growth.

All partners engaged in REISP II will need to demonstrate their approach to environmental issues and green growth.

Summarize and explain climate change and green growth risks:

Outcome Area 2, Output 3 (Enhanced infrastructure investment) – Infrastructure investments can crowd out indigenous or other marginalised people or run an investment too close to sensitive natural areas or communities. There may also be environmental risks associated with some projects. Environmental impact will be incorporated into project appraisal procedures for all economic infrastructure projects. Denmark will also explore how it can support and embed good practice in partner institutions.

Outcome Area 3, Output 2 - regional value chains: there is a risk that projects supported may displace marginalised people or run an investment too close to sensitive natural areas or communities. There is a risk unsound agricultural practices will be used. This risk is low as partners will be selected in part on how robustly they apply good practices in this area and appraise and manage risks.

Identify requirements for undertaking an Environmental Impact Assessment (EIA). Categories are: [ A ] Full EIA required; [ B ] Partial EIA required; [ C ] No EIA required1. Intervention Name Category A, B or C:

1: Outcome Area 2 B – Partial EIA (Full EIA for infrastructure projects)

2: Outcome Area 1 C – No EIA

3: Outcome Area 3 B – Partial EIA

Will national regulations and procedures for EIA be applicable to activities of the programme that have potential environmental impacts? – Yes - No When will the EIA be undertaken?: During design the competence of partners in relation to EIA will be assessed and it will be agreed how systems can be approved if they are not up to standard. Full EIAs will be mainstreamed into project implementation for infrastructure projects supported under outcome 2. The aim is therefore to build capacity and competence in partners and this will be the focus of appraisal during the design phase.

Next Steps – process action plan

Need for further work during the preparation, appraisal and implementation of the programme

1 Category A = Intervention is likely to have adverse environmental impacts that may be sensitive, irreversible, and significant in scale/scope; B = Intervention is likely to have negative impacts, but which are less significant, not as sensitive, numerous, major or diverse; C = The environmental risk of the intervention are of little or no concern.

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arising from the climate change and green growth screening: Suggested activity: Action needed Comments and elaboration:

1. Assessment of green growth and climate change opportunities in sector development plan.

N /A

2. Assessment of capacity for green growth and climate change management in the sector/country.

See 7

3. Prepare ToR for and conduct Country Analytical Work.

N/A

4. Prepare ToR for and conduct SEA(s) of sector policies or plans.

N /A

5. Prepare ToR for and conduct EIA(s) for programme interventions.

See 7

6. Initiate donor harmonisation in the sector on green growth and climate change.

N /A

7. Review partners’ capacity in these areas (climate, green growth, EIA) during design and agree how systems can be strengthened to align with Danida standards. Opportunities will also be explored further on agriculture, renewable energy and capacity building in the EAC. This will be built into ToR for the design phase

Signature of Screening Note

Place and date ……………………………………………………….(name) Danish Mission in

Annex 6 - HRBA/Gender Screening Note

Tool for Human Rights Based Approach (HRBA) and Gender

Equality Screening

Purpose: The HRBA and Gender Screening Note complement the HRBA Guidance Note and the up-coming Gender Equality Strategy and the Gender Equality Toolbox. The purpose of the note is to facilitate and strengthen the application of the Human Rights Based Approach and mainstreaming of gender equality programming related to Danish development cooperation. It can be used as an inspirational checklist by all staff.

The information in the note should be based on the analysis undertaken as part of the preparation of the Country policy paper and should draw on major Human Rights and gender equality analysis relevant for the country such as UPR-processes, reports and documents from OHCHR, EU HR Strategy, CEDAW-reporting as well as relevant analysis prepared by other major donors. The Screening Note should be attached to the country programme concept note, and the questions raised below should be reflected in the country programme document. Appraisal of country programmes will include a specific focus on HRBA and Gender Equality.

Basic info

Title Second Phase of Regional Economic Integration Support Programme in East

Africa (REISP II)

Country/

region

East African Community (EAC)

Budget in DKK

mio.

