Tunisia - Employment and Training Fund

Document of The World Bank FOR OFFICIAL USE ONLY 4Aj 3 Z s - 7-M Repwt No. 8630-TN STAFF APPRAISAL REPORT REPUBLIC OF TUNISIA EMPLOYMENT AND TRAINING FUND JULY 13, 1990 Population and Human Resources Division Country Department II Europe, Middle East and North Africa Region This document has a restricted distributlon and may be nsed by recipients only in the performance of their official duties. Its contents may not otberwise be disclosed without World Bank suthorizaton.  REPUBLIC OF TUNISIA EMPLOYMENT AND TRAINING FUND STAFF APPRAISAL REPORT CURRENCY EOUIVALENTS (As of June 1990) Currency Unit - Tunisian Dinar (TD) US$1.00 TD 0.89 TD 1.00 - US$1.12 FISCALYE January 1 - December 31 GL4OSARY OF ABBURVIATIONS SPEC National Office for ProfessWonal Staff Employment Bureau national pour l'emploi des cadres BR! Regional Employment Offices Bureaux R6gionaux de l'Emploi CCAE Center for Assistance and Advice to Enterprises Centre de conseil et d'assistance aux entreprises COVE General Cmamissariat for Regional Development Commissariat GAneral au Developpement Regional DFE Directorate of in-company training Direction de la formation n eatreprise DPS Directorate of Planning and Statistics Direction du Plan et de la Statistique ETY Employment and Training Fund Ponds d'insertion et d'adaptatior professionnelle (FlAP) ETSL Education and Training Sector Loan Pret Sectoriel Education/Formation FONAPA National Fund for the Handicrafts and Small-Trade Promotion Fonda National pour Ilartisanat et la promotion des petits metiers INS National Institute of Statistics Institut national de la statistique MFPE Ministry of Vocational Training and Employment Minist6re de la formation professionnelle et de Ilemploi HOE Ministry of Education, Higher Education and Scientific Research Ministere de 16ducation, do Ilenseignement superieur et de la recherche scientifique OFPE Office of Vocational Training and Employment Office de la formation professionnelle et do l'emploi S1P Professional Life Insertion Internship Stage d'insertion a la vie professionnelle SHAG Minimum agricultural salary Salaire minimum agricole SMIG Minimum industrial salary Salaire minimum garanti TFP Vocational Training Tax Taxe a la formation professionnelle UIPE Regional Employment Promotion Units Unites regionales d intervention pour la promotion de l'emploi URO Ragional Orientation Units Unites regionales d'orientation USAID United States Agency for International Development  FOR OMCIAL USE ONLY REPUBLIC OF TUNISIA EMPLOYMENT AND TRAINING FUND STAFF APPRAISAL REPORT Table of Contents Loan Summary i I. EMPLOYMET AND PRODUCTIVITY . . . . . . . . . . . . . . . .1 Employment Trends and Prospects . . . . . . . . . . . . . .1 Government Employment Policies . . . . . . . . . . . . . . 2 Employment and Training Services . . . . . . . . . . . . . 4 Major Issues in the Sector . . . . . . . . . . . . . . . . 5 Lack of effective labor market intermediation . . . . 5 Effectiveness of Employment Promotion Programs . . . 7 Training for Employment and Productivity . . . . . 9 Bank Lending Strategy ...... ........... . 10 Lending Strategy ........ .. ... .. . . 10 Experience with Past Lending . . . . . . . . . . . 11 II. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . 13 Pationale for Bank Involvement . . . . . . . . . . . . . 13 Project Objectives and Scope . . . . . . . . . . . . . . 13 Employment and Training Fund . . . . . . . . ... . . . . 13 Definition . . . . . . . . . . . . . . . . . . . . 14 Standard ETF activities . . . . . . . . . . . . . . 14 Organization ................. 15 Procedures. ................ 16 Financial Management . . . . . . . . . . . . . . . 16 Testing ETF Organization and Procedures . . . . . . 17 Institutional Development ....... .. .. .. .. . 17 Multi-Services Center . . . . . . . . . . . . . . . 18 Orientation and Information . . . . . . . . . . . . 19 Labor market monitoring . . . . . . . . . . . . . . 19 Management and Evaluation of ETF . . . . . . . . . 19 This report is based on the findings of an appraisal mission which visited Tunisia in March 1990. The mission comprised Mr. Bruno Laporte (Economist, mission leader), Ms. Manon Muller (Economist), Mr. Christian Dessallien (Economist, Consultant) This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  III. PROJECT COSTS, FINANCING. IMPLEMENTATION AND DISBURSEMENTS Project Costs . . . . . . . . . . . . . . . . . . . . . . 20 Summary of Project Costs . . . . . . . . . . . . . 20 Basis of Costs estimates . . . . . . . . . . . . . 21 Customs Duties and Taxes . . . . . . . . . . . . . 21 Contingencies Allowances . . . . . . . . . . . . . 21 Foreign Exchange Component . . . . . . . . . . . . 21 Recurrent Costs .... . . . . . . . . . . . . . . 21 Project Financing .... . . . . . . . . . . . . . . . . 21 Management and Implementation . . . . . . . . . . . . . . 22 Supervision, Monitoring and Evaluation . . . . . . . . . 23 Procurement .... . . . . . . . . . . . . . . . . . . 24 Technical Assistance . . . . . . . . . . . . . . . . . . 25 Status of Preparation . . . . . . . . . . . . . . . . . . 25 Disbursements .... . . . . . . . . . . . . . . . . . . 25 Special Account . . . . . . . . . . . . . . . . . . . . . 26 Accounts and Audits .... . . . . . . . . . . . . . . . 26 IV. BENEFITS AND RISKS .... . . . . . . . . . . . . . . . 27 V. AGREEMENTS REACHED AT NEGOTIATIONS . . . . . . . . . . . 28 ANNEXES 1. Eligible Activities under ETF 2. ETF's structure, organization and procedures 3. Basic Data on Employment 4. Basic Data on Training 5. List of Sub-projects Tested 6. OFPE Investment and Recurrent Budgets SCHEDULES I. Institutional Development Schedule II. Implementation Schedule III. Estimated Schedule of Loan Disbursement CHARTS I. Organizational Chart - OFPE II. Organization of the ETF  REPUBLIC OF TUNISIA EMPLOYMENT AND TRAINING FUND STAFF APPRAISAL REPORT Loan Summary B^orrower: Republic of Tunisia Amount: US$12 million equivalent Terms: Seventeen years, including five years grace, at the standard variable interest rate. Descritign: The proposed loan would assist the Government in improving labor mobility by developing regional-based intermediation mechanisms for employment and skills training. The proposed project includes: (i) the creation of an Employment and Training Fund (ETF) to finance sub-projects facilitating the placement of unemployed people into existing jobs and improving worker productivity through in-company training; and (ii) an institutional development program aiming at strengthening key services to enterprises (selection, placement and in-company training), developing information and counselling for job- seekers, setting up a labor market monitoring system, and strengthening project management and evaluation. Bnefits: The main direct benefit of the proposed project would be to provide employment and income generation to an estimated 30,000 people over an initial three-year period. At the same time, it would make a valuable contribution toward meeting critical semi-skilled manpower shortages which constrain growth in key economic sectors, such as manufacturing industries. The restructuring of existing employment promotion programs, as well as the testing of new programs through ETF will result in more effective resource allocation in an area which claims an increasing share of the Government resources. The institutional development component, targeting key employment and training services, will improve the quality and speed of the "fit" of job entrants and lower transactional costs. The indirect and spinoff benefits, in terms of enhancing local area initiative capacity, spurring micro-enterprise development and development of private intermediaries, could be substantial. Risks: The major risk lies in the capacity of regional administrations to design sub-projects, identify suitable private intermediaries and manage ETF operations. However, the first batch of sub-projects, implemented in the first half of CY90 with USAID financing has demonstrated the capacity of regional services to plan and implement ETF activities consistent with  . ii - proposed guidelines and procedures. During appraisal, particular attention was paid to decentralizing administration and ensuring that additional resources - both human and material - be provided to the various implementing units at the central and regional levels. The other risk relates to possible organizational changes within MFPE and its specialized agency, OFPE. This point was raised during negotiations and the Tunisian delegation provided assurances that project implementation would not be affected by possible institutional reorganization. Estimated Proiect Costs1/ Local Foreign Total ----(US$ million)---- A. Employment and Training Fund 28.6 3.3 31.9 B. Institutional Development 0.8 1.8 2.6 Total Baseline Costs 29.4 5.1 34.5 Physical Contingencies 0.0 0.0 0.0 Price Contingencies 0.0 0.2 0.2 Total Project Costs 29.4 5.3 34.7 Financing Plan: Government 9.6 0.1 9.7 Enterprises 7.7 0.8 8.5 IBRD 8.5 3.5 12.0 USAID 3.6 0.9 4.5 Total 29.4 5.3 34.7 1/ Includes US$2.2 million in local taxes financed by Government and Enterprises Estimated Disbursements Bank Fiscal Year 91 92 93 94 -------------(US$ million)-------------- Annual 1.2 3.6 5.0 2.2 Cumulative 