Tunisia - Second Training and Employment Project

Document of The World Bank Report No. 15515-TUN STAFF APPRAISAL REPORT REPUBLIC OF TUNISIA SECOND TRAINING AND EMPLOYMENT PROJECT May 14, 1996 Human Resources Division Maghreb and Iran Department Middle East and North Africa Region  CURRENCY EQUIVALENTS Currency Unit = Tunisian Dinar US$1.0 = TD 0.96 (As of May 6, 1996) GOVERNMENT FISCAL YEAR January 1 to December 31 ABBREVIATIONS and ACRONYMS ATE Agence Tunisienne de l'Emploi (Tunisian Employment Agency) ATFP Agence Tunisienne de la Formation Professionnelle (Tunisian Vocational Training Agency) CAS Country Assistance Strategy CEF Contrat Emploi-Formation (Employment and Training Contract) CENAFFIF Centre National de la Formation des Formateurs et de l'Ingenierie de la Formation (National Center for the Training of Trainers) CNFCPP Centre National de la Formation Continue et de la Promotion Professionnelle (National Center for In-Service Training) CS Centre Sectoriel (Sectoral Training Center) EA Environmental Assessment EU European Union FIAP Fonds d'Insertion et d'Adaptation Professionnelle (Employment and Training Fund) FTA Free Trade Agreement GOT Government of Tunisia GTZ Deutsche Gesellschaft fur Technische Zusamrnenarbeit (German Technical Cooperation Agency) ICB International Competitive Bidding LMIS Labor Market Information System MHE Ministry of Higher Education MVTE Ministry of Vocational Training and Employment NCB National Competitive Bidding OFPE Office de la Formation Professionelle et de l'Emploi) (Office of Vocational Training and Employment) PCR Project Completion Report PMU Project Monitoring Unit PPAR Project Performance Audit Report PRONAFOC Programme National de la Formation Continue (National Program for In-Service Training)  SC Steering Committee SIVP Stage d'Initiation a la Vie Professionnelle (Professional Internship Program) SME Small and Medium Enterprises SOE Statement of Expenditures TOR Terms of Reference UGTT Union Generale des Travailleurs Tunisiens (Tunisian Workers' Union) UTICA Union Tunisienne de l'Industrie, du Commerce et de l'Artisanat (Tunisian Employers' Union) VT Vocational Training VTT Vocational Training Tax   REPUBLIC OF TUNISIA SECOND TRAINING AND EMPLOYMENT PROJECT LOAN AND PROJECT SUlMMARY Borrower: Republic of Tunisia Beneficiaries: Ministry of Vocational Training and Employment (MVTE), enterprises and workers Poverty: N/A Amount: US$60.0 million equivalent Ternis: Seventeen years, including a five-year grace period, at the IBRD standard variable interest rate Financing Plan: See Para. 3.7 Rate return: 13% of Part C of the Project Enviromnental Rating: "C" Staff Appraisal Report: Report No: 15515-TUN Map: IBRD 24726R Project ID: 5745   REPUBLIC OF TUNISIA SECOND TRAINING AND EMPLOYMENT PROJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS LOAN AND PROJECT SUMMARY BACKGROUND .............................. I Vocational Training ............................... I Key Issues .............................. 2 Employment Services .............................. 3 Key Issues .............................. 4 Government Strategy .............................. 4 Past Bank Experience and Lessons Learned .............................. 5 Rationale for Bank Involvement ........... ................... 6 I. TH ERJET ...............................................PJ.7 Project Objectives and Description .....7..... ........ 7 A. Creation of a Labor Market Information System (LMIS) ................. 7 B. Development of Employment Services for Displayed Workers .... .......... 7 C. Development of Training Services ............................... 8 lII. COSTS, FINANCING, AND MANAGEMENT ........................... 9 Summary of Project Costs . ........................................ 9 Financing ................................................... 10 Cost Recovery and Sustainability .................................... 10 Economic Analysis .1............................................. 1 Management and Implementation .................................... 11 IV. EXPECTED BENEFITS AND RISKS ................................ 16 Project Benefits ........................................ 16 Project Risks ................................................. 16 This report is based on the findings of an appraisal mission that visited Tunisia in January 1996, composed of Messrs./Mmes.: Guillermo Hakim (team leader, MIN1HR), Jean Christophe Laederach (MN1HR), Joseph Bredie (AFTHR), Georges Solaux (consultant), and Raymond Greub (consultant). Mrs. Eileen B. Sullivan (MN1HR) assisted in preparing the projects costs and financing tables. Peer reviewers are Messrs./Mmes.: Mary Canning (EC3HR), Zafiris Tzannatos (PSP), and Jaap Bregman (SAlPH). Ms. Claudia Pardinas is the lawyer for Tunisia, Mrs. Roslyn G. Hees is MN1HR Division Chief and Mr. Daniel Ritchie is MN1 Department Director.  TABLE OF CONTENTS (CONT.) V. AGREEMENTS REACHED ........................... 17 ANNEXES Annex 1 Statistical Annexes Annex 2 Organizational Chart of Ministry of Vocational Training and Employment Annex 3 Dual Training in Tunisia Annex 4 Detailed Project Matrices Annex 5 Economic Analysis: Estimating the Economic Internal Rate of Return Annex 6 Project Implementation and Impact: Key Monitoring Indicators Annex 7 Impact Evaluation and Monitoring Annex 8 Selected Documents in the Projet File Annex 9 Tunisia at a Glance  REPUBLIC OF TUNISIA SECOND TRAINING AND EMPLOYMENT PROJECT STAFF APPRAISAL REPORT I BACKGROUND 1.1 Since the adoption of stabilization and structural adjustment reforms in 1986, Tunisia's economic achievements are significant. GDP per capita grew at an annual rate of 2.4% during the 1987-1994 period, compared to 1.2% during 1981-86. Prudent macroeconomic policies have resulted in low inflation rates (4.5% in 1994), a shrinking current account deficit, and a surplus in the central government's primary balance. Exports of non-petroleum goods represent today 35% of the total, while Tunisia's financial market is deepening and capital markets are becoming more active. This overall context of macroeconomic stability has permitted significant social progress as well. Poverty incidence has been declining and is now at a historical low level of 7%. 1.2 Achieving higher rates of growth in a global market environment is the strategic choice the Government of Tunisia (GOT) has made for the medium term. The free trade agreement (FTA) with the European Union (EU) establishes a time-frame within which the GOT must take specific measures to open up the economy. In that context, future economic performance will depend on increased competitiveness of private sector enterprises. The focus of the draft Country Assistance Strategy (CAS) is therefore on private sector development. The private sector development plan aims at: (i) improving the institutional and regulatory environment for private enterprises; (ii) accelerating the privatization of public enterprises; and-(iii) bringing training in line with the needs of enterprises and retraining of workers of restructuring enterprises. The GOT has placed training as one of the central pieces of a strategy to improve competitiveness and develop the human capital base of the country. The Ministry of Vocational Training and Employment (MVTE) is responsible for implementing this strategy on three fronts: pre-employment training, in-service training and retraining of displaced workers. Vocational Training 1.3 The Tunisian vocational training system provides training and employment services to a labor force of 2 million workers, of which 25% are in industry, 25% in agriculture, 32% in services, and the rest in construction, transport and tourism. The training system has a total capacity of 50,000 places and is composed of four main subsystems: (i) private training institutions providing training essentially for the services sector with about 45% of the total training capacity of the country; (ii) the network of seven technical institutes under the Ministry of Higher Education (MHE), with 22% of total capacity; (iii) the vocational training programs run by the Ministries of Agriculture, Health and Tourism, representing 15% of the total capacity, and providing training within each of their sectors respectively; and (iv) the MVTE, with its national network of training centers, providing 18% of the total training capacity of the country, primarily in industrial programs. In addition to managing a national network of training centers, the MVTE is also responsible for running apprenticeship programs enrolling about 23,000 apprentices, which consist primarily of enterprise-based, task-oriented training programs at the level of semi-skilled workers, for youths with less than full basic education (additional data on the vocational training system is provided in Annex 1). 1.4 Private proprietary training has grown rapidly in the past eight years', and today there are 411 private training centers offering 34 different specializations to more than 22,300 individuals. Approximately 8,000 students graduate from private training institutions every year, making the private sector the single most important source of trained workers in the country. However, more than 95 % of the trainees enrolled in private institutions are concentrated in four areas of specialization: clothing (31 %), computers and secretarial skills (56%), hair-styling (8%) and electricity/electronics (1%). More than 70% of the students in private training I The new investment code of 1993, for the first time, introduces tax incentives for the creation of private educational centers.  institutions are female. Most of the training in private institutions is at the skilled-worker level (77%) and the rest at the technician level. 1.5 The MVTE is the only provider of industrial training at the level of skilled workers and technicians in Tunisia. The training is provided in two types of centers: (i) polyvalent centers, which provide training at the skilled-worker level in various skills for different types of industries; and (ii) sectoral centers, which provide training mostly at the technician level in specializations found in a particular economic sector (construction, electricity, transport, leather and shoes, wood and furniture, etc.). MVTE's capacity to train technicians represents only 10% of its total training capacity. 1.6 Created in 1990, MVTE's mission is to elaborate and evaluate the Government's policy for vocational training and employment. In 1993, the former Office de la Formation Professionnelle et de I 'Emploi (OFPE) was dissolved and replaced by four agencies under the responsibility of the MVTE: (i) a training agency (Agence Tunisienne de la Formation Professionnelle, ATFP); (ii) an employment promotion agency (Agence Tunisienne de l'Emploi, ATE); (iii) an agency for in-service training (Centre National de la Formation Continue et de la Promotion Professionnelle, CNFCPP); and (iv) an agency for the training of trainers and the elaboration of training programs (Centre National de la Formation des Formateurs et de l'Ingienierie de la Formation, CENAFFIF). The MVTE's organization chart is presented in Annex 2. 1.7 Budget allocations to the MVTE and its four agencies in 1995, amounted to the equivalent of TD 59.0 million. When compared to the budget allocations for general and higher education, MVTE's share of the national budget remains modest. In 1995, budget expenditures of the MVTE, including the services provided by all of its agencies, represented 1.25% of the national budget and 0.34% of GDP. Half of these amounts actually went to finance training programs. The rest went to finance employment services and the administrative costs of all agencies under the MVTE. Vocational training budget allocations represent less than 7% of those for general education, and less than 25% of those for higher education. Key issues 1.8 Supply-Driven Planning for Training. Up to now, manpower projections have been used to forecast skill requirements and to determine the size and composition of vocational training programs. With the reduction of the State as a job provider and the development of a market-oriented economy, what is required is an approach to planning, and allocation of resources, where labor market analysis and market-based signals of supply and demand for skills are made available to the various economic agents. Presently, investments in training capacity or in new employment services are decided without an analysis of costs and benefits. The present emphasis on state planning for the future expansion of training needs is to be replaced by a labor market-based analysis, for which there is a lack of reliable and timely information. 1.9 Segmentation of Pre-Employment Training.. Pre-employment training in Tunisia is segmented into two main parts: private proprietary institutions providing training mainly for the tertiary sector, and public provision of training for the industrial sector. In order to increase the relevance of training, a strategic option for Tunisia is to encourage and develop private sector participation in the provision of industrial training. This requires first the creation of a more favorable environment for the development of private investment in training and second, a shift from institution-based training to enterprise-based training. So far, private sector participation in the provision of industrial training remains negligible. 1.10 Low External Efficiency of Pre-Employment Vocational Training. Public industrial training programs have two main drawbacks. First, they are organized predominantly as institution-based training with weak links to the needs of enterprises. As the latter do not participate in the elaboration of training programs nor in the actual provision of training, graduates from public programs find it difficult to get jobs, and as a consequence  general insertion rates are low. Second, training programs were conceived to give general education dropouts, who leave the education system before secondary school, minimal preparation for entry-level employment. The recent reforms in education and training stipulate a higher quality at entry and exit for vocational training students, which will imply an increasing share of training at the technician level2. A significant number of basic school dropouts will be redirected towards apprenticeship programs. These programs, however, suffer from various deficiencies, in particular, an insufficient number of tutors, inadequate curricula and low course attendance3. 