Mexico - Second Technical Training (Second CONALEP) Project

Doc;M of The World Bank FOR OMCIAL USE ONLY ReputNw. 5499-ME (a) STAFF APPRAISAL REPORT UNITED MEXICAN STATES SECOND TECHNICAL TRAINING PROJECT (CONALEP II) April 29, 1985 Projects Department Latin American and Caribbean Region This document has a resticbi drisbgmk- amynu be used byren*pents only in te pefunmsce of dm ofeWdba s onms m a dwne lbe disch_se d w"B&c &BO,m  CURRENCY EQUIVALENTS (as of January 1985) Currency Unit = Peso Q(ex$) US$1 = Mex$210 Mex$1 = US$0.00476 Mex$ million = US$4762 MEASURES 1 square meter (m2) 10.76 sq. ft. 1 kilometer (km) = 0.62 miles UNITED MEXICAN STATES Fiscal Year January 1 to December 31 Academic Year September - June  FOR OMCIAL USE ONLY UNITED MEXICAN STATES SECOND TECHNICAL TRAINING PROJECT (CONALEP II) Table of Contents Page No. BASIC DATA ..........,,,,,, ... ... ... ..*..a.* .... GLOSSARYef ..... ,,,,,.,...,,.,,i LOAN AND PROJECT SUMMARY . ...... .................********iii I. ECONOMIC DEVELOPMENT AND LABOR NEEDS .... ....-.**......... 1 II. THE EDUCATION AND TRAINING SECTOR .... .....*** Overview of the Education and Training System ................ 4 Upper-Middle Level Technical Training .......** 5...... 5 Subsector Issues ... .....**e---- ........... 7 Subsector Achievements ..... *o***. ................... 8 The National Agency for Professional Technical Education (CONALEP) ...................... 9 Definition and Distinguishing Features ... 9.....* Objectives ................................. .... 10 Previous Bank Experience ....... ... .... .. 10 TII. THE PROJECT *..,*.....,...* *.* . e.- 10 Objectives ............*, ,. . . o.. 10 COmponents and Description . -. .... ......* . ..... 11 Improving Operational Efficiency and Effectiveness ..... O...... 11 Increasing the Output of Skilled Workers and Technicians ..... 12 Improving the Quality of Instruction and the Instructor Training Program....... ....... ........ w.e ........ 13 Development of a Maintenance System and Other Efficiency Measures. ....... ... 14 Overall Institutional Support ...... 15 IV. PROJECT COSTS, FINANCING AND IMPLEMENTATION .................. 16 Cost of the Project ........ 16 Recurrent Cost Implications ........... ... 19 Project Financing and Disbursement Plan ...................... 20 Implementation, Procurement and Auditing *.................. 21 Monitoring and Evaluation ....... .. ...... ............ ..... 25 ThIs Report is based upon the findings of the appraisal mission that visited Mexico in November 1984. Mission members included Jose Dominguez-Urosa (Senior Education Planner, mission leader), Wesley W. Hobbs (Senior Technical Educator) and Leonardo M. Concepcion (Education Architect). IThis document has a restricted distibution and may be used by redpients only in the performanc of their otrfiial dutiest Is cots may not otberwise be discksed without World Bank authoriin  Table of Contents (Continued) Page No. V. BENEFITS AND RISKS . .................. e..* ............. 26 Benefits ..........**.. **...*..S.* .. ............................ 26 Risks .......... 9 ......................... .s. 26 VI. AGREEMENTS REACHED AND RECOMMENDATIONS ....................... 27 TABLES: 1.1 Labor Force - Total Growth and Sectoral Distribution Patterns 1950-90 ............................... 2 1.2 Labor Demand by Economic Sector 1970-90 ....................... 3 2.1 Middle Level Education 1983/84 ............... 0.....0 ............ 6 3.1 Phase II Centers, Enrollments and Outputs ................ . 11 3.2 Regional Distribution of Training Centers and Enrollments..... 12 3.3 Enrollments and Projected Annual Outputs by Major Fields of Study when Expanded System is Fully Operational ..........0 13 4.1 Estimated Total Project Cost by Project Component ............. 16 4.2 Total Project Cost by Category of Expenditure ................ 17 4.3 Unit Cost Comparisons ........... .................... *..O.. 18 4.4 Expected Price Increases During Implementationo.............. .. 19 4.5 Estimated Schedule of Disbursement .............................. 21 4 6 Implementation Schedule...... ........... o............0 .......... 22 4*7 Procurement Arrangements ......... . ............. ....... 23 ANNEXES: 1. Comparative Education Indicators .......................... . 28 2. Structure of the Education and Training System (1985) ...o... 30 3. The CONALEP Technical Training Program ........................ 