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Source: Agence Française de Développement
1 September 2011


Structural challenges in the Palestinian Territories were
said to be obstacles to the emergence of a clear vision in
the local government sector

Municipalities in the Palestinian Territories constitute one of the oldest forms of governance. With seventy percent of the West Bank’s population living in 107 municipalities (the entire population of Gaza lives in 25 municipalities), local governments have served as a main reference point for citizens. Not surprisingly, in recent years the Palestinian National Authority (PNA) and donors have been pushing for major reforms to accelerate the drive to self-sustained, decentralized and organized local governments.

Still, no clear vision and no long-term road map for the local governance sector has yet emerged, since structural challenges make progress difficult, e.g. postponement of local elections, breaking the territory down into different areas controlled by the Israelis, tax payment discipline being undermined by occupation; lack of expertise in the administration of LGUs, repeated damage to infrastructure, etc.

The existence of about 480 LGUs, including 132 municipalities and 86 Joint Service Councils, did not facilitate the emergence of a consensual strategy in the local government sector. Indeed, this proliferation of local governments and the existence of many small municipalities that lack the capacity to deliver services and achieve economies of scale in service provision are creating all kinds of needs and expectations at both the local and national levels.

AFD MDP objectives were aligned to needs in the municipal
development sector

The AFD Municipal Development Project (MDP), implemented by the Municipal Development and Lending Fund (MDLF), was created in 2004 to meet some of the mounting needs in the local government sector. With a total budget of EUR 12 million, AFD interventions in the sector mainly consisted, at least with respect to the financial resources involved, of infrastructure projects in road construction/rehabilitation and public facilities.

A review of the allocation of the AFD fund under the MDP revealed that most of the selected LGUs participating in the AFD MDP (about 66 percent) requested road infrastructure projects. Therefore, the rationale of AFD intervention has been in line with needs expressed at local government levels, with road rehabilitation constituting a priority for most municipalities during the period of this evaluation. The coverage of the AFD MDP was adequate in its initial phase (2004-2010). Originally, the AFD MDP was designed to include the capitals of the 16 governorates of the West Bank (Jerusalem excluded) and the Gaza Strip, as well as five Joint Service Councils (JSC).

The AFD MDP objectives were threefold: (1) improve living conditions and economic activity in the Palestinian municipalities through the maintenance, rehabilitation and, in limited cases, creation of basic municipal infrastructure; (2) stimulate the local economy through the mobilization of local contractors who will create jobs and therefore generate additional income; and (3) reinforce the linkages between the newly created Municipal Development and Lending Fund and the municipalities.

Other, secondary objectives had been contemplated, in particular to allow AFD to participate in the implementation of the reform action plan for the Palestinian local government system and to allow for efficient and rapid disbursements. The objectives of the project, though broad, were relevant to AFD’s strategy for the Palestinian Territories. The AFD MDP has targeted specific municipalities, reinforcing the strategic focus on road infrastructure, primarily directed to the periphery of municipalities in areas of greatest need. However, the objectives of stimulating the local economy through job creation and of reinforcing linkages between MDLF and LGUs were not fully achieved. After our mission, it became clear that the partners to the AFD MDP did not envisage introducing particular actions to maximize job creation policies.

The mission noted that project implementation was largely delayed due to the political crisis that propelled Hamas into a stronger leadership position in the municipal elections of 2004- 2005 and the legislative elections of January 2006, thereby disqualifying direct funding to municipalities (it implies that AFD cannot transit funding through Hamas municipalities but can still provide support to the populations indirectly).

The MDLF was a relevant strategic choice to implement

The MDLF, a fund which received AFD’s full support at its inception, constituted a relevant strategic choice to implement the AFD MDP during the period 2007-2010. Indeed, the evaluation concluded that the Fund was well adapted to the AFD strategy of targeting the municipal sector, with MDLF bringing specific benefits to the financing partners, e.g. increased funding efficiency through organized identification of projects and programming; selection of projects according to standardized criteria, developing procurement rules and supervising processes; greater predictability and streamlining of project delivery through a well-defined project cycle; reduced transaction cost opportunities in the long run as more donors join the Fund, thereby outsourcing processes and back office operations from donors to the Fund.

The MDLF was perceived as effective in its strategy to
mobilize donors’ resources

Concerning the effectiveness of MDLF, most individuals interviewed stated that the Fund had created a clear strategic focus directed at resource mobilization for infrastructure projects targeting municipalities. Since its inception in 2005, the portfolio of MDLF programs and projects has grown to about USD 138 million from several development partners (including the World Bank, the Swedish International Development Cooperation Agency (Sida), Dutch Cooperation, AFD, the Danish International Development Agency (Danida), the German Development Agency (KFW), German Technical Cooperation (GTZ), Japanese and Italian Cooperation) and the PNA.