400

Starting date

and duration

November 2015

Human Rights Based Approach Assess whether a Human Rights (HR) Based Approach has been applied in the programme:

Human Rights Assessment and Standards

Issues: yes no Explain:

Have major HR analysis relevant for the country been consulted (UPR, OHCHR, EU HR Strategy, other relevant donor documents)

X Initial assessment has been carried out, but this issue need to be explored in more detail during the design phase.

Have key international HR standards and/or mechanisms influenced choice and formulation of outcome areas?

X Not directly but it has influenced the approach i.e. enhancing accountability and participation within the EAC policy making process

Where relevant, is application at national level, including major gaps between human rights

X This is difficult to address at the regional level as implementation relates to Human Rights.

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in principle vs. human rights in practice, evaluated and identified?

Design will examine how effectively EAC frameworks governing human rights are adhered to and how compliance is ensured at national level.

Are key recommendations from UPR for the thematic programmes and from any treaty bodies, special procedures, INGOs, HNRIs etc. that require follow up at national level considered?

X Any issues arising will be followed up during design. This is more likely to relate to Partner States. Embassies in Tanzania, Uganda, and Kenya will be consulted on how best to address this.

Are rights-holders identified? X Poor households, including rural smallholder farmers and women-led households/enterprises, enterprises, EAC citizens

Are duty-bearers identified? X EAC institutions, Partner State Governments, TMEA and other implementing partners of Danida

Assess whether Human Rights Principles have been applied in the preparation and in the design of the programme?

Non-discrimination: Are any groups among rights-holders excluded from access and influence in the thematic programme areas identified?

X Poor households that are not part of the formal economy and/or are far away the marketplace might not be able to respond to opportunities created by regional integration and reduction of trade barriers in the EAC. Support under outcome area 3 and research and analysis under outcome area 1 aim to address this.

Are disaggregated data available on most vulnerable groups?

X Some information is available. Preparatory and design work will review existing data and research on the impact of regional integration, this will include a focus on women and vulnerable groups. Denmark will work with partners under REISP II to mainstream analysis and approaches with promote inclusiveness and apply human rights principles. For example: Support under the first regional support programme has helped the EAC to develop various tools, including Gender Mainstreaming Strategy; Gender Mainstreaming Action Plan; Gender Mainstreaming Guidelines and Checklists and Gender Sensitive Outcome Indicators for the 4th EAC Development Strategy 2011-2016. These tools have been adopted by the Council of Ministers and are being implemented. EAC has a Strategic Plan on Gender, Youth, Children, persons with disability, social protection and Community Development (2012-2016). TMEA (Outcome Area 2) has adopted a gender policy, gender action plans have been developed for all programmes/departments, and a Gender Unit has been established.

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TMEA also intends to recruit a Gender Expert in 2014. Partners such as AgDevCo (if supported under Outcome Area 3) has set a target of 50% of beneficiaries being women. This target is incorporated into their ex-ante Impact Assessment Tool as a benchmark target and used when screening investments. Their support is focused specifically on helping small holder farmers’ benefit from trade and growth.

List any key support elements included to promote non-discrimination

X This is embedded in EAC legislation but is not a specific focus of support.

Participation and inclusion: Are barriers for participation, inclusion and empowerment of rights holders identified?

X Poor households’ remoteness to markets and lack of capacity to effectively participate in the marketplace.

List any key support elements included to promote participation and inclusion

X One of the main components under Outcome Area 1 is to ensure that the regional integration is based on strong evidence of impact (e.g. on poor and vulnerable) and is a participatory and all-inclusive process. It will strengthen the evidence base and policy advocacy on regional integration. It aims to enhance ownership and broad-based participation in EAC policy making. Support under outcome 3 also aims to stimulate private sector development and enhance access to the potential business opportunities benefits that trade and regional integration offers to business with a focus on small business, small holder farmers etc.

Transparency: Is the extent to which information is accessible to rights holders including marginalised groups assessed? Where relevant, whether information is available in other than official languages of the country in question should be indicated.

