Turkey - Industrial Technology Project

Document of The World Bank Report No:ICR0000322 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-44950) ON A LOAN IN THE AMOUNT OF US$155.0 MILLION TO THE REPUBLIC OF TURKEY FOR AN INDUSTRIAL TECHNOLOGY PROJECT December 19, 2006 Private and Financial Sector Department and Turkey Country Unit Europe and Central Asia Region  CURRENCY EQUIVALENTS ( Exchange Rate Effective 12/01/2006 ) Currency Unit = Turkish Lira Turkish Lira 1.00 = US$ 0.78 US$ 1.00 = Turkish Lira 1.32 Fiscal Year January 1- December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CPIU Central Project Implementation Unit ECU European Customs Union EDP Economic Development Program FMS Financial Management System ICR Implementation Completion Report IPR Industrial Property Rights KOSGEB Small and Medium Enterprise Development Organization MAM Marmara Research Centre MSTQ Measurement, Standards, Testing and Quality NGO Non-Governmental Organization OECD Organization for Economic Cooperation and Development PAD Project Appraisal Document PCT Patent Cooperation Treaty PIP Project Implementation Plan PIU Project Implementation Unit PPF Project Preparation Facility R&D Research & Development SFA Subsidiary Finance Agreement SIS State Institute of Statistics SME Small and Medium Enterprise TDF Technology Development Finance TDP- I Technology Development Project -I TP Technopark TPE Turkish Patent Institute TSC Technology Services Center  TSE Turkish Standards Institute TSS Technology Support Services TTGV Technology Development Foundation of Turkey TUBITAK Scientific and Technological Research Council of Turkey TURKAK Turkish Accreditation Agency UFT Undersecretariat of Foreign Trade UME National Metrology Institute VC Venture Capital VCF Venture Capital Fund WTO World Trade Organization Vice President: Shigeo Katsu Country Director: Andras Horvai Sector Manager: Gerardo M. Corrochano Project Team Leader: Ahmet Gurhan Ozdora  Turkey Industrial Technology Project CONTENTS 1. Basic Information........................................................................................................1 2. Key Dates....................................................................................................................1 3. Ratings Summary........................................................................................................1 4. Sector and Theme Codes.............................................................................................2 5. Bank Staff....................................................................................................................2 6. Project Context, Development Objectives and Design...............................................3 7. Key Factors Affecting Implementation and Outcomes...............................................7 8. Assessment of Outcomes ............................................................................................9 9. Assessment of Risk to Development Outcome.........................................................16 10. Assessment of Bank and Borrower Performance....................................................16 11. Lessons Learned......................................................................................................21 12. Comments on Issues Raised by Borrower/Implementing Agencies/Partners.........23 Annex 1. Results Framework Analysis.........................................................................24 Annex 2. Restructuring (if any).....................................................................................28 Annex 3. Project Costs and Financing ..........................................................................29 Annex 4. Outputs by Component..................................................................................31 Annex 5. Economic and Financial Analysis (including assumptions in the analysis)..35 Annex 6. Bank Lending and Implementation Support/Supervision Processes.............47 Annex 7. Detailed Ratings of Bank and Borrower Performance..................................50 Annex 8. Beneficiary Survey Results (if any)...............................................................51 Annex 9. Stakeholder Workshop Report and Results (if any)......................................58 Annex 10. Summary of Borrower's ICR and/or Comments on Draft ICR ...................59 Annex 11. Comments of Cofinanciers and Other Partners/Stakeholders .....................60 Annex 12. List of Supporting Documents.....................................................................61 MAP ..............................................................................................................................62  1. Basic Information Industrial Technology Country: Turkey Project Name: Project Project ID: P009073 L/C/TF Number(s): IBRD-44950 Intensive Learning ICR Date: 12/19/2006 ICR Type: ICR(ILI) Lending Instrument: SIL Borrower: GOT Original Total USD 155.0M Disbursed Amount: USD 152.0M Commitment: Environmental Category:C Implementing Agencies Marmara Research Center National Metrology Institute Turkish Patent Institute Turkish Technology Development Foundation Cofinanciers and Other External Partners 2. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 04/20/1998 Effectiveness: 10/18/1999 10/18/1999 Appraisal: 09/26/1998 Restructuring(s): Approval: 06/17/1999 Mid-term Review: 07/15/2001 Closing: 12/31/2003 04/30/2006 3. Ratings Summary 3.1 Performance Rating by ICR Outcomes: Highly Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory 1  3.2 Quality at Entry and Implementation Performance Indicators Implementation Performance Indicators QAG Assessments (if any) Rating: Potential Problem Project at any No Quality at Entry (QEA): None time (Yes/No): Problem Project at any time No Quality of Supervision (QSA): None (Yes/No): DO rating before Highly Closing/Inactive status: Satisfactory 4. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Law and justice 11 General industry and trade sector 89 100 Original Priority Actual Priority Theme Code (Primary/Secondary) Personal and property rights Primary Secondary Small and medium enterprise support Primary Secondary Other financial and private sector development Primary Secondary Export development and competitiveness Primary Primary Technology diffusion Secondary Primary 5. Bank Staff Positions At ICR At Approval Vice President: Shigeo Katsu Johannes F. Linn Country Director: Andras Horvai Ajay Chhibber Gerardo M. Sector Manager: Lajos Bokros Corrochano Ahmet Gurhan Project Team Leader: Vinod K. Goel Ozdora ICR Team Leader: Vinod K. Goel ICR Primary Author: Vinod K. Goel 2  6. Project Context, Development Objectives and Design (this section is descriptive, taken from other documents, e.g., PAD/ISR, not evaluative) 6.1 Context at Appraisal (brief summary of country macroeconomic and structural/sector background, rationale for Bank assistance) The macroeconomic conditions in Turkey in the 1990s were not conducive for R&D. The inflation rate remained very high (above 50 percent), and highly variable. The fragile banking system, whose primary function was to finance public deficit, and volatile capital flows and exchange rates increased economic risk and uncertainty. The economy went through boom-and-bust cycles: although the average growth rates were moderate, manufacturing achieved high growth rates for a few years followed by sharp contractions (the average annual growth rate of manufacturing output was 5.5 percent for the period 1995-2005) . Turkey started liberalizing its foreign trade policies in the 1980s and initiated a number of changes in other policy areas (including export subsidies, intellectual property rights and competition policy) in the early 1990s, mainly as a result of international agreements (GATT/WTO) and preparations for the European Customs Union (ECU). In January 1996, a custom union agreement was signed between Turkey and EU, allowing most industrial goods to pass freely between the partners. While access to ECU offered Turkey a unique opportunity to accelerate its development through freer and better access to markets, it also made Turkish firms more vulnerable to international competition. In order to take advantage of trade opportunities created by the ECU and respond effectively to greater competition in the domestic market, Turkish industry needed to upgrade from low-quality, labor-intensive products towards the production of higher value-added goods and services. Although the Scientific and Technological Research Council of Turkey (TUBITAK) was established in 1963, Turkey did not mount a comprehensive technology policy until the early 1990s. In 1993, Turkish Government approved a comprehensive policy document, Turkish Science and Technology Policy: 1993-2003. This document set four targets: increasing the number of researchers per 10,000 people from 7 to 15; raising the GERD (gross expenditure on R&D) to GDP ratio from 0.3 percent to 1.0 percent; moving up in the rank of scientific publications from 40th to 30th position; and increasing the share of business in total GERD from 18 percent to 30 percent. The Government recognized its crucial role in providing a conducive environment for technology development. In the 1990s, various laws regulating industrial property rights were passed and several institutions were established or reorganized: TUBITAK, Technology Development Foundation of Turkey (TTGV), the National Metrology Institute (UME), Small and Medium-sized Industry Development Organization (KOSGEB), R&D support schemes, Turkish Patent Institute (TPE), Turkish Accreditation Agency (TURKAK), technology development zones/technoparks, etc. In order to further encourage innovation among Turkish industry, the Government in 1995 started a scheme known as TIDEB (currently renamed as TEYDEB) to provide grants to 3  private firms for R&D activities. This scheme was administered by TUBITAK in collaboration with TTGV. The government also granted public research institutions some degree of autonomy to become more market-oriented and reduce their dependence on government funding. The Government's efforts to improve technology infrastructure and services were supported under the World Bank's Technology Development Project (TDP-I, a US$100 million Bank Loan in 1991-1997) aimed at: (i) bringing the MSTQ system in Turkey to OECD standards, (ii) supporting private sector investment in industrial technology development by providing seed capital and subsidized grants/loans, and (iii) developing a venture capital (VC) industry by establishing a legal and regulatory framework, rationalizing the tax treatment of venture capital funds (VCFs), and financing through the IFC a role model VCF and management company. The Government, to build upon the success of TDP-I, requested the Bank support for a follow-up project and the Industrial Technology Project (ITP) was designed on the ground work laid down by the TDP-I. It aimed at both further strengthening successful components of TDP-I (metrology services and R&D funding), and expanding into new activities (public R&D institutions and IPRs). Although both the TDP-I and ITP projects aimed at supporting technological, legal and regulatory framework for technological activity, promoting private sector R&D, and linking technological activities in the private and public sectors, there were two significant differences between TDP-I and ITP in terms of their approach. TDP-I was mainly involved in the establishment of three organizations (TTGV, National Accreditation Council and the VCF/VCM), and required legal and regulatory work for their existence. ITP also aimed at the creation of new organizations (VCF, technoparks, etc.) and laws (on technology parks, IPRs, etc.), but these were only to form a part of the participating organizations' activities, and the Project's success was not critically dependent on their realization. As such, the ex ante risks involved in ITP were lower, and ITP was successful in realizing its developmental objectives. 6.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The major objectives of the Project, as identified in the Project Appraisal Document (PAD) were to: