Two Decades of World Bank Lending for Customs Reform: Trends in Project, Dsign, Project Implementation,and Lessons Learned

Author:Michael Engelschalk and Tuan Minh Le
Pages:128-152
SUMMARY

Bank Assistance in Customs-Related Projects. Rationale and Lending Instruments. Scope and Distribution of Bank Assistance. Pre-Project Diagnostic Work and Project Design. Pre-Project Diagnostic Framework. What are Customs Projects Trying to Achieve? An Analysis of Project Objectives. Measuring Performance: The Design of Performance Indicators. Key Features of Project Design. Project... (see full summary)

 
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Over the past 20 years the World Bank has provided substantial support for reforming customs administrations in developing countries. While this support was seldom provided in the form of customs-specific technical assistance operations, many projects in trade facilitation, infrastructure, and public sector included customs reform components. In addressing customs reforms, the Bank has accumulated a significant amount of knowledge and experience, which should be used in designing new projects as well as in improving existing ones.

The chapter is structured as follows: The first section, Bank Assistance in Customs-Related Projects, summarizes the level, format, and regional distribution of World Bank lending for customs reform. The analysis is based on the project database (Trade Assistance Evaluation Project Database-TAEPD) compiled by the World Bank's Operations Evaluation Department (OED) and project-specific documentation including staff appraisal reports (SARs), project appraisal documents (PADs), implementation completion reports (ICRs), and OED evaluation summaries.1 The second section, Pre-Project Diagnostic Work and Project Design, provides a detailed discussion of issues, trends, and patterns in setting objectives, selecting performance indicators, and defining project activities. The third section, Project Implementation and Outcomes, identifies key problems in diagnostic work, project design, implementation management, and supervision that affect final project outcomes and sustainability. The concluding section discusses the design and process issues of projects with customs reform activities and draws key lessons for future Bank operations to support customs modernization.

Bank Assistance in Customs-Related Projects

The World Bank has been active in providing support for customs reforms in all geographical regions. A variety of lending instruments was used for these assistance projects, and the distribution of projects differed across region.

Rationale and Lending Instruments

World Bank customs modernization activities have generally been part of broader reform programs to facilitate trade, support general revenue mobilization, enhance public finance management, strengthen public sector human resources management, support infrastructure development, or enhance competitiveness. In many cases, customs is just a small component in a complex reform program.2 At the other extreme, in very few cases, such as the Russian Customs Development Project (RCDP), customs reform has been the sole focus of an operation.

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Customs reform components are embedded in investment and technical assistance loans (TALs) as well as in structural adjustment loans and credits (SALs). In the case of a technical assistance (TA) operation, the project document specifies the allocation of funds to each particular project component. Structural adjustment operations are generally designed to provide financial support for a policy program such as in fiscal reform or public resource management. The operations do not require an in-depth specification of project components nor do they specify the allocation of the funds to different components. Given the different nature of SALs, the following analysis focuses solely on the Bank's TA components to distill lessons for future customs modernization activities.

Scope and Distribution of Bank Assistance

During 1982-2002, the Bank engaged in 117 projects with a customs reform component 38 of these were TA projects and 29 were SALs. Annex 7.A summarizes the distribution of these projects across regions and periods.

In the SALs with customs components, two-thirds of the policy reforms retained were trade related, while one-third were public finance related. With respect to the customs-related components, 75 percent aimed at process simplification, 16 percent at improvements in legislation, and 9 percent at human resources development.

The customs-related conditionalities and scope of activities included in the SALs vary widely from the very specific to the most ambitious. Some SALs developed specific conditionalities related to specific customs procedures and operations (Georgia Third Structural Adjustment Credit Project, Jordan Third Economic Reform and Development Loan Project, and Morocco Policy Reform Support Loan Project), specific aspects of human resources management and training (Haiti Second Technical Assistance Project, Tunisia Development of the Capacity to Administer Foreign Trade), revision of the Customs Code (Nigeria Trade and Investment Policy Loan Project), and targets for simplification of procedures to facilitate trade (Morocco Second Industrial and Trade Policy Adjustment Loan Project). Some SALs imposed broad and ambitious conditions for customs modernization, such as strengthening customs administration (Sao Tome and Principe Strengthening Planning Budgeting Implementation and Control Project, Cambodia Economic Rehabilitation Credit Project) or strengthening the role of government in quality control of imports (Senegal Agricultural Sector Adjustment Credit Project). For the purpose of this chapter, we do not particularly analyze the 79 SALs in the database because SAL conditionalities are difficult to monitor in their linkage with TA provided, and the Bank's expertise is in general not explicitly tested in SALs.

Table 7.1 shows the allocation of approved TA operations (approximately US$309 million in total) toward customs-specific components by period and by region. The RCDP by itself attracted US$140 million-more than 45 percent of the total of financing for Bank customs-related projects. With or without the RCDP, Europe and Central Asia (ECA) countries far outweighed any other region in attracting Bank funds. The ECA region attracted about US$213 million with the RCDP included (approximately 69 percent of the total customs-related TA lending of US$309 million), and US$73 million without the RCDP (or 43 percent of total lending).

Table 7.2 depicts the distribution of the 38 TA operations with customs components by five project categories: customs-specific, trade-related, infrastructure, public finance, and others. The single customs-specific project, the RCDP, drew the highest share of the total approved loans for customs components (45 percent), whereas the customs activities embedded in infrastructure projects obtained the lowest share (3 percent of the total amount of customs loans with the RCDP, and 5 percent of the total without it). Public finance reform projects attracted the second highest share (32 and 59 percent of the total approved loans for customs, with and without the RCDP, respectively), followed by trade-related projects (16 percent and 30 percent with and without the RCDP). Except for the RCDP, public finance and trade-related projects are ranked second and third, respectively, in terms of average customs project amounts (column 4) and the share of customs operations in the total Bank-approved operations by project category (column 5).

Pre-Project Diagnostic Work and Project Design

Bank project documents provide detailed information on the pre-project diagnostics and project

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TABLE 7.1 Approved Amounts for Customs Components of Technical Assistance Projects, 1982-2002

(amounts in US$ million; shares in percent)

Fiscal Year

1982-86

1987-91

1992-96

1997-2002

1982-2002

Region

Amount Approved

Share

Amount Approved

Share

Amount Approved

Share

Amount Approved

Share

Amount Approved

Share

Sub-Saharan Africa

0.24

8

8.63

86

5.29

7

11.67

5

25.8

8

East Asia and Pacific

20.3

26

1.1

1

21.4

7

Europe and Central Asiaa

0.3

3

48.2

62

164.5

75

213.0

69

Latin America and Caribbean

2.6

92

1.15

11

22.0

10

25.7

8

Middle East and North Africa

3.82

5

9.0

4

12.8

4

South Asia

10.45

5

10.5

3

Total

2.8

100

10.1

100

77.6

100

218.7

100

309.2

100

  1. The RCDP was approved in 2002 in the amount of US$140 million.

Source: Authors based on World Bank database.

design. To track the evolution in pre-project diagnostics, the 1982-2002 review period is divided into two subperiods, 1982-93 and 1994-2002. The rationale for the time breaking point is two-fold: Because the OED database does not have any investment or TA projects with customs components during 1982-84, the natural break point that evenly divides the 1985-2002 period is 1993-94. Also, a number of projects with substantial customs components, such as...

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