1.2 4.8 9.8 12.0 Rate of Return: Not applicable  REPUBLIC OF TUNISIA EMPLOYMENT AND TRAINING FUND STAFF APPRAISAL REPORT I. EMPLOYMENT AND PRODUCTIVITY 1.01 After a decade of strong growth, the Tunisian economy started to experience difficulties in the early 1980s. Oil production began to decline as expected and world prices fell, but economic adjustments necessary to cope with these changes were slow in coming. By 1985, external financing for Tunisia's high current account deficit became scarcer, threatening a balance of payments crisis. After a period of demand restraint, the Government introduced policy revisions that have broadened into a wide-ranging program of structural adjustment. The Government's strong commitment to the adjustment program has been supported by the Bank through five adjustment operations - two Agricultural Adjustment Loans (ASAL) in FY87 and FY89, the FY88 lndustry and Trade Policy Adjustment Loan (ITPAL), the FY89 Structural Adjustment Loan (SAL) and the FY90 Public Enterprise Restructuring Loan (PERL). While the economic adjustment process is carried forward, a major concern for the Government is the continuing high level of unemployment, despite significant decreases in the price of labor relative to capital in the last five years. The sweeping economic adjustment process begun in 1986 has sharpened the authorities' longstanding concern about the unemployment issue. The effects of fiscal austerity and trade and price reforms on ailing state-supported enterprises imply layoffs of workers in the short term, pending the desired upsurge in investment and employmenit in more diffuse, small-scale private-sector businesses stimulated by economic liberalization. =mrlovment Trends and Prospects 1.02 High levels of unemployment, currently about 15%, persisted during the last decade, notwithstanding interventionist economic policies funded by windfall oil revenues, including massive overstaffing of public enterprises, public works programs and employment promotion schemes. High natural population growth, combined with stagnant net emigration, a skewed age pyramid, and rising female participation, make it very difficult to match labor supply with job creation and to start reducing the stock of unemployed. 1.03 Between 1975 and 1989, Tunisia's population grew from 5.6 million to 7.9 million, at an annual rate of 2.5%. During the same period, the labor force increased at average annual rate of 2.71, from 1.6 million to 2.4 million (Annex 3, Table 1). This high rate of growth is due to the youthful structure of the population (42% under 15 years of age in 1975 and 381 in 1989) and to the increasing entry of women in the labor market (their activity rate grew from 10% in 1975 to about 20% in 1989). Furthermore, traditional emigration outlets have dried up. Wh'Ie emigration absorbed up to 7.51 of the labor force in the 1970s, net emigration was nil in the 1980s, and it is expected that the number of net returnees will reach 8,000 per year over the period 1989-93. This high rate of  increase in the labor force is expected to continue through the 1990s under the momentum of past demographic change, and even respectable economic growth rates in the 4-5% range would hardly begin to reabsorb unemployment unless productivity stagnated. 1.04 Actual employment has grown from 1.4 million in 1975 to almost 2 million in 1989, at an average annual rate of 2.7%. As shown in Annex 3, Table 2, employment growth since 1980 has been concentrated in the service sector (+7.3% per year), consisting of commerce, transport, banking and tourism, in construction (+5.2%) as well as in manufacturing industries (+3.9%). The main declining sectors of employment have been agriculture (-1.7% per year) and mining and energy (respectively -4.1% and -2.7%). In terms of its sectoral distribution, 25% of the active labor force is now employed in agriculture, 21% in manufacturing industries, 12% in construction, 27% in private services and 15% in the civil service. The most recent trends show that light export manufacturing industries such as textile, leather and shoes, are growing rapidly. This seems to indicate that, as a result of the Government's economic liberalization policy undertaken since 1986, Tunisia has become very attractive for the relocation of European light manufacturing industries and for sub- contracting. 1.05 An average of 44,000 jobs have been created each year since 1975, while new entrants on the job market have averaged 53,000 each year. However, the rate of job creation has slowed down considerably from 47,000 per year in the first half of the 1980s to 39,000 per year between 1985 and 1989. Consequently, the unemployment rate of the labor force aged 18-59 increased only slightly between 1975 and 1984 (frcm 12.9 to 13.1%), but jumped to 15.3% in 1989. In 1989, Tunisia had 316,000 unemployed workers between the age 18 and 59 (or 381,000 if the age groups from 15 to 17 and over 60 are included). The preliminary results of the recent Household Survey indicate that the overall unemployment rate for the people 15 years and older stands at over 16% in 1989. 1.06 As shown in Annex 3, Table 3, unemployment affects mostly young people - 56% of the unemployed are between the age of 15 and 24, most of them being first-job seekers (60% of the unemployed). The unemployment rate for the labor force aged 18-24 lies at 30% or twice the national average. Workers with little or no education are particularly affected by unemployment (26% of the unemployed were illiterate in 1989 and 47% had only achieved primary schooling). However, workers with some secondary or even higher education levels are increasingly affected (20% of the unemployed in 1984, increasing to 30% in 1989). The length of unemployment has also considerably worsened. While in 1984, 31% of the unemployed found a position within 6 months, in 1989, two-thirds of the unemployed had been looking for a job for over one year. The "hard-core" of the unemployed is therefore, youth, mostly with primary education or less, with no previous work experience, and who have been looking for a job for more than 12 months. Government Employment Policies 1.07 The Government is fully aware of the widening gap between supply of and demand for jobs. Its concerted attack on unemployment has four major prongs: (i) promoting economic growth; (ii) moderating population growth; (iii) adapting  the profile of the labor force to the needs of the economy; and (iv) removing labor market rigidities. 1.08 The macroeconomic framework is sound, growth-oriented, and much less biased against labor-intensive investments than in the early 80s. The main emphasis of the structural reform program is on measures promoting efficiency and growth by removing obstacles to a more efficient resource allocation (realignment of prices, including tariffs, tax reform, reduction of regulatory constraints, stimulation of competition). Real wage increases have been kept well below productivity since 1984, and the relative costs of capital and labor have shifted in the latter's favor, notably through significant increases in real interest rates. Non-wage labor costs, notably employer social security contributions, have also been reduced. In 1989, taxes paid by employers for low- cost housing (FOPROLOS) and for vocational training (TFP), were reduced. The options for further reducing social security charges are being investigated with Bank assistance.' 1.09 The Government continues to emphasize poRulation Rolicies as an essential aspect of its strategy. An active family planning strategy undertaken with Bank and USAID support since the 60s contributed to a decline in birth rates of 27% between 1965 and 1985. Nortality also declined by 45%, so population continues to grow at 2.51 a year. While demographic inertia and commendable reductions in mortality are keeping the net growth rate relatively high in the short term, cumulative fertility reductions linked to rising contraceptive prevalence and higher age at marriage are at work, steadily reducing the "teen bulge" of the labor force and its overall rate of increase. Nevertheless, the 16-19 age group will not even start to decline in absolute numbers until towards the end of the next decade. 1.10 The education and pre-eM1lo_ent training environment is being changed rapidly, notably through the introduction of 9-year universal basic education and g 9ater involvement of employers in training, supported by the FY89 Education and Training Sector Loan. The relatively poor performance of the education and training system (only 1 in 3 children go beyond grade 6, 1 in 5 8o beyond grade 9, and 1 in 20 progress to higher education) translates into higher numbers of unemployed youth. At the same time, intense world market competition and rapid technological change require a labor force with much bigher levels of mastery of math, science and language skills than is presently the case. While an improved pool of pre-employment skills does not directly create jobs, it helps attract foreign investment and improves the flexibility of the labor force and the range of individual career opportunities to match changing demand conditions. 