1.11 Lack of Financial and Managerial Autonomy for Training Centers. Public training centers are allocated funds from ATFP's budget, and they have only recently started to charge small fees for student registration and for room and board. Although these charges represent less than 10% of the overall budget allocated to the training centers, ATFP plans to increase fees gradually. The weak linkages between the training centers and enterprises also limits the contractual services training centers can provide and thus limit the potential diversification of the centers' revenue sources. All these translate into a limited autonomy of the centers vis-a-vis ATFP. 1.12 Limited In-Service Training. In addition to pre-employment training, MVTE is also responsible for the promotion of in-service training which is financed by a vocational training tax (VTT) levied on firms, except export-oriented (offshore) firms. Manufacturing firms pay I % of their payroll, while non-manufacturing firms pay 2%. In 1993, tax revenues amounted to TD 31.0 million, roughly equivalent to the annual recurrent expenditures of the MVTE. The tax, however, is not earmarked to finance the public training system, and qualifying firms receive a partial rebate if they conduct in-service training. 1.13 Enterprise-based, in-service training for workers, is an activity which few Tunisian enterprises undertake. After a long tradition of protectionism, the link between the development of human resources and enterprise competitiveness is not yet understood by enterprises. A handful of enterprises, most of them public and amongst the largest in the country, conduct in-service training and benefit from the vocational training tax rebates. Most of the private sector does not. However, an increasing awareness among private sector entrepreneurs that a more open economy will require higher standards of human capital development to compete in the market is increasing their interest in in-service training activities. The tax rebate is not a strong incentive for most enterprises, especially small and medium enterprises (SME), since the training tax they pay is small and would only partially cover the costs of in-service training. Employment Services 1.14 In 1981, faced with growing unemployment, especially among first-timejob seekers, the GOT introduced the first program to assist young people with finding employment. The program, Contrat Emploi Formation (CEF), provided secondary-school dropouts with a one-year work and training internship in a participating enterprise. The contract establishes that the enterprise pays the intern a trainee's wage and in turn, receives an incentive payment to cover part of the training costs. The CEF is still in operation and has provided an opportunity to work and obtain work-related training for more than 35,000 people since its inception. 2 The minimum entry requirement for training at the skilled-worker level is now 9 years of education (certificate of ecole de base), and 11 years for the technician level. The Bank is proposing a study on basic education dropouts in order to identify measures conducive to a higher retention rate. Similarly, the Bank is supporting the development of secondary general education (Loan 3786-TUN).  1.15 In 1987, a new program, the Stage d'Initiation a la Vie Professionnelle I (SIVP-I) was introduced, to offer a one-year work-training internship for higher-education graduates. This was followed, in 1988, by the SIVP-II, which offers the same service for higher-education drop-outs. Both programs are still operational and have assisted some 18,000 and 9,700 job-seekers respectively since their inception. 1.16 By 1990, and following consultations with the private sector, a new program, the Employment and Training Fund (Fonds d'Inserton et d'Adaptanon Professionnelle, FIAP), was created. The FIAP program offered six targeted interventions with the following instruments: A: short-term pre-employment training for a specific vacant job in a firm; B: entrepreneurship start-up training; C: in-service, upgrading training; D: outsourcing the training of new workers; E: worker relocation grants; F: re-training of redundant workers. Instruments D and E were later eliminated. From May 1991 to June 1995, FIAP operated with support from the Bank (Loan 3255-TUN), and has benefitted more than 2,800 enterprises and 33,000 workers. 1.17 Although public employment services presently assist some 600 firms and over 12,500 workers annually, their cost-effectiveness is unknown and their impact can be considered uneven according to a number of evaluations that have been conducted for the various programs. Unit costs vary considerably in the range of TD 600-2,500, but information on benefits, such as wages of program participants, are lacking. The majority of FIAP's beneficiaries are concentrated in the first targeted intervention, and to a lesser extent, in the second one. These two interventions benefit mainly first-time job-seekers. Instruments C and F, designed to assist in-service training, and training of redundant workers, have remained largely unused. Key issues 1.18 Lack of Employment Services for Workers Affected by Economic Restructuring. The new economic environment of increased exposure of domestic enterprises to foreign competition has highlighted the inadequacy of the existing employment services, which are geared to first-time job seekers. Services for re-training and placement of workers affected by economic restructuring are non-existent, limiting the opportunities for laid-off workers to re-enter the labor market and thus, hindering labor mobility. Empirical evidence seems to indicate that although unemployment continues to be mainly a problem for first-time job-seekers, job losses due to the closing down of firms are becoming common. In sum, among the main issues affecting employment services we find: (i) a proliferation of services for first-time job-seekers; (ii) lack of accurate cost and benefit data that would allow an evaluation of the efficiency of the different programs; and (iii) lack of employment services for redundant workers. Government Strategy 1.19 The Government's ongoing reform of the current training and employment programs managed by the MVTE, aims at improving the overall competitiveness of the Tunisian economy. The long-run objective of this strategy is to develop a partnership with the private sector in order to promote the emergence of private training programs catering to the needs of the manufacturing sector, and to involve enterprises in the elaboration of training programs and in the actual delivery of training (enterprise-based training). This strategy4, which has been discussed with the Bank and the EU, seeks to: (i) improve substantially the insertion rates of graduates from pre- employment training programs by improving the efficiency and relevance of training; (ii) develop private sector participation in pre-employment and in-service training; and (iii) promote the financial autonomy of training centers and transform them into service providers to enterprises. 4 A more complete description of the Government's strategy for training is contained in the document Strat6gie de Mise i Niveau de la Formation Professionnelle, Tunis 1995.  1.20 The Government has linked the future development of training with its overall strategy of private sector development. This implies mobilizing employer training and private provision of training. Its strategy for mobilizing employer training consists of: (i) establishing contracts between training institutions and enterprises to develop apprenticeships and enterprise-based training (dual training), which would gradually replace the existing institution-based system of training. An agreement has been signed between the MVTE, the employer's association (UTICA) and the worker's union (UGTT), to develop enterprise-based training programs; (ii) encouraging in-service training by firms, for which the Government has relaxed the limits to training expenditures eligible for tax rebates, and has included activities not covered before, such as the preparation of training audits. The Government is aware, however, that it is primarily large enterprises who conduct in-service training. The Government has now established a special program, the Programme National de Formation Continue, PRONAFOC, under the MVTE, to finance in-service training activities for SMEs. This program can directly finance in-service training by an individual SME, or can organize and finance activities like short technical courses for qualifying firms. The PRONAFOC is a mechanism designed to channel funds to SME enterprises that would otherwise find it hard to finance in-service training activities. The GOT plans to permanently monitor the effectiveness of the rebate system and of PRONAFOC in order to assess possible reforms to the current financing mechanisms. 1.21 Concerning private provision of training, the GOT is aware of the difficulties in developing private investments in industrial training. The low quality of many of the public training programs constrains the potential for cost-recovery and thus limits the development of private spending on training. Therefore, the GOT is seeking to increase the quality of vocational training graduates by raising both the entry requirements and the quality of the programs. In addition, MVTE has begun to charge modest fees to its students and will increase fees gradually. The Government is currently studying various measures to encourage private investments in industrial training, including additional fiscal incentives, student scholarships and partnerships for the management of public facilities by the private sector. EU financing will assist in the emergence of private training institutions in the industrial sector by providing technical assistance and finance to private sector employers' associations see para 1.27), while Bank financing will assist in the expansion of dual training schemes in public training centers and in the development of in-service training for enterprises. 1.22 Another key element in the Government's strategy is to allow training centers to keep up to 75% of revenues from the sale of training services to firms. In this way, the Government wants to encourage a greater autonomy of training centers by supplying services to enterprises as a means of diversifying their sources of revenue and to promote stronger links to enterprises. Past Bank Experience and Lessons Learned 1.23 The World Bank has to date financed three vocational training and employment projects in Tunisia, with loans totaling US$39.8 million. The Fourth Education project (Loan 1961-TUN, US$16 million, completed in December 1988) supported the policy of expanding training opportunities for school leavers and for skill upgrading of the work force. In addition, the project supported the expansion and upgrading of the apprentice training scheme. The project succeeded in the modernization of the technical facilities but experience difficulties in setting up an effective monitoring system. The Employment and Training Fund (FIAP) project (Loan 3255- TUN, US$12 million, completed in June, 1995) established a fund to support decentralized labor market intermediation services, including short-term training and other mechanisms to encourage labor mobility. Through the provision of labor market intermediation services, the project was able to reach over 34,000 beneficiaries, with an insertion rate of around 73 %. Employment services were modernized and extended at local levels throughout the country. The Education and Training Sector project (Loan 3054-TUN, US$95.0 million, of which US$11.8 million for training, completed in March 1996) supported the first phase of restructuring primary and lower secondary education into a nine-year basic education program (ecole de base). The project also supported the conversion of 8 technical secondary schools into sectoral training centers under the MVTE, as well as  - 6 - technical assistance for improving management of the centers. The Conseil Consultatif, which allow for the participation of private enterprises in the Board of the training centers, were established under the project. 1.24 Throughout the three projects, one of the most difficult objectives to achieve has been the establishment of an efficient monitoring system for project activities. Although FIAP included a mid-term review in its design, none of the projects had an impact evaluation component. On the other hand, tracer studies and the monitoring of costs have yet to become part of the regular monitoring activities of the training and employment services. These activities will be included as part of the first component of the project (LMIS). Delays in implementation have resulted in less time devoted to the qualitative objectives of the project. In one project, because of lack of familiarity with Bank procedures, it took two years before the first bid for equipment was launched. MVTE now has much more familiarity with Bank procedures. To ensure proper implementation of Project activities, a proposed training plan for relevant MVTE staff on procurement, accounting and disbursement shall be transmitted to the Bank by December 31, 1996. 1.25 Flexibility to adjust the project to changing circumstances, while keeping the objectives unchanged, has been key to FIAP's success. This allowed adapting insertion strategies to individual firms' needs and to adjust administrative mechanisms based on practical experience. This will continue to be the case under the employment services component of the proposed project. Another important lesson concerns the importance of formalizing the mechanisms for private sector participation. For example, current participation of the private sector in the advisory committees (conseils consultatifs) of tie training centers depends to a large extent on the personal contacts. In the proposed project, this would be replaced by formal agreements signed between the centers and the representative private sector associations. 