Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: 29178-TN

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

IN THE AMOUNT OF

EURO 30.3 MILLION (US$36 MILLION EQUIVALENT)

TO THE

REPUBLIC OF TUNISIA

FOR A

SECOND EXPORT DEVELOPMENT PROJECT

June 2,2004

Finance, Private Sector and Infrastructure Department Middle East and North Africa Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.

CURRENCY EQUIVALENTS (Exchange Rate Effective March 30,2004)

Currency Unit = Tunisian Dinar (TD) Tunisian Dinar 1 = US$ 1.25

US$ l TD 0.80

AAEU ADEMAR AMC APE CAS CBT CEPEX CNI COTUNACE

EMAF EU FDI FEDEX FOPRODEX GDP GOT IBRD ICB INORPI

MENA L C A E MFA MOP PCMU PEFG PREM SBD SINDA SMES TD TTFSE TTN WTO

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS Association Agreement with the European Union Acceleration of Maritime Forwardings (Acce'le'ration des expe'ditions maritimes) Authorization for Consumption (Autorisation mise h la consommation) Provisional Authorization for Lifting (Autorisation provisoire d'enldvement) Country Assistance Strategy Central Bank o f Tunisia Center for Export Promotion (Centre de promotion des exportations) National Data Processing Center (Centre national de l 'informatique) Tunisian Company for the Insurance o f Export Credit (Compagnie tunisienne pour 1 'assurance du commerce exte'rieur) Export Market Access Fund European Union Foreign Direct Investment Federation o f Private Exporters (Fe'de'ration des exportateurs prive's) Export Promotion Fund Gross Domestic Product Government o f Tunisia International Bank for Reconstruction and Development International Competitive Bidding National Institute o f Standard and Intellectual Property (Institut national de normalisation et de proprie'te' intellectuelle) Middle East and North Africa Region Central Laboratory for Analysis and Testing (Laboratoire Central d'Analyse et d'Essai) Multi-fiber Agreement Manual o f Procedures Project Coordination and Monitoring Unit Preshipment Export Finance Guarantee Poverty Reduction Economic Management Unit Standard Bidding Documents Tunisia Customs Information System Small and Medium Enterprises Tunisian Dinar Trade and Transport Facilitation in South Eastern Europe Tunisie Trade Net World Trade Organization

Country Director: Theodore Ahlers

Sector Manager: Zoubida Allaoua Sector Director Emmanuel Forestier

TUNISIA FOR OFFICIAL USE ONLY EXPORT DEVELOPMENT I1

A . 1 . 2 . 3 .

B . 1 . 2 . 3 . 4 . 5 .

C . 1 . 2 . 3 . 4 . 5 . 6 .

D . 1 . 2 . 3 . 4 . 5 . 6 . 7 .

CONTENTS

Page STRATEGIC CONTEXT AND RATIONALE ......................................................................................... 1 Country and sector issues ............................................................................................................................... 1 Rationale for Bank involvement ..................................................................................................................... 2 Higher level objectives to which the project contributes ................................................................................ 2

PROJECT DESCRIPTION ......................................................................................................................... 3 Lending instrument ......................................................................................................................................... 3 Project development objective and key indicators ......................................................................................... 3 Project Components ........................................................................................................................................ 4 Lessons learned and reflected in the project design ........................................................................................ 9 Alternatives considered and reasons for rejection ........................................................................................ 11

IMPLEMENTATION ................................................................................................................................ 12 Partnership arrangements ............................................................................................................................. 12 Institutional and implementation arrangements ............................................................................................ 12 Monitoring and evaluation o f outcomeslresults ............................................................................................ 14 Sustainability ................................................................................................................................................ 14 Critical risks and possible controversial aspects ........................................................................................... 14 Loan conditions and covenants ..................................................................................................................... 14

APPRAISAL SUMMARY ......................................................................................................................... 15 Economic and financial analyses (supported by Annex 9) ........................................................................... 15 Technical ...................................................................................................................................................... 16 Fiduciary ....................................................................................................................................................... 16 Social ............................................................................................................................................................ 18 Environment ................................................................................................................................................. 18 Safeguard policies ........................................................................................................................................ 18 Policy Exceptions and Readiness ................................................................................................................. 19

ANNEXES

Annex 1: Country and Sector Background ................................................................................................................. 20 Annex 2: Major Related Projects Financed B y The Bank And/or Other Agencies ................................................... 26 Annex 3: Results Framework and Monitoring ............................................................................................................ 27 Annex 4: Detailed Project Description ....................................................................................................................... 30 Annex 5: Estimated Project Costs ............................................................................................................................... 53 Annex 6: Implementation Arrangements .................................................................................................................... 54 Annex 7: Financial Management and Disbursement Arrangements ........................................................................... 55 Annex 8: Procurement ................................................................................................................................................ 62 Annex 9: Economic and Financial Analysis ............................................................................................................... 68 Annex 10: Safeguard Policy Issues ............................................................................................................................. 75 Annex 11: Project Preparation and Supervision ......................................................................................................... 76 Annex 12: Documents in the Project Fi le ................................................................................................................... 77 Annex 13: Statement of Loans and Credits ................................................................................................................ 78 Annex 14: Country at a Glance ................................................................................................................................... 80

MAP IBRD32056

This document has a restricted distribution and m a y be used by recipients only in the performance o f their official duties . I t s contents m a y not be otherwise disclosed without W o r l d Bank authorization . _-

TUNISIA

Source

TN-EXPORT DEVELOPMENT I1

Local Foreign Total

PROJECT APPRAISAL DOCUMENT

BORROWER 4.83

MIDDLE EAST AND NORTH AFRICA

0.00 4.83

MNSIF

!

INTERNATIONAL BANK FOR 35.64 RECONSTRUCTION AND DEVELOPMENT FOREIGN SOURCES (UNIDENTIFIED) 15.00 Total: 55.47

Date: June 2,2004 Country Director: Theodore 0. Ahlers Sector Manager: Zoubida Allaoua

Team Leader: Hamid R. Alavi Sectors: Central government administration (20%); Micro- and S M E finance (20%); General industry and trade sector (20%); Other domestic and international trade (20%); Agro-industry (20%) Themes: Export development and competitiveness (P); Small and medium enterprise support (S); Trade facilitation and market access (S); Other public sector governance (S) Environmental screening category: Not Required Safeguard screening category: N o impact

Project ID: PO71115 Lending Instrument: Specific Investment Loan

. _ _ 0.00 35.64

0.00 15.00 0.00 55.47

For LoansICredi t slot hers : Total Bank financing (US$m.): 35.64 Pronosed terms: FSL

FY I 2005 I 2006 I 2007 I 2008 I 2009 1 0 0 0 0 Annual 3.93 I 14.15 1 11.18 I 6.01 I 0.36 I 0.00 I 0.00

Borrower: The Republic of Tunisia

0.00 1 0.00

Responsible Agency: Ministry of Commerce, Tunisia

I Estimated disbursements (Bank FY/US$m) I ~~ ~ ~ _ _ _ _ _

Cumulative I 3.93 I 18.08 I 29.26 I 35.27 I 35.@1 35.63 I 35.63 I 35.63 I 35.63 Project implementation period: Start October 1,2004 Expected effectiveness date: October 1, 2004 Expected closing date: March 31,2010

End: September 30,2009

[ ]Yes [XINO

[ ]Yes [XINO

Does the project depart from the CAS in content or other significant respects? Ref. PAD A.3 Does the project require any exceptions from Bank policies? Ref. PAD D. 7

I Have these been approved by Bank management? [XIYes [ ] N o I s approval for any policy exception sought from the Board? Does the project include any critical r i sks rated “substantial” or “high”? Ref. PAD C.5 Does the project meet the Regional criteria for readiness for implementation? Ref. PAD D. 7

[ ]Yes [XINO

[ ]Yes [XINO

[XIYes [ ] N o

Project development objective Ref. PAD B.2, Technical Annex 3 The focus o f the project i s to build upon and anchor more deeply the institutional reforms started under the f i rs t Export Development Project (EDP I) with the intention o f creating a conducive export environment and encouraging trade. The project’s development objectives are to improve access to export markets and finance, and enhance the efficiency and performance o f trade clearance processes including customs operations and technical controls, thereby making trade logistics more efficient. B y building on the lessons and achievements o f the EDP I, the implementation o f the Second Export Development Project (EDP 11) i s expected to strengthen market institutions for export development, enhance competitiveness o f Tunisian exporters, and strengthen public-private interface to administer and promote exports.

Project description [one-sentence summary of each component] Ref. PAD B.3.a, Technical Annex 4

Component 1: Second Export Market Access Fund (EMAF 11)

This component would include a matching grant fund (the second Export Market Access Fund - EMAF 11) inspired by the success o f EMAF I and consolidatingkomplementing EMAF I assistance, which has achieved substantial incremental export results, expanded the sustained export capacity o f Tunisian firms and their willingness to pay for valuable export business development services, and fonnented the emergence o f a Tunisian export consulting industry.

Component 2: Pre-shipment Export Finance Guarantees Facility (PEFG)

This component w i l l strengthen the management o f PEFG program that was set up under the EDP I, with the aim o f further encouraging financial institutions to provide pre-shipment working capital financing to emerging exporters with viable export contracts. Eligible sub-loans financed by the PEFG facility would be guaranteed for up to 90 percent of the outstanding principal amount, which represents nonperformance r isks o f SMEs and emerging exporters which the participating financial institutions must bear for up to 180 days (and in cases where the period o f production i s high, up to 300 days).

Component 3: WTO Technical Barriers to Trade Enquiry Point

The ability o f f m s to access information on international standards and transparency in regulatory requirements are fundamental to export development. Standards can improve information flows between suppliers and consumers regarding the characteristics and quality pf products, thereby facilitating market transactions. This i s particularly the case o f developing countries such as Tunisia. For example, based on analysis from the World Banks Technical Barriers to Trade Survey, information inquiry barriers for f i r m s wishing to access information on standards in developing countries can reduce export success by 47 percent. Standards facilitate comparisons between consumers across products with common essential characteristics.

Component 4: Trade Logistics

The more tariffs and non-tariffs barriers to trade are brought down, the more conspicuous become 'the importance o f the procedural, logistic, and regulatory environment that impact on the costs and potential o f trade. In this context, this component w i l l initiate measures to upgrade logistics links to global markets as an important condition for promoting exports and attracting export-oriented FDI. The trade facilitation component o f EDP I focused on simplification o f trade related documentation (Liasse Unique), electronic processing o f these documents and the setup of a single computer network (TTN) for the trading community. The thrust o f EDP I1 trade facilitation component i s to extend facilitation beyond trade related documentation processing to a broader objective of facilitation o f trade through streamlined technical controls, improved customs procedures, and increased access to information on standards and technical regulations to raise transparency and meet international trade obligations.

Which safeguard policies are triggered, if any? Ref. PAD 0.6, Technical Annex 10 None triggered.

Significant, non-standard conditions, if any, for: Ref. PAD C. 7 Board presentation: None.

Loadcredit effectiveness: (a) The CEPEX Grant Agreement has been executed on behalf o f the Borrower and CEPEX and has entered into effect in accordance with i ts terms;

(b) The COTUNACE Grant Agreement has been executed on behalf o f the Borrower and COTUNACE and has entered into effect in accordance with i t s terms;

(c) CEPEX has formally approved for i t s use and operations, and furnished to the Bank, the EMAFII Operations Manual in form and substance satisfactory to the Bank; and

(d) The Borrower has formally approved and furnished to the Bank the Project Implementation Plan, in form and substance satisfactory to the Bank.

Covenants applicable to project implementation: The Borrower shall submit to the Bank a mid-term review report by June 30,2007.

A. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues

Tunisia’s commendable export performance o f the past two decades i s coming under increasing pressure. In particular, the full implementation o f the Association Agreement with the European Union (AAEU) by 2008 and the phasing out o f the MFA (Multi-fiber Agreements) by 2005, engender competitive challenges for Tunisia. The dismantling o f trade barriers with the EU wi l l largely be unilateral, as Tunisia’s industrial exports already benefit from preferential access to the EU market, thereby providing further incentives to improve competitiveness o f the Tunisian domestic f m s (on-shore sector). Furthermore, the dismantling o f the MFA wi l l present increased competition for Tunisia’ s primary export articles (subcontracted apparel exports from the offshore sector) from countries such as India, China, Bangladesh and Eastern Europe.

These challenges pose specific concerns for Tunisia given the structure o f i t s exports and concentrated markets. More than 40 percent of total exports are concentrated in clothing (SITC 84) and 75 percent o f Tunisian exports are to the European Union (notably France, Italy and Germany), while the North American share i s less than 1 percent. Other countries are increasingly taking away market shares from Tunisia in i t s traditional markets. For example, Bangladesh i s now the 6th largest exporter o f garments to the U.S. and the 5th largest exporter of garments to the EU. Moreover, between 1991 and 1995 average manufacturing export rate stood at 12.9 percent for Tunisia, 19.6 percent for Bangladesh, and 13.1 percent for Turkey.’ Between 1996 and 2002 Tunisian export performance worsened as i t s manufacturing export growth rate decreased to 3.7 percent. While i t s competitors experienced a similar trend, i t was not as pronounced as that of Tunisia, implying a loss in Tunisia’s relative market share. For instance, Bangladesh’s and Turkey’s manufacturing export rate decreased to 16.8 percent and 9.5 percent respectively for the same period.

In addition, Tunisia’s past impressive export performance i s no longer sustainable because o f a number of other structural vulnerabilities. First, Tunisian exporters remain sub-contractors for large foreign companies, rather than becoming arms-length exporters which would reinforce domestic linkages and increase the value added o f their exports. As a result, Tunisian exporters continue to produce relatively simple goods (mainly garments) that can be easily replaced with similar products f rom lower cost locations. The experience o f the Export Development Project (EDP I) shows that, if provided with the adequate knowledge of export markets and buyers, Tunisian exporters possess the necessary production capabilities to undertake a transition. Second, export growth has been led almost exclusively by the off-shore garment f m s (composed o f firms exporting more than 80 percent o f their production) that have benefited from preferential export incentives. These f i r m s have established little linkage to domestic firms, leaving an isolated on-shore industry behind. As such, most on-shore firms remain largely unprepared for the international competition arising f rom Tunisia’s international agreements (AAEU). The experience o f EDP I (e.g., 200 new on-shore firms that are entering export markets) has confirmed that the on-shore sector represents a significant potential for export growth and w i l l contribute to the opening o f the Tunisian domestic market to foreign products.

International experience, and the experience o f Tunisia itself (EDP I) suggest that addressing the following reforms i s key to ensuring a conducive environment for export development and competitiveness.2 First i s facilitating access to knowledge on foreign buyers and market requirements, and the know-how to sell in foreign markets. With the initial support o f the government, the EDP I

2002 COMTRADE Database U.N. These reforms are in addition to the broader reforms of economic govemance that establish an incentive structure that ensures a

level-playing field among investors (offshore and on-shore) and reduce administrative complexities (tax and other procedures, business entry and exit), as well as reforms that facilitate access o f emerging exporters to finance.

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experience has shown promise, in part through the development o f a local export consulting industry, that market institutions can indeed be developed to help firms overcome market information imperfections.

Second i s lowering transaction costs involved in trade and logistics. These costs represent a heavier burden on emerging and S M E exporters and on-shore firms. The procedures for external trade in Tunisia require the processing o f documents by multiple agencies - the Ministry o f Commerce, banks, the port authority, and customs, as well as the usual professional organizations such as customs brokers, shipping agents, and freight forwarders. At the time o f the preparation o f EDP I, there were 19 distinct steps involved in an import transaction and 15 steps in an export transaction, translating into an average o f 8 days required for trade document processing (and in some cases up to 18 days). The EDP I addressed document processing issues, through which the number o f steps involved in trade transactions were reduced. But technical control and border clearance procedures o f trade logistics were not tackled by the project.

This leads us to the third area: inefficiencies in trade logistics and supply chains which impose heavy transactions costs on Tunisian firms. Despite the significant reduction in document processing time in the last two years (supported by EDP I), there remain inefficiencies in the country’s international supply chain and Tunisian exporters are s t i l l exposed to lost export opportunities. For example, the incidence o f logistics costs for f i r m s in automotive parts industry operating on a just-in-time contractual agreements i s about 30 percent o f the delivered price o f the product, as opposed to about 10 percent as international norm. Theses costs are penalizing Tunisian exporters particularly the on-shore sector.

Closely associated with improving trade competitiveness i s the concern with elevating Tunisian international trade up the value chain from where they are today. Tunisia, as with any other country, cannot expect to ratchet up the value chain without raising the level o f trade logistics performance. This i s because high value products require tight supply chain management (e.g., just in time delivery) to minimize inventory costs and/or respond quickly to time sensitive markets which only a commensurably high performance trade logistics system can accommodate. Not doing anything to improve the trade logistics system so as to keep in step with the upward movement in the value chain would subject Tunisian producers to a significant logistics cost penalty. As price takers in the world market, Tunisian producers would have to absorb and offset the penalty by reducing the profit margin and/or suppressing labor and other costs.

2. Rationale for Bank involvement

The proposed project builds on an already strong dialogue on competitiveness (e.g., ECAL I, 11, 111, EDP I, Trade Strategy Note) with the Tunisian authorities and the private sector. In addition, the Bank would bring a multi-dimensional cross-country perspective and experience with the design and implementation o f matching grant schemes, e-government solutions and trade facilitation mechanisms where it i s developing regional approaches. The Government o f Tunisia has been very selective in accessing IBRD financial assistance and has determined that export development continues to be a high priority where Bank assistance has proved to be beneficial. Tunisia has leveraged the ability of the Bank to assist in creating effective market oriented institutions for trade promotion and finance, thereby replacing government led schemes and subsidies, as demonstrated by the EDP I experience.

3. Higher level objectives to which the project contributes

The proposed operation supports a fundamental objective o f the World Bank’s Country Assistance Strategy for Tunisia (CAS), discussed by the Board in May 2004. I t i s in line with the central focus of the CAS on international competitiveness, and anchored in the government’s strategic goals which include export competitiveness to promote growth and job creation as Tunisia confronts heightened intemational

competition. Exports are vital to accelerated growth o f output and employment in Tunisia. A key reason i s Tunisia's small domestic economy. Another reason i s that worldwide exports have grown faster than world GDP (e.g., during 1990-2000, world trade grew on average at 5.8 percent while world GDP grew at 2.6 percent a year), and countries that sell into t h i s growing market have better growth prospects than those that focus on the domestic market.

Development Objectives Improve access to export markets

Increase sustainable export capacity at the firm and business associations level

Enhance interactions and compliance with WTO

Facilitate access to pre-shipment export finance

The operation also leverages modern technology to enhance efficiency and speed o f trade transactions and continued market-opening measures. As one indication o f the potential benefits o f a focus on trade facilitation, analysis conducted by the Bank from a new database o f 75 countries suggests that Tunisian exports could rise by approximately US$500 mil l ion with a program to raise customs efficiency to the level in France. There i s also potentially significant returns on investment in the form of savings from reduced transaction cost that capacity building in standards and streamlined border and technical control procedures w i l l entail.

Performance Indicators - Total incremental export value b y the beneficiary

enterprises - Number o f firms and associations assisted

- Increased number o f firms accessing information on voluntary standards and technical requirements for exports

- Reduced time for notification to WTO o f new technical regulations

- Amount o f export working capital loans guaranteed - Additional exports generated

B. PROJECT DESCRIPTION 1. Lending instrument

Enhance efficiency of technical control clearance

Specific Investment Loan. The Borrower has opted for a Fixed Spread Loan in single currency Euros.

- Reduced time for technical inspection services authorizations (APE/AMC)

2. Project development objective and key indicators

The focus o f the project i s to build upon and anchor more deeply the institutional reforms started under the f i rst Export Development Project (EDP I) with the intention o f creating a conducive export environment and encouraging trade. The project's development objectives are to improve access to export markets and finance, and enhance the efficiency and perfonnance o f trade clearance processes including customs operations and technical controls, thereby making trade logistics more efficient. B y building on the lessons and achievements of the EDP I, the implementation o f the Second Export Development Project (EDP 11) i s expected to strengthen market institutions for export development, enhance competitiveness o f Tunisian exporters, and strengthen public-private interface to administer and promote exports. The following are a set of performance indicators that have been agreed with the Tunisian authorities (Annex 3 presents estimates for these indicators).

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Development Objectives

Reduce transactions and trade logistics costs by improving and streamlining customs clearance and border crossing procedures

Performance Indicators - Number of exporters and importers using the Tunisie

Trade Net (TTN) system - Customs clearance times from submission of customs

documentation to release of merchandise - Increase in percentage of import declarations assigned the

Green Channel (immediate release) - Reduced percentage o f declarations subject to physical

examination

3. Project Components

Component 1: Second Export Market Access Fund (EMAF 11) - (total cost is US$37.6 million of which IBRD will finance US$21.1 million)

The EMAF I1 component would help Tunisian fm boost growth, employment and income through new export initiatives and the diversification o f markets and products. I t would specifically provide non- reimbursable co-financing o f 50 percent for individual firms and 70 percent for professional associations from US$16.6 mill ion o f the proceeds o f the Bank’s loan, on a demand-driven basis to help implement investments in market research and pre-competitive programs that increase export market access and competitiveness, with the remaining 50 to 30 percent mobilized from participating private sector firms

and professional organizations. EMAF I1 would build on EMAF I (developed under EDP I) by expanding direct support to at least 500 Tunisian SMEs during a 4-year period.

In order to broaden the successful formula under EMAF I, EMAF 11 would also help build the capacity o f up to 40 professional organizations, such as export associations, chambers o f commerce, and professional consulting organizations, to support groups o f Tunisian firms working under a specific common export plan and to support the institutional strengthening for export development o f such entities. The Bank loan would also finance US$4 mill ion to support EMAF I1 management, acquisition o f equipments and technical support in the preparation of export plans, sponsorship o f implementation workshops and training seminars, and monitoring and impact evaluation. In addition, US$500,000 w i l l be allocated to support a vendor development program to actively court international vendor development managers, professional buyers and buying chains, and design companies.

Design refinements under EMAF I1 aim to increase the program’s return on investment by expanding eligible expenditures to cover the establishment o f export service offices abroad, the search for partnerships, export plan-related training for firms, and product design modifications. EMAF I1 management and technical assistance services would also be reinforced by strengthening support to f i r m s and professional associations in their designs o f export plans, (Annex 4 provides more details including the operational guidelines for EMAF 11).

Component 2: Pre-shipment Export Finance Guarantees (PEFG) Facilitv - (total cost is US$l.O million ofwhich IBRD finances US$0.8 million)

This component wi l l strengthen the management o f PEFG program that was set up under the EDP I, with the aim of further encouraging financial institutions to provide pre-shipment working capital financing to emerging exporters with viable export contracts. Eligible sub-loans financed by the PEFG facility (see Annex 4) would be guaranteed for up to 90 percent o f the outstanding principal amount, which represents

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nonperformance risks o f SMEs and emerging exporters which the participating financial institutions must bear for up to 180 days (and in cases where the period o f production i s high, up to 300 days).

Since i ts inception in 2000, the facility has generated US$30 mill ion o f additional exports per year, with an original PEFG fund of US$5 million. This performance has however been weaker than envisaged and the facility has not been able to fully respond to demand by emerging exporters for pre-shipment financing. Meanwhile, the banks are increasingly searching for risk-sharing instruments that could help them diversify their client base. A key reason for the weak performance has been the premature departure o f a number o f skilled staff o f COTUNACE in charge o f PEFG management, and i t has become clear that the remaining PEFG team (composed o f one full time and one part time COTUNACE staff) does not have the requisite sk i l l s and capacity to meet the potential o f the scheme. The project w i l l therefore finance the recruitment o f international and local experts that could more effectively manage the PEFG scheme. The new management team wi l l fully comply with the PEFG operational manual (summarized in Annex 4), w i l l have requisite sk i l l s and sector knowledge for the evaluation o f emerging exporters’ risks, and w i l l have significant experience in managing similar schemes.

The facility w i l l be available to al l Tunisian SMEs and emerging exporters in all manufacturing, processing, and service activities (except those sectors on a negative l ist) that are unable to access pre- shipment export finance from commercial banks, provided that these exporters submit confirmed export letters o f credits (L/Cs), other export orders backed by export credit insurance, back-to-back domestic L/Cs, or international subcontract fee payment guarantees that ensure the self-liquidation o f the underlying pre-shipment export finance guaranteed by buyers’ payment within the loan and PEFG’ s maturity.

Component 3 - WTO Technical Barriers to Trade Enquiry Point - ( total cost is US$l.O million of which IBRD wil l finance US$l.O million)

This component aims to strengthen the capability o f the Standards and Intellectual Property Institute (INORPI) for collection, analysis and dissemination of standards information. As such, i t supports both the efforts of Tunisian firms in meeting voluntary standards critical to export expansion, and Tunisia’s efforts to meet multilateral trade obligations and prepare for regional and bilateral Free Trade Agreements (European Union and others). This assistance w i l l also help to enhance transparency o f technical regulatory control requirements in Tunisia for importers by providing more rapid access to these regulations. This i s particularly important given the strategic trade policy objectives o f the government shaped, in part, by on-going negotiations in the Doha Development Agenda o f the WTO.

Specifically, th is sub-component w i l l include:

(a) Assistance to the Ministry o f Industry (INORPI) to strengthen i t s capacity related to the WTO Enquiry Point for TBT Agreement.

(b) Procurement o f computerized systems to strengthen WTO Enquiry Point, including creation of a new digital database o f Tunisia technical control regulations, developed jointly with the Ministry o f Commerce.

(c) Training o f INORPI and Ministry staff in best practice management o f information on standards and technical control regulations to meet WTO obligations in the TBT Agreement, drawing on best practice in other countries.

(d) Technical assistance for dissemination in the following areas:

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Activities to disseminate information to private firms on voluntary, de-facto international standards, such as those o f the International Standards Organization, International Electro- technical Commission, CODEX, ANSI, and others; Publications and dissemination o f a manual o f international standards (CODEX, ISO, IEC, and others); and Assistance to expand web-based information dissemination on standards, through the new INORPI website.

Component 4: Trade Logistics

This component extends the trade facilitation component o f the EDP I and consists o f a set o f actions aimed at: (i) rationalizing technical control regulations, (ii) disseminating o f information on standards and technical control regulations to emerging exporters, (iii) increasing efficiency, timeliness and effectiveness o f customs control procedures, and (iv) providing technical assistance to generate comprehensive logistics indicators.

Sub-component 4.1 - Enhanced integration of technical control procedures .and strengthened risk management protocols - (total cost is US$1.41 million of which IBRD will finance US$1.13 million)

The Bank loan under t h i s sub-component w i l l finance the application o f e-government to technical control procedures and processing to complement the e-government mechanisms developed under the EDP I. The objective i s to improve the efficiency, speed and transparency o f technical control procedures, thereby further reducing import clearance times. The component w i l l also have a synergistic relationship with TTN, drawing on TTN’s electronic data interchange capability and reinforcing TTN’s role in trade facilitation.

The sub-component consists o f the following activities:

(a) Automation o f workflow and decision making Drocesses o f technical control agencies that are linked to the TTN system. This w i l l include a “back-office’’ re-engineering o f the seven technical control agencies and one central laboratory (LCAE), and the implementation o f a web-based, standard application linked to TTN to allow control agencies to accelerate their authorization process.

(b) Implementation o f an integrated risk management system at the level o f each o f the technical control agencies that would provide fast response for inspection, reduce the number o f consignments subject to inspection, lab testing and other technical control inspection, and reduce control overlaps that currently exist between the technical control agencies and customs. This system wi l l be aligned with the Customs’ r i s k management system (see below)

(c) Implementation o f a technical control digital database. The objective o f this activity i s to assemble and convert all mandatory technical control regulations covering goods in Tunisia into one digital database. Transparency in regulatory systems, including technical controls on goods, i s an important part o f efficient markets, economic efficiency, and the private sector’s ability to meet domestic and international requirements in quality, safety, and environmental standards. This activity would constitute a step towards reforming technical control procedures through increased transparency in the current system. I t would provide capacity building support to the Ministry of Commerce, Directorate for Technical Controls related to implementation o f best practice in technical control regulations. The Ministry o f Commerce, through the new database, w i l l update on a regular basis, technical control regulations in an electronic format. The database

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wi l l be accessible to all ministries and serve as the common database for the TBT Enquiry Point (Component 3).

Sub-component 4.2 - Streamlining and Strengthening of Customs Procedures - (total cost is US$12.9 million of which IBRD finances US$10.32 million)

This sub-component w i l l further streamline customs clearance procedures in order to reduce border clearance delays while at the same time strengthening control processes. This i s achieved by a comprehensive set o f complementary customs procedures and capacity building. Tunisia Customs initiated a modernization process under the trade facilitation component o f EDP I. One key aspect o f this process has been the introduction o f a computerized selectivity program which automates a major step in customs declaration processing. While this i s an important improvement in declarations processing, i t s impact w i l l be limited if it i s not complemented by reform o f other customs procedures. This sub- component comes at an opportune time since it w i l l reinforce the initiative o f the Tunisian Government to introduce new Customs legislation in 2004. Technical assistance wi l l be provided towards risk analysis and management, deferred control, post event auditing, inspection techniques, and a change management strategy. The technology infrastructure i s also enhanced with additional equipment in order to provide the tools that are necessary to operate the new procedures.

The sub-component would specifically include technical assistance for the implementation o f the risk analysis, management and selectivity techniques to customs control and administration. This w i l l include developing a risk management information system that responds to and streamlines inspection and monitoring requirements o f both technical control agencies and customs. This would reduce the number o f consignments subject to inspection, lab testing, and increased targeting and monitoring o f high-risk consignments for both customs and the seven technical control inspection agencies. The objective i s to align risk management procedures with Kyoto Convention Guidelines on the use o f application o f information technology to better target high risk consignments, avoid duplication o f inspection procedures, and allow goods to be cleared faster. Best practice experiences have integrated customs and technical control inspection so that monitoring, inspection and authorization o f goods becomes a shared, integrated exercise between these control agencies ensuring standards compliance, adherence to control requirements o f these agencies and faster clearance processing.

In conjunction with risk analysis and management, techniques w i l l also be introduced within Tunisian Customs for deferred control and post event audit. These procedures w i l l act as a safety net for facilitation by providing a range o f control mechanisms (documentary, physical, and accounts verification) that also act as strong deterrents to customs fraud and smuggling. The results o f deferred control and post event audits and the analysis o f fraudulent cases by the “Observatoire des Douanes” w i l l be used to improve the selectivity criteria and thus improve i t s effectiveness. The success o f the above reforms requires the development and implementation o f a change management strategy which i s included as part o f the technical assistance.

The management information system o f Tunisia Customs w i l l be improved by adding database definitions for collection o f data within SINDA (Tunisia Customs Information System) which w i l l enable regular analysis o f customs operations effectiveness, productivity measures, fraud cases, detection rate, and other management indicators. This w i l l also enable the automated collection of data for performance indicators for this component.

The technology infrastructure w i l l be strengthened to support these changes and equipment procurement w i l l consist o f scanners, computer hardware and other equipment. The investment i s targeted at reducing border crossing delays while improving customs effectiveness in control, revenue collection and national security.

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Indicative % of Component CostUS$ Total

Sub-component 4.3 - Trade Logistics Performance Indicators. (total cost is US$1.25 million of which IBRD will finance US$l.O million)

Bank % of Bank financing Financing

Time series data and statistics based on internationally-recognized standards on trade logistics costs in areas related to trade facilitation (customs, port efficiency, transportation costs, services infrastructure, etc.) are fundamental to the Tunisian government's goals in export expansion and job creation. The sub- component supports a detailed assessment and data collection program on supply chain barriers in transportation and logistics (for details see Annex 4).

3 1.60 5 .OO 1 .oo

Component 5: Praiect ManaPement - (total cost i s US$310.000 of which IBRD will finance US$250,000)

56.6 16.60 0.52 8.9 4.00 0.80 1.8 0.50 0.50

This components finances the following activities to upgrade the project management capacity o f the Project Supervision and Coordination Unit (PSCU), as well as the Executing Agencies:

rota1 EMAF 11 PEFG MANAGEMENT

(a) training in procurement and modem techniques o f financial management, as required by Bank Guidelines.

37.60 67.0 % 21.10 0.56 % 1 .oo 1.8% 0.80 0.02

(b) training and consulting services to enable the PSCU to effectively perform the following functions:

(i) the coordination o f executing agencies and monitoring the performance indicators o f the project;

(ii) the preparation o f the progress reports and working documents required by the supervision missions;

(iii) the provision o f information and reports to the Steering Committee and the Bank; and (iv) the monitoring and consolidation o f the project's financial management, and assistance to the executing agencies in procurement and financial management and in meeting the reporting requirements o f the Bank.

WTO TBT ENQUIRY POINT

(c) computer and office equipment.

1 .oo 1.8% 1 .oo

I Million I I US$ Million I EXPORT MARKET ACCESS FUND - EMAF 2 -Consulting and training services -Vendor development program

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Indicative Component Cost US $

Million

% of Bank % of Bank Total financing Financing

US$ Million

TRADE FACILITATION -Technical Control -Customs -Logistics indicators

1.41 12.90 1.25

2.50 1.13 0.80 23.00 10.32 0.80 2.23 1 .oo 0.80

Total Trade Facilitation

PROJECT MANAGEMENT

Total Project Costs Front-end fee

15.56 27.80% 12.45 0.80

0.3 1 0.50 0.25 0.80

55.47 0.99 % 35.60 0.64 % 0.36 0.01 0.36 0.01

4. Lessons learned and reflected in the project design

Total Financing Required I 55.83 1 1.00 36.00

Market access. The design o f EMAF I1 builds on the lessons learned from the experience o f EMAF. These lessons concern an efficient approach to assist emerging exporters and building an active local export service industry in part through market-based resource allocation and service contracting. The EMAF experience shows that a public-private approach i s more effective in export promotion than purely public and centralized support on a demand-driven basis without targeting. The EMAF experience over the last three years clearly indicates the relevance o f this type of instrument for emerging exporters in Tunisia. Never before, were enterprises wil l ing to pay for export services. EMAF clients now pay half o f the technical assistance costs, and 60 percent o f them (through a mid-term review survey) are ready to cover the full costs of export consultants. There are several reasons behind the success o f this approach. First, the scheme has been demand-driven, whereby the private sector pays half o f the costs o f the implementation o f their export plans. Second, the export plans, themselves, allow for the results o f EMAF assistance to be measurable. Third, the business development service markets have been created through the development o f a core o f export consultants with specialized marketing expertise.

1.00

The experience o f a number o f other programs sponsored by, for example, Australia, Chile and the European Union reflects the utility and importance o f using a group-supported mechanism that complements and mutually reinforces firm level strategies to accelerate and broaden export market linkages. Such experience validates support for professional and trade associations to provide knowledge on export markets and buyers to their members. These countries have taken active policy measures to aggressively court such associations offering incentives schemes such as EMAF IT to help facilitate their service provision to their members.

Export finance. The support for the PEFG builds on EDP I experience that pre-shipment export finance schemes should not be managed as export credit insurance schemes. The PEFG management team requires specialized expertise. Many emerging economies have offered PEFG schemes because they are convinced that without the active involvement o f a massive number o f SMEs, it would be difficult to globalize their economies. Furthermore, globalization efforts could not be delayed until their banking sector i s wil l ing to take SME’s export manufacturing nonperformance r isks without PEFG schemes. PEFG schemes are even common in developed economies. For example, the United States EXIM bank provides such guarantees to S M E exporters. L ike any other development policy instrument, the success

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or failure o f PEFG schemes depends on management efficiency. In several emerging economies, including Korea and Taiwan, PEFG schemes have played a pivotal role in exploiting export potential: about half o f the export value added has been generated by SME exporters in successful economies. The lessons from these economies w i l l be used in the modality o f PEFG management under the project.

Trade facilitation and lopistics. The effects o f trade liberalization on job and income creation can easily be undermined by excessive costs and time involved in trade transactions that present a burden for exporters. The effects of trade liberalization can also be significantly undermined by excessive trade logistics costs and inefficiencies. The evidence from countries that have achieved high export growth illustrates that the commodity composition o f exports becomes increasingly dependent on fast, just-in time access to competitively priced and good-quality inputs. High levels o f exports o f these successful economies have been leveraged by trade facilitation.

Efficient e-government services can reduce these costs and delays. In recent years, several countries have used information and communication technology (ICT) to provide more efficient services and assistance to private enterprises in general, and exporters in particular. Among these, the experience o f Singapore and Mauritius have shown the positive impact o f e-government on reducing transactions costs for exporters. The design o f the e-government component o f EDP I1 also builds on Tunisian experience (Tunisie Trade Net - TTN) under EDP I, provides a good example o f stakeholders coming together to simplify procedures and automate trade documentation and customs requirements. In fact, it i s the only country in the Middle East and North Africa (MENA) Region that has succeeded in applying IT to the whole range o f trade documents and procedures. The Kyoto Convention has outlined best practices and a series o f recommendation and guidelines for the use o f information technology in customs clearance procedures and integrated risk management and profiling. EDP I1 incorporates best practices principles from outlines in the convention.

Tunisia’s experience (EDP I) points to the dramatic improvements that can be made in government trade service provision (in this case trade document processing and clearance) when administrative and political commitment joins forces with advances in information technology. Perhaps the most important prerequisite i s the government commitment. This was made possible by strong commitment by the President o f the Republic, who chairs the Superior Export and Investment Council, and close involvement o f the Minister of Commerce, who i s also a member o f the Council. The second success factor was the cooperation among private sector operators and various government stakeholders at all stages o f the process. This was achieved by setting a steering committee and a technical committee composed o f key stakeholders at the early stages o f the process. Not only were these committees instrumental for the design o f the initiatives, but also their implementation. The third was the adoption o f a regulatory framework that allowed for electronic processing and signature. Amendments to the legal framework were made to accommodate the following changes: (a) layout of the simplified Liasse Unique documents (Decree from the Minister o f Commerce 22 November 1999, Notice from the Minister o f Commerce, 28 October 2000, Notice from the Minister o f Commerce, 14 November 2000); (b) the supply o f value added network services through telecommunications and the internet (Act 15 January 2001 from the Minister o f Telecommunications); (c) new streamlined customs declaration procedure through the TTN (Notice from the Minister o f Finance, 15 January 2001); (d) new procedures for submission and processing of documents for external trade through the TTN system (Joint Notice o f 20 April 2001 from the Minister o f Commerce, Minister o f Finance, and Minister o f Transport); and (e) the recognition o f legal validity o f electronic documents and electronic signature (Act o f 13 June 2000).

Customs and efficient border crossing. The degree o f trade facilitation needed for strong export performance depends not only on the trade regime, but also on formalities in port logistics, customs clearance, and quality and safety controls, all o f which affect transaction costs. The project draws on

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international experiences such as ADEMAR. This i s the electronic logistics network established at the “Port du Havre”, France, which has been instrumental in facilitating the flow o f goods within that region. ADEMAR interfaces with the computer systems o f Customs, container terminal operators, the port authority and enterprises in the transport business (shipping agents, freight forwarders, haulers). The system integrates information for business, logistics and administrative purposes and therefore serves the transport and trade community at large. It processes approximately 10,000 end-user transactions per day and interfaces directly with about 1,000 electronic customs declarations per day.

The streamlining o f customs procedures adopts international best practice o f emphasizing deferred and post-clearance procedures as effective control mechanisms. These require, as a pre-requisite, the implementation o f an effective risk management based approach for isolating high risk consignments or consignments o f special interest. A modem border management approach i s also adopted through the introduction o f risk management for technical control which i s coupled with the risk management o f Tunisia Customs.

5. Alternatives considered and reasons for rejection

Project scoDe. The proposed project i s a follow-up to the Export Development Project (EDP I) that i s being successfully implemented, with disbursements rate o f 70 percent and a commitment rate o f 85 percent o f the project loan as o f May 2004. The EDP I focused on pilot schemes (EMAF and Pre- shipment Export Finance Guarantee - PEFG) aiming to tackle two market failures and information imperfections. I t also sets the stage for an overarching trade facilitation scheme to speed up trade documentation processing and trade logistics. The initial success o f the EDP I and the momentum that i t has created has made it appropriate for EDP I1 to build on these achievements to remove some o f the key structural and institutional constraints that s t i l l plague emerging Tunisian exporters. This approach i s in line with Tunisia’s trade strategy (Trade Strategy Note, 2001). At the time o f EDP I preparation, a number o f project alternatives were considered to address the export development objectives o f the Government: a global project involving short and long-term measures vs. a more focused project to address immediate concerns while preparing the ground for deeper and more extensive measures in a follow-up operation. The latter approach was found to be more relevant to Tunisia.

Project design. Regarding the market access component, various institutional models used across countries to facilitate market access through matching grant schemes were evaluated. It was decided to continue with the EMAF model (private management) that has proved effective in generating measurable outcomes (new exporters, new exports and new markets). The traditional approach emphasizing strong in-house and highly centralized service provision was rejected due to evidence that i t tends to be inadequately client and result-oriented and not the most cost-effective approach when compared with the use o f outsourcing to the private sector and more decentralized administration.

A

With regard to trade facilitation, commercial softwares for different aspects o f logistics facilitation are available. However, these have not been successful at a national level and particularities o f procedures within each country are not supported within such commercial solutions. In addition, TTN has been designed for the Tunisian context and the existing know-how that has now been developed would lead to a more adequate solution in terms o f trade facilitation, that the proposed project can build on.

Alternative solutions were explored for the development of an integrated, networked back-office information system for the seven technical control agencies. TTN has developed a prototype application for technical control agencies that would be interfaced with the TTN network. The application would be provided to all technical control agencies and housed within each agency. TTN would provide technical support to each agency. Another option i s the integrated system developed by C N I that i s being used in

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the Ministry o f Commerce. C N I would host and manage the application, thereby reducing multiple points o f failure to one point o f failure if the system went down, which allows for quick resolution o f system problems. CNI also hosts a number o f national, integrated information systems that link national and regional level governments, including an Integrated Financial Management for the Ministry o f Finance, and a Human Resource Management system. However, the TTN solution was chosen for the project, as it i s cheaper and equally efficient. It i s also preferable as it strengthens the TTN network by integrating the technical control processing.

The project preparation team explored the possibility o f introducing additional value added services on the TTN platform. The following services were explored in depth with relevant stakeholders:

1) Online Processing o f Certificate of Origin (COO) i s an endorsed trade document granted to the exporters by an authorized organization (AO) proving the country o f origin o f the goods exported. For most countries, the Customs and Chamber o f Commerce are the AO. In Tunisia, the Customs and Chambers o f Commerce are the A 0 issuing COO for exporters in Tunisia. The option o f placing the COO processing online was explored with Customs and the Ministry o f Commerce responsible for regulations regarding the COO process. I t was decided that the processing online would be difficult at this stage because it would require agreement by trading partners (Europe, Middle East Countries, and others) to accept a digital COO - this agreement would require bilateral negotiation and policy change in each trading partner country, which would be too complex and beyond the scope o f th is project. More importantly, in discussion with enterprises about the prioritization o f burdens associated with trade related services, the COO process was not considered the most burdensome activity, and therefore, not providing the most value to exporters.

2) Online processing o f application for, and supervision of, export promotion and finance programs on the TTN platform (in possible partnerships with FAMEX, COTUNACE, and FOPRODEX). The f i r m s benefiting from EMAF wi l l be free to choose between sending their application by traditional means such as email or use the TTN platform. The real value added and benefits o f these applications were explored. FAMEX wi l l process 125 applications on average a year, for 500 companies over a four year period with an additional year in order to finalize the related disbursements. Since the application i s a one time process for enterprises, with no reported associated delays, or bureaucratic burdens, the value o f placing the FAMEX services online would be low for enterprises. The preparation team met with CEPEX to evaluate whether CEPEX’s online portal for exporters could be used as a platform (linked to TTN), to provide the processing o f online documents for COTUNACE and FOPRODEX. While CEPEX i s interested in expanding their role to be an information hub and information provider for exporters, they do not see their mandate as service providers, and did not express interest in hosting value added e- govemment services.

C. IMPLEMENTATION 1. Partnership arrangements

The intervention o f the African Development Bank would be complimentary to the project’s support for the Export Market Access Component.

2. Institutional and implementation arrangements

The project would be implemented over a period o f f ive years. Project completion i s expected on September 30, 2009, with a closing date o f March 31, 2010. A midterm review would be carried out by June 30,2007.

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The Steering. Committee. The project w i l l operate under the guidance o f the Steering Committee chaired by the Minister o f Commerce or his representative, and comprised o f representatives from the Ministry o f Finance, Ministry o f Economic Development and International Cooperation, Ministry o f Transport, and other relevant agencies and the Association o f Exporters. The Steering Committee (SC) would meet twice a year, or more frequently if needed. Members o f the SC could designate other officials to act on their behalf. The SC would facilitate project execution by eliminating blockages that could delay project implementation.

The Project Coordination and Monitoring Unit. The overall responsibility for project execution would be delegated to a Project Coordination and Monitoring Unit (PCMU) which has been set up within the Ministry o f Commerce. The PCMU wi l l have the same structure as that under EDP I and w i l l include one o f i t s existing staff. It w i l l be in charge o f implementing the project in accordance with the Project Implementation Plan. The PCMU would be headed by an experienced project coordinator designated by the Minister o f Commerce and have administrative structures, processes, and staffing conducive to efficient administration o f the project. PCMU would be a light structure without decision-making responsibility concerning project activities. The parties directly involved in the project (customs, CEPEX, COTUNACE, INORPI, LCAE and the Ministry o f Commerce) would be individually responsible for decisions that affect their respective components. The PCMU would be responsible for the preparation o f monitoring reports and working documents required by the Bank. I t would ensure that budgetary, procurement, contracting, disbursement, administrative, accounting, auditing, and reporting arrangements are carried out in accordance with agreed procedures. The PCMU would also be in charge o f organizing Steering Committee meetings and providing all the necessary information on project performance and monitoring to the Steering Committee and the Bank.

The EMAF Management Team. EMAF I1 would be executed under the overall supervision o f an EMAF I1 Director Committee (EDC), and would be executed by an EMAF I1 management team (EMT) consisting o f local and internationally experienced experts in matching grant management. The EDC, headed by the PDG o f CEPEX and composed o f representatives from the Ministry o f Commerce, Ministry o f Finance, COTUNACE, and UTICA (FEDEX), would ensure proper execution o f the EMAF I1 according to the Operational Manual, approve grant requests and the annual work program submitted by the EMT, and submit annual activity and financial status reports to CEPEX Board o f Directors, the Government o f Tunisia (GOT) and the Bank. The EMAF management team would mainly be responsible for program promotion, support to enterprises and professional associations in the preparation o f export plans, appraisal and recommendations for approval o f export plans, supervision and monitoring o f results o f such plans, and contracting o f independent impact evaluations o f plans.

Technical Committee for Trade Facilitation and Logistics. Given the complexity o f the trade facilitation component, a Technical Committee comprised o f representatives from customs, the port authority, the Ministry o f Commerce, and other relevant parties would be set up to assist PCMU.

Technical Committee for e-government: Given that the implementation o f a standard application for all seven technical control agencies w i l l require coordination and project management at the implementation phase, a representative o f the Ministry o f Commerce, wil l be named as “Chef de F i le for the Technical Control.” The Ministry of Commerce i s the logical choice since the decree for technical control (dated 1994) designates i t as the lead ministry for technical control administration. The TTN and technical control agencies o f Ministry o f Communication Technologies and Transportation, Ministry o f Agriculture, Environment and Hydraulic Resources, Ministry o f Industry and Energy, Ministry o f Religious Affairs, Ministry o f Culture, Youth and Entertainment, and Ministry o f Health wil l be asked to form part o f this committee.

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3. Monitoring and evaluation of outcomedresults

The progress in project implementation w i l l be monitored through supervision missions and mid-term reviews. The PCMU wi l l provide semi-annual progress reports to the Bank on project’s achievements, issues and performance indicators.

4. Sustainability

The measures supported under the proposed project would be market based and non-discretionary . Improving the effectiveness o f the institutions (including markets) and developing instruments associated with an efficient long-term export development strategy would also promote project sustainability. The following factors w i l l specifically be critical for the sustainability o f EDP I1 benefits:

(a) Commitment at high level and effective coordination o f trade facilitation component. The lessons o f EDP I clearly point out the importance of establishing a technical committee, headed by a coordinator, given the large number o f agencies involved in the trade facilitation component of EDP I. EDP I1 wi l l draw on this experience. Following the implementation o f the EDP 11, trade document processing i s likely to become more efficient by reinforcing the TTN network and the “back-office” o f satellite agencies. This, together with likely benefits o f modem border crossing and efficient supply chains would be irreversible as Tunisian enterprises w i l l not likely go back to paper-based document processing that presented them with major delays in clearing their goods.

(b) Following the initial recourse to PEFG, the banks are expected to finance emerging exporters on market terms.

(c) Ensuring the development o f export consulting industry and professional associations that would carry on project benefits beyond the l i fe o f the project. Under EMAF, a small consulting industry was developed. EMAF 11 benefits are likely to be sustainable by reinforcing this export

. consulting industry as well as a number o f professional associations.

5. Critical r isks and possible controversial aspects

There are three critical risk factors. One i s the extemal market dynamics and the demand for Tunisian exports. The second i s the inefficiency o f PEFG management team, as experienced under EDP I. The third i s the r i s k that agencies involved in trade transactions continue with their manual processing o f trade documents and the existing inefficient clearance procedures. While the f i r s t risk i s outside the control o f the Borrower, the second risk i s minimized through development o f appropriate terms o f reference and incentives for the management team. The third risk i s also minimized through government commitment and requirement for electronic processing o f trade clearances by key agencies. Banks are already required to process the “titre de commerce” on line. The government i s also planning to require technical control agencies to process their clearances on line. In addition, the new customs codes (expected by end-2004) w i l l encourage the use o f information technology and selectivity in customs clearance and efficient border crossing.

6. Loan conditions and covenants

The Borrower shall submit to the Bank a mid-term review report by June 30,2007.

Conditions of Effectiveness

The CEPEX Grant Agreement has been executed on behalf o f the Borrower and CEPEX and has entered into effect in accordance with i t s terms;

(a)

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The COTUNACE Grant Agreement has been executed on behalf o f the Borrower and COTUNACE and has entered into effect in accordance with i t s terms;

CEPEX has formally approved for i t s use and operations, and furnished to the Bank, the EMAFII Operations Manual in form and substance satisfactory to the Bank; and

The Borrower has formally approved and furnished to the Bank the Project Implementation Plan, in form and substance satisfactory to the Bank.

D. APPRAISAL SUMMARY 1. Economic and financial analyses (supported by Annex 9)

The EDP I1 i s a comprehensive operation, supporting institutions and markets through different channels and instruments, including direct firm assistance in the form o f grants as well as supporting trade and professional associations. The project also aims to improve the existing export finance guarantee scheme (PEFG) initiated under EDP I, by strengthening i t s managerial capacity. Third, the trade facilitation and logistics component i s expected to further reduce transaction cost by improving the efficiency o f technical controls and customs procedures.

The simultaneous implementation o f project components w i l l leverage their individual achievements by feeding of f each other’s benefits. A new exporter that identifies a buyer (through EMAF 11 assistance) and secures an export order, can have access to working capital from banks through the PEFG scheme. In addition this new exporter can realize substantial cost reductions due to improved efficiencies in trade services. Ultimately this would increase hisher competitive position.

Supporting exporters trough a process that result in economic growth and increased employment, cannot be thoroughly evaluated with a quantitative cost-benefit analysis. Components such as assistance in WTO standards implementation, and technical assistance support to market access can have additional benefits. One such example was the development o f an export consulting industry after the EDP I. Other social and fiscal benefits include new jobs and tax revenues.

More directly, the outcomes o f each project’s components are likely to converge in generating additional exports. In particular, EMAF 11, as shown by Tunisia’s EMAF experience as well as international experience in Madagascar and Mauritius, w i l l generate quantifiable benefits, in the form o f additional exports (See Annex 9). In addition, under an improved management, PEFG i s expected to improve the informational asymmetries that currently prevent S M E exporters from accessing working capital export finance.

Annex 9 presents an estimate o f the economic and financial benefits from EMAF I1 and PEFG based on the expected additional exports by participants. For instance, with a total grant o f US$34 million, EMAF 11 can generate US$528 mill ion by two years after i t s closing date with a Net Present Value o f US$367 million. Under an improved management, PEFG has the potential to cover about US$259 mil l ion additional exports and 25,000 new jobs (see Annex 9) with an NFV o f US$92 mil l ion (including social benefits).

The third component, trade facilitation and logistics, w i l l improve firm competitiveness by reducing transaction costs associated with inefficiencies in technical control and customs procedures. For instance reduced processing time of custom declaration, from 3.6 days to 15 minutes and overall from 2-13 days to

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PEFG E M A F I I NPV o f Incremental exports 200.19 367.00

3 days for complete trade transaction formalities can reduce total cost to at least 1% o f trade merchandi~e.~ Annex 9 depicts an assumed lower bound implementation schedule o f these savings (1% o f merchandise trade by year six for complete project effectiveness). Saving realized under these assumptions represent US$231.2 mill ion o f accumulated transaction costs savings by the end o f the project .

Salaries generated I 30.93 56.70 Tax revenues from exporter4 45.45 83.32

From a fiscal perspective, additional exports w i l l increase tax revenues from payroll taxes o f exporting f i r m s and workers, value added tax through consumption from new jobs, and corporate income tax (see table below). For example, tax recovery from EMAF I1 can represent US$83 mill ion from exporting firms and US$7 million from employees (this represents close to 3 times the total grant amount). The government would therefore recover in excess o f the cost o f the grant over the l i fe o f the project. The same recovery principles can be applied to PEFG (see table).

Expected Fiscal Impact of EMAF I1 and PEFG

k a x revenues from salaries I 3.83 7.01 1

Finally, in all likelihood, the funds required by the government (investments and recurrent costs) should not represent a significant burden on the government’s budget. Already, a considerable portion o f our counterpart use the export services provided by EMAF at market prices. Therefore, we expect the demand for market-priced consulting services to remain strong throughout the l i fe o f the project.

2. Technical

The project i s expected to be technically viable. Specifically the project design i s likely to be appropriate for Tunisia, as demonstrated by the success o f technology underlying Tunisie Trade Net, which w i l l serve as platform for several sub-components o f EDP 11. This technology architecture o f the key components (Tunisie Trade Net and SINDA) conforms to best international standards (Singapore, Mauritius). The “back-office” system for technical control w i l l conform to the interface requirements o f Tunisie Trade Net.

The integrated risk management system w i l l conform to best practices principles outlined in the Kyoto Convention Guidelines on Application o f Information Technology.

3. Fiduciary

Procurement: The Tunisian public procurement system i s on the whole soundly configured. Transparency and accountability have improved with the new Procurement Decree No. 2002-3 158 o f December 17, 2002 supplemented by the Decree No. 2003-1638 o f August 2003 which modifies and clarifies certain provisions governing the country procurement system. These national procurement regulations contain however some provisions that conflict with the Bank procurement policies and

Other time saving benefits wi l l include: Time taken for processing application for technical inspection control services w i l l be reduced as well as customs clearance time percentage o f declarations subject to physical examination reduced significantly, overall duration o f stay in ports for containers, and duplicative on-site inspection (general or detail) to 1 on-site inspection for customs and technical control agencies.

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guidelines, including (i) the fact that same procedures are applied indistinctly to both the procurement o f goods and the selection o f consultants, (ii) under International Competitive Bidding (ICB), foreign bidders are required to submit their bid in association with domestic firms, (iii) restrictions to the number o f contracts (slices) a bidder can win in any given multi-slice bid irrespective of whether the bidder has the capacity to execute simultaneously al l the contracts, (iv) preference margin granted to domestic bidders under National Competitive Bidding (NCB), (v) two-stage bid opening procedures for the procurement o f goods and works, and (vi) bidders are not allowed to deliver their bids in person (mailing mandatory) and the name o f the bidder on the outer envelope containing the bid i s ground for rejection o f the bid.

The Bank i s currently conducting a Country Procurement Assessment Review (CPAR), which w i l l cover the overall country procurement architecture and the findings w i l l be discussed with the Government for possible improvements in the country system. In the mean time NCB procedures for the procurement o f goods under the project w i l l be carried out in accordance with Tunisia's procurement laws and regulations, with the exception o f features that conflict with Bank procurement principles and guidelines. All procurement decisions relating to the award o f government contracts including those financed under the project would be subject to the review and approval o f Departmental Tender Boards (DTB) o f the respective line Ministries implementing the project - These Departmental Tender Boards are not always familiar with procurement provisions o f the loan agreement and their decisions are often based on the sole interpretation o f national regulations. Care should therefore be given to the dissemination o f the loan agreement among al l parties involved in the procurement process in order to avoid delaying project implementation. In addition, an action plan has been agreed with the Borrower to strengthen the procurement capacity o f PCMU and the executing agencies (see Component 4 and Annex 8).

Financial management: The adequacy o f the project's financial management system was assessed as required by the Bank (OP/BP10.02), based on interviews with the executing agencies CEPEX, COTUNACE, the Tunisian Customs, and the Ministry o f Commerce, and evaluating their existing financial management systems. Specifically, the project team examined: (a) the accounting systems, the internal and external control mechanisms, budgeting and information systems at the level o f each executing agency, and (b) the PCMUs capacity to supervise the financial aspects o f the project, including the production o f the Financial Supervision Reports for submission to the Bank, and the modalities for project audits. The new Bank Guidelines on financial reporting have been put at PCMUs disposal, and the format o f the financial and audit report were agreed between PCMU and the Bank. The modality o f financial management to be utilized during project implementation, w i l l satisfy the minimum conditions required by the Bank. It i s noted that the executing agencies already have experience in managing the Bank's loan in the context o f EDP I.

In general, a Country Financial Accountability Assessment (CFAA) i s currently being prepared. The results o f this study, that represent a diagnostic o f the legal and legislative framework governing the public sector, and the practice o f the rules, procedures and financial management systems, should be available by the end o f FY04. However, other evaluations o f the system and procedures have been conducted by PREM and through a Report on the Observance o f Standards and Codes (ROSC), and have concluded that in general terms, the management and rules o f financial management and accounting in the private sector, and the public finance systems do not represent major risks. In addition, the Bank's experience with project management in Tunisia has not indicated fiduciary risks. As such, the country fiduciary risk i s considered low for Tunisia. One area that w i l l be improved under EDP I1 would be financial reporting according to the format required by the Bank. Accordingly, the Borrower has agreed to strengthen the financial management capacity and provide training on the Bank's financial management rules (see Component 4 and Annex 7) to the PCMU and executive agencies' staff.

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Disbursement. The proceeds o f the loan would be disbursed in accordance with the traditional disbursement procedures o f the Bank and w i l l be used to finance project activities through the disbursement procedures currently in use: i.e. withdrawal application for direct payment, for special commitments and/or reimbursement accompanied by appropriate supporting documentation or using Statement o f Expenditures (SOEs) in accordance with the procedures described in the Disbursement Letter and the Banks "Disbursement Manual".

To facilitate disbursement o f eligible expenditures the Government w i l l open a special account at the CBT to cover part o f the loan's share o f eligible expenditures for the three components o f the project to be managed by CBT. The authorized allocation o f the special account would be the equivalent o f US$4 million, covering an estimated 4 months o f eligible expenditures financed by the loan. Initially the authorized allocation w i l l be limited to US$2.5 mill ion until cumulative disbursement reach a level equivalent to US$10 million. Each o f the executing agencies w i l l submit the application with appropriate supporting documentation for services rendered or activities implemented under their component either to the Central Bank o f Tunisia (CBT) for payments from the Special Account (SA) opened for that purpose, or to the Bank for direct payment. The CBT monitors the level o f the SA and prepares and submits withdrawal applications to the Bank for replenishment o f the SA.

All applications to withdraw proceeds from the loan w i l l be fully documented, except for: (i) expenditures o f contracts with an estimated value o f US$500,000 equivalent or less for goods; ii) US$100,000 equivalent or less for consulting f i rms ; and (iii) US$50,000 or less for individual consultants and the Management Contract, which may be claimed on the basis o f certified Statements o f Expenditures (SOEs). Documentation supporting expenditures claimed against SOEs w i l l be retained by the CBT and wi l l be available for review when requested by Bank supervision missions and project auditors. All disbursements w i l l be subject to the conditions o f the Loan Agreement and the procedures defined in the Disbursement Letter.

4. Social

None expected.

5. Environment

None expected.

6. Safeguard policies

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP/GP 4.0 1) [ I [XI ~~~

Natural Habitats (OP/BP 4.04) [ I [XI Pest Management (OP 4.09) 11 [XI Cultural Property (OPN 11.03, being revised as OP 4.1 1) [ I [XI Involuntary Resettlement (OP/BP 4.12) [ I [XI Indigenous Peoples (OD 4.20, being revised as OP 4.10) [ I [XI Forests (OPBP 4.36) [ I [XI Safety of Dams (OP/BP 4.37) [ I [XI Projects in Disputed Areas (OP/BP/GP 7.60)* [ I [XI Projects on International Waterways (OP/BP/GP 7.50) [ I [XI

* By supporting the proposed project, the Bank does not intend to prejudice thefinal determination of the parties' claims on the disputed areas

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7. Policy Exceptions and Readiness

The proposed project would be a follow-up to an existing operation (EDP I) that i s being successfully implemented. EDP 11 w i l l build on the institutional set up and technology o f EDP I. No major policy change i s envisaged for EDP 11. The Borrower i s ready to implement EDP 11, following a decision by the Customs General Directorate (March 18, 2004) to introduce “risk management” and selectivity to customs clearance process. This has prepared the ground for implementing the trade logistics component o f the project. The Borrower i s also prepared to start the implementation o f EMAF I1 immediately following the closing o f EMAF on September 30,2004.

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Bangladesh Tunisia Turkey

Annex 1: Country and Sector Background

TUNISIA - EXPORT DEVELOPMENT I1

19.62 16.86 -16.37 12.94 3.74 -245.98 13.10 9.47 -38.33

Main sector issues and Government strdegy

Tunisia’s export performance has been commendable in recent years (thanks to off-shore sector), but competitive challenges are increasingly threatening Tunisia’s exports. These challenges are posed by the adherence to the AAEU and the World Trade Organization (WTO) requirements, and the dismantling o f the Multi-fiber Agreement (MFA). These agreements w i l l allow further trade liberalization and Tunisia’s integration in world markets. However, the full implementation o f the AAEU by 2008 and the phasing out o f the MFA by 2005, in particular, engender competitive challenges for Tunisia both abroad and domestically. The dismantling o f trade barriers with the EU wi l l largely be unilateral, as Tunisia’s industrial exports already benefit from preferential access to the EU market. This adds to the incentive to promote exports and improve competitiveness o f the on-shore sector in order to lessen the difficulties that w i l l follow the increase in competition from European imports. Furthermore, the dismantling o f the MFA wi l l present increased competition on Tunisian apparel exports (mostly subcontractors), i t s primary export article, from countries such as India, China, Bangladesh and the Eastem European region.

Total Exports

Bangladesh

Thus, Tunisia needs to pursue new export markets, and implement more efficient distribution processes, improve product quality, and develop new products and services. Table 1 presents growth rates o f manufactured and total exports from Tunisia and two competitors over the last decade, showing that the competitors’ export performance i s rapidly surpassing that o f Tunisia, indeed as shown in Table 1 between 1991 and 1995 average manufacturing export rate stood at 12.9 percent for Tunisia, 19.6 percent for Bangladesh, and 13.1 percent for T ~ r k e y . ~ Between 1996 and 2002, Tunisian export performance worsened as i t s manufacturing export growth rate decreased to 3.7%. While i t s competitors experienced a s imi la r trend, i t was not as pronounced as that o f Tunisia, implying a loss in Tunisia’s relative market share. For instance, Bangladesh’s manufacturing export rate decreased to 16.8 percent and 9.5 percent for Turkey for the same period. These growth rates need to be doubled to meet Tunisia’s GDP growth and employment targets (10th Development Plan; CAS 2000). Similarly, Tunisia’s share for i t s main export products has fallen in traditional export markets, especially the European Union (EU), relative to that o f new competitors, l ike China (Box 1).

1991-1995 1996-2002 % Change

17.39 14.42 -20.59

Table 1: Average Nominal Growth Rate of Exports

I Manufacturing Exports 1991-1995 I 1996-2002 I % Change I

Tunisia 9.81 3.28 I -199.08 Turkev 10.94 7.61 I -43.75

Source: Comtrade Database UN

2002 COMTRADE Database U.N.

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Box 1: Offshore Firms in a Competitive Environment

More than half of off-shore firms are in the clothing business, especially in down-market apparel assembly (subcontracting). T h i s i s a segment with low entry requirements in terms o f technology, s k i l l s and capital, as well as sourcing and marketing expertise. Firms in this segment are caught between powerful buyers and suppliers. Buyers are typically large retail chains that practice aggressive pricing and cost-cutting policies. As low-end garment producers across the world make similar products with similar cost structures (except labor costs), their competitiveness i s based on their ability to maintain low wages and accept low margins, in exchange for market share. Sharp competition from low wage producers raises doubts as to the long-term viability o f these low-end operations in Tunisia.

Average garment wages U S $ h Share in EU 90 Share in EU 99 Tunisia 1.89 1.5 2.9 China 0.61 3.5 10.1

Source: ILO and COMTRADE (Articles o f apparel - SITC 845)

Similar trends are observed at a more disaggregated level. Tunisia’s relative share has declined for i t s key export products in traditional export markets in favor o f a number o f emerging competitors. For example, in men’s and boy’s clothing, Tunisia’s share in the EU imports has increased from 1.0% to 1.2% during 1988-2000, while China’s share has increased threefold from 3.8% to 11.7% during the same period. Detailed information on cost structure for 5 garment articles for Tunisian exporters compared to exporters from Morocco, Turkey, Italy, Poland, India and China (available in project files) shows that high labor, raw materials and administrative costs have lowered the cost competitiveness o f Tunisian products. The appropriate strategy in th is case would then be to upgrade into mid-market products. In the mid-market segment, intemational competitiveness depends on design, quality and delivery, in addition to cost. Although a number o f offshore firms have improved in these areas, the gap with good intemational practice remains large, especially for smaller firms. For instance, there are a handful small and medium offshore firms that have adopted C A D systems, and computerized precision cutting i s not widely used in the country.

_________________________________

These challenges pose specific challenges for Tunisia, given the structure o f i t s export products and concentrated markets. In terms o f geographical concentration, 75 percent o f the US$6.6 bil l ion o f Tunisian exports were imported by the European Union (notably France, Italy and Germany) in 2002, while the North American share was less than 1%. Non-European countries import mainly raw materials and semi-processed chemicals, i.e., very low value added products. For example, the Tunisian garmendtextile export represents 6% o f the EU’s total garmendtextile imports in 1995, while there appears to be no notable effort to infiltrate the U.S. market for garmendtextile. On the other hand, for example, Bangladesh was the 6th largest exporter o f garment to the U.S., while it was the 5th largest exporter o f garment to EU in 1997. With respect to product concentration, 46 percent o f total exports are concentrated in clothing (SITC 84). T o illustrate the degree o f product concentration o f Tunisian exports in 1999, note that o f the 4,500 tariff lines o f the H S classification at the 6 digit level, the top 25 products exported by Tunisia represent more than 57 percent o f i t s total exports.

Tunisia’s impressive export performance in the past has therefore concealed a number o f vulnerabilities (see below) that are increasingly posing a concern for the Government. An area o f vulnerability i s the great number o f Tunisian exporters that remain sub-contractors for large foreign companies. These sub- contractors are on the frontline to be challenged by competitors overseas. This arrangement initially benefited Tunisian off-shore firms as i t enabled them to enter the world market, whilst learning product and production ski l ls . However, Tunisian firms have been slow at taking the next step and becoming arms-length exporters that could assure them the continuity and increase value added o f their exports. The dichotomy between the off-shore and the on-shore f i r m s in Tunisia constitutes another area o f vulnerability for Tunisian exports. Export growth in Tunisia has been led almost exclusively by the

- 2 2 -

off-shore industry (mainly garment sub-contractors) that has benefited from preferential export policies, leaving an isolated on-shore industry behind. The results o f the EDP I (e.g., 200 new on-shore f i r m s that are entering export markets) have confirmed that on-shore sector represents a significant potential for export growth and w i l l greatly affect the ease with which Tunisia w i l l open i ts domestic market to foreign products. But most on-shore f r m s remain largely unprepared for the international competition arising from AAEU. The off-shore industry, on the other hand, takes few domestically produced inputs, resulting in a low level o f inter- and intra-sectoral linkages and a low value-added o f Tunisian exports.

To promote export competitiveness, Tunisia needs to continue reforms complementary to trade liberalization (FDI, service sector liberalization, labor policy), and at the same time address a number o f structural and institutional constraints that are at the core o f the above vulnerabilities. These constraints are outlined below:

0 Lack of information on, and access to, global markets. Most Tunisian firms have difficulty identifying the right target market, the right product segment and the right selling channel, as well as determining who their competitors are. This stems largely from the scattered structure o f the productive sector, consisting mainly o f SMEs with limited financial means to take on large export markets. Mechanisms that have proved effective in some countries, including Tunisia itself, in facilitating market entry include matching grants, trading companies, buying houses, and trade service centers (see Trade Strategy Note 2000). As part o f the process o f entering new markets, as well as integrating i t s own domestic market, Tunisia would also need to promote the development and application o f e-commerce. The electronic dissemination o f information - to domestic fm about opportunities abroad and to foreign buyers of the availability o f Tunisian products - i s critical, as i s the ability to conduct transactions efficiently in a secure manner (see ICT Strategy 2002).

High cost o f trade transactions i s another constraint to the competitiveness o f Tunisian exports. Tunisia needs to reduce logistics costs and delays relating to the port services in Tunisia (a particularly important measure as over 95 percent o f Tunisia’s international trade i s sea borne) and improve customs efficiency (Box 2). Inefficiencies also arise from weaknesses in the transport sector and wholesale trade and an insufficient number o f modem warehouses. The Tunisian market i s characterized by scattered wholesale distributors and small warehouses, which result in costly and inefficient wholesale trade and has a direct impact on export competitiveness, as it increases costs and delays for producers. The dichotomy between domestic and external markets, wi th respect to norms and distribution channels, may delay firms’ adaptation to international requirements.

High costs of trading activity.

As the subsidiary of a large German car part supplier, Leoni Tunisie S.A. produces cable and electronic components foi DaimlerChrysler and other European car manufacturers. I t employs 2,400 staff (including 170 in research and development), anc invests about € 3.5 million in facilities and training each year. An example for the knowledge-spillovers associated with FDI ir such industries i s the fact that Leoni has 18 full-time staff to train i t s workforce and recently sent 30 local employees to it: German headquarters for a year to be trained in the use of engineering software. The just-in-time supply chains in the car industr) put extremely high demands on logistics systems. Leoni has outsourced all logistics needs to an intemational forwarder, whict has a local subsidiary in Tunisia.

A full production and logistics cycle lasts about 9 days. Raw materials and intermediate products are sourced from across Europe, Asia, and the United States. They are consolidated at Leoni’s headquarters in southern Germany and shipped to about a dozen different factory locations in various countries, including Tunisia each week. The trailers are cleared and sealed by German customs on the firm’s premises, where they are picked up by logistics contractor. The forwarder drives the trailers to Genoa or Marseilles (2-2.5 days for the land-leg), places them without driver on RoRo femes (20-24 hours for the sea-leg), picks them up at Rad& port, and delivers them to the factory in Sousse (2-3 hours for the land-leg). The next day the finished components have been assembled and are cleared by a Tunisian customs officer on the premises, before they are sent on their retum joumey. As a maior exporter, Leoni has off-shore status in terms o f tariffs and customs, and receives favorable treatment in Tunisia’s DOI~S.

-23 -

While the company considers the total logistics chain both efficient and reliable, the just-in-time demands of the industry are so high that they are now posing a threat to Tunisia as a production base. Instead of the current cycle of 9 days, clients increasingly demand cycles of no more than 6 days. Internal production processes have been streamlined so far (incoming orders are produced within 24 hours) that any additional time savings must come from logistics. Leoni Tunisie recently lost a company-intemal competition for a completely new factory with 1,700 jobs and € 12 million-worth o f investments to Leoni’s Romanian subsidiary. The reasons were not wages or the investment environment - where the company regards Tunisia as very competitive - but primarily Eastem Europe’s logistics advantage.

As in the case o f transport and distribution inefficiencies, trade-related services by numerous ministries and government agencies, including those in charge o f technical control o f imports, impose additional transactions costs on Tunisian exporters. A l i s t o f these services can be found on www.sicad.orztn. The role o f e-government mechanisms to increase the efficiency o f these services has recently been demonstrated by the introduction o f Tunisie Trade Net that i s significantly reducing delays and costs involved in trade documentation processing (see http://wwW.tradenet.com.tn). There i s scope for the application of e-government mechanisms to numerous other trade-related services.

Ineficient government trade-related services.

Insuficient capacity to meet export market norms. Tunisian products and services must meet the EU and international requirements o f quality and environmental standards. One o f the main problems producers face i s producing and packaging according to the needs o f the market. Tunisia has in place mechanisms to help f i r m s meet quality standards (INORPI, sectoral technical centers, mise-a-niveau program), but they are geared mainly at meeting local market standards and are not focused on target export markets. The Trade Strategy Note (2000) has identified a need for establishing quality schemes that focus on export market requirements.

Lack of access to finance. Many potential and emerging exporters have insufficient access to formal sources to finance their start-ups and expansion. This i s especially the case in new service sectors, such as ICT services, in which Tunisia can have a competitive advantage (see ICT Strategy 2002). The availability o f working capital export finance and insurance for emerging exporters has been improved by putting in place temporary guarantee mechanisms (pre-shipment export finance guarantees). But many Tunisian enterprises face problems in accessing start-up and expansion capital. Despite several initiatives to encourage financing o f emerging exporters (notably FOPRODI - industry development and promotion fund), especially in service sectors such as ICT, the banking sector and venture capital funds remain unprepared to evaluate the r isks and opportunities o f ICT investments.

Weak support institutions. Strengthening professional associations i s especially crucial in Tunisia, where f i r m s are for the most part small and medium-sized. This would allow to internalize within-industry information spillovers relating to reputation o f Tunisian products and information on export markets, which would have a significant impact on export performance. Using estimates o f within industry externalities, calculations suggest that Tunisian exports would be 1 to 3% higher had industries’ externalities been as strong as in Egypt (see Trade Strategy Note, 2001). Similarly, Tunisian exports would be 2 to 4% higher had within-industry externalities been as strong as in Malaysia and between 4 to 10 percent higher had they been as strong as in Korea (see Trade Strategy 2000). These differences across countries on the impact o f within-industry externalities on exports can be explained by differences in export related services offered by trade associations and trade service centers in different countries. In Korea, for example, trade service centers are jointly managed by exporters and government agencies, which provide not only administrative, legal, technical and other overhead services required by both exporters and foreign importers, but also financial and marketing services, as well as exhibition and conference space.

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Government Strategy

Tunisia has set high growth and employment targets in i t s economic development strategy (10th Development Plan period o f 2002-2006), calling for increased internal and external competitiveness and market shares abroad. In this context, the Government has made significant progress in conducting macroeconomic policies conducive to trade, and in pursuing policies to create an open and efficient economy and improve business confidence, attract foreign direct investment and promote exports. These approaches have paid of f in terms o f export growth, but the Government has recognized that, in order to maintain the pace o f export growth in the changing external environment, the constraints noted above need to be tackled immediately.

The Superior Export Council, established in 1997 and headed by President Ben Ali, attests to increased attention that the Government attaches to these concerns. The Council overlooks the implementation o f the Government's Trade Strategy, the key elements of which are outlined in the Trade Strategy Note, 2001. The thrust o f the Strategy has been to tackle the above issues. The Bank has assisted the Council through a series o f knowledge transfer activities. I t s implementation has followed two phases (Table 2). In the f i r s t place, a number o f measures have been introduced to address constraints and market imperfections in a relatively short period o f time. The Bank has supported the Government in this effort through AAA and lending services focused on institution building and policy reforms (e.g., Private Sector Assessment Update, Trade Strategy Note, Export Development Project, and ECAL3). The Government has now requested Bank assistance to implement measures to consolidate and complement the achievements o f the f i r s t phase that has shown concrete results and created momentum for change (see EDP I Mid-Term Review).

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Table 2: Implementation of the Trade Strategy

export markets

Application of information technology to facilitate trade

I

service exports

standards

Access to finance

High transactions costs

Measures to Date Export Market Access Fund (EMAF), a 3- year matching grant scheme to provide support to 350 new/SME exporters to find overseas buyers. The promulgation o f e-commerce and digital signature bills; launching o f various pilot e-government and e-commerce projects to stimulate e-commerce (e.g., Tunisie Trade Net, Virtual Souk, etc.); implementation of the e-dinar, improving telecommunications infrastructure and lowering o f rates, promotion o f private ISPs, and development of PubliNets.

A few technology incubators have been initiated (incubators of the Ecole Nationale des Ingtnieurs de Sfax).

Mise ri niveau program to assist enterprises vith quality improvement, but not targeted to :xport markets.

Access to working capital export finance has been eased by the creation o f a pre- shipment export finance guarantee scheme. The Liasse Unique system to replace a multiplicity o f documentation and an ED1 system (Tunisie Trade Net) to allow for electronic processing of trade documents.

Future Measures and Directions EMAF I1 to enhance the capacity and size o f the local consulting industry, and provide export assistance to groups of enterprises and professional associations, as well as international trading comDanies. Measures are needed to facilitate information exchange and transactions. On the information and knowledge side, this includes identifying, accessing and using market data, gaining a better knowledge of consumer demands, identifying the most attractive market niches and distribution networks for their products, as well as detailed knowledge of their main competitors and their practices on these markets. On the transaction side this means having the ability to carry out business online and to be able to rely on a variety o f services (logistics, financial, etc). Incubators are a key determinant o f the potential new generation o f export enterprises. For this reason, i t i s important that the emergence o f incubators in the country wi l l be developed around a well-structured program, with adequate channels of financing and a clear emphasis on the generation o f entrepreneurial ventures. Other mechanisms such as call centers are also needed. Creation of mechanisms to promote and coordinate a program for total quality management focused on exports, strengthen quality requirements and controls domestically, and attract procurement, buying and design offices to Tunisia. Measures needed to facilitate access to start-up and expansion capital.

Introduce e-government to other trade-related services, and to enhance the efficiency o f customs administration. Make domestic distribution networks more efficient.

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Sector Issue

Ban k-financed

Annex 2: Major Related Projects Financed By The Bank And/or Other Agencies

TUNISIA - EXPORT DEVELOPMENT I1

Latest Supervision

(Bank-financed projects only) Implementation Development

Progress (IP) Objective (DO)

Project (PSR) Ratings

Export Development Project S S Third Economic S S Competitiveness Adjustment Loan

MIGA/FIAS Transport Sector Loan S S

Other development agencies EU I Liasse Uniaue

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Annex 3: Results Framework and Monitoring TUNISIA - EXPORT DEVELOPMENT I1

Results Framework

PDO

:i) Improve access to export markets For Tunisian exporters, :ii) Facilitate access to pre-shipment :xport finance ,111) Reduce transactions costs and Facilitate trade

,...

Intermediate Results One per Component

Component One: Market Access

[mproved access to emerging :xporters and SMEs to export outlets and buyers

Component Two: Pre-shipment Export Finance

Facilitate access to pre-shipment export finance

Component Three: Trade Facilitation

Goods flow more rapidly and efficiently within supply chains

Outcome Indicators

(i) Total export generated US$787 million (EMAF + PEFG)

(iii) Maximum clearance time for movements o f goods average 2 days

Results Indicators for Each Component

Component One

(i) (a) Number of firms assisted through EMAF I1 -500 (b) Number o f export and professional associations assisted by EMAF 11- 40 (ii) Total incremental export value by the beneficiary enterprises (iii) (a) Time for notification to WTO TBT Committee o f draft mandatory technical control requirements reduced to 2 months. (b) Time to access WTO notifications of new foreign technical control requirements reduced to 2 months. (iv) (a) Increased number o f f i rms accessing information on voluntary standards. (b) Increased number of f i r m s provided with information on technical requirements for exports

(i) Amount o f export working capital loans guaranteed (ii) Additional exports generated

(i) Time taken for processing application for technical inspection control services reduced according to the following: (a) Issuance of AMC for re-exported goods: Immediate (b) Issuance of APE: 0-2 days (c) Issuance o f A M C for goods that do not need lab tests, inspection: Immediate Resulting in time savings for exporters and importers of 2-13 days for complete trade transaction formalities

Use of Outcome Information

Prior to the Mid term review and project completion, the PCMU wil l undertake an evaluation study in order to measure the impact o f the project as given by the listed indicators

Use of Results Monitoring

Component One:

The results o f the indicators wil l be monitored by the PCMU and included in the progress reports

Component Two:

The results o f the indicators wil l be monitored by the PCMU and included in the progress reports

Component Three:

The results o f the indicators wil l be monitored by the PCMU and included in the progress reports

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NIA Component Four: Project Management

NIA

(ii) (a) Customs clearance time reduced (currently 2-4 days) declaration from 3.6 days to 15 minutes (b) Percentage of import declarations assigned the Green Channel (immediate release) from 0 to 80% (c) Percentage o f declarations subject to physical examination reduced significantly (d) Overall duration o f stay in ports for containers reduced. (iii) Reduction o f duplicative on-site inspection (general or detail) to 1 on-site inspection for customs and technical control agencies Reduction o f duplicative on-site inspection for customs and technical control agencies

i 0 W

o o o / 2 8

3

3 d

0

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Annex 4: Detailed Project Description TUNISIA - EXPORT DEVELOPMENT I1

Component 1: Second Export Market Access Fund (EMF 11)

This component would include a matching grant fund (the second Export Market Access Fund - EMAF 11) inspired by the success o f EMAF I and consolidatinglcomplementing EMAF I assistance, which has achieved substantial incremental export results, expanded the sustained export capacity o f Tunisian firms and their willingness to pay for valuable export business development services, and formented the emergence o f a Tunisian export consulting industry.

Expanding and diversifying sumort

EMAF I1 would help to continue the momentum generated by the f i r s t program by expanding direct support to firms located in Tunisia to at least 500 during a 4-year commitment period (plus a fifth year to complete the implementation o f reimbursements on individual export plans). All f m s exporting goods and services, indirectly or directly can participate in the program, including those in agro-industries, manufacturing (including artisans) and services (including tourism, education and health). EMAF I1 i s expected to continue the strong focus on the emergence o f new Tunisian exporting firms to help grow the export orientation o f the nation, and on the diversification o f Tunisia’s export destinations in order to secure sustainable relationships with rapidly growing export markets across the globe.

In parallel, in order to substantially leverage and multiply the benefits o f the successes incurred under EMAF I, this second initiative would undertake a new and concerted program to help build the capacity o f up to approximately 40 intermediary entities, such as export associations, chambers o f commerce, and professional consulting organizations to support groups o f Tunisian f i r m s working under a specific common export plan and to support the institutional development o f such entities insofar as such i s linked directly to specific export expansion plans. This step i s expected to have a strong positive impact on the acquisition and broad diffusions o f knowledge and s k i l l s required to establish a more diversified and sustainable export capacity in Tunisia.

Increasing results and return on investment

The total cost o f these two program tracks i s estimated at US$37.6 million, ( US$21.1 mill ion financed by the World Bank, US$ 15 mil l ion financed by the private sector and US1.5 mill ion by the Government) . US$ 31.6 mill ion would be allocated for the beneficiaries , o f which US$ 16.6 would be financed by the Bank and US$ 15 mil l ion by the beneficiaries ( private sector). Detailed estimates o f EMAF I1 costs and financing plan, as well as comparisons with EMAF I are in Annex 1. EMAF I1 i s expected to generate incremental exports within 2 years after the completion o f program implementation in excess o f US$200 million, approximately twice the dimensions o f EMAF I.

Design refinements under EMAF I1 would help to increase the program’s retum on investment. To th is end, eligible expenditures would be expanded to include export plan-related training for f m s and product design modifications to meet pre-defined market needs. EMAF I1 management and technical assistance services would also be reinforced by (a) increasing local and internationally experienced staff expertise to strengthen the designs o f export plans, (b) new staff specifically responsible for supporting the export development capacity-building o f Tunisian export and other professional associations, and (c) additional staff to reside in key regions o f Tunisia to reinforce support to firms undertaking export plans and to increase outreach in these areas particularly to help develop new exporters.

’

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Tracking key performance indicators

The performance o f EMAF I1 would be benchmarked against i t s overall results in contributing to total incremental exports, as well as i t s role in generating new exporters, new export markets and new export products. To also track the expansion at the firm level in export capacity, period independent evaluations would also be made on completion o f the implementation o f export plans to determine changes in parameters such as structural changes in businesses, new ongoing partnerships within Tunisia and overseas, new export information sources and systems put in place and technological innovations associated with export-related promotion and production. Similar overall output and capacity tests would be applied to assistance to groups o f exporters and to export plan-related institutional development o f associations. EMAF I1 management performance criteria would focus mainly on the number o f firm and association export plans supported, response times for approval or rejection decisions on grant applications, and operations within the Operational Manual.

Detailed policies and procedures

The main provisions o f the specific policies and procedures to be incorporated in the EMAF I1 Operational Manual are described in Annex 4.1.

Increasing efficiency o f management services

As part o f the refinements to be adopted in EMAF I1 Operational Manual to be approved by the World Bank, i t i s essential that all possible steps be taken to streamline management services as part o f the need to (a) maximize export return on investment, (b) provide private sector-like services to meet private export sector needs, and (c) ensure cost effectiveness o f delivery.

In this regard, the appraisal mission expressed concern over existing processes associated with budgets, expenditures and contracts o f EMAF, as well as mobility o f staff within and outside o f Tunisia, in which there i s unproductive duplication o f reviews, approval and signature steps or other restrictions on the effective program management. Consequently, the mission requested EMAF management in conjunction with the EMAF Steering Committee submit to the Bank by March 30,2004 precedent to loan negotiations a set o f measures to eliminate all such steps that produce operational delays and excess administrative costs. The mission also requested that the Operational Manual incorporate, as needed in conjunction with the Bank's Legal Department, references to the appropriate existing agreements between the Government o f Tunisia and the Bank that provide for the unambiguous application o f the Bank's Guidelines for Selection o f Consultants and the Procurement o f Goods and Services under Bank-financed projects.

Component 2: Pre-shipment Export Finance Guarantees Facility (PEFG)

This component w i l l strengthen the management o f PEFG program that was set up under the EDP I, with the aim o f further encouraging financial institutions to provide pre-shipment working capital financing to emerging exporters with viable export contracts. Eligible sub-loans financed by the PEFG facility (see Annex 4) would be guaranteed for up to 90 percent o f the outstanding principal amount, which represents nonperformance r isks o f SMEs and emerging exporters which the participating financial institutions must bear for up to 180 days (and in cases where the period o f production i s high, up to 300 days).

Since i ts inception in 2000, the facility has generated US$30 mill ion o f additional exports per year, with an original PEFG fund o f US$5 million. This performance has however been weaker than envisaged and the facility has not been able to fully respond to demand by emerging exporters for pre-shipment financing. Meanwhile, the banks are increasingly searching for risk-sharing instruments that could help them diversify their client base. A key reason for the weak performance has been the premature departure

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o f a number o f skilled staff o f COTUNACE in charge of PEFG management, and it has become clear that the remaining PEFG team (composed o f one full time and one part time COTUNACE staff) does not have the requisite sk i l l s and capacity to meet the potential o f the scheme. The project w i l l therefore finance the recruitment o f international and local experts that could more effectively manage the PEFG scheme. The new management team wi l l fully comply with the PEFG operational manual (summarized in’ Annex 4), w i l l have requisite sk i l l s and sector knowledge for the evaluation o f emerging exporters’ risks, and w i l l have significant experience in managing s i m i l a r schemes.

The facility w i l l be available to all Tunisian SMEs and emerging exporters in all manufacturing, processing, and service activities (except those sectors on a negative l ist) that are unable to access pre- shipment export finance from commercial banks, provided that these exporters submit confirmed export letters o f credits (L/Cs), other export orders backed by export credit insurance, back-to-back domestic L/Cs, or international subcontract fee payment guarantees that ensure the self-liquidation o f the underlying pre-shipment export finance guaranteed by buyers’ payment within the loan and PEFG’s maturity.

Component 3 - WTO Technical Barriers to Trade Enquiry Point

The ability o f f m s to access information on international standards and transparency in regulatory requirements are fundamental to export development. Standards can improve information flows between suppliers and consumers regarding the characteristics and quality pf products, thereby facilitating market transactions. This i s particularly the case o f developing countries such as Tunisia. For example, based on analysis from the World Bank’s Technical Barriers to Trade Survey, information inquiry barriers for firms wishing to access information on standards in developing countries can reduce export success by 47 percent. Standards facilitate comparisons between consumers across products with common essential characteristics.

Moreover, the costs o f barriers in standards can be higher than tariffs to global trade (Maskus and Wilson 2001). In particular, testing and certification are serious obstacles for developing countries seeking to expand export markets (Wilson 2001). The OECD estimates that standards alone represent between 2 and 10 percent o f final product costs (OECD 1999). Many developing countries, including Tunisia, do not have the resources to apply standards and meet changing technical regulations. This i s particularly true in regard to small and medium sized fm which are new to export - a key target audience for this project.

In general, domestically set standards should be aligned with foreign and internationally recognized standards to ensure the access o f domestic fm to export markets. Standards can benefit firms by streamlining information on product quality - helping f i r m s operate more efficiently (because firms can organize products by quality categories that standards specify). Streamlined information also helps firms utilize economies o f scale by limiting range o f technical specifications that f i r m s need to align with. Adherence to recognized international standards also provides incentives for finns to improve the quality and reliability o f their product to a certain level - enhancing firm productivity (Maskus and Wilson 2001). Hufbauer, Kotschwar and Wilson (2001) emphasize that whenever possible, international standards should be adopted since that w i l l open the domestic market to foreign competition that fosters firm productivity. Zhou and Spencer (2000) suggest that a country that produces a lower-quality product would gain more from investment to raise export quality.

Approximately 75 percent o f Tunisian standards are aligned with de-facto international standards (ISO, IEC, others). In addition, approximately 14 percent o f standards are mandatory, wi th 25 percent related to measures on sanitary and phytosanitary standards and health requirements. The Ministry o f Industry and INORPI’s role in standards and technical regulations includes both developing Tunisian national standards, as well as serving at the WTO Enquiry Point for the TBT Agreement. This latter function

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Action and Objective

provides a critical function as part o f the government’s trade obligations, central point o f contact for WTO members on mandatory technical controls on imports, and inter-ministerial assistance on transfer o f information on technical standards in export markets o f other WTO members.

Duration I Months ( 1 - 48)

Consultations conducted in project preparation with government officials suggest a lack o f capacity in regard to standards and implementation o f WTO provisions in the Technical Bamers to Trade (TBT) Agreement in the following areas:

Preparation and review of best practice examples for TBT

Technical assistance - Evaluation of practices and objectives

Visit to TBT Enquiry Point - Best Practice English translation and technique examination

Formulation of methods for TBT Enquiry Points - Foreign

Enquiry Points

for the TBT Enquiry Point for INORPI

Planning for the TBT Enquiry Point Formulation of information on technical standards

0

0

0

Availability o f standards and technical regulations in user friendly (digital) format; only title and number on-line i s available, not full text o f draft regulations. Insufficient resources (total staff o f 4) in the INORPI information center working on standards, with very limited information technology capabilities. Insufficient resources (total staff o f 3) to assist in WTO TBT Enquiry Point notification requests per year from 143 WTO member governments (2.6% of total INORPI staff).

2 months 1 - 2

1 months 3

1 week 5 6 months 7 - 1 2 2 months 6 - 7 2 months 7 - 8 2 months 9 - 10

Based on these consultations and review o f government programs related to INORPI’S mandate and need to increase capacity to meet trade and export goals, the program o f capacity building wi l l target especially small and medium-sized firms new to exports. The sub-component w i l l be coordinated with and support provided by the European Union to INORPI to assist in aligning Tunisian standards with European Directives. Tunisia w i l l host the 2005 World Information Summit. The new TBT Enquiry Point and program o f assistance in standards to fm could be a model for other developing countries at the Summit, of innovative government implementation o f trade agreements which leverages information technology.

examples Charges for logistics and information technology

The establishment o f a TBT enquiry point can help provide information conveniently to manufacturers and exporters about the most important technical regulations affecting their ability to serve international markets. This includes answering enquiries on technical regulations, standards and conformity assessment procedures concerned with the TBT Agreement, as well as overseas enquiries on any existing or proposed Tunisian standards, regulations and certification systems. Such assistance to Tunisian industries can help them measure up to the challenges posed by the intense global competition around the world by providing important information on standards and technical requirements in major export markets

12- 14 2 months

Plan for TBT Enquiry Point

The steps and timing for the project that w i l l be spread out over 48 months are proposed:

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processing o f these documents and the setup of a single computer network (TTN) for the trading community. The thrust o f EDP I1 trade facilitation component i s to extend facilitation beyond trade related documentation processing to a broader objective o f facilitation o f trade through streamlined technical controls, improved customs procedures, and increased access to information on standards and technical regulations to raise transparency and meet international trade obligations.

In terms o f the incidence o f logistics costs, Tunisia’s performance i s below international norms o f best practices but comparable with those o f developing countries. The incidence o f logistics costs in Canada and the United States i s within the range o f 6 to 12 percent o f delivered price, which i s half o f that in Tunisia. Compared to developing countries, in particular garment or textile production, Tunisia’s performance i s below East Asian countries such as China (especially coastal provinces). Middle Eastern countries such as Yemen, Jordan and Egypt exhibit similar incidence o f logistics costs as Tunisia except for coffee beans in Yemen and textiles in Jordan. In fact, Yemen and Jordan show a larger degree o f variability in the incidence o f logistics costs compared with Tunisia. Finally, comparisons with South Asian countries such as Bangladesh and Nepal show that Tunisia’s logistics costs results are somewhat higher.5

Sub-component 4.1. - Technical Control Services

The Project would finance the application o f e-government mechanisms to technical control services, in view o f improving their efficiency, transparency and reach. This w i l l mainly build on the TTN platform established under EDP I. During project preparation, an enterprise survey identified a number o f trade related administrative services most suitable for automation. These services represent the heaviest burden on the surveyed enterprises’ day-to-day business activities. This information was then mapped against the results o f a survey o f administration that determined key trade-related services susceptible to e- government. This sub-component i s the result o f th is exercise, which indicated that “Back-office’’ re- engineering o f satellite agencies (mainly technical control agencies) involved in the TTN network i s critical to maximize the benefits o f the Trade facilitations mechanisms put in place under EDP I. While TTN project has modified considerably the way trade procedures are conducted, i t did not tackle the inefficiencies o f the hierarchy and the decision making process within government. In fact, TTN system does not provide decision support system software because it was designed to be only a document exchange platform. Furthermore, the TTN does not replace any administrative agency and cannot intervene in administrative decision.

In imporb‘export document processing, a whole back-office workflow i s carried out by government employees. For instance, in a technical inspection service using manual procedures for processing authorization, the forms submitted by importers follow these steps:

- - - - - - -

Administrative checking o f number and quality of submitted paper and validity o f documents Request for more additional documents if needed Technical checking o f imported goods Importer contacting to organizing on ground visits Performing visits and eventually selecting samples for analysis Sending samples to laboratories and getting analysis results Making decision to authorize goods to enter in the market

Foreign Trade Logistics in Tunisia, 2004.

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Each step i s performed manually by a specific internal administrative service. Documents between these different services are exchanged manually. Therefore the aim o f this sub-component i s to overcome these difficulties and thereby enhancing the usefulness o f the TTN system to the trading community.

Fifteen percent o f NGP coded goods (harmonized system), (2,600 types o f NGP coded goods) are subject to technical control. In 2003, 52 percent o f goods subjected to technical controls were imported raw materials or merchandise for re-exports.

The goods subject to inspection can receive two types o f authorizations before the goods can leave customs. Goods can receive the issuance o f the APE (autorisation provisoire d’enlhement) which allows goods to leave the customs site and be placed in a warehouse, but does not allow for goods to be consumed on the market. The issuance o f APE means that the goods w i l l go through further analysis before they can be placed on the market. This could include physical inspection or laboratory analysis. APE i s processed on average 2 days. For food and other sanitary products there are systematic analysis, so the issuance o f APE i s mandatory.

The second process involves the issuance o f the “autorisation mise B la consommation” (AMC) which allows for the goods to clear customs and be placed on the market. The AMC on average i s processed up to 11 days, depending on the paper-based workflow o f particular ministries.

Results o f technical control decisions are also communicated to clients manually, a practice that encompasses significant delays in securing technical control clearances. While TTN provides an alternative channel for both electronic submission o f requests for technical control and electronic receipt o f results o f technical control, th i s capability i s under-utilized since most technical control agencies are not equipped to process technical control documents via TTN.

The objective o f th is component i s to streamline the workflow o f the issuance o f “autorisation provisoire d’enlkvement” (APE) and AMC and reduce the time for processing the two documents. Savings in time can be accomplished by automating the internal document f low o f 7 technical inspection services through the development o f a web based information system that links inter-departmental communication within individual technical control services and between different inspection services.

The information system w i l l be managed by TTN. TTN will develop an information system that links document and decision flow for all seven technical control agencies. TTN has already tested a pilot application and w i l l adapt and scale up the system so that a l l seven control agencies w i l l use the system to process their authorizations. A tracking system w i l l be developed and linked to TTN to facilitate notification o f decisions, improve transparency and predictability o f the technical control procedures so that importers can track the progress o f their file. The LCAE wi l l be linked to TTN in order to speed up the application process.

The streamlining o f procedures and the automation o f the processes w i l l enable faster response to most applicants within the same day. For those products that require laboratory tests, the approval w i l l depend on the specific product. Authorization notices w i l l be issued electronically via TTN and the processing w i l l be expedited through the use o f a risk management module jointly with the customs. Both the declarant as well as Customs w i l l receive the authorization notice and i t s earlier availability w i l l reduce goods clearance time. The benefits from the above approach are reduction in processing o f technical control within the agencies as well as faster response to the importers by using TTN platform.

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Activity

Streamlining technical control procedures

Technical Assistance - “Back-office”

Duration (months) Month (1 - 28)

2 1 - 2

3 3 - 4

Enhancement to software of Ministry o f Commerce

Training Test Terms o f reference for selectivity Software development for selectivity Training Selectivity Test Selectivitv

Procurement o f equipment 5 5 - 9 4 6 - 9 2 10- 12 4 12 - 15 3 16 - 18 6 18-22 2 22 - 23 3 23 - 25

Performance Indicators

Goods being re-exported AMC

The performance of this sub-component w i l l be measured in terms o f the time to process technical control requests. These indicators w i l l be collected and assessed based on specific data that w i l l be collected from the technical control software. The estimated time savings time achieved with the automation o f technical control decision making are provided below:

I Type of Merchandise I Type of Authorization I Present Issuance Time I Estimated Issuance Time I Up to 11 days I Automatic (within

Goods needing further inspectiodlab tests

Goods that do not need further inspection

minutes)

minutes) and immediate notification o f required analysis and agency(ies) involved

APE 2 days Automatic (within

AMC Up to 11 days Automatic

This would result in savings of:

Time required by importers to go to a technical control agency to file an application and received the response. Reduction o f issuance o f APE by 2 days to automatic, so that goods can proceed immediately to customs clearance. This would reduce the cost of losing market access.

For the goods that need lab tests, immediate issuance o f APE so that goods immediately leave customs. This would reduce storage fees required for goods that have to sit in customs.

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AMC for other goods not requiring lab tests

Performance Indicators:

Immediate 100 Within 15 months o f implementation

An integrated risk management module w i l l be implemented in order to accelerate response time for consignments that present low risks, reduce the number o f consignments subject to inspection, lab testing, and increased targeting and monitoring o f high-risk consignments. The objective o f th is sub component i s to align risk management procedures with Kyoto Convention Guidelines on the application o f information technology to better target high risk consignments, avoid duplication of inspection procedures, and allow goods to be cleared at a faster processing time. Best practice standards have integrated customs and technical control inspection so that monitoring, inspection and authorization o f goods becomes a shared, integrated responsibility between ministries ensuring standards and customs (see below).

The risk management system would be housed within Customs which i s in the process o f developing a prototype. The system wi l l be linked to TTN to allow transmission o f information from and between technical control agencies, customs and exporters and importers. Once the system i s developed, at a later stage, Customs could be delegated to draw samples for technical control agencies so that lab samples are collected once for all relevant agencies. The r i s k management system would enable th is process as it would flag those products needing lab tests automatically.

Sub-component 4.2. - Streamlining and Strengthening Customs Procedures

The objective o f this sub-component i s to streamline customs clearance procedures in order to reduce border clearance delays while at the same time strengthening control processes. This i s achieved by enhancing the automated tools for declarations processing, introducing new procedures for customs control and enhancing Customs’ management information system to provide analytical information.

Tunisian Customs embarked on a modernization process in the trade facilitation component o f EDP I. One major step i s the recent development implementation o f a selectivity module that w i l l assist in automating the processing o f declarations. While this i s a marked improvement over manual processing it requires assistance to the transition process through the introduction o f new control procedures and change management.

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This component therefore provides support for broader reform at an opportune time since it w i l l reinforce the initiative o f the Tunisian Government to introduce new Customs legislation planned for 2004. Technical assistance wi l l be provided for risk analysis and management, deferred control, post event auditing, inspection techniques, and a change management strategy. The technology infrastructure w i l l be strengthened to support these changes and equipment procurement w i l l consist o f scanners, computer hardware and other equipment. The investment i s targeted at reducing border crossing delays while improving customs effectiveness in control, revenue collection and national security.

Risk Analysis and Management, including automated selectivity

Risk analysis and management are fundamental building blocks for targeted customs control and enable the implementation o f selectivity o f transactions that need to be verified. Automated selectivity i s a key tool for risk management and it provides the means to reduce clearance delays for the majority o f low-risk declarations while at the same time providing the focus on higher risk consignments. Data that has been compiled internationally demonstrates that: (a) detection i s inversely proportional to the number o f physical examinations, and (b) the implementation o f an automated tool for risk analysis and management leads eventually to a rate o f detection which i s proportional to the rate o f physical examination. (See chart below for 2003, data collected under the Trade and Transport Facilitation in Southeast Europe program.6)

Customs declaration processing in Tunisia took on average 3.6 days in 2003. With the imminent implementation o f the automated selectivity tool, a major improvement w i l l be attained and processing o f declarations w i l l be completed within an hour7. As soon as a customs declaration i s deemed as acceptable (all supporting documents are attached to declaration) by a customs officer, the automated selectivity tool assigns, based on the customs declaration data and selectivity criteria, the status o f a declaration as Green (accepted), Orange (documentary control required), or Red (physical examination required). For those declarations that are Green, a Goods Release Note (authorizing removal o f goods) w i l l be issued as soon as payment i s effected by the declarant. The proper calibration o f the selectivity criteria i s necessary to ensure that low risk consignments are automatically allocated the green channel. Continuous adjustment w i l l be applied from analysis of deferred control and post event audits and w i l l enhance the effectiveness o f selectivity.

The automated selectivity module o f Tunisia customs uses base criteria such as the product code, value o f product, country o f origin and importer. These selectivity criteria w i l l be further enhanced, based on

TTFSE. See httr,://www.seerecon.or~/ttfse/ Customs declaration processing i s measured from submission of customs declaration (hardcopy or using rrr\r) to the

communication o f the result of declaration processing (using SINDA or TTN)

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historical data o f Tunisia customs, and w i l l also include the use o f additional advanced techniques which assess the overall consistency o f a transaction. Technical assistance w i l l be provided to improve risk analysis and management, as well as the automated selectivity tool.

The risk management system wi l l be aligned with Kyoto Convention Guidelines on the application of information technology to better target high risk consignments and avoid duplication o f inspection procedures. Best practice experiences have integrated customs and technical control inspection so that monitoring, inspection and authorization o f goods becomes a shared, integrated exercise between these control agencies ensuring standards compliance, adherence to control requirements o f these agencies and faster clearance processing.

Instead o f separate manual verification by customs inspectors and technical control officers, the system wi l l automatically assess the risk for the goods being declared. For those goods that require control, the system wi l l schedule goods inspection date, alert relevant control agencies via TTN on date o f inspection. All relevant bodies wi l l need to be present and abide by the date and timing o f goods inspection. This approach eliminates duplicative inspection by customs and different technical control agencies.

Currently both customs and technical control agencies manually conduct (i) verification o f and validity o f technical control documents, and (ii) conduct onsite inspection (general, or detailed) o f goods. The result o f these duplicative processes i s that goods take up to 9 days (without technical control) up to 20 days (with technical control) for total processing time.

The integrated risk management system wi l l reduce the duplicate processes conducted in the following way:

The system wi l l conduct automatic profiling based on the inspection protocols and requirements o f technical controls agencies and customs which w i l l be inputted into the decision making workflow o f the system. Instead o f a manual verification by customs inspectors and technical control officers, the system wi l l automatically assess:

A. verification and validity o f documents (rejection, approval o f documents conducted based on inspection protocols and requirements)

B. identification o f NGP code and identification o f ministry mandated for technical control C. identification o f type o f authorization required (APE, AMC). D. alert relevant technical control agencies and send documents via TTN E. scheduling o f Goods Inspection for all related agencies so that goods are not subjected to

duplicative inspection by customs and different technical control agencies. All relevant bodies w i l l need to be present and abide by the date and timing o f goods inspection.

F. notification o f Date o f Inspection to all relevant bodies sent via TTN. G. electronic notification submitted to port authority and warehouses so that goods can be

released without client needing to provide paperwork from different departments. H. ensure that random selectivity w i l l be conducted for risk profiling for both customs and

control agencies for inspection.

The adoption o f risk analysis and management w i l l allow Customs and technical control agencies to free resources that are presently allocated to routine verification tasks towards higher value add control activities. Customs inspectors w i l l therefore be able to focus on declarations that present a higher risk o f irregularities and carry out in-depth examination based on best practice for inspection techniques.

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New Control Procedures

As part o f risk analysis and management, Customs needs to introduce techniques for deferred control and post event audit on a sampling basis. This procedure i s not only effective in reducing border delays but also acts as a deterrent. I t covers detailed documentary control, physical control as well as accounts verification. The results o f deferred control and post event audits and the analysis o f fraudulent cases by the “Observatoire des Douanes” w i l l be used to improve the selectivity criteria and thus improve i t s effectiveness.

The post event audit regime represents the safety net for the entire facilitation approach. I t recognizes that many aspects o f Customs interest, such as valuation verification, fiscal evasion, smuggling and Customs fraud, cannot be detected through examination o f individual Customs declarations. To uncover such irregularities, i t i s often necessary for Customs to examine a trader’s entire international trading patterns, including movements o f foreign currency. This can only be achieved through “systems based auditing” o f traders entire international trade transactions

The success o f the above reforms requires the development and implementation o f a change management strategy. The change management w i l l include regular communications as well as training for an estimated 1,000 customs officers.

Management Information System

Tunisia Customs presently have a Statistics Unit that extract data from SINDA for analytical purposes. Some data i s presently not captured within SINDA, for example, timestamp as to when a hardcopy declaration has been delivered to Customs. The improvement o f the Customs management information system wi l l consist o f identification of other key data that w i l l be necessary for regular analysis of customs operations, productivity (overall and by customs bureau), fraud cases and means o f detection (deferred control, post event audits) and other management indicators. SINDA wi l l be enhanced to enable collection o f these data for reporting and analysis.

Strengthening o f Technology Infrastructure

The computer servers for the SINDA system are located in central Tunis. The infrastructure includes redundancy and high availability to maintain operations in spite o f component failure. Customs does not however have a disaster recovery site. The non-availability of SINDA for an extended period would have major repercussion on Tunisian international trade and the economy.

I t i s proposed to equip a disaster recovery site with hardware that would be configured to sustain a reduced transaction load o f 70 percent. Network equipment w i l l also be procured for communications to the disaster recovery site.

With the shift from paper documents towards electronic documents and an increased use o f online access to SINDA, Customs w i l l require an additional 500 personal computers.

Scanners have helped to reduce time taken for container verification. A high number o f clandestine immigrants (496 over the past two years) have been detected through the use o f scanners. It i s recommended to acquire 2 scanners to streamline the scanning process within the Port o f Rades and reduce the queues which can reach up to 2 hours.

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% declarations - Green channel Declaration Processing Time (minutes)

Implementation Plan

End Year 1 End Year 2 End Year 3 End Year 4

30% 40% 55% 80%

45 30 20 15

Technical assistance w i l l be provided within the areas identified above and w i l l be delivered by domain experts.