1.11 The labor market regulatory framework is gradually being revised to improve labor mobility and employers' hiring response to market opportunities. The starting poirt is a dirigiste system enshrined in a labor code, a patchwork of implementing rules and practices, and a tradition of government intervention in all aspects of hiring, firing and wage and benefit determination. However, ,1/ As part of the FY88 Industry and Trade Policy Adjustment Loan, the Bank financed a Social Security Stuiy which is being executed by IL.0  - 4 - a number of apparently inflexible features built into the regulatory framework are substantially weakened through tolerant or lax administrative and/or ineffectual sanctions machinery. Significant remaining drawbacks include seniority-based pay scales, ambiguities in standards of performance-related benefits, limited fixed-term employment formulas, quasi veto powers of local admiristrations on intended layoffs and punitive labor tribunal awards against employers who challenge them, and minimum wages working against absorption of unemployed youth. A number of potential disadvantages have long been recognized and alleviated by adding compensating layers of "incentive" programs, such as wage subsidy and tax rebate schemes for employers in desirable areas or sectors hiring various categories of youth labor, effectively relaxing the minimum wage constraint (paras. 1.24. through 1.28). The Government is introducing new measures raising the minimum company size to which various regulations involving mandatory employee participation apply. Efforts are also being made by the administration to inform employers and clarify the legislation in particular with regard to firing and fixed term employment. Further progress on labor market deregulation can only be achieved slowly and through negotiationE between labor unions and employers' federations. EmmlogMent and Training Services 1.12 The main responsibility for providing employment and training services in Tunisia rests with the newly created Ministry of Vocational Training and Labor (MFPE)'. The Office of Vocational Training and Employment (OFPE) is the operational arm of MFPE and is managed under its supervisory authority. Broadly speaking, the main functions of OPPE are: training; labor exchange and placement; orientation of youth and adults; labor market information; and assistance to enterprises. The organizational structure of OFPE both at the central and regional levels is depicted in Chart I. 1.13 With regard to training, OFPE directly operates a network of 71 training centers. In 1989, it provided formal training for about 6,500 trainees and continuing vocational training for about 3,000 people. In the same year, 17,000 out of an estimated 68,000 apprentices in the country were rev .;tered with OFPE, but 2,000 were actually following courses in OFPE's training centers. OFPE is financed through transfers from the General Budget. At the same time, a payroll tax (TFP), equal to 2X of the wage bill of companies (11 for manufacturing industries) is collected by the Treasury. MFPE is responsible for coordinating all vocational training activities in Tunisia. Technical ministries and public enterprises run training programs to meet the needs of their respective sectors and some 8,600 trainees were enrolled there in 1989. Finally, a private vocational training sector operates with a capacity of about 20,000 training places, mainly for office/clerical skills. 1.14 The labor exchange/placement function is performed by OFPE through its decentralized network, namely 33 regional employment offices (BRE) which in turn control some 100 local offices. These offices have a mandate to register unemployed people and provide them with some information on training and 1/ The Ministry of Vocational Training and Employment (MFPE) was created by Decree #90-875 dated June 5, 1990.  - 5 - employment possibilities. They play a modest role in terms of placement which seems to be limited to seasonal and semi-skilled workers. In 1938, the number of registrations and re-registrations of unemployed people reached 237,000 and the number of placements only 57,000. The labor exchange function for university graduates/professional staff is handled separately by the National Office for Professional Staff Employment (BNEC) created in 1987. The statistics show that, in 1988, BNEC registered 1,960 people and placed 700. 1.15 Info-mation/orientation of youth and adults is provided through 23 regional orientation units (URO), most of which share facilities with BREs. Their role is confined to providing information/counseling to young people trying to get access to vocational training programs. In some instances, they have participated in selection operations for vocational training centers. 1.16 The role of OFPE in terms of labor market monitoring is limited to the production of statistics on registration and placement activities in its BRes. It is also to provide assistance to planning authorities and to the National Statistics Office (INS), which are ultimately responsible for maintaining labor market statistics. OFPE is in the process of developing an information system on youth insertion into the labor market which will be based on employer surveys and tracer studies. 1.17 OFPE also provides assistance to entergrises in the areas of in- company training and selection of personnel. With regard to in-company training, OFPE's role has been to approve training plans for companies claiming a rebate on the vocational training tax. It has also been to train human resources managers and instructors, as well as to provide direct assistance to enterprises for analyzing human resources problems, designing training plans and, in some cases, delivering training. The Center for Assistance and Advice to Enterprises (CCAE, a unit of OFPE) provides services to companies, on a fee paying basis, in the area of staff selection. Some 50 companies received assistance in 1988. Nalor Issues in the Sector Lack of effective labor market intermediation. 1.18 The functioning of the labor market has been hampered by the lack of effective intermediation. The state labor market organization, OFPE, which might be expected to aid labor market flexibility through services to employers and job-seekers, has been mainly concerned, in the past, with registration and control which contributes to excessive regulatory rigidity. Private placement services are forbidden by law and employers are required to seek OPE's approval for all vacancies. There is a need to improve the quality and expand the range of services provided by OFPE while, at the same time, encouraging the development of private labor market intermediaries. 1.19 OFPE's nationwide network of job placement and counseling services has not been able to provide adequate occupational and educational information for orientation of youth and adults. Very little information is available to students in the education system about career opportunities and pre-requisites in terms of training and experience. Information available to unemployed people regarding job opportunities, employment promotion programs, and training programs  - 6 - is very fragmented. This lack of information is one of the most serious problems affecting the flexibility of labor market operations. 1.20 With regard to labor exchange/placement services, OFPE's role is limited to a fraction of the market, mainly seasonal and semi-skilled labor. The BREs have not been in a position to offer adequate services to job-seekers beyond the delivery of an identification card. Their resources, both human and material, remain limited. They hive not developed a pro-active strategy and their performance in terms of job referrals, counseling and testing and assistance to geographic mobility, remain limited. 1.21 Enterprises perceive OFPE's role as mainly that of a welfare agency for the unskilled unemployed. OFPE's assistance to enterprises in the field of human resources development remains limited. Selection services for enterprises based on modern occupational assessment programs and work sampling techniques are not widely available. In general, enterprises do not rely on the BREs to recruit qualified ntipower. Moreover, the legal obligation of companies to inform OFPE before they advertise a job offer in the press, has caused unnecessary delays in recruitment. Under the proposed project, the two week standstill period available to BREs to identify a suitable candidate before a company advertises would be reduced to two days. Complete elimination of the requirement, which OFPE favors, would require major legislative changes and disproportionate efforts at the political level for an equivalent result. During negotiations, the Government confirmed these arrangements (para. 5.02). 1.22 OFPE's management is aware of the organization's shortcomings and since its 1988 reorganization, a number of remedial steps have been taken. The most significant measure consisted in the integration of employment and training services, previouLsly under separate Government entities. The second step consisted in decentralizing and strengthening internal key functions, such as information/orientation (URO) and employment promotion (URIPE). The OFPE regional delegations are now in a position to provide a full range of services to job-seekers and employers. The third step would be the restructuring of three existing OFPE entities dealing with in-company training (DFE), selection (CCAE) and high level staff placement (BNEC) which will be grouped at the national level to provide comprehensive services to enterprises (para. 2.20). 