Document of The World Bank

Report No: ICR00003386

IMPLEMENTATION COMPLETION AND RESULTS REPORT

ON A

GRANT FROM THE

JAPAN SOCIAL DEVELOPMENT FUND

IN THE AMOUNT OF US$ 1.88 MILLION

TO THE

LAO PEOPLE’S DEMOCRATIC REPUBLIC

FOR A

SUSTAINABLE SILK PRODUCTION PARTNERSHIP IN RURAL LAO PDR PROJECT

October 30, 2015

Southeast Asia Country Management UnitTrade and Competitiveness Global PracticeEast Asia and Pacific Region

CURRENCY EQUIVALENTS

(Exchange Rate Effective as of October 30, 2015)Currency Unit = LAKLAK 8,042 = US$ 1

FISCAL YEAROctober 1 – September 30

ABBREVIATIONS AND ACRONYMS

CAS Country Assistance StrategyDTIS Diagnostic Trade Integration StudyDTPPD Department for Trade Promotion and Product DevelopmentEIF Enhanced Integrated FrameworkGoL Government of Lao PDRIBP Inclusive Business PlanICR Implementation Completion and Results ReportIDA International Development AssociationISR Implementation Status and Results ReportJSDF Japan Social Development FundLF Lead FirmLHA Lao Handicrafts AssociationM&E Monitoring and EvaluationMDTF Multi Donor Trust FundMOIC Ministry of Industry and CommerceMOF Ministry of FinanceNIFGS National Integrated Framework Governance StructureNIU National Implementation UnitNSEDP National Socio-Economic Development PlanPDO Project Development ObjectiveSME Small and Medium Sized EnterpriseSNV Stichting Nederlandse Vrijwilligers Netherlands Development OrganizationTDF Trade Development FacilityWB World Bank

Regional Vice President: Axel van Trotsenburg (EAPVP)Country Director: Ulrich Zachau (EACTF)Practice Manager: Mona E. Haddad (GTCDR)Project Team Leader: Konesawang Nghardsaysone (GTCDR)ICR Team Leader: Konesawang Nghardsaysone (GTCDR)Primary Author: Jean-Paul Chausse (GTCDR)

LAO PEOPLE’S DEMOCRATIC REPUBLIC

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SUSTAINABLE SILK PRODUCTION PARTNERSHIP IN RURAL LAO PDR PROJECT

TABLE OF CONTENTS

DATA SHEET...................................................................................................................................................

B. KEY DATES...........................................................................................................................................................C. RATINGS SUMMARY..............................................................................................................................................D. SECTOR AND THEME CODES................................................................................................................................E. BANK STAFF.........................................................................................................................................................D. SECTOR AND THEME CODES.................................................................................................................................E. BANK STAFF..........................................................................................................................................................F. RESULTS FRAMEWORK ANALYSIS.........................................................................................................................G. RATINGS OF PROJECT PERFORMANCE IN ISRS....................................................................................................H. RESTRUCTURING (IF ANY)..................................................................................................................................I. DISBURSEMENT PROFILE....................................................................................................................................

1. PROJECT CONTEXT, DEVELOPMENT OBJECTIVES AND DESIGN..............................................

2. KEY FACTORS AFFECTING IMPLEMENTATION AND OUTCOMES.............................................

3. ASSESSMENT OF OUTCOMES..................................................................................................................

4. ASSESSMENT OF RISK TO DEVELOPMENT OUTCOME.................................................................

5. ASSESSMENT OF BANK AND BORROWER PERFORMANCE........................................................

6. LESSONS LEARNED...................................................................................................................................

7. COMMENTS ON ISSUES RAISED BY GRANTEE/IMPLEMENTING AGENCIES/DONORS..............................................................................................................................................................................

ANNEX 1. PROJECT COSTS AND FINANCING........................................................................................

ANNEX 2. OUTPUTS BY COMPONENT.....................................................................................................

ANNEX 3. ECONOMIC AND FINANCIAL ANALYSIS.............................................................................

ANNEX 4. GRANT PREPARATION AND IMPLEMENTATION SUPPORT/SUPERVISION PROCESSES......................................................................................................................................................

ANNEX 5. BENEFICIARY SURVEY RESULTS..........................................................................................

ANNEX 6. STAKEHOLDER WORKSHOP REPORT AND RESULTS....................................................

ANNEX 7. SUMMARY OF GRANTEE'S ICR AND/OR COMMENTS ON DRAFT ICR......................

ANNEX 8. COMMENTS OF CO-FINANCIERS AND OTHER PARTNERS/STAKEHOLDERS..............................................................................................................................................................................

ANNEX 9. LIST OF SUPPORTING DOCUMENTS....................................................................................

MAP....................................................................................................................................................................

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DATA SHEET

A. Basic Information

Country:Lao People's Democratic Republic

Project Name:

Lao PDR Sustainable Silk Production Partnership in Rural Lao PDR (Trade Development Facility JSDF)

Project ID: P124640 L/C/TF Number(s): TF-98229ICR Date: 11/12/2015 ICR Type: Core ICR

Lending Instrument: TAL Grantee:GOVERNMENT OF LAO PDR

Original Total Commitment:

USD 1.88M Disbursed Amount: USD 0.46M

Revised Amount: USD 0.46MEnvironmental Category: CImplementing Agencies: NIU, Ministry of Industry and Commerce Cofinanciers and Other External Partners:

B. Key Dates

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

Concept Review: Effectiveness: 04/22/2011 Appraisal: Restructuring(s): Approval: 11/01/2010 Mid-term Review: 08/05/2013 08/28/2013 Closing: 04/22/2015 04/22/2015

C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Unsatisfactory Risk to Development Outcome: High Bank Performance: Moderately Unsatisfactory Grantee Performance: Moderately Unsatisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)Bank Ratings Borrower Ratings

Quality at Entry: Unsatisfactory Government: Moderately Unsatisfactory

Quality of Supervision: Moderately Implementing Moderately iii

Unsatisfactory Agency/Agencies: UnsatisfactoryOverall Bank Performance:

Moderately Unsatisfactory

Overall Borrower Performance:

Moderately Unsatisfactory

C.3 Quality at Entry and Implementation Performance IndicatorsImplementation

Performance Indicators QAG Assessments (if any) Rating

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

NoQuality at Entry (QEA):

None

Problem Project at any time (Yes/No):

YesQuality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Unsatisfactory

D. Sector and Theme Codes Original Actual

Sector Code (as % of total Bank financing) Agro-industry 10 10 Agro-industry, marketing, and trade 60 60 General industry and trade sector 10 10 Other domestic and international trade 20 20

Theme Code (as % of total Bank financing) Gender 10 10 Other financial and private sector development 15 15 Other trade and integration 15 15 Rural markets 60 60

E. Bank Staff Positions At ICR At Approval

Vice President: Axel van Trotsenburg James W. Adams Country Director: Ulrich Zachau Annette Dixon Practice Manager/Manager: Mona E. Haddad Mathew A. Verghis Project Team Leader: Konesawang Nghardsaysone Richard James Lowden Record ICR Team Leader: Konesawang Nghardsaysone ICR Primary Author: Jean-Paul Chausse

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C.3 Quality at Entry and Implementation Performance IndicatorsImplementation Performance Indicators QAG Assessments (if

any) Rating

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

NoQuality at Entry (QEA):

None

Problem Project at any time (Yes/No):

YesQuality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Unsatisfactory

D. Sector and Theme Codes Original Actual

Sector Code (as percent of total Bank financing) Agro-industry 10 10 Agro-industry, marketing, and trade 60 60 General industry and trade sector 10 10 Other domestic and international trade 20 20

Theme Code (as percent of total Bank financing) Gender 10 10 Other financial and private sector development 15 15 Other trade and integration 15 15 Rural markets 60 60

E. Bank Staff Positions At ICR At Approval Vice President: Axel van Trotsenburg James Adams Country Director: Ulrich Zachau Annette Dixon Practice Manager/Manager: Mona Haddad Mathew Verghis Project Team Leader: Konesawang Nghardsaysone Richard Record ICR Team Leader: Konesawang Nghardsaysone ICR Primary Author: Jean-Paul Chausse

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The objective of the project was to pilot an innovative model establishing silk production partnerships that will link rural communities to markets and therefore provide diversified income-generating opportunities to an estimated 1,200 disadvantaged households.

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Revised Project Development Objectives (as approved by original approving authority) The PDO was not revised.

(a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Number of households in silk production partnerships with lead firmsValue quantitative or Qualitative)

0 1,200 - 63

Date achieved 04/22/2011 04/22/2015 04/22/2015

Comments (incl. % achievement)

Inclusive Business Plans (IBPs) of 3 Lead Firms aimed to support 400 HH per year over 4 years. Only 180 HH enlisted for 1st year & by the end of the 1st year (May2013) only 69 HH had joined the scheme but only 63 HH sustains at the end. No more after this.

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target

Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Direct project beneficiaries (Number, Core)Value (quantitative or Qualitative)

0 1,200 - 63

Date achieved 04/22/2011 04/22/2015 04/22/2015

Comments (incl. % achievement)

Inclusive Business Plans (IBPs) of 3 Lead Firms aimed to support 400 HH per year over 4 years. Only 180 HH enlisted for 1st year & by the end of the 1st year (May2013) only 69 HH had joined the scheme but only 63 HH sustains at the end. No more after this.

Indicator 2 : Female beneficiaries (Core): cumulative percent increase in beneficiary household income controlled by women by end of project.

Value (quantitative or Qualitative)

0 20 - Not available

Date achieved 04/22/2011 04/22/2015 04/22/2015Comments (incl. % achievement)

Not available: the project's M&E was not operational

Indicator 3 : Increase in Household income (poverty indicator): percent cumulative increase in beneficiary annual household income by end of project

Value (quantitative or Qualitative)

Not available 20 - Not available

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Date achieved 04/22/2011 04/22/2015 04/22/2015Comments (incl. % achievement)

M&E is not operational

Indicator 4 : Silk production (Metric ton/year)Value (quantitative or Qualitative)

20-30 30 Not available

Date achieved 04/22/2011 04/22/2015 04/22/2015

Comments (incl. % achievement)

The domestic production of yarn before project was estimated at about 20-30 tons/year (but at 10 tons by the 2012 sector survey). Incremental production at the end of the project (4 years) projected at 30 tons/year. No official statistical report of silk production output for Lao PDR.

Indicator 5 : Silk products exportsValue (quantitative or Qualitative)

Not available 20 Not available

Date achieved 04/22/2011 04/22/2015 04/22/2015Comments (incl. % achievement)

Not available: the project's M&E was not operational. 20% increase in annual exports by silk handicraft producers by end of project

Indicator 6 : Women's economic empowerment (gender indicator)Value (quantitative or Qualitative)

Not available 20 Not available

Date achieved 04/22/2011 04/22/2015 04/22/2015

Comments (incl. % achievement)

Not available: the project's M&E was not operational. 20% cumulative increase in beneficiary household income controlled by women in male-headedhouseholds by end of project (comparing householders in production partnerships with control group)

G. Ratings of Project Performance in ISRs

No. Date ISR Archived DO IP Actual Disbursements

(USD millions) 1 12/01/2011 Satisfactory Satisfactory 0.10 2 07/29/2013 Moderately Unsatisfactory Moderately Unsatisfactory 0.47 3 12/21/2014 Unsatisfactory Unsatisfactory 0.54

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H. Restructuring (if any)

Not Applicable

I. Disbursement Profile

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1. Project Context, Development Objectives and Design

1.1 Context at Appraisal

Rationale for Bank Involvement. The development of the silk industry was fully in line with Government’s National Growth and Poverty Eradication Strategy (2003) which targeted fast growth in the country’s 47 poorest (mostly rural) districts, the National Export Strategy and the National Strategy for Agriculture and Food Security (March 2006) which emphasized the need to diversify farming systems and livelihoods, in particular in the poorer upland areas. The project was also consistent with the focus of the World Bank Group’s Lao PDR Country Partnership Strategy (CPS)1 from 2010-2016, which aimed to support pro-poor economic growth and reduce households’ vulnerability and food insecurity, in particular in rural areas. Finally, the project was fully in line with the objectives if the Japan Social Development Fund (JSDF)2.

1.2 Original Project Development Objectives (PDO) and Key Indicators The objective of the project was to pilot an innovative model establishing silk production partnerships that will link rural communities to markets and therefore provide diversified income-generating opportunities to an estimated 1,200 disadvantaged households..The key indicators identified in the Grant Agreement3 were:

A 20 percent cumulative increase in beneficiary annual household income by end of project (comparing households in production partnerships with control group).

Approx. 30 tons of additional silk yarn produced annually by end of project (this would represent a 100percent increase in current national production).

A 20 percent increase in annual exports by silk handicraft producers by end of project.

A 20 percent cumulative increase in beneficiary household income controlled by women in male-headed households by end of project (comparing householders in production partnerships with control group).

1.3 Revised PDO and Key Indicators, and reasons/justification. The PDO was not revised during implementation. 1 Country Partnership Strategy for the Lao People’s Democratic Republic from 2010-2016.2 The JSDF’s objective is to provide grants that (i) respond directly to the needs of the poorest and most vulnerable underserved groups in eligible client countries of the World Bank Group; (ii) encourage the testing of innovative methods that are new or alternative approaches at the project, country, or regional level, or that facilitate new partnerships with NGOs/CSOs or local governments to reach the target groups; and (iii) reflect a participatory design and consultation process with the targeted beneficiaries.3 TF-98229: GFR 4985 - ROUND 30: Sustainable Silk Production Partnership in Rural Lao PDR, approved November 1, 2010.

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1.4 Main Beneficiaries

The primary beneficiaries were about 1,200 farming households in disadvantaged rural areas (about 7,200 people) who were to receive a start-up package (of an average value of US$530 and consisting of saplings and fencing for establishing mulberry plantations and sheds for rearing worms) and benefit from a specific training program (valued at $450). Participating households were to produce and sell cocoons or silk yarn to weaving/textile companies, generating an additional annual household income estimated at $550 to $1,600 depending on the size of their mulberry plantation (1/3 to 1 hectare) and the number of annual production cycles (3 to 6). As silk farming is primarily carried out by women, the project was to enhance women's economic empowerment. It was also to give a strong priority to the participation of disadvantaged households as well as ethnic minorities. Other beneficiaries were to be the participating private companies (Lead Firms) entering into a contract farming arrangement with farmers, supplying them with productive assets, inputs and support services, and buying their production -- cocoons or yarn-- for further processing in finished products (to be sold on the domestic and/or the export markets).

1.5 Original Components

The project had a four-year implementation period (April 22, 2011 to April 22, 2015) and a total cost estimated at US$ 1.88 million. It had the following three parts:

Part I: Formation of rural silk production partnership groups (US$ 641,000 or 34 percent of total cost). This component focused on i) establishing production partnership groups by linking rural farming communities in disadvantaged areas to silk textile weaving firms in a sustainable manner; (ii) preparing “Inclusive Business Plans and identifying farmers and linking them to lead firms to form production partnership; (iii) providing identification and start-up training package to farmers to sensitize them to the costs and benefits of entering commercial silk production; and (iv) building the capacity of the farmers to equip them to enter into the market on an equitable basis.

Part II: Investment in rural silk production (US$ 1,005,000 or 54 percent of total cost). This component focused on (i) providing a package of assets to farming households in disadvantaged areas in order to facilitate entry into commercial silk farming; and (ii) providing technical assistance, training and extension services to ensure that farmers are able to yield the highest possible returns on this investment.

Part III: Monitoring and evaluation, project management and administration (US$230,200 or 12 percent of total cost). This component focused on (i) conducting a baseline survey to assess household consumption and income in target population, and current values of silk production within Laos; (ii) undertaking knowledge dissemination to raise awareness on the potential for silk production partnership to encourage sustainability of production partnerships beyond the lifetime of project financing; and (iii) providing core project management and administration support.

1.6 Revised Components

The components were not revised.1.7 Other significant changes

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The Grant was approved on November 1, 2010 and became effective on April 22, 2011. After 18 months of implementation (November 2012), project’s activities had experienced substantial delays and disbursements stood at US$ 0.3 million, i.e., less than 50 percent of projected disbursements and 17 percent of the grant’s total amount. Most actual disbursements had financed only the activities of the Technical Project Unit. Only three Lead Firms had joined the project (rather than the 10 that had been expected) which had been able to enlist only 69 households against 180 anticipated in their Inclusive Business Plans (and 300 planned at appraisal)4. Because of this disappointing start, the Government decided in December 2013 to suspend further activities and to commission an in-depth review of the project to propose options for restructuring the project, options to be reviewed during the Mid-term Review scheduled for August 2013. After reviewing the proposed options, the Mid-term Review decided that no realistic measures could be taken to improve project performance. The Government and the Bank team then took the joint decision to terminate the project.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

Objective, rationale and design. The Project aimed to pilot an innovative model to link rural communities to markets through silk textile companies, under contract farming arrangements, and therefore provide diversified income-generating opportunities to an estimated 1,200 disadvantaged households. The approach of establishing sustainable, mutually beneficial contract farming arrangements was sound and a strong feature of the project. At the time of appraisal, a number of textile firms were already involved, on a relatively small scale, in this type of contract farming arrangement5 and the central objective of the project was to help them to scale up their operations and attract other companies to join the scheme. The sequencing of activities (selection of suitable lead firms, preparation of their respective “Inclusive Business Plans”, sensitization and mobilization of participating farmers, training farmers, provision of support for the establishment of plantations and the rearing of egg/worms, purchase of cocoons/yarn at equitable and indicative prices) was also sound.

Soundness of background analysis. Project design was largely based on silk development activities elsewhere in the sub-region, the lessons of contract farming operations on-going in other sectors (rice) in Lao PDR and consultations with key stakeholders of the silk value chain (the LHA and silk enterprises). There was little detailed technical analysis of actual farm-level silk production in Lao PDR and of the advantage it may offer to farmers over other competing crops in the prevailing farming systems. Most importantly, the Project’s final design was significantly different from an initial proposal identified in 2008 jointly by the Lao Handicraft Association (LHA) and the Ministry of Industry and Commerce (MOIC). This initial proposal aimed at increasing the competitiveness of silk value chain through improvements at every level of the chain, focusing not only on farm-level productivity but also (and primarily) on the productivity and competitiveness of weaving and marketing activities. It was a “making markets work better for the poor”, demand pull approach where increased demand for finished Lao products would induce the develo0pment of raw silk (cocoons and yarn) by Lao farmers.

4 After the completion of the IBPs of the three participating firms, the end-of-project target in terms of farmers enlisted in the program was reduced (informally) from 1,200 to 400.5 Contract farming arrangements were also already implemented successfully in the rice sector under the Enhancing Milled Rice Production in Lao PDR Project (EMRIP)

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The Project’s final design focused on improving the production of cocoons and yarn, and did not provide any support for improving the efficiency of downstream private operators. The focus on a production push approach was driven by (i) the requirements of the project funding source – the JSDF -- which focused exclusively on vulnerable groups and could not finance the activities of downstream private operators; and (ii) the assumption that the demand for “100 percent made in Lao” products would grow and that the lack of locally produced good quality silk yarn would become a main constraint to expanding Lao silk textile production and exports.

Impact on Poverty. The Project’s central objective was to reduce rural poverty by supporting the production of raw silk households in poor rural communities. To achieve this objective, two assumptions were made: (i) that Lao farmers could produce yarn competitively (in price and quality) with imported yarn; and (ii) that the production of yarn could provide households an income higher than alternative activities competing for their land and labor. At appraisal, it was clear that the Lao sericulture sub-sector was structurally less competitive than that of its neighbors (China, Vietnam and Thailand). The Project’s approach of promoting increased farm-level productivity through improved technologies (improved varieties of mulberry tree, use of highly productive hybrid worm varieties and better husbandry practices) was sound. The impact of project’s activities on farmers’ income appeared however to have been overly optimistic.

Incremental farmers’ income. At appraisal, the additional income provided by the production of cocoons and/or yarn through improved technologies was estimated at US$550 to US$ 1,600 per annum for 1/3 ha of land, depending on the number of production cycles/year). This was based on technical parameters similar to those achieved in neighboring countries (such as Thailand). At the time of appraisal, on-farm productivity (and related income) were much lower and a key assumption was that Lead Firms would be able to provide the necessary inputs and technical assistance for farmers to quickly achieve the target productivity and returns6. This appears to have been overly ambitious, although farmers might have been able to reach the desired productivity level in the medium-term had they benefitted from continued strong support from Lead Firms.

Competition for both land and labor from other crops. At appraisal, it was already clear that sericulture would face serious competition with a significant range of crops (coffee, rubber, maize, cassava, vegetables, bananas…) in a significant number of regions7 and may not be able to provide a higher return to land and labor than these competing activities, even with project support. The assumptions appear to have been that (i) silk farming would be promoted only in poor areas with few cash crop opportunities, (ii) undertaken mostly by households occupying marginal land where more profitable cash crops cannot be grown, and (iii) silk would be (and is) a secondary activity, usually undertaken by under-employed household members in addition to core food security. These assumptions were reasonable but warrant the following comments: (i)

6 Minimum productivity of the mulberry plantations: 800 kg/ha); minimum number of production cycles per year: 4 to 6); mastery by producers of satisfactory rearing techniques including the control of diseases. Actual results indicate that at the time of appraisal the production of green leaves/ha, and thus the number of eggs/worms that could be reared per cycle, was much lower, that farmers achieved about 2 to 4 cycles per year depending on the area and local conditions, and that diseases were a serious problem for hybrid silk worms.7 Rough field observations indicate that currently (2015) the return from sericulture doesn’t exceed around Kips 50,000/day of labor, i.e. equivalent to the minimum daily wage for unskilled labor in rural area and much lower than the return provided by most other crops, including paddy, coffee, cassava and livestock.

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the choice of areas were silk production was basically left to Lead Firms on the assumption that they would make a suitable choice and that this choice would be reviewed by the project. However, so few Lead Firms’ enlisted in the project that none could be rejected even if they operated in unsuitable areas; (ii) targeting households which may have 1-2 ha (even of marginal land) constituted an adverse selection since poorer households do not have land beyond what is absolutely necessary for it producing the paddy necessary for meeting consumption needs; (iii) these poorer households may engage in sericulture but usually on the basis of mulberry trees growing along river banks and roads, i.e. not competing with other agricultural uses. On the other hand, many women engage in weaving (with self-produced yarn or yarn provided by traders) which provides a higher return than sericulture. Form a poverty alleviation point of view, it was unfortunate that this activity was not included under the project.

PDO and Output Indicators. The Core Objective of the Grant was to pilot and test an innovative approach to link rural silk producers to markets, providing them with income generating opportunities for an incremental income to an estimated 1,200 disadvantaged households in four years. However, according to the 2012 Lao Silk Sector Profile carried out under the Project, the seven most active Lead Firms were providing support to only about 650 farmers in 2010, and the Project’s objective of doubling that number in three years appears to have been over-ambitious. As a result, the related Grant Indicator concerning the incremental production of silk yarn under the project (“approx. 30 tons of additional silk yarn produced annually by end of project, which would represent a 100 percent increase in current national production”) appears to have been equally unrealistic.

The two other Output Indicators, related to participating households’ income (“20 percent cumulative increase in beneficiary annual household income by end of project”) and women empowerment (“20 percent cumulative increase in beneficiary household income controlled by women in male-headed households by end of project”) were pertinent but set at an unsubstantiated level as the baseline household survey took place later on but the values were not adjusted. As mentioned above, the Output Indicator linking directly an increase in Lao silk exports to project activities (“a 20 percent increase in annual exports by silk handicraft producers by end of project”), the project’s “trade objective”, was based on the assumption that the lack of locally produced silk yarn was a major constraint to expanding silk product exports, which may not have been pertinent.

While noting its overly-ambitious targets, the pilot aspect of the Project should be acknowledged and accounted. Under a pilot project, it is expected that there would be operational difficulties, in particular during the start-up phase, that intensive monitoring will be required to assess progress and problems, and even that the proposed approach and/or activities may fail altogether. Some apparent success cases under one of the lead firms—Lao Sericulture Company—appears to indicate that under specific circumstances such as traditional knowledge in sericulture by participating farmers, adequate fertile land for mulberry trees and regular and strong support of lead firms’ extension services, this pilot approach does work.Assessment of risks. The overall risk of the project was rated as “modest” although a wide range of risks were correctly identified at appraisal, and suitable mitigation measures proposed8. Some of 8 (i) the availability of critical inputs at the right time (carefully selected LFs and detailed “Business Plans” and sequencing of operations); (ii) conflicts of interest among project intermediaries and possible side-selling (LFs selected in geographically separated areas); (iii) elite capture (inclusive business plans" prepared by all lead firms including steps to be taken to ensure that farm households at all income levels will have the opportunity to engage in the production model); (iv) availability of labor at the community level; (v) land substitution away from food production (mulberry

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these risk clearly appear to have been under-estimated such as the competition of other crops for land and labor and the difficulties for farmers to achieve the projected technical productivity increases. However, one risk was not identified that in the end did considerable damage to the project: the reluctance of most of the silk companies that had shown interest during project preparation on the assumption that their own activities would directly benefit from project support to actually participate as Lead Firm in a project that in the end did not provide them with any of the anticipated support.

2.2 Implementation

A difficult project start-up. The Grant was approved on November 1, 2010 and signed on April 22, 2011. There were no effectiveness conditions and the Grant was effective immediately. Overall implementation responsibilities was entrusted to the Ministry of Industry and Commerce (MOIC). The National Implementation Unit (NIU), established in 2004 within MOIC to coordinate all trade-related assistance to the country, was the primary Grant Implementing Agency. It was already successfully implementing the Trade Development Facility Multi Donor Trust Fund (TDF). The choice of MOIC-NIU to handle the project’s procurement and financial management was fully justified. The management of the project’s technical aspects was entrusted to MOIC’s Department of Trade Promotion and Product Development (DTPPD) responsible for promoting small-scale businesses, including in rural agribusiness. In practice however, DTPPD had little capacity for managing the technical and social issues central to the project and it was necessary to recruit an external technical project team composed of one coordinator, one international advisor (provided through the SNV, the Stichting Nederlandse Vrijwilligers Netherlands Development Organization, who had an extensive experience with “inclusive business” methodology for working within agricultural value chains9) and one national advisor.

A low turn-out of Lead Firms. During the identification of the project (2008), a significant number of silk textile firms had indicated their interest in participating in the project. As already indicated, their interest was however largely based on the possibility to benefit from a direct assistance for improving their own operations. Many of these companies were less interested in the final Project concept which no longer included this type of support and were also reluctant to participate in a project where funds would have to flow through government bureaucracy. As a result, only three companies actually confirmed their participation, instead of the 10 expected. This had a detrimental impact on the selection process. Although Lead Firms were supposed to be selected through a very comprehensive screening process, all three applying firms were automatically selected. Out of the three Lead Firms, only one was a well-established firm, established in a suitable area and with sufficient financial strength and experience in the provision of extension services to farmers. The other two were located in unfavorable areas (where competition with cash crops was strong) and already losing farmers.

Project Achievements. The start-up delays had a very negative impact on project achievements. Actual implementation of field activities started in April 2012, one full year after Grant effectiveness. The up-take by farmers was disappointing as it was already too late for the successful

suitable to be grown on marginal land).9 SNV, the Netherlands Development Organization, is an international NGO with extensive experience in producer group promotion and establishing linkages between these groups and markets. In Lao PDR, SNV had been involved in supporting a number of agricultural value chains including fodder maize, white rice and paper.

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establishment of mulberry tree plantations during the 2012 wet season and farmers had opted to grow different crops. In December 2012, twenty months after grant effectiveness the three Lead Firms had enlisted only 69 households (with one of the lead firms only four of those) against the 300 projected at appraisal or even the reduced target of 180 anticipated in the three LFs’ IBPs for the end of the project’s first year of implementation. Disbursements stood at US$ 0.3 million, i.e., less than 50 percent of projected disbursements (and about 17 percent of the grant total amount).

In view of this poor performance, MOIC decided in December 2012 to temporarily suspend project activities until a detailed project implementation review could be carried out. The project was also downgraded to “Moderately Unsatisfactory” for both Achievement of PDO and Overall Implementation Progress after the Bank’s June 2013 Implementation Support Mission. Its risk rating was increased to Substantial. Government’s detailed implementation review was completed in July 201310 and proposed three options: (i) keep the project design but reduce its scope with a target of 400 beneficiary households and a reduced cost of about US$ 1.1 million; (ii) redesign the project, shifting its focus more on the downstream activities of the value chain (weaving, dyeing, marketing, exports) along the lines of the initial 2008 project proposal, and liking it to the newly approved Business Assistance Facility (BAF) under the Second Trade Development Facility Project (TDF-2) that could allocate resources to support the silk sector; and (iii) close the project.

The Project’s Mid-term mission was carried out during August 28-30, 2013. After reviewing the three options, the Government and the Bank team jointly decided that no realistic measures could be taken to improve project performance. The first option (downsizing) would maintain project design and implementation arrangements and thus there would be a significant risk that the project would fail if its design was indeed flawed. In addition, the relative importance of project transaction costs (Component 3) would increase the project costs per beneficiary to levels outside those acceptable to the JSDF. The second option (redesigning the project with an increased focus on downstream activities/operators of the value chain would not be acceptable to the JSDF (which targets the needs of the poorest and most vulnerable groups to improve their lives. It was thus decided to terminate the project. The (6-months, renewable) MOUs with Lead Firms, which expired in August 2013, were not renewed. MOIC/MOF did not wish to legally close a project before its closing date and the Bank was not in a position to unilaterally close it. The Project was managed by effectively stopping all projects activities and disbursements. All remaining funds in the Project’s designated account were returned to the World Bank trust fund and the designated account was closed.