1.26 The Education and Training project spent significant resources providing technical assistance to a Government unit charged with preparing the feasibility studies for the financing of the sectoral centers, a unit that later disappeared in one of the reorganizations of the public training system. The present project retains the principle of feasibility studies to finance training centers, but will give the responsibility for the preparation of feasibility studies to private sector consulting services. Rationale for Bank Involvement 1.27 Increasing the relevance of training in Tunisia is a long-term task for which private sector participation has to be encouraged. The key strategic objective of this project is to transform the training sector from a supply-driven, socially-oriented (absorbing general education dropouts) into a demand-driven system. This project, as an integral part of the GOT/World Bank private sector development program, represents a key step in this direction. Increasing the relevance of training has attracted strong donor interest (European Union and bilateral aid) and has raised the issue of coordination among the various donors. The Bank has coordinated closely with the EU and the German technical cooperation agency, GTZ, to define a common strategy that will guarantee the development of enterprise-based training and the links with enterprises. This project builds on the four-year old pilot efforts by GTZ to develop dual training, or enterprise-based programs, in Tunisia (Annex 3). On the other hand, the EU will finance technical assistance for the private sector employers' associations to develop their own training assessments and will assist in the emergence of private provison of training by financing private sector training centers for industrial training. EU's financing will also promote the development of private-sector, local expertise in the area of human resources management, and will help develop a system for the creation of standards and norms for the delivery of training certificates and diplomas. In the medium-term, until a strong presence of private sector involvement is developed, industrial training will be dominated by public training centers. The Bank-financed project focuses on increasing the efficiency of public training programs by reducing their isolation from enterprises' skill requirements. The latter is accomplished by developing enterprise- based training programs. The project also supports the Government's in-service training programs, through the vocational training tax rebates, as incentives for the development of private provision of in-service training. The  GOT wants the Bank to play a major coordinating role so as to benefit from the Bank's expertise and ensure consistency in their dealings with other donors. The coordination with other donors has resulted in an overall consensus regarding the need for enterprises to assume a greater weight in the design and management of public training. II. THE PROJECT Project Objectives and Description 2.1 The main objective of the Second Training and Employment Project is to support the Government's strategy to modernize training services, with a view to increase the competitiveness of the Tunisian economy. The project will help make training and employment services more relevant to the needs of individuals and enterprises and will assist the Government in its strategy to increase labor productivity and mobility. This project would assist the Government in implementing its vocational training reform by: (i) developing its capacity to monitor the labor market and to use economic analysis to identify and evaluate alternative training investment opportunities; (ii) gradually replacing the existing institution-based training by enterprise-based, dual training and apprenticeship programs, with participation of enterprises in the elaboration of training programs and in the actual delivery of training; (iii) promoting in-service training for small and medium enterprises and improving the vocational training tax-rebate system; and (iv) enhancing labor mobility by developing employment services for workers affected by economic restructuring. The project would be implemented by the MVTE. To this end, three components would be implemented over a five-year period': 2.2 A. Creation of a Labor Market Information System (LMIS). (US$5.1 million, 6% of total base cost). To improve the efficiency of training and the performance of labor markets, the project would finance consulting services, training, study tours, and equipment to: (i) develop a labor-market information system and build the institutional capacity of the MVTE to monitor the operation of labor markets, and make more efficient use of existing sources of labor market infonnation; (ii) develop MVTE's capacity to monitor and improve the cost-effectiveness and efficiency of training, employment programs and services. This subcomponent will also carry out the impact evaluations for the project; (iii) develop an information dissemination system, conduct tracer studies, small surveys and produce a periodic bulletin that will provide decision-making tools to individual firms in adopting training decisions based on market signals. 2.3 B. Development of Employment Services (US$12.1 million, 13 % of total base cost). To respond to the need of placement and re-training services for workers affected by economic restructuring, the project would finance: (i) Training under subprojects eligible under the Employment and Training Fund (FIAP) contracted by enterprises, for the re-training of redundant workers and the provision of placement services. The subprojects to be financed would be selected and implemented according to an agreed procedures manual; 5 Detailed project matrices are presented in 4.  (ii) consulting services, equipment and staff training for ATE staff for the modernization of ATE's employment services, including the introduction of a national computerized network system and cost control system; 2.4 C. Development of Training Services (US$74.3 million, 81 % of total base costs). (i) Links between pre-employment training and enterprises. This sub-component would finance the gradual transformation of institution-based training into enterprise-based dual training, at the skilled-worker and technician levels, and the gradual improvement and expansion of the apprenticeship program, through: (a) training, equipment, civil works, pedagogical materials, office equipment and library resources for the rehabilitation of existing sectoral training centers (CS) and/or the creation of new ones. Technical assistance would also be provided for the development of a new management model for the sectoral training centers. The project does not pre-identify training centers which would be eligible for loan financing. Agreement was reached on two criteria which would need to be fulfilled by the potential candidates: (a) completion of a satisfactory economic feasibility study which justifies the financing of a center; and (b) the signature of dual training agreements between ATFP and professional associations and with at least one individual enterprise, as condition of Disbursement. (b) technical assistance for the management and monitoring of apprentices and apprentice training services; vehicles and equipment for the rehabilitation of training rooms of the ATFP apprenticeship program. (ii) Development of training for trainers and elaboration of training programs. This subcomponent would develop the capacity of CENAFFIF to assist enterprises in the elaboration of training programs and in improving the quality of the centers' trainers through: technical assistance and overseas training for CENAFFIF staff to assist them in the development of new training programs, and training of trainers. (iii) Development of in-service training. The project would support the development of in- service training for enterprises by financing: (a) technical assistance for CNFCPP to improve the management of the vocational training tax and tax rebates, including creation of a unit specialized in the monitoring and evaluation of the cost-effectiveness of the training tax system; (b) Training under subprojects to promote in-service training for small and medium enterprises under the PRONAFOC. Firms must have less than 100 permanent workers and can receive financing for training assessments, training plans and the actual cost of training. Eligible subprojects would be selected and implemented according to an agreed procedures manual.  - 9 - III. COSTS, FINANCING, AND MANAGEMENT Summary of Project Costs 3.1 Total project costs are estimated at US$104.0 million equivalent, including US$12.6 million for contingencies (12%) and US$11.4 million for taxes (11%). A summary of the proposed project costs appears in Table 3.1. 3.2 Basis for Cost Estimates. Costs for construction, furniture, equipment and pedagogic materials are based on average unit costs of recently awarded contracts for similar items. Costs for computers and software are based on international prices and include installation and user training. Costs for specialist services include fees, travel, accommodation and subsistence and are based on recent consultant contracts. Costs for overseas training include travel, living expenses, tuition when applicable; they range from US$4,000 per study tour to about US$6,000 per staff months for fellowships. 3.3 Contingency Allowances. Project costs include a contingency allowance - for unforeseen physical variations -- equal to US$5.2 million (6% of total project cost, excluding taxes). The following rates have been applied: civil works, equipment 9%; consultant services, training and recurrent costs 4%. Price contingencies between negotiations and project completion are estimated at US$7.4 million (8% of total project costs excluding taxes). The following annual rates of increase have been applied: 5.5% for local costs and 2.6% for foreign costs. 3.4 Foreign Exchange Component. The foreign exchange content was estimated as follows: construction (45%); pedagogical material (85%); furniture (0%); equipment, vehicles, computers (85%); foreign specialists and training abroad (95%); locally recruited specialists, local training services (0%). The resulting total foreign exchange content is estimated at US$45.6 million, representing 49% of total project costs, excluding taxes. 3.5 Custom Duties and Taxes. Imports of educational equipment and pedagogical materials are exempt from duties and taxes. Goods procured locally average an import duty and taxes of 10%. Indirect taxes on civil works are estimated at 15%. Incremental Recurrent Costs 3.6 Under the proposed project, additional recurrent costs would be generated by: (i) preparation and implementation of surveys, studies and the recruitment of staff for the LMIS; (ii) recruitment of trainers and staff for new and rehabilitated training centers; (iii) recruitment of tutors for apprenticeships; (iv) operating costs of documentation centers in training centers; and (v) overhead and operating costs for equipment. The total additional recurrent base costs generated by these items during the project implementation period are estimated at US$14.9 million. Average annual incremental recurrent costs generated by the project would be US$2.5 million equivalent, which represents 4.2% of MVTE's total budget in 1995.6 Allowing for a 20% cost recovery by the end of the project (para. 3.8), budget transfers to finance MVTE's recurrent costs would increase annually by only 2.7%. 6 The medium-term outlook presented in the CAS includes a high growth cenario of 6.29% and a low cae senario of 3.5% per year for the period 199599. The incremental recurrent coats due to the project would increase the MVTE's budget less than ODP's growth under the high case, and slghty hiowr Iba the low case scenarios.  - 10 - Table 3.1 Project Cost Summary by Component (TD Milion) (US$ Milbon) Local Foreign Total Local Foreign Total A. LMIS & PMU 2.8 2.1 4.9 2.9 2.2 5.1 B. EMPLOYMENT 10.5 1.2 11.6 10.9 1.2 12.1 C. TRAINING 36.6 34.7 71.3 38.1 36.1 74.2 Total Baseline Costs* 49.9 37.9 87.8 52.0 33.5 91.4 Physical contingencies 1.9 3.1 5.0 1.9 3.3 5.2 Price Contingencies 4.4 2.7 7.1 4.6 2.8 7.4 TOTAL PROJECT COSTS ** 56.1 43.7 I 99.9 58.5 45.6 104.0 Including taxes and duties at n11.4 niion * Numbers may not add up due to rounding. Financing 3.7 Financing for the project would consist of a Bank loan of US$60.0 million equivalent (65% of total project costs, excluding taxes), a Government contribution of US$32.6 million equivalent (35% of total project costs, excluding taxes), plus an additional US$11.4 equivalent for taxes (summaries of project financing appear in Table 3.2). The Bank loan would cover 100% of foreign exchange content and 31% of local expenditures net of taxes. The Government would finance the balance of local costs. Assurances were given by the Government that all necessary measures will be taken to ensure that adequate counterpart funds, including the necessary budgetary allocations required to maintain an adequate level of the project beneficiaries'annual recurrent and investment budgets, starting January 1, 1997, and opening a -Special Account (SA) (para. 3.20). Table 3.2 Financing Plan (US$ million) % of Proj. Funding Source Local Foreign Total Costs (net of taxes) IBRD 14.4 45.6 60.0 63.0 Government 32.6 0.0 32.6 37.0 Duties, Taxes 11.4 0.0 11.4 Total 58.4 45.6 104.0 100.0 .. Numbers may not add up due to rounding. 5 4 1 Cost Recovery and Sustainability 3.8 Student fees charged by training centers will continue to increase, albeit modestly, while training centers' revenues from services to enterprises are expected to increase significantly. The Government is committed to diversifying the sources of financing for its training programs and reducing the importance of budget transfers in the financing of training. By the end of the project, it is estimated that 20-25% of the training centers' budget will come from services provided to enterprises and from student fees, compared to the current 5%. This target is part of the agreed key monitoring indicators (Annex 6). In addition, the Government's strategy for increased internal efficiency focuses on the reduction of unit costs in training and employment services. For this purpose,  - 11 - an improved cost-accounting and control system will be implemented, while the development of enterprise-based training will reduce Government's share in total costs per student. The LMIS component of the project is designed to improve the allocation of resources for training and employment programs by evaluating investment alternatives according to their economic returns. The project will also develop a mechanism for the periodic monitoring of training and employment programs by means of surveys and interviews of beneficiaries. Economic Analysis 3.9 A rate of return analysis has been prepared for the third project component (Annex 5). The analysis compares the costs and benefits from increasing training at the technician level (13 years of education). The benefits are measured as the net present value of the cumulative earnings differential between technicians and workers with up to 11 years of education. An economic internal rate of return is calculated on the net benefits stream, yielding a maximum rate of return of 20%, on the assumption of zero unemployment. Different unemployment scenarios are simulated to measure the impact of unemployment on the rate of return. Given the current characteristics of the Tunisian labor market, with high unemployment rates among people under 25 years of age, a rate of return of 13% has been selected for part C of the Project. Subprojects to be supported under the FIAP and the PRONAFOC have been evaluated in terms of their cost-effectiveness compared to other employment services provided by the MVTE. The unit cost of each subproject is estimated to be at around US$1,000 under the FIAP, and at around US$800 under the PRONAFOC. These numbers have been obtained by dividing the total cost of each component by the potential number of beneficiaries. They compare favorably with the unit costs of existing employment programs such as the SIVP-I and SIVP-II which cost around US$1,760 and US$3,230, respectively. Other employment services financed under the FIAP show unit costs of around US$1,000. The project includes an impact evaluation component under the LMIS to follow up the other components of the project, using surveys and tracer studies. Management and Implementation 3.10 Overview. The project would be monitored by a steering committee made up of all concerned agencies. This committee (Comite de Suivi - SC) was set up to coordinate the preparation of the project. It is located at the Ministry and ensures that the agencies follow the policy framework of the Ministry. The SC has no direct responsibility for project implementation but would ensure that all activities are implemented in accordance with project objectives and would provide the liaison with the donor community. The SC would be assisted by a Project Monitoring Unit (PMU). This unit would assist the agencies with all technical matters related to procurement, accounting, financing and disbursement. 3.11 Project Implementation. As defined in a detailed project implementation manual prepared by consultants for the Government, project activities would be implemented by: (i) ATFP, (ii) ATE, (iii) CENAFFIF, (iv) CNFCPP; and (v) MVTE. All agencies have had some prior experience with the implementation of Bank- financed projects. The PMU would assist the agencies with implementation matters, including the adequate use of IBRD Guidelines. In addition to support staff, the PMU would be staffed with one project coordinator, a procurement specialist and one accountant. Assurances were obtained that the PMU would prepare and transmit to the Bank an annual implementation report, assesing progress to date according to project monitoring indicators and proposing the next year's program, including the necessary budget allocations, by July 31 of each year, beginning in 1997, and joint review of such report by October 31 of each year, beginning in 1997. In addition, the Project Coordinator would be responsible for following up on timely implementation of activities in accordance with the annual program. The procurement specialist would assist the agencies and ensure that Bank procurement procedures are being followed. The accountant would be responsible for ensuring that the agencies keep project accounts in accordance with agreed standards and would maintain overall project cost and financing estimates. Agreement has been reached upon the detailed project implementation manual and schedule, including project implementation and impact indicators (para 3.24), prepared by the Government. The GOT also agreed  - 12 - to transmit a satisfactory training plan for project implementation staff of the MVTE, in procurement, accounting and disbursement procedures, by December 31, 1996, to be implemented thereafter. The establishment of the PMU, with agreed terms of reference, and the appointment of its key staff, is a condition of Loan effectiveness. 3.12 Procurement. Procurement of goods and services would be undertaken by the various agencies involved with the project. All goods and services to be financed by the loan would be procured in accordance with the Bank's guidelines. For ICB procedures, the Government would use the Bank standard bidding documents. NCB procedures have been reviewed by the Bank and are in conformity with general Bank procurement guidelines with respect to economy, efficiency, and equal opportunity to all eligible bidders, development of local industry, and transparency. Table 3.3 below summarizes the procurement arrangements. Table 3.3 Procurement Arrangements (Total in US$ million equivalent, including contingencies) Procurement Method Category ICB NCB Other N.B.F. Total Civil Works - 22.5 - 22.5 (10.1) (10.1) Equipment 18.0 10.0 4.1 1/ 2.6 34.7 (15.0) (8.5) (2.0) (0.0) (25.5) Consultant - 15.0 2/ 14.8 29.8 -Services/Training (12.0) (0.0) (12.0) PRONAFOC & 17.1 3/ 17.1 FIAP - - (12.4) - (12.4) Total 18.0 32.5 36.1 17.4 104.0 (15.0) (18.6) (26.4) (0.0) (60.0) Note: Figures in parenthesis represent amounts to be financed by the loan. 1/ International shopping or direct contracting. 2/ Procured in accordance with Bank consultant guidelines. 3/ Awarded to eligible beneficiaries and/or enterprises. 3.13 Civil Works. The proposed project would include the construction and rehabilitation of about 25 training centers. Works contracts would be small in value (from US$800,000 to 1.5 million equivalent per facility) and distributed over a large area. As demonstrated under previous and ongoing projects, such contracts do not attract fbreign firms, and will be awarded following NCB procurement procedures. 3.14 Goods/Eguipment (a) Contracts for goods (pedagogic materials, technical equipment, vehicles, computers) estimated to cost more than US$350,000 equivalent each would be procured through ICB, with the exception of furniture, which could be procured through NCB. Such furniture, manufactured by local suppliers, is of excellent quality, below international prices, and delivery and supply would be appropriate for this project;  - 13 - (b) Contracts for goods costing US$100,000-350,000 equivalent may be procured through NCB; (c) Contracts for goods costing less than US$100,000 equivalent each could be awarded through international shopping procedures on the basis of three price quotations from suppliers; and (d) Contracts for goods that the Bank agrees to be of proprietary nature (such as update of computer software, reedition of books, and reference materials) or which must be compatible with existing equipment, could be awarded through direct contracting after negotiations with proprietors or publishers in accordance with procedures acceptable to the Bank. 3.15 Consultant Services. Consultants financed under the project would be selected in accordance with the Bank's guidelines for consultants. Consultant services would consist of foreign or local specialized services to conduct specific studies or to offer short-term advice. The project would also finance study tours abroad, some short-term overseas training, and local seminars. A large number of consultant contracts would be related to civil works (architectural and engineering services). The procedures under which such services are engaged are well known and efficient. 3.16 FIAP and PRONAFOC Training Services. Training services contracts will not exceed an average of US$30,000 representing an average training duration of six months. As for the First Employment and Training Project (Loan 3255-TUN), eligibility of beneficiaries and enterprises for financing of training contracts by the FLAP and PRONAFOC, would be determined according to their respective and agreed procedure manuals. 3.17 Contract Review (a) Goods and Works. Contracts exceeding US$350,000 equivalent would be subject to prior Bank review. Completion of satisfactory feasibility studies and signature of a sectoral dual training agreement, and at least one enterprise agreement is required for construction or rehabilitation of sectoral centers under component C (i) (para. 2.4). Contracts below US$350,000 equivalent would be subject to ex-post Bank review. (b) Consultant Services and Training. Procurement documentation for all contracts for consulting firms estimated to exceed the equivalent of US$100,000, or US$50,000 in the case of individual consultants, would be subject to prior review by the Bank. For contracts for consulting firms estimated to cost less than US$100,000 equivalent each, or US$50,000 each in the case of individual consultants, and for all training contracts under FIAP and PRONAFOC, prior review would be limited only to terms of reference. Single-source selection of firms would be subject to prior review by the Bank. 3.18 Disbursement. The project would be implemented over a period of five years ending December 31, 2001. The Loan Closing Date is scheduled for June 30, 2002. The loan would be disbursed according to the following categories:  - 14 - Table 3.4 Loan Disbursement Disbursement Category Disbursement Amount (US$) Schedule 1. Civil Works 50% 10,360,000 (a) Sectoral Centers (b) Apprenticeship program 2. Goods and Equipment 100% of foreign 24,100,000. (a) LMIS, PMU, CENAFFIF,CNFCPP expenditures, 100% of (b) ATE local expenditures (ex- (c) ATFP, Sectoral Centers, factory cost) and 80% Apprenticeship program of local expenditures for other items procured locally 3. Consultant Services and Training 100% 10,540,000 (a) LMIS, PMU, CENAFFIF,CNFCPP (b) ATE (c) ATFP, Sectoral Centers, Apprenticeship program 4. FIAP 100% 7,000,000 5. PRONAFOC 50% 4,000,000 6. Unallocated 4,000,000 Table 3.5 Proposed Loan Disbursement Schedule (US$ Million) Disbursenent Plan Bank Fiscal Year 1997 1998 1999 2000 2001 2002 Annual 1.5 7.5 16.0 18.0 10.0 7.0 Cumulative 1.5 9.0 25.0 43.0 53.0 60.0 3.19 Documentation. All disbursements would be fully documented with the exception of the following for which the Bank may require withdrawals from the loan account to be made on the basis of statements of expenditures (SOE) for: (i) works and goods under contracts not exceeding US$350,000 equivalent; (ii) services of consulting firms contracts not exceeding US$100,000 equivalent; and (iii) services of individual consultants under contracts not exceeding US$50,000 equivalent; and (iv) training. Disbursements for training under the FIAP and the PRONAFOC would be made against certified SOE. Supporting documents for SOE would be retained until one year after Loan closing by the implementing agency and made available for review by the Bank during supervision. In accordance with regular Bank's procedures, the required supporting documents would be retained by the implementing agencies for at least one year after the Bank received the audit report for the year in which the last disbursement was made. This documentation would be made available for review by auditors and visiting staff upon request.  - 15 - Special Account 3.20 To facilitate disbursements, the Government would establish, maintain and operate on terms and conditions satisfactory to the Bank, a US Dollar Special Account at the Central Bank of Tunisia for up to US$3.0 million. This amount is estimated to represent about four months of average project needs. When the Loan becomes effective, the Borrower may request an initial deposit to the SA not exceeding US$1.5 million. Additional deposit(s) may be requested when the amounts committed and/or disbursed under the Loan will reach US$20.0 million. The SA will be replenished by submitting withdrawal applications to the Bank on a monthly basis, or whenever the account is diminished by one-third, whichever is sooner. Replenishment applications submitted against the SA will include monthly bank statements showing account activity since the last application, a reconciliation statement and supporting documents as required by the Bank. Accounts and Audits 3.21 Each agency responsible for the implementation of the project would maintain separate accounts for all project activities in accordance with international accounting practices. Project accounts would be audited in accordance with the Guidelines for Financial Reporting and Auditing of Projects Financed by the World Bank (World Bank, March 1982). The Bank would be provided with an audit report of such scope and detail as the Bank might reasonably request (including a separate opinion by the auditor on disbursement against a certified statement of expenditures, and on the Special Account), within six months following the end of each fiscal year. Supervision. Monitoring and Evaluation 3.22 Status of Project Preparation. Preparation of the project is well-advanced. Bids for the construction of at least two sectoral centers would be launched as soon as the 1997 budgets are available. But, because of budgetary planning, payment, and disbursement lags, during the first year of implementation, the loan would disburse a small amount, corresponding to the initial deposit of the Special Account. In addition to having prepared detailed working papers for each of the project components, the Government has prepared a detailed project implementation manual and schedule. Consultants have been selected for the preparation of sample economic feasibility studies for two sectoral centers (one rehabilitation and one construction). These feasibility studies, satisfactory to the Bank, would be completed as a condition of loan effectiveness. 3.23 Project Implementation Review. Each agency would prepare an annual implementation progress report of a scope and detail agreed upon by the Government and the Bank. These reports would be submitted to the PMU and the Bank each year, for discussion by the SC and the Bank during the annual project implementation review (para 3.11). Assurances were obtained that a mid-term project implementation review be carried out by December 31, 1999. This mid-term review would not only assess the project's implementation progress in greater detail, but would also assess the extent to which project activities might need to be redirected to achieve the objectives of the program. In particular it would reassess the administrative status of the LMIS component, and review the efficiency of the vocational training tax as an incentive for the development of in-service training. In addition, the Government would prepare and send to the Bank for comment, not later than six months after final disbursements from the loan amount, a completion report assessing the attainment of project objectives, project implementation and initial operation, its cost and the benefits derived, the performance of the Government, the Bank and other agencies involved, and the significant lessons learned. 3.24 Monitoring Indicators. The Government has developed, in coordination with the Bank, a list of program and project indicators by which both the process and the impact of the proposed activities can be monitored (Annex 6). Baseline values and target values were also agreed upon for the selected indicators. The value of these indicators would be updated each year and incorporated in the annual implementation report submitted to the Bank each year by the PMU (para. 3.11).  - 16 - IV. EXPECTED BENEFITS AND RISKS Project Benefits 4.1 The project will contribute to a more efficient allocation of public resources by developing the capacity of the MVTE to evaluate investment alternatives on the basis of cost-effectiveness or cost-benefit analysis. It will also provide the tools for the development of labor market-based information to guide individuals, enterprises and training centers in their training decisions. The LMIS will improve the responsiveness of training and employment services to market signaling and will increase the efficiency in the allocation of resources tfor training and employment services. 