Turkey - Technology Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 19113-TU IMPLEMENTATION COMPLETION REPORT TURKEY TECHNOLOGY DEVELOPMENT PROJECT (Loan TR- 3296S, 3296A) May 6, 1999 Financial and Private Sector Development Unit Country Department VI Europe and Central Asia Regional Office 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.  CURRENCY EQUIVALENTS Exchange rate as of May 1, 1999 Currency Unit = Turkish Lira 1 rnillion Turkish Lira = US$2.56 US$1 = 390,000 Turkish Lira BORROWER FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS CMB - Capital Markets Board ECU - European Customs Union FY - Fiscal Year GOT - Government of Turkey ICR - Implementation Completion Report IPRs - Intellectual Property Rights ITD - Industrial Technology Development MAM - Marmara Research Center (Marmara Arastirmna Merkezi) MSTQ - Measurement, Standards, Testing and Quality NAC - National Accreditation Council OECD - Organization for Economic Cooperation and Development R&D - Research and Development S&T - Science and Technology SME - Small and Medium Enterprise TSE - Turkish Standards Institute (Turk Standard Enstitusu) TTGV - Technology Development Foundation of Turkey (Turkiye Teknologi Gelistirme Vakfi) TUBITAK - Council for Scientific and Technological Research UFT - Undersecretariat of Foreign Trade UME - National Metrology Institute (Ulusal Metroloji Enstitusu) VC - Venture Capital VCF - Venture Capital Fund Vice President: Johannes Linn Country Director: Ajay Chhibber Sector Director: Lajos Bokros Team Leader: Vinod K. Goel  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT TURKEY TECHNOLOGY DEVELOPMENT PROJECT (Loan TR- 3296S, 3296A) TABLE OF CONTENTS PREFACE .....................................................i EVALUATION SUMMARY ..................................................... j PART I. PROJECT IMPLEMENTATION ASSESSMENT ................................................1..... A. PROJECT OBJECTIVES .....................................................I Policy Context .......................................................2 Evaluation of Project Objectives .......................................................4 B. ACHIEVEMENT OF PROJECT OBJECTIVES .......................................................4 C. IMPLEMENTATION RECORD AND MAJOR FACTORS ...................................................... 11 D. BANK PERFORMANCE ...................................................... 13 E. BORROWER PERFORMANCE ...................................................... 13 F. ASSESSMENT OF OUTCOME ...................................................... 14 G. PROJECT SUSTAINABILITY ...................................................... 14 H. FUTURE OPERATIONS ....................................................... 15 I. KEY LESSONS LEARNED ...................................................... 16 PART II. STATISTICAL INFORMATION .................................................... 18 Table 1: Summary of Assessments ...................................................... 18 Table 2: Related Bank Loans/Credits ...................................................... 19 Table 3: Project Timetable ...................................................... 19 Table 4: Loan/Credit Disbursements: Estimated and Actual ...................................................... 20 Table 5: Key Indicators for Project Implementation ....................................................... 20 Table 6: Key Indicators for Project Operation ...................................................... 20 Table 7: Studies Included in Project ...................................................... 20 Table 8: Project Costs ...................................................... 20 Table 9: Project Financing ...................................................... 21 Table 10: Financial and Economic Costs and Benefits ...................................................... 21 Table 1: Status of Legal Covenants ...................................................... 21 Table 12: Status of Compliance with Operational Manual Statements ................................................. 22 Table 13: Bank Resources: Staff Inputs (actuals) ...................................................... 22 Appendixes: A. Turkish Standards Institute Contribution to ICR B. Technology Development Foundation of Turkey Contribution to ICR C. National Metrology Institute Contribution to ICR 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.  TURKEY TECHNOLOGY DEVELOPMENT PROJECT (Loan TR- 3296S, 3296A) Preface This is the Implementation Completion Report (JCR) for the Technology Development Project in Turkey for which Loan TR-3296S and TR-3296A in the amount of US$100 million equivalent was approved on February 28, 1991, and became effective on September 6, 1991. The loan was closed on December 31, 1998, instead of the original closing date of April 30, 1997. The last disbursement is expected to take place on April 30, 1999, and about US$3 million is expected to be canceled. The ICR was prepared by Sanjaya Lall (Oxford University), Manjula Luthria (PSDBE) and Vinod K. Goel (ECSPF). Helpful comments and assistance were received from Furuzan Bilir and Hormoz Aghdaey (ECSPF). The ICR was reviewed by Ilham Zurayk (ECSPF) and Marie-Helene Bricknell (ECCA4). Preparation of this ICR was begun during the Bank's completion missions in June and October 1998. It is based on material in the project files as well as infonnation received during the missions. The borrower contributed to the preparation of this document by providing written input, which is attached in the appendix. The beneficiaries contributed to this document by providing their own inputs as well as providing comments on draft versions of the ICR.  TURKEY TECHNOLOGY DEVELOPMENT PROJECT (Loan TR- 3296S, 3296A) Evaluation Summary Project Objectives 1. The Project's three broad objectives were yo: (i) develop the MSTQ (metrology, standards, testing and quality) system to international standards; (ii) encourage market-oriented R&D in the private sector by financing projects on a matching basis; and (iii) foster the growth of a venture capital industry. Achievement of Project Objectives 2. The project resulted in the setting up of the National Metrology Institute (UME) which has 25 laboratories and is capable of meeting roughly 40 percent of Turkish industry's metrology needs. UME performs calibration services as well as conducts some R&D and has won international recognition. The Turkish Standards Institute (TSE) was strengthened through the setting up of a Quality Campus in Istanbul. Modem financial and management information systems were established which streamlined the cost accounting, budgeting, and management reporting functions in TSE. However, an independent National Accreditation Council (NAC) was not established, which has compromised the objective of aligning the MSTQ system to international standards. 3. The Technology Development foundation of Turkey (TTGV) was established and has supported 103 R&D projects and studies. More than 50 percent private sector participation in technology development projects was received and of the completed projects, a large majority have been technically and commercially successful. Overall, TTGV has been successful in initiating a culture of R&D and technology finance in Turkey. 4. The project helped the legal and regulatory framework in Turkey to be conducive to the growth of venture capital. However, a 'role model' venture capital company could not be established. Implementation Record, Bank Performance and Borrower Performance 5. The project was well designed and reflected a commitment form both the Government and implementing agencies that translated into an overall satisfactory implementation experience. Implementation on the part of UME proceeded well but may have been slowed down due to tedious customs regulations for importing equipment as well as Central Bank rules for the use of Special Accounts. Implementation of the physical upgrading of TSE facilities proceeded satisfactorily, but not without long delays and some compromises in the training aspects of the component. Implementation of the Quality Campaign and NAC did not make progress. Implementation of the part of TTGV proceeded satisfactorily. 6. During implementation, the project agencies found the Bank performance to be satisfactory, but delays in acquiring no objections and change in task managership at headquarters were cited as sources of delay and some frustrations. More intense supervision during implementation may have facilitated greater progress on the institution-building front. 7. Borrower performance in terms of providing assistance and guidance to the project agencies was considered satisfactory, however, long and complex procedures for Special Accounts in the Central Bank slowed implementation frequently. i  Project Sustainability 8. The setting up of the metrology center has greatly enhanced measurement capabilities in Turkey, lowering the costs of metrology to larger firms and making measurement facilities available locally to smaller firms that would not have used them previously. There is strong potential for the metrology infrastructure created in Turkey to act as a central hub for the neighboring region. However, further expansions in the primary metrology infrastructure are not self-sustaining in spite of the record of growing demand from industry. This is because even though the benefits can translate into higher productivity, increased competitiveness, market shares and exports for firms, the cost recovery for provider institutions of these services rarely exceeds 30 percent, and usually settles to around 20 percent. 9. The expansion and upgrading of the Standards infrastructure has helped industrial competitiveness by improving quality standards and providing intemationally acceptable certification to Turkish exports. Building the new Quality Campus of TSE in the Istanbul area extends its coverage to an important segment of Turkish industry. Some further improvements in the standards infrastructure maybe sustainable through the increased income generation capacity as a result of these expansions and investments. 10. The catalytic impact of the Technology Development Foundation has been significant and positive. The project has helped by overcoming many of the information and perception barriers regarding investments in technology upgrading and guided firms in the methodology of doing R&D. The culture created by its activities has just begun to permeate Turkish industry. While interest and ability to undertake R&D have both been fueled through the project, and the accession to the ECU provides the backdrop for demanding more of this in the near future, only a very small fraction of industry has had a chance to benefit from these programs so far. Sustaining this momentum created will require continued financial and technical assistance support to local institutions in expanding their coverage and portfolio of instruments. Future Operations 11. Path to technological development involves a slow process of learning and adaptation to a new environment and hence leaves considerable scope for expanding the coverage and depth of the services in question. Much more work remains to be done in terms of raising the awareness, access and participation of the Turkish private sector in technology development activities. In particular, the recent accession of Turkey to the ECU mandates that increased attention be paid to matters of technological catch-up if Turkish industry wants to compete in global markets. 12. Foremost, industry's demand for refinements in measurement accuracy, and for rigorous product specifications embodied in public standards continues to grow in all OECD countries. Therefore, Turkish industry's needs are likely to increase substantially as it tries to move from low-skill goods to technology and skill intensive products that demand precision, quality and traceability to international standards. These requirements will place heavy demands on the MSTQ infrastructure which would therefore need to be further expanded and strengthened. 13. Firms are also responding to competitive pressures of freer trade by trying to upgrade their technologies. Therefore, continued support for technology investments in the private sector through a vehicle such as TTGV would become even more important towards maintaining a culture of technology finance. While an awareness and market for technology development has been created through TTGV's activities, there remains a large potential for building upon this initial success and carrying this momentum forward. Efforts to increase the awareness and availability of risk-based finance such as venture capital ought to be continued and the private sector facilitated in setting up such funds and companies. ii  14. Meanwhile, research institutions and universities can also help Turkish industry upgrade its capabilities, but these institutions would have to be brought into the main stream by helping them become better aligned to the needs of industry. Future operations can support a restructuring program for universities and research institutions. Along side this restructuring, private sector-led investments in incubators and technoparks which attempt to bring industry, academia, and research institutions together in order to augment their synergies could also be explored. Finally, some attention will have to be paid to Turkey's Industrial Property Rights (IPR) regime in order to facilitate technology transfer from foreign fimns to domestic ones and also to protect domestic innovations that result from newly undertaken technology development activities. Lessons Learned * When launching new activities, an emphasis on private sector participation in decision making, either directly through involvement in managerial responsibilities, or indirectly through the institutionalization of feedback mechanisms should be placed from the beginning in order to ensure an alignment of the project activities to the beneficiaries needs. * Measures to stimulate fimn-level technology upgrading require the development of specialized skills to evaluate and monitor technology projects on the part of the provider institution. Success in these activities can be greatly enhanced by the ability of institutions like the Bank to share cross- country experiences with new comers, as well as the flexibility to incorporate any country or institution-specific parameters into the implementation as they are discovered. The Bank therefore needs to emphasize institution development through technical assistance, study tours, training and intensive hands-on supervision to ensure that this learning is facilitated. * In relation to issues of MSTQ infrastructure, a specific lesson drawn from the experience of this project is also that in order to stimulate private sector provision of technological services an independent accreditation body which does not have conflicts of interest with existing public agencies and whose credentials are internationally acceptable is needed. iii  TURKEY TECHNOLOGY DEVELOPMENT PROJECT (Loan TR- 3296S, 3296A) Part l. Project Implementation Assessment Project Identity Project Name Technology Development Loan No. 3296A, 3296S PHRD Grant No. TF 27690 Country Turkey Sector Private Sector Development A. PROJECT OBJECTIVES 1. In response to the Turkish Government's request for technical and financial support for industrial technology development, the Project's three broad objectives were to: (a) develop the MSTQ (metrology, standards, testing and quality) system to international standards by capacity building in the key public institutions, and establishing a framework for greater private sector participation; (b) encourage market-oriented R&D in the private sector by financing projects on a matching basis; and (c) foster the growth of a venture capital industry by rationalizing the tax environment and establishing a 'role model' company. The detailed components of the project were as follows: MSTQ Component 2. US$58.0 million was allocated by the World Bank to a program (total cost of $74.2 million) to upgrade the MSTQ. There were three sub-components: (a) development of a National Measurement Institute on the TUBITAK campus (World Bank contribution of US$16.1 million); (b) improvements in the Turkish Standards Institute by setting up a Quality Campus in Istanbul, human capital development and institutional improvements (World Bank contribution of US$41.2 million); and (c) setting up a National Accreditation Council, which in turn would set up the Professional Institute for Quality Assurance, and initiate a National Media and Quality Education Campaign (revised World Bank contribution US$0.7 million, originally at US$5.0 million). This component was to be administered by the TSE. Research and Development Component 3. The project was to support the establishment of an independent Foundation to provide: (a) funds for 'Challenge Programs' to stimulate applied research and technology development by industry, with a mix of matching grants, income notes and conditional loans. The expectation was that most projects would be financed on a conditional loan basis, with repayments tied to their success. The World Bank would provide US$42.0 million out of a total cost of US$92.4 million for this program; and (b) seed capital for studies on the competitiveness of strategic Turkish industries.  Venture Capital Component 4. The project would facilitate the growth of venture capital industry by: (a) defining a legal and regulatory structure for venture capital under the amended Capital Market Board Law; (b) provide for appropriate tax treatment for VC funds; and (c) establish a VC company and fund to act as a 'role model' for the industry. 5. The Bank and IFC were to provide joint assistance to the Government on this component. While the Bank was to play a role in providing advice on legal and regulatory aspects, and assist in the market analysis and identification of technology oriented deals, the IFC was to use this as an opportunity to become a shareholder in the Fund and Management company, and together with a foreign technical partner, to transfer venture capital know-how to Turkey. Policy Context 6. The manufacturing sector in Turkey accounted for around 25 percent of GDP in 1990, and was the second largest sector in the economy. Fostered under a regime of protected import- substitution, with widespread public ownership and government intervention, it had enjoyed healthy growth until the mid-1970s. However, the first oil shock combined with inadequate adjustment showed its weaknesses. The Government implemented an extended stabilization program and a sweeping program of structural adjustment in the 1980s, supported by a series of SALs from the World Bank. The trade regime was liberalized progressively, with the elimination of non-tariff barriers and a rationalization and lowering of tariffs. The tax, incentive and preferential credit systems were restructured, state enterprise efficiency was improved, the foreign investment regime was liberalized and domestic barriers to entry and growth were reduced. The Government shifted its investment priorities from competing with the private sector to providing complementary infrastructure, particularly in transport and communications. 7. The Government also began to lay emphasis on developing capital markets. A capital market law was enacted in 1981 and a Capital Markets Board was established in 1985 to regulate and supervise private issuers and brokerage firms. The Istanbul stock exchange opened in 1986 and in an effort to stimulate capital markets double taxation of corporate income and withholding tax on dividends were eliminated, tax incentives for domestic mutual funds were provided, and the rules were liberalized for foreign investment in Turkish securities. 8. A significant shift in relative prices in favor of export industries coupled with the domestic stabilization efforts described above, resulted in a vigorous private sector response to the liberalized regime. The trend of negative productivity growth in the late 1970s was reversed. Output grew at an average of 7 percent per annum in the 1980s, while manufactured exports grew nine-fold between 1980 (US$ 1.0 billion) and 1989 (US$ 9.0 billion), a real annual rate of 20 percent, first in Middle-East and later in OECD markets. Firms upgraded their facilities by importing modern equipment and licensing new technologies, buying designs and marketing know-how, and forming alliances with foreign partners. Financial sector reforms helped improve the efficiency of capital markets and led to a jump in market capitalization. 9. However, by 1990 there were signs that further policy initiatives were needed to maintain the growth momentum. As firms approached the international productivity frontier, they could not maintain growth simply by importing foreign technologies; they needed to upgrade and deepen their technological capabilities. Turkish industry had practically no tradition of 2  conducting research and development, and relied passively on imported technologies. Total R&D in Turkey came to 0.22 percent of GNP in 1989, with only 13 percent of this financed by the private sector. In 1989, only 13 firms applied for R&D fiscal incentives. Thus the overall share of private R&D in GNP (0.03 percent) was far below levels in other newly industrializing countries and too low to support sustained industrial upgrading and entry into advanced European markets. Manufactured exports were concentrated in highly vulnerable, price sensitive, labor-intensive segments, dominated by textiles and garments. There was heavy reliance on unstable Middle East markets. The lack of technological activity induced a significant brain drain of the best Turkish technical graduates. The need for technology support was particularly pressing for the large number of SMEs that dominated Turkish industry and that tended to lag in technology. 10. At the time of the design of this project the Government financed the bulk (87 percent) of R&D in Turkey, located primarily in public research institutes (under TUBITAK) and universities. Public sector R&D had few linkages to the industrial sector; private industry was reluctant to contract research work to laboratories and universities. The distribution of public R&D did not match the pattern of industry's technological needs. The Government's program for industrial technology development (ITD) was poorly coordinated, with overlaps between institutions and outdated policies. The infrastructure supporting technological activity in Turkey was inadequate to industrial needs in the liberalizing system. MSTQ (metrology, standards, testing and quality) services could not provide sufficient accurate measurement, testing and certification to Turkish enterprises, raising their costs, constraining technology development and reducing their ability to compete internationally. There was little private sector provision of technology services; there was no accreditation body in Turkey to audit and certify independent testing bodies. The supply of MSTQ manpower was insufficient for emerging needs. There were no sources of technology finance. Apart from the absence of a venture financing tradition, tax policies discouraged investment in venture capital by placing the tax incidence on the funds rather than on shareholders and taxing capital gains fully with no allowance for inflation. 11. The Government, recognizing the need for a new strategy to stimulate and support technology development in private enterprises, issued a Science and Technology Policy Statement in 1987. Among the new policies were improved tax incentives for industrial R&D, procurement directed at encouraging local technological effort, mechanisms to improve linkages between industry and the science community, and enhanced participation in EU and NATO research programs. In 1991, the Prime Minister made a proposal to Parliament to set up a Science and Technology Board. This Board was to invest in university R&D in biological sciences, computer and information science. It would fund overseas scholarships in Science and Technology (S&T), technology training and materials development for S&T, and the participation of Turkish firms and researchers in international R&D programs. 12. The Government also responded to industry demand for a more effective technology infrastructure. It proposed establishing a national metrological laboratory at TUBITAK. The Turkish Standards Institution (TSE), set up in 1954 and made an autonomous company in 1960, was expanding its standards preparation, product certification and testing capabilities in its central laboratories in Ankara. In 1990, TSE established a National Quality Council which was to become the independent National Accreditation Council by 1994. The public research community was encouraged to strengthen linkages with private industry. The Higher Education Law of 1981 had allowed Revolving Funds as a legal mechanism for contracting public institutions to perform research and consultancy work, and allowed scientists to earn up to a 200% bonus over basic university incomes. The State Planning Organization was sponsoring business incubators at five 3  leading universities to help commercialize know-how developed at universities, and attract research laboratories from large companies. 13. The Government focused on information services as a key tool to increase the productivity of public sector R&D. Centralized investments were made in on-line database facilities, journal collections and CD-ROM technologies. The TSE was providing specialized information on standards and patents. The Government was reviewing the intellectual property regime to bring it into line with E mpean Community conventions. SME extension services were being strengthened. Evaluation of Project Objectives 14. In light of this policy environment the project's objectives addressed both --the emerging technological needs of Turkish industry in the early 1990s, as well as the priorities of the Govermment's S&T imperatives and on-going programs. It identified the important policy needs of industry in a liberalizing economy that needed to compete effectively in the global market and took account of the deficiencies in the existing policy and institutional framework for industrial technology development. The private sector, itself increasingly aware of these imperatives, was 'on board' with the Bank's approach. B. ACHIEVEMENT OF PROJECT OBJECTIVES MSTQ Component (,) National Metrology Institute: 15. A National Measurement Institute was established under TUJBITAK in 1984 as the custodian of primary measures. In 1991, it had a professional staff of 14, located at the Gebze Research Center of TUBITAK and drawing upon the other laboratories there. The Government's objective was to meet industrial needs for primary standards in six fields: dimensional metrology, electrical, mechanical, thermal and pressure, volume and mass, and optical measurements. The project, based on a plan drawn up by the Institution, envisaged the expansion of technical staff to 50, investment in specialized training and consultants work (US$2.1 million), and equipment (US$14.0 million). It also envisaged financial and managerial autonomy from the Marmara Research Center (MAM), in line with international practice for metrology institutions. Initially, the project was to finance US$12.0 million of the total cost of US$17.9 million. A further US$2.3 million was allocated to improve operational efficiency at TUBITAK, particularly to address constraints on recruiting and retaining qualified staff. These figures were set as US$13.3 million for UME and US$2.8 million for MAM at the end of the project. 16. The project resulted in the setting up of the National Metrology Institute in January 1992. Its achievements are as follows: * By mid-1998, UME had 25 laboratories capable of meeting roughly 40 percent of Turkish needs for metrology to international standards. According to a study by the National Physical Laboratory of the UK, "The development of the primary measurement standards at UME has proceeded, and is proceeding, at an extraordinarily fast pace. The laboratory facilities are 4  impressive and not only is the measuring equipment of high quality, but the overall facilities, including the physical environment, also meet high standards." 1 * By mid-1998, UME had 116 employees, of whom 88 were considered technical staff (49 held Bachelors of Science degrees, 23 held M.Sc degrees and 8 held Ph.D. degrees. One quarter of those that held M.Sc degrees are continuing their education and expect to obtain doctorate degrees by the year 2000). * UME places emphasis on conducting R&D into measurement facilities and techniques rather than just supplying services. All good metrology institutes need to invest in R&D in order to attract high caliber staff, improve its measurement capabilities and provide better services and technology transfer to industry. In 1997, UME devoted about 15 percent of its expenditures to research and development activities. * Demand for UME metrological services has increased rapidly in the private sector. The number of calibrations done by UME has increased from 875 in 1996, to 1150 in 1997, and is expected to reach 1500 in 1998. Enterprises consider its work to be of high quality, and comparable to that in Europe. The costs of UME services were significantly lower than of sending the same equipment to Europe for calibration (estimates put European costs at about 2.6 times higher than UME's costs). * UME has won international recognition, indicated by its acceptance, after technical evaluation, by the International Measurement Confederation, the European Cooperation in Analytical Chemistry, and the Organization of European Metrology Institutes. The German Government also made a technical evaluation and decided to extend technical aid for three years. * UME encouraged the setting up of new private laboratories to provide measurement services, by providing technical advice to these laboratories and keeping its prices for standard services above that of competitor private laboratories by about a factor of 4.52. Approximately 56 new private laboratories had been set up since the inception of UME and almost all of them have sought and received some technical advice from UME. UME has also helped improve the measurement facilities in government laboratories. * UME disseminates information through articles, newsletters, lectures, seminars and so on, and has raised general awareness of the importance of metrology. Around 5 percent of each annual budget is spent on awareness raising activities. UME also participates in industry working groups in order to facilitate technology transfer to member firms and has organized several local technical workshops for industry. UME has also assisted the Foreign Trade Department and the Ministry of Industry and Trade in drafting technical regulations for the Turkish market. * By 1998, UME was earning 15 percent of its revenues from the private sector, which was up from 10.5 percent in 1997 and 4.7 percent in 1996. According to the NPL study, the norm in European countries is 10-30 percent, reflecting the public good nature of the services provided. It estimates that UME is likely to reach 15-20 percent in the long-term. On this score, therefore, UME is doing quite well in a short period. 17. These indicators show that project objectives were achieved by UME. By providing for a significant proportion of metrological needs in the country, it has made a very valuable contribution to Turkish industry and technology. According to the NPL study, it is likely to ' Study of the Second Phase Investment in UME, Turkey, National Physical Laboratory, UK, May 1997. 2 UME's costs are higher than those of private local laboratories (where comparable facilities exist). This is common and desirable practice among metrology institutes, since it reflects the highly specialized and difficult measurements conducted by the Institute and encourages the development of private providers for other routine services. 5  become a 'metrological hub' in the region, where neighbors lack such advanced centers. This will prove to be not only a source of earnings for UME but also a benefit for Turkish industry, exports and technology. An analysis of the economic returns by NPL, based on EU benchmarks, finds that the minimum cost-benefit ratio of these investments is around 45, which is highly favorable. 18. However, areas of improvement remain and have been highlighted by the NPL study as well as in interviews with UME and the private sector. * UME has suffered from high staff turnover (among technical staff, turnover came to around 23 percent in 1997 and 18 percent in 1998). This may be due to several causes: salaries lower than the private sector, shortage of metrological skills in the country, or personnel management problems. Some of these problems can not be remedied by UME, which is providing an external benefit to Turkey by training people in metrological skills. Others may be remedied by appropriate remuneration and personnel policies. * The staff is young on average (average age of technical staff is 29 years) and lacks experience of industrial problems. * The NPL study notes that "this impressive rate of development has created technical, personnel and planning challenges and pressures that are unique to UME". It goes to analyze a number of detailed technical areas in which the capabilities of UME need to be improved or strengthened, such as training to handle specialized equipment, dealing with industrial customers, technology transfer, and building up larger teams to reduce dependence on a few key people. (ii) Turkish Standards Institute: 19. The Turkish Standards Institute is one of the largest standards bodies in the world, with around 700 employees in 1991 (about 1000 in 1998) of whom around three-quarters are technically qualified. By 1998, it had developed around 13,000 standards of its own. It had capabilities for certifying ISO 9000 quality management systems, with over 10 lead assessors, and has issued 1641 TSE mark certificates in the 1997-98 period. It is preparing itself for ISO 14000 certification. However, the growth of private consultancy and certification in these areas has led to significant loss of senior personnel from TSE. It is self-financing, earning its keep from the sale of testing, certification, secondary calibration services (of these, certification provides two-thirds of its income), providing information, training, and sale of standards. Its earnings have grown from US$31 million in 1995-96 to US$38 million in 1996-97, US$40 million in 1997-98 and are expected to reach US$68 million in 1998-1999. Certification income has typically been around US$18 million, income from laboratories has been just under US$5 million, and calibration has brought in under US$1 million. These figures are expected to go up to US$33 million, US$9 million and US$1.2 million respectively. 20. The three sub-components of the project relating to TSE (Quality Campus, human capital development and institutional improvements) can be divided into five objectives: (i) building a new Quality Campus near Istanbul; (ii) establishing a modern financial and management information system in TSE; (iii) implementing computerized cost accounting procedures in TSE; (iv) improving managerial and organizational skills in TSE; and (v) establishing a National Accreditation Council, initial programming of the Professional Institute for Quality Assurance, and coordination and management of a National Media and Quality Education Campaign. 6  21. The Quality Campus construction was completed on a delayed schedule by end 1997, with the allocated budget fully used. The financial and MIS system was subcontracted to a consultancy firm which has satisfactorily established a cost accounting, budgeting, management reporting, and information system. The computerization of TSE activities and training for users has also been completed satisfactorily. This provides for TSE to serve as an information center for official and public users, an Electronic Bulletin Board System, a world-wide electronic messaging system for delivering and receiving information and documents, a Wide Area Information Transfer System, a general purpose backup and archiving system and a corporate distributed information processing platform. 22. These project components have strengthened TSE capabilities significantly. The industrial firms that had dealings with TSE for certification work were pleased with its services. TSE staff was apparently helpful, competent and prompt; some firms even said that they had gone out of their way to provide technical advice on quality. Their costs were considered reasonable and their product certification well respected in Turkey and abroad. 23. However, some drawbacks remain in the accomplishment of some important objectives: namely in the latter two objectives listed above. While several staff received overseas and in- house training in technical areas such as ISO 9000 and ISO 14000 certification, and non- technical areas such as foreign language training, the training needs of the institution were not fully met and funds were reallocated towards equipment purchases. The Quality Campaign was suspended, and an independent National Accreditation Council was not set up. The reason for the latter was the decision of the TSE to set up an accreditation body on its own (the National Council for Quality and Accreditation, the NCQA), without full agreement by other parties. NCQA did not have full international recognition, and there were concerns that its staff lacked the capability to accredit private laboratories. 24. More importantly, there was conflict of interest between the accreditation function andTSE's own certification work. Accreditation bodies perform their accreditation of laboratories by virtue of their independence from the actual business of providing any testing or certification services themselves. When an institution that provides certification to enterprises is also involved in the accreditation of laboratories, it raises doubts about the credibility of both the accreditation and certification functions. Some exporting firms in Turkey have already had to bear the brunt of this in the form of facing rejection of their exports into the EU because the certificates granted by TSE were not considered to be valid. 25. In fact, even with regards to certification, some private firms have questioned the monopoly- like status that TSE has acquired. In most industrial countries, standards institutes will confine themselves to developing and publishing standards, while private laboratories provide a good portion of the certification services. Such an evolution would be desirable in Turkey also, but is currently prevented by the lack of independent accreditation services for the private laboratories to emerge. 26. In sum, while the TSE component attained its goal of internal expansion and upgrading it did not succeed in establishment of a legitimate and credible accreditation system for laboratories. While the reasons certainly have more to do with internal territorial concerns, in hindsight, the project could have been designed to avoid coupling activities with a potential conflict of interest under one institution. Also, greater involvement and action at an early stage by the World Bank may have been desirable in reducing some of the detrimental impacts. 7  R&D Component 27. This component of the project, US$42 million, led to the setting up of the Technology Development Foundation of Turkey (the Turkish acronym is TTGV). TTGV was to stimulate private investment in industrial technology development by providing seed capital for projects through matching finance for market-driven private sector R&D in order to help develop a 'technology culture' in the country. 28. This goal were reflected in the by-laws of the TTGV as follows: * To provide funds and expertise supportive of industrial technology development projects to enhance technology and technological infrastructure * To identify technological research areas which have potentially the highest effects on the economic structure of the country and to carry out research and projects in such areas * To encourage Turkish industry to increase in real terms its investments in R&D * To assist Turkish industry in using data and information on scientific deve-lopment * To strengthen the ties between Turkish industry and higher education institutions, the Scientific and Technical Research Council of Turkey, and other public and private research organizations * To provide an example of 'best practice' in technology management * To identify technologies that have broader applications and promote their development * To encourage Turkish and foreign scientists to make their activities relevant to competitiveness of Turkish industry * To define and develop strategies to ensure that Turkish industry would reach international levels of technology. 29. Some of these objectives are general and hence difficult to assess, but others are specific and their achievement can be evaluated in the light of experience. 30. TTGV was set up as a 'vakif', with a Constitutive Assembly. The Assembly has 56 members, drawn mainly from the private sector. TTGV has a 9-member Executive Board, of which six are private sector representatives taken from the Constitutive Assembly. It draws upon a large pool of experts (around 1200) from universities (675), private enterprises (around 400) and the public sector (around 160) to evaluate and supervise projects. TTGV operates three funds: the World Bank technology development fund; the Montreal Protocol Multiparty Fund -- also from the World Bank3; and funds from the Undersecretariat of Foreign Trade (UFT). 31. The main function of TTGV, co-funding R&D projects in private industry from the World Bank loan, started in November 1992. There were two rounds of solicitations of projects each year, and 273 applications had been received until April 1998. Of these, 103 projects (37.7%) were selected, 84 of these were technology development projects, and 18 were 'strategic focal point' studies. Of the technology development projects, 67 have been completed. The total value of the funded projects is US$99 million, of which US$44 million comes from the TTGV (excluding the sum of US$2.9 million contracted but not used) and US$55 million from the private sector. Thus, the total funding under this heading has been allocated, and the contribution of the private sector, at 56 percent, is larger than the 50 percent originally envisaged. The TTGV 3 This is an Ozone Trust Fund administered by the Bank to assist the transformation towards non-ozone-depleting technologies. 8  contribution includes its 100 percent grant funding (US$1.5 million) of 'strategic focal point' projects executed by research centers or universities. 32. TTGV started by funding projects on a royalty basis. This mechanism was dropped because repayment could only be made if the project yielded a commercially successful product, and was substituted by an installment repayment arrangement that was not tied to commercial success4. The sectors in which technology development projects were undertaken (in descending order by percentage distribution of the number of projects) are: Information technology 23 percent, Materials 23 percent, Machinery 16 percent, Electrical and electro-mechanical 13 percent, Biotechnology and agro-technology 13 percent, Chemistry 5 percent, and Others 8 percent. 33. By size of participating company (in terms of employment size), about 64 percent are small and medium sized enterprises, and 36 percent are large companies. By age of company, about 89 percent have been in existence for longer than five years and 11 percent for under five years. In terms of strengthening links with universities and research centers, 62 percent of the projects involved joint R&D with such agencies. 34. Of the 46 completed projects, 74 percent have been technically and commercially successful, 20 percent have been technically successful but commercially unsuccessful, and 6 percent have been technically unsuccessful. The commercially unsuccessful projects may also have added to the technical knowledge base of the company, and induced firms to persist in R&D efforts. The successful projects have been able to increase exports of the firm between 5 and 45 percent depending upon the year of completion. 35. TTGV has also supported the following four sectoral R&D projects that were considered important for supporting generic technologies: - Cleaner Textile Center: To conduct R&D for cleaner production technologies for the textile industry to comply with international manufacturing standards. The Center was founded by textile companies jointly with TTGV. * Electronic Center: To expand R&D in the electronics industry, based on leased equipment and offering advanced testing services and create awareness of cost reduction. TTGV, the Electronics Industry Specialization Center and KEMA International of Holland support it. The Center is set up as a joint stock company. * Tribology Center: This is a center for advanced surface treatment technologies, proposed by the Izmir Technopark Trade Association and supported by it jointly with TTGV and industrialists. * Bio-Analytical Research Center: This aims to establish an international reference center for bioavailability and bioequivalence and has been established jointly with the Turkish Pharmacology Union. 36. Interviews with a sample of participating firms confirm the beneficial impact of the project. TTGV seems to be fairly well known in Turkish industry, at least among the large companies. It has induced several firms to launch formal R&D for the first time, helped improve the management of R&D (even in the firms that conducted R&D before), and stimulated some collaboration between industry and universities. The outside experts that supervised the projects were considered to have made positive contributions to research and, more importantly, made 4 Deterrnining "commercial success" is difficult for R&D projects. 9  firms aware of the potential benefits of interaction with technical experts from the academic world. Many of the research projects resulted in commercially viable products. Many were in technically sophisticated areas, and helped to take the enterprise to the frontiers of technology and to match the best in Europe. In general, it aroused a great deal of enthusiasm and interest in large-scale industry, earned a very good reputation among industrialists, and established TTGV as a prestigious institution. 37. On the other hand, some doubts arise about the program. For instance, the rationale for providing subsidized loans to support R&D in some of the largest firms in the country5 or to firms that had been engaged in conducting research for a long time is not clear. There was an emphasis on technological prowess leaving the criteria of establishing the economic importance of the project somewhat unclear. Some projects did not seem based on a proper consideration of the international competitive aspects and had failed because the entry of competitors from other countries (particularly those from East Asia) was not taken into account. This will become more marked in the next 4-6 years as the MFA is abolished and restraints on automotive imports from Asia are lifted. 38. Considerable scope for improvement also lies in the program's emphasis on institution building efforts. While it is understandable for an institution administering a new program such as this to concentrate its efforts on the financial transactions aspect of the loan administering process, a bigger and more lasting impact of the program could be reached by placing equal emphasis on efforts to become more involved with the private sector. This would entail monitoring the firms on a regular basis, receive continuous feedback from beneficiaries, and engage in greater dissemination of the program through seminars and workshops which not only serve the purpose of reaching a wide audience but also of providing inputs and comments from private industry on the administering and implementation of the program. Adopting such a hands- on approach to the program would of course necessitate development of appropriate skills for managers and key staff for this program with good knowledge of technology development process in the private sector, as well as R&D financing practices in relevant countries. 39. It is also not clear what the focus and impact of the 'strategic focal point' studies was. TTGV has conducted 18 studies, nine on technology and industrial strategy, and the remainder on specific technologies such as genetics, software, materials, pharmaceuticals and agriculture. The total cost of these studies was US$1.5 million. While some practical evaluatory ground-work of the technological scenario may be desirable for focusing the Foundation's activities, the value- added of these theoretical studies remains to be seen. 40. Despite these weaknesses, however, the R&D component as a whole can be regarded as successful in its mission of starting a modern 'technology culture' in Turkish industry. It induced a number of firms to undertake R&D, and others to improve their R&D management. It created a broader awareness of the need for technological activity. It brought university researchers into some contact with industry. Many of the projects were advanced in technological terms, and yielded profitable and competitive products. Many of the weaknesses that remain could be traceable to the novelty of the scheme and the learning process that invariably accompanies such a scheme. A more hands-on approach from the Bank's side through assistance in defining the focus, business strategy and benchmarking against other country experiences could also have catalyzed the institution building activities of the Foundation. Even though these are not the majority in terms of the numerical portfolio of TTGV lending. 10  Venture Capital Component 41. The component was expected to accomplish three main objectives. First, by establishing a regulatory framework for VC, it was to enable a VC industry to grow. Second, the setting up of a role model company was to demonstrate a range of specialized instruments to meet client needs and stimulate financial innovation in other segments of the domestic capital market. And finally, the availability of VC was expected to strengthen the framework for entrepreneurship and commercial innovation in the Turkish economy. 42. The project met the first objective successfully. It helped to: (i) define a legal structure for the industry based on a separation of VC management companies from VC funds, specify minimum capitalization and qualifications for VC fund managers, specify the minimum size of fund, number of shareholders, investment per shareholder, life of funds, and acceptable changes to changes in shareholding structure; (ii) define registration, reporting and auditing requirements; (iii) regulate the relationship between management companies and funds, including fee structures and incentive packages for management companies, contract termination and fund draw down agreements; and (iv) structure management companies so as to be subject to standard tax treatment for corporate income, and VCFs registered with CMB not subject to tax anymore, rather tax incidence shifted from Funds to shareholders in the Funds at the time that income is realized and distributed to make it consistent with the pass through treatment that VC receives in other OECD countries. 43. The setting up of a VC company with IFC shareholder-ship however could not be achieved. Due to the environment in Turkey the EFC was keen on an off-shore operation whereas the government of Turkey preferred an on-shore operation. However, two VCCs did emerge on their own: Vakif-Risk set up by Vakif Bank, and SPARK set up by overseas Japanese investors. However both of these companies possess only a very small portfolio of projects and are too new to allow an evaluation of their performance yet. While they have confirmed that the improvement in the legal and regulatory framework was indeed a desirable change that has removed some of the major hurdles in the establishment of VC, the lack of technologically-demanding new projects that could qualify for VC funding continues to be a major constraint in their expansions. The somewhat unstable environment that has kept inflation high in Turkey has prevented long term planning on the part of firms and entrepreneurs, which has taken an obvious toll on research and innovative activities which require long term investments. Hence it is also too early to say whether innovativeness of financial instruments or the commercialization of R&D has yet come about in Turkey. 44. It may be useful to bear in mind that given the very specific nature ofVC, and the backdrop of passive importation of technology rather than indigenous technology development among the private sector in Turkey, the slow progress of this component is perhaps understandable. Efforts to increase the awareness of industry and financiers to this form of capital should therefore be continued and technical assistance provided to VC fund and management companies in order to bring about a culture of innovation finance in the future. C. IMPLEMENTATION RECORD AND MAJOR FACTORS 45. The project was well designed and reflected a commitment from both the Government and implementing agencies that translated into an overall satisfactory implementation experience. 11  UME 46. Prompt action by TUBITAK headquarters and astute project management in UME led to an efficient implementation of this component. Frequent consultations by UME during implementation with other metrology centers led to an efficient allocation of funds within the institute. However, tedious customs regulations in importing equipment affected implementation negatively. So did the general rules for staff salaries that kept them low and special rules that kept IBRD funds in Central Bank accounts, as well as rules that required the use of Treasury controllers for yearly assessments of the project. 47. Implementation of the UME component could also have been improved by better coordination between different MSTQ organizations to encourage complementarity of needs and skills, as well as by strong leadership and decision making regarding the accreditation matter on the part of stakeholders and lawmakers. An independent NAC could have led to an increase in the number of accredited labs, which in turn would have given a boost to the demand for metrology services in Turkey. This would also relieve the pressure on UME to conduct low measurements for which UME is not designed. Lacking the accredited laboratories UME was forces to function at all levels of measurement. Spending time on routine measurements rather than developing new techniques and working on challenging problems also contributed to staff turnover. TSE 48. Implementation of the physical institutional improvement aspect of this component proceeded well and industry regards the quality of TSE laboratory certification as rigorous and in conformance with international technical standards. 49. However, some of the equipment could not be procured. TSE points to insufficient budget allocation and some of the following factors as reasons for delaying the implementation: time taken to find suitable land for the Quality Campus, time taken in architectural and engineering design, delays caused by heavy rain, delays caused by revision of projects and bidding for the construction, studies for preparing lists and bid document for laboratory equipment and delays in delivery of some equipment by contractors. 50. Technical assistance and training plans that would have contributed to better institution building and deepening of technical expertise were not implemented to their full capacity either. Resources were shifted from TA/training to equipment purchases and it is not clear whether such a redistribution was either justified or desirable. Finally, postponing training of staff until all physical enhancements were complete may also have been as injudicious choice since that relegates these important activities to very near or after the project closing dates. 51. The implementation of the Quality Campaign and NAC sub-component did not proceed well - the conflict of interest between accreditation and certification led to disputes which received considerable publicity in the press. The campaign was never launched and an independent NAC not established until date. This dispute has been a deterrent to the growth of the private testing and certification industry in Turkey. 12  TTGV 52. Implementation of this component has proceeded well and TTGV is regarded as a prestigious institution making a significant contribution to fostering a culture of R&D among Turkish industry. 53. Some aspects that could have benefited from greater attention are factors related to institution building efforts that may have been emphasized inadequately during implementation. * Increased private sector focus reflected in hiring of key staff within the Foundation as well as in the definition of the strategic vision of TTGV in technology development activities; * Greater emphasis on awareness raising among private sector in order to increase the number of applicants for TTGV funding; * Better selection process to ensure uniformity in the quality of evaluators and supervisors of projects. * Greater involvement from TTGV in terms of monitoring and tracking performance of borrowing firms beyond simple repayment records. * Institutionalizing feedback mechanisms to improve the outreach, focus, and development impact of the program. D. BANK PERFORMANCE 54. The Bank was on the right track in pinpointing the appropriate policy framework that was conducive to ITD, emphasizing the importance of technology development to building competitiveness, diagnosing the needs of Turkish industry and correctly identifying the market failures associated with technology development. The design of the project reflected this analysis as well as the lessons learnt from other bank projects on ITD. 55. During implementation, the project agencies found the Bank's performance to be satisfactory, but delays in seeking no objections was cited as a source of frustration by some PIU members. Note that these no objections were required from the Bank for all use of funds (by TTGV) and the volume of requests prevented a quick turnaround. 56. Continuity in staff involvement from the Resident Mission office helped maintain a momentum and link to the project's progress on a regular basis. However, more frequent and intense supervision may also have been desirable on the Bank's part due to the intrinsic novelty of many of the activities being instituted in Turkey through this program that needed greater hands-on involvement. In the absence of intensive supervision, the efforts to respond to changing conditions in the project or to monitor the details of implementation may have been partially compromised. E. BORROWER PERFORMANCE 57. Borrower performance in terms of providing assistance and guidance to the agencies was considered satisfactory. However, delays in providing no objections for use of funds was noted as a major impediment by one of the project agencies. Also, approval of the Treasury was needed in order to import equipment, or ship outside the country for repairs which was not always expeditiously provided and remains a potential source of implementation delays in future projects. Further, no objections from the Treasury and Bank were required for all spending by the Central Bank, whether required by the Bank or not, and this was cited by agencies as a major 13  source of frustration during implementation. There were also delays in conducting annual audits by Turkish Government Auditors. Given the delays and their poor quality, the audits were not that useful to agencies in getting timely feedback. These issues should have been addressed by simplifying procedural requirements from the Central Bank or moving the Special Account to a commercial bank. F. ASSESSMENT OF OUTCOME 58. The outcome of the project was an improvement in three important areas: The creation of a culture of R&D among Turkish industry and increased private sector participation in technology development in an economy that has traditionally been a passive importer of technology; launching of a technology finance industry where none existed through the matching loans as well as through the favorable legal and regulatory framework created for VC; and an improved capacity and access to technology infrastructure and services. G. PROJECT SUSTAINABIUTY MSTQ 59. The setting up of the metrology center has greatly enhanced measurement capabilities in Turkey, lowering the costs of metrology to larger firms and making measurement facilities available locally to smaller firms that would not have used them previously. The interaction between industry and the center has helped develop new technological capabilities and stimulated the establishment of private measurement and testing laboratories in Turkey. The emphasis placed by UME on research as well as services is desirable, and the 'externality' it provides by training technical personnel in the latest measurement techniques is valuable in sustaining the newly founded private metrology industry. There is strong potential for the metrology infrastructure created in Turkey to act as a central hub for the neighboring region. 60. However, further expansions in the primary metrology infrastructure are not self-sustaining in spite of the record of growing demand from industry. This is because even though the benefits can translate into higher productivity, increased competitiveness, market shares and exports for firms, the cost recovery for provider institutions of these services rarely exceeds 30 percent, and usually settles to around 20 percent. 61. The expansion and upgrading of the standards institute has helped industrial competitiveness by improving quality standards and providing internationally acceptable certification to Turkish exports. Building the new Quality Campus in the Istanbul area extends its coverage to an important segment of Turkish industry. Some further improvements in the standards infrastructure maybe sustainable through the increased income generation capacity as a result of these expansions and investments. Technology Finance 62. The catalytic impact of the Technology Development Fund has been significant and positive. While some beneficiary firms conducted R&D before, most firmns were unaware of the benefits of in-house technological effort or, if they were, of how to set about conducting R&D. The project has helped by overcoming many of these information and perception barriers and by guiding firms in the methodology of doing R&D. In this, it has helped launch in-house technological activity in Turkey, and will contribute to better absorption and development of 14  technology in Turkish industry. By using university researchers as evaluators and supervisors, it has created valuable new linkages between the 'science' and 'technology' sectors. 63. The culture created by this activity has just begun to permeate Turkish industry. While interest and ability to undertake R&D have both been fueled through the project, and the accession to the ECU provides the backdrop for demanding more of this in the near future, only a very small fraction of industry has had a chance to benefit from these programs so far. Sustaining this momentum created will require continued financial and technical assistance support to local institutions in expanding their coverage and portfolio of instruments. H. FUTURE OPERATIONS 64. The process of raising the technological capacity of industry in order to enhance international competitiveness has been initiated well through this project. But because by its very nature the path to technological development involves a slow process of learning and adaptation to a new environment, it must be approached in a tractable manner commensurate with the absorptive power of industry at that time -- as was indeed attempted through this project. This leaves considerable scope for expanding the coverage and depth of the services in question. Much more work remains to be done in terms of raising the awareness, access and participation of the Turkish private sector in technology development activities. In particular, the recent accession of Turkey to the ECU mandates that increased attentionbe paid to matters of technological catch-up if Turkish industry wants to compete in global markets. 65. Foremost, industry's demand for refinements in measurement accuracy, and for rigorous product specifications embodied in public standards continues to grow in all OECD countries. Therefore, Turkish industry's needs are likely to increase substantially as it tries to move from low-skill goods to technology and skill intensive products that demand precision, quality and traceability to international standards. These requirements will place heavy demands on the MSTQ infrastructure which would therefore need to be further expanded and strengthened. UME would need to make stronger efforts to stay one step ahead of industry's needs and this expansion would require strengthening of its institutional capacity to manage such a rapid transformation. Currently UME serves only approximately 40 percent of industry needs-- an increase in this coverage is needed so that smaller firms who cannot substitute these with similar services available abroad, can have access to local infrastructure. Similarly, an increase in private providers of routine and secondary metrology services is also needed, but this is currently hampered by the lack of a body that can issue internationally recognized accreditation to such second-tier labs6. 66. Firms are also responding to competitive pressures of freer trade by trying to upgrade their technologies. Therefore, continued support for technology investments in the private sector through a vehicle such as TTGV would become even more important towards maintaining a culture of technology finance. While an awareness and market for technology development has been created through TTGV's activities, there remains a large potential for building upon this 6 While a draft law for the establishment of an independent NAC is in Parliament, its passage is dependant on the political scenario in Turkey. 15  initial success and carrying this momentum forward. With the initial learning period from this project behind them now, future operations should be able to improve the project evaluation criteria, the monitoring and tracking mechanisms, as well as give more attention to smaller and newer firms - so that industry as a whole becomes more competitive. A more direct focus on creating linkages between private firms and existing technology institutions could also be attempted in future operations. Efforts to increase the awareness and availability of risk-based finance such as venture capital ought to be continued and the private sector facilitated in setting up such funds and companies. 67. Meanwhile, research institutions and universities can also help Turkish industry upgrade its capabilities, but these institutions would have to be brought into the main stream by helping them become better aligned to the needs of industry. Future operations can support a restructuring program for universities and research institutions, as has been done in some other successful Bank ITD projects. Along side this restructuring, private sector-led investments in incubators and technoparks which attempt to bring industry, academia, and research institutions together in order to augment their synergies could also be explored. 68. Finally, some attention will have to be paid to Turkey's Industrial Property Rights (IPR) regime in order to facilitate technology transfer from foreign firms to domestic ones and also to protect domestic innovations that result from newly undertaken technology development activities. Future operations could support such a harmonization of IPRs within the WTO framework. KEY LESSONS LEARNED 69. While liberalization, or globalization, can create pressures to upgrade technological capacity among firms, in and of itself it is not enough to actually make it happen. Given the importance of technological development in raising industrial competitiveness, specific market deficiencies must be identified and addressed in capital and information markets, as well as in institutions. Public support in launching proactive measures to inform industry of the benefits of R&D, sharing in the risk, and guidance on research methodology is therefore critical until a deep rooted awareness has gained momentum. 70. Proactive measures to stimulate enterprise R&D require the development of specialized skills to evaluate and supervise technology projects on the part of the provider. A fairly long and intensive period of learning is often required to develop these skills. The Bank therefore needs to emphasize institution development through technical assistance, study tours, training and intensive hands-on supervision to ensure that this learning is facilitated. The Bank's role in disseminating lessons from other similar projects, bridging communication gaps between different technology institutions in the country, and facilitating public-private partnerships must be augmented to its fullest to deliver a substantial impact of the project. 71. It is always easier to launch technology development measures aimed at large, established enterprises because they are most aware of their own needs. But a financing agency should be willing to share in the technological risks involved in reaching out to smaller and start-up firms. Encouraging risk taking in new activities is an important contribution, but can only be achieved by emphasizing institution building from the very beginning of the project. 16  72. Leadership is important in launching new initiatives and programs. However, while visionary and effective leadership should be rewarded, an equal if not greater emphasis needs to be paid to ensuring that change permeates all levels of an organization in order for project activities to be productive and sustainable in the long run. 73. When launching new activities, an emphasis on private sector participation in decision making, either directly through involvement in managerial responsibilities, or indirectly through the institutionalization of feedback mechanisms should be placed from the beginning in order to ensure an alignment of the project activities to the beneficiaries needs. A culture change to reflect a private sector focus is very difficult to acquire at an advanced stage of implementation due to inertia and/or resistance. 74. Areas of potential conflict of interest should not be bundled together even for administrative purposes. While such problems are not easy to predict and are situation-specific, being aware of their potential occurrence from the design stage may prevent future embarrassment and frustration for all parties concerned. Designing components in a market friendly manner will also avoid the risk of any component becoming hostage to the political scenario. 75. Finally, the design of technology development projects needs to kept as simple and as flexible as possible. Because these activities are usually new in most of Bank client countries, it is hard to prescribe all the details of implementation up front. While priorities and strategies for investment should indeed be clarified for each component as early as possible, the methodologies for each country can be subject to experimentation and may be approached on a pilot basis where possible. Close supervision should then follow to ensure that lessons from newly piloted programs are promptly incorporated into the project. 76. Supervision of such projects should be maintained at an fairly intensive level throughout implementation. Technology development is often a new activity for most institutions in developing countries and its success depends on the ability of institution like the Bank to share cross-country experiences with new comers, as well as the flexibility to incorporate any country or institution-specific parameters into the implementation as they are discovered. This cannot be maintained without intensive supervision. Further, given that these projects involve technical and managerial expertise to be combined in areas that often Bank staff have little previous experience in, the quality of Bank supervision can be greatly enhanced if external experts such as research scientists, heads of research organizations and MSTQ organizations, venture capitalists etc. are included in the missions. This will give credibility to Bank missions, promote a deeper understanding of the issues faced in implementation, and enable dialogue and problem solving to occur more smoothly and in a timely manner. 17  Part II. STATISTICAL INFORMATION Table 1: Summary of Assessments A. Achievement of objectives Substantial Partial Negligible Not L______________________________________ ______________ applicable |Macro policies X Sector policies X Financial objectives X Institutional development X Physical objectives X Poverty reduction X Gender issues X Other social objectives X Environmental objectives X Public sector management X Private sector development X Other (specify) . X B. Project Likely Unlikely Uncertain sustainability _ _ _ _ _ _ Ix C. Bankperformance Highlysatisfactory Satisfactory Deficient Identification x Preparation assistance X Appraisal X Supervision _ _ x D. Borrower performance Highly Satisfactory Deficient satisfactory Preparation X Implementation X Covenant compliance _ _ __ _ X Operation (if applicable) | X X ||E. Assessment |Highly Satisfactory Unsatisfactory Highly unsatisfactory of outcome satisfactory 18  Table 2: Related Bank Loans/Credits Loan Credit Title Purpose Year of Status Approval Industrial Export To support Turkey's drive for expanding industrial 1987 Closed Development exports and to improve the policy and institutional (L290 1) framework relevant to export finance. Industrial Training To support the government's efforts to improve the quality 1988 Closed II (L2922) of trained technicians for the industrial sector, to meet urgent needs for well-trained technical and vocational teachers in secondary, post-secondary, and non-formal vocational/technical training. Small and Medium To help the government to meet the needs for SMI sector 1989 Closed Industries 11 (L3067) by expanding SMI lending by financial institutions and guiding a public agency in providing promotional and extension services to SMI sector, including improvement of SMI product quality and expanding. Private Investment To assist the government in its industrialization efforts by 1991 Closed Credit (L3346) providing long-term investment funds to private industrie through a network of private financial institutions. Table 3: Project Timetable Steps in Project Cycle Date Planned Date Actual Identification 23-Apr-88 Preparation 12-Mar-90 Appraisal 18-Jun-90 Negotiations 22-Jan-91 Letter of Development Policy (if applicable) Board presentation 28-Feb-91 Signing 5-Apr-91 Effectiveness 6-Jun-91 6-Sep-91 First tranche release (if applicable) Midterm review (if applicable) Second and third tranche release (if applicable) Project completion 31-Dec-96 31-Dec-98 Loan closing 30-Apr-97 31-Dec-98 19  Table 4: Loan/Credit Disbursements: Estimated and Actual (US$ million) FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 Appraisal Estimate 5.1 10.4 22.7 28.4 18.0 15.4 0.0 0.0 0.0 Actual 0.0 0.0 5.2 7.1 6.8 12.7 25.9 25.5 13.8 Cumulative 0.0 0.0 5.2 12.3 19.1 31.8 57.7 83.2 97.0 Actual as % of 0.0% 0.0% 23.1% 25.0% 37.5% 82.5% - - estimate Table 5: Key Indicators for Project Implementation Indicators for project implementation not included in the SAR. Table 6: Key Indicators for Project Operation Indicators for project operation not included in the SAR. Table 7: Studies Included in Project (Each Project Agency should provide details of studies conducted under the project.) Table 8: Project Costs (US$ million) 1_______ ___ ESTIMATED ACTUAL7 Local Foreign Costs Total Costs Local Costs Foreign Costs Total Costs Costs _____ MSTQ 17.2 57.0 74.2 33.2 56.0 89.2 R&D 49.1 43.3 92.4 44.0 40.9 84.9 Venture Capital 58.0 37.6 95.6 - - - UFr - - - - 0.1 0.1 Total 124.3 137.9 262.2 77.2 97.0 174.2 7 Estimated 20  Table 9: Project Financing (US$ mnillion) ESTIMATED ACTUAL-' Local Costs Foreign Total Local Costs Foreign Costs Total Costs Costs Costs IBRD 5.0 95.0 100.0 97.0 97.0 IFC 0.0 5.1 5.1 - - - Govt. of Turkey 6.2 0.0 6.2 10.8 10.8 Private Sector 99.0 32.3 131.3 45.3 45.3 Development Banks 4.0 0.0 4.0 __ _ TSE 7.6 0.0 7.6 17.7 17.7 Multilateral Donors 2.0 1.5 3.5 - - Bilateral Donors 0.4 4.0 4.4 3.4 3.4 Total 124.3 137.9 262.2 77.2 97.0 174.2 Table 10: Financial and Economic Costs and Benefits No formal financial or economic cost benefit analysis was undertaken for this project. Table 11: Status of Legal Covenants Type of Covenants Present status GOT to take all actions to convert NQC into an independent Not Complied body for quality certification and accreditation (NAC) and to establish framework for enabling competition in the provision of such services by December 31, 1994. TSE shall exercise through NQC the following functions: (a) Complied with Partially development of accreditation procedures; (b) supervision of the (although technically complied activities of the Professional Institute for Quality; and (c) with, new arrangements to be implementation of the media campaign. established following passage of law for the NAC) TSE shall ensure the examination by June 30, 1993 of its Complied with Partially certification and testing services in accordance with principles (although technically complied established by NQC. with, is awaiting formation of NAC) All other covenants Complied 8 Estimated 21  Table 12: Status of Compliance with Operational Manual Statements Project compliant with applicable Bank Operational Manual Statements (OD or OP/BP) Table 13: Bank Resources: Staff Inputs (actuals) Stage of project cycle Weeks US$(000) Preparation to Appraisal 116.8 306.4 Appraisal 19.9 61.4 Negotiations through Board approval 7.7 23.9 Supervision 134.1 355.5 Completion 8.0 10.0 TOTAL 286.5 757.2 22  Appendix A IMPLEMENTATION COMPLETION REPORT TURKEY TURKISH STANDARDS INSTUTION TECHNOLOGY DEVELOPMENT PROJECT (LOAN NO 3296A-TU) December 31st,1998  IMPLEMENTATION COMPLETION REPORT TURKEY TURKISH STANDARDS INSTITUTION TECHNOLOGY DEVELOPMENT PROJECT (LOAN 3296A-TU) Evaluation Summary Introduction: 1. The financing requirements of the Technology Development Project to the portion of the Loan corresponding to the equivalent of US$ 42.4 millions was allocated to TSE account under the summarized categories: Category Amount of the Percentage of the Loan allocated Expenditures to be (US$, millions) financed by IBRD Goods 28 - Directly imported 100 - Manufactured.locally 100 - Other items procured 50 (inc. VAT) Consultancy Services 2,0 100 Training 1,2 100 Civil Works 10.0 .80 2. The board of Directors reached a decision on the 12'h of August, 1991 (decision no XI 44-1133) for the establishment of Project Implementation Unit (PIU). Under this decision the Project Coordinator was given the powers deemed necessary for the conduct and coordination of the activities under the said project. The personnel needed for the initiation of the activities have been appointed to the PIU. 2  Project Objectives: 3. The project objectives of TSE were: (i) to construct a Quality Campus near Istanbul (Gebze/(ayirova), including the laboratories and quality services facilities; (ii) to establish a modem financial and management information system for a more effective and productive development of TSE; (iii) to implement the cost accounting procedures in TSE; (iv) to improve managerial and organizational skills of TSE; and (v) to establish NQC and undertake responsibility of secretarial duties , along with the coordination and supervision of the Media Campaign's conduction and the establishment of the Professional Board for Quality Assurance, accordingly establish Project Implementation Unit to carry out these activities. Achievement of Objectives 4. The Qualitv Campus construction for its 19 buildings was completed by the end .of December 1997. The budget of US$ 10,000,000 allocated for Quality Campus is completely used. The contractor continues the construction in order to complete some minor deficiencies. Acceptance procedures has been completed in May 1998. The total cost of the Quality Campus of March, 1998, amounted US$ 22.225.621, in which US$ 11,684,315.13 were financed by TSE's resources. Istanbul Regional Office of TSE was moved to the Campus in October, 1997 with its 200 personnel. More members of staff from TSE Ankara Headquarters and other regional offices were appointed to meet the needs especially for the laboratories according their operational capacity improve. Coordination of all TSE activities are planned to be coordinated from the Quality Campus within 1999. 5. The Institutional Development aspect of the Technology Development Project has been considered with a particular priority given on the in-house training. Training has been carried out in three categories: (i) overseas technical courses, (ii) in-house courses, and, (iii) foreign language courses. Overseas technical courses were generally on specific technical issues for our laboratory staff. In-house courses have been organized on ISO 9000 related topics such as "Lead Assessor Training", "Quality System Audits and 3  Applications", "Training Trainers", and offered by competent training organizations such as SGS Yarsley, Neville and Clarke, P-E Batalas. Some of the technical courses were also performed in-house. Foreign Language courses have been offered. by several taining organizations headed by Turkish - American Association and Turc - German Cultural Association. Majority of the TSE personnel and senior staff have benefited from these training courses, and accordingly, staff quality has improved remarkably. 6. The central laboratories of TSE were established in the early '60s. They were erected to identify the technical data to be embodied in the Turkish standards and to carry out research into the applicability of the test methods to be used in the determination of these data. Support and assistance were obtained from a number of organizations, headed by the United Nations. The functions of the laboratories are to: (i) perform applied work regarding the standards in the process of being prepared and provide support services to ongoing standard preparation work, (ii) carry out the tests and countrol of the samples taken for the certification activities, (iii) meet the special test demands of private sector organizations, (iv) provide consultancy support regarding laboratory work, and (v) execute studies with a view to permit TSE's laboratories to gain new and additional capabilities. During the following years the laboratory surface was increased by about 50 percent, with the new invesments made to the personnel and equipment. However, there were no more physical space at TSE's central laboratory complex area for the intended test capabilities. For this reason, the introduction of the idea of the Quality Campus, along with many other aspects, was considered as the best solution of the additional space problem of the laboratories. Procurement of laboratory equipments for the Oualitv Campus was started on 18th of December, 1995, through nine IFBs. The delivery and acceptance tests of the goods procured through these IFBs had been completed and letter of credits closed until the mid of 1998, Excluding IFB No.10 package No. 6. Some of the equipments could not be procured due to insufficiency of budget allocated for procurement qf laboratory equipments which are deemed vitally essential for productivity of the'Quality Campus Laboratories. In search of a practical solution in this matter, TSE has applied to the Bank as well as Undersecretary of Treasury, and also submitted Terms of Conditions of the unprocured equipments together with a list, covering their estimated costs . After having the approval of both W.B. and Treasury the Loan 3296 A-TU was reallocated and the said equipments procured through the bid of IFB No.10 and Intemational Shopping until the end of the year 1998.As of December 31't, 1 998,the procurement of laboratory equipments for Quality Campus through 10 IFBs and International Shopping with and allocation of USD 28 Million in the frame of the Technology Development Project, totaled USD 29.319.710 including USD 4.886.619 financed by TSE's own resources. (Table 1) The delivery of the equipments has been accomplished before 31 st of December, 1998. Installation and training activities related with the procured equipments are being proceeded presently. "Bid Evaluation Table" reflecting the details on the basis of IFBs and Packages are given in Table 2 4  7. A Financial and Management Information System (FMIS/MIS) Project was contracted to a consultancy firm in order to establish a more effective and productive development of TSE. The project consisted. of the following tasks: (i) financial accounting, (ii) cost accounting, (iii) budgeting, (iv) management reports, (v) management information system. Upon the completion of the FMIS/MIS Project in 1993, the Accounting and Financial Affairs Department of TSE inputted the data into the entry forms of the software and established the infrastructure for the system. Sample outputs for cost accounting model were taken. The department proceeds in implementing the project to their system. After the contracted firm has prepared the Analysis Report and Sample Forms, appropriate programmes were drawn up depending on the additional approval of the Bank. Personnel of the Accounting and Financial Affairs Department were trained, and a system was established exclusive to TSE. At the time being, the system proceeds perfectly with all of its functions. The same system have been set up within the Quality Campus, and preliminary training courses provided for the involved staff. Second training programme has already been scheduled in february 1998. 8. A proiect for Computerization of TSE Activities was carried out to reach its following six main objectives: (i) to serve as an information center for official standards institutions, government, academic and indrustrial organizations, and public users, (ii) to serve as an Electronic Bulletin Board System, (iii) to serve as a common world-wide electronic messaging system for delivering and receiving information and documents, (iv) to serve as a Wide Area Information Transfer System that will automate the information transferring among the distributed LAN servers, (v) to serve as a general purpose backup and archiving system that will have facilities for storing and retrieving electronic images for all full standard-texts, TSE granted certifications' images, laboratory reports, inspection reports, and any other document images kept in TSE departments for archiving purposes, (vi) to serve as corporate distributed information processing platform that will integrate software systems to be used in TSE internally. The project has been terminated with all of its functions and accordingly, maintenance process has been started relevant to the use of the programmes. Training for the users is almost accomplished. An additional training course is organized with supplementary purposes. At present, all of the above are actively running for TSE Headquarters. In addition, Electronic Bulletin Board System which have been later on converted into Internet Service Provider (ISP), and accordingly WEB pages were prepared for all TSE services particularly those on certification and standards making. 9. As a continuation of computerization efforts; (i) TSE Quality Campus Management System, (ii) Quality Campus Hardware Sysytem, and (iii) Quality Campus Information System and Services have been accomplished in the frame of IFB No. 8 (Procurement of Information Systems). 5  10. The Board of Directors of TSE adopted a resolution in 1990 for the establishment of National Ouality Council (NOC). Due to the fact that there were no established rules at international level as to how the Council should be formed, the NQC initially conducted its activities in collaboration with representatives from various public agencies, universities and firms granted with TS-ISO 9000 certificates. However the rapid increase in the number of firms possessing the TS-ISO 9000 cerificates and existence of many associations, foundations and private sector organizations in the area, have made it necessary to reorganize. In order to create a more efficient structure, the TSE General Assembly commissioned the Technical Board of TSE (consisting of representatives from private sector, public sector and universities) in 1994 to undertake the activities of NQC that was to be called "National Council for Quality and Accreditation NCQA)". A regulation defining this situation was put into force by publication in the Official Gazette in 1995. NCQA then commenced its activities by electing chairmen and members of "Accreditation Committees" as well as "Appeal Committees". Meanwhile, under the leadership of Chief Counselor of the Prime Ministry, the Review Committee consisting of representatives from TSE, Ministry of Industry and Trade, Undersecretariat of State Planning Organization, Undersecretariat of Foreign Trade, Undersecretariat of Treasury, TUBITAK (Scientific and Technological Research Council of Turkey) and TTGV (Technological Development Foundation of Turkey) was formed to find a solution on this matter. TOBB (The Union of Chambers of Commerce and Chambers of Commodity Exchange of of Turkey) has later on participated in these activities. Reaching a consensus, a draft law was formulated. Upon submission of the "Draft Law for Establishment of the National Accreditation Council" to the Turkish National Assembly, NCQA became tran?itory, however, it continues to fulfill its previously determined obligations. Due to the uncertainity in the implementing body for NCQA, quality campaign and QAVC (Quality Assurance Vocational Council) could not be realized and the fund allocated for NCQA was transfered to Undersecretariat of Foreign Trade. Major Factors Affecting the Project 11. Due to preparation and planning of the activities, disbursment of the loan during the first years, up to 1995 were rather slow. Its reasons were: (i) efforts exerted in order to find a suitable land for the Quality Campus, (ii) loss of time due to designing architectural and engineering projects, (iii) delay in starting the construction due to the unexpected heavy rainy season, (iv) delay caused by revisions of projects and bidding phase for the construction of the Quality Campus, (v) studies pursued for preparing lists and bidding documents of laboratory equipment, (vi) delay in delivery of some of the equipments, caused by the contracted firms. By the commencement of construction works and engineering supervision services in the mids of 1995, remarkable acceleration was 6  recorded in utilization of funds. Procurement of laboratory equipments were started in 1996 to speed up the disbursments. Preparations to draw up a draft law for NQC, indeed affected the related activities. Supported by its own resources, TSE has carried out secretariat duties of NCQA, however Quality Campaign and QAVC activities suspended, and respective funds have not been used. Project Sustainability 12. With a general evaluation of outcomes of the Technology Development Project to the portion TSE is involved, it can be considered sustainable: (i) a Quality Campus is constructed where TSE could improve and expand its services. (ii) the level of staff quality and technical capabilities of TSE has improved significantly as a result of the project. (iii) TSE has been furnished with technical facilities and information that enables it to give further services in new fields, such as forming an information center to be of service to Turkish industry and scientific bodies as well as international organizations. Howeyer, it appears that new funds will be needed in order to maintain these resurts. Bank Performance 13. The Bank's performance at preparation and appraisal was satisfactory. Bank missions were helpful and guiding to meet the needs of TSE in the matters it faced during that period. The Bank's performance during the implementation phase was also considered satisfactory. Supervision missions were fielded at regular intervals and the relationship with the Bank staff was excellent. Borrower Performalice 14. The performance of Undersecretariat of Treasury, on behalf of the GOT was highly satisfacory in all aspects relevant to its relationship with TSE. Audit reports were drawn up in strict scrupulousness. Treasury staff was always helpful in responding TSE's demands, providing assistance and guidance, as well as arranging relationship with the Bank as required. ' Assessment of Outcome 15. From the point of view of TSE, the Project achieved most of its objectives, but it took longer than planned. Its outcome is satisfactory, despite delays in implementation which was caused, to a large extent, beyond its control . 7  Future Operation 16. A plan for the future operations has been prepared, containing the following arrangements: (i) additional test equipments will be purchased in order to fully equip all laboratories, (ii) High Power Laboratory for short circuit tests will be established which does not exist elsewhere in Turkey, as well as none of the Middle East and Balkan countries involved in this type of testing, (iii) deemed as one of the most important facility, an international information centre will be added to the quality center for use as a communication medium by the Turkish industry, scientific institutions and related international organizations, which will also be able to provide service to all international meetings, Key Lessons Learned 17. Several lessons have been learned: (i) implementing-body's own resources in similat projects are of great importance in covering the unpredictable costs, (ii) construction works are likely to create heavy obligations for the implementing body, either in financial or executorial matters, (iii) when problems arise between the parties of a project, solutions should be sought right after the emergence of the problems, (iv) sub project performance can be improved substantially through close ex-ante and ex-post review and supervision of the Bank, (v) a more scrupulous attention should be payed in determining estimated costs to assure that they are the result of realistic calculations. 8  DISBURSEMENT SUMMARY-MARCH 31st, 1998-DECEMBER 31 st,1998 Category Disbursed(USD) Financed by TSE's Total(USD) resources(USD) 1-B 24.433.092 4.886.619 29.319.710 2-B 63.592,39 8.847,00 72.439,39 3-B 185.628,76 1.521,23 187.149,99 4 10.000.000,00 11.684.315,13 21.684.315,13 Total _ 34.682.313,15 16.581.302,36 51.263.614,51  Appendix B TECHNOLOGY DEVELOPMENT FOUNDATION OF TURKEY IMPLEMENTATION COMPLETION REPORT TURKEY TECHNOLOGY DEVELOPMENT PROJECT 3296A-TU January 1999   Evaluation Summary TECHNOLOGY DEVELOPMENT PROJECT 3296A-TU 1. The project objective was stated in the Staff Appraisal Report as (a) to stimulate private investment in ITD by providing seed capital for projects that generate business-university collaboration (b) to make research and development market driven by financing projects on a matching basis with the private sector; and as to stimulate the private companies to invest in industrial technology development in the Loan Agreement. The objectives of the Foundation, which was founded to implement the "Research and Development Component' of the project were defined as follows in its By-Laws: * To provide funds and expertise supportive for industrial technology projects to enhance technol6gy and technological infrastructure. * To identify technological research areas which have potentially the highest effect on the economic structure of the country and the carry out research and projects in such areas by itselp or by contract with a view to bridging the technology gap between Turkey and other nations and strenghtening Turkey's position in some global trade sectors. - To encourage Turkish industry to increase in real terms its investments in research and development and to carry out all activities in accordance with the requirements thereof. - To assist in and encourage Turkish industry to the use of data and information that originate from scientific developments. - To strenghten the ties between the Turkish industry and higher education institutions, the Scientific and Technical Research Council of Turkey and other public and private research organizations through coordinated efforts and create scientists' awareness to the needs of industry. * To provide an example of "the best practice" in Technology Management. - To identify the technologies which have broader application and promote their development and open the borders between industrial sectors and scientific disciplines. * To encourage Turkish and foreign scientists to carry out their activites related to the promotion of the growth of the Turkish industry to raise it to an ideal level in a competitive international marketplace and supply the industry, in the form of projects, with information originating from such activities. * To define, protect and develop strategies that will ensure Turkish industry to reach a reputable platform at international level. 2. At present, there are three kinds of funds administered by TTGV; * Technology Development Project fund through the World Bank loan, * The Montreal Protocol Multiparty Fund made available through the World Bank, * R&D support for the industry by the sources of the Turkish Government through the Undersecretariat of Foreign Trade. 3  3. The following table is prepared to highlight realization situation of TD-I objectives by TTGV. OBJECTIVES REALIZATION 1. A foundation for World Class Technology as a TTGV is established jointly by private and R&D component public sectors 2. 43.3 MUSD WB Loan to be allocated as a TTGV committed 43.3 MUSD to projects government grant 3. Seed money for private sector investment in Being realized partly by TTGV ITD 4. Estimated cost for R&D: Local Private (55.02 MUSD) Local Private (49.1 MUSD) WB Loan (43.3 MUSD) Foreign (43.3 MUSD) Total (98.3 MUSD) Total (92.4 MUSD) 5. New Government R&D Support Mechanisms Established under TUBITAK and TTGV 6. Strategic Studies for R&D TTGV sponsors strategic focal point projects 4. The Foundation has been structured as a "vaktf which has the Constitutive Assembly as the highest decision-making body and has been meeting once a year. The members of the Constitutive Assembly have been selected on the basis of financial contribution to the TTGV and are drawn mainly from the private sector. As of January 1999, TTGV has 56 Constitutive Assembly members (Annex 1). TTGV has 9 member Executive Committee, three members of which are appointed under the Foundation's Articles of Incorparation and represent the Undersecreteriat of Treasury, TOBITAK and SMIDO (Small& Medium Industries Development Organization). Six members have been elected from the Constitutive Assembly and therefore drawn from the private sector (at present, two of them are the entrepreneurs of SMEs, two are from large companies and the remaining two from the.,umbrella organizations). The foundation has a Secretary General, a legal advisor, a technology,, group director, a corporate planning & finance director, 3 project coordinators, 3 experts, 5 expert assistants, 6 support personnel and 2 accountants at present. 5. TTGV has a core list of 350 experts and supervisors from the universities, private and public sectors who work for evaluation and supervision of the projects in order to strengthen the relationships between the industry, universities and public research institutions. 6. TTGV accomplished,18 strategic studies in different fields in order to identify the industrial subsectors, specific technologies and/or products having highest potential of economic gain & dynamics of international comparative advantages. In addition to obtaining -sometimes first of its kind- the critical data for a comprehensive picture pertinent to policy developing and strength- weakness identification, the practice helped to accumulate valuable experience in the practice helped to accumulate valuable experience in the assessment of comparative advantages in important areas. These strategic studies can be grouped into two categories: i. Strategy Documents * Industrial Strategy 1995-2005, * Biotechnology Priorities for Turkey,