Tunisia - Employment and Training Fund

Document of The World Bank FOR OFFICIAL USE ONLY AAI Z2 557v'A Report No. P-5326TUN MEMORANDUM A'iD RECONMENDATION 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$12.0 MILLION TO THE REPUBLIC OF TUNISIA FOR AN EMPLOYMENT AND TRAINING FUND JULY 1?i, 1990 This decument has a restricted distrtbution and may be used by recipients only in the perforauce of their official duties. Its contents may not otherwise be disclosed withot World Bak autoization.  CURRENCY EOUIVALENTS (As of June 1990) Currency Unit - Tunisian Dinar (TD) US$1.00 TD 0.89 TD 1.00 US$1.12 FISCAL YEAR January 1 - December 31 GLOSSARY OF ABBREVIATIONS ETF Employment and Training Fund GOT Government of Tunisia MFPE Ministry of Vocational Training and Employment OFPE Office of Vocational Training and Employment  FOR OPMrCLAL USE ONLY REPUBLIC OF TUNISIA EPLQYMENT AMN TRAINING FUND PROJECT Loan and Protect Summary Borrower: Republic of Tunisia Amount: U4$12.0 million equivalent terms: Repa,yable in seventeen years, including a five year grace period, at the Bank's standard variable interest rate. Financing Plan- Governmenst US$ 9.7 millton Enterprises US$ 8.5 million IBRD US$ 120 million USAID USS 4.5 million Total US$ 34.7 million Economic Rate of Return: NA S&gff A&praial Rsort: Report No. 8630-TUN This document has a mstricted distribution and may be used by recipients only iv the perforrtance of their offcial duties. Its contents may not otherwise be disclosed without World Bank authli iztion.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROP-1SED LOAN TO THE REPUBLIC OF TUNISIA FOR AN EMPLOYMENT AND TRAINING FUND 1. The following memorandum and recommendation on a proposed loan to the Republic of Tunisia for US$12.0 million equivalent is submitted for approval. The proposed loan would provide investment finance for an Employment and Training Fund prepared by the Government with Bank assistance. The loan would have a term of 17 years, including five years of grace, at the standard variable interest rate. 2. Background. High levels of open unemployment, currently about 16%, persisted during the last decade, notwithstanding interventionist economic policies funded by windfall oil revenues, including massive overstaffing of state enterprises. High natural population growth, combined with stagnant net emigration, a young age profile and rising female participation, have made it extremely difficult to match labor supply with job creation. During 1982-1988, GNP grew 4% p.a., labor productivity by a modest 1.3%, and employment by 2.7%, slightly less than the labor force. The sweeping economic adjustment process begur in 1986 has sharpened the authorities' longstanding concern with this issue. The effects of fiscal austerity and trade and price reforms on ailing state-supported enterprises imply some further layoffs of workers in the short term, pending the desire-d upsurge in investment and employment in more diffuse, small-scale private-sector businesses stimulated by liberalization. 3. Tunisia's concerted attack on unemployment involves: (i) a well defined population policy; (ii) a macro-economic progr.n to stabilize and restructure the economy; (iii) a reform of the education and pre-employment training systems to adjust the profile of the labor force to the needs of the economy; and (iv) a gradual revision of the labor market regulatory framework and employment promotion policies. While further progress on labor market deregulation is sought through negotiations between laboir unions and employer federations, the Government is taking steps to rationalize tne employment promotion framework, and relax some administrative regulations related to hiring procedures. At the same time the Government is addressing some of the most urgent problems in labor market operations, such as the lack of information available to job seekers and employers, the lack of effective employment intermediation, the limited provision of on-the- job/off-the-job training activities to facilitate the placement of unemployed people, and limited labor mobility. 