1.23 Beyond the institutional arrangements, the most important measure needed is to provide suitable funding mechanisms to allow OFPE's regional offices to perform their core role of labor market intermediation either directly or by sub-contracting to private entities. This would provide a real incentive to the regional structures to take initiatives. At the same time, the funding mechanisms would introduce an element of competition among the various governorates, as well as, among various structures within a governorate. The creation of the proposed Employment and Training Fund would promote the development of pro-active labor market intermediation strategies aimed at improving labor market insertion opportunities and consolidating human capital in existing enterprises. In addition the institutional development component would assist OFPE with ongoing restructuring and strengthening of key services (para. 2.04).  - 7 - Effectiveness of EmDlovment Promotion Programs 1.24 Faced with a growing unemployment problem, the Government has over the years put in place a very sophisticated and relatively costly employment promotion framework. The majority of these programs which result in lowering effective wages paid by employers through state subsidies, have very high administrative costs and may merely be subsidizing normal employment plans without adding to total recruitment. In addition, there is no obligation for employers to recruit trainees at the end of the program. Small employers also tend to be wary of these programs because they expose them to social security and other regulatory encumbrance they might otherwise avoid. While it is not always possible to evaluate the impact of some of these programs, especially the most recent ones, it is clear that their effectiveness could be greatly improved. Broadly speaking, there are three types of employment promotion programs: (i) Public works programs. 1.25 These employment promotion programs introduced for the first time in the 60s, target unemployed people with little or no skills in under- privileged regions. Typically, these people are employed at less than the minimum agricultural salary 'SMAG), in various labor intensive priority public works such as: desertification, reforestation, soil and water conservation, maintenance of public infrastructures, construction of schools and low cost housing. Several programs exist in this category, financed by the Government and external donors, such as USAID, the Kuwait Development Fund and the African Development Bank. Altogether, an estimated TD 62 million (US$69 million) were spent on these programs in 1989, which financed 25 million paid working days or the equivalent of about 100,000 full time jobs, about 5X of the labor force. 1.26 A recent evaluation completed by USAID' shows mixed results. To the extent that the main objective of the program is to provide a temporary safety net for the large numbers of unemployed and not to obtain the highest return per dinar invested, the program is effective. However, the program has not been successful in terms of creating opportunities for long-term non-subsidized employment, which is an implicit objective. Both the Government and international donors are looking into ways and means of improving the effectiveness of these programs and of channelling funding into the generation of sustainable employment openings, ultimately the only way to dampen the severity of unemployment. (ii) Assistance to micro enterprise development. 1.27 The National Fund for Handicrafts and Small-Trade Promotion (FONAPAM) was created in 1981 to provide technical assistance and financial support to people interested in becoming small entrepreneurs. The role of FONAPAM, for which applications are canvassed and loans supervised by OFPE through its regional offices, is to provide technical assistance to help individuals identify projects 1/ Evaluation du Programme des Chantiers Regionaux de Developpement, Soci4t6 SIGMA One, Novembre 1989.  and assess their commercial and financial viability. The funds are administered by several private banks which provide up to TD 25,000 per borrower under different, but generally well below financial market conditions. Various tax deductions are also granted to these small entrepreneurs during the first five years of their commercial activities. 1.28 The amounts allocated by the Government to FONAPAM increased from TD 25 million over the VIth 2lan to TD 46 million during the VIIth Plan. Between 1982 and 1987, 7,600 projects were financed under this scheme creating approximately 21,000 jobs. In 1988, the average investment per job was TD 3,700 of which FONAPAM contributed about 70%. It is estimated that only 25 to 30% will be actually reimbursed, resulting in a cost per job created of roughly TD 2,000. This number would in fact be much higher if one were to take into account the very low survival rate of enterprises created and the administrative costs of processing the loans. OFPE, acting as the last resort manager for this program which it was not designed to handle, is trying to improve the effectiveness of this program by improving the quality of technical assistance provided to entrepreneurs and by developing new and improved ways to train promoters. (iii) Placement of graduates. 1.29 The Government designed several programs to overcome the difficulties faced by first-time job-seekers resulting from their lack of work experience. In 1981, the Government introduced the system of employment/training contracts to promote the hiring of young graduates from secondary technical schools or vocational training centers. This program provides a subsidy of TD 300 and exemption of social charges for a graduate recruited for an initial probation year, and TD 200 plus exemption for another 3 years upon confirmation. The results of this program are somewhat disappointing (1,400 contracts in 1987 as compared to 12,000 planned at the onset of the program). More recently, new measures were introduced to improve this program and the number of contracts signed increased to 3,000 in 1989. In 1987, it introduced the Recruitment Contract (Contrat d'Embauche) which targeted higher education graduates. An enterprise can get up to TD 2,000 tax rebate on the TFP, if it agrees to recruit a graduate after a one year period of on-the-job training. The results are limited - 237 contracts signed and 53 recruitments, not necessarily incremental, over 3 years. 1.30 The Government has also introduced a new type of programs called the Professional Life Insertion Internships (SIVP). The first one, SIVP1, initiated in 1987, subsidizes the salary (approximately TD 1,560 per participant per year) of a higher education graduate who is taken by an enterprise for one year. Some 1,900 contracts were signed over 1987-88 for a total budget of TD 3 million. Out of the first 1,000 graduates, approximately one third were recruited before the end of the program, one third at the end and the rest were seeking employment. Even if the placement rate is now decreasing, this program seems to be successful both in terms of providing jobs and professional experience to graduates and in terms of giving an opportunity to enterprises to evaluate certain profiles. The second one, SIVP2, introduced in 1988, targets young people coming out of secondary education - a salary subsidy of approximately TD 900 per participant is provided. With only 600 contracts signed in 1988 and 10 confirmed placements, this program appears to be much less successful.  - 9 - 1.31 The Government is determined to improve its employment promotion framework by restructuring existing programs and testing new ones. The first step would be the phasing out, by December 31, 1990, of the recruitment contracts which have not met their objectives. The second step would be to complete, at the latest by December 31, 1991, the study of existing employment promotion programs, which is underway with USAID assistance. The results of these studies will be sent to the Bank for review and comment. Based on such review, all necessary measures to finalize such recommendations would be taken. During negotiations, the Government confirmed these arrangements (para. 5.02). Finally the proposed project provides an opportunity to test and evalurte new programs aimed at improving labor market insertion op,ortunities for long-term unemployed people (para. 2.02). The emphasis of these new programs is on low unit costs, cost saaaring between the State and enterprises and commitment to recruit at the end of the program. Training for Emplovment and Productivity 1.32 The serious unemployment problem which pre-vails today calls for a rapid adaptation of the Profile of the labor force to the requirements of a fast developing economy. However, the existing vocational training system which emphasizes formal institution-based training for young school leavers, is unwieldy and not well equipped to face these new challenges. Its performance in terms of pre-employment and in-company training has been inadequate and the system is characterized by relatively weak linkages with industry. Since 1988, OFPE has embarked upon a far reaching reform of its vocational training system supported by the Bank FY89 Education and Training Sector Loan. The reform program focuses largely on the development of training agreements with industry associations to develop sector specific vocational training centers at the skilled and technician level. So far, three industry-specific centers for construction, food processing, and leather, have been launched in collaboration between OFPE and the respective domestic and foreign trade associations. 