31 4. New Criteria for Determining the Location and Size of Training Centers and of Training Programs ... ............. 40 5. Breakdown of Contingency Allowances ...........*00 ....... ... 43 6. Disbursement Plan ..... .... ....... ........................... 44 7. Implementation Schedule ..... ......... .. .................... 45 8. Monitoring Indicators for the CONALEP Program ........... .... 46 9. Related Documents and Data Available in the Project File. .. 47 Addendum to Mapoo .................... ....................... ,... 50 MAPo ............ o...... ........... ......... ooo.o...................... 51  -1-~~~~~~~~~ UNITED MEXICAN STATES SECOND TECHNICAL TRAINING PROJECT BASIC DATA (1984) a/ Literacy 92.4% Upper-Middle Education and Training (1983-84) b/ Total Enrollment as Percentage of Age Group 15-17 Male 82.9 c/ Female 56.8 c/ Total 68.6Z d/ Terminal Technical e/ Enrollment as Percentage of Age Group 15-i7 Male 15.3 c/ Female 9.8 El Total 12.2Z d/ Central Government Expenditures on Education as a Percentage of Central Government Expenditures (1983) Total 12.0Z b/ Total Education Expenditure as a Percentage of GNP Central Government 3.2Z Total Government 4.2% a/ See Annex 1 for comparative educational data. b/ Sources: Miguel de la Madrid H., Segundo Informe de Gobierno, and SEP. ci Staff estimates. d/ Gross enrollment rates. el Terminal technical training is the upper-middle level phase of training which prepares graduates to enter the labor force.  UNITED MEXICAN STATES SECOND TECHNICAL TRAINING PROJECT GLOSSARY CAPFCE: Administrative Committee of Federal Programs for School Construction (Comite Administrador de Programas Federales para la Construccion de Escuelas) CELADE: Latin American Center of Demography (Centro Larino Americano de Demografia) CETs: Centers for Technological Studies (Centros de Estudios Tecnologicos) CONALEP: National Agency for Professional Technical Education (Colegio Nacional de Educacion Profesional Tecnica) CONAPO: National Population Council (Consejo Nacional de Poblacion) ICB: International Competitive Bidding INEA: National Institute for Adult Education INEGI: National Institute of Statistics and Cartography (Instituto Nacional de Estadisticas, Geografia e Informatica) LCB: Local Competitive Bidding NAFINSA: Nacional Financiera S.A. (The government's financial institution) NDP: National Development Plan SEP: Ministry of Education (Secretaria de Educacion Publica) SPP: Ministry of Programming and Budgeting (Secretaria de Programacion y Presupuesto) STPS: Ministry of Labor and Social Security (Secretaria de Trabajo y Prevision Social)  -iii- UNITED MEXICAN STATES SECOND TECHNICAL TRAINING PROJECT LOAN AND PROJECT SUMMARY Borrower: Nacional Financiera, S.A. Guarantor: United Mexican States. Beneficiary: National Agency for Professional Technical Education (CONALEP). Amount: US$81.0 million equivalent. Terms: 15 years, including 3 years of grace, at the standard variable rate. Project The project would support CONALEP in implementing the second Description: phase (1985-88) of its technical training program for skilled workers and technicians. Objectives: The project's objectives are (a) to improve CONALEP's operational efficiency and effectiveness; (b) to increase the supply of skilled workers and technicians; (c) to improve the quality of training, instructor training, and materials cost recovery efforts; (d) to develop advanced maintenance systems for buildings and equipment; and (e) to provide flexible support for the program as a whole. Components: The project would provide technical assistance to achieve the. above objectives, support the creation of 24 cost recovery, pilot -production units and assist in the development of about 97 technical training centers, equivalent to an expansion of 90,000 additional students in training and upgrading programs. Benefits: The project would greatly strengthen technical training at the middle level by further contributing to the institutional development of CONALEP and by enhancing the quality of training. The project would increase CONALEP's annua? output by 21,580 skilled workers and middle level technicians, and 1,500 technical instructors. It would also increase capacity to upgrade specialized skills for about 16,180 employed workers and technicians.  - iv - Risks: The major risks are difficulties in recruiting part-time instructors during peak production hours and retention of students. The ability of CONAIEP to pay competitive salaries should diminish the problem of teacher recruitment. A favorable student/teacher ratio and well equipped facilities to aid in practical application of course work should improve student retention. The risk of expected benefits of the production units not materializing is more than offset by CONALEP's proven capacity for implementing innovations. Further, the project would provide for the financing of feasibility studies prior to establishing the production units. Overall, considering CONALEP's capacity for monitoring and implementing the program, the risks are acceptable. Estimated Local Foreign Total Costs: a/ Category (US nillion) Construction 48.0 12.0 60.0 Furniture 3.9 0.9 4.8 Equipment 12.6 59.3 71.9 Production Supplies 0.3 0.3 0.6 Technical Assistance 0.4 0.4 0.8 Project Base Cost 65.2 72.9 138.1 Physical Contingencies 2.9 3.5 6.4 Price Contingencies 11.3 6.4 17.7 TOTAL PROJECT COST 79.4 82.8 162.2 a/ Figures may not add due to rounding. Costs exclude in-kind contributions and identifiable taxes and duties. They include about US$9.3 mdillion in sunk costs. Financing Local Foreign Total Plan: -(US$ Million) - Government 79.4 1.8 81.2 Bank - 81.0 81.0 TOTAL 79.4 82.8 162.2 Estimated Disbursements: FY86 FY87 FY88 FY89 FY90 -(USS$ million)- Annual 14.0 22.5 24.5 18.0 2.0 Cumulative 14.0 36.5 61.0 79.0 81.0  UNITED MEXICAN STATES SECOND TECHNICAL TRAINING PROJECT I. ECONOMIC DEVELOPMENT AND LABOR NEEDS 1.01 Mexico is emerging from its worst economic and financial crisis of the last 50 years. In the early 80s, a trend toward structural economic imbalance was evident, but the outgoing government did not address some of the essential economic and financial issues with the vigor that was required, particularly in the fiscal area. Public expenditures rose rapidly without- corresponding revenue increases, leading to increased public deficits and very high inflation rates. In 1981 and 1982, the slack oil market, massive capital flight and high international interest rates led to a steep deterioration of public finances and balance of payments. To meet these deficits the government borrowed heavily both abroad and at home. The government's stabilization program, which was introduced in 1983, has brought the situation under control, but economic growth suffered; unemployment rose from less than 2% in 1980 to about 14% in 1984. In 1983, the new government identified the resumption of economic growth and the expansion of gainful employment as two of its major priorities. 1.02 The government's strategy, as outlined in the National Development Plan (NDP) for 1983-88, combines special efforts to recover from the present economic crisis with a longer term perspective for regaining balanced and stable growth to overcome structural problems. These structural problems include a high rate of population growth (2.5% annual average estimated for the decade), 1/ very high rates of labor force growth (about 3.1% per year) together with skilled labor shortages, slow growth in agriculture, widespread poverty, highly skewed interpersonal and interregional income distributions, and an economy too dependent on oil revenues. The medium term strategy presented in the NDP focuses on the need for structural changes in the economy: a greater export orientation for the industrial system; decentralization of the commercial structure; poverty alleviation through policies designed to meet basic needs; and increased productivity and absorption of individuals into the labor force, brought about by proper training. 1.03 Mexico's medium term prospects for recovery and stable economic growth are good, provided that economic management continues to be prudent, private sector confidence is restored, and the international environment remains reasonably favorable. The government is committed to the economic stabilization program, which includes the reduction of both the budget deficit and inflation. It is also committed to liberalize trade and reduce price controls and subsidies. Restoration of confidence in the private sector is crucial, since only a strong and dynamic private sector will be able to raise investment from the present depressed levels and supply the increasing nonoil export surplus required for resumption of growth and expansion of gainful employment. Export growth in international competitive markets requires, in addition, a more productive and better trained labor force, particularly at the skilled worker and technician levels. 