4.2 As regards pre-employment training, by introducing enterprise-based the project will increase workers' productivity by improving the relevance of the training programs and by shortening the time it takes for a student to become operational in the firm. It will also reduce the time spent by graduates in job-search, increasing the external efficiency of training; thus, it will reduce the opportunity cost of training by reducing the amount of earnings forgone during job-search. The immediate impact of this improved external efficiency will be a higher rate of return for training. The project aims at a 20-25 % participation in dual training programs by the end of the project, improving the average insertion rate of the system. The project will also increase the share of technician-level training, from less than 5 % to 20%, which shows a higher rate of return than other levels of training. The project will create approximately 4,500 new posts for training at the technician level, half of which will come from new capacity, and the rest from the reconversion of lower-skill training to the technician level. 4.3 Developing in-service training will ensure that firms have the tools to continually upgrade the skills of their workers, allowing them to adapt to changing skill requirements and maintain competitiveness. It is expected that the number of firms and workers who benefit from in-service training will increase rapidly, particularly in small and medium enterprises, and that the quality of in-service training will improve. Around 2,500 enterprises (12,000 workers) are expected to benefit by the end of the project. 4.4 Regarding employment services, the major quantifiable benefit would be an estimated 500 contracts with firms for the re-training and provision of placement services for about 5,000 workers. Project Risks 4.5 The multiplicity of agencies under the MVTE, each of which will be responsible for the implementation of a part of the project, increases the potential for a weak project performance unless strong coordination and monitoring mechanisms are established. The project seeks to minimize this risk with the establishment of the SC and the PMU. In addition, the implementation capacity of the MVTE and its various agencies varies significantly. The project includes technical assistance to improve the management and the implementation capacity of the agencies involved. In the past, public training capacity has expanded under pressure to accomodate large number of school dropouts, pressure that will continue in the medium-term. The project seeks to create a built-in mechanism for the auto-regulation of the expansion of the training system, based on enterprises' needs. Successful implementation of the project should reinforce the evolution of training capacity on a demand-driven basis.  - 17 - V. AGREEMENTS REACHED Conditions of Loan Effectiveness: 5.3 Submission to the Bank of satisfactory sample feasibility studies as mentioned in paras 2.4 and 3.22, one for the rehabilitation of an existing training center, and one for the creation of a new training center; Establishment of the Project Monitoring Unit, with agreed terms of reference and appointment of key staff (para. 3.11). Conadition of Disbursement: 5.4 For each training center to be rehabilitated or created, completion of an economic feasibility study satisfactory to the Bank; and signature of dual training agreements between the ATFP, professional associations and with at least one enterprise (para. 2.4). Agreements reached during negotiations 5.5 Financing of training under the FIAP and the PRONAFOC would be provided only for subprojects selected in accordance with their respective agreed procedure manuals (paras. 2.3 and 2.4). 5.6 Government to take all necessary measures to ensure that adequate counterpart funds are provided in a timely manner, including those necessary for investment and recurrent costs for MVTE and its agencies, starting January 1, 1997, and to open a Special Account (para. 3.7). 5.7 Preparation and transmission to the Bank of an annual implementation report, assessing progress to date according to project monitoring indicators and proposing the next year's program including the necessary budget allocations, by July 31 of each year beginning in 1997, and joint review of such report by October 31 of each year, beginning in 1997 (para. 3.11). 5.8 Satisfactory plan for training MVTE staff in procurement, accounting and disbursement procedures to be transmitted to Bank by December 31, 1996 and implemented thereafter (paras. 1.24 and 3.11). 5.9 Project to be implemented according to agreed project implementation program, according to agreed schedule and manual, and monitored using agreed project implementation and impact indicators (paras 3.11 and 3.24) 5.10 Mid-term joint project review to be carried out according to agreed terms of reference, including an assessment of the administrative status of the LMIS and a review of the vocational training tax, no later than December 31, 1999 (para. 3.23). 5.11 On the basis of the above, the project provides a suitable basis for a loan of US$60 million to the Republic of Tunisia.   Annex I Page 1 of 3 Statistical Annexes Table No: 1: Training capacity of the Tunisian VTS Number of Enrollment Institutions Centers Capacity MVTE 83 9025 Other Ministrmes 96 18610 Education 7 11200 Health 19 1200 Agriculture 36 3790 Tourism 34 2420 Private Centers 411 22300 Total 590 49935 Apprenticeships - 23111 Grand Total 590 73046 Source: MVTE  Annex 1 Page 2 of 3 Table No: 2: Training capacity of the Tunisian VTS Number of Enrollment Institutions Conters Capacity 14% 18% Other Ministries 16% 37% Education 1% 22% Health 3% 2% Agriculture 6% 8% Tourism 6% 5% Private Centrs 70% 45% Total 100% 100% Sours: MVTE  Table No. 3 A comparison of the budget allocations to the Ministries of Training and Education. 1993-1995 Millions of dinars % of National Budget % of GDP 1993 1994 1995 1993 1994 1995 1993 1994 1995 Vocational Training 46.3 49.1 58.7 1.2% 1.1% 1.2% 0.3% 0.3% 0.3% Recurrent costs 29.7 32.5 38.6 0.7% 0.7% 0.8% 0.2% 0.2% 0.2% Investment 16.6 16.6 20.1 0.4% 0.4% 0.4% 0.1% 0.1% 0.1% Basic Education 679.9 764.5 852.6 16.9% 17.5% 18.0% 4.6% 4.8% 4.9% Recurrent costs 611.8 693.8 772.2 15.2% 15.9% 16.3% 4.2% 4.4% 4.4% Investment 68.1 70.7 80.4 1.7% 1.6% 1.7% 0.5% 0.4% 0.5% Higher Education 181.2 206.7 237.7 4.5% 4.7% 5.0% 1.2% 1.3% 1.4% Recurrent costs 143.4 165.7 180.4 3.6% 3.8% 3.8% 1.0% 1.0% 1.0% Investment 37.8 41.0 57.3 0.9% 0.9% 1.2% 0.3% 0.3% 0.3% National 4013.1 4364.9 4739.0 100.0% 100.0% 100.0% 27.4% 27.4% 27.2% Recurrent costs 3132.1 3406.9 3752.0 78.0% 78.1% 79.2% 21.4% 21.4% 21.6% Investment 881.0 958.0 987.0 22.0% 21.9% 20.8% 6.0% 6.0% 5.7% Source: MVTE, MDE oqD x 0  MINISTRY OF VOCATIONAL TRAINING AND EMPLOYMENT: ORGANIZATIONAL CHART Ministry of Vocational Training and Employment (MVTE) Employment Tunisian Vocational National Center for National Center for Agency Training Agency In-Service Training the Training of Trainers (ATE) (ATFP) (CNFCPP) (CENAFFIF) Employment and Sector Apprenticeship National Program for Training Fund Training Programs In-Service Training (FIAP) Centers (PRONAFOC) CD z.  Annex 3 Page 1 of 2 Dual Training in Tunisia Vocational training programs in Tunisia are essentially "residential", meaning that for the most part, training is conducted in a training center -for periods of up to 24 months- and in some cases, followed by a short internship in an enterprise at the end of the program. Training programs are conceived and carried-out without any participation from enterprises, which results in low insertion rates and extended job-search periods, particularly for those training for lower skill levels. In October 1991, with the cooperation of the GTZ, the GoT started a pilot project for the introduction of enterprise-based (dual) training in various sectors. Dual training, as opposed to residential training, is located in the enterprise with complementary training conducted in the training centers. The training program is prepared on the basis of each enterprise's particular needs, and an enterprise worker is assigned the role of supervisor or tutor to the trainee(s). As such, dual training bridges the gap between training centers and the needs of enterprises for training. The dual training pilot experience, which came to a close in 1995, was conducted in 4 sectors comprising a total of 65 enterprises and 263 trainees. The development of a partnership between the participating enterprises and the training centers is considered to be one of the most important contributions to this experiment. This partnership has two main elements: (i) the creation of technical committees and, (ii) signed training agreements between enterprises and training centers. Technical Committees are composed of representatives from enterprises and training centers, and is headed by a representative from the enterprise. The committee's main responsibilities are to: (a) identify the enterprise's training needs, level and profile required; (b) assist enterprises in the elaboration of training programs; (c) apply procedures for the selection and placement of trainees; and, (d) solve any conflicts that may arise during the implementation of training activities. The cooperative framework between enterprises and training centers is established by a signed agreement in which the following elements are developed: (a) the content and duration of the training program, (b) the evaluation of training activities, (c) the respective roles of the center's trainer and enterprise tutor, (d) the trainee's rotation into different posts, and (e) the payment of a stipend to the trainee. In sum, the dual training pilot project focused in its initial phase on the organizational development of dual training activities such as the selection of training centers and firms, elaboration of training programs, conducting actual training activities, and follow-up and evaluation of training provided. The economic impact of the generalization of dual training in Tunisia can be measured by a cost- benefit estimation vis-h-vis traditional residential training. First, from the point of view of training costs incurred by a public training center, the pilot project shows a reduction in the unit cost by 30-40 %. Expressed otherwise, with a given budget and with the same facilities, training capacity in the centers could expand by one third. Second, from the enterprise's perspective, under dual training, a trainee becomes operational in the firm much faster than an individual in the residential system. This translates into a higher productivity per trainee.  Annex 3 Page 2 of 2 The advantage of the dual system over the residential training system is illustrated in Figure 1. The graph measures the time it takes for an individual to achieve the same level of efficiency as an average worker in the industry (100 % efficiency). The lower curve measures the time-efficiency path for an individual in residential training, and the upper curve, that for an individual in dual training. A 24-month residential training program occurs almost entirely within the training center, with occassional "internships", and with a training program that has very little relevance to enterprise needs. At the end of the training period, there is a job-search period that takes on average 8-12 months. Once a job is found, the individual starts his/her process of becoming operational in the firm, a process that can take several months. As a consequence, an individual following a 24-month, residential training program may take up to at least 36 months before becoming operational. In the mean-time, he/she is already earning the minimum wage, implying a net cost to the firm (area MOP in Figure 1). The sane training, undertaken under the dual system offers greater advantages in that the training program reflects directly the needs of the firm. In addition, most of the training is carried-out within the firm, and to a lesser extent, in the training center. In this way, a trainee becomes operational in the firm much faster than in residential training. The cost to the firm is the small stipend paid to the trainee (area RST), which is rapidly compensated by his/her increasing efficiency. In addition, and according to the first evaluations of dual training in Tunisia, job search is reduced considerably because of the finn's greater incentives to retain a trainee that has become operational within the firm. In sum, the introduction of dual training will increase the rate of return of training programs since it reduces the direct costs associated with the actual provision of training, as well as the individual's opportunity cost due to a shorter job-search period. At the same time, benefits are increased thanks to a faster increase in worker's efficiency within the firm, and the corresponding increase in productivity. MAtun\15745\1enp\sar\annex3  DETAILED PROJECT MATRICES LABOR MARKET INFORMATION SYSTEM Pupose: to obtain a better link among vocational training systems and tile needs of companies tor qualifications alongside the leveling of the economy. OBJECTIVES MEASURES ACTIVITIES ACTIONS A. Develop approach for 1. Approval of action plan on 1. Implementation of an - Bulletin of Employment, strategic planning in order to the basis of the "Japanese operational plan to implement a equipment and publishing. ensure improvement of labor Grant" study. follow-up and labor market market efficiency. analysis system. - Model of labor market 2. Approval of the legal behavior, consultant services framework and resources 2. Implementation of a system and training of staff. necessary to set-up an operation to analyze traiiing and of the observatory. employment services - Periodic surveys, technical alternatives (cost/benefit assistance and staff training. calculations, rate of return,...). - Analysis of results from periodic surveys, teclnical assistance and staff training. B. Ensure the efficiency of the I. Implementation of a - Implement indicators for the active management system of monitoring system for analysis of the vocational the vocational training and employment and training training system. employment market. programs. ___ 0 I- -J  - Periodically evaluate 2. Ensure implementation of a employment programs (on the system to evaluate the present basis of specific surveys). management programs of vocational training. C. Develop information to 1. Rationalize and harmonize - Implementation of a system assist operators and private and existing information sources tracking salaries, employment public sponsors to rationalize and identify the information to and vocational training costs in their action for hiiring and be developed. order to develop labor market training. siginals. 