Economic Development Financing Facility

EDFF is a US$50 million umbrella project funded by an MDF Grant. The EDFF is designed to support initia-tives consistent with the Master Plan of Regional Re-habilitation and Reconstruction (Perpres 47/2008), the Law on Governing Aceh (Law 11/2006) and the RPJMD which promote sustainable economic growth and job creation in the whole of Aceh. The EDFF will consist of two main components to be implemented between January 2009 and June 2012. Component One will support sub-projects that address critical issues affect-ing economic development in Aceh by contributing to economic recovery post-tsunami and by building a more competitive and supportive business environ-ment necessary to create broad based private sector job opportunities and growth, targeting the poor and other vulnerable groups. Component Two will fund project management and capacity building including an international consultancy to assist the Government of Aceh in project management and Project Secre-tariat in Ministry of Disadvantages Area (KPDT). The project will be implemented by BAPPEDA Aceh at the provincial level, KPDT at the central government level and BAPPENAS will be the executing agency.

EDFF Rationale

Support Government of Aceh’s (GoA) efforts to avoid •an economic slowdown and rising unemployment as the reconstruction program slows down

Offer coordinated approach •and pooling of resources to foster economic growth and close gaps in the reconstruc-tion effort

Provide international best prac-•tice in designing projects and policies, a model which the GoA can continue beyond BRR and MDF.

The EDFF will use NGOs, private •sector associations or interna-tional organizations to imple-ment the subprojects in sup-port of GoA programs for the private sector.

EDFF Objectives

Subprojects to be financed by EDFF must contribute to one or more of the following objectives, identified as key for sustainable economic development in Aceh:

(a) Development of job-creating, market-driven enterprises engaged in value-added pro-cessing and manufacturing, especially in agriculture and fisheries;

(b) Sustainable improvement of production quality and value in agriculture, fisheries and es-tate crops that contributes to the alleviation of poverty;

(c) Increase in international trade, especially direct exports; and

(d) Increase in domestic and for-eign investment in Aceh.

Project Status

The project has been approved and is now in its early imple-mentation phase. The provincial government of Aceh organized a workshop in November 2008 to present to entities interested in the project its priorities to sup-port economic development and how it intends to use EDFF funds. A call for proposals outlining these priorities and the mechanism for accessing funds is expected in the first quarter of 2009.

Background to EDFF

The devastation of the Decem-ber 2004 Tsunami coupled with the preceding years of civil unrest contributed to high unemploy-

Economic Development Financing Facility (EDFF) Project for Aceh

ment and poverty in Aceh. A large share of the Aceh popu-lation remains vulnerable with average consumption just above the poverty line, so that a small shock such as the end of the reconstruction effort could send them back into pov-erty. The Tsunami not only caused tremendous loss of life, but ended the prospects of long term employment for many people. The reconstruction has created new job opportuni-ties in some sectors (construction, transport), but these jobs have been closely linked to the availability of reconstruction funds and are not likely to be sustainable in the long run.

BRR and GoA have committed to building the community of Aceh back to being stronger and better than it was pre-Tsunami. Both have identified economic growth and devel-opment as essential elements of recovery from the Tsunami. The GoA, in its Medium Term Development Plan (RPJMD), has identified key factors hampering Aceh’s economic develop-ment as weak government institutions, damaged infrastruc-ture and low investment levels. The RPJMD also identifies key constraints for economic activity for some sectors: in agriculture, availability of land, low productivity, low quality of production and lack of access to inputs and markets are identified as constraints; in manufacturing, a weak business environment, low quality of production as well as the failure to adopt recent technological changes.

Aceh’s economy began to show signs of contracting in 2004 and showed more contraction following the Tsunami, espe-cially in the manufacturing and agricultural sectors. In 2006 the economy grew slightly, driven mostly by growth in the service sector, related to the reconstruction effort. In 2007 Aceh’s economy continued to decline, a result primarily of the decline in the oil and gas sectors. Without a significant recovery of the agricultural and manufacturing sectors, Aceh will be facing a structural downturn as the reconstruction effort winds down in 2009. This could have negative impli-cations for employment and poverty alleviation efforts. The reconstruction program has been lifting Aceh’s economy in the short run. The reconstruction effort commenced in 2005 and by 2006 was the main driver of economic growth. The reconstruction effort created a construction boom in some parts of the province, but it did not address issues related to the competitiveness of Aceh’s economy and the sustain-ability of growth.