1/ Population growth rate derived from the latest (October 1983) joint projections of the Ministry of Programming and Budgeting, the National Population Council and the Latin American Center of Demography.  - 2 - 1.04 Changes in the total population and labor force by decade, from 1950 to 1980 and projections for 1990 are shown in Table 1.1, including the distribution of workers among the three major economic sectors. While the total labor force has grown significantly (from 7.9 million in 1950 to 20.4 million in 1980), the proportion of workers in the primary sector will decline steeply from 62% in 1950 to a projected 20% in 1990. At the same time, the share of workers in manufacturing (secondary sector) and in services (tertiary sector) have increased significantly, resulting in a fourfold growth in the number of laborers in those sectors over 30 years. The rate of shift has slowed down somewhat during the last three years as a result of the economic crisis; the number of workers in the primary sector is projected to remain relatively constant from 1980 to 1990, although the proportion would still decrease. The labor force in the manufacturing and services sectors, however, would continue to expand. These trends are important because the proportion of skilled workers and technicians varies substantially from sector to sector. Table 1.1: LABOR FORCE - TOTAL GROWTH AND SECTORAL DISTRIBUTION PATTERNS 1950-90 (million and percentage) Total Census Total Labor Economic Sector Year Population Force Primary Secondary Tertiary 1950 a/ 27.40 7.90 4.94 1.20 1.76 (100.0) (62.5) (15.2) (22.3) 1960 a/ 37.10 10.80 6.02 1.87 2.92 (100.0) (55.7) (17.3) (27.0) 1970 b/ 51.20 14.70 6.22 3.19 5.29 (100.0) (42.3) (21.7) (36.0) 1980 b/ 69.40 20.40 5.61 4.88 9.91 (100.0) (27.5) (23.9) (48.6) Estimated Data 1990 c/ 89.47 27.86 5.71 7.16 14.99 (100.0) (20.5) (25.7) (53.8) Note: F$gures may not add due to rounding. a/ From census data, reported by Munoz Izquierdo. b/ Staff adjustments of census data, made in cooperation with INEGI and the Directorate General of Employment. Labor force follows 1970 census data. c/ Staff projections revised jointly with CONAPO, the DG of Employment, and STPS.  1.05 The number of selected skilled workers and technicians and its proportion per thousand laborers by economic sector is shown in Table 1.2, as derived from the 1970 and 1980 Census. The table also shows that the number of skilled workers and technicians in each industry or sector increases with time; as a result of these two factors, but primarily of the sectoral shifts, the average proportion for the three sectors rose from about 85 per thousand in 1970 to about 101 per thousand in 1980. A higher concentration of skills in the occupational profile of each particular industry or sector is necessary to effect productivity gains. Since the proportion of skilled workers and technicians in the secondary and tertiary sectors is high and the number of workers in these two sectors are expected to continue growing, the demand for skilled workers and technicians would grow at a fast pace. The economy would require about 3.1 million skilled workers and middle level technicians by 1990, i.e., over 1 million additional skilled laborers in the current decade. Allowing for a 2X attrition rate in the labor force, the average additional requirement between 1980 and 1990 would be at least 120,000 skilled workers and technicians per year. According to recent Table 1.2: LAB(R DEWMD BY EBOMOIC SC1DR 1970-90 SELFEIED SKED WD)RNS AND T1ICIAN (SWT a/ Historical Data 1 9 7 0 1 9 8 0 No. of = 'actor No. of ul Factor Sector Workers from Censs a/ xJ&T Way from Cha b1 SiW i,n-lma)(e iL7 (-aan-s) (thultY)'ions7 (per UM-t 6 (tusands) Prtimry 6.22 15.50 96.41 I561 15.80 88.64 Seccndary 3.19 219.40 699.89 4.88 223.90 1,092.63 Tertiary 5.29 85.40 451.77 9.91 8870 879.02 Total 14.70 1,248 07 2. 