2. Ensure preparation and issue of additional information on the - Implement trend indicators for basis of information received. employment markets by qualification and training 3. Ensure availability to private category, TA, equipment, and public operators of training. in for-miiation oni employmiient and training market. r >F x t-1  EMPLOYMENT SERVICES Purpose: meet the needs of companies in qualifications in order to join restructuring Means: (a) harmonization of employment promotion instruments; and (b) modernization of management systems in order to increase employment and service production. OBJECTIVES MEASURES ACTIVITIES ACTIONS A. Harmonize emp]oyment Approval of the action plan. I. Implementation of in- promotion instruments to better service training instrmments serve enterprises and the (pilot phase for FIAP's C and F unemployed. instrumenits). B. Modernization of Approval of action plan for the I. Creation of ajob matching management systems to modernization of employment network and information increase employment and services. dissemination, equipment, service production. training, TA. 2. Creation of 5 regional employment centers, support for local employment offices, civil works, equipment. 3. Improve ATE's employment program monitoring system. Technlical assistance, training. 4. 1improving cost 'Id managemenit, TA, equipmenit, o vehicles, traininig. -_(D_ _ 40 I1h  SUB-COMPONENT: ATFP Purose: improve training cost/efficiency relations within the framework of closeness with enterprises. OBJECTIVES MEASURES ACTIVITIES ACTIONS Adaptation of ATFP's Approval by ATFP's Board and - Technical assistance for the - Experts in man-months. management structure to thie the overseeing authority for a implementation of a unit of new model of sectoral centers. unit of development and development and management management specific to sectoral specific to sectoral centers. centers. - Implementation of the management unit, equipment, . training. OQ :1 ow m x 0 I1 I-  SUB-COMPONENT: DEVELOPMENT OF SECTORAL CENTERS Purpose: improve the quality of services and develop the network of sectoral centers in order to ensure a better satisfaction of company needs in professional qualifications at the technical level and to diversify services rendered by these centers to the companies. OBJECTIVES MEASURES ACTIVITIES ACTIONS A. Develop a new operating 1. Approval of 1. Study on operation of these (i) Elaboration of study terms model for sectoral centers. recommendations by MVTE sectoral centers, of reference; and DG/ATFP recommendations to increase Consultation/nomination of their autonomy and further consultant; 2. Decision DG/ATFP on involve the sector's Diagnostic/Evaluation of approval of internal professionals. operations of sectoral centers; organization and procedures Recommendations; and manual for sectoral centers. 2. On the basis of Validation. recommendations, elaboration 3. Set-up partnership of internal organization and (ii) Conception of new agreements among sectoral procedures manual for sectoral operating and management centers and professional centers. system of sectoral centers on associations in order to involve the basis of diagnostic and the latter further in the Organization of technical recommendations listed above. management of training functions. processes (alternative training, * Validation examinatioii juries). - Initial training (from selection * Information/managers of participaints to final traininig traininig evaluationi and trackinig of gradUlites), traillillng Uponl Ilaboration of internal request from companies (in- procedures for SC on1 the basis X x service, adaptation, etc.), of previous work. o I-  technical assistance to companies, technical assistance * Procedure lists and flow to other centers (training of charts trainers, elaboration of * Validation programs, start-Lip of new programs, etc.). Organization of management functions. - Financial and administrative management of training, management of maintenance of assets (infrastructure, ...) B. Strengthen and develop Approval of ATFP/Bank 1. Programming and - Elaboration of terms of sectoral centers into activities. feasibility studies. implementation of reference ref. feasibility studies. consolidation/human resources - Consultation/choice of valorization in sectoral centers: consultants. - Elaboration of feasibility * Managers training in these studies. centers. - Approval of studies. * Recruitment/training of trainers. - Programming and * Recruitment/training of implementation of each sub- support staff. project's components: 2. Programming and * Human resources I implementation of a plan to consolidation and valorization. 0-  modernize equipment and * Modernization and additions installation in sectoral centers. to equipment. * Purchase transport 3. Programming and equipment. implementation of a plan to * Rehabilitation and extension rehabilitate and extend of buildings. infrastructures and buildings in * Consolidation of teaching sectoral centers. materials. * Tracking/Evaluation. 4. Programming and implementation of a plan to consolidate teaching materials in sectoral centers. C. Create new sectoral centers. Approval of AT'FP/Bank I. Programming and tracking - Elaboration of terms of feasibility studies. of project preparation: reference. * List of priority projects. * Evaluation/tracking methods. - Consultation/choice of consultants. 2. Evaluation - selection of projects to submit to the Bank. - Elaboration of feasibility studies. 3. Preparation and launching of bids for the various components - Programming and completion in each sectoral center. of components for each sub- * Training of trainers and project: project leaders. * Training of trainers and * Elaboration of training project leaders. programs. * Elaboration of programs. m x * Purchase of equipment, * Purchase of equipment, -.1 0  logistics and teaching material. documents. * Building of * Construction. infrastructures/installations and * Purchase of transport buildings. equipment. 4. Tracking of each project. - Tracking/Evaluation OD 0 I-  SUB-COMPONENT: IMPROVEMENT OF PROMOTION OF IN-SERVICE VOCATIONAL TRAINING Purpose: within the framework of the permanent leveling of enterprises, develop management of human resources inside these enterprises to ensure a better professional qualification. OBJECTIVES MEASURES ACTIVITIES ACTIONS A. Assistance to development Creation of a fund or - Improve impact of utilization - Technical assistance human resources in small and maintenance for PRONAFOC of PRONAFOC with - Finanicial participation to medium-size enterprises. budgetary item (title 11). beneficiary enterprises. PRONAFOC. - Benefiting from a budgetary item to support PRONAFOC's actions. - Support relations between enterprises and sectoral centers through actions and permanent contact. - Implementation of a mechanism allowing for tracking of PRONAFOC utilization. B. Improve management of - Decentralization of tax - micro, printers, software, fax, TFPI for a better qualification of activity. photocopier, modciii, enterprise staff. - Service equipment. - Staff training. - Training. - Improvement of permanent mechanisms for tracking and o I-h  utilization of TFP. - Follow-up and quality control for discount utilization. C. Development of a - Creation of a specialized unit. - Technical assistance. permanent tracking, evaluation - Development of necessary - Micro + software. and updating system for all tools and computer back-up. CNFCPP missions. - Purchase of relevant equipment. -Staff training.__ _ _ _ _ _ _ _ _ _ _ _ _ OQ :j PxD 0;.- 0 1-.w  SUB-COMPONENT: APPRENTICESHIP DEVELOPMENT Purpose: improve and develop, both quantitatively and qualitatively, apprenticeship in order for it to evolve towards a form of training that qualifies those entering into the system and provides the enterprises with the manpower to meet its needs. OBJECTIVES MEASURES ACTIVITIES ACTIONS A. Improve technical teaching. - recruit advisors on apprenticeship (permanent or contractual) to reach a ratio of one advisor to 70 apprentices. - Refurbish existing BRA by building new necessary sites for advisors. - Train new advisors on teaching, operational and technical aspects. - Update advisers on activity. - Organize training for enterprise tutors. - Improve advisors mobility through purchase of vehicles. - Elaborate programs and ________________________ apprenticeship booklets. B. Offer all apprentices 1. Define list of apprenticeship - Organize inflows into additional training courses. training specialties. apprenticeship. - Offer BRA enough teaching 2. President's decision to space to organize supplemental o convert local CFP into CFPA courses at the level of x or sections in polyvalent vocational training centers 0 I-h  centers into apprenticeship under ATFP, at the level of sections. private vocational training institutions and other operators. - Offer apprenticeship advisors and trainers training programs. - Prepare bidding documents in order to bring IPFP to offer additional training courses or the use of their teaching space. - Reconvert CFP into CFPA and sections in polyvalent centers into apprenticeship sections. C. Improve tracking and Approval of measure on - Training apprenticeship evaluation of training as well as orientation selection and final advisors to orientation future of graduates. evaluation. technique. - Equip structures with: * orientation tests * final exams for each specialty. - Implement a decentralized system to observe apprentices after training. - Proceed with tracking surveys checking their insertion into the workforce. D. Master the operation of the Decision-making by Ministry - Improve information system oQ > system and strengthen of Vocational Training and on apprenticeship. partnership with professionals. Employment on text revising - Introduce analytical ___ 0  organization of consultation accounting in order to master councils. apprenticeship costs. - Put designs and lists under norm. - Computerize the management of regional apprenticeship offices. - Implement a promotion program of the design of brochures, advertising spots, brainstorming. - Participate in: * elaboration of exam topics. * exam process. * organization of additional integrated courses. - Participate progressively in implementation of an apprenticeship exchange. - Adapt consultation councils of future CFPA to take into account apprenticeship specifics. ._._. t :. x W4 0t  SUB-COMPONENT: CENAFFIF Purpose: assist the vocational training system in meeting the needs of enterprises, through mastering the various training methods and the development of training means, and to reinforce the training of engineering capacity in order to help operators of vocational training adapt various training methods to context. OBJECTIVES MEASURES ACTIVITIES ACTIONS A. I Develop capacity to 1. Create training cycle for analyze production and training CENAFFIF supervisors to environment. master analysis engineering of the environment. 2. Pursue real case studies. 3. Create competence network. 4. Elaborate procedures manual for analysis of environment for operators of initial and in-service training. A.2 Hlelp operators identify 1. Organize training cycle training methods adapted to the intended for training staff diversity of regional and (sectoral centers and sectoral evolution. apprenticeship staff). 2. Set teaching organization and frequency of training cycle (annual action plan for training of vocational traininlg teachers). 3. Achieve plan: - create training/action system, o 0 to cover engineering aspects (need identification, planning, ___ a  organization, management and evaluation of training actions). - technical assistance to accompany CENAFFIF teachers to better transfer acquired competence in training engineering to vocational training staff. 4. Evaluation of implemented systems and its impacts, after 2 years from the beginning to completion. B. I Establish a training cycle Decree defining the legal and Create a training engineering for initial and in-service partnership framework for the department within CENAFFIF: training engineering for trainers cycle. and private and public sector Logistics and human training managers. resources: - I department director (CENAFFIF AFFIF personnel) - I secretary - office equipment and computer Create the training cycle: 1. Establish administrative and teacliing organization. 2. T rain: 22 weeks/expert per year loi 3 years and 11 x weeks/expert per year for the 0  last 2 years with cumulative effect. 3. Create a teaching team capable of ensuring cycle's sustainability: select 4 persons in charge/promotion among those who followed the cycle and completed their training abroad if necessary. B.2 Develop teaching 1. Establish a group of engineering for vocational methodologists that will lead training. actions to elaborate training programs: - technical assistance - foreign internships 2. Select methodology to elaborate, adapt and update programs: - creation of 3 sectoral commissions for pilot action to elaborate training programs. Commissions consist of trainers, industrialists and social partners. - Surveys - Validation workshop ________________________________3. Create information database. |C|_=_x 0  4. Create procedures manual to elaborate programs: - same type of work as for elaboration of procedures manual on analysis of context (same team without extra expenses). B.3 Initiate production 1. Define needs in training capacity for vocational training support: 1996-2002 constitutes support. a pilot period for a system leading to a coverage rate of 80% for training specialties. 2. Define bidding documents for training support. 3. Sub-contract design of support. 4. Evaluate and validate this support. 5. Help develop publishing and issuance of training support. The immediate objective is to elaborate 100 supports in 5 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ___ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _y e a rs. OQ0 ow D I- 0 X-  Annex 5 Page 1 of 6 Economic Analysis: Estimating the Economic Internal Rate of Return'. 1. The project seeks to change the output mix of the VT system under the MVTE from both, a quantitative and a qualitative point of view. From a quantitative point of view, the project seeks to increase the proportion of training at the technician level, which implies a corresponding decline in the proportion of training for skilled-worker level. From a qualitative point of view, the project seeks to increase the amount of "dual" training as opposed to institution-based training. The Economic Internal Rate of Return (EIRR) analysis should allow determining if the benefits associated with investing two additional years of education in training, at the technician level, justify incurring the additional cost. 2. Estimation of benefits. The minimum academic requirement for entering a program of vocational training under the MVTE is to complete 9 years of basic school (ecole de base). If accepted into a VT program and after two years of training the student obtains a "skilled worker" certification or diploma. Alternatively, after completion of basic school, a student may continue towards the first cycle of secondary education (2 years, tronc comun) A student that has finished his/her studies without repetition can be expected to obtain a diploma at 18 years of age. Entry at the technician level requires two years of secondary education (tronc comun) in addition to the 9 years of basic education. After two years (20 years of age) of training a student gets the technician diploma. 