X The policy advocacy and research components under outcome 1 aim to enhance transparency. They will increase availability of information on the impact of regional integration and the private sector. It will also help create opportunities for these issues to be discussed as part of broad based EAC dialogue.

List any key support elements included to promote transparency

X See above. Institution Building and Policy Advocacy and research support aim to promote transparency.

Are key accountability mechanisms in the relevant area – both horizontal and vertical listed?

X With regards to cross-border trade and the compliance of EAC Customs Union and Common Market Protocol (Outcome Area 1 and 2), the EAC Secretariat oversees the compliance/implementation of Partner States. (horizontal accountability). In terms of vertical accountability (through which citizens and civil society can enforce good performance on officials), mechanisms for this exist on the regional level, for example through the East Africa Legislative Assembly (EALA), The East African Business Council (EADB) and the East African Civil Society Organizations’ Forum.

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Are obstacles, e.g. capacity and political-economy incentives that duty-bearers and rights holders face to exercise their obligations and rights listed?

X This will be explored during design. Dialogue mechanisms are in place but still evolving.

List any key support elements included to promote accountability

Output Area 1 aims to ensure that the regional integration process in the EAC is a participatory process that will increase ownership, participation and dialogue on regional integration. It would focus on enhancing the voice of the private sector and social partners. Potential partners and beneficiaries are likely to include representative bodies (such as EADB). Capacity building support to the EAC will also help strengthen bodies such as the East Africa Legislative Assembly (EALA) that enhance EAC accountability.

Results/Indicators

List any indicators designed to monitor the realisation of specific human rights

The focus will be mainstreaming principles and incorporating indicators that are relevant to these. Examples provided below.

List any indicators designed to monitor the integration of the four principles

Key indicators relevant to human rights principles include: a. Enhanced employed under outcome 3 b. Proportion of EABC proposals that are accepted and influence EAC policy and practice c. Mainstreaming if impact analysis into the 5th EAC Development Strategy d. Improved implementation and compliance with EAC Protocols

List any key indicators chosen to track capacity of key partners (both rights holders and duty bearers)

Capacity building will be built into engagement with the EAC, TMEA and other partners. Outcome 3 will track benefits in relation to small businesses, small holder farmers etc. Outcome 1 will also include indicators to demonstrate how capacity linked to policy advocacy and research has improved. Results and indicators will be refined during the design phase.

Dialogue Partners

Define key dialogue partners (duty bearers) to be addressed by the country programme

EAC Secretariat, TMEA and other partners. Partner States will be engaged indirectly through TMEA and country programmes in Uganda, Tanzania and Kenya that link to REISP II

Define key alliance partners, including other likeminded donors, multilateral partners and CSO’s

Other likeminded donors funding the EAC including Canada, DFID, Finland, Germany, Norway and Sweden

State major dilemmas/risks associated with the policy dialogue and proposed mitigation

Key risk is more likely to be associated with developments in one of the Partner States. We

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measures (incl. reference to Framework for Risk Assessment)

will rely on the relevant Embassy and Ambassador to engage with REISP II on how best to handle human rights issues and concerns emerging within Partner States. The Tanzanian Ambassador will lead on agreeing a way forward in terms of implications for wider support.

Gender Screening Tool

Are key challenges and opportunities for gender equality identified?

X Analysis will be developed during design but Denmark will work with all partners to mainstream gender issues as part of programme implementation. Work with partners such as AgDevCo and TMEA will create new opportunities for women in relation to trade and agricultural work – they will therefore promote women’s economic empowerment.

Are reference made to CEDAW-reporting, UPR, and other relevant gender assessments?

X Will be reviewed further during design.

Identify opportunities/constraints for addressing gender equality issues

X See above. These will be refined with partners during the design phase.

Describe key strategic interventions to promote gender equality within each thematic programme?

X These will be developed further during design but we anticipate continuing to support TMEAs work focused on making it easier for informal women traders to cross-borders. AgDevCo (if supported) also targets support on women small holders. Gender issues will continue to be mainstreamed as part of our engagement with the EAC.