40 2,060.29 Average Factor 84.90 100.99 Pmjected Data cl 1 9 8 5 1 9 9 0 Nb. of Projected Nb. of Projected Sector Wokers C/ Factor d/ SW&T Wo*,ers c/ Facor d/ s,u ' (mdl 1 4 aMSJ (thxadsa) Tmz 1 1ang (ths-s) Primary 5.67 16.10 91.31 5.71 16.40 93.64 Secidary 6.01 226.15 1,359.07 7.16 228.40 1,636.3 Tertiary 12.45 90.3B 1,125.50 14.99 92.05 1,380.20 Total 24.13 2,575.88 27.86 3,110.21 Average Factor 106.74 111.5B a/ Nuwber of skilled workers and tedhicians per thousand woers in the sector, extracted fram the cexsus by M. Zymenman, C0aiational Structures of Inzstries (Wshington, DC: World Bak, 1979). Ocaipai 1l categories have hben selected to incliide only those with training equiremnts at the middle level: e.g. ergime rs ard high leel tedxciadnn have been e=luded. b/ Caimable ocpasti=al categoes fran the 1979 Hxiehold Swrey and the 1980 Cous. Staff estimates. d/ Staff estimates for the comaroable proporti of selected ddlled workers and tedirciam.  estimates 2, the output of middle level technical programs yielded an annual average of only less than 30,000 graduates joining the labor force during the 4 year period 1980-84. Thus, the shortage of skilled workers and technicians in Mexico greatly surpasses the current annual supply. 1.06 The shortage of skilled workers and technicians could have serious economic consequences if not alleviated. It would be difficult for industry to meet the planned 10% annual increase in production, and even more difficult to remain competitive in international markets. Nor is it realistic to expect agriculture to grow at a rate of 4% per annum without a substantial upgrading of its labor force. The number of agricultural workers is almost stagnant, future growth must be based primarily on productivity increases. Solutions to current transport bottlenecks and maintenance of an efficient telecommunications network will depend on an adequate supply of skilled workers and technicians. Health and other basic services for people or industry cannot be adequately provided, much less improved or expanded, without increases in the quantity and qualit-y of labor in the corresponding sectors. Thus, reducing and eventually eliminating the shortage of skilled workers and technicians is vital to economic growth and development. II. THE EDUCATION AND TRAINING SECTOR 2.01 The Mexican general education and training system (Annex 2) is well developed and reasonably financed, but there are major deficiencies at the middle level. This is particularly true at the upper-middle level, where terminal technical training, i.e., preparation of skilled workers and technicians for entry into the labor market, has been weak traditionally, of low quality and unattractive to students. As a result, the output of skilled workers and technicians has been quantitatively and qualitatively out of line with the country's economic and manpower demands. Overview of the Education and Training System 2.02 The education and training system has primary, middle and higher levels. It has good coverage, fairly good efficiency and generally achieves its goals. At the primary level (grades 1-6), the net enrollment rate was 97% in 1980 and reached about 100% in 1984. Total enrollment was 15.4 million students in 1984. Internal efficiency 3/ has improved from less than 60% in 1971 to almost 81% for the cohort graduating in 1984. A free textbook program is well developed: it distributed about 83.4 million textbooks to students and 844,000 guides to teachers during 1983. Virtually all teachers are properly trained. Middle level education comprises a lower- and an upper-middle level. At the lower-middle level (grades 7-9), first year entrants in 1984 constituted 87.8% of all graduatee from the primary 2/ Comite InterSecretarial STPS/SEP, Subsector Study on Formal and On-the-job Training (forthcoming). 3/ Internal efficiency is the ratio of a current output to a maximum possible output. In this case, it is the number of student years represented by the graduates divided by the number of student years invested. If there were no wastage due to repetition or dropout, internal efficiency would be 100%.  level in 1983. Enrollments at this level were 4.1 million in 1984, an increase of about 2.5 million students since 1974. Internal efficiency has remained high, reaching 95% for the cohort finishing in 1984. The upper-middle level (grades 10-12) provides the link between lower-middle and higher education, as well as the lower-middle and the labor force. It is responsible for supplying the training necessary to produce future qualified workers and middle level technicians. This latter function has traditionally been difficult to achieve, despite several attempts at reform during the past 20 years. Thus, the upper-middle level is where the major problem lies. Higher education (grades 13-17) received more than 308,000 first year students in 1984, or 91% of those who completed nontechnical upper secondary education the previous term (338,000). Higher education includes several public and private universities of high quality. Enrollment in science and technological subjects accounts for 62Z of all students at this level, including those enrolled in medical sciences. This proportion represents a reasonable balance. 