3. On the assumption that a graduate finds employment immediately upon graduation, a holder of a "skilled-worker" diploma, or a person who has completed the first two years of secondary school, starts working two years earlier than a graduate from the technician level. Hence a student's opportunity cost of continuing the technician track as opposed to start working earlier as a skilled-worker is equivalent to two years of earnings of a skilled-worker. But the entry level earnings of a technician are higher than those of a skilled-worker, an advantage that will remain until the end of their careers. This is illustrated in the age-earnings profile for both types of workers presented in Figure No. I, where the solid line represents the age-earnings profile for skilled workers, and the 2 dotted line that for technicians. 4. Figure No.2 presents the earnings gap over time between the two types of workers. The area under the zero line represents the earnings forgone by a technician during the two years it took to train as a technician. The area above the zero line represents the incremental gain in earnings a technician obtains in relation to a skilled- worker. During the first year of work by a technician, the earnings differential with For an in-depth review of the underlying principles in calculating the Economic Intemal Rate of Retum see A. Mingat and J.P. Tan, Analytical Tools for Sector Work in Education, World Bank 1988. 2The age-earnings profiles have been derived from the wage matrices established under the current collective bargaining agreements. There exist 49 sectoral collective bargaining agreements in Tunisia and, for illustration purposes, only the agreement for the textile sector is presented here.  Annex 5 Page 2 of 6 Figure No. I Age-Earnings Profile for Skilled Workers and I Technicians, Textile Industry. 3500 - 3000- 2500 X2000 - , ,01500- _-1 $U 1000- - 1 500 . s I . r- ~~~~~~Skillbd Workers| 16 18 20 22 24 26 28 30 32 34 36 38 40 ----- Tlechnicians 5 58 60, Age IFigure No.2 Earning Differences by Age for Technicians and | ~~~~~Skilled Workers. Textile Industry.! 1500I 10003 500 1 -50 ,10 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 6D :1 -1000 1 -1500V -2000_i Source: Les ConvenUons Collectives: Guide Pratique. 1994  Annex 5 Page 3 of 6 3 respect to a skilled worker amounts to 935 dinars per year . Over time the gap increases at an annual rate of 1.2 percent over the first twenty years. Assuming a 10 percent discount rate, the net present value of the cumulative incremental earnings, over twenty years, represent 4,430 dinars. 5. Several assumptions underlie the calculation of the earnings gap presented above. First, the earning profiles presented are based on basic wages as stated in the matrices of the collective agreements. In addition to basic wages, workers receive other remuneration under the form of various benefits like transport, allowances for dependents, meals, etc. One could argue that most of these benefits, being proportional to the basic wage, will not affect too much the size of the earnings gap. Thus the explicit assumption is that the earnings gap as established using only information on basic wages is a good predictor of the true gap. Second, the earning profiles have been established on the assumption that wage increases occur only as a result of seniority, and not by promotion to a higher salary scale. This is probably the weakest assumption of all, but in the absence of actual earning profiles there is no way around this problem. Ihird, it is assumed that a worker will occupy a post that corresponds to his/her earned diploma. Evidence from tracer studies suggest that the size of the earnings gap may be underestimated since in many cases, workers occupy a post that does not correspond to their diploma. A survey of a sample of graduates from the 1991-93 period indicates that around 50 percent of the entry jobs for holders of a "skilled worker" diploma are at the level of unskilled workers. If one were to take into account this evidence the size of the earnings gap would increase in favor of the technicians. 6. Estimation of costs. In addition to the opportunity cost of undertaking two additional years of education, creating additional capacity for training at the technician level requires additional investment and recurrent costs. Investment costs are calculated as the capital expenditures to be undertaken under the project for civil works, equipment and technical assistance. These costs have all been allocated during the first five years of project implementation, and no provision has been taken regarding amortization of existing facilities4. Recurrent costs are the additional operating costs the Government will have to incur to train the incremental flow of trainees, such as salaries and maintenance of equipment and facilities. Table 1 presents a breakdown of costs and benefits over time. The incremental capacity of trainees at the technician level due to the project is estimated to increase gradually to 4,500 individuals after the fifth year of project implementation. Thus, the individual opportunity cost is measured as the skilled worker annual salary (at entry), multiplied by two years of training at the technician level. The total opportunity This amount is in line with the estimates of the earnings differential at entry presented in a survey of vocational training graduates. which calculated the gap at around 852 dinars per year. See "Etude d'evaluation de l'insertion des diplomes des CFP". BCEF, Tunis. 1995. See, for example. Republic of Mauritius: Higher and Technical Education Project, World Bank 1995 (Report No. 13487-MAS)  Annex 5 Page 4 of 6 Table 1: Economic Analysis of Part C. (Figures in millions of Tunisian Dinars) Capital Incremental Opportunity Benefits Net Expenditures recurrent cost 8enefits costs 1997 1.20 1.50 -2.70 1998 7.61 1.50 -9.11 1999 8.01 1.50 2.56 1.28 -10.78 2000 10.41 1.50 4.26 3.44 -12.73 2001 8.01 1.50 5.11 6.06 -8.56 2002 4.80 1.50 5.96 9.14 -3.13 2003 5.00 7.67 13.12 0.45 2004 5.00 7.67 17.16 4.49 2005 5.00 7.67 21.23 8.57 2006 5.00 7.67 25.38 12.71 2007 5.00 7.67 29.55 16.89 2008 5.00 7.67 33.79 21.12 2009 5.00 7.67 38.06 25.39 2010 5.00 7.67 42.39 29.72 2011 5.00 7.67 46.75 34.08 2012 5.00 7.67 51.18 38.51 2013 5.00 7.67 55.64 42.97 2014 5.00 7.67 60.16 47.49 2015 5.00 7.67 64.71 52.04 2016 5.00 7.67 69.33 56.66 2017 5.00 7.67 73.99 61.32 IRR 20.5% NPV $63.64  Figure No 3. EIRR Sensitivity Analysis 25.0% 20.0% 15.0% 12.8% 5.0% I~~~~~~~~~~ 0.0% a D 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0% 55.0% 60.0% <_,x 0 Unemployment rate  Annex 5 Page 6 of 6 cost is simply the individual opportunity cost times the number of technician trainees every year. 7. Sensitivity Analysis. If all trainees find jobs immediately upon graduation, i.e., if unemployment is zero, the maximum rate of return is estimated at 20.5%. Labor market conditions in Tunisia are, however, characterized by an unemployment rate of around I 1- 12%. When broken down by age groups and gender, unemployment rates tend to be higher for younger individuals and for women. The National Population and Employment Survey of 1989, showed that for people with less than 25 years of age, the rate of unemployment is 30%. On the other hand, unemployment rates among secondary and higher education graduates have been increasing in the past 15 years. Although data on unemployment rates by vocational training diploma do not exist, tracer studies among vocational training graduates show that insertion rates one year after graduation are higher for technicians than for skilled workers. 8. In order to take into consideration current labor market conditions in the economic analysis, the impact of various rates of unemployment on the benefits generated by the project are estimated. Figure No. 3 shows the inverse relationship between various hypothetical unemployment rates and the economic rate of return. A rate of 10 percent is assumed to be the minimum rate acceptable (equivalent to the opportunity cost of capital), which yields an unemployment rate of almost 40%. The project aims at an unemployment rate among project beneficiaries not larger than 30%, which corresponds to the unemployment rate for the age group of less than 25 years. This in turn would yield a rate of return of 12.8% for part C of the project.  Annex 6 Page 1 of 1 Project Implementation and Impact Key Monitoring Indicators For Part A: 1. Publication of a the employment and training bulletin (periodical). 2. Carrying out the impact evaluation of the project according to the procedures established in Annex 7 of the SAR. For Part B: 1. By the end of the project, reach 5,000 beneficiaries. For Part C; 1. For the centers financed by the Bank, achieve at least an insertion rate of 60%, one year after graduation, and 70%, two years after graduation. 2. For the centers financed by the loan, achieve a share of self-generated income of at least 15-20% of their total budget. 3. Achieve at least a 25% enrolment in enterprise-based programs for ATFP's trainees. For Part E: 2.PRONAFOC Years and 1995 1996 1997 1998 Number Number of 500 700 750 800 enterprises Number of 1300 2600 3600 4500 beneficiaries Training 12 20 25 30 organizations, public and private  Annex 7 Page 1 of 6 Impact Evaluation and Monitoring 1. Evaluation of Retraining and Placement Services Objectives The objectives are: (1) to design tracer surveys for use in evaluating the retraining program and job placement services; (2) to measure the impact of alternative training programs and service delivery systems on the employment and earnings of unemployed workers; and (3) to assess the cost effectiveness of retraining and job placement services, and their different modalities. Surveys The surveys are intended to develop data bases needed for evaluations of the retraining program for the unemployed and public job placement services. A retrospective survey should be administered to samples of trainees one year after completion of training. Similar data should be collected for a comparable group of unemployed individuals that did not participate in the retraining program. A retrospective survey of trainees should be fielded in 1997 to a cohort of trainees that completed training in 1996. The survey should elicit information on trainees' demographic attributes, household characteristics, and both pre- and post-intervention labor market histories. The pre-intervention history should include data on the last job held prior to training, if any, including information on industry, firm size, wages, hours worked, and both start and end dates for the job. The post-training history should include information on all jobs held since completion of training, including start and end dates for each job, wages, weekly hours worked, occupation, industry of employment and firm size. This retrospective survey should be augmented by administrative data on the retraining program (type of training, training modality, length of training program, training provider, costs, etc.) and job placement services received. A control group for the trainees should be developed. This control group should be drawn from the population of individuals who experienced a spell of unemployment in 1996 at roughly the same time as the trainees, but who did not participate in the retraining program. The control group should be selected to have broadly comparable characteristics to the trainee cohort. A retrospective survey should be administered in 1997 to this control group, eliciting similar information on both individual and household attributes, work history prior to 1996, and all jobs held over the past year, including start and end dates for each job, wages, weekly hours worked, occupation, and employer characteristics. Evaluation Studies The studies are intended to measure the labor market effects of retraining and job placement services, and to assess the cost effectiveness of these programs. Another objective is to evaluate the impact of different training modalities and delivery systems so as to improve the quality of services provided unemployed workers and those affected by economic restructuring. The evaluation studies should reflect the following considerations:  Annex 7 Page 2 of 6 Trainee and control group outcomes should be compared. The effects of retraining and job placement services should be assessed by comparing the labor market outcomes of the trainee group to the control group. Only simple comparisons of outcomes are needed if trainees and the control group are randomly selected from the unemployed pool. Otherwise, the evaluation should take into account the possibility of selectivity bias introduced by the systematic selection of individuals from the unemployed pool to participate in the retraining program. A range of labor market outcomes should be measured. These should include (but not be limited to) the following outcomes: (a) time to first job, (b) employment probability over different time periods, (c) proportion of time spent unemployed over one year, (d) job stability, (e) usefulness of training in the new job, (f) wages and hourly pay, and (g) hours worked per week. Alternative training modalities and delivery systems should be evaluated. To improve service delivery, the studies should assess (a) the relative impacts of different kinds of training, including training mix, type of course, (b) whether outcomes vary by background of trainees and their gender, (c) the relative efficiency of alternative training providers and institutions, and (d) the relative efficacy of different mixes of retraining and job placement services, including programs that provide only job placement services but no retraining. The cost-effectiveness of programs should be assessed. A methodology for assigning a monetary benefit to each of the different impacts of program participation should be developed and justified. For example, the private benefit from shorter unemployment spells may be valued at the average trainees' post-training wage. These benefits should be compared to the per-trainee costs of the retraining program and job placement services to derive a benefit-cost estimate. Program costs should include both direct and indirect costs. II. In-Service Training and SME Support Objectives The objectives are (1) to develop firm-level data bases for tracking changes over time in the incidence of in-service training, (2) to analyze the incentives of firms to train their employees, the constraints they face in developing in-service training programs, and effects of training on productivity growth, and (3) to assess the efficacy of the vocational training tax in promoting in-service training, especially among small and medium size enterprises (SMEs), and to recommend policies to improve the Tunisian VTE system. Surveys The surveys are intended to develop a broad base of firm-level information on the training and productive activities of a sample of enterprises. The same sample of enterprises should be tracked over time, ideally in 1996 at the beginning of the project so as to provide a benchmark, and thereafter at two- year intervals, in 1998 and in 2000, so that evaluations of training policies and support to SMEs can be conducted and policies adapted as the project progresses. Ideally, firm-level information would be collected on five broad areas:  Annex 7 Page 3 of 6 Production: level of production and sales; exports; main products; domestic and foreign ownership; value of machinery and equipment; degree of automation; total labor inputs and hours; intermediate inputs and energy; and capacity utilization; horizontal and vertical linkages with other firms; production constraints. Employment: current level and changes in employment over the past 2 years; structure of employment by broad occupation including managers, engineers, technicians, skilled production and unskilled production, sales; sex composition of the work force; mean years of schooling attained by broad occupation; job turnover rates; recruitment policies and hiring and job retention problems. Compensation: average pay by occupation and sex; structure of compensation including wages and salaries, bonuses, allowances, severance pay, and statutory payments as a % of total wage bill. Training: training infrastructure and trainers; informal OJT and formal training; number of workers trained, hours and area of training, by broad occupation, in company training programs and in external sources such as MFPE training centers, other public training centers, industry-based centres sectoriels, private training institutes, equipment suppliers and buyers, and joint-venture partners. Also, policy questions on reimbursement of vocational training tax, firm's use of specific training programs and assistance, and training constraints. Technolgy: spending on technology acquisition and know-how licenses; research and development; quality control methods; new capital investment plans; problems and constraints faced in improving technology and productivity. Survey Strategies There are three alternative survey strategies. The relative merits and demerits of each should be considered and a survey strategy (or combination of strategies) identified. (i) Fielding a self-contained survey questionnaire to a scientifically-drawn random sample of enterprises and tracking them over time. This approach will require the assistance of the national statistical office to develop a sampling frame Oist of company names, addresses, contact person and telephone/fax numbers) and survey weights that will allow the survey results to be made nationally representative. The sanple would likely be stratified by firm size because of the large numbers of SMEs relative to large firms. For analytic purposes, the sarnple should include a minimum of 500 firms. The Tunisian surveys can build on several survey instruments developed by the World Bank on similar human resource projects in other countries. The survey can either be conducted by the national statistical office or by a private survey firm, which in many cases can deliver the survey in a more timely fashion. (ii) Building on existing annual firm surveys and adding a supplemental module of key questions. Many national statistical agencies field large, nationally representative firm- level surveys on an ongoing, annual basis. These surveys already elicit many important quantitative questions listed above, such as different firm characteristics, industry, production and inputs, book value of machinery, exports, ownership structure,  Annex 7 Page 4 of 6 employment and composition, wages and salaries, etc. The remaining information - training, technology and policy related variables - can be elicited by adding a short module to the statistical agency's survey instrument. Whether the module covers all or part of the firm sample will depend upon the budge of the project and the statistical agency's interviewer resources. This approach economizes on the heavy fixed costs of fielding a survey, especially one that will be repeated, and it takes advantage of the statistical agency's existing, and institutionalized, survey infrastructure. (iii) Using administrative records coupled with periodic surveys of firms. Administrative records from the vocational training tax (VTI) are a potentially important source of information. The feasibility of creating a data base from VTT administrative records depends in part on how this information is currently collected, and in part on the Tunisian governrment's willingness to restructure its administrative recording system for the VTT. Firms contributing to the VTT could be required to provide the administrative agency, CNFCPP (Centre National de la Formation Continue et de la Promotion Professionnelle), with limited information on firm characteristics, its employment, wages, VTI contributions, training practices and both numbers and types of workers trained, if any. These records provide not only information on the universe of firms contributing to the VTT, but also the sampling frame needed to conduct periodic, more detailed sample surveys of firms claiming reimbursements for training, as well as, firms that contribute but do not train. Analysis and Evaluation Several types of analyses and evaluations are possible by bringing firm-level information together from the five broad topic areas: Analysts in the MVTE should monitor and measure the extent and changes over time in the incidence of in-service training, from the different sources of training - in-plant training, and training provided by the different public and private training centers, and by equipment suppliers and buyers - by industrial sector and by firm size, especially among small and medium size companies (SMEs) that provide workers with little or no formal training. Analysts should analyze the incentives of employers to train their workers, the demand for skills created by changing technology, exports and increased international competition, as well as the constraints faced by firms in developing in-service training programs. These analyses should be used to develop or modify policies to support the training and productivity improving efforts of firms, including finance, extension and consulting services. Analysts should assess the effects of in-service training on alternative outcomes for firms and workers. For firms, the benefits include productivity growth, increased competitiveness, exports, reductions in rejects, improvements in quality control, job retention, etc. For workers, the benefits of training include higher pay, bonuses, improved job safety, and greater job stability. Analysts should evaluate the efficacy of vocational training tax in promoting in-service training, especially among the SMEs, by tracking their training and reimbursements from the vocational training  Annex 7 Page 5 of 6 tax (VT]'). Firm responses to the operation of the VTT can also be used to streamline administrative procedures, identify and develop new "training products", and disseminate best practice to firms about in-service training and its benefits for employers and workers. III. Evaluation of Dual and Institution-Based Training in Different Sectoral Training Centers Objectives The objectives are: (1) to design tracer surveys for use in evaluating the dual training system that will gradually replace the existing institution-based training system; (2) to measure and compare the labor market impacts of alternative training modalities -- dual versus institution-based training - provided by the traditional sectoral training centers and by the new or rehabilitated training centers, and (3) to assess the cost effectiveness of the different training modalities and different training providers. Surveys A random sample of trainees should be selected from existing sectoral training centers and from rehabilitated or new centers to reflect a mix of dual and institution-based training modalities. This sample of trainees should be administered a retrospective survey one year after completion of training to elicit a variety of labor market information for the evaluation analyses. If analysts determine that it is important to estimate the rate of return to training for the trainees as a group, an effort should be made to identify a control group of secondary school graduates that were eligible to participate in dual or institution-based training but did not. A retrospective survey of trainees should be fielded in 1997 to a cohort of trainees that completed training in 1996. The survey should elicit information on trainees' demographic attributes, household characteristics, and post-training labor market histories. The post-training labor market history should include information on all jobs held since completion of training (for the dual training sample, including the employer providing the dual training), such as start and end dates for each job, wages at the entry- point and last/current job, weekly hours worked, occupation, industry of employment and firm size. A similar survey should also be fielded to the non-trainees if a decision was made to identify such a control group. The participating training centers should also be surveyed. The purpose is two-fold: (1) to augment the individual information with a variety of administrative data on the dual or institution-based training received by each trainee (training modality, type of training, length and intensity of the training program, costs, etc.) and (2) to develop broad-based indicators of the training centers themselves (number of trainers, quality and experience of trainers, equipment and infrastructure, size and types of populations served, placement rates, cost structure, etc.), and the nature of their dual training agreements with private enterprises. Evaluation Studies The studies are intended to measure and compare the labor market effects of dual and institution- based training, and to assess the cost effectiveness of alternative training modalities. Another objective is to identify the roles that different center characteristics play in shaping individual labor market  Annex 7 Page 6 of 6 outcomes in each modality, so as to improve the quality and efficacy of training services provided and to inform the rehabilitation or creation of new sectoral training centers. The evaluation studies should reflect the following considerations: Outcomes from the two training modalities should be compared. The relative efficacy of dual versus institution-based training should be inferred by comparing the labor market outcomes of the two groups of trainees. If a non-trainee control group was selected, the economic returns to any post-school vocational training can be ascertained by comparisons of the labor market outcomes of trainees and the control group. A range of labor market outcomes should be measured. These should include (but not be limited to) the following labor market outcomes: (a) time to first job, (b) the probability of employment over different time periods, (c) proportion of time spent unemployed over one year, (d) job stability, (e) usefulness of training in the new job, (f) wages and hourly pay, and (g) hours worked per week. The analyses of labor market outcomes should be conditioned on the types and mix of training received, and the trainees' individual characteristics. The effects of training center characteristics should be isolated. The design of the sampling frame, with both dual and institution-based trainees in a number of centers, will allow analysts to identify the effects of different center characteristics -- class-room size, number of trainees per instructor, qualifications and experience of instructors, populations served, and teaching infrastructure etc.- on the relative performance of the two training modalities. To the extent that the sample includes trainees from new or rehabilitated training centers, this analyses should provide insights into how sectoral training centers can be restructured to improve training delivery. The cost-effectiveness of different training modalities should be assessed. A methodology fbr assigning a monetary benefit to each of the different impacts of program participation should be developed and justified. For example, the private benefit from shorter unemployment spells may be valued at the average trainee's post-training wage. These benefits should be compared to the per-trainee costs (both direct and indirect) calculated from the survey of training centers to derive benefit-cost estimates for dual training versus institution-based training. If a control group of non-trainees was selected, a similar benefit-cost analysis should be conducted to estimate the rate of return to training. MA:tun\15745\1enp ksar\annex2  Annex 8 Selected Documents in the Project File 1. Baccar, Taoufik. Adiquarionfonrrtion-emploi, in Politique de l'E=ploi en Tunisie. Edited by the Instirut de Financement du Developpement du Maghreb Arabe. Tunis 1990. 2. GTZ. Mise en Oeuvre de la Phase Tl du Projet Alternance en Tunisie. Tunis 1996 3. Ministere de la Formation Professionmelle et de l'Emploi. Manuel Methodologiq d'Elaboration et de Realisation de Projets de Forrmation. Tunis, 1996. 4. Ministare de la Formation Professionnelle et de I'Emploi. MUethodologie d'Eligibilite au Financement de Projets de Creation ou de. Reconversion de Centres de Formation. Tunis. 1996. 5. Ministere de la Formation Professionnelle er de 1'Ernploi. Methodologic pour un svst6me d'informarion sur 1'emploi dans le conrexTe de restructuration industrie4le. Tunis, 1995. 6. Ministere de la Formation Professionnelle et de l'Emploi. Fude pour I Dvel=pemenr de 1aFormation en Entreprise et I_ParTicipation du Secteur Priv6 A la Formation Professionnelle. (Two volumes) Tunis, 1995. 7. Ministere de la Formadion Professionnelle et de I'Emploi. Etude de I'Impacr des Restrucrurations Industrielles sur 1'Emploi et les Besoins en Formation Professionnelle (Two volumes) Tunis. 1995. 8. Ministere de la Formation Professionnelle et de I'Emploi. E}ude d'Ey2fu2tion de I'Tnsertion des Diplomrs des Ccntres de Formation Professionnelle. Tunis, 1995. 9. Ministcre de la Formation Professionne1le et de I'Emploi. Conception d'un Mode de Formation en Altemance Adapt6 au Contexte Tunisien. (Two volumes) Tunis, 1995. m:\tun\15745\lenp\sar\annexsel.doc  Annex 9 Tunisia at a glance Page 1 of 2 M. East Lower. POVERTY and SOCIAL 4 North middlo- Tunbbs Afrfca Income DeOIOpmontdIamonfd Population mid-1994 (miUons) 8.8 267 1.097 GNPpercap4a 1994(USS) 1.743 t,e8.80 Ui expetq Average annual growth. 1190-14 Population (