Explain how gender specific purposes with be reached, which strategic approach, what activities are planned

X Mainstream gender issues will be built into partnership agreements.

Define expected outputs. X To be reviewed and agreed with partners during the design phase.

Identify gender equality indicators aligned with national targets on gender if possible.

X To be reviewed during design phase. Results frameworks agreed with partners will include indicators relating to gender.

Annex 7 – Overview of existing relevant Danida support in Kenya,

Tanzania and Uganda

This annex gives an overview of existing Danida support at the national level in Kenya, Tanzania and Uganda that are of relevance for the design of the REISP II programme. Particular attention is therefore given to programmes and projects related to agricultural value chains development and support for business advocacy/public-private dialogue. There are clear synergies between national and potential regional support in both areas. It will also be important to minimise duplication and maximise links and positive synergy. A first step will be to identify the key linkages and explore ways of coordinating support to maximise impact and value for money across programmes. This will be explored further during the design phase.

1. Kenya: Business Sector Programme Support, Phase 2 (BSPS II)

The second phase the Business Sector Programme Support, (BSPS II) in Kenya is being implemented from 2011 to 2015 and has a total budget of DKK 320 million. The objective of BSPS II is to create employment in micro, small and medium-sized enterprises (MSME), especially for young women and men. The programme has the following three components:

1. Improvement of the Business Environment, comprising two sub-components:

1.1 Support for Business Advocacy (Business Advocacy Fund) 1.2 Support for a Better Regional Business Environment (TMEA Kenya)

2. Competitiveness of Micro, Small and Medium-sized Enterprises

3. Innovation and Piloting Green Energy, comprising two sub-components:

3.1 Support to the Climate Technology Innovation Fund 3.2 Support to the REACT Kenya window under the Africa Enterprise Challenge Fund

Below, the specific components and programmes under BSPS II that focus on value chains and business advocacy/public private dialogue are described more in detail.

Support to the Business Advocacy (sub-component 1.1)

The objective of support is to ensure Business Membership Organisations (BMO) in Kenya are able to engage with the government in processes that lead to a sustainable improvement in the business environment. It builds on the experience and success of the Business Advocacy Fund (BAF), which was established in the first phase of the BSPS.

BAF is able to provide capacity building, mentoring and grants to support dialogue and advocacy projects. BMOs must have as one of their primary objectives, advocacy or dialogue on behalf of their members. Civil society organisations must be able to demonstrate that they undertake at least some work to support the private sector; civil society organisations and trades unions must have proposals that are intended broadly to improve the enabling environment. Proposals need to meet the Fund's objectives and criteria and demonstrate that they have a good chance of making an impact. The Fund is keen to support organisations with proposals which focus on improving the business environment specifically for women or young people.

Denmark’s support to BAF has four sub-components each representing an output:

(1) Funding dialogue and advocacy – BMOs will have prepared compelling policy proposals and will have actively engaged in dialogue and advocacy with government with support from the BAF.

(2) Building capabilities for dialogue and advocacy – BMOs will have demonstrated their (managerial, technical and financial) capabilities to effectively initiate and participate in dialogue and advocacy processes.

(3) Promoting sustainability – Selected BMOs are more likely to become financially sustainable.

(4) Promoting a culture conducive to public-private dialogue in business environment reform – Broad public awareness of the importance of a better business environment and the role of business associations can play in influencing reforms.

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Competitiveness of Small and Medium-sized Enterprises (MSME) (Component 2)

This component focuses on value chain development and has the objective of increasing access to markets for MSME in selected value chains, with particular emphasis on rural producers, women and youth. Its particular features area-based facilitation work and comprehensive value chain development at the national scale. It aims to link market facilitation and value chain financing.

The Component has six main pillars each representing one output:

(1) Systematic value chain development facilitation (following the M4P approach) with a national outreach (initially targeting the dairy sector, horticulture and fisheries);

(2) Facilitation of increased competitiveness of manufacturing in selected value chains;

(3) Area-based facilitation work in agricultural value chains in selected Arid and Semi-arid Lands (ASAL) districts;

(4) Support to the establishment and dissemination of private sector-led natural resource management (NRM) solutions in selected value chains;

(5) Development of value chain financing; and

(6) Strengthening information sharing and cooperation between market development programmes in Kenya and capacity development for local BDS/M4P facilitators.