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

The baseline survey planned to assess household consumption and income in target populations was carried out only in August 2012. It was of poor quality. The sample was very small. It covered only 43 households selected randomly in four districts of the three provinces of Sekong, Houaphan and Phongsaly (Xieng Khouang and Luang Namtha, two major silk producing provinces were not included in the survey). It included little analysis and provided little useful operational information on households’ characteristics (or prevailing practices among ethnic minorities) that could be used for targeting farmer or following the impact of project activities on households’ income and livelihood. The ex-post impact evaluation that was planned to assess the impact of the project on the consumption and income of target households was not undertaken.

10 Mid-term Review of the Sustainable Silk Partnership Project” MOIC (Alain Pere), July 2013.

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The Operations Manual provided a comprehensive framework for Monitoring and Evaluation (M&E), derived from best international practices (the DCED Standard for Measuring and Reporting Results). The M&E system was very detailed, as is suitable for a pilot operation where lessons need to be drawn before the possible scaling up successful activities. However, the LFs, responsible for gathering the required field information, did not have the necessary capacity to collect and organize the required information. It is thus not possible to provide up-to-date information on the achievement of Project’s PDO or intermediate result indicators.

2.4 Safeguard and Fiduciary Compliance

Safeguards. Project activities were assessed to have no adverse environmental or social impact. Project’s benefits were targeted at women, who are the primary producers of raw silks and traditional textiles, and ethnic Lao communities who have traditionally been among the main groups involved silk production and weaving. Specific facilitation, communications and monitoring arrangements (including in appropriate languages) were planned to ensure that Ethnic communities would be involved in a culturally appropriate manner. The LFs’ "Inclusive Business Plans" also detailed approaches for engaging with the different ethnic groups in their area of operation. Finally, the project’s M&E included indicators and data collection specifically targeted at Ethnic minorities and women participation, and at the impact of the project on their livelihood.

Fiduciary Issues

Procurement. There were no major issues regarding compliance with procurement policy and guidelines and project performance was rated “Satisfactory” throughout project implementation. Procurement was undertaken by the NIU according to the World Bank’s Procurement Guidelines acceptable to the Bank. An initial procurement plan approved by the Bank on December 15, 2010, was regularly updated.

Financial management. There was no major issue with regard to financial management which was rated “Satisfactory” throughout the project period. The NIU was also responsible for the financial management of the project. IFRs were submitted on time and FM actions recommended by Bank missions were implemented. Annual audit reports were submitted in time and unqualified.

2.5 Post-completion Operation/Next Phase

There is no direct follow-up planned for the Project. However, Government’s commitment to the development of the silk sector is still strong. Currently, there is a possibility for support through the Business Assistance Facility (BAF) under the Second Trade Development Facility Project (TDF-2) which can be accessed by any economic operator in the silk sector. This would offer a more comprehensive support to improving the competitiveness of the sector. However, some critical issues for the development of the sector -- such as supporting research in silk technologies (mulberry, worms but also processing/weaving), the improvement of textile design and other issues requiring collective action (through the LFA) --- would need to be addressed through other operations. It would be important that an in-depth review of the value chain be undertaken to provide the necessary technical, economic, social and institutional underpinning of a comprehensive program in support of an important sector.

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3. Assessment of Outcomes

3.1 Relevance of Objective, Design and Implementation

Relevance of Objective: High

The international silk market is still growing rapidly and offers significant opportunities for a fast increase of silk exports and thus for supporting the diversification of Lao PDR’ sources of economic and export growth. The development of the sector still offers an attractive instrument for the development of the country’s poor rural communities, in particular in upland areas, through the diversification of farming systems and livelihoods. The project approach for creating rural jobs and income in rural areas through public-private partnerships is very much at the heart of Government’s current economic growth strategy. Finally, the Project’s objectives, which were consistent with the central focus of the 2010-2016 Lao PDR Country Partnership Strategy (CPS)11 which emphasizes fast, diversified and pro-poor economic growth, in particular in rural areas.

Relevance of Design and Implementation: Substantial

The sustainable silk production partnership is an innovative approach to link rural communities to markets through silk textile companies, under contract farming arrangements, and therefore provide diversified income-generating opportunities. The approach is strongly relevant to ensure linking the farmers to market through the established supply chains of the lead firms. In addition, the lead firms acted as the intermediary on behalf of the project to provide some key farm inputs including barbwires, saplings, nails and young silk worms for rearing as well as their free extension services to beneficiary farmers. This approach is different from the traditional agricultural development approach that would rely on public extension services and farmers are not linked to the established supply chains and markets. In many cases of the traditional approach, after the projects end farmers also stop their activities. The outcome of the pilot implementation has been mixed due to several factors. Competing crops and local conditions of farmers’ access to adequate land for mulberry plantations have limited the possibility of uptake in response to the project. The uptakes were low and the average poor households also have limited access to land that would allow them to participate in the project. The project criteria requires farmers to have at least two rais or equivalent to 0.33 ha of land suitable for mulberry plantation. The required 2-rai land is important for economy of scale to ensure that the participating farmers will be able to achieve adequate revenues and surplus income in each cycle of silk production.

3.2 Achievement of Project Development Objectives

Neither the PDO nor any of the Grant Outcome Indicators were achieved. The Project was designed for a four year implementation period as a pilot project to test an innovative approach to link rural farmers to markets but project implementation was stopped after less than two years of project activity and less than one year of the launch of field level activities (April 2012-January 2013). The three lead firms were able to only form production partnership arrangement with about 165 farmers (against the 1,200 anticipated) and, by June 2013, only 20 ha of plantations had been established by

11 World Bank Group’s Country Partnership Strategy for the Lao People’s Democratic Republic from 2010-2016

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the 69 farmers still participating in the program (of which only 63 had established their worm rearing sheds).The table 5 in Annex 2 summarizes the results achieved by the project and its projected end-targets, on the basis of the very limited amount of information provided by the project’s M&E system. It is important to note that under a pilot project it is expected that there would be operational difficulties, in particular during the start-up phase, that intensive monitoring will be required to assess progress and problems, and even that the proposed approach and/or activities may fail altogether. Although the rate of success is small, some apparent success cases among the achieved 63 households during the first year are that under specific circumstances such as traditional knowledge in sericulture by participating farmers, adequate fertile land for mulberry trees and regular and strong support of lead firms’ extension services, this pilot approach does work.

3.3 Efficiency

For each participating farmer, the project planned to support the following package: establishment of a mulberry plantation; fencing to protect this plantation, a rearing shed (of at least 20m.sq. per sheet of 20,000 eggs) and upfront and follow-up training to improve quality and productivity. This package was to be financed by the project and the LFs. Farmers would contribute the land and the labor necessary to establish the mulberry plantations, harvest the leaves and feed/rear the silk worms. The eggs would be supplied to farmers by lead firms at the start of each production cycle. On that basis, it was estimated that the additional income for a family with a 2 to 6 rai holding (1/3 to 1 hectare) would be about $600 to $1,800 per annum, with 6 cycles per year.

Silk yarn production can be a good income generating activity if critical prerequisites are met, in particular the suitability of soil and climate conditions which impacts on productivity through the combined effect of the mulberry trees’ productivity, the length and number of rearing cycles (cool places induce longer cycles) and the cocoon’s silk contents and quality. Project’s assumptions were based on technical parameters achieved in neighboring countries. Participating Farmers did not reach this level of productivity, even in the most favorable production areas, and incomes were also considerably lower than projected (field observations indicate that current (2015) returns from sericulture rarely exceeded Kips 40,000 per day of labor, i.e. barely equivalent to the daily wage for unskilled labor in rural area. However, it was the first year of production for these farmers and it is reasonable to assume that productivity would have increased in the medium-term, although some productivity gaps may be structural and difficult to overcome, such as the yields of mulberry gardens (about half what had been assumed) which in turn impacts on the number of eggs or worms that could be reared per cycle.

3.4 Justification of Overall Outcome Rating

Rating: Unsatisfactory

The project’s development objectives were highly relevant and project design, linking 1,200 farmers to markets through experienced silk companies was overly ambitious. Implementation arrangements were detailed and carefully thought-through. The outcome of the project implementation has been mixed due to several factors. Competing crops and local conditions of farmers’ access to adequate

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land for mulberry plantations have limited the possibility of uptake in response to the project. The uptakes were low and the average poor households also have limited access to land that would allow them to participate in the project. The project criteria requires farmers to have at least two rais or equivalent to 0.33 ha of land suitable for mulberry plantation. The required 2-rai land is important for economy of scale to ensure that the participating farmers will be able to achieve adequate revenues and surplus income in each cycle of silk production.

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development. The project was expected to have a strong positive impact on poverty, by diversifying income opportunities for poor rural households, with a special emphasis on vulnerable groups: women and Ethnic minorities. Because of its implementation difficulties and early termination, this impact did not materialize.

(b) Institutional Change/Strengthening. The project was piloting a new approach for supporting the development of the silk sector, based on public-private partnerships, before its possible scaling up. The PPP approach did attract strong interest from silk companies (but not on the terms proposed under the project) and valuable lessons can still be drawn from its aborted implementation in terms of institutional strengthening or institutional changes that may be required for the future development of the sector (see section 6).

(c) Other Unintended Outcomes and Impacts (positive or negative) NA

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

4. Assessment of Risk to Development Outcome Rating: High. At appraisal, a number of risks were clearly identified. These risks were fully accepted in the context of a pilot project aiming at testing an innovative model to link poor rural communities to markets. Some appropriate mitigation measures had been built-in project design and a detailed M&E system was to permit corrective action when needed. However, mitigation measures during the project implementation have not been fully followed up after the project implementation was suspended. As previously mentioned, the reluctance of most silk companies to participate in a project that did not offer then direct support was not anticipated and because the project was implemented only over a very short period (about 18 months and less than a year for field activities), it is difficult to assess whether this reluctance would have been gradually overcome and more Lead Firms would have joined the project during implementation, and thus whether the PDO and the project’s specific outcome indicators would have been achieved, at least partly, had the project been implemented over the full 4 years anticipated at appraisal.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

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(a) Bank Performance in Ensuring Quality at Entry

Rating: Unsatisfactory

Improving the productivity of local raw silk production was a sound but partial approach to improving the income of Lao producers (the project’s “poverty alleviation” objective) by displacing yarn imports if local production was more competitive. However, it was not an appropriate instrument to boost silk product exports (achieve the project’s “Growth” objective) as it would just displace the import of yarn by Lao textile firms but not their overall production. The initial 2008 proposal, although based on a limited analysis of the value chain and also assuming that the production of local raw silk was a constraint to the development of the sector, proposed a comprehensive approach to the development of the sector with support to all segments of the value chain, in particular in favor of the silk textile companies. Impact on the incomes of raw silk producers was thus derived from both improvements in farm-level productivity but also from the efficiency and productivity of the downstream segments of the chain which would translate into higher farm-gate prices for raw silk. The final design was much narrower, reflecting the constraints of the available funding source (the JSDF) which focused on poverty reduction and social development. The final project design also appeared to have limited analysis of market forces of the silk market as well as provided an in-depth analysis of a greater level of productivity in the sector. It focused exclusively on farm-level production and proved to be not attractive to the majority of textile companies (thus increasing the potential risk linked to a non-performing Lead Firm) which in addition, with the hypothesized “100 percent Lao Silk” requirement not materializing, did not feel the urgent need to develop local yarn production. During the project implementation, no external shocks were observed to have an impact on the silk market and therefore affect the development outcomes of the project.

Also, achieving the project’s “poverty” objective required that raw silk production to offer better return to land and labor than competing activities. This assumed that farm-level productivity could be increased to levels where local production could compete, at yarn import parity price, with other crops. This was a very ambitious goal which would have required strong support to farmers over an extended period of time and might have been reached, if at all, only in very favorable areas (in terms of agro-climatic conditions and farming systems). Also, project design assumed that the LF selection process would allow to select firms operating in areas favorable to silk production and having the required capacities. This was a sound approach. However, because of the very limited number of firms that applied for participating, the selection process was curtailed and turned out to be an ineffectual filter. Only one of the three selected LFs had the necessary capacity and operated in a favorable area. Another did not appear from the start to have any realistic chance of implementing its IBP, and the third was operating in a very unfavorable area (agro-climatic conditions and competition from other crops) and was already losing its contract farmers.

(b) Quality of Supervision

Rating: Moderately Unsatisfactory

Bank performance with respect to fiduciary and safeguard issues was satisfactory. However, implementation support was not satisfactory. Although the project benefitted from an in-country Bank task team during most of its preparation and implementation, and “implementation support”

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could in principle be provided on a day-to-day basis, it does appear that implementation issues may not have always received adequate and timely attention (weak Lead Firm selection process, delayed base line survey, frequent changes in the Government Technical Unit…). Beside three formal implementation support missions, there are immediate technical supervisions of the project activities over the 30 months between Grant effectiveness and the decision to terminate the project (March 2011-August 2013). As this Project was designed to pilot and implement silk production activities that strongly linked to the Trade Development Facility (TDF-1), the Bank team’s technical supervision supports also took place when the TDF-1 project implementation missions were conducted. The first formal mission was carried out 5 months after effectiveness. The second mission was conducted in June 2013 while in between there were a number of technical support supervisions in August 2012 and March 2013. The third was the Mid-Term Review Mission carried out shortly after that (August 2013). As the Project is strongly linked to the larger activities implemented under the TDF-1, the project was benefited from the project implementation support missions of the TDF-1. However, there were limited resources dedicated from the Bank and the Government to provide adequate technical skills required for implementing what was largely an agricultural project.

(c) Justification of Rating for Overall Bank Performance

Rating: Moderately Unsatisfactory

Given the MU rating for quality at entry and the MU rating for supervision, the overall Bank performance is rated Moderately Unsatisfactory.

5.2 Borrower Performance

(a) Government Performance

Rating: Moderately Unsatisfactory

The Borrower’s performance during the preparation of the (initial) project proposal was satisfactory. It played an active and supportive role during the consultations with the main stakeholders --the LHA and the private sector -- to identify the main lines of project design. Its performance during implementation was less satisfactory. The MOIC was the overseeing ministry and the TDF Steering Committee was responsible for providing strategic guidance to the project. Its National Implementation Unit (NIU) provided core project management (procurement, financial management, monitoring and evaluation and operation of the designated account) and the technical implementation was the responsibility of MOIC’s DTPPD. While the performance of the NIU was excellent, that of the Steering Committee was Moderately Unsatisfactory. It reviewed project progress twice a year but within the context of the overall TDF which included many other activities. As a result, the SSPP may not have received the focused attention and guidance that its innovative nature and implementation difficulties required. (b) Implementing Agency or Agencies Performance

Rating: Moderately Unsatisfactory

The performance of the NIU in managing the administrative and fiduciary aspects of the project was very good. The management of the technical aspects by DTPPD was however less satisfactory. The

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Department did not have the technical skills, at national or provincial/district level, to provide support and guidance to what was largely an agricultural project12. The project management unit was staffed by an international technical advisor, supplied and co-financed by SNV, and a national advisor. The international advisor provided strong technical support during project start-up phase but found difficult to reconcile the need for the operational flexibility needed for an active field presence with the administrative requirements of the DTPPD. Its involvement with the project quickly stopped after project implementation was suspended and it was agreed by all parties that its contract would be terminated. Project oversight was left to the national project team in TPPD. The position of national advisor was held by a succession of national consultants that never really had time to make a significant contribution. Finally, the division of labor between two departments – NIU and DTPPD – was unclear and made the decision making process cumbersome and not as responsive as was necessary for a pilot project largely implemented by private operators.

(c) Justification of Rating for Overall Borrower Performance

Rating: Moderately Unsatisfactory

Based on the assessment above, the overall Borrower performance is rated Moderately Unsatisfactory.

6. Lessons Learned

The silk sector remains one of the areas in handicrafts and rural development to provide income generating opportunities for rural community. The silk production continues to appear as one of the development priorities. The experience of the SSSP has demonstrated some valuable lessons that will be important for consideration in future interventions in the sector. While raw silk production is important for creating jobs locally and there seems to be a niche market for locally produced silk yarns, in comparison with other competing crops including rubber, cassava, maize and etc... raw silk production offers much lower returns and has much higher risks. This reflected well with the low uptakes of farmers in forming production partnership group implemented by lead firms. Key important lessons learnt of the project include:

The focus on raw silk production may have been too restrictive, even from a rural income generating point of view. Supporting village weaving might also have been an activity of choice as (i) it does not require access to land and is thus open to more households: (ii) it offers a higher value added and returns to labor; and (iii) it is not obvious that the limited supply of locally produced yarn is the main constraint to the development of the sector;

The productivity of cocoon and yarn production is currently low in Lao PDR and the sector cannot compete on price rather than trying to compete on price against large producers such as China, Vietnam and Thailand. Cocoon or silk yarn production can be a good income generating activity only if critical prerequisite are met, in particular regarding the suitability of soil and climate which conditions the productivity and profitability of the production, by the combined effect of the mulberries’ productivity, the length and number of rearing cycles during the year (cool places induce longer cycles) and the cocoon’s silk contents and quality. In achieving the

12 The Ministry of Agriculture didn’t have the specific technical skills required and, more importantly, project design in fact called for the LFs to acquire and provide the necessary support to farmers.

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above, poor farmers in rural Lao PDR seemed to deal inadequately with existing challenges while in their perspective raw silk production has been seen as only one of the supplemental income generating activities. Food security has been one of the top priorities in a rural household. Poor farmers are extremely sensitive and careful to make their farm-level investment choices. SSSP were limitedly able to respond to farmers’ changing needs of the rural conditions in a timely manner. Their investment decisions changed toward competing cash crops;

A better approach for the future development of the sector appears to be aiming for high value products/ niche markets relying on high quality and unique characteristics and appeal of traditional design and origin. This require a unique expertise in design and marketing that only private firms can offer and also that these firms be able to control all aspects of the value chain to ensure quality, from silk worms varieties, to cocoon rearing, spinning dyeing and weaving. It will be critical to use more regional silk production data and trade information to better inform future project design and predict outcome of the similar intervention in the country. An engagement of a community-driven development expert in carrying out participatory rural appraisal (PRA) at the design stage and also continue to provide ongoing consultations with beneficiaries during the implementation will be important to monitor and mitigate the changing needs of beneficiaries in rural areas;

Although the design of a pilot operation should leave considerable flexibility in implementation, its success critically depends on a sound understanding of the project’s economic and institutional environment and whether the silk sector is competitive. The project design needs to have hard evidence to demonstrate these aspects that the project is viable on top of all consultations with firms during the design process. SSPP objective was highly relevant and its public-private partnership approach was sound but its final design (production push and no direct support to LFs) was based on faulty assumptions (the interests of silk companies to support a “100 percent Lao silk” strategy and willingness to join the project without direct support for their own activities). This was a major constraint that even flexible implementation arrangements and sound support were unable to overcome;

For a pilot project it is even more important that the detailed result framework, the baseline survey and a focused M&E system be in place from the very beginning to allow for clear guidance and close monitoring and evaluation of implementation and impact;

Pilot investment projects, because of their requirement for intensive support, should be treated as stand-alone projects and not as a (small) part of a larger operation, in particular if the latter main focus is on policy and institutional reforms and requires a different set of skills from both the project management team and Bank staff;

Complex arrangements such as those under the SSPP (with a dual management structure) can lead to unclear lines of responsibility and become a major obstacle not only for day-to-day implementation but also for the quick decision-making and adjustments which are likely to be needed under a pilot project; and,

Public institutions should not make investment decisions and minimize their role in enterprise development projects. Based on the experiences of this project, it might be more effective and relevant that investment choices are competitively made by the private firms and if the private

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sector associations have the capacity in place, they engage directly with any private sector development projects in order to cut bureaucratic processes of the public institutions. Private firms do not have the same objective and operating modalities as public sector entities. Their success and even survival depends on quick action and decision-making. In projects where private enterprises play a leading role in implementation and success, implementation procedures should avoid imposing undue delays on their operations and requiring too much paperwork.