2.03 The Mexican Government has traditionally made a reasonable effort to finance edecation. Although the recent crisis affected education more than other sectors, it also allowed the government to shift funds toward high priority areas such as the improvement and expansion of upper-middle terminal training. In 1983, federal expenditures on education and training amounted to Mex$488 biliion (US$4.06 billion). State governments and the private sector also spent significant amounts on education, which brought total education expenditures in the country to about 4.2% of the GDP for 1983. This level is on the low side (see Annex 1 for comparators), but still adequate considering the fiscal circumstances. While the overall share of GDP allocated for general education has decreased significantly since 1979 (about 0.6 %), funding for terminal technical training has almost doubled in real terms in four years, from about US$43 million in 1980 to about US$79.9 million in 1983, indicating the high priority assigned by the government to this area. Upper-Middle Level Technical Training 2.04 As stated, this level has dual goals: preparing students either for the next educational level, or for entry into the labor market as skilled workers and middle level technicians, but it has traditionally failed to meet the latter goal. It enrolls 1.8 million students in more than 3,800 schools and it is highly differentiated. It comprises four major categories of education or training: academic, teacher training, dual purpose technica_4/, and terminal technical (Table 2.1). Each one of these categories includes several streams or types of schools, depending on the sector served (industry, fisheries, agriculture, etc.) and on the administrative jurisdiction (federal,, state, private). This high degree of apparent differentiation, does not represent a wide choice of alternatives. Instead, it manifests the historical difficulties of solving the problem at 4/ This category was origiaally intended to prepare students either to enter the work force or to proceed to the next level of academic education. In fact this category differs only slightly from the academic category.  -6- hand-i.e., of training sufficient numbers of bigh quality skilled workers and middle level technicians. For example, the dual purpose technical schools constituted a first attempt to train skilled workers by providing a practical outlet to the labor force. They have not, however, been effective in this respect, less than 7,000 out of 312,000 students joined the labor force in 1984. In 1969, the government again attempted to direct sufficient numbers of trained students into the labor force through the Centers for Technological Studies (CETs); yet only about 5,000 of 220,000 students joined the labor force in 1984. In addition, not many students wanted to apply for terminal training programs until recently. Table 2.1: MIDDLE LEVEL EDUCATION 1983/84 No. of Graduates No. of No. of Total 1984 EnterIng Labor Category Streams Schools Enrollments Graduates Force (units) (units) (thousands) (thousands) (thousands) Academic & General Education (preuniversity) 3 1,851 998.6 266.3 10.7 a/ Teacher Training 7 525 159.1 49.2 3.0 bJ Dual Purpose Technical c/ 3 433 312.3 83.3 6.7 Terminal Technical CETs & Others d/ 3 882 220.4 33.1 5.0 CORALEP e/ 1 122 96.2 17.6 17.1 Total 17 3,813 1,786.6 449.5 42.5 Source: Miguel de la Madrid H., Segundo Informe de Gobierno, Anexo Estadistico, 1984. a/ This group joins the labor force with a good education but lacks labor skills. As a result, only 31,800 enter the labor force with employable skills. b/ Actual output greatly exceeds demand. Thus, according to official statistics 46,800 'normnalistas- proceeded to the next level of higher education and teacher training in 1984. c/ Centers for Scientific and Technological Studies, Centers for Studies in Agricultural/Livestock Technology, Centers for Studies in FGrestry and Centers for Scientific and Technological Studies in Maritime Sciences, plus some streams of the National Polytechnic Institute, reg