The main implementing partner for this Component is the “Micro Enterprises Support Programme Trust” (MESPT), which is a wholesale microfinance institution originally founded by the Government of Kenya and the European Union. The Trust works with intermediaries that provide financial services to improve the performance of enterprises and also provides credit to financial institutions that already have micro-finance lending programmes. The target group of the Trust are MSMEs that operate in the selected value chains, and that are growth-oriented, have a growth potential and are willing to innovate (e.g. venture into new markets, improve their productivity through new technologies, products, strategies and market linkages).

2. Tanzania: Business Sector Programme Support, Phase 4 (BSPS IV)

The fourth phase of BSPS in Tanzania runs 2013-2019 and is currently in its inception phase. The total budget for BSPS IV is DKK 600 million. The development objective of BSPS IV is “Improved employment and income opportunities for farmers and micro, small and medium enterprises (MSMEs) through green inclusive growth”. The programme has the following three main components:

1. Agricultural Market Development

2. Improved Business Environment, comprising three sub-components:

2.1 Local Investment Climate

2.2 BEST-Dialogue

2.3 CTI/DI Twinning

3. Improved Access to Finance, comprising two sub-components:

3.1 Continuation of the current support to Financial Sector Deepening Trust 3.2 Continuation of the current support to Private Agriculture Sector Support

Agricultural Market Development (Component 1)

The immediate objective of this component is defined as “Targeted agricultural markets in Tanzania work better”. The support is to be implemented by a multi-donor funded Trust called Agricultural Markets Development Trust (AMDT), which is currently being set up jointly by Danida, Sida, Irish Aid and the Swiss Agency for Development Cooperation.

Once made operational, the AMDT will work with private sector, government stakeholders and civil society organisations to implement a Making Markets Work for the Poor (M4P) approach to value chain development that spurs changes to market systems that have a broad and sustained impact on the lives of small-holder farmers and agricultural MSMEs.

AMDT will also indirectly provide information, advice and support that helps private sector and civil society organisations and smallholder farmers to lobby for reform of sectoral business environments that improve

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the functioning of selected agricultural value chains. Finally, AMDT will improve the capacity of private sector organisations, lead firms, smallholder farmers, civil society organisations and government authorities to intervene in agricultural value chains in a manner that improves the performance of MSMEs and the functioning of selected agricultural value chains.

It is expected that the AMDT during the first phase will engage in 3-5 value chains and 1-2 cross-cutting sectors, and facilitate the equivalent of 100,000 full time jobs and increase income for 300,000 farmers. Only one value chain has been identified for support at this stage, and that is sunflower.

Local Investment Climate (LIC) (sub-component 2.1)

LIC focuses on the critical constraints to business growth and economic development at the district level. It involves both support to public-private dialogue and value chain development. The budget for this support is DKK 107.6 million.

The support aims at helping the Local Government Authorities (LGAs) and the business community to identify and priorities the challenges it faces in the local business environment and will facilitate district-level Public-Private Dialogue (PPD). LIC will support practical reform initiatives within areas as business registration and licensing and local land use and administration that remove local obstacles to business growth. Furthermore, the LIC will establish a Small Industrial Facilities Fund (SIFF). This will facilitate investment in public infrastructure and private business facilities with public good characteristics to unlock critical constraints in local markets and value chains, and create new business opportunities for local business women and men. The investments will be targeting the agribusiness in the region. LIC will provide a combination of technical assistance and funding for investments.

BEST-Dialogue (sub-component 2.2)

This support is focused on advocacy and public private dialogue. It builds on the BSPS III and the BEST- Advocacy (AC) Component that ran from 2008-2013. The objective of BEST-Dialogue (2013-2018) support is to make Tanzania’s business environment more conducive to sustainable private sector growth.