4. Rationale for Bank Involvement. Further progress in economic liberalization and the requirements of an outward-oriented development strategy, call for greater attention to micro-level issues of employment and productivity. By focussing on the structure of labor market intermediation, the proposed operation complements Bank interventions in the areas of: (i) macro-economic policies, assisted through five adjustment operations including the FY88 Industry and Trade Policy Adjustment Loan, the FY89 Structural Adjustment Loan and the FY90 Public Enterprise Restructuring Loan, (ii) education and training supported by the FY89 Education and Training Sector Loan; and (iii) population to be assisted through a Population and Family Health operation now in the final stages of preparation. The proposed loan would assist the Government in improving labor mobility by developing regional-based intermediation mechanisms for employment and  - 2 - skills training. The shift of responsibilities toward local governments and employers to identify employment opportunities and the move toward private labor market intermediation are promising new directions for reorganizing employment promotion efforts. The proposed loan is a low cost approach to labor market intermediation which may provide a useful benchmark for other countries. The Bank's preseice in this critical phase of institutional innovation is instrumental to the successful continuation of economic adjustment. 5. Proiect Obiectives. The objectives of the proposed project are: (a) to accelerate the adaptation of the labor force to rapidly changing job patterns, through more effective training and labor market intermediation; (b) to consolidate existing human capital by developing in-company training activities. 6. Project Description. To achieve these objectives the proposed project would finance the creation of a regionally based Employment and Training Fund and an institutional development program. Both components would be implemented by the Ministry of Vocational Training and Employment (MFPE) through the Office of Vocational Training and Employment (OFPE), an organization under MFPE's responsibility. 7. The EmDloyment and Training Fund (ETF), is designed to finance various types of sub-projects targeting the placement oi. unemployed people into productive employment and the productivity of existing workers. Typically a sub-project consists of one of the following activities: (i) training for placement in a specific enterprise; (ii) training for self-employment; (iii) in-company training/ extension services; (iv) sub-contracting to private training/placement companies; (v) allowances for interview/relocation closer to job site. Agreed eligibility criteria emphasize evidence of long-term unemployment by participants (on the basis of registration at the local employment office), commitment by enterprises to recruit upon satisfactory completion of training requirements (on the basis of contracts), and provision of intermediation services by private entities (the enterprises themselves, private training/placement companies and independent trainers recruited on a contractual basis). 8. 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 Secretariat. The Committee woula provide overall guidance with regard to Fund activities, and monitor and evaluate implementation. In each participating Governorate, a Regional Coordination Committee, chaired by the Governor, would help identify and monitor local ETF sub-projects. On a day to day basis, OFPE regional representatives, assisted by full time Fund managers, would have primary responsibility for managing ETF. Private enterprises would directly participate in sub-project preparation, financing and implementation. Sub-project proposals in participating Governorates which meet the agreed criteria for any standard activity and fall under a ceiling of TD 100,000 (US$112,000) would be approved by OFPE regional representatives. In exceptional cases where the amount of a proposed --tb- project is above the agreed ceiling, a new activity is introduced, or projects in a new Governorate are proposed, approval by the Bank and the National Management Committee would be required. Disbursements on this component would cover 50X of eligible Fund expenditures, documented by statements of expenditures subject to ex- post verification and audit.  . 3 - 9. Since January 1990, the Government has already tested the proposed ETF organizatior and procedures with USAID bridge financing. Altogether 13 sub- projects, representing about US$500,000 in disbursements have been identified and implemented in five different Governorates. A total of about 1,000 unemployed people are being prepared, through a period of 3 to 12 months of on-the-job/off- the-job training, for specific semi-skilled jobs in industry and services. Typically, these people, representative of the target group of the proposed project, constitute the core of unemployment in Tunisia: '-hey are young (between the age of 18 and 25), have limited education (between five and nine years of education), and have experienced long periods of unemployment (one year or more) or insecure/casual employment. 