EDFF Key Principles

1. EDFF will focus on a small number of integrated, high im-pact projects that address structural deficiencies in Aceh’s economy

2. EDFF will select projects that are consistent with GoA eco-nomic development plans, meet EDFF priorities and crite-ria, and promote equitable development

3. EDFF will support market-oriented projects that promote development of the private sector

4. EDFF will complement the GoA budget by filling strategic gaps in the area of job creation and private sector devel-opment

5. EDFF will fund existing projects that have shown results as a first priority, and then consider other projects that re-quire financing and technical support

6. EDFF will employ a speedy and transparent approval pro-cess, while avoiding unnecessary overheads and cost

7. EDFF will build capacity by integrating GoA into the proj-ect approval system and requiring implementation enti-ties to coordinate with GoA

8. EDFF will strive to integrate communities from early on in the process of subproject preparation and implementa-tion, to ensure that benefits are shared widely but also that expectations from communities are managed and met.

9. Above all, EDFF will strive to be transparent in the selection of subprojects and in its operation

Who is behind the EDFF?

The project will use a management structure supportive of lo-cal government participation, capacity building and achieving the maximum benefits from the EDFF. The implementation of the overall project rests with the GoA thru BAPPEDA, which will house the PMU. The PMU will be supported by an international consultant management firm. BAPPENAS, as the GoI’s execut-ing agency, will be responsible for EDFF’s overall planning and evaluation consistent with the grant agreement between the World Bank and the GOI. The State Ministry for Disadvantaged Areas (KPDT) will be the GOI’s lead implementing agency at the central level. The BRR will provide advice to the GoA and the PMU based upon its past experience in selecting and oversee-ing similar projects during its term in Aceh. The sub-projects will be implemented by different entities, such as NGOs (local and international), private sector organizations and internation-al aid agencies.

They will prepare the sub-project applications and be respon-sible for tracking performance of their individual sub-projects consistent with the agreed upon milestones and performance indicators. The World Bank will serve as the partner agency un-der the MDF legal framework and will be responsible for EDFF project supervision.

EDFF Outputs

The EDFF will seek projects where implementing entities are contributing toward to one or more of three different outputs:

1. Improving the Business Environment

(i) Reform of regulations and procedures related to investment, business formation, land use, etc to improve the business environment;

(ii) Promotion of Aceh to domestic and foreign investors;

(iii) Building capacity of government to promote private sector development.

2. Private Sector Support

(i) Improvement to access to finance to small and medium en-terprises – beyond the current focus on micro-finance by many donors;

(ii) Developing capacities and competitiveness of local entre-preneurs – stimulating innovation, providing world class training, facilitating access to business development ser-vices;

(iii) Assistance to local entrepreneurs, especially in productive and export sectors, to gain better access to markets (focus on packaging, branding and marketing, improve access to information);

(iv) Scalable, market-oriented programs that improve produc-tivity and quality in agriculture and fisheries.

3. Public Infrastructure

(i) Strategic, complementary economic infrastructure activities, to be provided by the public sector (alone or in partnership with the privates sector) that enable access to market for Aceh producers and enterprises.

Priority Sectors Identified by GoA for EDFF funding

In its November 2008 workshop GoA identified the following sectors as priority sectors, where it would like to use EDFF funds. It is important to note, though, that the GoA may also decide to fund subprojects in other sectors that it considers important outside the stated priorities below:

Agriculture and Plantation

Cocoa, coffee, rubber, patchouli (minyak Nilam), corn, potatoes, soybeans, seeding centre.

Livestock Infrastructure, community assistance, manage-ment assistance, quality issues.

Fisheries Aquaculture: Sea weed, grouper, kakap and lob-ster.

Fish processing: Access to finance, technology uptake, quality and access to markets, infrastruc-ture (cold storage, ice factory).

Investment and Ac-cess to Finance

Access to Finance: Management Support, Ca-pacity Building, M&E.

Investment Promotion: Data management, dissemination of information, improving the investment climate and business environment (focus on regulations).

EDFF Selection Criteria and Sub Project Selection Process

In order to ensure sub-projects financed under the EDFF meet the World Bank and international standards for quality of in-vestment and are sustainable, investments financed under the project will be evaluated prior to selection based upon the following eligibility criteria:

a. Meet EDFF objectives;

b. Appropriate design of technical solutions;

c. Economic and financial viability, including ensuring that mechanisms are in place for operation and maintenance of EDFF-financed investments;

d. Consultation with appropriate groups; and

e. Compliance with the agreed-upon approach on environ-mental, social, and fiduciary safeguards.