7. Comments on Issues Raised by Grantee/Implementing Agencies/Donors

(a) Grantee/Implementing agencies

The project intended to facilitate establishment of silk production partnership between approximately 10 intermediaries and up to 1,200 disadvantaged rural farmers. However, only three lead firm participated and during 18 months of project implementation about 69 farmers were supported by the project through these lead firms. As of March 2015, only about 50 rural farmers are still maintaining their sericulture activities. None of the Grant Output Indicators have been be achieved.

Experience from other enterprise development projects using the value chain or market for the poor (M4P) approach showed that flexibility in making necessary adjustment to the project design and decentralized decision making process are key factors of success. However, although “commercial practice” methods were used to streamline project implementation procedures, relatively complex implementation arrangements, based on standard recipient executed World Bank projects also significantly contributed to ineffective project implementation. The baseline study and the technical review of the sector were carried out with substantial delays and could not provide sufficient information to assess appropriateness of the project design and inform the necessary adjustments to the operational aspects of its implementation.

In the view of project team, key lessons for future enterprise development interventions are as follows:

The “market development approach”, which aims at achieving significant and sustainable impact on large numbers of private enterprises through systemic change, is a new approach for the Government and most staff in the public sector. It is important to provide capacity building activities to relevant public sector staff about the approach; and,

Implementation of projects aimed at improving productivity and competitiveness of private enterprises requires very streamlined procedures compatible with private sector activities. Services/support to private enterprise need to be responsive and customized, and institutions/ agencies providing such services need to also operate in a business like culture. This may require the establishment of more “independent or autonomous” project units with clear authority to make quick decisions on day to day basis.

(b) Co-financiers/Donors

Not Applicable

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

Not Applicable.

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Annex 1. Project Costs and Financing

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

Components Appraisal Estimate (USD millions)

Actual/Latest Estimate (USD millions)

Percentage of Appraisal

Total Baseline Cost   1.88 0.46 24.6%

Physical Contingencies 0.00

0.00

0.00

Price Contingencies 0.00

0.00

0.00

Total Project Costs  1.88 0.46 24.6%Project Preparation Costs 0.00 0.00 0.00

0.00 0.00 0.00Total Financing Required   1.88 0.46 24.6%

(b) Financing

Source of Funds Type of Cofinancing

Appraisal Estimate

(USD millions)

Actual/Latest Estimate

(USD millions)

Percentage of Appraisal

Trust Funds 0.00 0.00 Japan Social Development Fund TF Grant 1.88 0.46 24.6%

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Annex 2. Outputs by Component

Project Objectives. The project was designed for full 4 year implementation period and aimed at facilitating the establishment of partnership between approximately 10 intermediaries and 1,200 disadvantaged rural farmers and supplying the market with additional 30 tons of silk. Under the project (Components 1 and 2) the farmers would benefit from:

(i) A training package (up-front and follow-up) on mulberry plantation management and the husbandry of silk worms to increase their technical skills and productivity;

(ii) A package of the necessary physical assets required to start-up commercial silk production: saplings for establishing a mulberry plantation; materials for fencing the plantation; and materials for construction of a rearing shed.

Globally, 350 ha of mulberry plantations (about 2 rai or 1/3 of an hectare per household) and 1,200 rearing sheds were to be established during the project 4 year period, providing each benefitting household with an annual incremental income estimated at $550 per annum (on the basis of 4-5 rearing cycles/year).

The project was also to undertake a baseline survey and establish a very comprehensive monitoring and evaluation system to (i) track its outputs and impact on productivity and households’ incomes; (ii) assess the benefits accruing to women and ethnic minorities; and (iii) assess overall silk yarn production and its impact of the development of silk products production and exports (quantity and value). Finally, the project was to support knowledge dissemination events to raise awareness on the potential for contract farming arrangements between farmers and silk companies to promote this approach and establish it as a sustainable mechanism for the development of the sector beyond the lifetime of project financing.

Results. Project implementation was however suspended at the end of 2012, 18 months after Grant approval/effectiveness and less than one year after the start of field activities. Only three silk product companies had engaged in project implementation, prepared Inclusive Business Plans and signed a Memorandum of Understanding with Project management. These three Lead Firms had undertaken to enlist a total of 400 farmers into contract farming arrangements (against the 1,200 farmers originally planned) and to provide them with the agreed upon investment and technical assistance, of which 180 by the end of the first year. However, at the end of 2012, only 69 farmers had joined, had been trained and had received the investment package.

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Table 1 Projected and actual farmer enrollments as of December 2012.

At that time, it can be estimated that the incremental production generated by these 69 farmers was less than 1 ton/year and that their income from silk yarn/cocoons production was less than half what was anticipated (although both productivity and income would probably have improved in the medium-term with continued technical support).

In view of these alarming results, the Government decided to suspend project activities and commission a detailed review of project implementation to determine the reasons of this lack of progress and propose options for improving performance. This review was completed only in July 2013. By that time, SNV, the project main technical advisor, had decided to withdraw from the project.

The following options were proposed by Government in-depth review and discussed during the project’s Mid-term Review held in August 2013:

The First option envisaged the restructuring of the project with a significant reduction in the number of beneficiaries (about 400) and streamlined procedures. However, it was considered that this option was not fundamentally different from that original project and wouldn’t ensure project success. In addition, the transaction cost per beneficiary would increase to unacceptable levels.

The Second option—restructuring and linking activities with the Business Assistance Facility (BAF) in Second Trade Development Facility (TDF-2), i.e. also providing matching grant support to silk companies (hand-weaving, dying, spinning, design,, logistics) was deemed not possible because the JSDF focus was exclusively on helping poor farmers and the Fund could not provide direct support to silk product companies.

The Third option was the cancellation of the project.

Although the Ministry of Industry and Commerce strongly indicated their preference for the project to continue, it was agreed that no realistic measures could be taken to improve project performance and it was thus decided that the project should be terminated.

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The SSPP had developed a comprehensive M&E framework derived from best international practices. The system was however very detailed, overly so for a pilot operation (while the project document focused on three results areas and four indicators, the final M&E system adopted a number of detailed sub-indicators which may not have been necessary and certainly put an unrealistic burden on Lead Firms (responsible for collecting the data) and the project management unit. As a result, only data related to activities in terms of outputs (mulberries, rearing houses, trainings) were collected, the data pertaining to family income and gender empowerment were not. The baseline survey was undertaken only in early 2012 and was of too poor quality to offer a reasonable benchmark: only 43 households were surveyed (selected randomly in four districts of three provinces5). The sample was too small and heavily biased (the Sekong Province represented 2/3 of the households) and the data on household income was incomplete. Finally, no knowledge dissemination event was undertaken.

Table 2 Key silk firm profiles

Source: MOIC (2012)

Table 3 Progress Monitoring

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Table 4 Inputs and outputs table of the project appraisal

Table 5 Result Framework

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Annex 3. Economic and Financial Analysis

Introduction

The Project Development Objective (from Grant Agreement) was to to pilot an innovative model establishing silk production partnerships that will link rural communities to markets and therefore provide diversified income-generating opportunities to an estimated 1,200 disadvantaged households.

Restatement of Economic Analysis Estimates at Project Appraisal

In order to contextualize the team’s analysis, the Grant Funding Request (GFR) had noted the innovative features of establishing the silk production partnership, intended beneficiaries and economic return of the project intervention optimistically based on targeted group profiles and optimal criteria as follows.

The project aimed to provide sustainable and diversified sources of income for a target 1,200 farming households in disadvantaged rural areas, with an estimated 7,200 direct beneficiaries. Silk production is naturally suited to marginal land in mountainous areas, and as such is an appropriate fit with the locations within the Lao PDR which are most disconnected from markets and where poverty is most acute. Strong priority will be attached to ensuring that disadvantaged households are included in the pilot project, as well as ethnic minorities. Specific attention will also be given to ensuring that women are given voice and opportunity to benefit from project activities.

Each farming household participating in a production partnerships in this project would receive a start-up asset package of an average value of $530 (representing full costs of rearing sheds and fencing, plus 25percent of sapling costs -the remaining 75 percent of sapling costs, on average, will be provided to farmers by lead firms). Each farmer would also be provided with a start-up training package valued on average at $150, and an ongoing training package valued on average at $300. Thus the total direct investment by the project in each farming household (excluding the additional fixed and variable costs that would be provided by lead firms) is $980. Including all overhead costs, technical assistance, monitoring and evaluation, knowledge dissemination and capacity building activities (but excluding incremental Bank costs), the total unit cost per household was expected to $1,522 (i.e. Total grant amount divided by 1,200 farming households). Assuming an average of six persons in each rural Lao household, a total of 7,200 beneficiaries will be reached. Therefore, the direct cost per beneficiary from the project would be $254.

In terms of economic returns, if the average farmer would allocate a minimum land plot size of 2 rai to mulberry, and would expect to earn an estimated $550 per year, then the project should lead to a direct generation of $660,000 in additional income per year, thus meaning a notional investment payback period for the project of 2.8 years. If the average farmer would allocate a minimum land plot size of 4 rai to mulberry, and would expect to earn an estimated $1,100 per year, then the project should lead to a direct generation of $1,320,000 in additional income per year, thus meaning a notional investment payback period for the project of just 1.4 years. Such income flows would accrue directly to households in the most impoverished parts of Lao PDR. These estimates did not include the effects of income multipliers as resources flows through the local economy in areas

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surrounding production partnerships, not are demonstration effects captured (where farmers and lead firms establish additional partnerships, copying form the project model after gaining sufficient confidence to make investments without the need for project funds).

ICR Update of the Project Economic Analysis

As stated above by the project appraisal team, linking changes in farmers’ income to a specific project intervention is always tenuous at best. The objective of livelihoods improvement is compound by lack of data in the project’s M&E framework to facilitate such an analysis. The ex-post impact evaluation was planned but was not taken when the project was temporary suspended. Economic analysis on linking improvements in livelihoods spurred by the project activities could not be updated properly.

Key findings from field visits and consultations with stakeholders, farmers and lead firms during the ICR preparation are observed as followed. The Project was a pilot aimed at testing an innovative approach to link rural silk producers to markets, providing them with attractive income generating opportunities. Under a pilot project, it is expected that there may be operational difficulties, in particular during the start-up phase, that intensive monitoring will be required to assess progress and problems, and even that the proposed approach and/or activities may fail altogether. Some apparent success cases under one of the lead firms--Lao Sericulture Company—appears to indicate that under specific circumstances such as traditional knowledge in sericulture by participating farmers, adequate fertile land for mulberry trees and regular and strong support of lead firms’ extension services, this pilot approach does work.

The central objective of the project was to provide income generating opportunities to poor rural households. Sericulture can provide such an opportunity only if it offers returns (on land and labor) higher than other competing activities available to producers. This is not the case in some parts of Lao PDR where other crops (rubber, cassava, maize…) provide higher returns and thus will not permit the development of sericulture. This is in particular the case in Sekong. This risk was clearly identified during appraisal but the project still decided to support the activities of Mai Savan Lao Co in this province while it was already apparent that the company could not retain its producers there.

The focus on raw silk production may have been too restrictive, even from a rural income generating point of view. Supporting village weaving might also have been an activity of choice as (i) it does not require access to land and is thus open to more households: (ii) it offers a higher value added and returns to labor; and (iii) it is not obvious that the limited supply of locally produced yarn is the main constraint to the development of the sector.

Cocoon or silk yarn production can be a good income generating activity if critical prerequisite are met, in particular regarding the suitability of soil and climate which conditions the productivity and profitability of the production, by the combined effect of the mulberries’ productivity, the length and number of rearing cycles during the year (cool places induce longer cycles) and the cocoon’s silk contents and quality. As previously indicated, project’s assumptions were based on technical parameters similar to those achieved in neighboring countries. It appears that this productivity level was not met13 even in the most favorable production areas. In many areas, the results achieved in

13 Actual results indicate a lower production of green leaves/ha and thus lower number of eggs/worms that could be reared per cycle, 2 to 4 cycles per year depending on the area and local conditions, greater sensitivity to diseases of

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terms of mulberry leave yields and number of cycles during the year were less than half what had been assumed. As a result, the income actually generated was considerably lower than had been projected. Although no detailed analysis was carried out, field observations indicate that currently (2015) the return from sericulture at current productivity level rarely exceeds Kips 40,000-60,000/day of labor, i.e. equivalent to the minimum daily wage for unskilled labor in rural area and significantly lower than the return provided in many regions by most other crops, including paddy, coffee, cassava and livestock.

The continued development of sericulture will depend on increasing competitiveness against imports and other competing rural activities. Focusing on plantations and cocoon rearing will thus not be enough and the project was just a partial answer to the problem. It will also depends critically on efficient downstream activities and require major improvements all along the value chain, from weaving to design and marketing. Sericulture as an activity will only be successful if there is vertical integration of all stages of the production chain.

The approach chosen to link producers to markets -- contract farming through lead firms providing a coordinated approach along the entire value chain -- seems to be the right strategy. The productivity of cocoon and yarn production is currently low in Lao PDR and the sector cannot compete on price rather than trying to compete on price against large producers such as China, Vietnam and Thailand. A better approach for the future development of the sector appears to be aiming for high value products/ niche markets relying on high quality and unique characteristics and appeal of traditional design and origin. This require a unique expertise in design and marketing that only private firms can offer and also that these firms be able to control all aspects of the value chain to ensure quality, from silk worms varieties, to cocoon rearing, spinning dyeing and weaving.

The small size of Lead Firms (limited managerial and financial resources) was clearly a constraint for project implementation. Although it is usually the case that private companies have difficulties in operating successful public-private partnerships, larger companies can cope with complex processes and implementation delays, participating LFs had too limited resources to do so. More flexibility in processes and support for additional staff and possibly an easier access to working capital may have been very useful in overcoming these constraints.

hybrid silk worms…)

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Annex 4. Grant Preparation and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/Specialty

Lending/Grant PreparationRichard Record Trade Specialist PREM Task Team LeaderKonesawang Nghardsaysone Trade Analyst PREM TradeJim Tomeko Consultant PREM PSDSirirat Sirijaratwong Procurement Specialist COSU ProcurementSiriphone Vanisaveth Financial Management Specialist COSU Financial ManagementPhet Udom Mainolath Program Assistant CMUSupervision/ICR

Richard Record Task Team Leader (Supervision from 2011-February 2013) GMFDR Trade

Konesawang Nghardsaysone Task Team Leader (February 2013-current) GTCDR TradeSirirat Sirijaratwong Procurement Specialist GGODR ProcurementKhamphet Chanvongnaraz Procurement Specialist GGODR ProcurementSiriphone Vanisaveth Financial Management Specialist GGODR Financial ManagementPhaymany Philakone Financial Management Analyst GGODR Financial ManagementPhet Udom Mainolath Program Assistant EACLFSouksavanh Sombounkhanh Program Assistant EACLF

(b) Staff Time and Cost

Stage of Project CycleStaff Time and Cost (Trust Fund Only)

No. of staff weeks USD Thousands (including travel and consultant costs)

LendingTotal: 0.00Supervision/ICRTotal: 53.35

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Annex 5. Beneficiary Survey Results

Not Applicable

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Annex 6. Stakeholder Workshop Report and Results

Not Applicable

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Annex 7. Summary of Grantee's ICR and/or Comments on Draft ICR

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Lao People's Democratic RepublicPeace Independence Democracy Unity Prosperity

Ministry of Industry and Commerce

Sustainable Silk Production Partnership in Rural Lao PDR (SSPP)

Implementation Completion Report (ICR)

March 2015

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1. Project BackgroundSustainable silk production partnership in Lao PDR was designed to pilot an innovative model that promotes sustainable silk production partnership between rural communities – primary producers of silk cocoons and private sector companies who have already been integrated to the silk production value chains.

The project logic is as follows: silk makes up the largest segment of the handicraft sector, exports can grow by increasing the quantity and quality of silk yarn; to increase silk yarn more farmers need to be brought into the production system; rearing silk worms productively to the cocoon stage requires extension; this extension capacity exists mainly in the private sector; the private sector is constrained primarily by their ability to train and support more farmers. This project will address the constraints faced by farmers to generate sustainable livelihoods through the promotion of additional and sustainable silk production.

Key Project Data

JSDF Grant No: TF098229 Grant Agreement signed on 22 April 2011 1,876,200USD Effective Date: 22 April 2011 Closing Date: 22 April 2015

Objectives of the Project

The objective of the SSPP is to pilot an innovative model that establishes silk production partnerships linking rural communities - primary cocoons producers to markets and therefore providing diversified income-generating opportunities to an estimated 1,200 disadvantaged households.Project Impacts

The SSPP seeks to achieve: A 20percent cumulative increase in beneficiary annual household income; A 20percent cumulative increase in beneficiary household income controlled by women in male-

headed households; A 20percent increase in annual exports by silk handicraft producers; and A 100percent increase in additional silk yarn produced, from 30 Ton to 60 Ton of national production

by 2015.

Project Outputs

The project intends to deliver the following: Formation of rural silk production partnership groups that link 1,200 farming households with

approximately 10-20 lead silk textile weaving firms. Provision of assets to approximately 1,200 farmers to start-up commercial sericulture. Development and delivery of training and extension service packages to approximately 1,200 farmers. Reports including a baseline survey, silk sector profile, and mid-term and final evaluations. Project management, monitoring and evaluation skills built within the NIU, TPPD and LHA.

Project Components

The SSPP Project has three components; including 1) formation of rural silk production partnership groups (USD 641,000); 2) investment in rural silk production (USD 1,005,000); and 3) monitoring, evaluation, project management, administration (USD 230,200).

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2. Overall Project Implementation Progress

Project development objectives

The project intended to facilitate establishment of silk production partnership between approximately 10 intermediaries and up to 1,200 disadvantaged rural farmers. However, as of March 2015, only about 50 rural farmers supported by the project were able to sustain their sericulture practice through partnership arrangement with two of the three lead firms participated in the project. In total during 18 months of the project implementation about 70 farmers were supported by the project through the lead firms.

Inability of the project to attract sufficient number of well-established lead firms to join the project is considered primary cause of poor performance against the target of reaching out to 1,200 households. This has made achievement of the intended project impacts of 20percent increase in household income, 100percent increase in domestic yarn production, and other gender related indicator impossible.

As of Mar. 2015, total disbursement of the project was only US$0.54 million, representing 28percent of total project fund.

Possible causes of poor project implementation performance include the following key factors:

1. Project design. One of the key assumptions of the project was that locally produced silk is in high demand among silk-based handicraft producers and it has competitive edge over imported silk in certain high end export markets. However, the Mid-term review exercise conducted in July 2013 could not prove that usage of locally produced silk gives competitive edge to export oriented silk textile handicraft producers. If this is not proven, the rationale for promotion of Lao silk production is hard to be justified.

2. Key to the business model promoted by the project is the linking of farmers to intermediaries with whom production partnerships will be established. The intermediaries are businesses that use a form of contract farming to support farmers with fixed and variable inputs, husbandry advice and the market for their finished products. However, after 18 months of the project effectiveness, only three firms out of about 10 existing firms participated in the project as lead firms. Furthermore, two out of three firms are considered new start-ups.

3. The project target of reaching out to 1,200 households is considered too ambitious by the project implementation team as well as the mid-term evaluation consultant. Lack of precise sector information and fragmentation of local silk production were main reasons for setting unrealistic targets. Even the sector profile that was carried out under the project couldn’t provide data on key sector characteristics, including its size. However, this issue was not seriously discussed prior to the Mid-term review.

4. Although “commercial practice” method was used to streamline the project implementation procedures, relatively complicated project implementation arrangement designed based on standard recipient executed WB funded project and existing AfT governance structure also significantly contributed to ineffective project implementation, including making necessary adjustments to operational aspects of the project. Experience from other enterprise development projects using value chains or M4P approach showed that flexibility in making necessary adjustment to the project design and decentralized decision making process are key factors determining success of such project.

5. The project was designed for full 4 year implementation and aimed to support expansion of land under mulberry by 350 hectares, giving employment to 1,200 farmers and supplying the market with additional 30 tons of silk. It takes about 10-12 months before mulberry saplings plated could yield sufficient quantity of leaves to support full and sustained worm production and with 6 cycles per year, assuming 40 Kg of cocoons per cycle and average selling price of 2.3USD per Kg, an additional household income of

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552USD could be expected. However, during 18 of the project implementation, only about 70 farmers were supported to produce cocoons in 1-2 production cycles.

6. Against a poor performance against the output targets during the first 18 months of the project implementation, one would expect major decisions made to take necessary corrective actions regarding the project design and/or project implementation arrangement. Additionally, opportunity to restructure the project was missed out after the project mid-term review due to complex decision making process on both government side as well as WB side. This was the best opportunity to make major necessary changes to the project.

The following table summarizes the results achieved by the close of the project on 22 April 2015.

Indicator Baseline Results Target (22 April 2015)

Project Development Objective IndicatorsHousehold oncome

Cumulative increase in beneficiary annual household income

1,800,000 kip xxxpercent 20percent

Silk production

Additional silk yarn produced annually 9 tons Approx. 30 tons

Silk production exports

Increase in annual exports by silk handicraft producers 20percent

Women’s economic empowerment

Cumulative increase in beneficiary household income controlled by women in male-headed households

20percent

Component levelOutput 1: Formation of rural silk production partnership groups

Families entering into commercial silk production and linked to markets through the establishment of production partnership with lead firms

69 1,200 farming households

Number of lead firms participated 3Up to 10 lead silk textiles weaving firms

Output 2: Investment in rural silk production

Provision of assets to farmers to start up commercial silk production 63 Rearing houses,

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Output 3: Monitoring and evaluation, project management and administration

Baseline survey Done

Mid-term evaluation Done

Final evaluation Referred to mid-term evaluation

No progress made thereafter the mid – term review

3. Assessment of Project Implementation Progress3.1 Formation of Rural Silk Production Group

This component is designed to provide technical assistance and training in order to facilitate the establishment of a series of production partnership groups that will link the targeted 1,200 farming households, with up to 10 lead silk textiles weaving firms. The process would be facilitated by staff of the Department of Trade Promotion and Product Development, and Provincial Industry and Commerce Offices, with the support of project-financed international and national specialists in rural livelihoods and market linkages. Staff of the Lao Handicrafts Association will also play an important role in reaching out to farmer groups and potential lead firms. This is an essential part of the project and involves providing farming households with sufficient knowledge, capacity and organization to enter into production partnerships on an equitable basis. An institutional capacity building package will also be provided to upgrade the capacity of the LHA and improve business planning and service delivery.

Subcomponent 1: Coordination and Technical Assistance to Production Partnership. The purpose of this sub-component is to link the primary producers of silk cocoons with the intermediaries that are essential to support these farmers via a series of production partnerships.

Subcomponent 2: Training and outreach to establish rural silk production partnership groups. The purpose of this sub-component is to formally establish the production partnerships between farmers and lead firms. Production partnerships will be formed and brokered through a mutual process.

As described above, the project was able to attract only three lead firms to participate, who in turn were able to only form production partnership arrangement with about 70 farmers, to whom both extension services and necessary investment equipment were provided. It is necessary to note that out of three lead firms, only one firm is considered well established firm with sufficient investment capital and necessary experience in provision of extension services to farmers.

Possible reasons for this include:

Long lead time between the project preparations to actual project implementation reduced interest from qualified lead firms. Initial project concept was discussed during 2008, funding for the project was secured in April 2011, the project operational manual was approved in December 2011, the international project manager was on board in December 2011, project assistant was recruited in March 2012, and subsequently with support from the project team, inclusive business plans were developed and the first transfer of funds to the lead firms happened in May 2012.

The project only supported one planting cycle and the total number of households in the first year was 165 and estimated total investment was USD 300,000 with project contributing about USD 200,000.

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The second transfer was not possible because all three lead firms had problems reaching targets of the first cycle.

Inability of the first three lead firms to reach the targets for the first year did not help the project team to attract more lead firms to participate in the project. At the same time, the project team, and other key stakeholders took time to reach consensus about the root cause of the poor project performance. On the other hand, complexity of the project implementation arrangement, under which two department heads (DPC, TPPD), and project management unit headed by an international consultant co-financed by the project and SNV managed by SNV made the decision making process too complicated and making the project irresponsive to the needs of lead firms and farmers.

3.2 Investment in Rural Silk Production

Under this component, a package of assets will be provided to farming households in disadvantaged areas in order to facilitate entry into commercial silk farming, along with on-going technical assistance, training and extension services in order to ensure that farmers are able to yield the highest possible returns on this investment.

Subcomponent 1: Delivery of ongoing training package to rural silk production partnership groups. A training package of up to $300 per farmer will be made available under the project to support capacity building, silk development and extension services for farmers in silk production partnerships. A key determinant of the long-term success of the production partnerships will be the economic returns accruing to the farmer through silk worm rearing. This will be determined primarily by the quality of silk cocoons produced. Thus it will be essential that farmers receive sufficient guidance on husbandry of silk worms.

Subcomponent 2: Asset creation for production partnerships. Under this sub-component, the project would provide farmers with some of the necessary physical assets required to start-up commercial silk production. Assuming a 2 rai (1/3 hectare) plot of land for mulberry, using hybrid eggs, the following inputs will be required for each farming household. Fixed costs will include mulberry saplings (est. 3,500 saplings for a total cost of $350), materials for construction of a rearing shed (est. $200), and materials for fencing (est. $200). The farmer would supply the plot of land, and the labor.

Progress in this component would depend on achievements of the component 01. During the 18 months of the project implementation 120 farmers were trained, 3 partnership agreements were signed, and complete package of assets were provided to xx farmers. As mentioned early toward the end of the project only 50 farmers were able to sustain their sericulture practice.Besides possible reasons mentioned under component 1, other external factors affected the project performance include poor selection of locations by the lead firms. According to the mid-term review, the following factor also affected the project performance:

Land availability; Competition from other cash crops (maize in the North, coffee in the South); Existence of donor dependency attitude among selected farmers and lead firms; Large portion farmers in the south faced food security issue, partly because the area was affected by

severe typhoon.

As of March 2015, only US$0.109 million was spent on this component, representing 10.8percent of the total budget allocated to this component.

4. Monitoring and Evaluation, Project Management and Implementation

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This component will provide for the collection of baseline data as well as periodic monitoring and evaluation to demonstrate results and allow for course corrections.

Subcomponent 1: Baseline and Final Household Surveys. A baseline survey will assess household consumption and income in target populations, as well as assessing current values of silk production within Lao PDR. An ex-post impact evaluation will assess the effectiveness of the project in supporting increased consumption and income in target households (compared to a control group not in a silk production partnership), together with measurements of overall increases in aggregate silk production and exports.

Subcomponent 2: Knowledge and Dissemination. Knowledge dissemination events will be undertaken to raise awareness on the potential for silk production partnerships, as part of efforts to encourage sustainability of production partnerships beyond the lifetime of project financing.

Subcomponent 3: Project Management and Administration. The proposed project will fit into the existing government structure for management of trade-related assistance to the Lao PDR, namely the National Integrated Framework Governance Structure. The TPPD would the lead technical agency, while NIU would perform fiduciary functions of the project.

Significant delay in recruiting full project team consisting of one international project managed –co-financed by SNV, administrative assistant, and national advisor affected the whole operations of the project. In fact, the project only benefited services of the national advisor for about 01 month.

The baseline study carried out with substantial delay, compared to the plan, could not provide sufficient information to assess appropriateness of the project impact and output targets.

Besides project website and brochure, limited knowledge dissemination events were organized.

As described above, unclear implementation structure of the project headed by two departments under MoIC, and day to day management under the international project manager, supplied by SNV, and unclear role of TPPD technical team, provincial and district level staff also contributed to making the project implementation unnecessary complicated.

5. Lessons learned

As Lao economy is becoming less diverse and facing challenge in attracting domestic and foreign investment into non-resource sectors with high potential for inclusive growth and job creation, in the coming years, the Government is committed to experiment new approaches to enhance enterprise competitiveness and the market development approach introduced under this project is a preferred approach among the most prominent development partners funding the enterprise development project. Therefore it is important to draw lessons from the SSPP Project. In the view of project team, the following are key lessons for future enterprise development interventions.

The “market development approach” aims at achieving significant and measurable impact on large numbers of enterprises with the realization of sustainability through systemic change is new to majority of staff from public sector. It is important to provide capacity building activities to relevant staff in the public sector about the approach, especially those involved in provision of direct support to private sector;

Implementation of majority of enterprise development projects aimed at improving productivity and competitiveness requires flexibility and very decentralized decision making at project level, therefore, establishment of a more “independent or autonomous” project unit with clear authority to make decisions on day to day operations should be considered for future project;

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As a general rule, services/support to private enterprise need to be responsive and customized, therefore, institutions/ agencies providing such services need to also operate in a business like culture. For this reason, it might be not appropriate to use traditional “recipient execution” modality as vehicle to implement enterprise promotion projects.

Annex 8. Comments of Co-financiers and Other Partners/Stakeholders

Not Applicable

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Annex 9. List of Supporting Documents

GFR 4985- Approved project document: Sustainable Silk Production Partnership in Rural Lao PDR, April 2011

Sustainable Silk and Handicraft Production, DTPPD, March 2009

Project Implementation Manual, MOIC, December 2011

Inclusive Business and Investment Plan, Lao Sericulture Co, Ltd, March 2012

Inclusive Business and Investment Plan, Lao Swiss Silk Co, Ltd, March 2012

Inclusive Business and Investment Plan, Mai Savanh Lao Co, Ltd, March 2012

Project Baseline survey, 2012

Lao Silk Sector Profile, DTPPD, 2012

Lead Firm Status, June 2013

Diagnostic Trade Integration Survey, World Bank, 2012

Diagnostic Trade Integration Survey, World Bank, 2012

National Export Strategy (NES) for the period of 2011-2015, MOIC

Aide-Memoire mission September 2011

Aide-Memoire mission June 2013

Aide-Memoire Mid-Term Review August 2013

Aide-Memoire February 2015

Implementation Status and Results (ISR) 1,2 and 3

Eight Steering Committee Report, October 2012, NIU-MOIC

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MAP

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