Mexico - Manpower Training Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-4604-ME MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$80.0 MILLION TO NACIONAL FINANCIERA, S.N.C. WITH THE GUARANTEE OF THE UNITED MEXICAN STATES FOR A MANPOWER TRAINING PROJECT September 16, 1987 This document has a restricted distribution and may be used by recipients only in the perfonnance of their official duties. Its contents may not otherwise be disdosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit Mexican Peso (Mex$) Mex$1.00 = US$0.00082411 US$1.00 = Mex$1,214.001/ FISCAL YEAR January 1 - December 31 UNITS AND MEASURES The International System of Units of Measurements (SI) is used throughout this memorandum. ABBREVIATIONS GATE - Technical Support Group for Enterprises NAFIN - Nacional Financiera, S.N.C. CET - Council of Employment and Training (Consejo Consultivo de Empleo, Capacitacion y Adiestramiento) CONALEP - National Council for Professional Technical Education SEE - State Employment Lervice SIP - Productivity Information Service SME - Small or Medium-Scale Enterprise STPS - Ministry of Labor and Social Welfare 1 At the time of appraisal (May 1987).  FOR OFFICILU USE ONLY MEXICO MANPOW. tRAINING PROJECT LOAN AND PROJECT SUMMARY Borrower: Nscional Financiera, S.N.C. (NAFIN) Guarantor: United Mexican States Beneficiary: Ministry of Labor and Social Welfare (STPS) Loan Amount: US$80.0 million equivalent Terms: Repayable over 15 years, including three years of grace, at the standard variable interest rate. Financing Plan: Enterprises US$40.3 million Government US$35.7 million Bank US$80.0 million TOTAL US$15C.O million Rate of Return: Not applicable Staff Appraisal Report: Report No. 6838-ME This document has a restricted distribution and may be used by recipients only in the perfo .-.am: of their official duties. Its contents may not otherwise be disclosed without World Bank authoriltior.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DTVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN ro NACIONAL FINANCIERA, S.N.C. WITH THE GUARANTEE OF THE UNITED MEXICAN STATES FOR A MANPOWER TRAINING PROJECT 1. The following report on a proposed loan to Nacional Financiera, S.N.C. (NAFIN) for US$80 million equivalent is submitted. for approval. l'he proposed loan would be repaid over 15 years, including three years of grace, at the standard variable interest rate. 2. Background. Since the onset of the 1982 financial crisis, the Goverrment of Mexico has recognized that a return to sustainable growth would require not only stabilization, but also far-reaching structural reforms, including restructuring of key industrial sectors and public enterprises, opening of the economy to international competition, and technological modernization. Reforms initiated since that time have already led to significant closings of inefficient enterprises and consolidation and upgrading of facilities to improve quality and reduce costs. The process of adjustment is expected to accelerate over the next few years as the trade regime is liberalized. For these economic reforms to succeed, it is now essential to expand and improve employment services and skill upgrading through manpower traini,^O. Improved retraining and inservice training in basic skills such as bookkeeping and equipment maintenance techniques is needed particularly to assist the zountry's 380,000 small-and medium-scale enterprises (SMEs), which are taking the brunt of the economic adjustment measures but will need to play an increasingly important role under the liberalized trade regime. Training programs must facilitate labor mobility, meet the special needs of workers displaced by restructuring and, in the context of slow creation of new employment opportunities in the formal sector, provide skills for self-employment and employmenc in the informal sector. Th. increased demands placed on the training system as a result of the restructuring, together with rapid growth of the v .rking age population, present a major challenge. About 800,000 persons will enter the workforce annually. Assisted by two Bank loans totalling US$171.0 million, the Government has taken steps since 1978 to strengthen pre- service training, and in 1984 initiated a program for labor retraining. Major employers have also begun to increase outlays for inservice training for workers. Nevertheless, the supply of qualified skilled and semiskilled labor is vastly insufficient. The main constraints on the provision of effective employment services and training are: (a) limited public services for registration of the unemployed, including counselling, referral and placement In training or jobs, insufficient retraining for unemployed workers, and difficulties in recruiting the poorest and most needy into retraining; (b) inadequate provision by firms, especially SMEs, for inservice training of workers, (c) institutional shortcomings in the Ministry of Labor and Social Welfare (STPS) and the State Employment Services (SEEs) which share the responsibility for monitoring labor market supply and demand, planning and implementing retraining programs, and promoting inservice training among enterprises; and (d) insufficient and unevenly distributed training capacity.  3. Prolect Objectives. The proposed project is designed to address the above problems and assist In implementing the Government's strategies for economic reform and adjustment by reducing human resource constraints on growth, increasing labor productivity, and lessening the social cost of adjustment. It would: (a) strengthen employment services and, in particular, expand and make the existing retraining programs for displaced and unemployed workers more effective, including an innovative and very selective use of stipends to trainees in order to enable the poorest of the unemployed to be retrained; (b) assist enterprises, especially SMEs, to provide inservice training for skilled and semi-skilled workers; (c) strengthen STPS capabilities and systems for monitoring and analyzing labor market, manpower and training information; and (d) increase training capacity in critically needed specialties by upgrading existing training institutions that contract with Government and firms to provide training. 4. Project Description. The proposed project would pursue the above objecti-es through four components: (a) the employment services and retraining component (total cost, including contingencies, US$90.3 million) would provide training for 400 staff, data processing equipment, and related technical assistance to strengthen the State Employment Services (SEEs); technical assistance to improve the planning, content, monitoring and evaluation of the existing STPS- sponsored retraining progrem and related employer participation; and financing of training costs (including trainee stipends estimated at US$66.0 million) of an expanded, temporary STPS retraining program for 160,000 displaced and unemployed workers; (b) the demonstration in- service training and productivity component (US$51.1 million) would provide financial and technical assistance to 20 Technical Support Groups for Enterprises (GATEs), to be established by employers' associations under cost-sharing agreements with STPS and staffed with consultants engaged under time-limited contracts, to promote and organize inservice training of about 75,000 workers in 5,000 targeted SMEs employing about 200,000 workers in selected sectors and regions; and consultant services and materials for developing promotional activities and information on inservice training which would be provided to enterprises through a central group called the Productivity Information Service (SIP) and targetted at 20,000 additional SMEs with 8")0,000 employees in key regions and economic sectors countrywide. Tnese services would complement and be coordinated witl the industrial extension services provided by the Department of Industrial Promotion in NAFIN under the Bank-financed Fourth Small- and Medium Scale Industry Project; (c) the STPS institutional strengthening component (US$3.1 million) would provide staff upgrading, technical assistance and equipment to strengthen the STPS labor market, manpower and training monitoring and information systems and related analytical capabilities of staff; and technical assistance for priority studies to guide the future development of Mexico's training system, including evaluations of costs and benefits of retraining and inservice training; and (d) the training institutions upgrading component (US$11.5 million) would provide complementary equipment and staff training in administration for 500 existing training institutions required to provide retraining courses in priority areas, under contract with Government.  5. PzoJ_ct Im lementation and Cost. The project would be implemented over five years. STPS would be responsible for project tanagement, with STPS' Director General of Employment as project director; implementation capacity has been assessed and judged satisfactorv. Project funds would be expended under the direct control of STPS for all components except the employment services and retralning component; fr that component, the Government has established procedures, acceptable to the Bank, for the transfer of project funds from the fedei-al to the state level and for related financial control. Ilmplemenitation of the retraining and irnservice training components would Be guided and mionitored by the Council of Employment and Training (CET) wthich includes representation of employers and workers, and is chaired by the Minister of Labor and Social Welfare. The costs for operating the GATEs would be shared equally by Government and participating enterprises, with Bank financin6 for the Government share allocated on a declining bea-is The total cost of the project is estimated at US$156.0 million (excluding taxes and duties of US$12.3 million) with a foreign exchange component of US$15.0 million. A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement, the disbursement forecast and the allocation of loan proceeds are shown in Schedule B. A timetable of key project processing eventis and the status of Bank Group operations in Mexico are given in Schedules C and D, respectiv-','. A map (IBRD-20343) is attached. The Staff Appraisal Report, No. 6838-ME, dated August 28, 1987 is being d1stributed separately. 6. Rationale for Bank Involvement. Within the Bank's overall strategy to assist economic restructuring and trade liberalization in Mexico, t e proposed project would help to raise productivity and improve labor's capacity to respond to changing labor market requirements. It -would complement two previous Bank loans for strengthening preservice training (Loans 2042-ME and 2559-ME). The first of these projects was successfully completed in 3.4 years;