Entities interested in applying for funding from EDFF must prepare a sub-project proposal based on the final application package (a draft application package for information purposes can be downloaded from www.multidonorfund.org). Propos-als will be received and reviewed against defined criteria.

To better ensure strong sub-projects consistent with both the economic development strategy of the GoA and the prin-ciples of EDFF the evaluation process has been divided into three phases:

Phase One: Pre-selection evaluation to ensure proposals are designed to meet the principles of economic and private sec-tor development set by the GoA and the basic goals of EDFF. Those meeting these standards will receive further consider-ation under Phase Two. Those that do not meet the standards will be rejected. The phase one selection criteria (General):

•PrioritiesdefinedinEDFF

•Possibilityofquicksub-projectimplementation

•Fill gaps in economic and private sector development

activities

•LocalCommunityinvolvement

•Governmentsupport

•Generalcapacitytoimplement

•Meetsenvironmentalguidelines

•Thesub-projectissustainable

•Isnotaspecificallyexcludedproject

Phase Two: Proposals assessed in more depth; focus on tech-nical criteria, project design and application of lessons learned and economic justification and will be rated quantitatively. Projects passing this phase of the evaluation with a minimum average score set by the PMU will receive further consideration under Phase Three. Those not meeting the minimum score will be rejected. The Phase Two Selection Criteria (Technical):

•MarketOriented

•Addresses one or more of the following: i) Improves busi-ness environment, ii) Private Sector Support, iii) Public In-frastructure for private sector

• Identifies impact on economy creating economic multi-pliers

• Quality of design identification of success factors and how lessons learned have been incorporated

•Lowriskoffailure

• Equitable outcomes which include the vulnerable, thepoor and women

Phase Three: Focuses on assessing the proposed arrange-ments for implementation as well as the ability of the propo-nents to implement the sub-project. Only those sub-projects passing this evaluation with a minimum average score set by the PMU will be presented to the Selection Committee for con-sideration. The Phase Three Selection Criteria (Implementation capacity):

•Pastexperience

•Compositionandskillofteam

•Degreeoflocalgovernmentsupport

•Easilymonitoredresults

•Ifbaseduponpastwork–pastsuccess,easilyreplicatedor scaled up

•Degreeofcapacitybuildinginlocalinstitutions

•Transferofknowledgeandtechnologies

•DegreeofPrivateSectorInvolvement

All sub-projects which successfully pass the three phased re-view process will be sent to the Selection Committee for con-sideration. The Sub-project Selection Committee consists of representatives of the Office of the Governor of Aceh, the Head of BAPPEDA Aceh, a representative of KPDT and a member

from the academic community in Aceh. The selection of sub-projects among the proposals sent to the Selection Commit-tee will be made by the committee based upon the needs and priorities outlined by the GoA. Once the Selection Committee has made its decisions, implementing entities will be informed of the outcome of their application and will be requested to introduce revisions if appropriate or allowed to proceed with sub-project implementation.

Further information

It is recommended that the potential implementing entities become familiar with the following documentation before starting to prepare a proposal:

• RPJMD and Government of Aceh’s plans for economicdevelopment,

•PrioritasPembangunanEkonomiAcehbyBappedaAceh(14 November 2008),

•MasterPlanofRegionalRehabilitationandReconstruc-tion (Perpres 47/2008),

•theLawonGoverningAceh(Law11/2006),

•WorldBankpoliciesandguidelines (especially financialmanagement, procurement and safeguards),

•Project’sM&EFramework.

For more information and inquiries:

Bappeda Propinsi Nanggroe Aceh Darussalam

Bidang P2EK ( Sekretariat EDFF Project )

Jln. Tgk. Daud Beureueh No. 26, Banda Aceh 23121

Phone: +62 651 21440 Fax : +62 651 33654

Email: infoedff.bappedanad@yahoo.com

Or visit: http://www.multidonorfund.org/p-edff.html

BAPPENAS

Directorate for Special Areas and Disadvantaged Regions

Jln. Taman Suropati 2, Jakarta

Kementerian PDT Office of Deputy Minister for Ecomomic and

Private Business Development

Jln. Abdul Muis No.7, Jakarta