However, we noted that some objectives had not always been clarified, in particular those related to the mobilization of resources from the Palestinian Authority, the development of the lending function (a longer-term objective), the deployment of capacity building components to meet the increasing needs of municipalities in improving their performance over the long run.

The “Scheme of Delegation” approach was highly relevant
to AFD’s strategy in the municipal development sector

The AFD business model for the municipal development sector was highly relevant under the “Scheme of Delegation” approach. Under this approach, the MDLF is the main implementing partner in charge of the identification, programming and management of projects in the municipal development sector (some form of financing fromAFD still exists outside the MDLF in the local government sector).

This approach provided a relevant framework through which AFD delegated the full programming and implementation powers to MDLF rather than to officers in the AFD country office and headquarters. Although some oversight remained with AFD, in fact most projects were pre-selected by MDLF, with expertise and technical assistance being procured and used by the Fund at its discretion.

Overall, the evaluation concluded that theAFD MDP project’s design and institutional arrangements were coherent and within only one implementing agency, the MDLF, thereby creating an environment with reasonable institutional arrangements for the planning, coordination and management of services. The negative consequences of such an arrangement were the reduced visibility of AFD in these arrangements and its limited relationships at the local government level.

Level of outputs was evaluated as satisfactory under the

Of the projects it assessed, the evaluation concluded that the AFD MDP contributed to substantial municipal development and that, considering that it was formulated during a period of severe political turmoil at the local government level, the delivery of these outputs was satisfactory.

Concerning the 58 projects carried out by the MDLF on behalf of the AFD MDP, the mission noted that around 75 kilometers of rehabilitated roads and water networks had been completed at an average cost of approximately EUR 121,000 per kilometer. Some 6,331 square meters of public facilities were constructed at an average cost of about EUR 273 per square meter. We noted that the overall costs of intervention compared favorably with international benchmark figures.

These costs were in line with the allocated budgets – indeed, there was often a surplus realized at project completion. In construction, where cost overruns are the norm, completion within budget limits was encouraging.

Efficient disbursement mechanisms were implemented
to ensure delivery of services

Disbursement rates were satisfactory for most municipalities and JSCs selected under the AFD MDP. The application of MDLF management procedures, implementation mechanisms and the disbursement of funds were efficient and contributed to the realization of projects in a timely fashion, meeting AFD’s strategic objectives. The correspondence between the financial commitments and financial allocations, as well as the analysis of the pace of project implementation and disbursements, was reflected in the optimum realization of the projects and in the achievement of expected results.

However, in terms of effectiveness, the mission concluded that opportunities exist to streamline the project cycle in the future, especially to reduce the bidding and contract negotiation phase. We also noted that the delivery of outputs did not differ between municipalities and Joint Service Councils (JSCs). Created by the PNA Local Authorities Act of 1997, JSCs could obtain services collectively for local governments.

In the 5 JSCs visited, we noted satisfactory results, similar to those in large municipalities.

The accountability and reporting function of the MDLF
should be strengthened to meet donors’ requirements

The evaluation noted that globally the accountability and reporting function of the AFD MDP was not satisfactory. MDLF reporting systems, in particular for performance purposes, were not adapted to quick and reliable reporting, nor did they allow for organizational goal-setting and performance measurement.

We suggested, therefore, that MDLF improve its reporting systems in order to serve the macro-reporting requirements and the management information requirements of the organization, its constituent units, the service lines and ultimately the donors. A positive response to donor calls for greater transparency and more efficient reporting standards in MDLF would be beneficial.

Due to generally limited management resources and budgets, the Monitoring and Evaluation (M&E) function had also evolved somewhat erratically, with no major evaluations being carried out on a regular basis. The mission also noted that there had been limited success in developing a knowledge management and research agenda at MDLF. That said, clear needs have been expressed by the partners to share good practices or lessons learned, to document ideas, information or experiences that could be useful to others and to actively share expertise on specific topics.

The sustainability of the MDLF business model has been
questioned by partners

Many partners have questioned the sustainability of the current model. One of the main weaknesses of the existing arrangement concerns the Fund’s legitimacy in channeling donor and PNA funding to local governments. Not only did the PNA not provide seed money to the Fund (except in recent years at a level of about 10 percent), but some international donors adopted strategies outside the Fund, thus exacerbating the legitimacy issue and making it difficult for the MDLF to be recognized as the sole financing partner of LGUs.

Although many partners agreed that the strategy of pooling resources was preferable to isolated actions in the municipal development sector, donors diverged on the question of whether or not to adopt a strategy for the Fund. For instance, the USAID Local Democratic Reform project covering the period 2005-2011 has been providing funding of USD 37 million to improve governance at the local and national levels (strategic development planning, prioritization of needs, adoption of accountability systems, promotion of civic participation, etc.).

At the same time, the United States Agency for International Development (USAID) operated a major Infrastructure Needs Program consisting of rehabilitating important roads, including some within municipalities. The funding of this program, which was apart from the MDLF, was approximately USD 100 million last year.

The potential reduction of grants from donors in the future has been an area of concern for the sustainability of the Fund. Considering the finite state of MDLF resources to meet expectations in the municipal development sector and accepting that donor funding was essentially “seed money”, the need to exercise rational choices within a strategic framework in order to raise more funds from the PNA seems persuasive.

Fostering large municipal coverage by MDLF, which was the intention of those who contributed to the establishment of the Fund, appears to be of the highest priority. If successfully pursued and adequately resourced, this could contribute markedly to sustainable development in the municipal sector.

To achieve a growth scenario and to achieve a balance between present and future demands, MDLF requires a clear vision, a rigorous multi-year work plan and effective analytical reporting systems.

Clear impacts have been noted, in particular for largerscale

In terms of impact, the evaluation showed higher levels of return for large-scale projects, e.g. the Nablus Tunnel and the Al-Bireh Stadium. These cases illustrated that another business model co-exists with the one focused on small-road rehabilitation. These two large-scale projects attracted high visibility, targeted larger population segments, attracted good leveraging of additional resources from the local governments and generated more positive results in terms of job creation and dialogue with the local governments and beneficiaries.

In terms of AFD’s role, the mission found that AFD had achieved a good position in the municipal development sector, which must be reaffirmed in future programming periods. However, in the implementation phase of the MDP, AFD’s contribution was rather weak due to its lack of ownership and visibility with regard to the MDP.

Conclusion and recommendations

Overall, the mission concluded that a solid partnership has been created between AFD and MDLF, which are working together to provide an integrated approach to the municipal development sector. At the same time, the mission asserted that the value for money could be significantly increased (streamlining of project cycles, better reporting, more dialogue with the local governments, additional resources to be secured by MDLF, etc.).

The report recommended that AFD continue to provide support to MDLF in the next funding period. Some recommendations for future projects were the following:

- Direct financing of municipalities: This option was considered as a longer-term option by many interviewees, mostly due to the fact that many municipalities do not have the full capacities to implement projects without donor funding.

- Mixed-project strategy (infrastructure and capacity building): This is not necessarily a desired option for AFD considering the availability of grant money to be committed to the sector and the lack of resources to be deployed for capacity building (with issues of governance being covered by the French Ministry of Foreign Affairs and not AFD). A more focused strategy is preferable, one that creates better leverage.

- Funding non-conventional sectors: AFD could consider investing in a new sector and/or a new geographical area, such as smaller municipalities or village councils. This strategy would be different from past interventions and would require that AFD deal with new challenges.

- Funding strategy focused on high leveraging: AFD could decide to exclusively fund larger-scale projects if good leveraging is available at the local level. In doing so, AFD would need to seek additional funding from partners and perhaps favor income-generating projects related to municipal infrastructure. The Nablus Tunnel and the Al-Bireih Stadium are good examples. The mission recommended thatAFD seek to fund high-priority projects having a greater scale, preferably through MDLF, and thus obtain more tangible impact at the AFD level.

The mission made eight recommendations, as follows: (1) AFD should leverage its few years of experience in the municipal development sector to actively participate in defining a sector-wide strategy to anticipate new policy challenges; (2) AFD should confirm its strategic intentions in the municipal development sector, with the MDLF offering many competitive advantages under the Scheme of Delegation approach; (3) Under an MDLF approach, AFD should insist on developing a major sustainable financial plan for the MDLF; (4) MDLF should carry out a full assessment of local government needs over the medium- and long-terms, particularly in terms of special needs and capacity building; (5) The resource pooling mechanism at MDLF must be consolidated on a non-earmarked basis; (6) AFD should request reinforcement of the accountability and evaluation functions of MDLF with a stronger focus on outcomes; and (7) An MDLF knowledge management agenda can be developed, but must be fully backed up by its partners and cannot be achieved on a client basis.

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