BEST-Dialogue will be working with the private sector and other non-state actors to complement the role of the Government of Tanzania in improving the business environment. It will also to support the business community and other non-state actors to design and implement advocacy campaigns, and to participate in public-private dialogue in a more informed, professional and constructive manner. It will support the production of quantifiable evidence that will be used to inform advocacy and dialogue, while improving the skills and management of these processes within the business community. BEST-Dialogue will bolster the efforts of PSOs to engage in public discussions concerning the Tanzanian business environment, the economic coherence and pertinence of value chains and the importance of private sector-led growth.

Four outcomes are foreseen under BEST-Dialogue:

Outcome 1 – The Advocacy and Dialogue Fund: Through its advocacy and dialogue grant funds, BEST-Dialogue will help PSOs and other targeted non-state CSO actors to research and prepare reform proposals that can be presented to government through PPD processes and advocacy campaigns.

Outcome 2 – Capacity building: BEST-Dialogue will help selected PSOs to be more effective in their advocacy and dialogue efforts through the development of strategic competencies and capacities. The BEST-Dialogue will use a wide range of approaches to strengthen the capacity of Tanzania’s private sector organisations.

Outcome 3 – Communications and media: BEST-Dialogue will work with the media to encourage the development of media markets in which business issues are presented and discussed. BEST-Dialogue will also provide support for the development of business journalism.

Outcome 4 – Research and knowledge management: Education, training and research on business and investor concerns influence the ways in which public policy for business is formulated and revised. This programme outcome draws on the knowledge generated by the programme and its partners (i.e. PSOs, universities, government) to contribute to a broader understanding of business environment reform issues and how these can be addressed.

Confederation of Tanzanian Industries (CTI) and Confederation of Danish Industries (DI) Twinning (sub-component 2.3)

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This sub-component will support the capacity of the private sector to engage in fruitful public-private dialogue processes by revitalising the partnership between the Confederation of Tanzanian Industries (CTI) and the Danish Confederation of Industries (DI). The objective is to strengthen CTI’s institutional capacity to serve its members and build increased awareness on EAC and environmental issues

The latest CTI/DI twinning project ran from 2003-2005. During this period DI and CTI worked in areas as strategy development, membership relations, communication, business development services and especially policy advocacy. Earlier support has created a solid foundation, but CTI needs to further consolidate its role as representing the industry in Tanzania. Furthermore, CTI represent a group of larger enterprises that have resources and in many cases will be first movers and set the agenda amongst the private sector stakeholders in Tanzania. The sub-component objective is CTI’s institutional capacity strengthened to serve its members and build increased awareness on EAC and Environmental issues.

Three outcomes are foreseen under this support:

Outcome 1 – CTI established as a key knowledge provider for all issues related to the framework

conditions for industry.The sub-component aims to strengthen the Confederation of Tanzanian

Industries (CTI) through support to the organisation’s strategic development.

Outcome 2 – Integration of Tanzanian companies in East Africa improved. The sub-component

will support CTI to advocate at a regional level to decrease trade friction costs and increase the

share of non-traditional trade. Furthermore, the project will increase CTI’s capacity to assist its

members to engage in business activities across the regional borders.

Outcome 3 – Energy efficiency in Tanzanian companies improved.

Private Agriculture Sector Support (PASS) (sub-component 3.2)

This support, which falls under Component 3 (Improved access to finance), is focused on agricultural value chain development. The objective is to accelerate investments, financing and growth of commercial agriculture, agribusiness and agro-processing.

The Private Agricultural Sector Support (PASS) was first introduced in 2001 under Danida’s Agricultural Sector Programme Support with the view to enhance the access of farmers and agribusinesses to finance. In 2007, it was established as an independent trust. To date PASS has facilitated 2,000 loans with a value of DKK 350 million, benefitting approximately 100,000 farmers and agribusinesses. PASS serves as an important catalysing factor for making finance accessible to Tanzanian farmers and agribusiness. New products have been developed that hold a significant potential for up scaling and increasing the number of beneficiaries – it is this up scaling that BSPS IV supports.

The strategic goals for PASS 2013-2018 include: i) Expanding the number of beneficiaries significantly, amongst other by introducing a range of new products that allow a shift from working directly with all end beneficiaries to working with a wider range of financial intermediaries that have a significantly larger outreach; ii) Continued geographical expansion; iii) Provision of business incubation services to agribusiness SMEs (starting in sunflower and horticulture) and iv) Introduction of environmentally sound practices in agriculture and agribusiness – e.g. organic farming or investments in renewable energy solutions.

In the period 2013-2017 PASS foresees reaching about 250,000 small and medium agro-entrepreneurs (individual and in groups) directly and via intermediate financial institutions. This will again potentially link closely to work under outcome area 3.

3. Uganda: U-growth II

U-growth is a rural economic development programme focusing on growth and employment creation with agriculture and agribusiness at its core. The first phase of the programme ran 2010-2013, and was recently superseded by the second phase (U-Growth II) which is for the five year period 2014-2018 and comprises three components:

1. Support to the Agribusiness Initiatives Trust (aBi Trust), to strengthen the competitiveness of Uganda’s agricultural and agro-processing sectors;

2. Improving the Enabling Environment for Agriculture and Private sector

3. Support to Northern Uganda with the aim of increasing resilience and creating equitable participation of Northern Uganda in the economic development of the country.

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Component 1 is focused on value chain development and a detailed description of this component is therefore presented below.

Support to the Agribusiness Initiatives (aBi) Trust

The objective of the support to aBi is “increased income and employment through environmentally and socially responsible improvements in productivity, quality and value addition in selected agricultural value chains”. The funds provided by Danida under this component will contribute (together with funds from other donors) to support aBi in implementing its plans and programmes as outlined in the Business Plan 2014-2018. The total budget for the U-Growth II contribution to aBi Trust and aBi Finance is DKK 260 million, comprising four earmarked sub-budgets.

The component comprises four earmarked budget allocations:

1) Value Chain Development

2) Financial Service Development

3) aBi Finance

4) Specialised Technical Assistance

Value Chain Development

Value Chain Development supports private sector actors in six selected value chains (coffee, oilseeds, cereals, pulses, horticulture for export and dairy) aiming at making the value chains more competitive and profitable. Cost-sharing grants are provided to enhance production and productivity, including training farmers in good agricultural practices, use of agro-inputs, quality assurance and post-harvest handling. Interventions to establish value-addition facilities, support marketing, and addressing issues needed to adequately meet end-market requirements are also supported.

A total of 300,000 farmers and 115 implementing partners (agribusiness enterprises, including farmers’ organisations) will benefit directly from different interventions. At least 50% of the implementing partners are expected to adopt and benefit from the application of “green growth” interventions and 40% of the implementing partners will integrate of human rights principles in their operations. The expected interventions in the six selected value chains are presented in Table 1 below.

Table 1: Expected interventions in the selected value chains in the Business Plan period 2014-18

Value Chain Services/Interventions

Coffee Interventions under coffee value chain will reach at least 110,000 households

producing an additional 388,750 bags of 60 kg with estimated value USh 106 billion (DKK 233 million) and will be implemented by 35 partners. Main activities will include: Training farmers in Good Agricultural Practices (GAPs), support to production of clean planting materials, rehabilitation of old coffee gardens and trainings in pests and disease control. Quality will be enhanced with trainings in Post-Harvest Handling (PHH), establishment of value addition facilities, promotion of the code of practice for myco-toxins and development of traceability systems. Emphasis will be placed on integrating gender mainstreaming activities and green growth and of a promotion of a saving culture at all levels of value chain.

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Cereals 25 implementing partners will implement interventions under cereals value chain whose outreach will benefit at least 50,000 households producing 485,000 MT with estimated value of USh 388 billion (DKK 854 million). Activities will include establishment of demonstration gardens, training of farmers in GAP, PPH, quality aspects and value addition. Promotion of marketing, savings culture and gender integration form part of main activities. Other cereals that have a potential to improve on farmers income will be introduced and promoted in addition to the existing maize value chain. As a result, availability of quality cereals will increase hence competitiveness, profitability and income security for producers and SMEs along the value chains will improve.

Oilseeds Interventions under oilseeds, mainly sunflower, groundnuts, soybeans and sesame, will be implemented by at least 16 partners reaching at least 70,000 households producing 200,000 MT with estimated value USh 220 billion (DKK 484 million). The support will include; training in GAP, establishment of demonstration gardens, training in PHH, establishment of collective marketing centres, training in entrepreneurship, gender mainstreaming and value addition.

Pulses The support to the 10 implementing partners will benefit about 20,000 households and it is expected to contribute about 40,000 MT of beans to national beans production with estimated value of USh 48 billion (DKK 105 million). The support will be directed towards improving beans production, productivity, and quality and market access. Better still; the value chain will see integration of gender mainstreaming and saving culture among beneficiary farmers.

Horticulture The horticulture value chain will focus on hot pepper, chillies and pineapples for export through support to 10 exporting firms reaching 20,000 households producing 7,500 MT with estimated income of USh 24.4 billion (DKK 5.3 million). Compliance to standards through support to quality enhancement will be promoted in collaboration with several private and public organisations.

Dairy Support to the dairy value chain development that was originally targeted at dairy primary cooperatives who are mainly members of Uganda Crane Creameries Cooperative Union (UCCCU) will be expanded to others partners in milk processing and this will make a total of four implementing partners. This will lead to an increase in the total number of farmers being reached to 20,500. Main activities will include; delivery, installation and commissioning of 200 milk coolers, 192 generators, 192 milk testing kits, 192 mini labs, 3000 milk cans and 10 milk tankers. It is estimated that the additional amount of milk that will pass through the chain will be 250 million litres with estimated value of USh 175 billion (DKK 385 million). Production and productivity push interventions are going to be added on to the market access one that has hitherto been undertaken.

Financial Service Development

Financial Service Development will address the limited availability of financial products and finance for the rural community. Financial institutions will be supported in developing new types of loans targeting the agricultural sector. Working towards inclusion of farmer communities, who mainly bank with non-regulated financial institutions, aBi will work with local-based Savings and Credit Cooperatives (SACCOs). By strengthening regional organisations as well as the participating SACCOs, aBi will provide access to

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financial services to 200,000 new saving clients and 100,000 new loan clients. To improve the rural outreach, aBi will provide cost-sharing grants to financial institutions to establish 25 new rural branches and 20 branchless solutions. Moreover, aBi will also develop insurance products for farmers and SMEs to reduce their business risks.

aBi Finance

aBi Finance offers loan guarantees and lines of credits to regulated financial institutions in order to promote lending to agribusinesses. Besides lines of credits targeting agribusiness, aBi Finance will also develop new lines of credits providing finance to specific target groups and purposes, e.g. gender and promotion of cleaner technology. aBi Finance also has loan guarantee arrangements with most major banks in Uganda taking 50% of the risk as an incentive for banks to increase their willingness to lend capital to farmers and agribusinesses.

There is very limited long-term finance available for financing in the agribusiness sector and this is a significant barrier to agribusinesses’ capital expenditure programmes. aBi Finance and FSD will in collaboration work on development and introduction of new financial products designed to resolve these constraints. aBi Finance is currently assessing the possibilities of facilitating the issuance of an Agricultural Bond and if found feasible it will be done in the U-Growth II period. aBi will first and foremost be a facilitator, broker and promoter. During the programme period, loans through lines of credits will reach 50,000 clients and 100,000 clients will benefit from the loan guarantee scheme.

Specialised TA

The funds for international expertise (approx. 6% of the total budget) will be used for specialist purposes that require skills and expertise at levels not readily available locally, e.g. promotion and introduction of green growth, human rights and development of an agricultural bond. The TA funds will be allocated to aBi as a budget line. Procurement will be done by management of aBi. The funds for international expertise will also be used to strengthen governance and oversight, by funding a RDE-appointed professional member of aBi Trust Board of Trustees and of aBi Finance Board. He/she will also serve on various committees of those Boards.