10. The Institutional DeveloRment Program would assist the Office of Vocational Training and Employment (OFPE) in its efforts to improve the quality and efficiency of its employment/training regional services and to promote the development of private intermediaries. This will have a multiplier effect on Government's efforts to tackle unemployment. This component would strengthen key OFPE services to enterprises (selection, placement and in-company training), develop information and counseling for job-seekers, setting up a labor market monitoring system, and strengthen project management and evaluation. 11. Cost and Financing. 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 p-oject 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 would finance the remaining US$9.7 million equivalent (including US$1.4 million in taxes), or 28.0% of total project cost. The proposed Bank loan of US$12 million would finance 66% of the foreign exchange component of the project (US$3.5 million) and 31% of local costs net of taxes (US$8.5 million). A breakdown of project costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and the disbursement schedule are shown in Schedule B. A timetable of key processing events and the status of Bank Group operations in Tunisia are given in Schedules C and D respectively. The staff appraisal report No. 8630-TUN, dated July 13, 1990, is being distributed separately. 12. Agreed Actions. During negotiations, the Government agreed that: (a) before loan effectiveness, ETF would be established through a specially earmarked budgetary allocation, a manual of procedures would be finalized and the National Management Committee would be established; (b) specific incentive measures, referred to in para. 3, would be taken with a view to restructuring employment promotion programs, and loosening hiring procedures; (c) standard activities, referred to in para. 7, would be eligible for financing by ETF, under specific conditions described for each type of activity; (d) a cost-benefit analysis of existing employment promotion programs would be completed by December 31, 1991 and a mid-term evaluation study of ETF activities would be completed no later than December 31, 1992; and (e) fees, which would progressively approximate full cost, would be charged for the services provided in the area of in-company training and staff selection. 13. Benefits. The proposed project would make a valuable contribution towards providing employment and income generation for a specifically vulnerable part of the population (young, poorly educated, low-income, long-term unemployed).  The major quantifiable benefit would be the placement of an estimated 30,000 people into productive employment over an initial three year period which could be extended and replicated later. While the objective of the proposed project is not to 'create jobs' but to adapt the profile of the labor force to existing and evolving openings, it is clear that the ability of domestic and foreign enterprises to mobilize and reallocate skilled workers more rapidly will in itself be a stimulus to more investments and thus additional jobs. This is particullarly true in a period when sub-contracting for European industries seems to be developing very fast. The indirect effects of introducing pro-active employment strategies and improving the efficiency of training systems, in particular within enterprises, will also increase labor mobility and employers' hiring response to market conditions. 14. The restructuring of existing employment promotion programs as well as the testing of new programs will result in more effective resource allocation in an area which is claiming an increasing share of Government resources. The institutional development component, targeting key employment and training services, will improve the quality and speed of "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 promotion of private intermediaries, could be substantial. 15. Environmental Impact. The project was reviewed under the Bank's Environmental Assessment procedures a I determined to be in Category C, for projects which do not result in a significant environmental impact. 16. Risks. The major risk lies in the capacity cf regional Government services to design sub-projects, identify suitable private intermediaries and manage ETF operations. The first batch of sub-projects implemented satisfactorily with USAID financing since January 1990 has demonstrated the capacity of regional OFPE services to plan and implement ETF activities consistent with proposed guidelines and procedures. During appraisal, particular atf:ention was paid to decentralizing administration and ensuring that additional tsources - both human and material - be provided to the various implementing '.; s at the central and regional levels. The other risk relates to possible futut rganizational changes within MFPE and its specialized agency, OFPE. This point -ds discussed at length during negotiations and the Tunisian delegation provided 'tequate assurances that project implementation would not be adverseLy affected by any such internal reorganization. 17. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve the proposed loan. Barber Conable President Attachments Washington, D.C. August , 1990  -5. Schedule A REPUBLIC OF TUNISXA EMPLOYMENT AND TRAINING LOAN Estimated Costs and Financing Plail Estimated Proiect Costs'/ 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$2.2 million in local taxes financed by Government and Enterprises  REPUBLIC OF TUNISIA Schedule B EMPLYMENT AND TRAINING FUND Procurement Metbod and Disbursements a/ (US$ million) Procurement Method Tptal Cost Project Element ICB LS b/ N.A. Training services 10.7 10.7 (3.0) (3.0) Stipends & allowances 14.6 14.6 (5.2) (5.2) Materials & Consumables 6.6 6.6 (1.6) (1.6) Equipment 1.1 0.3 1.4 (1.1) (0.3) (1.4) Civil works 0.3 0.3 (0.0) (0.0) Expert Services 0.6 0.6 (0.6) (0.6) Fellowships 0.2 0.2 (0.2) (0.2) Incremental recurrent expenses 0.3 0.3 (0.0) (0.0) Total 1.1 7.2 26.4 34.7 IBRD Financing (1.1) (1.9) (9.0) (12.0) *1 Figures in parentheses are the respective amo.tnts financed by the Bank loan. h/ Local shopping. DISBURSEMENTS Amount Category USS Million Z financed by the Bank Training Services 3.01 Stipends & Allowances 5.21 50% of expenditures Materials & consumables 1.61 Equipmc.at 1.31 100 X of foreign expenditures and 80 X of local expenditures Consultant Services | and fellowships 0.71 100l of expenditures Unallocated 0.21 Total 12.0 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 RETURI: Not applicable  REPUBLIC OF TUNISIA Sedule C EMPLOYMENT AND TRAINING FUND Timetable of Key Project Events (a) Time taken to prepare: 18 months (b) Prepared by: Government with Bank assistance (c) First Bank Mission: March 1989 (d) Appraisal mission departure: March 1990 (e) Date of Negoziations: June 1990 (f) Planned Date of Effectiveness: January 1991  Schedule D Page 1 of 2 IN STATUS Of U11 UaJP pOERAtPEIIS IN TIMISIA A. STATIENT OF ULK toS An IDA qaDITS (As of March 31, 1990) Loan or U# Mtiliton Amut Credit (Lss Cancetlatfona) Nub !ac Irer purom hiu IRn U d ue Fifty-five Loansand Ten Credfts Fully Ohbursod 1211.63 75.16 1969 1961 RepublIc of Tunisfe Small-Scele Indutry Dvelopmnt 30.00 2.6 1997 1981 Republic of Tunisia Northwest Rural Oevelt rt 1.54 t.55 2108 1982 RepublIc of Tunisia Fifth Highway (Rural Roods) 35S0 6.07 2223 1963 Rep*lec of Tunisia Urban Develatomnt III 25.00 12.91 2230 1983 Republic of Tunisia Edcatlon V 25.00 7.19 2234 1983 Rexpbifc of Tunisia Central Tun1sfs Irrigation 13.70 3.97 2255 1983 Rqxbtlc of Tunisia Urban S.erae 111 34.00 17.21 2346 1984 Republic of Tunisia Mining Technical Assistance 7.80 1.48 2368 1984 Republic of Tunisia Seventh Uater SLqpply 50.00 25.39 2429 1984 Repubtic of Tuniisia Second Urban Transport 33.00 16.13 2455 1984 Societe Tunisienne de L Electricit6 et du Gaz Fourth Power 21.52 .96 2502 1985 Republic of Tunisia Northwest Agricultural Production 8.60 6.40 2522 1965 Repu.blic of Tunisia Export Indistries 27.63 5.45 2554 1985 Republic of Tunisia Second Electrical and Mechanical Industries 24.44 12.54 2573 198S Republic of Tunisia Irrigation Ianagement Improvement 22.00 15.14 2605 1985 Republic of Tunisia Gabes Irrigation 21.70 9.9 2'3S 1986 Republtc of Tunisia Energy Conservation 4.00 3.73 2736 1986 Republic of Tunisia Fourth Urban Development 30.20 16.17 2865 1987 SNT sNT IV 30.00 18.11 2870 1987 Republic of Tunisia Agriculture 20.00 15. 72 2896 1987 Republic of Tunisia Highways Maintenance and Rehabilitation 63.00 57.53 2911 1988 Republic of Tunisia Second Smatl & Mediun Scale Industrial Development 28.00 23.35 2962 1988 Republic of Tunisia SAL 1 150.00 81.19 3023 1989 ETAP Petroleum Exploration 5.50 5.50 3054 1989 Republic of Tunisia Education and Training Sector 95.00 95.00 3064 1989 Republic of Tunisia Fifth Urban 58.00 43.60 3078 1989 Republic of Tunisia ASAL I _/ 84.00 84.00 3109 1990 Republic of Tunisia PERL 130.00 130.00 TOTAL 2306.96 75.16 723.83 Of which has been repaid 565.37 16.33 Totat Now outstanding Amount Sold 34.82 1741.59 60.83 of which has been repaid 26.93 7.89 Total now tald by Bank and IDA 1733.70 60.83 723.83 R/ Not yet effective. bankps. tu 03/26/90  Schedule D Page 2 of 2 B. STATEMENT OF IFC INES