1.33 With the recent merging of its employment and training service, OFPE has been called upon to play a greater role in training the unemployed. However, low capacity and inevitable low density and administrative and financial rigidities make it very difficult for the existing network of training centers to design and deliver customized training to improve the placement of unemployed people either through the acquisition of new skills or the upgrading of existing skills. This type of intervention requires a different type of labor market intermediation, as well as the mobilization of various other training operators in the public and private sector and above all an adequate relationship with potential employees. On the other hand, enterprises have traditionally been reluctant to provide pre-employment training, even when the difficulty of screening semi-skilled manpower affects investment decisions. This is particularly true for fast developing manufacturing industries (textile, garment, leather, shoes) where the most immediate need for semi-skilled machine operators remains largely unmet in several fast growing centers. 1.34 Skill development for staff already working in enterprises has largely been neglected in Tunisia, The reluctance of employers to get involved in training threatens the country's economic development at a time when intense  - 10 - world market competition and rapid technological change require the best possible use of human potential. Employers need to invest in training either directly by developing in-house training or indirectly by sub-contracting to public or private training organizations. A recently completed study of in-company training' attributes the poor record of Tunisian companies in this area to the lack of appropriate incentives, as well as to the lack of appropriate services offered to companies to plan and organize training activities. 1.35 As part of a general reform of the financing of vocational training, the Government has decided to gradually improve the incentive framework for companies to invest in human capital development. As part of the Education and Training Sector Loan, the Government agreed, in 1989, to reduce the vocational training tax (TFP) applied to manufacturing industries from 2 to 1% of total wage bill and to use some of the tax proceeds to promote the development of apprenticeship training, dual training and in-company training. The Government is now going one step further and will introduce new regulations concerning TFP. All companies will be required to pay a 1% tax (0.5% for manufacturing industries) which will be earmarked to a special fund to finance the initial training of youth in enterprises. In addition, all companies which do not invest the equivalent of 1% of total payroll (0.5% for manufacturing industries) for training their personnel will have to pay an additional 1% tax (0.5% for manufacturing). This means that the cumbersome existing system of tax rebate, based on pre-approved training plans, will be abolished. 1.36 With regard to services provided to companies to assist them in the planning and delivery of in-company training activities, the strategy needs to be modified. So far, OFPE itself has not been in a position to provide either the range or the quality of services enterprises may expect. At the same time, the contribution of the private sector in this area has not been fully demonstrated. Among the private training companies involved, only a very limited number of well-established companies have reportedly provided good quality services. The system of tax rebate seems to have promoted the development of a number of very small companies which have a captive market with certain enterprises. The priority for OFPE is to improve its own services to enterprises while, at the same time, promoting the development of private intermediaries. The proposed project would provide technical assistance to strengthen OFPE's in- company training activities which will be developed in the context of the Multi- service Center (para. 2.20). Bank Lending Strategy Lending Strategy 1.37 The Bank in general supports the Government's employment strategy, described in para. 1.07 through 1.11, and its efforts to pursue the dialogue with both employers and workers' unions with a view to improving the labor market regulatory framework. In complement to these efforts, the Bank's strategy is to assist the Government in its efforts to restructure existing employment 1/ La Formation en Entreprise - Projet TUN/88/010, Gilles Hauser - Mai 1989  - 11 - promotion programs. The proposed pilot project would assist the Government in introducing and testing new activities that appear to be much more cost- effective and are targeted squarely at the hard core youth unemployment problem, while an evaluation of ongoing programs is being conducted. At the end of a three-year period, both the Government and international donors will be in a position to target their efforts in the area of employment promotion and re- allocate expenditures accordingly. The development of effective labor market intermediation mechanisms that the proposed project supports will improve labor mobility, as well as employers' hiring response to market opportunities. 1.38 The Bank strategy calls also for an increase in the efficiency of investments in human resources through major structural changes in the Government's policy framework and significant improvement in the management of educational resources. It also calls for the business community and individuals to play a greater role in shaping the education and training system to their needs. The Bank is currently supporting the first phase of an education and training reform through its FY89 Education and Training Sector Loan. It will also assist the second phase of the reform which will deal with higher education access and financing issues (upcoming Higher Education Restructuring Project). Exnerience with Past Lending 1.39 Since 1962, IDA has committed 10 credits to Tunisia amounting to US$75.2 million and the Bank has committed 84 loans amounting to US$2,305 million, both net of cancellations. Project implementation is generally satisfactory and important policy changes and institutional improvements have been achieved. Past Bank lending emphasized support for long-term investments in infrastructure, social development and, more recently agriculture and industry. As of March 31, 1990, the sector share of the Bank Group commitments was as follows: agriculture - 14.5%; industry - 11.4%; transport - 11.3%; urban infrastructure - 20.2%; energy and education - 6.5% each; health 0.4%, and non- sector and technical assistance - 29.2%. 1.40 Adjustment lending to Tunisia started in FY87. A first Agriculture Sector Adjustment Loan (ASAL, Loan 2754-TUN), approved by the Board in September 1986, supported the Government's sector reform program and focussed on prices, public investment, and support services. An Industrial and Trade Policy Adjustment Loan (ITPAL, Loan 2781-TUN), approved by the Board in January 1987, focused mainly on import tariffs and price control. A Structural Adjustment Loan (SAL, Loan 2962-TUN), approved in June 1988, supports the Government's medium- term macroeconomic program and its measures to liberalize trade, decontrol prices, increase the efficiency of financial intermediation, and reform taxation. 1.41 A Second Agricultural Sector Adjustment Loan (ASAL-II, Loan 3078-TUN), approved in June 1989, follows up on the measures undertaken through ASAL-I and focusses primarily on further liberalizing the agriculture sector and strengthening essential support services. Finally, a Public Enterprise Reform Loan (PERL, Loan 3109-TUN), approved in July 1989, supports efforts to institute reforms in public enterprise management, to restructure some major loss-making enterprises, and to divest assets which can be transferred to the private sector.  * 12 - 1.42 With regard to human resources development, Bank lending to Tunisia (two IDA credits and four IBRD loans) has supported the Government's programs to improve primary and secondary schooling, teacher training, and formal and non- formal trade training for skilled workers. Whereas the first projects focussed on specific sections of the education and training sector, the latest project - Education and Training Sector Loan (ETSL, Loan 3054-TUN) approved in June 1989 - supports far reaching systemic reforms. The reform program entails the restructuring of the education and training system so that a much larger number of children would benefit from sound basic education (grades 1 through 9) helping them prepare for active careers in a fast-changing economy. It also includes the development of pre-service and in-service training in collaboration with companies in the productive sectors and mobilization of additional resources for training. Further operations aimed at the restructuring of higher education system and rationalizing of health and family planning services are under preparation.  - 13 - II. THE PROJECT Rationale for Bank Involvement 2.01 The continuation of economic liberalization and implementation of an outward-oriented development strategy requires much greater attention to issues of employment and productivity. By focussing on the structure of labor market intermediation, the proposed operation complements past Bank interventions in the areas of macro-economic policies, population, education and training. The proposed project would assist the Government in its efforts to improve labor market operations by testing regional-based mechanisms aimed at improving labor market insertion opportunities and consolidating human capital in existing enterprises. The shift of responsibilities toward local governments to identify employment opportunities and the move toward private labor market intermediation are promising new directions for reorganizing the Government's as well as international donors' employment promotion efforts in the future. The Bank's presence in this critical set of institutional changes is therefore instrumental to the successful continuation of economic adjustment. Prosect Objectives and Scope 2.02 The objectives of the proposed project are: (a) to accelerate the adaptation of the labor force to existing jobs through more effective training and labor market intermediation; and (b) to consolidate existing human capital by developing in-company training activities. 2.03 To achieve these objectives the proposed project would include the following components, to be implemented by the Ministry of Vocational Training and Employment (MFPE) through the intermediary of its Office of Vocational Training and Employment (OFPE): (a) the creation of a regionally based Employment and Training Fund (ETF) to finance sub-projects aimed at facilitating the placement of the unemployed into existing jobs, as well as improving productivity of existing workers through systematic in-company training efforts; and (b) an institutional development program aimed at strengthening key services to enterprises (selection, placement and in-company training), developing information and orientation of young people and adults, setting up a labor market insertion monitoring system and strengthening project management. Emlogment and Traini Fund (USS31.9 million) 2.04 To enable regional administrations to respond rapidly and flexibly to changing labor market demands, the proposed project would finance, on a pilot basis, new and improved labor market intermediation mechanisms through the creation of an Employment and Training Fund (ETF).  - 14 - 2.05 The Bank has been discussing the proposed ETF with Government officials since March 1989. During the first phase, the concept of ETF was presented jointly by OFPE and the Bank, in two pilot governorates: Monastir and Ben-Arous. During the second phase, OFPE regional representatives conducted surveys in order to identify the type of activities which might be eligible for financing under ETF. During the third phase, the proposals emanating from the two governorates were carefully reviewed in order to identify standard ETF activities and procedures. The last phase, initiated in January 1990, consisted of the actual testing of sub-projects prepared in five different governorates. Definition 2.06 The ETF is designed to finance, at the governorate level, a number of sub-projects aimed at facilitating the placement of unemployed people into productive employment or at consolidating existing human capital. Typically a sub-project consists of one standard activity eligible for financing under ETF. The Fund is created for an initial period of three years. It is anticipated that the number of participating governorates would increase from the current base of five (during test phase) to about 10 during the last year of the project. This expansion would allow a progressive transfer of methodology and experience, as well as adequate time for preparation of sub-projects. Tlle introduction of a new governorat. will require prior Bank approval (para 2.13). Beyond the three-year pilot period and subject to satisfactory evaluation (para 2.25), the experience could be extended both in terms of geographical coverage and in terms of eligible activities. Standard ETF activities 2.07 Standard activities eligible for financing under ETF, detailed in Annex 1, include : (i) training for placement in an enterprise; (ii) training for installation in self-employment; (iii) in-company training/extension services; (iv) sub-contracting to private training/placement companies; (v) allowances for interview/relocation closer to job sites. Each eligible ETF activity is defined in terms of its objective, beneficiaries, content, implementing institution, financing arrangements, and expected results. Eligibility criteria have been designed to allow participating Governorates to identify and select sub-projects within reasonable discretionary limits. During negotiations, the Government provided assurances that the standard activities and eligibility criteria, set out in Annex 1, would be used in selecting sub- projects (para. 5.02). 2.08 The main criteria emphasize: (i) evidence of long-term unemployment for the participants selected (on the basis of registration in the local employment office); (ii) commitment by enterprises to recruit participants upon satisfactory completion of training requirements (on the basis of contracts with OFPE); (iii) provision of intermediation services by private entities such as the enterprises themselves, private training/placement companies, and independent trainers recruited on a contractual basis. In the case where training is provided by a combination of public and private sources, ETF would cover only private intermediation costs. The list of eligible activities is not exhaustive and it is expected that, during project implementation, new activities would be  - 15 - introduced to reflect the changing nature of labor market needs, as well as to take into account implementation experience. The introduction of new eligible activities would require prior Bank approval (para. 2.13). Organization 2.09 The organization and management structure of ETF are described in Annex 2 and depicted in Chart II. At the national level, the operations of ETF would be controlled by the National Management Committee. This Committee would be chaired by the Minister of Employment and Vocational Training and OFPE would act as its Executive Secretary. The National Committee would include representatives from the Ministry of Interior, the Ministry of Economy and Finance, the Ministry of Planning, and the General Commissariat for Regional Development (CGDR), as well as employers' and workers' representatives. The Committee would provide guidelines with regard to the Fund's activities, approve sub-projects whose amount exceeds a pre-determined ceiling, approve the participation of a new governorate and the introduction of new types of activities, as well as monitor and evaluate the implementation of ETF activities. During negotiations, the Government provided assurances that the National Management Committee would be created before loan effectiveness with terms of reference satisfactory to the Bank (para. 5.02). 2.10 In each participating governorate, a Regional Coordination Committee would supervise ETF activities. This Committee would be chaired by the Governor and the regional OFPE representative would act as its Executive Secretary. It would consist of local CGDR representatives, the local heads of technical departments involved, and representatives from the main economic sectors, as appropriate. This Committee would have mainly a consultative function. It would advise on broad orientations of ETF activities in the Governorate, assist in identification of sub-projects, ensure coordination between various administrative services involved, and monitor implementation of ETF activities. 2.11 A program coordinator, who has already been appointed, would manage ETF's day-to-day activities at the national level. His role is to provide assistance to participating Governorates and liaise with the Bank as necessary. At the Governorate level, the OFPE regional representative would have primary responsibility for managing ETF sub-projects. He would be assiLsteu by a full time ETF manager. Additional resources would be available through the Fund to appoint, on a contractual basis, supervisors who would closely follow up sub- project execution and participants (paras. 2.25 IV). 2.12 Private enterprises would directly participate in sub-project preparation, financing and implementation. Sub-projects would be based on enterprises' commitment to recruit trainees subject to successful completion of training. Enterprises would agree with regional OFPE representatives on the content and duration of training programs and select trainees in agreement with OFPE. They would also finance part of the training costs by providing space, equipment and materials/consumables, as well as trainers and supervisors. The payment of additional productivity bonuses to trainees would be at the discretion of employers. The distribution of tasks and financing would be embodied in the contracts negotiated between OFPE and recipient enterprises.  - 16 - Procedures 2.13 The procedures for the operations of ETF are presented in Annex 2. In order to promote maximum efficiency in the utilization of funds, emphasis would be placed on streamlined procedures and accountability at the local level. Before project effectiveness, a manual of procedures setting terms and conditions for the processing, monitoring and financing of employment and trair,ing activities under ETF, as detailed in Annex 2, would be finalized. During negotiations, the Government confirmed these arrangements (para. 5.01). Identification: Sub-projects would be identified and appraised by the OFPE regional representatives, in accordance with the criteria set forth for each standard activity (para. 2.07). Approval: Sub-project proposals in participating Governorates, which meet the agreed criteria for any standard activity and fall under a ceiling of TD 100,000, would be approved by the OFPE regional representatives. In those cases where the amount of a sub-project is beyond the agreed ceiling or a new type of instrument is introduced or a new Governorate is proposed, approval from the National Management Committee and the Bank would be required. Imklementation: Implementation of sub-projects would rest with employment/ training intermediaries contracted out by OFPE regional representatives. The latter would supervise on-going activities, manage the funds and produce monthly statistical reports made available to the Regional Coordination Committee and the National Management Committee (para. 3.11). Financial Management 2.14 OFPE would be in charge of ETF's financial management. Before project effectiveness, the Fund would be established through a specially earmarked budgetary allocation to OFPE. An allocation, corresponding to the Government's annual expected ETF disbursements, would be included in the budget every year for the duration of the project. During negotiations, the Government confirmed these arrangements (para. 5.01). 2.15 ETF's financial organization is also depicted in Chart II. To facilitate timely implementation of sub-projects, regional OFPE representatives would disburse funds out of their regular imprest account and then turn to OFPE's financial directorate to obtain reimbursement. In most cases, OFPE would grant budgetary advances to its regional delegations to cover about one month of ETF expenditures. Each request would specify the sub-project and the category of expenditures involved (allowances, service contracts, or materials/consumables). Stipends would be initially set at half the minimum wage, subject to further review bv the Government and the Bank, on the clear understanding that employers are expected to augment this with additional discretionary payments. OFPE would then obtain reimbursement, on the basis of 50% of all ETF expenditures from a Special Account in US dollars at the Central Bank, that would be established to receive the proceeds from the Bank loan (para. 3.18).  - 17 - Testing ETF Organization and Procedures 2.16 Since January 1990, the Government has already tested ETF organization and procedures with USAID financing. Altogether 13 sub-projects representing about US$500,000 have been identified and implemented in five different Governorates. The list and description of these sub-projects is provided in Annex 3. 2.17 A total of about 1,000 unemployed people are being prepared, through a period of 3 to 12 months of on the job/of the job training, for semi-skilled jobs in industry and services. Typically these people represent the core of unemployment in Tunisia - they are young (between the age of 18 and 25) and have limited education (between five and nine years of education). In all cases, employers are committed to recruiting the trainees and contracts have been signed between the administration and enterprises in the private sector. OFPE acts as a broker and training is provided through a combination of public institutions and private intermediaries such as the enterprises themselves, independent trainers on a contractual basis or private training institutions. Inter- mediation costs are covered by the enterprises, the CoNrernment and the ETF. 2.18 Given their sound performance in preparing and implementing sub- projects during the test phase, OFPE national and regional authorities have demonstrated their capacity to prepare further sub-projects during the life of the project. It is anticipated that the proposed project would include approximately 600 sub-projects (20 sub-projects per year, for about 10 participating Governorates). This would allow an assistance of about 30,000 people over a three-year period. Institutional Developyment (USS2.6 million) 2.19 The operation of ETF requires the emergence of new labor market intermediaries. While OFPE needs to improve the quality of its services in this area, its main responsibility is also to promote the development of private intermediaries (para. 1.18). The existence of these new partners will have a multiplier effect on the Government's efforts to address the unemployment problem. 2.20 In order to strengthen key OFPE employment/training services, the proposed loan would finance an integrated institutional development program comprised of expert services, fellowships and equipment. This program would cover the areas described below (see also Schedule I): (i) Development of a Multi-Service Center (MSC). Based in the Tunis area, MSC would provide human resources development services to enterprises. These include mainly training needs assessment and organization of in-company training, selection of personnel and placement of high-level staff. The center would regroup three existing OFPE structures, namely the Direction of In-Company Training (DFE), the Center for Assistance to Enterprises (CCAE) and the National Bureau for Placement of High Level Staff (BNEC). This component does not entail the creation of new administrative bodies or the financing of a new building.  - 18 - 2.21 With regard to in-company training, the MSC would assist companies in performing training needs assessment, designing appropriate training plans and programs, defining methods, resources and budgets for implementing training plans and evaluating results. It would also train the companies' human resources development staff and training instructors. Finally, it would disseminate information on in-company training with regard to its organizational, legal, pedagogic and financial aspects. All these activities would be developed through a network of consultants, who would directly compete with private intermediaries to meet the needs of the enterprises. In line with the new vocational training tax regulations, MSC staff would concentrate on promoting training systems and methodologies, rather than on approving training plans and granting tax rebates, as is now the case (para. 1.35). 2.22 The MSC would also assist companies in the selection of their personnel. This type of service is already provided by the CCAE on a fee basis to some 50 public enterprises located in the Tunis area. However, there is a need to broaden the range and improve the quality of these services. Testing instruments, which are primarily "paper and pencil" and hand administered and scored, need to be modernized. There is also a need to develop new tests directed at the evaluation and reassignment/retraining of experienced adults who may have become redundant due to restructuring of enterprises. The MSC would also provide assistance to companies in the placement of high-level staff. This function is currently performed by BNEC, which is located in the Tunis area. In 1988, BNEC registered some 1,960 applicants and placed about 700 high level staff. In order to carry out its mandate efficiently, it will be necessary to upgrade staff skills and to introduce more modern processing systems. 2.23 In order to be responsive to the needs of enterprises, the proposed MSC would be managed with a large degree of autonomy. It is expected to charge fees, for the services provided to enterprises in the areas of in-company training and staff selection, which would progressively approximate full cost. During negotiations, the Government confirmed these arrangements (para. 5.02). 2.24 The MSC would be located in an existing OFPE building in Tunis which would need to be refurbished. It would receive modern computing, printing and audio-visual equipment, as well as pedagogic/training materials. The majority of the 40 high-level staff would originate from the existing OFPE structures and would need to upgrade their skills through a combination of expert services and training abroad. The proposed project would assist the Government in the development of the NSC by financing minor works, equipment, expert services and scholarships. (ii) Orientation and Information. The development, updating and dissemination of occupational and educational information would be expanded and systematized (para. 1.19). Occupational and educational information is essential for orientation of young people and adults and for education and training institutions and enterprises. OFPE would use audio-visual and computer techniques, in addition to printed materials, to promote direct use of information by clients.  - 19 - 2.25 OFPE is in the process of decentralizing its activities. Six regional orientation units (URO) have been created in Tunis, Bizerte, Jendouba, Sousse, Sfax and Gabes. The effectiveness of these UROs depends, to a large extent, upon the availability of modern tests, audio-visual and printed materials. The proposed project would finance equipment, expert services and scholarships to strengthen the production of printed materials in the OFPE Graphic Art Center in Ariana and the production of audio-visual materials in the OFPE Rades Center. (iii) Labor market monitoring. The Direction of Planning and Statistics (DPS) is mainly involved with the monitoring of OFPE labor market and training activities. It also provides assistance to the Ministry of Planning and Finance and to the National Institute of Statistics, which ultimately are responsible for recording and analyzing employment and labor market trends. In order to improve the quality of information on employment and the labor market, OFPE would develop a labor market "observatory" which would monitor placement of young people in the labor market. This would be accomplished through surveys of employers, employment promotion program beneficiaries and training institutions, as well as through tracer studies. The proposed project would finance computer equipment, expert services and fellowships to improve the quality of information on employment and labor market insertion. (iv) Management and Evaluation of ETF. The proposed project would finance vehicles, micro-computers, copy machines, as well as expert services to the various units managing ETF activities. These include the Project Coordination Unit at the national level and the various OFPE regional delegations in the participating Governorates, which would be adequately staffed. Recurrent implementation costs resulting from the creation of ETF are included in total project costs (para. 3.07). In addition, OFPE would sub-contract the supervision routine reporting of specific sub-projects to experienced training specialists who would be recruited on a contractual basis. These costs would be covered by ETF. Finally, the proposed project would finance expert services to complete an evaluation of ETF halfway through the life of the project (para. 3.11).  - 20 - III. PROJECT COSTS, FINANCING, KA74AGEHENT AND INPl MENTATION. 3.01 Summary of Proiect Costs. Project Costs are estimated at 31.1 million of Tunisian Dinars (TD), or US$34.7 million equivalent. The costs by project components are shown in Table 3.1. Table 3.1: Summary of Project Cost by Component TO (M) uS' (M) X Total .... ........... ......... - Foreign SasO Locat Foreign Total Local Foreign Total Exchange Costs ..4.. .............. . .; .. .... .w...... ..... .; . ................... ...... . ........ A. ETF 25.6 3.0 28.6 28.6 3.3 31.9 10.4 92.6 B. Institutional Devt 0.7 1.6 2.3 0.8 1.8 2.6 70.0 7.4 ;~............ ..... .. ............................. .. .; *^ *......... ........................ ;;-+^*s..... ...---*--* Total BASELINE COSTS 26.3 4.6 30.9 29.4 5.1 34.5 14.8 100.0 Physical Contingencies 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Price Contingencies 0.1 0.1 0.2 0.1 0.2 0.2 76.2 0.7 i; .... ...... .. .. ... .... .. .. ..... --------------- ...... ......... .............. ...... Total PROJECTS COSTS 26.4 4.7 31.1 29.4 5.3 34.7 5.2 100.7 .___ ..........__..__.___.................._._._.........__.._._.___.................. __...._.______.__ .......................... ............. _ .__ __ */20/1990 13:05 3.02 A summary of project costs by category of expenditure is given in Table 3.2. Table 3.2: Project Costs by Catejorv of Ebaenditures To (M) ust (M) I Total ----.. . . . . . X Foreign Bse Locat Foreign Total Local Forefin Total Exchange Costs ,.................. .................. . ..... ......... ..... ...... . .................... t. INVESTMNT COSTS ..... ....... . ... A. Training Services 9.6 0.0 9.6 10.7 0.0 10.7 0.0 31.0 S. Stipends 13.1 0.0 13.1 14.6 0.0 14.6 0.0 42.4 C. Materials & Consumables 2.9 3.0 5.9 3.3 3.3 6.6 50.1 19.2 0. Equipment 0.3 0.8 1.2 0.4 0.9 1.3 70.1 3.7 E. Civil Works 0.1 0.1 0.2 0.1 0.1 0.2 50.1 0.7 f. Expert Services 0.0 0.5 0.5 0.0 0.5 0.5 100.0 1.6 S. Feltouships 0.0 0.2 0.2 0.0 0.2 0.2 100.0 0.6 ................ ........................... ...... . . _.. .. .. .. .. ..... Total INVESTMENT COSTS 26.1 4.6 30.6 29.1 5.1 34.2 14.9 99.2 ... .... .... .... . . ........ ........... ... .... . ........ ... .... ......... 11. RECURRENT COSTS .... ..... ....... A. Proj. Mgt. Recur. Cost 0.2 0.0 0.2 0.3 0.0 0.3 0.0 0.8 ....................... .__. _.... .............. .._...... ........... . ~~~~. .... ...... .. ... ..... .. ....... ......................... .. ......... ............... Total BASELINE COSTS 26.3 4.6 30.9 29.4 5.1 34.5 14.8 100.0 Physical Contingencies 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Price Contingencies 0.1 0.1 0.2 0.1 0.2 0.2 76.2 0.7 ------ .~ ......... ...... ............................. ........... .................. .. .. Total PROJECTS COSTS 264 4.7 31.1 29.4 5.3 34.7 15.2 100.7 .............................- . .......... ........................................ ................. -/20/19O 13:06  - 21 - 3.03 Basis of Cost Estimates. Equipment costs have been estimated on the basis of existing equipment lists and of appraisal mission estimates. Technical assistance costs have been estimated on the basis of recent prices for comparable technical assistance. Specialists' costs include housing, relocation costs, salaries, subsistence, office services, fees, overhead and recruitment costs. Base cost estimates reflect prices as projected at the time of negotiations (June 1990). 3.04 Customs Duties and Taxes. Project costs include an estimated US$2.2 million in direct and indirect taxes on training services (US$1.1 million), and on locally produced materials and consumables (US$1.1 million). However, equipment and goods imported directly for use by Government ministries are exempt from duties and stipends and allowances, as well as expert service costs are net of taxes. 3.03 Contingency Allowances. Price contingencies between negotiations and the end of project implementation (December 1993) have been applied to the institutional development component only, and are estimated at US$0.2 million equivalent or 0.7% of base cost. Annual rates of price increases have been appli;.d to both foreign and local costs at the annual rate of 4.9% from 1990 to 1993. 3.06 Foreign Exchange Component. The foreign exchange component was estimated as follows: (a) training services - 0%; (b) stipends and allowances - OX; (c) materials and consumables - 70X; (d) equipment - 70%; (e) civil works - 501; (f) expert services - 100%, and (g) fellowships 100%. 3.07 Recurrent Costs. Under the proposed project, very low levels of additional recurrent costs would be generated since: (a) regional ETF management would be mainly assigned to existing OFPE staff who would be redeployed and technical supervision would be sub-contracted to private supervisors through the Fund; (b) the actual implementation of fund activities would be contracted out to mostly private operators; and (c) the institutional development compor.ent would not entail the creation of new structures but rather, the merging of existing ones (para. 2.20). The only incremental recurrent costs would be generated by the creation of a few additional positions to manage ETF activities, by the financing of field visits and coordination seminars and by the provision of essantial materials for ETF implementation units. The total incremental recurrent costs for project management and evaluation, not counting self- liquidating expenses reimbursed to sub-project contractors, would amount to US$0.3 million in 1990 prices over a three year period. It is estimated that total administrative costs, including fees for non-governmental agents administering sub-projects, would not exceed 10% of ETF disbursements. Proiect Financing 3.08 The total project cost of US$34.7 million equivalent would be financed as follows: (a) a proposed IBRD loan of US$12 million equivalent would finance 34.5% of total project cost; (b) a proposed USAID loan of US$4.5 million equivalent would finance 13.0% of total project cost; (c) enterprises participating in ETF would finance US$8.5 million equivalent (including US$0.8 million in taxes), or 24.5% of total project cost; and (d) the Government  - 22 - would finance the remaining US$9.7 million equivalent (including US$1.4 million in taxes), or 28X of total project cost. The proposed Bank loan of US$12 million equivalent would finance 66X of the foreign exchange component of the project (US$3.5 million) and 31.2X of local costs net of taxes (US$8.5 million). This significant contribution to local expenditures is justified by the social content and institutional objectives of Bank participation in this program. A breakdown of project financing is shown in Table 3.3. Table 3.3: