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FOR O F F I C I A L U S E ONLY
Report No: 25756-EGT
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED LOAN
IN THE AMOUNT OF US$5.5 MILLION
TO THE
ARAB REPUBLIC OF EGYPT
FOR A
SKILLS DEVELOPMENT
PROJECT
June 30,2003
Human Development Sector
Middle East and North Africa Region
This document has a restricted distribution and may be used by recipients only in the performance o f their
officials duties. I t s content may not otherwise be disclosed without World Bank authorization.
CURRENCY EQUIVALENTS
(Exchange Rate Effective February 5,2003 (Floating Exchange Rate))
Currency Unit = EGP (Egyptian Pound)
EGP 1.00 = US$US$O.l7
US$l.OO = EGP5.98
FISCAL YEAR
January 1 - December 3 1
AFPA
ANPE
BOT
CAS
CAPMAS
CIDA
EA
EC
ETES
EUR
GOE
GTZ
IMP
HEEP
L O
M&E
MIS
MITD
MKI
MOE
MOHE
MOM
MTI
NGO
OECD
OM
OP
PHRD
PI
PIP
PMU
TNA
SDP
scm
SFD
SME
TVET
UNDP
VTC
WTO
ABBREVIATIONS AND ACRONYMS
Association Nationale pour la Formation Professionnelle des Adultes
Agence Nationale pour I'Emploi
Board o f Trustees
Country Assistance Strategy
Central Agency for Public Mobilization and Statistics
Canadian International Development Agency
Environmental Assessment
European Commission
Education, Training and Employment Sub-committee
Euro
Government o f Egypt
Deutsche Gesellschaft fur Technische Zusammenarbeit
Industrial Modernization Project
Higher Education Enhancement Project
International Labor Organization
Monitoring and Evaluation
Management Information System
Ministry o f Industry and Technological Development
Mubarak-Kohl Initiative
Ministry o f Education
Ministry o f Higher Education
Ministry o f Manpower
Middle Technical Institutes
Non Governmental Organization
Organization for Economic Cooperation and Development
Operational Manual
World Bank Operational Policy
Policy and Human Resources Development Fund
Project Intermediary
Project Implementation Plan
Project Management Unit
Training Needs Assessment
Skills Development Project
Supreme Council on Human Resource Development
Social Fund for Development
Small and Medium Enterprise
Technical and Vocational Education and Training
United Nations Development Programme
Vocational Training Center
World Trade Organization
Vice President:
Country ManagedDirector:
Sector ManagerDirector:
Task Team LeaderITask Manager:
Jean-Louis Sarbib
Mahmood Ayub
Jacques Baudouy
David Steel
FOR OFFICIAL, USE ONLY
ARAB REPUBLIC OF EGYPT
EGYPT SKILLS DEVELOPMENT
CONTENTS
.
A Project Development Objectives
.
1. Project development objective ..............................................................................
2. Key performance indicators.................................................................................
B Strategic Context
.
............................................................................
...............................................................................................
1. Sector-related Country Assistance Strategy (CAS) goal supported b y the project ..................
2 . M a i n sector issues and Government strategy .............................................................
3 . Sector issues to be addressed by the project and strategic choices ....................................
C Project Description Summary
................................................................................
2
2
2
2
2
3
7
8
1. Project components ..........................................................................................
2. Key policy and institutional reforms supported by the project .........................................
3 . Benefits and target population ..............................................................................
4 . Institutional and implementation arrangements..........................................................
8
10
10
11
.
11
D Project Rationale
................................................................................................
1. Project alternatives considered and reasons for rejection ...............................................
2 . Major related projects financed by the Bank andor other development agencies..................
3 . Lessons learned and reflected in the project design ......................................................
4 . Indications o f borrower commitment and ownership ...................................................
5 . Value added o f Bank support in t h i s project ..............................................................
.
E Summary Project Analysis
...................................................................................
1. Economic ......................................................................................................
2 . Financial .......................................................................................................
3. Technical ......................................................................................................
4 . Institutional ...................................................................................................
5 . Environmental................................................................................................
6. Social.....................
..................................................................................
7 . Safeguard Policies ............................................................................................
.......................................................................................
.
F Sustainability and Risks
1. Sustainability ..................................................................................................
2. Critical risks ..........................................................................
..................
3 . Possible controversial aspects ........................
.........................
..................
.
G M a i n Conditions
...............................................................................................
1. Effectiveness Condition .....................................................................................
2 . Other ............................................................................................................
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- iii .
This document has a restricted distribution and may be used b y recipients only in
the performance of their official duties I t s contents may not be otherwise disclosed
without W o r l d Bank authorization.
.
.
I. Compliance with Bank Policies..............................................................................
H Readiness for Implementation..............................................................................
24
25
Annexes
Annex 1: Project Design Summary ..............................................................................
Annex 2: Detailed Project Description..........................................................................
Annex 3: Estimated Project Costs...............................................................................
Annex 4: Cost Benefit Analysis Summary. or Cost-Effectiveness Analysis Summary..................
Annex 5: Financial Summary for Revenue-Earning Project Entities. or Financial Summary ...........
Annex 6: Procurement and Disbursement Arrangements ....................................................
Annex 7: Project Processing Schedule .........................................................................
Annex 8: Documents in the Project File........................................................................
Annex 9: Statement of Loans and Credits ......................................................................
Annex 10: Country at a Glance ....................................................................................
Annex 11: Draft Policy Statement on Employment and TVET Reform in Egypt...........................
M A P no. IBRD 27759
.i v .
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ARAB REPUBLIC OF EGYPT
SKILLS DEVELOPMENT
Project Appraisal Document
Middle East and North Africa Region
MNSHD
Team Leader: David J. Steel
Sector Director: Jacques F. Baudouy
Sector(s): Vocational training (75%), Central
government administration (25%)
Theme(s): Education for the knowledge economy (P),
Other financial and private sector development (S),
Other public sector governance (S), Social risk
reduction (S)
Date: June 30,2003
Country Managermirector: Mahmood A. Ayub
Project ID: PO49702
Lending Instrument: Specific Investment Loan (SIL)
Project Financing Data
[XI Loan
[
3 Credit
[ ]Grant
[ ]Guarantee
[ ]Other:
For LoadCreditdOthers:
Loan Currency: US$
Amount (US$m): 5.5
Borrower Rationale for Choice of Loan Terms Available on File: Yes
Proposed Terms (IBRD): Fixed-SpreadLoan (FSL)
Years to maturity: 17
Grace period (years): 5
Front end fee (FEF) on Bank loan: 1.OO%
Commitment fee: 0.85% on the undisbursed loan amount for the
first 4 years beginning 60 days after the loan
Payment for FEF: Capitalize from Loan Proceeds
agreement i s signed, then 0.75% thereafter
Initial choice of Interest-rate basis: Maintain as Variable
Type of repayment schedule:
Fixed at Commitment, with the following repayment method (choose one):
[XI
[ ]
Linked to Disbursement
Conversion options: [XICurrency
[XIInterest Rate
Financing Plan (US$m):
Source
BORROWER
IBRD
LOCAL SOURCES OF BORROWING COUNTRY
level
[X]Caps/Collars:
Local
5.60
5.20
1.oo
Foreign
0.40
0.30
0.00
Total:
11.80
0.70
Borrower: GOVERNMENT OF EGYPT
Responsible agency: MINISTRY OF INDUSTRY AND TECHNOLOGICAL DEVELOPMENT (MITD)
Project Management Unit
Address: 2 Latin America St., Garden City, Cairo, Egypt
Contact Person: Ms. Ahkam El Zawhary
Email: azawahry @Ie-Eg.Com
Tel: 20-2-794-7648
Fax: 20-2-792-1191
Estimated Disbursements ( Bank FY/US$m):
2005
2006
2007
FY
2004
0.40
1.20
2.30
1.60
Annual
1.60
3.90
5.50
Cumulative
0.40
Project implementation period: 4 years
Expected effectiveness date: 11/30/2003 Expected closing date: 06/30/2008
OPCS PAD Form REV March, 2wO
Total
6.00
5.50
1.oo
12.50
A. Project Development Objective
1. Project development objective: (see Annex 1)
The objective o f the Project i s to assist the Borrower in carrying out a pilot program to stimulate the
private sector demand for s k i l l s training development through a demand-driven and competitively-based
mechanism.
2. Key performance indicators: (see Annex 1)
The following indicators w i l l be used to measure the performance o f the project against baseline data to
be collected in the f i r s t year (further details are spelt out in the Operational Manual):
a) increasing number o f requests by s m a l l and medium-sized firms and business associations for training;
b) increasing percent o f approved requests b y small and medium-sized firms and business associations for
training;
c) increasing number o f responses from public and private training providers t o competitive tenders for
training services;
d) increasing rates of post-training employment o f employees in occupations for which they were trained;
e) continuously improving perceptions o f managers from a sample o f fm and business associations of:
i)relevance o f training to employer needs; ii)quality o f training; iii)transaction costs o f procuring
funding for training from Govemment; and iv) timeliness o f Govemment’ s provision o f funding for
needed training.
Although the ultimate objective o f increasing private sector demand for training i s to increase firm
competitiveness and labor productivity, these outcomes are excluded on the basis o f OECD country
experience. This experience indicates that it may take 15-20 years for the private sector in Egypt to invest
sufficiently in training to get the benefit o f using training as a tool to achieve greater competitiveness and
labor productivity.
Even if the Skills Development Project (SDP) i s well implemented, it i s vulnerable to downturns in
Egypt’s economy. Private sector employers w i l l reduce their training demands as they cut back on
upgrading the s k i l l s o f existing workers, hiring new workers, or investing in new technologies that require
new skills. So data on economic growth or contraction in the sectors targeted b y the SDP during the life
o f the Project w i l l be collected to interpret the outcome results.
B. Strategic Context
1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1)
Date of latest CAS discussion: June 5, 2001
Document number: 22163-EGT
The June, 2001, Country Assistance Strategy (CAS) for Egypt documents a respectable rate o f growth
between 1996 and 2000. However, i t points out that growth has been driven more b y factor accumulation
than by total factor productivity gains. The sources o f growth have been primarily non-tradables focused
on domestic demand. Even manufacturing growth, driven by low technology sectors such as textiles, was
focused on domestic demand-merchandise exports stagnated in the 1990s. Past growth rates and their
positive effects on poverty rates are not sustainable in the long run unless Egypt increases its exports and
total factor productivity, including the productivity o f i t s labor. Increasing exports requires l o w prices
and high quality, both o f which depend on the enhanced productivity o f the factors o f production,
including labor.
In response, the CAS identified three types o f interventions on which the Bank Group would focus: (i)
interventions that support higher and sustained growth; (ii)
targeted interventions for poverty reduction;
and (iii)
interventions with major indirect effects on poverty reduction, including interventions that
promote broad-based, private sector-led growth. In the context o f t h i s third priority the CAS specifically
identified the need for a s k i l l s development lending operation.
-2-
2. Main sector issues and Government strategy:
In the early 1990s the Government o f Egypt (GoE) focused on macroeconomic stabilization. I t then
tackled Egypt’s slow economic growth rate by initiating an economic liberalization process, including
privatization, deregulation, and financial sector reform.
a) Availability and quality of labor as a limiting factor. The policy debates about growth identified a
skilled labor force as critical to economic liberalization. Between 1994 and 2000 four surveys o f
enterprises (World Bank, ECES, Economic Research Forum) assessed perceived constraints to economic
development in Egypt. All four pinpointed the availability and quality o f labor as a limiting factor, and
between 1994 and 2000 this problem was seen as becoming worse. The surveys found the following:
i)a scarcity o f semi-skilled and skilled labor. In larger firms, demand i s increasingly for specialized or
“higher” skilled, i.e. technologically-oriented, labor. The availability o f skilled labor appears to have
decreased since the f i r s t survey. Unskilled and low-skilled labor i s abundant and does not appear as a
constraint. Middle and high level management has become more abundant, but may s t i l l be in demand in
some sectors for specific functions (e.g. sales).
ii)the quality o f a l l trained labor, especially for skilledhighly skilled occupations and middlehigh level
management positions, appears to be low and not adapted to the needs o f firms. Quality appears t o have
significantly declined in recent years.
iii)The quality o f the education and TVET system was viewed as requiring upgrading.
iv) The perceived need for in-service training and retraining to adapt and upgrade the quality and
relevance of skills i s increasing, but from a very low base. Demand i s primarily for private training
providers.
b) Small and medium enterprises and large public companies in traditional sectors are not
competitive on labor productivity. Egypt joined the World Trade Organization (WTO) in 1995. In
2001 it initialed an Association Agreement with the European Union (EU), which has been ratified by the
Egyptian Parliament and i s in the process o f ratification by the EU Parliament. B o t h o f these steps have
put pressure on Egypt to increase i t s labor productivity. The Agreements require that tariffs be reduced or
eliminated and non-tariff barriers to trade such as customs procedures simplified by 2012. A few large
Egyptian firms have a generally well-defined competitive advantage in international markets. However,
small and medium enterprises and large public companies in traditional sectors are operating in
“protected” domestic markets behind s t i l l high levels o f protection and low labor costs. They are not
competitive on labor productivity. Average gross production per worker i s over 1.5 times higher in
Morocco, 2.4 times higher in Tunisia, and 4.1 times higher in Turkey. Average value added per worker i s
1.6 times higher in Morocco, 2.5 times higher in Tunisia, and 5.7 times higher in Turkey. East Asian and
Latin American countries show even better results. The GoE understands that i t has about a decade to
help vulnerable companies prepare to withstand open competition with global suppliers o f goods and
services to Egypt’s domestic market. Again the need for a skilled labor force emerges as an important
piece o f the equation.
c) Egypt’s technical and vocational education and training (TVET) system seems to contribute to its
unemployment rates, especially to the rates for youth. Egypt has been dogged b y high rates o f youth
unemployment. According to the 1996 census, the structure o f unemployment by age i s as follows: 1519 years: 26 percent; 20-24 years: 40 percent; and 25-29 years: 21 percent. The rates for females are
higher: 15-24 years: 59 percent; and 25-29 years: 35 percent. Ninety-six percent o f all unemployed
between 15-29 are f i r s t time j o b seekers. Estimates o f overall open unemployment vary between 10-13
percent, and there i s also substantial underemployment. As economic liberalization proceeds, labor
redundancies in state-owned enterprises are increasing. Although vibrant economic growth i s the most
powerful means o f stimulating j o b creation b y the private sector, Egypt’s technical and vocational
education and training (TVET) system seems to contribute to these unemployment rates, especially to the
rates for youth, because it does not provide students with s k i l l s that employees find relevant.
-3-
Status of the Skills Training Sector
The publicly-funded s k i l l s training system in Egypt has these characteristics:
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It i s highly fragmented bureaucratically.
I t i s supply-driven, not demand-driven-public funding flows to delivery institutions with
little involvement o f the private sector in the governance, funding, or delivery o f training. The
result i s that training i s not market relevant, o f l o w quality, and inefficient.
The gap between the skills that training graduates actually obtain and those indicated by the
credentials they receive distorts signals to employers.
The system's efficiency and market relevance are unmonitored.
a) Fragmentation The current organization o f publicly-funded s k i l l s training services reflects Egypt's
past as a centralized economy. Training i s organized vertically. The Ministry o f Education (MoE)
controls pre-tertiary, school-based programs that can start after grade 6 and that enroll the largest number
o f students in TVET-over 2 million. The Ministry o f Higher Education (MoHE) controls the middle
technical institutes (MTIs). These draw their enrollments from MoE's general secondary schools or
technical schools and have much smaller enrollment numbers. Graduates o f the M o E s vocational
programs can enter vocational training centers (VTCs). These are under the auspices of 21 additional
ministries, agencies, public enterprises, or defense related establishments, the major providers being the
Ministries o f Industry and Technological Development, Manpower and Emigration, Construction,
Agriculture, Electricity, Public Enterprises and Petroleum. In a 1998 survey to establish the number o f
VTCs, the Central Agency for Public Mobilization and Statistics (CAPMAS) found 1,237 training centers
nationwide, including 68 in-house training centers in public enterprises. These VTCs, 95 percent o f them
public, graduated 176,000 students in 1998.
This degree o f organizational fragmentation results in a system that cannot realize economies o f scale,
encourages the continuation o f supply-driven services, and discourages private sector use o f the system.
Multiple bureaucracies and bureaucratic boundaries work against the agility and flexibility required if the
system i s to respond to private sector changes in s k i l l demand. In fact, they make change o f anv kind
difficult, such as institutionalizing national s k i l l standards and a uniform assessment and accreditation
system.
b) A supply-driven, rather than a demand-driven, system. Current funding and governance
arrangements for TVET delink suppliers (trainers) and customers (employers). Ministries allocate their
TVET budgets t o their providers on a mechanical basis, without regard to the quality, market-relevance,
or efficiency o f the training being provided. The providers themselves are not allowed to retain any fees
from courses that could be eamed b y meeting specific demands from private enterprises. Consequently,
they have no incentives to respond to labor market signals conceming the s k i l l s required in the economy
and every incentive to continue supplying outdated training curricula. The result i s that training programs
fail to adjust to the type and quality o f s k i l l s that employers need, as evidenced b y responses o f 211
employers to a survey conducted expressly for this project. Respondents indicated that they view the
training provided by the vocational training centers (VTC) and middle technical institutes (MTI) as l o w in
quality and market relevance. Employer federations representing small and medium-sized enterprises
have reported that the demand for semi-skilled workers and technicians i s increasing rapidly, but that
trained technicians and competent workers are in short supply. At the same time, private sector firmsespecially small and medium-sized enterprises-have only a limited understanding o f the benefits o f
training, given the few options available for relevant training and the lack o f capacity in small and
medium size firms to assess their training needs and to formulate training plans.
-4-
c) False signals to employers. Since the quality o f training i s well below international standards, the
credentials awarded training graduates exaggerate the s k i l l s that graduates have actually mastered.
Graduates o f 3-year industrial programs, for example, obtain technician-level certificates. However, at
best, they are semi-skilled workers who expect jobs that require skills that they do not possess. (Gill and
Heyneman. 1999. Egypt: Reforming Vocational Education and Training to Meet Private Sector’s Skill
Demands. Constraints and Innovations in Reform of VT. World Bank and L O ) .
The immediate result i s distorted market signals--employers are not getting the s k i l l s that the credentials
o f j o b applicants indicate that they have. The much larger cost, however, i s that training o f low quality
contributes to a l o w s k i l l s equilibrium for the economy, employers, and workers.
d) Unmonitored system. There i s n o routine feedback on the performance o f the system-its efficiency
or i t s outcomes. Aside from the special purpose study for this project and those conducted for donorfunded projects (e.g., the French AFPA and German GTZ projects), government-funded tracer studies are
non-existent. These special purpose studies indicate that unit costs vary widely b y type o f training, but
Government does not track unit costs or assess the reasons for variations in costs.
This lack o f feedback on the training system i s very costly. Policymakers do not have data for identifying
problems in the system and for tracking the effects o f reforms. Public funding cannot be targeted
effectively. For example, even if i t wanted to, the Government does not have the data that would let i t
reward providers whose graduates are more apt to get jobs or that obtain the same employment rates for
graduates at lower costs. Students have n o information to guide their choices o f training programs. Even
ifstudents do not pay for training courses, they pay in opportunity costs.
Government Strategy
With assistance provided by the World Bank, in 1999/2000 the GoE established an Education, Training
and Employment Sub-committee (ETES), chaired b y the Minister o f Manpower. One o f its objectives
was to design a reform strategy for the TVET system, especially that part that does not come under the
authority o f the MoE. The fmal ETES report (June, 2000) recommended a TVET system that would
consist o f five core areas: a) a national occupation classification system; b) employment services; c) a
labor c) a labor market information system; d) national s k i l l s standards and an assessment and
accreditation system, and e) technical educational and vocational training (TVET). I t also laid out a
strategy for implementation.
In 2002, the Government adopted a Policy Statement on TVET (see Annex 10) based on the ETES report.
It charged the Supreme Council on Human Resource Development (SCHRD) with the responsibility for
implementing the reform strategy, including policy and legislative changes. Reform o f all five core areas
o f the TVET system i s underway with donor support for each. The Policy Statement conceives o f s k i l l s
development as a tool for economic growth, increased productivity and competitiveness, social inclusion,
and equal opportunities. It also identifies several for TVET reform directly related to the proposed SDP
project:
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scattered organization o f the TVET system distributed across many line Ministries that have
their own supply driven training infrastructures;
high internal and external inefficiency;
low involvement o f the private sector in the governance, funding and delivery o f TVET;
slow propensity o f the TVET system to change and the vicious circle o f l o w quality, low
efficiency, low esteem, and l o w relevance; and
little investment by firms in staff qualifications and in continuing education and training.
The Policy Statement identifies three pillars o f the TVET reform.
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Establish a Oualifications System to suuuort lifelong learning. The introduction o f vertical
and horizontal pathways o f integration between the different levels o f s k i l l s and qualifications
within the TVET system i s a key priority in the reform. Other key elements include building
partnerships among stakeholders, redefinitions o f basic s k i l l s according to the revised
national system o f skills standards, redefinition o f financing mechanisms, and the
establishment o f quality control systems and monitoring indicators.
Establish a TVET system responsive to labor market needs. The TVET system has t o
undertake a transition from supply-driven t o demand-driven. Establishing alternative
financing mechanisms and incentives and monitoring and evaluation feedback systems for
employers and providers w i l l play an important role in this transition. T o this end, capacity
building i s necessary for the private sector so that i t can formulate i t s own s k i l l s and training
needs.
Establish new legal, institutional and governance frameworks for TVET institutions. The
main objective under this heading would be to enlarge the autonomy o f TVET institutions in
their functioning and the delivery o f their services. TVET institutions in Egypt at various
levels suffer from a too centralized and rigid management model. This would allow the
TVET institutions to generate their own income, to define their own institutional policy and
to apply new management models, including the participation o f the private sector in the
governance and the management o f individual TVET institutes and o f the whole system.
The GoE i s coordinating donor support around these three pillars. In conjunction especially with the EC,
but also with the German GTZ and France and the Egypt Social Fund for Development (SFD), the
proposed project focuses on the second pillar. The project focuses on reform o f the financing o f training,
while the GTZ Mubarak-Kohl Initiative and a French supported project focus on relevant, demand based
training for employers and on training provision respectively. The companion EC supported project
concentrates o n beginning the reform o f the governance system for training, that i s the third pillar. The
initiatives planned or under implementation that support the three pillars are the following.
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The German-funded, GTZ supported Mubarak-Kohl Initiative (MKI) has been pioneering
training reform since 1993, and, along with other donor initiatives such as the French
supported Ameria project for short course training for private sector fm'employees under
the MITD, provides a sound foundation the proposed Bank project can build. Key lessons
from the MKI project have been built into the design o f SDP. MKI supports the training o f
apprentices through a partnership between private local investors associations and the
Ministry o f Education, including apprentices in two sectors targeted b y the project: the
manufacturing and construction sectors. It has been able to address successfully the issue o f
providing financial incentives to training providers to participate and with i t s technical
support to investors associations, i t has helped develop an infrastructure o f fourteen such
associations, which are self financing, have proven institutional capacity, and are credible
with the private sector in their geographic zone. While MKI's focus remains pre-employment
technical training, i t has found there i s growing demand for in-service short term training,
which now constitutes about 5 percent o f i t s output. This project i s continuing.
The E C i s proposing a companion project to the SDP that consists o f three components: a)
establishing enterprise-TVET partnerships at the local level; b) improving the quality o f
training through a range o f interventions that include alternative methods o f delivery,
matching supply and demand, increasing flexibility, and teacher training; and c) developing
national regulatory and support functions through improving governance, identifying means
o f sustainable financing, and research, monitoring and evaluation. The Government regards
this proposed project and the SDP as a package that w i l l be approved by the Egyptian
Parliament simultaneously. The Bank and the EC have had a series o f joint preparation
missions, and during appraisal worked on the conceptual design of, and the economic sectors
-6-
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and geographic locations being targeted by each project, as well as the complementary
implementation arrangements.
The National Skills Standards Project, financed by the Social Fund for Development, and
implemented technically by a consortium led by the British Council, i s preparing
occupational standards in the same sectors as those proposed for the SDP and national s k i l l
standards. The completion date i s 2004. Pilot implementation w i l l begin shortly.
Canadian C I D A i s funding a project focused on employment offices and a labor market
information system. The completion date i s 2006.
The EC-financed Industrial Modernization Project (EUR250 million) includes support for
customized training for targeted SMEs that are included in the business upgrading program,
one o f six component programs supported by the IMP. The training support i s mainly for
management personnel and some On-The-Job training in those companies that are selected to
be part o f the program, the objective o f which i s to assist them to compete internationally.
Technical and vocational training i s not included. A Phase I1i s beginning.
The French funded project, which has been administered by the SFD, was designed to
upgrade 14 public VTCs in five ministries, including staff training and curricula reform. A
key element o f t h i s project was the monitoring component, which included carrying out tracer
studies. I t was completed in 2003. Another SFD project w i l l upgrade 50 selected VTCs
following feasibility studies. The combined effect w i l l be t o increase the number o f actual
and potential providers o f quality training under the SDP.
The World Bank-funded Higher Education Enhancement Project i s funding the consolidation
o f 47 middle technical institutions ( M T I s ) into eight technical colleges and the upgrading o f
curricula design, instructor training, and academic administration and management. The
MTIs are under the Ministry o f Higher Education. The HEEP focuses on technical training at
higher s k i l l levels than under the SDP. Implementation i s just starting. The SDP i s also a
companion project to the HEEP.
The French National Employment Agency ( M E ) i s financing and supporting a model
employment office in 10th. Ramadan City.
3. Sector issues to be addressed by the project and strategic choices:
As indicated, the SDP supports the second o f the three pillars o f the Government's strategy, namely, to
establish a system responding to labor market needs. While i t broadly focuses on financing reform, the
Project addresses these sector issues also:
a) Involving the private sector. Developing the capacity o f the private sector to identify their training
needs and to prepare training plans i s an essential requirement for the emergence o f a demand for training.
The project would provide advisory services to finns (awareness, information and technical guidance)
directly and through business, investor, trade associations, federations, chambers o f commerce and the
like selected as Project Intermediaries (PIS). Through PIS, i t would fund training needs analysis and
surveys o f s k i l l s needs.
b) Improving the market relevance of public funding of training. The SDP would improve the market
relevance o f public funding for training b y establishing a demand-driven mechanism for financing
training proposals submitted b y private firms t o PIS. Competition for funds would promote efficiency,
effectiveness, and relevance among training providers.
c) Improving the internal efficiency of training. Firms that participate can obtain their training from
training providers, which have been selected on a competitive basis. In all cases the internal efficiency o f
training should improve. Where a P I proposes in-house provision, i t s proposal w i l l be scrutinized during
the evaluation process for the efficiency with which it uses resources. In cases o f provision by public or
private providers, competitive bidding w i l l initially improve efficiency, and the monitoring o f the training
actually provided w i l l affect future bidding rounds. The project w i l l monitor unit costs by types o f
training and eventually establish benchmarks for costs o f different types o f training.
-7-
C.
Project Description Summary
1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost
breakdown):
1.
The project has three components.
Component 1. Awareness Program, and Monitoring and Evaluation (US$l.lO million)
This component w i l l finance the provision o f technical advisory services to: carry out awareness,
promotion and outreach programs; monitoring and evaluation surveys, studies, and assessments;
enable beneficiary finns to undertake training needs assessments and plans; enable eligible training
providers to develop training proposals; and enable eligible Project Intermediaries to develop
aggregated training proposals. The purpose o f this component w i l l be to stimulate private sector
demand for training and competitively-based responses o f training providers to private sector
demand. I t w i l l also evaluate project outcomes. The project w i l l target initially three sectors o f the
economy--manufacturing, construction, and tourism--and the small and, especially, medium-sized
private sector fm (SMEs) and employer federations and business and investor associations in these
sectors. The selection o f these three sectors was based on labor market surveys carried out in 2001
under the PHRD grant for the project. As Annex 2 shows, S M E s dominate each o f the three sectors.
LA. Awareness, Promotion, and Outreach. Training demand-particularly
informed training
demand-is poorly developed in small and medium-sized fm and business associations. This
subcomponent supports awareness campaigns and other promotional activities to acquaint fm and
associations in the selected sectors with the training opportunities available under the SDP. The
campaign w i l l clarify the criteria that: i)
the project w i l l use to select training proposals for funding,
and ii)the Project Intermediary (PI) organizations will use in deciding whether to include a
particular
f m ' s proposal in their aggregate training proposal. This subcomponent also finances
technical
assistance to PI organizations to develop their aggregate training proposals; and includes help in
conducting training needs assessments, costing o f the training needed, and assessment o f proposals
from fm and training providers. I t also includes technical assistance to training providers, as they
are inexperienced in competitive tendering processes and in proposal writing. The implementation o f
this component w i l l be guided by a communications strategy developed for the project.
l.B. Monitoring and Evaluation. Measurement o f outputs and outcomes i s an essential element o f a
pilot project that w i l l test a new financing mechanism for training. The key performance indicators
for the project are described in Section A2. This subcomponent w i l l finance consulting services and
technical assistance to carry out the instrument design (such as surveys o f employers and business
associations, tracer surveys), and data collection needed to track these project outcomes and
contingencies. This component focuses on project outcomes, as opposed to project inputs, processes
and outputs M&E that the Project Management Unit (PMU) w i l l undertake as part o f component 3.
Component 2. Training Sub-projects (US$10.83 million)
Under this component, the project w i l l finance a demand driven training program o n a cost shared
basis with beneficiary f m s ; and w i l l strengthen the institutional capacity of eligible Project
Intermediaries. The program w i l l be implemented through PISfor the benefit o f small and medium
size fm and related business associations and organizations initially in the construction,
manufacturing and tourism sectors and w i l l support short term (less than six months) production
related training (see Section E3 for further details). Targeted geographical areas are those with large
clusters o f firms in the selected sectors, and with business associations that are active in these areas
and have some experience managing training activities. These criteria may be modified during the
-8-
course of project implementation. Training funds may be used to support the following activities:( i)
in-service training; and (ii)
training for prospective employees.
PISw i l l submit proposals for training funds to the PMU, and the PMU w i l l evaluate these proposals
according t o specified and advertised criteria. These criteria are specified in the Operational Manual
for the SDP. One key criterion i s that firms w i l l contribute a share (minimum o f 10 percent) to the
total costs of the training. A second w i l l be that PISmust allow non-member fm to be included in
their training proposals and services. Except for winning PIS that propose to provide training inhouse, the PI will conduct simplified competitive bidding for public or private training providers.
Training w i l l be based on the competency standards already developed and in use by business
associations and federations for these sectors. The PI w i l l award training certificates to graduates
who meet the competency standards.
PISvary in their capacities to manage training services to SMEs. Some, such as the 14 investors'
associations and the Tourism and the Construction Federations, have developed this expertise. Others
are at a less advanced stage o f development. However, even the most advanced lack the capacity to
absorb an additional training program like the SDP. Thus this component will also finance the
incremental operating cost (staff, equipment, materials, supplies, transport, and consultants) that PIS
selected for inclusion in the project incur. This w i l l be provided in the form o f a management fee.
This w i l l give them the capacity to deliver the training services envisaged under the project as well as
provide capacity building o f a longer term nature.
Component 3. Project management and M&E (US$0.52 million).
This component w i l l finance goods and technical advisory services for: strengthening the institutional
capacity o f the Project Management Unit (PMU); and conducting the monitoring and evaluation of
the project's inputs, processes and outputs. I t includes all staffing costs, equipment, materials,
supplies and office space, as well as consultant assistance to ensure effective operation and
monitoring and evaluation. T o discriminate between design and implementation problems with the
SDP and to maximize learning from this pilot, M&E w i l l focus o n the measurement o f key inputs,
processes, and outputs. This includes: a) evaluations o f the training provided b y contracted
providers
relative to the training specifications listed in provision contracts; and b) analyses o f data
from components 1B and 2 to establish benchmarks for demand-driven training, such as benchmarks
for the costs of different types o f training.
Indicative
costs
Component
Bankfinancing
% of
Bankfinancing
(US$M)
1.10
% of
Total
8.8
10.83
86.6
5.45
99.1
0.52
4.2
0.00
0.0
Total Project Costs
12.45
Total Financing Required
12.50
(1) Project costs without beneficiary contributions are $11.5 million.
99.6
100.0
5.45
5.50
99.1
100.0
1. Awareness, Promotion, Outreach, and Monitoring and
Evaluation
2. Training Sub-projects (including beneficiary
contributions o f $1.O million)
3. Project management and M&E
(US$M)
0.00
0.0
(2) The French Government intends to contribute about US$0.5 million for the first two years o f the project as
technical assistance in the form o f a TVET operational expert, a TVET policy expert and some short term experts.
The United Nations Development
Programme (UNDP) i s contributing $25,000 in grant funds for start-up costs o f the implementing unit. The
Government o f Egypt i s providing about $170,000 (LE1 million) to fund the implementing units for both the
companion EC project and the proposed project.
These amounts are not included in this table.
-9-
2. Key policy and institutional reforms supported by the project:
The SDP i s a pilot for and a demonstration o f a significantly different way of allocating public resources
for TVET. I t s primary goal i s to inform the policy dialogue on training financing and provision and t o
encourage the GoE to move subsequently from a pilot reform to a national reform that incorporates
successfully demonstrated features o f the SDP.
The key policy and institutional reforms to be demonstrated b y the SDP are the following:
0
0
0
0
Change the public financing mechanism for TVET as well as the incorporation requirements
for private sector business organizations in ways that s h i f t the system from supply to demanddriven training provided under competitive conditions.
Streamline the public organizational apparatus for managing publicly financed TVET.
Increase the accountability o f publicly financed TVET by routinely measuring the market
relevance, quality, and costs o f publicly-financed training and using this feedback to modify
TVET policies and operations.
Improve the incentives for training providers to provide market relevant quality training.
3. Benefits and target population:
Benefits
Economic benefis: The funding mechanism piloted b y the SDP should produce training that i s more
market relevant and that corrects s k i l l imbalances faster, thus allowing beneficiary firms to improve their
competitiveness. The approval process for PIS' proposals for cost-shared training services and the
tendering process for training provision should result in a more effective use o f public training funds.
Unit costs may or may not decline, depending on whether historically public TVET was over-funded or
under-funded, relative to quality standards and standards for efficient operations.
Social Benefis: B y testing a new financing mechanism for training, the SDP should help improve the
employability and labor productivity of individuals by bridging the gap between their s k i l l s and those
required b y businesses.
Target Populations
There are three target groups.
0
0
0
Workers. Two groups o f workers are targeted by SDP: i)those already employed in a firm,
and ii)those for whom there i s a demonstrated demand b y firms through their federation or
association surveys. The benefits for each are those traditionally associated with marketrelevant training o f good quality: better chances o f getting a job, o f keeping a job, o f
promotion, and o f improved earnings.
Employers and business associations. The SDP has initial eligibility criteria for firms and
business associations: firm size (small and medium-sized), business sector (construction,
manufacturing, and tourism), and geographic area (zones with large clusters o f firms in the
selected sectors and with business organizations with experience in managing training
activities). In the long run eligible firms should benefit from improved labor productivity. In
the shorter run both firms and business associations should benefit f r o m the exercise o f
identifying their s k i l l and training needs and a financing mechanism that provides effective
training services.
Training providers. In conjunction with the incentives such as those created under the MKI
project, and t o be created by the companion EC project for training providers, competition for
funds may encourage these providers to develop their capacity to supply the services
demanded by employers.
- 10-
4. Institutional and implementation arrangements:
Implementation Period:
December 2007.
The project w i l l be implemented over four years from November 2003-
Institutional Arrangements. The project w i l l be implemented b y the Ministry o f Industry and
Technological Development (MITD). Because the project i s multisectoral and under the broad aegis o f
the Supreme Council for Human Resource Development (SCHRD), a Triministerial Advisory and
Coordinating Committee w i l l be established to be the communications link with the SCHRD on policy
matters relating to TVET reform and to the E C and Bank supported projects. The members w i l l be the
Minister o f Manpower, the Minister o f Industry and Technological Development, and the Minister of
State for Foreign Affairs. This Committee w i l l meet two times a year.
A Board o f Trustees (BOT) with management oversight and coordination responsibilities for both the EC
and the Bank financed projects has been established within the MITD. I t s membership o f eleven w i l l
include all project stakeholders. Employers w i l l have a strong voice with a majority of the seats on the
Board, while key Government agencies w i l l also be represented and the Minister o f MITD w i l l chair.
BOT members w i l l rotate regularly. The BOT w i l l meet quarterly and be supported by a technical
secretariat. The two PMUs responsible for implementing the E C and Bank supported projects would
report to the Board o f Trustees.
A Project Management Unit (PMU) i s being established under the BOT b y the MITD to implement the
project. I t s establishment with adequate numbers o f staff with qualifications, experience and terms of
reference satisfactory to the Bank; and the retention within the PMU o f a financial management firm with
qualifications and terms o f reference satisfactory to the Bank, and the commencement o f the
implementation o f the financial management system b y the firm are conditions of effectiveness o f the
proposed loan. The PMU i s being supported initially by an interim project manager from the Social Fund
for Development (SFD) until the PMU i s fully staffed and operational, which i s expected to be b y
October 31, 2003. The UNDP i s providing financial support for the start up period. The PMU w i l l
manage the project in accordance with the Operational Manual prepared for the project, which sets out the
criteria and procedures under which the project w i l l be implemented. The MITD w i l l maintain the PMU
with staffing, procedures and budget satisfactory to the Bank for the duration o f the project. The project’s
Operational Manual would remain acceptable to the Bank at all times and would be reviewed periodically
with the Bank and n o less than annually.
D. Project Rationale
1. Project alternatives considered and reasons for rejection:
Reform the supply side of the system without attention to the demand side. One design alternative i s to
upgrade the supply o f TVET without dealing with the demand side. For example, the vocational training
centers (VTCs) argue, with some justification, that a main problem i s a lack o f resources: poor equipment,
poorly trained trainers, and inadequate training materials and supplies. This option was rejected for two
reasons. One was that several donor-funded and Bank-funded projects have taken t h i s approach, but to
little effect on the quality and market relevance o f the training provided. The second i s that the incentives
in the current system do not encourage firms and business associations to take responsibility for
identifying their s k i l l s and training needs, nor training providers to offer training o f a type and quality
needed b y the end-users (firms) and to price i t competitively.
In the context o f attending to the demand side o f TVET, support public VTCs to improve the market
relevance and quality o f their training services by financing, e.g., equipment purchases, curricula
redesign, or training to upgrade faculties. This option was discussed extensively. The SDP now focuses
on stimulating private sector demand for training, but obviously suppliers need to have incentives to meet
- 11 -
demand if the TVET reform envisioned by the SDP i s to work. Private suppliers do have such incentives
and can be expected to respond to SDPs competitive tendering for training services. However, there are
n o incentives for public VTCs to act in a s i m i l a r way. They now receive automatic budget allocations
from Government, and, thus far, the M o F has not allowed them to retain the revenues that they might
generate by selling their services to private firms or business associations. Since they have been delinked
from the demand side, their inputs to training (e.g., equipment, curricula, faculty) probably do not match
what i s required to deliver the training that firms need. Public (and private) VTCs certainly can include in
their responses t o competitive tenders the costs o f some upgrading if it i s closely connected to the training
needed b y specific firms. However, the costs o f the upgrading required may result in bids that cannot
possibly be cost-competitive. The SDP could include a competitive grants program for VTCs to help
them improve their capacities to compete on future tenders. However, the SDP i s focusing on stimulating
training in response to specific market demand. The Bank was also concerned about the implementation
burden on the PMU o f handling multiple proposals for funds from VTCs. The PMU already has t o
handle proposals from Project Intermediaries and oversee the delivery o f training services by the PIS.
The SDP w i l l pursue three avenues. First, the SDP w i l l work closely with the GoE and donor partners
that are addressing the supply side, especially with the EC. The objective i s to coordinate the
simultaneous stimulation o f the demand and the supply sides to produce more market relevant and higher
quality training in selected industries. Second, the MlTD intends to engage the M o F on a policy change
to allow public VTCs to retain some o f the revenues earned b y responding to private demand. Third, the
PMU w i l l encourage PIS to use existing mechanisms under which fees can be retained. These are
workable but with room for improvement. It w i l l closely monitor rates at which public VTCs are
responding to the SDPs competitive tenders for training services. If the response rate i s anemic, the SDP
w i l l revisit this issue with Government and i t s donor partners.
Full-scale Reform. This option means replacing the current financing system entirely with a National
Training Fund. This alternative was rejected for two reasons. First, as section B.2 showed, the current
TVET system has a large number o f stakeholders. A full-scale reform would probably mobilize the
political opposition o f the line ministries that now control the VTCs, thus endangering the success o f the
project. Second, the changes proposed under the SDP are radical in the Egyptian context. I t i s advisable
to test and learn from piloting these changes before trying t o extend them broadly.
The SDP could have targeted all
sectors o f the economy, firms o f all sizes, a wide range o f individuals, and the whole nation
geographically. Since the SDP i s a pilot and one objective i s to maximize learning from the SDP, i t was
decided to limit i t s scope along all o f these dimensions.
Choice of sectors, Jirms, eligible trainees, and geographic locations.
Specifically, i t was decided on the basis o f special labor market surveys to focus initially on three sectors
of the economy with good future growth prospects: construction, manufacturing and tourism. Within
manufacturing the GoE has seven strategic sectors that i t supports as having particular potential for
growth and exports. These w i l l be given a small margin o f preference but as the project i s demand
driven, other manufacturing sectors w i l l be eligible. Large Egyptian firms and multinationals were
excluded in favor o f small and medium-sized enterprises because usually large firms already have some
appreciation o f the importance o f training and are either procuring i t or providing it in-house. If included,
they would also dominate the use o f the fund and would be more likely to use it to substitute for their own
training budgets.
Additional classes of individuals could have been included as eligible for training-e.g., handicapped
individuals or chronically unemployed workers. I t was decided t o restrict eligibility to workers already
hired b y firms (new hires and experienced workers) and to a third class with particular characteristics:
first time entrants to the labor market who can be trained in fields where there i s demonstrated demand
and placements offered b y firms. Finally, it was decided to limit the pilot to a few areas with
concentrated clusters of SMEs.
- 12-
2. M a j o r related projects financed by the Bank and/or other development agencies (completed,
ongoing and planned).
Sector Issue
Project
Latest Supervision(PSR) Ratings
(Bank-financed projects only)
Implementation
Progress (IP)
Apprentice Training for Industry
(training technicians, skilled workers, and vocational
instructors).
Cr. 681-EGT Education I(1977)
S
Manpower Development
(training skilled workers, technicians, managers; training
o f primary and secondary teachers).
Cr. 868-EGT Education I1(1978)
S
Training Qualified Workers (Training Technicians, and
manager; training secondary mathematics and science
teachers; improving teaching skills o f university staff).
Cr. 1069-EGTEducation I11(1980
Vocational Training in the Construction and Industry
(upgrading and expanding instructor training).
Ln. 2264-EGT Vocational Training
(1983)
Manpower Training
(training technicians and engineers)
Ln. 2594-EGT Vocational Training
(Electricity) - (1985
Engineering Education Development, Technical Teacher
Education Development
Ln. 3137-EGT Engineering &
Technical Education
(1989)
Distance Education, In-service Teacher Training,
Institutional Development, Educational Management
Information System
Cr. 2476-EGT - Basic
Education Improvement
(1993)
Access and Equity, System Efficiency, Quality of
Student Performance
ITF "80-Education
Enhancement Program
(1997
Improve the quality and opportunity in secondary
education
Cr. 18923-EGT
Secondary Education
Enhancement Project
(1999)
Cr. 23332-EGT - Higher
Education Enhancement
Program (2002)
Create the fundamental conditions for improving the
quality and efficiency o f the higher education system in
Egypt, including the Middle Technical Institutes,
through legislative reform, institutional restructuring,
and establishmento f independent quality assurance
mechanisms and monitoring systems. A companion
project to the SDP.
- 13 -
Development
Objective (DO)
S
S
S
Other development agencies
German Government (through GTZ)
Development o f dual training system (Mubarak-Kohl
Initiative) with the MOE.
Closely related project.
Coordination will be
required (19931ongoing project).
French Government (through SFD)
Developing Vocational and Entrepreneurship Training
Centers in 14 VTCs with the Social Fund and MOM,
MITD, Min. o f Housing, Min. o f Agriculture and Land
Reclamation, Ministry o f Public Enterprises.
Development of a revised Qualifications Framework;
and physical upgrading o f selected VTCs. Financed by
the Social Fund.
Closely related project
that has been extended
until Feb. 2003.
Coordination will be
required (199612003).
Important
complementary
exercise to the SDP. I t
i s being managed by
the Technical
Secretary of the
SCHRD (1998-2004).
Licensing mechanism
for new levels i s
included in new labor
law.
Complementary
exercise to the SDP.
National Classifications o f Occupations (through CIDACanada with SFD).
Public Employment Services (through CIDA-Canada
and ANPE - France)
Modernization of Labor Market Information System
(through CIDA) Industrial Modernization Programme
(IMP), Phase 11. An EC supported (EUR 240 million)
multi-component program, which includes upport to
SMEs via a Business Support Program.
Complementary
project to the SDP.
Complementary
project to the SDP
(2002-2006).
Important companion
project to the SDP to
be implemented
through M I T D (20032006).
EC has prepared a project (EUR 33 million) that
consists of three components: a) establishing enterprise
- TVET partnerships at the local level; b) improving the
quality o f training through a range o f interventions that
include alternative methods of delivery, matching
supply and demand, increasing flexibility, and teacher
training; and c) developing national regulatory and
support functions.
IPIDO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)
The SDP and the set o f related Bank and donor-funded projects being prepared or under implementation
constitute coordinated support to the three main pillars and the five core areas of the Government’s TVET
reform program. As the SDP was designed, there were extensive consultations, workshops and seminars
with the GoE and the donors. The main related projects with which the SDP i s coordinated are specified
in the Section B.l (Government Strategy).
- 14-
3. Lessons learned and reflected in the project design:
The design o f the SDP incorporates a number of international lessons about TVET that are also echoed in
the World Bank‘s and other donors’ experiences with TVET in Egypt.
Increasing private sector demand for training and providing i t in a cost-effective manner
requires consulting closely with and involving the private sector. It also requires financing
arrangements that create incentives for firms to invest in training and for training providers to
improve the cost-effectiveness o f services. The cornerstone o f the SDP i s the piloting o f
financing arrangements that can be expected to create such incentives, especially for firms.
Competition among public and private providers o f training reduces costs, increases the
amount o f training, and improves the relevance o f training to employer s k i l l needs. The SDP
w i l l tender for training services from private and public sector training institutions.
In countries where the private sector has weak incentives and limited capacities to invest in
training, the reimbursement for most costs o f external training, technical assistance to
enterprises, and support for external private and public sector training providers are needed to
stimulate the development o f an effective training market. Egypt’s TVET system f i t s this
case, and the SDP i s designed to support private sector firms and business associations in
assessing their s k i l l and training needs and in putting together proposals for training subprojects. Aside from contributions that may be in-kind, the training costs o f firms selected t o
receive such funds w i l l be covered by public sector funding. The SDP w i l l also hold
technical assistance workshops that w i l l be open to all public and private sector training
providers in the limited geographic areas where the SDP w i l l be operating.
Instituting market relevant reforms in TVET cannot be done when multiple ministries control
the system. The SDP i s a pilot “one stop shopping” for private sector firms and business
associations that need training services.
A survey o f five sectors in Egypt - construction, manufacturing, tourism, banking and
information technology - found that enterprises are willing to finance training at a rate o f 10
to 50 percent o f the total cost. Based on these findings, the SDP includes a cost-sharing
mechanism.
On the basis o f the experience with Jordan’s Bank-financed TVET project, it was decided to
use investorhusiness associations and federations, chambers o f commerce and the like as
intermediaries between beneficiary firms and training providers. In the Jordan case the
transaction costs o f dealing directly with multiple fm threatened the PMU’s ability to attend
to other project priorities. The Project Intermediary mechanism lets the SDP “wholesale”
training services and reduces the number o f actors with which the PMU must deal. In the
first year up to three agreements w i t h well qualified PISin a few industrial areas (e.g., 6th of
October, 10th o f Ramadan, Sadat Cities) would be executed, after which any necessary
changes could be introduced on the basis o f the experience gained. There are fourteen private
investors associations with up to eight years o f experience providing training to member
fm, as well as the federations, associations and chambers o f commerce representing
different sectors, and with varying degrees o f experience in providing training to members.
There i s thus an adequate pool o f organizations with practical experience to act as Project
Intermediaries under the project.
Donor interventions in the TVET sector in Egypt in the past have been poorly coordinated,
resulting in a sum o f effort that i s less than i t s constituent parts. The Government’s overall
strategy for TVET now guides all donor-supported projects, including the Bank’s SDP.
One-shot donor interventions to improve the competitiveness o f Egypt’s firms--specifically ,
business services, including training services--have not been sustainable. The SDP i s
designed, if successful, to evolve into a national, fiscally sustainable, demand-driven training
system.
- 15 -
4. Indications of borrower commitment and ownership:
K e y Egyptian policymakers have developed a keen understanding o f the stakes involved in improving the
skills o f the country’s labor force. These include reducing youth unemployment, improving labor
productivity as one way to sustain economic growth, and helping small and medium-sized firms prepare
for free trade with Europe and the impact o f Egypt’s entry into the WTO. It i s against t h i s compelling
backdrop that the GoE articulated i t s vision for TVET reform b y adopting a Policy Statement for TVET
that sees promoting a demand-driven training system as a cornerstone. Government has committed
significant levels of effort and funding to a package o f priorities that are laying the groundwork for TVET
reform. It developed legislation amending the Labor Law, which was approved by Parliament in early
2003. I t i s implementing significant reforms in the other four core areas: the Skills Standards Project
(development o f new training standards in three major sectors), the National Classification o f
Occupations (licensing mechanisms), employment services, and the labor market information system, as
well as in the governance and financing o f training supported respectively by the proposed EC grant and
Bank loan. I t has also organized donor support around these priorities in a coherent and mutually
reinforcing manner.
5. Value added of Bank support in this project:
The Bank has extensive experience-and relative to other donors working in Egypt, a comparative
advantage-in designing financing mechanisms that: a) transform supply-driven systems o f training into
demand-driven systems, and b) create incentives for suppliers to provide market-relevant and higher
quality services at competitive costs. The Bank together with the EC has played a leadership role in
helping the Government formulate a coherent overall TVET reform strategy, which involved consultation
with and inputs from all the stakeholders. Through the proposed project the Bank w i l l be able to continue
to play a leadership role in the policy dialogue with the Government.
E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)
1. Economic (see Annex 4):
Cost effectiveness NPV=US$ million; ERR = % (see Annex 4)
Rationale for public intervention. Egypt’s long-term plan (1997-2017) t o increase i t s international
competitiveness includes: i)enhancing the productivity and competitiveness o f i t s firms; ii)improving the
country’s technological base and i t s ability to absorb new technologies rapidly; and iii)positioning the
private sector as the lead producers o f goods and services that meet quality international standards at
competitive prices. Although n o single factor ensures competitiveness, adequate human resources as
shaped by workers’ education and training are one factor in the competitiveness equation. The urimaw
rationale for this uubliclv financed intervention i s that the SDP addresses market failure in Egvpt’s
training. markets. Features o f the financing reform strategy that the SDP i s piloting include mobilizing
private resources (cost-sharing by fw),a demand-driven and competitive allocation o f public training
resources, and a competitive tendering for training services b y public and private providers.
Demand failure. On the demand side, Egypt’s employers and workers underinvest in training for s i m i l a r
and different reasons. Both employers and workers see public training as having l o w value (low
relevance and quality). In addition, workers underinvest because they cannot meet the costs o f training
and because better s k i l l s are not necessarily rewarded in the labor market.
Most Egyptian employers spend few resources on training their staff for two reasons: a fear that their
trained employees w i l l be “poached” b y other enterprises; and a l o w s k i l l s equilibrium. The Egyptian
private sector i s dominated by small and medium enterprises, many o f them operating with l o w levels o f
productivity and employing workers with l o w levels o f education and skills. S M E employers often do not
understand the type of labor force that they need to improve their competitive position or how training
can be used strategically to create the s k i l l s that they need. Lack o f information on training needs i s thus
a major market failure in Egypt.
- 16-
Supply failure. On the supply side, public training providers have n o incentives to adapt training to the
types o f s k i l l s and quality standards needed b y employers and workers. They receive automatic annual
budget allocations. These are not tied to the market relevance and quality o f the training provided. In
addition there i s s t i l l a relative lack o f private training providers who service demand driven training.
Addressing market failures. The SDP i s designed to pilot incentives to address both demand and supply
failures. Directly or through Project Intermediaries, i t targets fm with nascent competitive promise by
providing technical assistance to help them identify their s k i l l and training needs and to work with them
to procure training competitively. It tries to offset the fear o f poaching b y partially financing the costs to
f i r m s o f identifying their training needs, preparing training plans, and obtaining training. In other words,
i t reduces the cost of losing trained employees to other firms b y reducing the initial cost o f training.
I t addresses supply failures by involving employers in the specification o f training needs and in the
competitive procurement o f training provision according to these specifications.
Cost-eflectiveness analysis. Because o f a lack o f experience and n o data on demand driven training, i t i s
not now possible t o do a cost-effectiveness analysis o f demand-driven TVET. But one o f the analytic
products o f the pilot SDP w i l l be the information to undertake cost-effectiveness analysis. T o the extent
that mechanisms being piloted under the SDP succeed, market failures in training should be reduced,
efficiency w i l l improve, training costs may be reduced, and training should certainly be more effective. It
i s planned that over the course o f the project the SDP w i l l estimate the “true” costs o f different types of
training that are being more efficiently delivered. Ordinarily competitive bidding for services reduces
costs. However, i t i s not now clear whether unit costs for training w i l l increase or decrease. VTCs have
significant inefficiencies, such as excess non-training staff. However, supplies and materials are known
to be inadequate, and these centers may have to pay instructional staff at higher rates to secure teachers
able t o meet the quality standards required.
The SDP w i l l measure indicators o f effectiveness. Prior to collecting empirical data, i t i s reasonable to
expect, and international experience strongly suggests, that the mechanisms that the SDP w i l l use to
procure training w i l l ensure much tighter connections between the s k i l l s and training that firms and
workers need and the training delivered. The competitive process w i l l require employers to think through
what s k i l l s they need and to specify the training that they want provided. The tendering for training w i l l
set training standards, and ex-post evaluations w i l l affect providers’ chances in subsequent competitions.
The result should be that public training money i s more effectively spent.
2. Financial (see Annex 4 and Annex 5):
NFV=US$ million; FRR = % (see Annex 4)
Fiscal Impact:
The cost o f the SDP to Government i s approximately $18 million over a five year period. In 1998, the
most recent year for which this type o f information i s available, Government expenditures on TVET were
about $125 million. Assuming a rate o f increase o f 3 percent a year, expenditures in 2002 would have
been in the order o f $140 million. The annual cost o f the SDP i s 2.4 percent o f the 1998 expenditures or
2 percent o f estimated 2002 expenditures. This i s a small amount and the fiscal impact w i l l be
manageable. The World Bank will provide a US$5.5 million loan, the GoE US$6 million, and fm
benefiting from the training at least US$1 million in contributions. Since the GoE plans to continue
allocating the same budget to the line ministries for TVET as it has in past years, the GoE counterpart
contribution to the project would be incremental to the overall TVET budget.
Fiscal Sustainability of a Demand-Driven TVET
The proposed project i s sustainable during i t s expected five and a half year life, because the Government
has assembled the financial package, including earmarked counterpart funds, to ensure that. In addition
the Ministry of Finance has allocated adequate resources to the Ministry o f Industry and Technological
Development (MITD) to support the companion E C project. This w i l l enhance the reform effort in both
governance and financing o f the training sector.
- 17-
If the SDP i s successful and the GoE moves to a national training fund for demand-driven TVET, i t s
annual costs and fiscal sustainability cannot now be estimated. First, the costs o f a demand-driven TVET
system are unknown. For example, the costs o f training provision under competitive conditions are
unknown. Second, the Government needs to complete i t s review o f options for future sources o f funding
for demand driven training as well as the relative trade-offs involved. These include reallocation o f some
o f the training resources now allocated to the line ministries administering training programs t o a single
national training fund, which would have likely political costs. They also include whether to implement a
0.5 percent corporate revenue levy on f m s earmarked for training, which has been approved b y the
Government in May, 2003. This raises concerns about the total tax burden on labor as well as technical
issues o f compliance. A third option, would be for the GoE to institute policies designed to increase the
level o f cost recovery from employers and workers for training services. This could be expected to affect
demand b y SMEs and workers for training.
3. Technical:
The training demanded by small and medium size enterprises, and to be financed under the project, i s not
technically complex as i t w i l l finance short term (less than six months) training related to the production
process in established technical disciplines. The complexity in the project i s more in terms o f
management as i t arises from the need to provide a wide variety o f different types o f technical training
demanded b y different client firms and their workers. In the demand studies carried out during the
preparation o f this project, surveyed firms made it clear that technical training included both training in
relevant technical competencies, and training for technical staff in 'soft' or social competencies
(communications, teamwork, time management, understanding the client, crisis planning etc.). They also
indicated strongly that technical training included training o f all technical personnel from senior managers
t o the shop floor and worksite. All training provided w i l l be competency based, and certificates
recognized by firms and their representative federations and associations will be issued to trainees upon
completion o f each course. The project w i l l not include other types o f training (finance, sales, marketing,
general management etc.) as these are being adequately covered by other donor supported projects. As
noted elsewhere, project management and implementation w i l l be governed by an Operational Manual,
which sets out the policies and procedures which w i l l govern the project. With respect to the various
consulting support tasks in the project, there i s ample capacity within the Egyptian consulting industry to
carry them out, and project management and institutional capacity building s k i l l s are readily available in
Egypt.
4. Institutional:
4.1 Executing agencies:
The executing agency i s the Ministry o f Industry and Technological Development (MITD), which was
selected by the Government because o f i t s leadership and management capabilities, including
implementation o f donor funded projects. T o ensure that the voices o f key stakeholders, both employer
and provider representatives, are heard, the Minister o f the MITD w i l l establish the Board o f Trustees.
This w i l l provide overall project management and oversight for both the European Commission and the
Bank financed projects, and coordination and communication between the various project stakeholders.
4.2 Project management:
The Project Management Unit being established b y the MITD to implement the project i s being supported
initially b y an interim project manager from the Social Fund for Development (SFD) until the PMU i s
fully staffed and operational. The PMU will manage the project in accordance with the Operational
Manual prepared for the project, which sets out the criteria and procedures under which the project w i l l be
implemented. The project's Operational Manual would remain acceptable to the Bank at all times and
would be reviewed periodically with the Bank and no less than annually.
- 18-
The MITD has a three person senior counterpart team, which w i l l be responsible for establishing the
PMU and in particular for recruiting i t s regular personnel: a Project Director, a financial officer, a
procurement officer and an accounting and financial management firm all o f whose terms o f reference,
qualifications, experience and conditions o f employment are satisfactory to the Bank. The persons
recruited to these positions w i l l be subject to a six month probationary period, at the end o f which the
MITD in consultation with the Bank w i l l decide whether or not to retain them. The recruitment process
for these positions has begun and i s expected to be completed b y October 31, 2003. The PMU will also
recruit a financial manager, a monitoring and evaluation expert, and support staff including a data systems
specialist, and an M I S specialist. The terms o f employment and salary levels o f all PMU s t a f f w i l l be
consistent with those o f project management staff in other Bank supported projects, and w i l l be term
contractual positions. The PMU w i l l recruit consultant experts in communications, promotion and
outreach, training needs assessments (TNA), and capacity building to Project Intermediary organizations
(PI). The PMU w i l l be supported for the f i r s t two years b y a TVET expert funded by the Government o f
France. This support w i l l be renewable for another two years if needed. The Government has provided a
start-up contribution o f LE1 million ($170,000) to the PMU budget. This i s in addition to a contribution
from UNDP o f $25,000. The PMU budget w i l l be financed thereafter by the Government.
An institutional, procurement and financial management capacity assessment at appraisal determined
these proposed arrangements to be adequate once they are in place. Further details are set out in Annex 6.
The PMU has prepared a draft Project Implementation Plan (PIP) and First Year W o r k Program, which
were agreed at negotiations and are incorporated into the Operational Manual. The focus during the f i r s t
year to eighteen months w i l l be on: i)a communication, promotion and outreach program to inform firms,
and their associations and federations as well as public and private training providers about the project
and how to obtain cost sharing training funds or training contracts; ii)a pilot with about three selected
Project Intermediaries (PI) to show quick success and be a testing ground; and iii)establishing the
Monitoring and Evaluation system.
The PMU w i l l review and make recommendations on all training proposals under a certain threshold.
Those above the threshold would be evaluated b y a larger committee, bringing in sectoral experts, with
the Project Director making decisions based on the committees' recommendations.
Once a proposal i s approved, the PI w i l l be responsible for contracting training providers. T o the extent
feasible t h i s w i l l be done on a competitive basis. The PI will also be responsible for collecting the
matching cost share contributions from the beneficiary firms. Wages and in-kind contributions such as
making available trainers, and training rooms may be acceptable provided beneficiary firms have no other
means o f making contributions and provided the value o f contributions can be assessed. The PI would
also evaluate the training provider at the end o f the training period and contracts w i l l be subject to sample
audits.
The PMU w i l l also manage all project monitoring and evaluation, including the outcome monitoring (see
Section Cl). In addition to the standard periodic reporting, the PMUstaff w i l l be responsible for carrying
out random field supervision o f PISand training providers to ensure that training i s being provided in
accordance with the terms o f the contract, and that firms are contributing their agreed share o f costs. The
supervision plan i s included as a part o f the PIP.
4.3 Procurement issues:
Procurement under the project will not be complicated as i t w i l l primarily consist o f procurement o f
training services. The PMU will allow PISto use simplified procedures to procure training providers.
Procurement under the project w i l l be managed in accordance with Bank Guidelines. A qualified
procurement officer w i l l be recruited. Training o f PMU staff w i l l be provided b y the Bank's Cairo
Country Office, and if required by the L O program in Turin, Italy. Procurement arrangements are
reviewed further in the Procurement Assessment, Annex 6. Disbursements would be made against SOEs
with full documentation and direct payments.
- 19-
4.4 Financial management issues:
A financial management assessment o f the PMU was carried out during appraisal. The PMU w i l l retain
an accounting fm to install and then manage the project's accounting and financial management system.
This will ensure compliance with OP10.02. At the end o f the f i r s t year, the experience with this
arrangement will be evaluated and the contract either extended or dropped. This would be in addition to
recruiting a financial manager. The Operational Manual details the accounting policies and procedures
for the project. Project accounts w i l l be audited annually by an independent external auditor with
qualifications, experience and terms o f reference satisfactory to the Bank. The audit report w i l l be
submitted to the Bank within six months o f the end o f each fiscal year.
5. Environmental:
Environmental Category: C (Not Required)
5.1 Summarize the steps undertaken for environmental assessment and EMF preparation (including
consultation and disclosure) and the significant issues and their treatment emerging from this analysis.
NIA
5.2 What are the main features o f the EMP and are they adequate?
Not required.
5.3 For Category A and B projects, timeline and status o f EA:
Date o f receipt o f final draft:
N/A
5.4 H o w have stakeholders been consulted at the stage o f (a) environmental screening and (b) draft EA
report on the environmental impacts and proposed environment management plan? Describe mechanisms
o f consultation that were used and which groups were consulted?
N/A
5.5 What mechanisms have been established to monitor and evaluate the impact o f the project on the
environment? D o the indicators reflect the objectives and results of the EMF?
NIA
6. Social:
6.1 Summarize key social issues relevant to the project objectives, and specify the project's social
development outcomes.
The SDP w i l l target small and medium sized enterprises in which the majority o f Egyptian employees
work. As noted in section E.l, it i s reasonable to expect that the SDP w i l l ensure much tighter
connections between the s k i l l s and training that fm and workers need and the training delivered. Thus,
the SDP should increase the employability and the wages o f those trained by increasing the market
relevance and quality o f their skills. The criteria for awarding cost sharing training funds w i l l promote a
balance between urban and rural areas and between male and female workers, subject to economic
conditions and employer demand.
6.2 Participatory Approach: H o w are key stakeholders participating in the project?
The relevant apex organization (SCHRD), core and line ministries, and agencies such as the Social Fund
have been involved extensively in project preparation, most recently through a Government Task Force.
The Task Force met between July-September, 2002 to determine the main design parameters o f the
- 20 -
project as well as the companion EC funded project. The Federations and Business Associations for the
Construction, Manufacturing and Tourism sectors have been consulted extensively. Under PHRD
financed surveys, 211 f m s and financial institutions in the construction, manufacturing and tourism, as
well as banking and IT sectors were surveyed on their training needs. A sample of Vocational Training
Centers was also surveyed to ascertain their interest in and impediments to providing training under t h i s
type o f project. Various Bank mission have met with other business organizations (Egyptian-American
Chamber o f Commerce, Investors Associations etc.) and with Egyptian businessmen managing large
corporations to obtain their views. The Bank and EC have consulted closely with all other donors
involved in the training sector through several workshops conducted jointly with the Government to
ensure complementarity and to avoid overlap. Donors active in the sector include GTZ, French
Cooperation, E C and CIDA. Many o f these stakeholders had been consulted earlier during the
preparation o f the ETES report of the Education, Training and Employment Sub-committee of the
Cabinet during 1999-2000. The governance arrangements for the project (the Board of Trustees) as well
as the implementation arrangements set out in the Operational Manual are designed to include all the
stakeholders and to give them voice.
6.3 How does the project involve consultations or collaboration with NGOs or other civil society
organizations?
Six private sector representatives to be selected from the relevant federations and business associations
will be members of the proposed Board of Trustees. All of these organizations are established under the
Egyptian NGO Law Number 84 of 2002. The Project Intermediaries acting for SMEs within their
geographic areas, will play a key linkage role both in terms of awareness and promotion, and are also
responsible as well for implementation. In addition the surveys and other follow up instruments under
component l.B (Outcome Monitoring and Evaluation) of the project will be an important channel for
consultation and feedback.
6.4 What institutional arrangements have been provided to ensure the project achieves i t s social
development outcomes?
The establishment of the BOT with broad stakeholder representation and with oversight over the PMU,
and the implementation of the project in accordance with the Operational Manual, will help ensure that
the social development objectives are achieved.
6.5 How will the project monitor performance in terms of social development outcomes?
Monitoring o f social development outcomes will be done through the various follow up surveys and
studies included in the M&E component.
Does this project include any Community-Driven Development component?
- 21 -
No
7. Safeguard Policies:
7.1 Are any o f the following safeguard policies triggered by the project?
Policy
EnvironmentalAssessment (OP 4.01, BP 4.01, GP 4.01)
Natural Habitats (OP 4.04, BP 4.04, GP 4.04)
Forestry (OP 4.36, GP 4.36)
Pest Management (OP 4.09)
Cultural Property (OPN 11.03)
Indigenous Peoples (OD 4.20)
Involuntary Resettlement (OP/BP 4.12)
Safety of Dams (OP 4.37, BP 4.37)
Projects in International Waters (OP 7.50, BP 7.50, GP 7.50)
Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60)"
Triggered
No
No
No
No
No
No
No
No
No
No
7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.
NIA
F. Sustainability and Risks
1. Sustainability:
Economic, political, and fiscal factors w i l l affect the sustainability o f the SDP both in the five year project
life span, as well as in the longer term reform horizon. In the short term, the SDP i s judged to be a high
risk project given the new 'demand driven' approach to training it w i l l introduce. That i s why a s m a l l and
simple pilot project was designed both to test the approach and to reduce risk. "Sustainability" o f the
SDP w i l l be achieved if i t can stimulate and respond successfully to training demand from SMEs. As a
'pilot' to test moving to a national demand driven training fund, 'sustainability' means developing a track
record, which convinces the various stakeholders to buy in to longer term systemic change. This concept
has good political support as senior policy makers appreciate the need to improve Egyptian labor
productivity in the context o f opening the economy.
But as noted in Section A.2, such a fund i s vulnerable to downturns in Egypt's economy. Under
conditions o f downturn, private sector employers w i l l be less apt to take several actions that affect their
training demands-e.g., hire new workers, upgrade the s k i l l s o f existing workers, or invest in new
technologies that require new skills. If Egypt enters a prolonged period o f slow growth, the GoE may not
move to a national fund simply because the employer demand for training o n which the fund i s predicated
may be insufficient to warrant such a move. As noted in Section B.2, the current TVET system i s
fragmented organizationally and fiscally among multiple ministries. M o v i n g to a national demand-driven
training fund implies substantial institutional and budget restructuring over time as a single fund i s
established. The multiple ministries with a stake in the current TVET system can be expected to resist
such a move. The pilot nature o f the project w i l l allow a period o f dialogue o n the policy and institutional
issues involved and consensus building. As noted in Section E2, the fiscal sustainability o f the project i s
assured. However there are difficult fiscal policy options to be reviewed and decided upon before i t can
be concluded that a national demand-driven training fund could be fiscally sustainable. T o achieve a
successful outcome w i l l require adroit and sustained political leadership o f the process o f achieving the
needed consensus among the different stakeholders.
Finally, with a subsidized training program o f this kind there i s always a r i s k o f incurring high
'deadweight' costs, that i s firms substitute public funding for own financing o f training. In a project o f
this nature there will inevitably be some 'deadweight' costs. That i s acceptable as long as the overall
economic benefits of the project outweigh the economic cost. The project has design characteristics to
limit this risk.
- 22 -
2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1):
Risk
Economic downturn in the sectors targeted by
the SDP reduce employer demand for training
Risk Rating
S
Risk MitigationMeasure
Limit project to a 'pilot'. Temporarily reduce or
waive the minimum 10 percent cost contribution by
the beneficiary firm.
Firms substitute public funding for own
financing o f training (deadweight problem).
H
PI and firm have to establish historic baseline for
that firm's training and show that SDP will procure
training over and above that baseline.
Ministries prevent the VTCs under their
control from bidding on training tenders.
H
Board o f Trustees will include employers and
representativesof six ministries that control VTCs.
MITD i s operating a fund with a sectoral span
broader than i t s own mandate, with the risk
that it will channel most funds to its sectoral
constituency (manufacturing).
S
Board o f Trustees will be held accountable for
balancing outreach, technical assistance, and
training funds among the three targeted sectors.
M o F i s unwilling to allow VTCs to retain
revenues, thus reducing the capacities and
incentives of VTCs to bid on SDP training
tenders.
H
Project Intermediaries capture training
resources for their members or use them to
recruit members.
M
1. The short-term solution i s the model o f the
Mubarak-Kohl Initiative: creating joint publicprivate partnerships or NGO type organizations
that allow VTCs to retain revenues.
2. MITD will take this up with M o F as a policy
issue to solve this problem in the longer run.
1. Criteria for selection o f PISand also for funding
the proposals of P I applicants demand inclusion of
both member and non-member firms.
2. Outreach program publicizes that for firms to
apply for training funds through a PI, membership
in the P I organization i s neither required nor can it
be compelled.
Cost-sharing requirements and fears by firms
that newly trained employees may be 'poached
by other firms may reduce demand for training.
H
Reluctance o f beneficiaries (firms and training
graduates) to respond to surveys and tracer
studies.
S
Overall Risk Rating
H
From Components to Outputs
-
1. Promotion and awareness campaigns, especially
testimonials by employers in sectors targeted by the
SDP, about returns on training.
2. Use o f retention clauses in contract with
employee.
3. Formal or informal understandings among firms
in a local area on not 'poaching'
1. Contracts between the P M U and PISand between
PISand firms include an acceptance o f
responsibility to respond to surveys.
2. Awareness campaigns will promote participation
by firms and trained graduates.
Risk Rating H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligib1e or Low Risk)
- 23 -
3. Possible Controversial Aspects:
Two dimensions of the project are potentially controversial:
a) The idea o f demand-driven training, competitively provided training services, and the move from a
supply-driven and vertically organized system to a single training fund i s new in Egypt and therefore
politically controversial.
b) Proper governance arrangements require collaboration across ministries. The public sector in Egypt i s
vertically organized, and there i s limited experience with horizontal and collaborative governance o f a
public entity.
G. Main L o a n Conditions
1. Effectiveness Condition
(i)
Establishment o f the Project Management Unit (PMU) with adequate numbers o f staff with
qualifications, experience and terms o f reference satisfactory to the Bank.
(ii)
The retention within the PMU o f a financial management firm with qualifications and terms o f
reference satisfactory to the Bank, and the commencement o f the implementation o f the financial
management system b y the fm.
2. Other [classify according to covenant types used in the Legal Agreements.]
The project's Operational Manual would remain acceptable to the Bank at all times and would be
reviewed periodically with the Bank and n o less than annually.
The MITD w i l l maintain the PMU with staffing, organization, procedures and budget satisfactory to the
Bank for the duration o f the project.
H. Readiness for Implementation
1. a) The engineering design documents for the first year's activities are complete and ready for the start
o f project implementation.
1. b) Not applicable.
2. The procurement documents for the f i r s t year's activities are complete and ready for the start o f
project implementation.
3. The Project ImplementationPlan has been appraised and found to be realistic and o f satisfactory
quality.
4. The following items are lacking and are discussed under loan conditions (Section G):
The draft implementation plan for the f i r s t year pilot program was agreed upon during negotiations. This
w i l l permit SDP start-up activities to continue prior to loan effectiveness, and implementation o f the f i r s t
year program to start promptly after loan effectiveness. The PIP, which was also agreed upon during
negotiations and i s incporated into the Operational Manual, i s a schematic plan that w i l l be updated based
on the learning experience gained in the f i r s t year pilot phase.
- 24 -
I. Compliance with Bank Policies
1. This project complies with all applicable Bank policies.
2. The following exceptions to Bank policies are recommended for approval. The project complies with
all other applicable Bank policies.
Team Leader
1
Jacques Baudouy
Sector Director
- 25 -
ftrla’(Mahmood A. Ayub
Country ManagedDirector
Annex 1: Project Design Summary
ARAB REPUBLIC OF EGYPT SKILLS DEVELOPMENT
Hierachy of Objectives
Developing human resources
through greater participation o f
the private sector and
promoting private sector growth
Project Development
Objective:
The objective of the Project i s to
assist the Borrower in carrying
out a pilot program to stimulate
the private sector demand for
skills training development
through a demand-driven and
competitively-based mechanism.
Key Performance
Indicators
Demand-driven and
efficient s k i l l development
and labor market outcomes.
See outcome indicators for
project development
obiective.
Outcome/Impact
Indicators:
Project outcomes
1. Increasing number o f
requests by small and
medium-sized firms and
business associations for
training
2. Increasingpercent o f
approved requests by small
and medium-sized firms
and business associations
for training
3. Increasing number o f
responses from public and
private providers of
training to competitive
tenders for training
services.
4. Increasingrates o f posttraining employment o f
trainees in occupations for
which they were trained.
Economic factors that will
impact SDP outcomes:
1. Economic growth or
contraction in the sectors
targeted by the SDP.
- 26 -
Data Collection Strategy
Critical Assumptions
No special report planned.
See specification of
outcome measures for
project development
objective.
No change in Government
priorities for the sector,
particularly its willingness
to foster the growth o f
training in the private
sector.
(from Objective to Goal)
Project reports:
1. Administrative
records of transactions
with firms, business
associations, and
training providers.
2. tracer studies of
training graduates
3. published economic
statistics.
1. Sectors targeted by SDP
continue economic growth.
2. Firms do not substitute
public funding for own
financing of training.
3. Line ministries that
control public training
providers permit their
participation in SDP pilot.
4. MITD allows funds to
flow to where there i s
training demand
irrespective o f sector.
5. Public providers have
adequate finanical
incentives to provide
training.
6. Private providers are
willing to respond to
public initiatives.
7. Project Intermediaries
accept training proposals
from non-member firms.
8. Firms accept cost sharing
approach and 'poaching' o f
freshly trained workers i s
limited to keep incentives to
participate strong.
Hierachy of Objectives
Output f r o m each Component:
Component l.A. Stimulating
private sector demand for
training and adequate
response from training
providers to private sector
demand.
Awareness campaigns and other
promotional activities to
acquaint firms and associations
in the selected sectors with the
training opportunities available
under SDP
Technical assistance to develop
proposals.
Technical assistance workshops
open to all training providers
(public and private) in the
geographic areas targeted by the
SDP delivered
Key Performance
Indicators
Output Indicators:
1. production of
promotional materials
2. number o f outreach
workshops for employers
and associations
3. number o f firms and
business associations
attending workshops
4. increasing employer and
association awareness o f
SDP training opportunities
Number o f T A transactions
with firms and associations.
1. Number of T A
workshops for training
providers
2. number o f a) private
training providers and b)
public training providers
attending workshops
Data Collection Strategy
Critical Assumptions
Project reports
(from Outputs to
Objective)
1. administrative data
2. items on survey o f
1. PMU i s able to contract
with effective PR agent to
organize and deliver PR
services
2. growth in sectors targeted
by SDP i s sufficiently
robust that employers
respond to PR campaign
about SDP training
opportunities.
Administrative data on
number of TA activities
undertaken, number o f
participants at these
events, and time lag
between T A requests and
T A resuonse.
Administrative data on
number of TA workshops
undertaken and on
number of public and
private participants
Growth in sectors targeted
by SDP i s sufficiently
robust that employers
respond to PR campaign
about SDP training
opportunities.
See measures o f outcome
and "control" indicators
specified under Project
Development Objective
level above.
Performance indicators are
kept simple and easy to
collect, and provision of
data i s stated as a clear
obligation o f beneficiary
firm.
firms and business
associations that measure
changes in awareness
Component l.B. Systematic
measurement of outcomes
Baseline and periodic
measures of performance
outcomes of SDP and of
economic conditions in
targeted sectors that might
affect its success.
See outcome indicators
under Project Development
Objective level above
- 27 -
1.Line ministries that
control public providers do
not preclude their
participation in SDP pilot.
2. Legal impediments to
public training institutions
retaining revenues can be
finesed through NGO
mechanism so VTCs have
incentives to participate in
SDP.
3. Private providers are
willing to respond to public
initiatives.
Key Performance
Indicators
Output Indicators:
Data Collection Strategy
Critical Assumptions
Project reports
(from Outputs to
Objective)
Evaluation o f potential
intermediary organizations’
proposals according to clearly
specified and advertised criteria.
1.Number of proposals
evaluated
2. Quality o f evaluations
1. Administrative data
on number o f proposals
evaluated and time lag
between receipt of
proposals and
notification o f results
2. Informal feedback from
firms and business
associations re perceived
quality and efficiency o f
evaluation process.
Extent of competitive tendering
of training conducted by PISon
behalf of beneficiary firms.
1. Number of tenders
concluded
2. Training conducted in
accordance with specified
timetable and to specified
quality standards
Administrative data
1. Economic growth in
sectors targeted by SDP
sufficient to motivate
beneficiary firms and PIS
to apply for funding
offered.
2. Firms and associations
willing to contribute a
share (minimum o f 10
percent) to the total costs
o f the training.
3. PMU able to establish
clear evaluation criteria and
trusted and efficient
evaluation process.
1. Line ministries that
control public providers do
not preclude their bidding
on tenders.
2. Legal impediments to
public training institutions
retaining revenues do not
affect VTC incentives to
respond to tenders.
3. Donors focusing on
public suppliers help
position them to meet the
type and quality of training
required by employers.
4. Private providers willing
to respond to public
tenders.
5. Training providers
adequately monitoried by
PI and PMU.
PMU i s able to identify
true incremental costs to P I
o f participating in SDP so
that financing i s adequate
but not too generous.
Hierachy of Objectives
Output from each Component:
Component 2: Cost Shared
Financing Mechanism
- 28 -
Hierachy of Objectives
Output from each Component:
Component 3: Project
management and M&E
Effective project management
unit (PMU) established
M&E that discriminates between
project design and
implementation problems and
that maximizes learning from
pilot
Key Performance
Indicators
Output Indicators:
1.Qualified and
experienced staff for the
PMU are recruited
2. Satisfactory financial and
procurement management
systems installed and
operated 3 .Administrative
databases for tracking
activities for all components
are established
1. Monitored inputs
2. Monitored outputs: see
component outputs and
how these are to be
measured
3. Benchmarks (e.g., unit
costs for different types o f
training) and cost-benefit
estimates
- 29 -
Data Collection Strategy
Project reports
1. P M U Progress
Reports
2. Bank supervision
missions
1. PMU quarterly and
annual reports
2. Diagnostic reports (see
Sections A2 and C1 for
further details).
Critical Assumptions
(from Outputs to
Objective)
1. Adequate oversight by
MITD and the BOT
2. Regular supervision by
Bank
PMU recruits staff and
consultants and sets up
appropriate systems
Annex 2: Detailed Project Description
ARAB REPUBLIC OF EGYPT: SKILLS DEVELOPMENT
1.
Project development objective:
The objective o f the Project i s to assist the Borrower in carrying out a pilot program to stimulate the
private sector demand for s k i l l s training development through a demand-driven and competitivelybased mechanism. The project would have three components: 1) Awareness Program and
Monitoring and Evaluation; 2) Training Sub-projects, and 3) Project Management and M&E.
Further details can be found in the Operational Manual for the project (see Annex 11).
2. Key performance indicators:
The following indicators w i l l be used to measure the performance o f the pilot against baseline data
to be collected in the f i r s t year (further details are spelt out in the Operational Manual):
a) increasing number o f requests b y small and medium-sized fums and business associations for
training;
b) increasing percent o f approved requests b y small and medium-sized firms and business
associations for training;
c) increasing number o f responses from public and private training providers to competitive tenders
for training services;
d) increasing rates o f post-training employment o f employees in occupations for which they were
trained;
e) continuously improving perceptions o f managers from a sample o f firms and business
associations of: i)relevance o f training to employer needs; ii)quality o f training; iii)transaction
costs o f procuring funding for training from Government; and iv) timeliness o f Government’s
provision o f funding for needed training.
Although the ultimate objective o f increasing private sector demand for training i s to increase fm
competitiveness and labor productivity, these outcomes are excluded o n the basis o f OECD country
experience. This experience indicates that i t may take 15-20 years for the private sector in Egypt to
invest sufficiently in training to get the benefit o f using training as a tool to achieve greater
competitiveness and labor productivity. The Skills Development Project (SDP) i s designed as a
catalyst to help accelerate t h i s process.
Even if the Skills Development Project (SDP) i s well implemented, i t i s vulnerable to downturns in
Egypt’s economy. Private sector employers w i l l reduce their training demands as they cut back on
upgrading the s k i l l s o f existing workers, hiring new workers, or investing in new technologies that
require new skills. So data on economic growth or contraction in the sectors targeted b y the SDP
during the life o f the Project w i l l be collected to interpret the outcome results.
By Component:
-
Project Component 1 US$1.10 million
Awareness program and monitoring and evaluation. This component will finance the provision o f
technical advisory services to: carry out awareness, promotion and outreach programs; monitoring
and evaluation surveys, studies, and assessments; enable beneficiary firms to undertake training
needs assessments and plans; enable eligible training providers to develop training proposals; and
enable eligible Project Intermediaries to develop aggregated training proposals. The purpose o f this
component w i l l be to stimulate private sector demand for training and competitively-based
responses o f training providers to private sector demand. I t w i l l also evaluate project outcomes to
- 30 -
complete the feedback loop. The project w i l l target initially three sectors o f the economy construction, manufacturing and tourism - and the small and, especially, medium-sized private
sector firms (SMEs), and federations and business associations in these sectors in a limited number
o f geographic areas where firms in these sectors are concentrated. The selection o f these three
sectors was based on labor market surveys carried out in 2001 under the PHRD grant for the project.
The following tables show that measured by number o f fim, SMEs dominate each o f the three
sectors.
Construction sector. This sector has a very few large companies that in turn sub-contract to s m a l l
and medium fm. Only 14 firms, 10 o f them public sector, employ more than 1,000 employees.
Variable
Number and percent
of Enterprises
Number of
Employees (%)
Firms
Number of Firms
Percent of Firms
Total
11,961
Public
1,024
Private
10,753
Cooperatives
184
100 %
127,637
100
9%
65,507
51
90%
59,633
47
1%
2,497
2
Less than 10
workers
12,413
67
I
Governorate
Cairo
Giza
Alexandria
Sharkeya
Kalyoubey a
Gharbeya
Others
TOTAL
Between 10
and 100
3,420
18
Total
18,511
100
Private
Sector
17,978
97
Number of Enterprises
6,198
1,974
1,931
1,432
1,402
1,005
Each has less than 1000
18,511
Tourism sector. Data provided b y Federation of Tourism show that in 2000 there were 1,010 hotels
(some floating), with another 563 under construction. Four and five star hotels are large enterprises;
those o f three or fewer stars, SMEs.
Number of Tourist Units by Category
Category
No. of Units
Percentage
5 Stars
4 stars
3 stars
2 Stars
1 stars
Unclassified
TOTAL
218
146
199
161
102
184
1,010
21.6
14.4
19.7
16
10
18.2
100
- 31 -
Number of
Rooms
3,7118
2 1,548
18,437
8,223
3,852
24,433
113,611
Percentage
32.7
19
16.2
7.2
3.4
21.5
100
LA. Awareness, Promotion, and Outreach. Training demand-particularly informed training
demand-is poorly developed in small and medium-sized firms and business associations. This
subcomponent supports awareness campaigns and other promotional activities to acquaint firms and
associations in the selected sectors with the training opportunities available under SDP. The
campaign w i l l clarify the criteria that: i)the project w i l l use to select proposals submitted for
funding; and ii)intermediary organizations will use in deciding whether to include a particular
fum's proposal in their aggregate proposal.
The Project Management Unit (PMU) w i l l select business associations t o operate as Project
Intermediaries (PIS)between the PMU and beneficiary firms and workers. The PISproposals w i l l
"bundle" firms and workers that the association has identified to receive training. In the f i r s t year a
very s m a l l number o f training agreements with well qualified intermediaries would be executed,
after which any necessary changes could be introduced on the basis o f the experience gained. There
are fourteen private investors associations with up to eight years o f experience that provide training
to member firms, as well as the federations, associations and chambers o f commerce representing
different sectors that have varying degrees o f experience in providing training to members. There i s
thus an adequate pool o f organizations with practical experience to act as PISunder the project.
This subcomponent also finances technical assistance to PISto develop their training proposals; and
includes help in conducting s k i l l needs surveys, training needs assessments, costing o f the training
needed, and surveys o f qualified local providers. If the PI proposes to conduct in-house training, the
PMU w i l l help the organization identify what it needs to provide quality training, such as training
trainers and developing appropriate curricula. I t also includes technical assistance to training
providers, as they are inexperienced in competitive tendering processes and in writing proposals.
The PISwill consult with training providers about the program information that they need. The
PMU w i l l run workshops open to all providers in the geographic areas targeted by the SDP. The
implementation o f this component w i l l be guided b y a communications strategy developed b y the
Ministry o f Industry and Technological Development (MITD).
l.B. Monitoring and Evaluation. Systematic measurement o f outputs and outcomes i s an essential
element o f a pilot project that i s designed to test policies. The expected performance indicators are
noted in section 2 above. This subcomponent w i l l finance consulting services and technical
assistance t o cany out the instrument design (e.g. surveys o f employers and business associations,
tracer surveys) and data collection needed to track these outcomes and contingencies. This
component focuses on project outcomes as opposed to project inputs, processes and outputs M&E
that the PMU will undertake as part o f component 3.
-
Project Component 2 US$10.83 million
Training Sub-projects. Under this component, the project w i l l finance a demand driven training
program o n a cost shared basis with beneficiary firms; and w i l l strengthen the institutional capacity
o f eligible Project Intermediaries. The program w i l l be implemented through PISfor the benefit o f
small and medium size firms and related business associations and organizations initially in the
construction, manufacturing and tourism sectors and w i l l support short term (less than six months)
production related training. Targeted geographical areas are those with large clusters o f firms in the
selected sectors, and with business associations that are active in these areas and have some
experience delivering training to member firms. These criteria may be modified during the course
o f project implementation. Cost sharing training funds may be used t o support the following
activities:
In-service training: undertaken once a person i s employed - includes the training needed t o upgrade
employee s k i l l s and to meet the s k i l l s requirement o f firms.
Training for Prospective Employees: undertaken in cases where there i s a demonstrated demand
from firms, including placement agreements, for trained people who are entering the labor force for
the f i r s t time.
- 32 -
PISw i l l submit proposals for financing o f training to the Project Management Unit (PMU), and the
PMU w i l l evaluate these proposals according to specified and advertised criteria. These criteria are
set out in the Operational Manual for the project. One key criterion i s that fm w i l l contribute a
share (a minimum o f 10 percent) o f the total costs o f the training. A second i s that PIS must allow
non-member firms to be included in their training proposals. Except for winning PISthat propose to
provide training in-house, the PI w i l l conduct simplified competitive bidding for public or private
training providers. Training w i l l be based on the competency standards already developed and in
use b y business associations and federations for these sectors. The PI or sector-relevant business
association or federation w i l l award training certificates to graduates who meet the competency
standards.
PISvary in their capacities to manage training services. Some, such as the 14 investors' associations
and the Construction and Tourism Federations, have developed expertise in delivering training
services. Others are at a less advanced stage of development. However, even the most advanced
lack the capacity to absorb an additional training program like the SDP. Thus t h i s component w i l l
also finance the incremental operating cost (project staff, office equipment, materials, supplies,
transport, and utilities) that PISselected for inclusion in the project incur. This will be provided in
the form o f a management fee. This w i l l give them the capacity to deliver the training services
envisaged under the project as well as provide capacity building o f a longer term nature.
-
Project Component 3 US$0.52 million
Project management and M&E. This component w i l l finance goods and technical advisory
services for: strengthening the institutional capacity o f the Project Management Unit (PMU); and
conducting the monitoring and evaluation o f the project's inputs, processes and outputs. I t includes
all staffing costs, equipment, materials, supplies and office space, as well as consultant assistance to
ensure effective operation, and monitoring and evaluation. T o discriminate between design and
implementation problems, and to maximize learning from this pilot project, the monitoring and
evaluation sub-component w i l l focus on the measurement o f key inputs, processes, and outputs.
This includes: a) evaluations o f the training provided by contracted providers relative to the training
specifications listed in provision contracts, as well as to the unit costs o f training related to the
qualification level being taught; and b) analyses o f data from components 1B and 2 to establish
benchmarks for demand-driven training, such as benchmarks for the costs o f different types o f
training. The PMU would produce quarterly and annual progress reports and arrange for the
auditing o f project accounts. I t would prepare the Mid Term Review o f the project as well as the
Implementation Completion Report. I t would ensure that records were adequately kept. In order
for the PMU to carry out i t s financial reporting and auditing obligations, PISwould be required to
keep adequate records o f all training activities funded under their contracts with the PMU. The
PMU could request access to these records as well as those o f any other private or public partner
that has entered into a contractual obligation for approved activities. The PMU would be able to
request an inspection o f premises where approved training has taken place.
- 33 -
Annex 3: Estimated Project Costs
ARAB REPUBLIC OF EGYPT: SKILLS DEVELOPMENT
Project Cost B y Component
Component 1: Awareness and Mon.&Eval.
Component 2: Training Sub-projects
Component 3: Project Management and M&E
Local
U S $million
0.9 1
10.37
0.52
11.80
0.00
0.00
11.80
Total Baseline Cost
Physical Contingencies
Price Contingencies
~ o t aProject
l
costs1
Front-end fee
11.80
Total Financing Required
Local
U S $million
Project Cost B y Category
Goods
Works
Services
Training
Incremental Operating Costs
~ 0 t a Project
1
costs1
Front-end fee
Total Financing Required
0.00
0.00
1.33
10.37
0.10
11.80
11.80
Foreign
U S $million
0.19
0.46
0.00
Total
U S $million
1.10
10.83
0.52
0.65
0.00
0.00
0.65
12.45
0.00
0.00
12.45
0.05
0.05
0.70
12.50
Foreign
U S $million
Total
U S $million
0.13
0.00
0.06
0.46
0.00
0.65
0.05
0.70
0.13
0.00
1.39
10.83
0.10
12.45
0.05
12.50
Identifiable taxes and duties are 0 (US$m) and the total project cost, net of taxes, i s 12.5 (US$@. Therefore, the project cost sharing
ratio i s 44% of total project cost net of taxes.
- 34 -
Annex 4: Cost Effectiveness Analysis Summary
ARAB REPUBLIC OF EGYPT SKILLS DEVELOPMENT
Rationale for public intervention. Egypt’s long-term plan (1997 - 2017) to increase i t s international
competitiveness includes: i)enhancing the productivity and competitiveness o f i t s firms; ii)
improving the country’s technological base and i t s ability to absorb new technologies rapidly; and
iii)positioning the private sector as the lead producers o f goods and services that meet quality
international standards at competitive prices. Although n o single factor ensures competitiveness,
adequate human resources as shaped by workers’ education and training are one factor in the
competitiveness equation. Since the SDP deals with basic demand and sumlv failures in Envut’s
training. markets, there i s a clear rationale for this publiclv financed intervention. Features o f the
strategy that the SDP i s piloting include mobilizing private resources (cost-sharing by firms), a
demand-driven allocation o f public training resources, and a competitive tendering for training
services b y public and private providers.
Demand failure. On the demand side, Egypt’s employers and workers under-invest in training for
similar and different reasons. Both employers and workers see public training as having low value
(low relevance and quality). In addition, workers under-invest because they cannot meet the costs o f
training and because better s k i l l s are not necessarily rewarded in the labor market.
Most Egyptian employers spend few resources on training their staff for two reasons: a fear that
their trained employees w i l l be “poached” by other enterprises and a l o w s k i l l s equilibrium. The
Egyptian private sector i s dominated by small and medium enterprises, many o f them operating with
low levels o f productivity and employing workers with l o w levels o f education and skills. S M E
employers often do not understand the type o f labor force that they need to improve their
competitive positions or how training can be used strategically to create the s k i l l s that they need.
Lack of information on training needs i s thus a major market failure in Egypt.
Supplv failure. On the supply side, public training providers have n o incentives to adapt training to
the types o f s k i l l s and quality standards needed by employers and workers. They receive automatic
budget allocations. These are not tied to the market relevance and quality o f the training provided.
Addressing market failures. The SDP i s designed to pilot incentives to address both demand and
supply failures. Directly or through Project Intermediaries, it targets firms with nascent competitive
promise by providing technical assistance to help them identify their s k i l l and training needs and to
work with them to procure training competitively. I t tries to offset the fear o f poaching b y partially
financing the costs to firms o f identifying their training needs, preparing training plans, and
obtaining training. In other words, i t reduces the cost o f losing trained employees to other firms by
reducing the initial cost o f training.
I t addresses supply failures by linking employers into the specification o f training needs and
competing training provision according t o these specifications.
Cost-eflectiveness analysis. I t i s not now possible to do a cost-effectiveness analysis o f demanddriven TVET, but one o f the analytic products o f the pilot SDP i s a cost-effectiveness analysis. T o
the extent that mechanisms being piloted under the SDP succeed, market failures in training should
be reduced, training costs may be reduced, and training should certainly be more effective. I t i s
planned that over the course o f the project the SDP w i l l estimate the “true” costs o f different types
of training that are being more efficiently delivered. Ordinarily competitive bidding for services
reduces costs. However, it i s not now clear whether unit costs for training will increase or decrease.
VTCs have significant inefficiencies, such as excess non-training staff. However, supplies and
materials are known to be inadequate, and these centers may have to pay instructional staff at higher
rates to secure teachers able to meet the quality standards required b y employers.
The SDP w i l l measure indicators o f effectiveness (see sections A2 and Cl). Prior to collecting
empirical data, it i s reasonable to expect that the mechanisms that the SDP w i l l use to procure
- 35 -
training w i l l ensure much tighter connections between the s k i l l s and training that firms and workers
need and the training delivered. The competitive process w i l l require employers to think through
what skills they need and to specify the training that they want provided. The tendering for training
w i l l set training standards, and ex-post evaluations w i l l affect providers’ chances in subsequent
competitions. The result should be that public training money i s more effectively spent.
Cost-benefit analysis. Theoretically, the SDP should reduce unemployment among those it targets
by increasing the market relevance and quality o f trainees’ skills. New entrants are more likely to
get hired; employees are more apt to keep their jobs. All else equal, i t should increase the labor
productivity o f the fm targeted.
Cost-benefit analyses based on the Egyptian case cannot now be done. However, again, one o f the
purposes o f the pilot i s to collect data that would allow simple cost-benefit analyses, and one of the
analytic products o f the pilot SDP i s expected to be a cost-benefit analysis. T o that end,
components l.B and 4 o f the SDP w i l l fund the collection o f data that can be used to estimate the
costs and some o f the benefits o f demand-driven training.
Fiscal Impact o f the Project
The cost o f the SDP to Government i s approximately $18 million over a five year period. In 1998,
the most recent year for which this type o f information i s available, Government expenditures on
TVET were about $125 million. Assuming a rate o f increase o f 3 percent a year, expenditures in
2002 would have been in the order o f $140 million. The annual cost o f the SDP i s 2.4 percent o f the
1998 expenditures or 2 percent o f estimated 2002 expenditures. This i s a small amount and the
fiscal impact will be manageable. The World Bank w i l l provide a US$5.5 million loan, the GoE
US$6 million, and fm benefiting from the training at least US$1 million in contributions. Since
the GoE plans to continue allocating the same budget t o the line ministries for TVET as i t has in
past years, the GoE counterpart contribution to the project would be incremental to the overall
TVET budget.
Fiscal Sustainability o f a Demand-Driven TVET
The proposed project i s sustainable during i t s expected five and a half year life, because the
Government has assembled the financial package, including earmarked counterpart funds, to ensure
that. In addition the Ministry o f Finance has allocated adequate resources to the Ministry o f
Industry and Technological Development (MITD) to support the companion EC project. This w i l l
enhance the reform effort in both governance and financing o f the training sector.
If the SDP i s successful and the GoE moves to a national training fund for demand-driven TVET, i t s
annual costs and fiscal sustainability cannot now be estimated. First, the costs o f a demand-driven
TVET system are unknown. For example, the costs o f training provision under competitive
conditions are unknown. Second, the Government needs to complete i t s review o f options for future
sources o f funding for demand driven training as well as the relative trade-offs involved. These
include reallocation o f some o f the training resources now allocated to the line ministries
administering training programs to a single national training fund, which would have likely political
costs. They also include whether to implement a 0.5 percent corporate revenue levy on fm
earmarked for training, which has been approved by the Government in May, 2003. This raises
concerns about the total tax burden on labor as well as technical issues o f compliance. A third
option, would be for the GoE to institute policies designed to increase the level o f cost recovery
from employers and workers for training services. This could be expected to affect demand b y
SMEs and workers for training.
- 36 -
Summary of benefits and costs:
See above.
Main Assumptions:
See above.
Cost-effectiveness indicators:
See above.
- 37 -
Annex 5: Financial Summary
ARAB REPUBLIC OF EGYPT: SKILLS DEVELOPMENT
Years Ending
IMPLEMENTATION PERIOD
Total Financing
Required
Project Costs
Investment Costs
Recurrent Costs
Total Project Costs
Front-end fee
Total Financing
Financing
IBRDDDA
Government
Central
Provincial
Co-financiers
User FeedBeneficiaries
Other
Total Project Financing
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
0.8
0.1
0.9
2.0
0.0
2.0
4.9
0.0
4.9
4.7
0.0
4.7
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.9
2.0
4.9
4.7
0.0
0.0
0.0
0.4
0.4
0.3
0.0
0.0
0.1
0.0
1.2
0.6
0.3
0.0
0.0
0.2
0.0
2.3
2.2
2.3
0.0
0.0
0.4
0.0
1.6
2.8
0.5
0.0
0.0
0.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.9
2.0
4.9
4.7
0.0
0.0
0.0
Main assumptions:
1) Four Year Implementation Period
2) First three Training Subprojects approved April, 2004
- 38 -
Annex 6: Procurement and Disbursement Arrangements
ARAB REPUBLIC OF EGYPT: SKILLS DEVELOPMENT
Procurement Administration
Egypt’s public procurement i s managed in accordance with the provisions o f the L a w No. 89 o f
M a y 1998 on Organizing Tenders and Bids, amended b y decrees No. 513/1999 and No. 2/2000,
and the Executive Statutes promulgated b y the Ministry o f Finance by Decree No. 1367/1998.
The Law, as it i s called, delegates the power to administer procurement, including contract
management, to the Competent Authority. In cases justifying limited tenders or direct contracting,
a Competent Authority requires the authorization o f the Prime Minister. The Executive Statues
interpret a Competent Authority to mean the concerned minister. Therefore, the concerned
minister i s empowered to appoint the tender committees to open and to evaluate tenders, and to
approve the recommendations o f the tender evaluation committees to award contracts. The L a w
empowers a minister to delegate the authority t o manage procurement to a direct subordinate
staff. No formal review o f this law has been undertaken b y the World Bank. There are, however,
a number o f provisions in the Law, which would not be acceptable t o the World Bank. These
issues would be best addressed under the framework of a Country Procurement Assessment
(CPA), which i s now planned for FY04. These issues, however, would not affect the execution o f
the SDP.
The SDP i s a pilot project to experiment processes and procedures to better manage publiclyfunded demand-driven and competitively-based production processes training that would
stimulate private sector demand through a one-stop shopping for employers.
Cost-sharing demand-driven production processes training sub-projects w i l l be managed (from
design to implementation) b y Project Intermediaries (PIS), such as investors associations,
chambers o f industries, federation o f industries, and similar organizations. During negotiations,
an initial f i r s t year pilot operation o f up to three PISwas identified based on criteria acceptable to
the Bank. The selection o f PISfor t h i s first year pilot was based on single source procedures for
the priority industrial sectors and areas identified where beneficiary SMEs are located. The
selection o f subsequent training sub-project proposals shall be based on quality criteria submited
by eligible organizations in accordance with the sub-project criteria specified in the Operational
Manual (OM). In such cases, the selection o f PISwill also be based on single source procedures
for the specific sub-project area. PIS shall meet the eligibility criteria specified in the OM.
Eligible PISshall at least: (a) be legally registered in Egypt as a non-profit organization under the
NGO law o f 1964 and as amended; (b) have experience in managing training activities for S M E s
on both technical and soft skills; and (c) have capacity to manage training programs financed on a
cost-shared basis.
The PIS,with the assistance o f consultant(s), w i l l formulate Training Sub-project proposals based
on cost-sharing demand-driven production processes training needs o f participating small- and
medium-sized enterprises (SMEs). Eligible Training Sub-projects shall: (a) support the provision
of training to SMEs, namely enterprises employing more than ten (10) but less than five hundred
(500) employees; (b) target employees whose work i s directly related to the production process
within the eligible Beneficiary Firm: (c) support Beneficiary Firms providing a contribution o f at
least ten (10%) percent o f the training costs; and (d) not finance any Training Sub-project
39
proposal exceeding US$400,000 equivalent. Criteria for the design and implementation of these
Training Sub-projects i s given in the OM. The PI'S proposed Training Sub-projects will be
reviewed by the Project Management Unit (PMU) for consideration and approval of the Board of
Trustees (BOT). Under t h i s principle, the BOT will approve the overall program, and the P M U
will enter into implementation contracts with PIS, and manage the execution of such contracts.
Contracts entered into by the P M U and PIS shall be govemed by the NGO law of 1964 as
amended, and terms and conditions specified in the OM. The PISwill be fully responsible for the
execution o f Training Sub-projects including cost-sharing agreements with participating SMEs
and sub-contracts with training providers selected in accordance with procedures specified in the
OM.
The MITD has entered into a cooperation agreement with the United Nations Development
Programme (UNDP) for providing bridge-financing assistance, for managing the recruitment of
the P M U staff, and for recruiting an accounting and auditing fm to develop and administer the
accounting and financial management system for the SDP.
Procurement at the PMU/BOT level will be managed by a Tender Committee (TC) appointed by
the MITD Minister and Chairperson of the BOT or hisher designated authorized representative.
The TC will be responsible for opening tenders, evaluating bids and issuing recommendations for
contract award for approval by the chairman of the BOT or hisher designated authorized
representative. The PMU will provide administrative support to the TC in the process of
discharging i t s duties. Criteria for the composition o f the TC will be provided for in the OM. The
O M was discussed and agreed upon during negotiations and recorded in the minutes of loan
negotiations.
Use of Bank Guidelines and Standard Documents
Procurement of Goods will be carried out in accordance with the Guidelines for Procurement
under IBRD Loans and IDA Credits (World Bank, January 1995, Revised January and August
1996, September 1997 and January 1999). The Project w i l l not include International Competitive
Bidding (ICB) and National Competitive Bidding (NCB). Procurement for Goods will consist o f
small packages grouped, to the extent feasible, in sizes suitable for procurement through national
shopping (NS) procedures in accordance with the guidelines of the Bank. The proposed project
will not include procurement of works. The Bank's Standard Bid Evaluation Form-Procurement
of Goods (April 1996) will not be required to be used to evaluate bids.
The procurement of Services will be carried out in accordance with the Guidelines for the
Selection and Employment of Consultants by World Bank Borrowers (January 1997, revised
September 1997, January 1999 and May 2002). The procurement o f services will consist of: (i)
employment of consultant firms; (ii)
employment of individual consultants; and (iii)
contracting
PISto implement training sub-projects by sub-contracting publicly- and privately-owned training
organizations. The consultancy services provided by firms would consist o f short-term
assignments; the training contracts would consist of short-term courses on-the-job and in training
centers; and individual consultants would be retained to provide short-term technical assistance to
the PMU and PIS. However, there may be a few contracts with a value estimated at about
US$200,000.00 equivalent or greater, for which the Standard Request for Proposals (RFP) for the
selection of consultants (July 1997, revised April 1998 and July 1999) and the Standard Form o f
Contracts would be used. For the selection process o f firms, the Sample Form of Evaluation
Report for the Selection of Consultants (October 1999) will be used.
40
Advertising
A General Procurement Notice (GPN) w i l l be published in the United Nations Development
Business (UNDB) and Gateway, and in at least one newspaper o f national circulation. The GPN
w i l l provide a description o f the Project and it w i l l l i s t all contracts for consultancy services
estimated at more than US$200,000.00 equivalent. The GPN w i l l be updated annually for all
outstanding procurement.
Specific Procurement Notices (SPN) for services with an estimated value above US$200,000
equivalent, and invitations for expressions o f interest (EOI) w i l l be advertised in UNDB and
Gateway and in at least one newspaper o f national circulation. Invitations for EO1 for services
below US$200,000 equivalent w i l l be advertised locally.
Procurement Capacity and ImplementationArrangements
Currently the PMU i s staffed with an interim project director seconded by the Social Fund for
Development (SFD). The MITD has assigned interim counterpart staff who are experienced in
program management and with the help of consultants have drafted the OM, and are instrumental
in the establishment of the PMU. The MITD has entered into a cooperation agreement with the
UNDP under which the UNDP i s assisting with the recruitment o f the PMU regular staff, and w i l l
contract the services o f an auditing fm to be responsible for the SDP accounting and financial
management. The UNDP w i l l also assist the SDP in the recruitment of the public awareness and
training needs assessment consultants that w i l l provide support to the PIS and participating
beneficiary SMEs in the formulation o f the training proposals for the frrst year program. The
UNDP office in Egypt i s familiar with World Bank procurement. However, i t should be noted
that procurement to be carried out b y UNDP, w i l l not be funded b y the Bank.
The SDP appraisal concluded that since regular PMU staff are not yet on board, the qualifications
o f the procurement staff and i t s familiarity with the Bank procurement guidelines and procedures
cannot be assessed. Also, considering the fact that procurement and contract management o f
training providers under approved training subprojects w i l l be done b y PIS,who are not familiar
with the Bank procurement guidelines and procedures, the implementation o f the SDP i s
considered relatively risky. However, the project includes mitigation provisions by providing
technical assistance to the PMU, the PISand SMEs. Also the PMU w i l l be supported by a fulltime TVET expert consultant already hired through the French Cooperation Agreement provided
on a grant basis by the Government o f France. Moreover, workshops w i l l be conducted b y
consultants to make training providers aware of the SDP requirements, and to provide guidance
on how to present proposals and execute the training contracts. Also, since most o f the funds
under the SDP w i l l be for funding training programs, to further reduce the risks, the f i r s t year
operations w i l l be limited to three PIS.This approach w i l l permit the development o f modestsized manageable training programs to gradually build capacity at the PMU, the PIS,the S M E s
and participating training providers. During the f i r s t year, a program o f awareness, promotion and
outreach activities w i l l be undertaken b y the PMU with the help o f consultants to ensure adequate
resources are made available to the stakeholders t o address implementation issues. A Mid-Term
Review (MTR) o f the SDP w i l l be carried out in the early part o f the second year, at which time
the stakeholders (PMU, PIS,SMEs, some training providers and the Bank) w i l l take stock of the
lessons learned in the frrst year o f the pilot operation.
During negotiations, agreement was reached o n a plan o f action to recruit prior to loan
effectiveness the PMU key staff (Director, Procurement and Financial Management Specialists)
and the recruitment of an accounting fm for S D P s financial management. These measures will
41
ensure that the minimum PMU qualified administrative capacity o n project management,
procurement and financial aspects are in place by loan effectiveness. Since the SDP i s designed to
test o n an experimental basis the implementation mechanism through PIS,only a general Project
Implementation Plan (PIP) and the f u s t year procurement plan were discussed and agreed upon
during negotiations. The f u s t year procurement plan w i l l include the contracting of: (i)
the f u s t
three PIS;(ii)
consulting fm for the consultancy assignment for the awareness, promotion and
outreach services; and (iii)
the auditor for the SDP. The PIP w i l l be reviewed and updated during
the MTR. During negotiations, agreement was reached on the selection process and timetable for
the f i r s t three PISand the scope of the corresponding training subprojects. The PIP and f i r s t year
procurement plan w i l l be incorporated in the SDP Operational Manual.
Procurement methods (Table A)
Works. The Project w i l l not include procurement o f Works. Therefore n o provisions are
included in t h i s section.
Goods. Procurement o f Goods would be limited to the purchase o f a couple o f vehicles,
computers and office equipment for the PMU. Such procurement would be in bid packages
costing less than US$lOO,OOO equivalent per contract, up to an aggregate amount o f about
US$200,000 equivalent. Therefore, this procurement would be subject t o National Shopping
(NS) procedures, based on comparing price quotations obtained from at least three suppliers.
Services. Services contracts include: (i)
short-term consultant firms for studies, technical
assistance and conducting workshops; (ii)
individual consultants for technical assistance; and (iii)
project intermediaries for carrying out demand-driven cost-sharing production process training
for participating Sh4Es through training providers. For consulting services the Quality-CostBased-Selection (QCBS) method and World Bank's Standard RFP would be used. Single-Source
(SS) selection w i l l be used only under exceptional circumstances, with the World Bank's prior
concurrence. Project intermediaries, may, with the Bank's prior approval, be procured in
accordance with single source procedures once the sub-project areas and beneficiary industries
are selected. The selection o f priority areas and sectors w i l l be based o n criteria as specified in the
OM, and i t w i l l be based on the quality o f the training sub-project proposals, the capacity and
experience (qualifications) o f PISto carry out training programs, and PI'Sinterest in participating
in the SDP. Training providers, sub-contracted under PI training sub-project contracts, w i l l be
procured on the basis o f the training needs assessments in the subproject areas in accordance with
methods acceptable to the Bank (generally such methods w i l l follow CQ and QBS methods, and,
to the extent feasible, by QCBS methods). For contracts with individual consultants, the Selection
of Individual Consultants method according to the World Bank's Guidelines would be used. For
consultancy services below US$200,000 equivalent the short l i s t o f consultants may comprise
entirely national consultants.
42
Table A: Project Costs by Procurement Arrangements
(US$ million equivalent)
Procurement Method
ICB
NCB
0.00
(0.00)
0.00
(0.00)
0.00
(0.00)
Expenditure Category
1. Works
2. Goods
3. Services
Consultants and Training
Subprojects
4. Miscellaneous
Incremental operating costs
5. Front-end fee
Total
N.B.F.
Total Cost
0.00
(0.00)
0.00
(0.00)
0.00
(0.00)
Other2
0.00
(0.00)
0.00
(0.00)
12.22
(5.45)
0.00
(0.00)
0.10
(0.00)
0.00
(0.00)
0.00
(0.00)
0.10
(0.00)
12.22
(5.45)
0.00
(0.00)
0.00
0.00
(0.00)
0.00
0.00
(0.00)
0.05
0.13
(0.00)
0.00
0.13
(0.00)
0.05
(0.00)
0.00
(0.00)
(0.00)
0.00
(0.00)
(0.05)
12.27
(5.50)
(0.00)
0.23
(0.00)
(0.05)
12.50
(5.50)
11 Figures in parentheses are the amounts to be financed by the Bank Loan. All costs include contingencies.
21 Includes goods to be procured through national shopping, consulting services and technical assistance, and
PIStraining subprojects.
~~;
Table A1 : Consultant Selection Arrangements (optional)
(US$ million equivalent)
Consultant Services
Expenditure Category
A. Firms
B. Individuals
Total
SFB
(0.00)
(0.00)
(0.00)
(0.00)
(0.00)
(0.00)
0.00
(0.00)
0.00
(0.00)
0.00
(0.00)
Selection
LCS
0.00
(0.00)
0.00
(0.00)
0.00
(0.00)
Method
CQ
0.00
(0.00)
0.00
(0.00)
0.00
(0.00)
Other
N.B.F.
10.90
(5.45)
0.32
(0.00)
11.22
(5.45)
0.00
(0.00)
0.00
(0.00)
0.00
(0.00)
Total
cost’
11.90
(5.45)
0.32
(0.00)
12.22
(5.45)
1\ Including contingencies
Note: QCBS = Quality- and Cost-Based Selection
QBS = Quality-based Selection
SFB = Selection under a Fixed Budget
LCS = Least-Cost Selection
CQ = Selection Based on Consultants‘ Qualifications
Other = Selection o f individual consultants (per Section V o f Consultants Guidelines), and single -source
selection of Project Intermediaries for implementation o f Training Subprojects
N.B.F. = Not Bank-financed
Figures in parentheses are the amounts to be financed by the Bank Loan.
43
Prior review thresholds (Table B)
The f i r s t two contracts for Goods below US$lOO,OOO equivalent would be subject to prior review and
consultants fm, all contracts above
approval by the World Bank. For services contracts for: (i)
individual consultants, all contracts above US$50,000 equivalent; (iii)
all
US$200,000 equivalent; (ii)
single source contracts inrespective of the amount; (iv) training sub-projects, all contracts irrespective
of the amount; and (v) all other contracts for fm and individuals below US$50,00 equivalent: short
lists, TORS, cost estimates and the f i r s t five contracts would be subject to prior review by the World
Bank. All other contracts would be subject to post review during supervision missions. The thresholds
for procurement methods and prior review and the total value (and %) of prior review are summarized
below in Table B.
Table B: Thresholds for Procurement Methods and Prior Review
1. Works
Contract Value
ThreshoId
(US$ thousands)
NIA
Procurement
Method
N/A
Contracts Subject to
Prior Review
(US$ millions)
NIA
2. Goods
< us$loo,ooo
NS
First two contracts
Firms >US$200,000
QCBS
Total value of prior review
about US$50,000 equivalent
(about 50% of the value of all
goods contracts)
All contracts
Individual
>US$50,000
Individual
All contracts
QCBS, SS, Individual
all SS contracts, and for all
other contracts: short-lists,
TOR, cost estimates, and the
f i r s t five contracts.
Expenditure Category
3. Services:
(i) Consultant Firms,
Individuals
Firms and Individuals
<US$50,000
Total value of prior review
about US$lOO,OOO
(about 40% of the value of all
consultants contracts)
(ii) PISfor Training
Subprojects
4. Miscellaneous
5. Miscellaneous
<US$400,000
ss
NA
NA
NA
NA
44
All contracts
Total value of prior review
about US$5,100,000 equivalent
(100% o f all training subproject
contracts
NA
NA
Total value of contracts subject to prior review:
US$5,250,000
equivalent
Overall Procurement Risk Assessment
High
Frequency of procurement supervision missions proposed: One every 6 months (includes special
procurement supervision for post-review/audits)
A sample o f each type of procurement o f at least 10% of contracts under each Training Subproject
Agreements managed by PISwould be reviewed ex-post in accordance with the World Bank guidelines
and procedures. The timing of procurement post review missions w i l l be determined b y the progress in
project implementation as determined b y the updated Project Procurement Plan included in the quarterly
progress reports. The first year w i l l require three missions to ensure proper implementation start-up
(project launching workshop) and familiarity o f the PMU and PISstaff with World Bank's guidelines and
procedures. A Mid-Term Review (MTR) mission w i l l be launched in the early part o f the second year to
review project implementation. During the MTR mission, a procurement assessment w i l l take place to
decide whether the above arrangements w i l l continue or if the procurement arrangements in the Loan
Agreement should be amended.
Thresholds generally differ by country and project. Consult OD 11.04 "Review of Procurement Documentation"
and contact the Regional Procurement Adviser for guidance.
45
Disbursement
Allocation of loan proceeds (Table C)
The World Bank loan o f US$ 5.50 million w i l l be disbursed during Project implementation according t o
the table below. The loan i s expected to be disbursed over a period o f four years. The estimated Loan
disbursements over this four-year period are presented in the PAD. All project activities are expected to
be completed by December 31, 2007, and the loan w i l l close on June 30, 2008. Preparation and
submission o f disbursement applications w i l l be the responsibility o f the PMU. All expenditures are net
o f taxes and duties.
Table C: Allocation of Loan Proceeds
Expenditure Category
1. Training Sub-projects
2. Premia for Interest Rate Caps and
Interest Rate Collars
Amount in US$million
4895000.00
0.00
550000.00
3. Unallocated
Financing Percentage
85%
Amount due under Section
2.09 (c) o f the Loan
Agreement
0.00
5445000.00
Total Project Costs
Front-end fee
Total
55000.00
Amount due under Section
2.04 o f the Loan Agreement
5500000.00
Use of statements of expenditures (SOEs):
Withdrawals from the loan account may be made on the basis o f SOEs for expenditures for Training Subprojects each costing less than US$50,000 equivalent, under such terms and conditions as the Bank shall
specify by notice to the Borrower. All supporting documentation for SOEs, including copies o f invoices
and bank statements, must be maintained b y the PMU for at least one year from the date the Bank
receives the audit report for the fiscal year in which the last withdrawal from the loan account was made.
As part o f the annual audit all records and documents must be made available for the review o f the
external auditor and visiting supervision missions from the World Bank upon request.
Special account:
T o facilitate project implementation and make timely payments of the Bank's share o f eligible
expenditures to suppliers, consultants, and others, the Borrower will open and maintain a special account
in a commercial bank in Egypt, on terms and conditions acceptable t o the Bank. The PMU w i l l manage
and have access to the SA. Disbursement w i l l be made b y the PMU directly from the SA. The authorized
allocation o f the SA w i l l be equal to six (6) months estimated expenditures, equivalent t o US$ 600,000.
At the start o f the project, the initial deposit to the SA w i l l be limited to US$ 300,000. The remaining
amount o f the authorized allocation may be requested only after cumulative disbursements reach the
equivalent o f US$1,500,000. Requests for replenishment o f the SA w i l l be submitted on a monthly basis.
A bank statement of the SA and a reconciliation o f the S A against the bank records w i l l support the
replenishment applications. Replenishment o f the SA w i l l follow Bank procedures. There i s n o minimum
amount applicable to replenishment requests (Withdrawal Applications), which w i l l be submitted on a
monthly basis.
46
B. Financial Management Assessment Report
Executive Summary and Conclusion
An assessment o f the financial management (FM) arrangements for the Project was undertaken in March
2003 to determine whether the FM arrangements for the Project are acceptable to the Bank. The
assessment concluded that the project's FM arrangements do not meet the Bank's minimum requirements
and, therefore, an FM action plan was agreed with the borrower and the completion o f the f i r s t two
actions were agreed at negotiations to be a condition o f effectiveness (see schedule below).
A Consulting Firm (CF) w i l l be appointed (TOR are included in the project file and the OM) that w i l l
have overall responsibility for the Project's financial management (i.e., outsourcing the FM function) for
the f i r s t year o f the project. The C F responsibilities w i l l include: managing project funds, building o f the
capacity o f the PMU accounting staff, and working to strengthen the overall financial management
systems o f the PMU. The C F w i l l have overall financial management responsibility for the project
financial activities including disbursement and project financial reporting. As part o f the backstopping
role, the CF will train staff o f the PMU and Project Intermediaries (PI). The FM consultant w i l l also
prepare the financial accounting manual that w i l l document the accounting system and other financial
procedures to be used to manage the financial resources under the Project.
Sr.
1
2
3
4
5
6
7
Action
Due date
Before Effectiveness
Appointment o f a Consulting Firm (CF) t o
handle the FM function.
CF i s in place within the PMU.
After Effectiveness
CF launches the process o f hiring regular
accounting manager and an accountant.
CF reviews the Operational Manual - FM
section.
C F prepares Short List, TOR, and RFP for
hiring external auditor.
Extemal Auditor i s selected.
Issue f i r s t set o f FMRs
Responsibility
July 3 1,03
MITDPMU
August 15,03
MITDPMU
Sept. 1,03
MITDPMUKF
Sept. 1,03
MITD/PMU/CF
Sept. 1,03
MITDPMLJKF
Oct. 30,03
Nov. 15,03
MITDPMUKF
MITDPMUKF
Financial ManaPement Risks
Country Financial Management Risks: ROSC draft report (2002), Mini-CFAA (1997), in-progress
C F A A report (2003), and CPPR report (2002) identified major weaknesses in the Egyptian financial
accountability, in both the public and the private sector. Also, there are two areas in the CAS (2001)
that give indications of the inherent risk and these are to be found in the context o f country economic
development and public sector administration capacity.
Proiect Financial Management Risk The project i s in the process o f creating a PMU that will be
responsible for project implementation. The Project i s relatively straightforward, however, good
coordination between different agencies, PIS,and various funding sources w i l l be challenging. Below i s
a summary of the risk analysis:
47
1-
Inherent Risk
RISK
COMMENTS
Risk Mitigating Measures
Country financial
Management Risk
High
- H i r e an independent and a
qualified private audit firm.
- Ring-fence the project
implementation and funds.
Project Financial
Management Issues
High
Based on the findings of: MiniCFAA
(1997),
preliminary
C F A A (2003), draft ROSC
(2002), and CAS (2001) serious
weaknesses were identified in
the accounting and auditing
professions in Egypt.
MITD has n o experience in
mplementing
Bank
funded
xojects.
New PMU i s created to
mplement the project.
Financial Management capacity
)fPISi s inadequate.
Counter Part Funds
Moderate
ITEM
Overall Inherent
Risk
High
'
Ilready available due to the
:o"itment
o f the MITD
dinister.
48
- FM function w i l l be
outsourced to a CF at least
for the f i r s t year.
- Project director i s seconded
from SFD on temporary
basis.
- Training w i l l be delivered
to PIS. Also,
specific
guidelines
have
been
outlined in the operational
manual for use b y PIS.
2-
Control Risk:
ITEM
Implementing Entity
RISK
Moderate
Funds flow
High
Staffing
Moderate
Accounting Policies & Procedures
Moderate
Internal Audit
N/A
External Audit
Moderate
Reporting and Monitoring
Moderate
Information systems
High
Overall Control Risk
Moderate
49
COMMENTS
Although, MITD has no prior experience with
Bank funded projects, i t has been successfully
involved in other donors funded projects. Also,
MITD has a reputation of being a professional
ministry in comparison to other ministries in
Egypt.
Counterpart funds, unlike other Bank funded
projects in Egypt, are available on time. Also, the
banking sector i s quite reliable within and outside
of Cairo. However, a major concern will be
delays in accounting for funds by PIS.
Project director has been seconded from SFD and
has experience with Bank funded projects. Also,
there i s an MITD proactive and efficient project
coordinator i s in place.
The project will use UNDP bridge financing
and a grant to hire CF to develop financial
management systems and prepare the required
manual for P M U use.
No Internal Audit function. However, MOF
representative conducts a 100% ex-ante audit
over all expenditures.
Will ensure that an independent and a qualified
private auditor i s hired in accordance with TOR
upon which the Bank granted No-Objection.
Financial Monitoring Reports will be designed by
CF and issued on quarterly basis by the PMU.
There i s no M I S in place, however the CF will be
responsible for identifying an appropriate
accounting software, procuring and implementing
it, and training PMU staff on the purchased
solution. Unfortunately, local support for
accounting packages tend to be unreliable.
Strengths and Weaknesses
The following strengths were identified during appraisal on which i t w i l l be relied upon during project
implementation:
Strengths
1- Serious commitment and desire o f the MITD
Minister and senior management to create a sound
FM system.
2- Project director has Bank experience and was in
involved in the successful implementation o f three
Bank funded projects.
3- Counter part funds are available on time and with
n o delays.
Comments
The whole process o f designing the FM
arrangements and agreeing on the C F
approach has been very positive.
The project director’s support was clear
during appraisal in addition to h i s positive
relationship with MITD employees which
w i l l help launching the project.
Unlike other Bank funded projects in Egypt,
local funding i s not an issue for the SDP.
Weakness
1- Lack o f experience with Bank funded projects at
MITD.
Resolution
Using experience o f SFD (project director)
and hiring experienced consultants to handle
FM and procurement functions.
2- Temporary arrangements for project implementation Capacity building o f MITD and PMU staff
can be confusing and short-term in nature.
w i l l be an integral part o f the FC consultant
scope o f work.
Risk Mitigation Measures
T o compensate for the above mentioned issues, a combination o f “ring-fencing” the project, hiring a
competent and experienced financial management consultant to handle the FM function on temporary
basis, and close supervision by the Bank, especially during the temporary arrangements setup, w i l l all
help reduce the level o f risk to an acceptable level. The following risk mitigation measures have been
agreed upon with MITD:
1- A qualified financial management consultant (CF) i s hired for 12 months and has commenced the
implementation o f the financial management system (condition o f effectiveness) to establish a sound
financial management and reporting systems within the PMU as all expenditures for the project w i l l be
controlled and accounted for by PMU in MITD. The consultant w i l l assist the PMU in recruiting qualified
and competent accounting staff, train hired staff on FM principles and Bank guidelines, release Financial
Monitoring Reports (FMRs) on quarterly basis b y the project, prepare timely withdrawal applications and
Statements o f Expenditures (SOES).
2Annual audit for the project w i l l be handled by a private, qualified, and independent auditor. TOR
for the assignment w i l l clearly reflect the project exact needs and nature. Also, annual SOE reviews will
be conducted by another external auditor to ensure that expenditures are accurate and in accordance t o the
loan agreement.
50
3-
Close supervision by the Bank Country Office in Egypt consisting o f quarterly missions (at least
in the fust year o f the project) to review work done by the financial management consultant, and to ensure
that the developed system i s maintained in a consistent manner acceptable t o the Bank. Also, identified
financial management risks would be continually monitored and evaluated and appropriate remedial
measures w i l l be taken during the Bank's supervision missions.
Proiect Management and Coordination
Implementation o f the Project w i l l be undertaken by the Project Management Unit (PMU). The P M U
would be responsible for the management o f all project activities and implementation o f a transparent
financial management system. The PMU w i l l also be responsible for overall project financial
management and accounting. I t w i l l maintain books o f accounts for the project, prepare and disseminate
financial statements and financial monitoring reports, and ensure timely submission o f the audit report.
Cost-sharing demand-driven production process training subprojects w i l l be managed (from design to
implementation) by PIS.During negotiations, a process and work program for an initial pilot operation o f
up to three PIS was agreed based on criteria acceptable t o the Bank. The PI'S proposed cost-sharing
demand-driven production process training subprojects w i l l be reviewed by the PMU for consideration
and approval o f the Board O f Trustees (BOT). Under this principle, the administration o f expenditures
and procurement under the SDP w i l l take place at two levels, at the PMU and BOT for overall program
implementation, and at the PI level, for the execution o f cost-sharing demand-driven production process
training activities included in approved training subprojects.
Flow of funds
T o ensure that funds are readily available for the project implementation and to separate and not
commingle funds from various sources, a Special Account (SA) for IBRD funds, denominated in U S
dollars, w i l l be opened at a commercial bank in Cairo, and i t will be operated by the PMU. Deposits into,
and payments from the SA w i l l be made in accordance with provisions in the Loan Agreement.
Withdrawal applications and replenishments o f the SA w i l l be prepared and sent by the PMU carrying the
authorized signatures. Each withdrawal application w i l l be signed by two authorized representatives.
Authorized signatories names and corresponding specimens o f their signatures w i l l be submitted to
IBRD. Initially, an advance o f US$300,000 w i l l be transferred to the special account upon effectiveness
o f the loan and receipt by IBRD o f an acceptable withdrawal application. Since a large number o f
payments w i l l be made in local currency, the equivalent amounts w i l l be withdrawn from the SA on a
"just in time" basis so as to minimize exchange losses.
T o facilitate the process, for activities jointly financed by IBRD and GOE (based o n stipulated
percentages in the L.A.), the PMU may utilize GOE counterpart funds to pay for the whole activity
amount (IBRD and GOE shares). In such cases, the PMU, on a monthly basis, w i l l make a transfer o f
funds from IBRD SA to GOE bank account.
The PMU w i l l ensure that training sub-projects are identified, appraised and submitted to the Bank for
review prior to approval by the BOT, and ensure that appropriate contractual arrangements are made with
Project Intermediaries selected in accordance with the provisions o f the SDP Operational Manual for the
successful carrying out o f sub-projects. Disbursements under training sub-project contracts w i l l be in
accordance with the terms o f the contract as specified in the SDP Operational Manual. The initial advance
shall not exceed 20% of the contract amount funded by the SDP; and subsequent payments w i l l be made
on a monthly basis in accordance with the progress o f work performed. The PMU w i l l be responsible for
monitoring and supervising the execution o f training sub-project contracts, as well as for coordinating
implementation o f all training subprojects. The PMU w i l l provide technical assistace to PISand training
providers in the various locations in order to ensure efficient execution o f training subprojects.
51
Disbursements from PISto training providers under training contracts w i l l be done as specified in the
operational manual. The initial advance under such contracts shall not exceed 20%, and subsequent
payments w i l l be based on progress o f work performed.
The PMU staff (except for the interim project director) are not yet on board, and they may not be familiar
with Bank guidelines (financial management, procurement and disbursement). The C F w i l l assist the
PMU in developing j o b descriptions and in organizing the PMU for proper financial management. I t w i l l
strengthen the capacity o f the PMU and w i l l give recommendations on additional staff and s k i l l m i x as
needed.
Accounting Svstem
I t i s agreed that the Project accounting (cash basis) w i l l cover all sources of project funds and all
utilization o f said funds according to International Accounting Standards. All project-related transactions
w i l l be recorded in the books o f accounts, and supporting documents w i l l be kept at the PMU level (audit
trail). Direct disbursements made by the Bank and from the SA w i l l be included in the project accounting
system. Funds received from different sources (IBRD and GOE budget) would be identified separately
and reflected in the project accounts and FS.
The Project will have an accounting procedures manual which w i l l outline: (i)accounting j o b
responsibilities within the PMU; (ii)
monthly, quarterly, and annually closing and reconciliation
accounting policies including those related to the
procedures including SA, loan account, and SOEs; (iii)
conversion from foreign currency to the local currency and authorization and payments system; (iv)
banking and cash procedures; (v) means o f monitoring and reviewing financial transactions on the
Intermediaries level; and (vi) internal control guidelines that w i l l cover financial management,
disbursement, and procurement.
Reporting
The P M U w i l l be responsible for issuing quarterly Financial Monitoring Reports (FMR) and annual
Project Financial Statements (PFS) :
Quarterly un-audited FMR. The format and content o f the FMR, which w i l l be produced 45 days
(0
from each quarter closing date, were determined as part o f the project appraisal, to be agreed at
negotiations, and included in the financial management manual. FMR include financial, procurement, and
physical progress information. There should also be an introductory narrative discussion o f project
developments and progress during the quarter, to provide context to, and explanation of, information
reported in the FMR.
(ii) Annuallv audited PFS. audit report, submitted to the Bank within 6 months after the closing date
o f the fiscal year, would have to include: (i)
a statement o f sources and uses o f funds indicating funds
received from various sources; project expenditures, assets and liabilities; (ii)
schedules classifying
(
i
i
i
)
a
SA
reconciliation
statement; and (iv) a
project expenditures b y components, category, and sectors;
statement o f withdrawals made on the basis o f SOEs.
Annual audits for the Project w i l l be conducted by independent private auditors acceptable to the Bank
and procured b y the PMU through the Least-Cost Selection process shortly after loan effectiveness. The
cost o f the audit w i l l be financed from the proceeds o f the loan. As the training subprojects w i l l be
managed (from design to implementation) b y PIS,the audit will be performed for the project as a whole
52
(Le., PMU and PIS).The audit report, accompanied b y a management letter, w i l l cover the project's
financial statements, reconciliation and use o f the SA, use of direct payments, and withdrawal based on
SOEs. The report should be submitted by the PMU to the Bank by December 31 o f each year (ie., n o
later than six months following the closing o f the fiscal year subject o f the audit). The external audit
report should encompass all project activities under loan agreement and should be in accordance with the
Bank auditing requirements and conducted according to Intemational Standards on Auditing.
Supervision Plan
Before effectiveness, the recruitment o f the CF w i l l be monitored for compliance with conditions for loan
effectiveness b y the Bank's FMS.
After effectiveness, As required, a Bank-accredited F M S w i l l assist in the supervision process. The F M R s
for the Project w i l l be reviewed on a regular basis b y the Project F M S and the results or issues w i l l be
followed up during the supervision missions. Financial audit reports w i l l be reviewed and issues
identified will be followed up b y the FMS. Also, during the Bank's supervision missions, the Project's
financial management and disbursement arrangements (including a review o f a sample o f SOEs and
movements on the Special Account) w i l l be reviewed to ensure compliance with the Bank's minimum
requirements and to develop the financial management rating recently introduced to the Project Status
Report (PSR). The FM ratings are due twice a year, Le., b y the end o f June and b y the end o f December.
53
Annex 7: Project Processing Schedule
ARAB REPUBLIC OF EGYPT: SKILLS DEVELOPMENT
Project Schedule
Planned
Actual
Time taken to prepare the project
(months)
First Bank mission (identification)
Appraisal mission departure
10
27
11/20/2000
04/ 15/2001
11/20/2000
02115/2003
Negotiations
09/ 15/2001
05/14/2003
Planned Date of Effectiveness
03/15/2002
11/30/2003
Prepared by:
David J. Steel
Preparation assistance:
A Japan PHRD grant for US$550,000 (TF025325) was received and used for project preparation by contracting
local and international consultants to carry out TVET related studies in the areas of training demand analysis,
labor market analysis, alternative mechanisms for financing training, governance arrangements, TVET policy
framework and TVET reform strategy plan.
Bank staff who worked on the project included:
Name
David Steel
Regina Bendokat
Ahmed Abdel Aziz
Mario Zelaya
Alan Abrahart
Marianick Urvoy
Amira Kazem
Hisham Waly
Ghada Youness
Andrina Ambrose Gardiner
Eileen B. Sullivan
Claudine Kader
Sue Berryman
Arvil Van Adams
Eamon Darcy
Guillermo Hakim
Speciality
Task Team Leader, Lead Operations Officer
Sector Manager, Education
Operations Officer
ConsultantProcurement Specialist
ConsultanflVET Expert
ConsultanflVET Expert
ConsultandEconomist
Financial Management Specialist
Senior Counsel
Senior Finance Officer
Operations Analyst
Language Program Assistant
Education Consultant
Peer Reviewer
Peer Reviewer
Senior Economist
- 54 -
Annex 8: Documents in the Project File*
ARAB REPUBLIC OF EGYPT: SKILLS DEVELOPMENT
A. Project Implementation Plan
including First Year Implementation Plan
B. Bank Staff Assessments
i)Staff Back to Office reports of August, 2000, February and June, 2001, February, July, and
November, 2002, and March, 2003
ii)Project Concept Document (October 31,2000) and Decision Memorandum (November 28,2000).
C. Other
i)Report o f the Education, Training & Employmnet Subcommittee, Government of Egypt Task
Force, August, 2000
ii)Policy Statement on Employment & TVET Reform in Egypt, document of Supreme Council for
Human Resources Development adopted in June, 2002
iii)Skills Development Project OperationalManual
Note: Items iv-xi) below were financed by a PHRD grant obtained for project preparation.
iv) Egypt: Labor Market & Training Needs Analysis Summary Document, Marianick Urvoy, April,
2002
iv) Egypt: Labor Market & Training Needs Analysis, Information Technology Sector, Mohamed
Refaat Elhefny, January, 2002
v) Egypt: Labor Market & Training Needs Analysis, Manufacturing Sector & Restaurants Sector,
Mohamed A. Roushdy, March, 2002
vi) Egypt: Labor Market & Training Needs Analysis, Hotels & ,Rawia Abdel Kader, December,
2002
vii) Egypt: Labor Market & Training Needs Analysis, Consttruction Sector, Hossam Mikhail Zaki,
December, 2002
viii) Egypt: Financing Training Activities, Mohamed A. Roushdy, April, 2002
ix) Egypt: Private Sector Cofinancing of Training Activities, Mohamed A. Roushdy, April, 2002
x) Egypt: Creating Skills To Meet Labor Market Demand, Alan Abrahart, May, 1998
xi) Technical & Vocational Education & Training: International Experience with Manaaging &
Financing Training, Alan Abrahart, February, 200 1
xii) Small Enterprise Owner Attitudes to Training: A Background Paper, Amira Kazem, February,
2002
xiii) Social Fund for Development, Human Resources Development Program, Operational Manual,
April, 1997
*Including electronic files
- 55 -
Annex 9: Statement of Loans and Credits
ARAB REPUBLIC OF EGYPT: SKILLS DEVELOPMENT
Difference between
expected
Original Amount in US$ Millions
and actual
disbursementsa
ProjectID
FY
Purpose
IBRD
IDA
GEF
Cancel.
Undisb.
orig
Frm
Rev'd
PO45499
2000
EG-NATIONALDRAINAGE II
PO50484
1999
PO52705
50.00
0.00
0.00
0.00
50.00
0.00
0.00
SEC EDUC ENH PROG
0.00
50.00
0.00
0.00
46.01
1.20
0.00
1999
SOCIAL FUND 111
0.00
50.00
0.00
0.00
47.77
15.94
0.00
PO53632
1999
PRVT SECT.& AG. DEV.
225.00
75.00
0.00
0.00
299.63
30.00
0.00
PO41410
1999
P. S. REHAB. 111
120.00
0.00
0.00
0.00
120.00
33.00
0.00
PO66336
1999
SOC PROT INlT PROJ
0.00
5.00
0.00
0.00
4.66
0.59
0.00
PO40656
1999
SOHAG RURAL DEV.
0.00
25.00
0.00
0.00
23.99
6.70
0.00
PO49166
1996
EO-EAST DELTA AGSERV.
0.00
15.00
0.00
0.00
13.60
6.03
0.00
PO45175
1996
EG-HEALTHSECTOR
0.00
90.00
0.00
0.00
80.16
25.03
0.00
PO54956
1996
POLLUTION ABATEMENT
20.00
15.00
0.00
0.00
30.54
11.36
0.00
PO05169
1997
ED.ENHANCEMENT PROG.
0.00
75.00
0.00
0.00
47.21
31.13
13.33
PO43102
1996
SOCIAL FUND II
0.00
120.00
0.00
0.00
1.17
10.03
0.00
PO05163
1996
POPULATION
0.00
17.20
0.00
0.00
13.53
13.49
6.21
PO05173
1995
EGYPT IRRIGATION IMP
26.70
53.30
0.00
0.00
56.13
36.11
9.55
PO05157
1994
AGRICULTURAL MODERN1
54.00
67.00
0.00
0.00
6.70
-3.52
0.00
PO04961
1993
EO-RED SEA COASTAL
0.00
0.00
4.80
0.00
1.23
1.92
0.69
PO05153
1993
MATRUHRESOURCEMANA
0.00
22.00
0.00
0.00
3.47
3.16
-0.91
PO05161
1993
BASIC EDUCATION PROJ
0.00
55.50
0.00
0.00
6.42
10.99
-1.07
PO05168
1993
PVT SEC TOURISM INF & ENV
130.00
0.00
5.00
169.50
6.00
67.50
1.69
PO05152
1992
SCHISTOSOMIASISCONTROL
0.00
26.64
0.00
0.00
11.63
12.47
12.37
PO05146
1992
NATIONAL DRAINAGE
45.00
75.00
0.00
0.00
2.46
-3.43
0.00
676.51
311.77
41.87
Total:
670.70
636.84
- 56 -
9.60
189.50
ARAB REPUBLIC OF EGYPT
STATEMENT OF IFC's
Held and DisbursedPortfolio
Jan-2001
In Millions U S Dollars
Committed
IFC
FY Approval
1983191192l94I96l98
1994196199
1999
1992197198
1994
1993
1997
1997
1999
1997
1986188192
1992
1997199
1996
1997
Company
ANSDK
Abu Soma Develop
CIL
Carbon Black-EGT
Club Ras Soma
Cmrcl Intl Bank
ECC
Egypt Trust
HC Investment
MGDK
Meleiha Oil
Misr Compressor
Orascom
Orix Leasing EGT
UNI
Total Portfolio:
Loan
60.00
0.00
0.00
7.50
3.40
0.00
35.00
0.00
0.00
0.00
0.00
9.70
0.00
0.00
4.38
119.98
Disbursed
IFC
Equity
11.15
0.28
1.72
0.00
2.37
15.59
0.00
5.00
1.41
1.47
13.00
3.77
0.85
0.89
0.00
Quasi
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Partic
35.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Loan
0.00
0.00
0.00
7.50
3.40
0.00
35.00
0.00
0.00
0.00
0.00
9.70
0.00
0.00
4.38
Esuity
11.15
0.07
0.88
0.00
2.37
15.59
0.00
5 .00
1.41
1.47
0.00
3.77
0.85
0.89
0.00
Quasi
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Partic
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
57.50
0.00
35.00
59.98
43.45
0.00
0.00
Approvals Pending Commitment
N Approval
1999
2001
2000
2000
2000
2001
Company
Sidi Krir
Unipak-Nile 2
ACB Expansn I11
KIG
Knowledge Acads
OLE - CL
Loan
70000.00
3000.00
5000.00
0.00
3750.00
6000.00
Equity
0.00
0.00
0.00
0.00
0.00
0.00
Quasi
0.00
0.00
0.00
2261.76
509.09
0.00
Partic
122000.0
0
0.00
0.00
0.00
0.00
0.00
Total Pending Commitment:
87750.00
0.00
2770.85
122000.00
- 57 -
-
Annex 10: Country at a Glance ARAB REPUBLIC OF EGYPT: SKILLS DEVELOPMENT
M . Ea81
& North
POVERTY and SOCIAL
Lowermlddle-
1999
Population, mid-year (millions)
G N P per capita (Atlas method, U S $ )
G N P (Atlas method, US$ billions)
Life expectancy
Average annual growth, 1993-99
1.8
2.7
Population (%)
Labor force (%)
2.1
3.0
1.1
1.2
Most recent estlmate (latest year avallable, 1993-99)
Gross
primary
nrollment
a
23
45
87
49
12
64
45
101
108
94
58
88
45
15
71
36
95
102
1979
1989
1998
1999
18.2
32.8
29.7
14.2
..
39.8
31.8
17.9
17.3
30.0
82.7
22.2
18.8
15.8
22.8
89.1
24.1
18.0
15.8
22.3
-10.6
1.2
62.1
8.4
-1.2
2.1
87.9
17.4
-3.0
0.9
38.7
8.5
29.8
128.8
-1.9
0.8
33.8
9.5
1979-89
1989-99
1998
1999
1499-03
5.8
4.5
4.4
4.3
2.8
3.5
5.8
3.9
-7.7
8.0
3.9
9.2
5.5
3.8
10.8
1979
1989
1998
1999
Agriculture
Industry
Manufacturing
Services
20.9
35.8
13.8
43.3
19.7
28.0
24.7
52.3
17.5
32.3
25.9
50.2
17.4
27.0
51.0
Private consumption
General government consumption
Imports of goods and services
68.7
17.1
48.3
70.1
12.6
32.4
74.1
10.1
23.3
74.2
10.1
24.4
1979-89
1989-99
2.8
5.6
3.0
4.8
3.7
8.0
3.7
8.7
3.5
4.8
1.2
-1.6
4.0
1.8
5.3
2.8
1.4
4.0
31.9
1.1
4.0
16.5
12.8
Poverty (% of population below national poverty
Urban population (% of tofalpopulafion)
Life expectancy at birth (years)
Infant mortalitv (Der 1.000 live births)
Child malnutriion (% of children underb)
Access to improved water source (% of population)
illiteracy (% of population affe 15+)
Gross primary enrollment I%of school
Male
Female
43
69
33
88
l5
16
114
114
I
-
I
Access to safe water
Egypt, Arab Rep
Lower-middle-income group
~
KEY ECONOMIC RATIOS and LONG-TERM TRENDS
G D P (US$ billions)
Gross domestic investmenffGDP
Exports of goods and ServiceslGDP
Gross domestic savings1GDP
Gross national savingslGDP
Current account balancelGDP
Present value of debffGDP
Present value of debffexports
(average annual growth)
GDP
GNP per capita
Exports of goods and services
STRUCTURE of the ECONOMY
(% of GDP)
(average annual growth)
Agriculture
Industry
Manufacturing
Services
Private consumption
General government consumption
Gross domestic investment
Imports of goods and services
Gross national product
lgg8 1999
I
Economic ratlos'
Trade
Domestic
Savings
Investment
Indebtedness
-Egypt,
-
Arab Rep.
-- Lower-mrrlrllP-inrnmn
I Growth of Investment and GDP
nrniin
I
1
(Oh)
-20
-GDI
e
G
Growth of exports and Imports
10
I
D
P
(Oh)
-jO
-Exports
-Imports
Note: 1999 data are preliminary estimates.
The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will
be incomplete.
- 58 -
I
Egypt, Arab Rep.
PRICES and GOVERNMENT FINANCE
Domestic prices
(% change)
Consumer prices
Implicit GDP deflator
1979
1989
1998
1999
22.3
16.7
18.5
3.8
3.6
3.8
1.7
19.3
-4.9
-15.4
22.8
2.9
-1.o
22.7
2.7
-4.2
1989
1998
1999
1,334
299
115
978
10,381
2,404
5,128
103
141
1,685
16,899
3,194
4,445
208
255
2,095
16,969
2,374
2,311
4,030
5,575
75
86
88
97
94
103
94
90
104
Government finance
(% of GDP, includes current orants)
Current revenue
Current budget balance
Overall surpluddeficit
TRADE
(US$ millions)
Total exports (fob)
Cotton
Other agriculture
Manufactures
Total imports (cif)
Food
Fuel and energy
Capital goods
1979
Export price index (1995=100)
Import price index (1995=100)
Terms of trade (1995=100)
BALANCE of PAYMENTS
(US$ millions)
Exports of goods and services
Imports of goods and services
Resource balance
1979
1989
1998
1999
5,401
8,781
-3,380
8,216
12,539
-4,323
13,502
21,795
-8,293
13,537
21,110
-7,573
Net income
Net current transfers
-1,069
2,534
-389
4,243
1,213
4,601
995
4,869
Current account balance
-1,915
-489
-2,479
-1,709
Financing items (net)
Changes in net reserves
1,747
168
35
433
2,344
135
-409
2,117
0.7
2,437
1.9
20,878
3.4
18,763
3.4
1979
1989
1998
1999
14,906
258
266
34,836
1,371
893
30,313
942
1,187
29,955
756
1,273
519
22
2
2,169
263
12
1,643
236
25
1,833
156
29
258
1,148
441
1,216
0
455
1,033
571
1,250
0
1,341
0
-105
1,076
494
298
172
3
169
21
148
0
117
143
-26
132
-158
0
217
180
38
81
-44
Memo:
Resetves including gold (US$ millions)
Conversion rate ( O K , /ocalNS$)
EXTERNAL DEBT and RESOURCE FLOWS
(US$ mil/ions)
Total debt outstanding and disbursed
IBRD
IDA
Total debt setvice
IBRD
IDA
Composition of net resource flows
Official grants
Official creditors
Private creditors
Foreign direct investment
Portfolio equity
World Bank program
Commitments
Disbursements
Principal repayments
Net flows
Interest payments
Net transfers
Development Economics
I
inflation (%)
I
-GDPdeflator
1
-0-CPI
Export and import levels (US$ mill.)
20,000
T
15,000
1o.m
5,000
0
93
e4
95
90
Exports
97
98
Imports
Current account balance to GDP (%)
IB:
:omposition of 1999 debt (US$ mlli.)
G. 3,045 A' 756 E 1273
-193
-165
E: 21,976
405
70
125
-55
61
-116
i- IBRD
-
1 IDA
;-IMF
-
D Other multilateral
E Bilateral
F Private
G -Short-term
~
8/25/00
- 59 -
Additional Annex 11: Draft Policy Statement on Employment and W E T Reform in Egypt
ARAB REPUBLIC OF EGYPT: SKILLS DEVELOPMENT
1. Guiding principles
This document provides a basis for launching a comprehensive strategy for reform o f the Technical
and Vocational Education and Training (TVET) and Employment systems in Egypt that adheres to
the new economic challenges, and hence sets a basis for a dialogue between the Government o f Egypt
and the donor community for cooperation in i t s implementation.
The starting point i s the agreement among all parties on the need to reform the TVET system in Egypt
in order to provide the country with a skilled workforce ready to meet the challenges o f international
markets in a context o f lifelong learning. This becomes relevant in the perspective o f future
developments, like the gradual implementation o f the Association Agreement EU-Egypt and the
preparation for the future Euro-Mediterranean Free Trade zone. The existing TVET system faces a
number o f important problems and there i s common agreement among the Egyptian authorities, the
private sector and the donors active in the country on the need t o undertake a systemic reform.
TVET reform. This reform should take as a starting point the role o f TVET system in the Egyptian
economic and social context. On the one hand, i t should place TVET in the Egyptian economic
context as a tool for economic growth, increased productivity and competitiveness, particularly in a
context o f global markets. On the other, i t should ensure the contribution o f the TVET system to the
social development o f the country and to the objectives o f poverty reduction, equal opportunities,
social inclusion, access to employment and professional development perspectives for the individual.
This double dimension (economic and social) o f TVET reform can only be achieved by setting up a
coherent strategy that encompasses common reform objectives for education, training and
employment. Efforts are presently being undertaken by the Egyptian Government to reform different
subsectors o f the Qualification System in an independent way: basic and secondary education, higher
education, employment and training. Given the specific character o f TVET as a crossroad among
these various subsectors, and in order to achieve the objectives mentioned above, i t i s indispensable to
build-up coherence among these subsector strategies.
Emulovment policv reform. Unemployment i s o f increasing concern t o policymakers as the
Government seeks to establish a National Employment Program t o articulate a response. While
economic growth and new private sector jobs w i l l play a central role in reducing unemployment, well
designed public interventions can be instrumental in assisting the unemployed with j o b search
assistance, temporary employment schemes and an adequate institutional framework facilitating
labour mobility. In doing so, a careful balance needs t o be established between new public
interventions and the cost effectiveness o f such interventions.
The present draft policy statement takes into account the existence o f different policy documents
produced at different levels and with a varying degree o f endorsement tackling reforms in different
subsectors linked t o TVET. This i s the case o f the Report o f the “Education, Training and
Employment Subcommittee”, (ETES report, 3 August 2000), dealing mostly with training and
employment reform objectives or the recently launched “Employment and Training Strategy” (a set of
emergency measures issued by the Government), as well as the various Declarations for Action
subscribed by the educational authorities. Overall it can be said that there i s not a unique policy
document that can be considered a national government strategy covering a l l sub-sectors linked to
technical and vocational education and training. There i s need therefore to overcome this fragmented
approach by articulating a statement o f objectives and an overall national strategy integrating the
various existing drives for reform.
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The Government recommends to lead and implement a comprehensive strategy for reform o f the
TVET system. This reform w i l l guarantee the participation o f all stakeholders relevant for the TVET
system. (Ministries and Government agencies, enterprises, economic sector organizations, employer
federations, labour unions, private training providers). At the same time, i t w i l l provide a common
framework for interventions by the donor community aiming at supporting in different ways concrete
aspects o f this reform. The existence o f a coherent strategy encompassing all the different sub-sectors
i s a guarantee for the added value o f donor interventions, the complementarity among them and the
sustainability and efficiency o f their operations. Interventions by donors may take the form o f
separate programmes, providing they are coherent with the overall objectives and key issues set up in
the strategy. The Government o f Egypt expresses i t s willingness to lead this process and to ensure
donor co-ordination.
2. Present challenges in TVET AND EMPLOYMENT in Egypt
2.1 TVET challenges. This section summarizes the main issues to be tackled by a reform o f the
TVET system in Egypt. In general there i s broad agreement among the Egyptian stakeholders and
international donors and experts on the diagnosis o f the main weaknesses o f the Egyptian TVET
system. The root problem i s the absence o f a skilled workforce (particularly in s k i l l levels 2 and 3)
that can successfully contribute to economic growth and social development, productivity and
competitiveness in an economy integrated to world markets. While the problems o f the TVET system
are to a large extent related to problematic aspects o f the overall education system, specific TVET
issues are the following:
Non-uniform organization o f the TVET system, with inherited involvement o f many line
Ministries with their own supply driven training infrastructures;
High internal and external inefficiency; due to bureaucracy and use o f outdated curricula
and equipment that are not kept with current industry practices, in addition to the inability
o f trainers to design courses relevant to market expectations.
Internal drive o f the whole education system towards higher education, combined with a
l o w status and low relevance o f TVET. This leads to overproduction o f higher education
graduates. They lack practical s k i l l s and competencies and cannot fill vacancies o n the
shop floor or in line management positions;
Outdated occupational profiles, curricula, teaching methods, textbooks and equipment;
imbalance between theory and practice; lack o f practical work experience o f teachers and
instructors;
Tensions between labour market and education objectives within many TVET
institutions;
Lack o f involvement o f the private sector in governance, funding and delivery o f TVET;
High variation o f output and qualification standards with serious gaps between formal
and real qualifications;
Slow propensity to change o f the VET system at large and the vicious circle of l o w
quality, low efficiency, low esteem and l o w relevance;
Companies are not built around a core o f skilled workers and employees (with all i t s
consequences for competitiveness, quality and productivity);
Little investment in upgrading staff qualification and enhancement in continuing
education and training;
N o established horizontal and vertical pathways between the different subsectors o f the
qualification system (e.g. from preparatory schools to vocational training and back to
higher levels o f general education, from work experience back t o vocational education
and training or to general education, etc., access to education and training for school
dropouts, etc.)
There i s a scarcity o f data and analysis to guide the TVET reform process;
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The institutional framework o f TVET i s extremely fragmented (many Ministries and
agencies are involved), lacking co-ordination and a visible leadership on the side o f the
Govemment,
There i s a lack o f transparency and cohesion among the formal, non-formal and informal
VET systems,
Donors’ support to TVET has been large but concentrating mostly o n subsector reform,
creating “islands o f excellence” but failing to provide a coherent support to a sectoral
policy reform,
Donors’ activities have traditionally lacked co-ordination and complementarity.
2.2 Labour market policies. In this short-term the objective o f the Government i s to stabilise
unemployment, while promoting policies that w i l l induce sustainable economic growth in the
medium-term. K e y labour market issues are:
Current structure and operations o f the public employment service are outdated and geared
towards a planned economy,
Mismatch between the provision o f practical and academic skills, and the s k i l l s requirements o f
the productive sector,
Restrictions on the use o f private employment agencies,
Lack o f statistically sound labour market information, undeveloped counselling and employment
services
Inadequate legislative framework
3. Key areadcomponents of a national strategy for TVET reform in Egypt
The framework of a national strategy for TVET in Egypt should cover the full spectrum o f relevant
education and training institutions: vocational preparatory, secondary vocational and technical
schools, vocational training centres, enterprises based training, private training institutions and
Middle Technical Institutes. Relevant actors would be the main Ministries responsible for these
institutions (MoE, MoH, MoIT, MoMP, etc.), as well as employers, trade unions and the private
sector (including private training providers). All these actors are relevant for the creation o f cohesive
links and partnerships between TVET institutions and the private sector. Within these partnerships,
the involvement of the different groups o f stakeholders (parents, students, teachers and trainers,
managers and administrators o f TVET institutes, fm)should be foreseen. There i s a need to
integrate regional and local dimensions in the framework o f the national strategy.
Four main pillars can be identified as main components o f the reform. They are interdependent and
complement each other. Each o f these pillars encompasses a subset o f key issues and measures to be
developed.
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3.1.
Establishinga quality Qualification System fostering the principle of Lifelong
Learning ;
Establishinga TVET system responding to labour market needs;
Establishingnew legal, institutional and governance frameworks for TVET
institutions;
Establishinglabour market policies that enhance the mobility of labour.
Establishing a aualitv Qualification system fostering the principle of Lifelong Learning.
The Lifelong Learning concept comes up as an answer to the need to keep updated knowledge and
s k i l l s in an international competitive economy within a context o f rapid technological change. This
understanding has created a shift towards investment in human capital and in raising the participation
in education and training throughout working life. It also provides an answer t o the social dimension
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b y targeting the objectives o f personal fulfilment, active citizenship, social inclusion and
employability/adaptability . This message i s relevant in the Egyptian context, where the introduction
o f vertical and horizontal pathways o f integration between the different levels o f s k i l l s and
qualifications within the TVET system i s one o f the key priorities to achieve a skilled workforce able
to answer the needs o f the labour market. Within the context o f lifelong learning the formal TVET
system has an important contribution to make.
Some basic elements for a quality TVET system in this perspective would include:
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Building up partnerships, not only between decision-making levels (national, regional
and local) but also between education providers (public and private) and the industry and
social partner representatives;
Redefinition o f basic skills, according to a national system o f s k i l l s standards and
occupational classification (both under development at present in Egypt). This would
include making general knowledge and basic s k i l l s available to all types o f education and
training systems. This implies looking as well into the connections between the formal
and non-formal learning systems. Non-formal education and training has to focus on
ways o f acquisition o f the core skills and specific s k i l l s needed in labor market, as well as
on certain s k i l l s where critical shortages could be identified.
Revision o f the investment and financing mechanisms for learning, especially in
TVET; Government training providers can retain the income generated and use it in
upgrading their capacity.
M a k i w learning provision more accessible to all, that is, making access to TVET
provision easier, improving learning opportunities at different stages o f the working life,
paying attention to groups with special needs, equality o f opportunities for all citizens,
increasing the internal coherence o f the education systems, setting up o f information and
guidance services;
Giving learning a higher profile, both in terms o f image and incentive. A special focus
should be put on teachers and trainers training and retraining, one o f the weaknesses
spotted in all the different levels within the TVET system in Egypt;
Introducing quality control systems and indicators (standards), as well as feedback
mechanisms on the performance o f the system.
Supporting strategies for the introduction o f these key elements would include:
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The setting up o f a national system o f s k i l l s standards with the involvement o f employers
and trade unions;
The setting up o f a national occupational classification;
The development of a transparent national qualification structure, t o enable graduates to
identify clear paths o f opportunity to obtain vocational qualifications along side academic
awards.
The setting up o f an accreditation system (including accreditation o f prior learning),
testing and certification;
Generalization o f horizontal and vertical pathways;
Better integration o f schools and training centers in local VET networks;
Creating opportunities to go back and forth to formal education and training at all ages;
Guidance and counseling for j o b seekers;
Teachers and trainers’ training and retraining o f teachers, trainers, TVET managers and
administrators;
Curricula development and revision, in response to the changes in technology and market
needs.
Physical upgrading o f the TVET institutions
Restructuring o f Middle Technical Institutes based on the aforementioned strategy and
philosophy.
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3.2 Establishing a TVET svstem resuonding to labor market needs
The TVET system in Egypt needs to be much more responsive to the needs o f the labor market. The
system has to accomplish the transition from supply to demand driven. However, further capacity
building i s necessary for the private sector in order to empower i t to be able to formulate s k i l l s and
training needs in an appropriate manner. Capacity building i s also needed to enable the private sector
t o provide high quality trainers and practical training places. The private sector in Egypt needs to
develop i t s awareness and involvement on the provision o f market relevant training. At the same time,
relevant labor market information for s k i l l s needs identification needs to be further developed for
helping in making policy decisions in TVET reform.
A set o f strategies aiming at improving the relevance o f TVET towards the labour market would
include:
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Upgrading the capacities o f companies for elaborating training needs analysis and
training plans, which are linked with the development plan o f the enterprise;
Creation o f partnerships between TVET institutions and companies;
Creation o f incentives for the participation o f companies in training o f youth and adults;
Setting up in-service training programs as well as enterprise based training for students;
Fostering the participation o f enterprises in the elaboration o f training programs;
Supporting training and employment programs for staff facing lay-off (e.g. from public
enterprises being privatized), and for retraining the unemployed.
In this context, a reform o f the financing o f training should take place: Training institutions should
become accountable to consumers o f their services for the use o f public financing and they should be
allowed to accept direct financing from firms and individuals. This process would include the setting
up o f an accounting and cost framework for the whole TVET system (formal and non-formal), and
the elaboration o f several options for more efficient funding (including more financial autonomy for
TVET institutions, a National Training Fund, tax incentives, employment and training subsidies
among others).
3.3
Establishing new legal, institutional and governance frameworks for TVET institutions
The main objective under this heading would be to enlarge the autonomy o f TVET institutions in
their functioning and the delivery o f their services. TVET institutions in Egypt at various levels
suffer from a too centralized and rigid management model that i s not in accordance to the aspirations
o f linking the TVET schools and centers to the labor market as well as to their local environment.
This reform would argue for a more flexible approach in the relation between schools and centers and
their respective supervising authorities. This would allow the TVET institutions to generate their own
income, to define their institutional policy and to apply new management models, including the
participation o f the private sector in the governance and the management o f individual TVET
institutes and o f the whole system.
A second objective would seek to improve the coherence and co-operation at local level between
TVET schools and Vocational Training Centers in local TVET networks. This would contribute to a
more efficient and flexible provision structure, it would facilitate an objective appreciation o f quality
in training, and it would contribute to reducing the frictions between different institutions educating
and training for similar occupational profiles.
This process should be seen in connection with the creation o f partnerships between the TVET
institutions and the private sector mentioned in the two precedent sections. I t would be dependent on
the development o f a national qualification structure based on agreed standards as well as o n the
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existence o f adequate quality assurance mechanisms. It should have as a mid-term objective the
establishment o f a legal framework that would regulate the adequate functioning o f this new model.
Establishing labor market policies that enhance the mobilitv of labor
3.4
Government policies are confined to smaller scale and pilot project activities, in some cases s t i l l
dominated by the needs o f a planned economy. Little i s known about the impact o f many o f these
programs on employment. T o improve the relevance o f training policies a set o f strategies should
include:
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Employment and counseling services, including the preparation o f guidelines for the
operation o f market oriented public and private employment services, the setting up o f a
reliable labor market information system, and the creation o f occupational and career
counseling services.
Active labor market policies, which would provide cost-effective training services for the
unemployed and redundant workers, and labor-intensive public works and communitybased programs targeted to the poorest communities.
Legislative issues: the legislative framework should promote the mobility o f labor and the
creation o f permanent jobs. Excessive reliance on low-wage, temporary labor has an
inherent bias against the provision o f s k i l l s for employees. Legislation should not impose
restrictions on hiring and should encourage the setting up o f private employment
services.
4. Tools for strategy implementation
The implementation o f the strategies described in the previous chapter requires some instruments that
can contribute to their development. Many o f the reform measures described above would most
probably be launched as pilots. However, i t i s appropriate t o identify from the beginning the type o f
processes that w i l l have to be put into place in mid and long term t o create the conditions for the pilot
activities to have an impact on the overall sector reform. This section describes some o f the processes
that would be necessary to establish in parallel or as a result o f the piloting o f the reforms identified in
chapter 3.
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Setting UP of a policv formulation and management structure, representing national
authorities at various levels (national, regional and local) including as well
representatives from economic sectors and employers and labor unions. This structure
could take the form o f a tripartite body and would be responsible for the necessary
process o f policy formulation that i s inherent t o the reforms described above. At present
this function i s attributed to the Supreme Council for Human Resources Development
(SCHRD). T o cover the overall TVET sector, however, i t would need to enlarge i t s
participation to some Ministries that are presently not represented and to increase the
representation o f the private sector and social partners. This body would need advice and
reliable data from adequate research and development institutes, an observatorv or
similar sources.
New legal and regulatory frameworks would be needed particularly for issues such as
the new institutional and governance frameworks for TVET institutions, or the adoption
o f a national qualification system, national TVET standards, an occupational
classification system and an accreditation procedure for public and private TVET
institutes.
A new financial regulation, following the piloting o f alternative financing models such
as school budgets and a National Training Fund.
A national certification and accreditation body, ensuring the standardization o f
qualification levels enabling provision and delivery by a multiplicity o f training
providers.
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A comprehensive Quality assurance svstem.
The setting up of a research and development function, which could include
observatory functions for trends in the labor market and feedback mechanisms to the
TVET system.
A high-Quality provision for training and retraining of teachers and trainers.
Development of market oriented public and private emplovment services
Establishment of a labour market information system
Develoument of an occupational and career counseling service
Labour intensive public works in community based programs targeted to poverty
alleviation.
The international donors contributing in the development o f the TVET policy statement reform,
together with the Government of Egypt, will discuss ways in which these programs are going to
contribute to the design and implementation of this process.
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