First and second year: - - - - - -

introduce change management and establish change management strategy and training program study / review international best practice for risk analysis and management strengthen automated selectivity and related procedures define methodologies for deferred control and post event auditing provide training on inspection techniques prepare and validate procedures manuals

Second and Third Year: - - - maintain change management

analyze results o f selectivity, deferred control, post event audits, inspection techniques adjust selectivity based on results o f above analysis and strengthen new procedures

Equipment: - - - -

500 personal computers: f i r s t year equipment for disaster recovery site: second year 2 Scanners : First year replacement o f servers: third and fourth year

Performance Indicators

Two performance indicators w i l l be measured: (1) Percentage o f import declarations that are assigned Green Channel, i.e. immediate release (2) customs declaration processing time

The percentage o f physical examination must be maintained below 10 percent o f import declarations.

Note : SINDA wi l l be modified to collect timestamp of delivery o f declaration (hardcopy). This w i l l allow extraction o f performance indicators directly from SINDA.

Sub-component 4.3. - Trade Loaistics Performance Indicators and Data

Performance indicators are necessary to evaluate economic progress toward poverty reduction goals in any development assistance project. The lack o f reliable and harmonized statistical data contributes to serious difficulties in evaluating the impact o f programs and policies to expand economic growth. This i s particularly true in projects with goals in trade facilitation and lowering logistics costs since empirical data and evidence in th i s area are limited. In regard to the EDP I1 project, measurement o f program effectiveness through the use o f new data sets to inform performance w i l l make a unique contribution to

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better understanding the link between trade expansion, private sector performance, and poverty alleviation in Tunisia.

Performance indicators are particularly important with respect to trade facilitation and export promotion work, as these objectives involve complex interactions between government, private sector actors, and other variables. In this project, new data and performance indicators w i l l help anchor Tunisia's progress in meeting trade goals and provide innovative new data and analytical tools to monitor progress over the next decade. They can also be a benchmark for regional comparisons, and guide policy makers in preparing and evaluating s imi lar projects. The work on data and indicators w i l l also assist in monitoring the impact o f policy reform and other measures taken to reduce costs and facilitate trade.

This sub-component w i l l support a special economic assessment o f trade facilitation to promote long- term export-led growth - tied specifically to project components in customs and technical controls. This w i l l include analysis o f the following: (a) border clearance times, with a specific focus on facilities at the Port o f Rades, (b) current technical control regulations and their impact on border clearance times, aligned with the project goals and proposed new Customs Code to be adopted in 2004, and (c) new data set on border clearance and customs clearance times for duplication in a time series database. The indicators in Table 1 below w i l l be evaluated and a sub-set o f these identified for completion during the project.

Measuring Customs and Border Clearance Times

There are different interpretations o f the time it actually takes to clear goods from ports. This i s due to the fact that importers focus on time between the arrival o f the ship until the container i s authorized to leave the port area. Customs authorities focus on processing time and tend to disregard other factors contributing to delays in border clearance. The World Bank has developed a methodology for measuring different time segments in the clearance process (Trade and Transport Facilitation in South Eastern Europe - TTFSE) ', and the World Customs Organization has established a Time Release Study (TRS). Both these tools w i l l be introduced in Tunisia. This would involve an assessment o f baseline figures, and measure progress over a four-year period in the project.

Regular comparisons between the rates o f physical examination and detection o f irregularities, demonstrate that (i) detection i s a reverse function o f examination, and (ii) when a risk analysis module i s introduced and becomes operational, better targeted inspections lead to correlated detection. TTFSE macro indicators can be replicated easily and need only be updated once a year. Six key figures are required for the data sets: total customs revenue, total customs costs, total customs salaries, total customs staff, annual number o f declarations', trade volume.

The TRS methodology provides a basis to measure the time required for release o f goods (normally from the time o f arrival o f goods at the portlairportlland border until their release to the importer or a third party on his behalf). The time required to release goods has become an internationally accepted measure for assessing the effectiveness o f a Customs administration. The methodology i s also useful in identifying bottlenecks in the clearance process, as well as a basis for simplifying procedures in the future. The methodology w i l l assist Customs authorities in Tunisia in comparing the results obtained by means o f the standardized system with previous studies, especially when introducing changes in Customs procedures, as included in the project".

' These indicators are defined in detail in the TTFSE manual ( httu://www.seerecon.org;/ttfse/ ).

'' More detail on the methodology can be found at the World Customs Organization website: http://www. wcoomd.org/ie/En/Topics-Issues/topics-issues.html

With import declarations identified separately.

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Measure Truck Examination (at Pilot Border Crossings)

Time required for release of goods

Import Clearance Time (at pilot inland terminals)

Average border entrylexit time (at pilot border crossings)

The subcomponent w i l l support construction o f a new database on border and customs clearance times, including the above noted methodology. In addition to the customs data outlined above, the project w i l l draw on data in the SINDA database. The goal i s to develop a harmonized and standardized data set on customs and border clearance times for replication in a time series data set. Finally, this subcomponent w i l l also include evaluation o f the feasibility o f a Trade Facilitation Audit, based on methodology deployed by the World Bank. The audit quantifies the performance o f border agencies as perceived by users and border agency management, and i s conducted to create incentives for change and a benchmark against which to measure improvement. I t can help examine and evaluate difficulties and obstacles to the cross-frontier movement o f routine consignments and their associated payments.

Definition Comment I Source Number o f trucks opened (seals broken) compared to the total number of trucks processed From the time o f arrival o f goods at the port/airport/land border until release to the importer or a third party on his behalf Time between entrance o f truck into terminal and release o f goods

TTFSE Methodology

Detailed analysis World Customs Organization - Time Release Methodology TTFSE Methodology I t can be calculated for other locations such as ports and border. TTFSE Methodology For trucks exiting the country, time between

joining the queue and crossing the border. For trucks entering the country, i t i s the time between crossing the border and departing the

Proiect Benchmarking and Evaluation

The study and datasets produced in this subcomponent w i l l be used to provide information for project benchmarking and performance, as well as informing a set o f priority follow-on programs for continued government actions to reduce transactions costs for importers and exporters. Regarding the data sets, these w i l l be produced in year-two and year-four o f the project for time-series comparisons (customs and border clearance times, logistics costs, technical controls and standards and others to be identified in the f i r s t phase o f analysis). A detailed summary report produced in year three w i l l include the following:

1. Impact o f domestic trade facilitation reform on Tunisia’s export potential in the areas o f port infrastructure and logistics, customs, standards and reform o f technical regulations.

2. The link between improved competitiveness through trade facilitation and export enhancement and job creation, with particular relevance to areas outside urban centers in Tunisia.

Timetable:

0

0

Year 1: Report design and framework for analysis. Workshop with government statistical agencies, private sector, and experts. Launch o f data gathering analysis. Year 2: Compilation o f data and summary report on trade facilitation based on survey results. Year 3: Workshop with industry, government, and other officials on data and analytical results. Year 4: Final data sets and report and project workshop.

Table 3: Trade Facilitation Data and Indicators: Provisional Outline

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Measure Revenue Collectedcustoms Staff

SalariesRevenue Collected

Customs administration costtrevenue collected

Trade VolumeICustoms Staff

Annual number of declarations/Customs Staf f

Average value per import declaration

Average revenue collected pe declaration

Transport time

Transport cost

Inventory time

Inventory cost

Port handling capacity

Container handling capacity

Definition Total revenue collected Total number of customs employees (USD)

Total revenue collected/Total agencies salaries, overtime, bonuses and benefits (%)

Total budget of the administration/Total revenue collected (%)

Trade Volume (X+M)/Number of Customs Employees

Total number o f declarations (M, X, suspense regimes but excluding transit)/ Number of Customs Employees Total import values/ Number of import declarations

Total import revenue/ Number of import declarations

The average time, weighted by value of goods transported, required to transport goods from the place o f production / manufacturing / processing to the place from where the goods will be exported, or from the place of import to the final destination / distribution point or processing plant (in days) The total cost of transporting goods from the place o f production / manufacturing / processing to the place from where the goods wil l be exported - or from the place o f import to the final destination / distribution point or processing plant The average time in days that inventory must be available, as weighed by value. This specifically estimates the additional number o f days of inventory required due to supply chain inefficiency or unreliability. Average value o f goods i s used to estimate a cost equivalent o f inventory time. Additional cost o f maintaining an inventory o f goods and materials (over and above what woull be required in case of efficient logistic transport processes). I t reflects additional time that inventory has to be maintained (in days or weeks).

The design cargo handling capacity of a port expressed in tonslyear The number o f containers, expressed in a standard unit TEU, a port or terminal i s designel to handle in a period o f one year.

‘TFSE Methodology P ‘TFSE Methodology

‘TFSE Methodology

‘TFSE Methodology

Ierived

lerived

+eight forwarder

%eight forwarder

Measurement

Measurement

~~ ~

Standard Resources. Distinction can be made for dry, liquid and multipurpose bulk handling capacity.

- 4 6 -

Measure Storage capacity

Average cargo dwell time

Average container dwell time

Container handling charge

Cargo Throughput

Gross Ship Productivity

Gross container ship productivity

Definition The area in a port or terminal for the storage o f cargo (in hectares)

General cargo tons times days in port from time of unloading until the general cargo exists the port divided by the general cargo tons for import general cargo (and vice-versa for export cargo)

Number o f containers times days in port from time o f unloading until the container exists the port divided by the number o f containers for import containers (and vice-versa for export containers)

The average total charges for the movement, free storage, loading on board and all associated port related costs for a container (per TEU full or empty) in a port or on a terminal from gate until final stowage position on board a vessel in case o f export containers and vice-versa for import containers. The total number o f tons loaded and unloaded in a port in one year (import and export cargoes) Number o f tons handled (loaded and unloaded ir a port) divided by the total number that vessels were in port during the year

Number o f TEU handled divided by the total number o f shiu hours in Dort

Comment I Source Standard Resources

Terminal Operator - STAM

Terminal Operator - STAM

Port Handbook, Terminal Operator Tarif f Book

Port Statistics

Port Statistics

Port Statistics

Subcomuonent Performance Indicators

Project performance indicators for this component include: 1. construction o f the data sets in year two and four; and 2. conduct o f the workshops and production o f summary reports on each trade facilitation variable

outlined above.

The trade logistics component o f the project i s expected to result in more efficient clearance time for trade transactions, resulting in a savings for exporters and importers o f 2 to 13 days. (See Chart Below)

rcl 0

.* U

n 8 u

n 3

u c

E n

P-

rcI

d

m

n m

I

i

- 4 8 -

Component 5: Proiect Management

This components finances the following activities to upgrade the project management capacity o f the Project Supervision and Coordination Unit (PSCU), as well as the Executing Agencies:

(a) training in procurement and modern techniques o f financial management, as required by Bank Guidelines.

(b) training and consulting services to enable the PSCU to effectively perform the following functions:

(i) the coordination o f executing agencies and monitoring the performance indicators o f the project;

(ii) the preparation o f the progress reports and working documents required by the supervision missions;

(iii) the provision o f information and reports to the Steering Committee and the Bank; and

(iv) the monitoring and consolidation o f the project's financial management, and assistance to the executing agencies in procurement and financial management and in meeting the reporting requirements o f the Bank.

(c) computer and office equipment.

With respect to (a), the component w i l l finance the following activities:

Procurement

I II cost

Participants travel (Tunis-Dakar-Tunis) I tickets I 600 I 2,400 Perdiem in Dakar 125 davs x 4 oers) llumosum I 1001 55 I 5.500

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ACTIONS Agency Responsible Implementation Manual PCMU

Financial Management

D A T E

Strengthening skills at the finance bureau o f the Direction Gtntrale des Douanes by recruiting a qualified financial management expert.

Customs

Training on the Bank’s financial management requirements for the staff responsible for financial management in different executive agencies.

Upgrading o f the computerized applications used by the Customs, the Ministry of Commerce and COTUNACE. Amklioration de l’application informatique utilisCe

Training for COTUNACE team on Fund accounting and financial management

Executive Agencies

Customs Ministry o f Commerce COTUNACE

COTUNACE

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Annex 4.1

TUNISIA - EXPORT DEVELOPMENT I1

EMAF I1 Operational Manual Provisions

Second Exvort Market Access Fund (EMAF IIl. EMAF I1 i s a matching grant fund inspired by the success o f EMAF I and complementary EMAF assistance. While EMAF assisted individual enterprises to overcome barriers to sel l in foreign markets on a demand-driven basis, EMAF I1 would be centered around the following three axes: (a) building the capacity o f export associations and chambers o f commerce to provide export assistance to their members (mainly SMEs); (b) strengthening the export consulting sector; and (c) continuing assistance particularly to individual enterprises that have not benefited from EMAF I or have successfully completed partial export plans under EMAF I and are eligible for completing another export plan under EMAF 11.

Funding mechanisms. EMAF I1 covers, on a temporary basis, part o f the cost o f technical and marketing services by local and foreign experts required to enable enterprises, to enter export markets. I t aims to provide temporary technicaymarketing assistance, over an implementation period o f 4 years, (a) directly to about 500 f m s to improve their export performance, and (b) indirectly through about 40 professional associations that assist groups o f exporters or build their own capacity to achieve specific export results. EMAF I1 co-finances 50 percent o f individual export development plans and 70 percent o f capacity building for professional associations using non-repayable grants. In doing this, EMAF I1 would continue to stimulate the use o f foreign and local business and export development services by private firms, as was initiated under EMAF. The EMAF 11 management team would have the responsibility (and would therefore have the relevant sk i l l s and experience) to actively help firms (both existing and potential exporters) to prepare their export plans.

Instruments. The main instruments o f the EMAF would consist of:

(a) Non-reimbursable matching grants (50 to 70 percent o f expenditures), payable to beneficiaries o f

(b) technical assistance to clients o f the program in the preparation of their export plan; and (c) facilitating technical assistance and training during implementation o f export plans.

the EMAF I1 for eligible activities undertaken within the framework o f an export plan;

Cost-sharing principle. Setting a requirement for a significant contribution o f 50 percent by firms and professional association of 70 percent of the total costs o f services under export support programs would help ensure sound subproject design and implementation, and reduce the likelihood o f misallocation o f funds or support for low-value services. As demonstrated by the case o f EMAF I, it i s expected that the commitment o f firms and associations to their projects would be significantly increased by virtue o f their contribution to the cost.

Activities co-financed and maximum support. The EMAF 11 would offer i t s services solely in response to private sector demand on a nondiscriminatory basis. The assistance would be provided once an export plan has been developed at the fm or association level and the firm or association has shown commitment to implementing it. , A maximum o f US$lOO,OOO grant would be available to each firm or professional association for the implementation o f approved export plans. An additional $50,000 o f grant would be available for firms set up overseas

Size o f the EMAF 11. Grant funds available under EMAF I1 would total US$17 mil l ion to finance 50 percent of the total costs o f both individual fm and 70% o f the total cost o f professional associations.

- 5 1 -

Temporary support and exit policy. The funds are to be committed within three years and one additional year i s provided to complete disbursements on export plans under implementation. The scheme involves temporary support to reduce market failures, such as insufficient knowledge and information on buyers and market requirements, and would provide assistance to an enterprise, association only up to the maximum support ceilings established in the Manual. Experience has shown that once firms are introduced to the benefits o f the activities that the EMAF I1 would support, they w i l l use these services at their market prices.

WTO compatibility. The EMAF I1 i s comparable with similar funds o f many national, provincial, and state governments that facilitate the provision o f information about overseas markets to firms within their jurisdictions. It i s also consistent with the framework o f the World Trade Organization (WTO). The grants are non-actionable subsidies as defined in Article 8 of the Agreement on Subsidies and Countervailing Measures. They are non-actionable because they are not specific, as provided in Article 8, paragraph 1 (a): specificity under the WTO rules typically involves a targeting o f geographic regions or economic sectors, and such targeting i s expressly disallowed under EMAF 11. Second, even if a charge o f specificity could be made, the activities to be financed by the Fund would fal l under the exceptions provided for in paragraph 2 o f Article 8, principally the exception for research activities carried out on a contract basis for industrial research and for pre-competitive development activity. In appropriate cases, the exception for adaptation o f existing facilities to new environmental requirements could also be applicable. In accordance with Article 8.3, WTO would be notified o f the program. A periodic review o f performance of the Fund by CEPEX and the Bank w i l l be conducted during supervision missions to ensure that the rules in the Operational Manual are strictly adhered to in practice.

Eligibility. Matching co-financing support would be provided to individual private f m s in Tunisia and their associations in manufacturing and tradable services having qualifying export plans. Indirect exporters and offshore exporters developing on-shore partnerships would also be eligible under EMAF 11.

Eligible export plans. An export plan i s the basis for al l EMAF I1 assistance and would be prepared by the fm or professional association. Such plans would include a set of activities focused on developing: (a) new export products; (b) new export markets; and/or (c) new exporting firms. The basis for the export plan i s a written statement, which demonstrates that the fm has given serious consideration to the planning issues involved.

Management. EMAF I1 would be executed under the overall supervision o f an EMAF I1 Director Committee (EDC), and would be executed according to a Manual o f Operating Policies and Procedures (Operational Manual) by an EMAF I1 management team (EMT) consisting o f local and internationally experienced experts in matching grant management. The team would be financed by the Bank loan within the allocation for the sub-component.

0 EMAF 11 Steering Committee. The EDC, headed by the President General Director o f CEPEX and composed o f representatives from the Ministry o f Commerce, Ministry o f Finance, COTUNACE, and UTICA (FEDEX), would : (a) define the broad orientation and strategies o f the scheme; (b) ensure proper execution o f the scheme according to the Operational Manual; (c) approve grant requests submitted by the EMT, as well as the annual work programs o f the EMT; and (d) submit annual activity and financial status reports to CEPEX Board o f Directors, the GOT and the Bank.

EMAF I1 management team. The responsibility for management and execution o f EMAF I1 would l ie with the EMT within the framework of annual plans approved by the EDC. I t s principal responsibilities would include program promotion, support to enterprises and professional associations in the preparation o f export plans, sponsorship (either by direct execution or by outsourcing o f services) o f workshops and training seminars to facilitate EMAF I1 objectives,

0

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appraisal and recommendations for approval o f export plans, supervision and monitoring o f results o f such plans, contracting o f independent impact evaluations o f plans.

Letter o f agreement. On receiving approval for grant support, each recipient would be required to s i g n a letter o f agreement binding the recipient to present defined deliverables for evaluation by the management team. The EMT would have the right to view verifiable outputs, but not to take them of f a client f m ’ s premises, or take copies or photographs. All outputs from supported activities would remain the exclusive property o f the beneficiary enterprise, with commercial confidentiality fully preserved.

Monitoring and Performance Assessment. The beneficiary enterprise would be obliged to supply the EMT with data permitting an assessment o f the project’s impact on export growth. Bank supervision missions would have the same rights to view outputs and records, on a sampling basis, for supervision purposes. Actual assessment would be made by qualified independent consultants contracted by the Project Coordination and Monitoring Unit. This information would be reported to CEPEX, the GOT, and to the Bank at least annually. Within two years after the final disbursement o f EMAF II, CEPEX would supply to the Bank a study assessing the overall impact o f the Fund, as well as specific successes and failures and lessons learned.

Management team performance. As part o f the formal agreement with EDC, the management team would be committed to developing an annual work plan for each 12-month period of operation. The plan would specify in detail the activities to be carried out to launch and promote the scheme, and to manage it under the terms o f the Operational Manual. The work plan would specify the staff-day inputs for each activity, and the individual responsibilities within the management team. Progress made in achieving this plan, plus modifications proposed to the plan, would be reported to the EDC for each operational quarter. Modifications to annual plans would then to be agreed with the EDC. Twice-yearly progress reports would be submitted to the Bank.

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ub-total Export Market Access

B. PEFG Mgmt

C. WTO TBT Enquiry Point (INORPI)

D. Trade Facilitation S.1 Technical Control Services

S.2 Streamlining Customs Procedures

5.3 Trade logistics performance indicators Sub-Total Trade Facilitation

E. Project Management

Baseline Costs ( Excl. all contingencies) D. Front End Fee Total Baseline Costs Physical contingencies* Price contingencies" Total Project Cost

Annex 5: Estimated Project Costs

TUNISIA - EXPORT DEVELOPMENT I1

29,063 16,688 45,750 23,250 13,350 37,600 36% 67%

400 1,250 1,650 320 1,000 1,000 100% 2%

1,050 200 1,250 160 840 1,000 84% 2%

1,350 563 1,913 450 1,080 1,410 77% * 3%

11,250 3,750 15,000 3,000 9,000 12,900 70% 23%

1,250 400 1,650 320 1,000 1,250 80% 2% 13,850 4,713 18,563 3,770 11,080 15,560 71% 28%

263 125 388 100 21 0 310 68% 1 %

43,575 22,775 66,350 27,600 26,480 55,470 99% 455 356 1%

43,575 22,775 66,805 27,440 25,640 55,826 46% 100% 160 260 420 100 262 362 72% 1%

2,187 691 2,878 1,385 802 2,187 37% 4% 45,922 23,726 70,103 28,925 26,704 58,375 46% 105%

EMAF assistance :

endor Dev. Program

(TD'OOO) ($ us '000)

25,000 14,500 39,500 20,000 11,600 31,600 37%

3,875 1,750 5,625 3,100 1,400 5,000 28% 188 438 625 150 350 1,000

*Physical contingencies of 3% are applied to all equipments costs **Price contingencies are applied to baseline costs plus physical contingencies and are based on estimated annual Inflation of 3% foreign and 5% in local costs

'Identifiable taxes and duties are US$m 5.8, and the total project cost, net of taxes, i s US$m 58.37 Therefore, the share o f project cost net o f taxes i s 10%.

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Year 1 Year 2 Year3 Year4 Year5 Total

31,600.0 943.0 1,150.0 1,140.0 1,100.0 670.0 5,003.0 200.0 200.0 200.0 200.0 200.0 1,000.0

1,500.0 4,500.0 9,000.0 9,000.0 7,600.0

Annex 6: Implementation Arrangements

TUNISIA - EXPORT DEVELOPMENT I1

Financial Summary (including all contingencies) (US$ 000)

A. Export Market Access S.1 EMAF2 Consulting and training services Vendor Dev. Program

Sub-total Export Market Access

B. PEFG Mgmt

C. WTO TBT Enquiry Point D. Trade Facilitation S.1 Technical Control Services

5.2 Streamlining Customs Procedures (TA & Equipment)

S.3 Trade logistics performance indicator: Sub-Total Trade Facilitation

E. Project Management Front End Fee

Total Project Cost' *Price contingencies of US $546,000 are adde

io,300.0 8,470.0 37,603.0

201 200 1,004

50.0 1,010.5

413 1,430

889 13,217

25 1 251 251 251 250 1254 21 09 7460 4528 1552 250 15900

79 79 79 79 31 5 356 356

6,164 14,583 15,979 12,729 8,920.0 58,375

2,643.0 5,850.0

201 201

230.0 446.0

102 406

1,757 6,804

- 3.933 14.153 11.185 6.013 360 35.644

983 1273 1123 983 465 4.826 670 2090 4300 4.300 3.640 15.000

55.470

IBRD Government Local private sector Total 5.586 17.516 16.608 11.296 4.465

10,340.0

201

284.5

509

3,768

Year 1 Year2 Year3 Year4 Year5 Total(000' Financina source*

- 5 5 -

Annex 7: Financial Management and Disbursement Arrangements TUNISIA - EXPORT DEVELOPMENT I1

General Framework

An evaluation o f the current financial management system in the CEPEX, the COTUNACE, the Tunisian Customs and the Ministry o f Commerce which w i l l be the project executing agencies, has identified the following main characteristics (details are on project files):

Tunisian Customs. The responsibility for financial management o f customs component o f EDP I1 i s with the Customs’ financial business directorate, composed o f one staffhanager. This unit lacks sufficient training in the Bank’s financial management requirements.

The Customs General Directorate manages the accounting and financial systems in accordance with the public accounting principles The internal control system o f the customs general Directorate i s satisfactory, and guarantees the separation o f the tasks through several levels o f control as follows:

The public expenditure controller exercises an a-priori control before the commitment o f funds to be financed by the state budget; The treasury exercises a preventive control undertaken by the public accountant, after commitment o f funds but before disbursement from the state budget); The departmental commission o f the Ministry o f Finance approves the specifications pertaining to purchases requiring the commission’s pre-authorization.

There are also a-posteriori controls: by the state audit office and the general finance control office o f the Ministry o f Finance

In addition, in accordance with the EDP I Loan Agreement, the EDP I Customs component has been audited by the Ministry of Finance General auditor on a yearly basis. The audit reports o f the last three years have led to the certification of the financial statements.

Customs’ financial information system which i s based on the public accounting as described above does not allow for the production o f the project financial reports as required by the Bank. Accordingly, a separate information system has been designed by the Financial Business Directorate for EDP I in order to monitor the financial management o f the components pertaining to customs. While the system i s overall satisfactory, further improvements are required to ensure the preparation o f the full range o f the Bank financial management reports.” It i s recommended that the following activities be undertaken in the context o f EDP I1 to : (i) improve the application o f current financial follow-up to avoid a double seizure (at the application and Excel files levels), (ii) to strengthen the Direction o f the financial business staff by recruiting accounting and financial specialists, (iii) to train the staff in accounting and financial management areas, (iv) and to elaborate a manual o f procedures covering the general activity of the Financial Business Directorate.

Ministrv of Commerce. A coordination unit (PCMU) has been created at the level of the General Directorate o f the Economic and Commercial Cooperation for the follow-up o f EDP I financial

A specific software has been developed by the TTN which has been installed at EDP I executive agencies. T h i s software has been developed in order to follow the financial execution o f the action plan and to provide information by the execution agency. The system however, does not allow the production o f all data in format required by EDP I, and therefore the Customs uses Excel to provide the required information.

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management. A manager with financial training and with experience in accounting, financial management and data processing, has been officially designated to help the project manager in order to ensure the centralization o f the accounting and financial information and to ensure the project accounting by using a specific computer software application.

For EDP I implementation, the PCMU did not function like an executing agency but as a coordinator for the whole project. I t has performed the role o f transmission o f accounting and financial information pertaining to the project execution by following three executive agencies: the Tunisian Customs, COTUNACE and CEPEX.

The financial management system in force at the Ministry o f commerce i s based upon principles and procedures contained in the law that regulate the public sector and governmental institutions. The Ministry o f commerce relies upon an accounting system o f revenues and expenditures, and based upon the subdivisions found in the state general budget.

The internal control system o f the Ministry o f Commerce i s satisfactory. Indeed, the ministry guarantees the separation o f the functions through several control layers s imi lar to those outlined above for the Customs.

In accordance with the EDP I Loan Agreement, the project was annually audited by the General auditor o f the Ministry o f Finance. The audit reports o f the last three years resulted in the certification o f the financial statements.

As in the case o f Customs, the official information system which relies upon public accounting and based upon retracing the execution of the public expenditures, does not allow for the production o f the project financial reports that the Bank requires. A separate information system has therefore been set up for EDP I. This i s in effect the same application implemented by Tunisian Customs. As in the case o f the financial management system o f the Customs the following weaknesses deriving from the software installation are noted:

i. 11.

iii.

Delay in the development, the installation and the parameterization o f the application; Problems in data processing (calculation mistakes); Gaps in relation to the follow-up o f manuals.

..

Thus, PCMU staff in charge o f the financial management has manually consolidated the overall project components based upon statements received from different execution agencies. I t i s therefore recommended to: (i) improve the current application pertaining to financial follow-up; and (ii) train PCMU staff in the area o f the Bank financial management.

CEPEX. The Centre de promotion des exportations (Center for the Promotion o f Exports) i s a state company with a non-administrative character endowed with civilian status and financial autonomy. Created in 1973, it operates under the supervision o f the Ministry o f Commerce and i s thus subject to the regulations applicable to state companies. I t s accounting system was upgraded in 1997 through the adoption o f the new accounting system for companies decreed by Law 96-1 12 dated December 30, 1996, and i s thus in conformity with generally accepted international accounting standards. The management information system i s globally satisfactory and has reached a noticeable degree o f computerization. The upstream control system i s ensured by a management committee, the internal audit unit, and the Department o f Budget and Management Control. In addition to these three levels o f internal controls, there are controls by external organs such as Government Auditor, Government Accounting Office, High Control Committee, Ministry of Finance, and Ministry o f Commerce. Every three years an auditor, who i s a member o f the Tunisian Institute o f Certified Public Accountants, i s designated in conformity with

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the procedures decreed by the regulation in force. The audit reports o f the last three fiscal years have been issued without any qualifications on the financial statements.

The EMAF' i s managed by a fund management unit (FMU) acting within the framework o f the annual plans approved by the executive committee. EMAF accounting i s autonomously held and run by an external accountant at the FMU level in accordance with the principle o f expenditures and accounting since the EMAF accounts must be integrated annually with CEPEX. All relevant EMAF documents are managed and organized at FMU level. The financial management system put in place for the management o f EMAF i s satisfactory overall. The financial staff prepare the fund annual operating and investment budget which i s transmitted to the Ministry o f Finance for approval. The financial staff conducts the follow-up o f the realizations o f the budgets using a manual f i le (Excel). The FMU internal control system i s overall satisfactory although i t does not have an internal audit cell in view o f the limited number o f staff affected therein (a total o f 14 people).

EMAF financial statements are audited annually by the auditor o f CEPEX, a member o f the Tunisian Certified public accountants' organization. The auditor prepares a specific audit report relative to the financial conditions o f EMAF. The established reports are to be certified true and accurate. On the other hand and in accordance with the loan agreement, the General auditor o f the Ministry o f Finance undertook an annual audit o f the fund. The audit reports o f the last three years were followed by a certification o f the financial statements.

EMAF financial reporting i s ensured by a specific application developed by an external consultant. This application which has been deemed satisfactory and has allowed the project accounts to be updated and facilitated the development o f the fund management reports. The finance staff sends twice a year the financial follow-up reports to PCMU in view o f their consolidation and their transfer to the Bank.

COTUNACE. The Compagnie tunisienne pour 1 'assurance du commerce exte'rieur (Tunisian Company for the Insurance o f External Commerce) i s a limited company with 60 percent o f i t s capital held directly by the Tunisian Government and 40 percent held by Tunisian banks and insurance companies. I t operates under the supervision o f the Ministry o f Finance and i s thus subject to the regulations applicable to public companies. I t s accounting system was upgraded in 1997 through the adoption o f the new accounting system for companies promulgated by Law 96-112 dated December 30, 1996 and i s thus in conformity with generally accepted international accounting standards. The downstream control system i s ensured through the General Secretary, the Internal Auditor, and the management committees. In addition to these internal controls, there are controls performed by external organs such as Government Auditor, Government Accounting Office, High Control Committee, Ministry o f Finance, and Ministry o f Commerce. Every three years an auditor who belongs to the Tunisian Institute o f Certified Public Accountants i s designated, in conformity with the procedures decreed by the regulations in force. The audit reports o f the last three fiscal years have been issued without any qualification on the financial statements. In accordance with the loan agreement, EDP I components relative to COTUNACE (PEFG) were audited on a yearly basis by the General auditor o f the Ministry o f Finance. The audit reports o f the last three years resulted in a certification o f the financial statements.

The management information system i s quite developed, with an adequate level of computerization. The financial management aspects o f PEFG are integrated into COTUNACE information system. However, a parallel follow-up system based on Excel has been put in place for the purpose o f financial reporting. The person in charge o f financial matters sends twice a year financial follow-up reports to USCP for the purpose o f consolidation and their transfer to the Bank.

Given these characteristics, the financial management system can be considered satisfactory even though some improvements need to be introduced with respect to: (a) the establishment of a specific financial

- 5 8 -

statement o f the fund based upon a general accounting system in order to limit the risks o f errors and to ensure reconciliation; (b) the improvement o f the current application o f financial follow-up and (c) the provision o f training to the staff in the area o f the accounting and financial management o f funds.

Proiect financial management Arrangements

Management and organization of the project: A project steering committee composed o f representatives o f the Ministry o f Commerce, Ministry o f Finance, Ministry o f Economic Development and International Cooperation, as well as the executing agencies w i l l oversee the implementation o f different components.

The project would be implemented by the Tunisian Customs, COTUNACE, CEPEX, and Ministry o f Commerce. Each agency would be in charge o f a specific component. A Steering Committee consisting o f representatives o f the Ministry o f Commerce, Ministry o f International Cooperation and Economic Development, and Ministry o f Finance, as well as the three executing agencies, would be in charge o f the monitoring and physical implementation o f each component.

A Project Coordination and Management Unit (PCMU) placed under the tutelage o f the Ministry o f Commerce, i s set up and directed by the Project manager and staffed with two employees. The PCMU wi l l ensure the centralization o f accounting and financial data and execution reports, and the issuing o f the project accounts. He w i l l also be in charge o f organizing the meetings o f the Directing Committee and preparing o f the files to be submitted to the Committee. The project manager w i l l play the role o f general coordinator and w i l l have the responsibility o f compiling the technical and financial data transmitted by execution agencies in order to periodically provide financial follow-up Reports o f the Project (RGP) .

Rules of accounting and financial management: The principles that govern the accounting and financial management of the project on the level o f the execution agencies, as well as on the level of the coordination unit in charge o f centralization, shall be recorded in the Financial Management Procedures Manual. These principles are o f crucial importance to ensure transparency and clarity o f financial transactions for the various participants and parties involved in the execution of the project. They also ensure coherence in terms o f procedures, especially since three autonomous execution agencies are involved in the management o f the project. These rules shall define the principles to be used to: (a) qualify the project committed expenditures, (b) identify expenses that are eligible for Bank financing, (c) grant advances to the execution agencies and recording such operations on the accounting books, (d) the accounting principles that govern the posting o f the transactions, (e) describe the capital and information flow, (f) to define the tasks and the responsibilities elaborate the follow-up reports, and (g) strengthen UCSP technical and financial data. These rules which are contained in the manual o f implementation o f the project must be adopted by those involved in the execution of the project. The executing agencies w i l l be committed to following rules that have been set and consigned in the Procedures Manual. This commitment shall be reflected in the memorandum o f understanding signed by the committee of piloting and the execution agencies

Project Accounting System: UCSP shall be responsible for the elaboration o f the project's accounts by aggregation o f the data in the statements developed by the execution agencies. The project coordinator would be responsible for overall project financial management and accounting, maintaining books o f accounts, and preparing and disseminating financial statements and project management reports. These reports shall be prepared progressively according to the content and format acceptable to the Bank. Requisite resources and arrangements are agreed with the UCSP and wi l l be implemented to ensure proper preparation o f such reports.

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The general principles governing the accounting system applicable to the project are the following:

- Each o f the executing agencies w i l l undertake the accounts bookkeeping for the components under their responsibilities. EMAF management unit w i l l continue to use the application already developed for EDP I in accordance with the principles and methods in force for the EDP I. COTUNACE, the Custom and the Ministry o f Commerce should improve the specific application (developed for EDP I) relative to the project accounts bookkeeping or to acquire a new application. The project accounting systems should reflect the payments as well as the commitment o f funddexpenditures and the financing modalities (capital stocks, contribution o f the state, loan funds and other contributions). The project accounts w i l l be established by the unit o f coordination through an aggregation o f accounting data transmitted directly by the agencies o f execution as well as the committed funds to the Ministry o f Commerce.

-

-

-

-

Information flow pertaining to the accounting system. The flow o f accounting transactions w i l l take place o f the following manner:

(i) The Ministry o f Commerce w i l l ensure the maintenance o f the accounting documents relative to the centralization and the consolidation o f the financial and accounting data o f the components managed by the agencies o f execution. The justifying documents o f the transactions directly managed by the Ministry of Commerce w i l l be kept by the coordination cell.

(ii) The CBT wi l l manage the SA and maintain supporting documents for different transactions under the project. This includes the summaries o f expenses that the executing agencies and the Ministry o f Commerce w i l l transmit.

(iii) The executing agencies w i l l keep the relevant documents for different expenses under the project. This includes the supporting documents related to funds received for the financing o f these expenses. A listing and an appropriate referencing system w i l l be put in place and w i l l be formalized in the project implementation manual.

Financial Reports: UCSP wi l l be entrusted with the responsibility o f preparing the financial follow-up reports. These reports include the following:

A report relative to procurement; A progress report on the physical advancement o f the project that includes the indicators o f realization; A financial report including the following: * * * *

jobs conditions and resources clearly indicating the sources o f finance, their use as well as the available balances, A follow-up o f the contractual liabilities by component, Disbursement situation indicating payments by component and by category, A state o f reconciliation o f SA balances.

The financial reports formats were agreed in accordance with the Bank Guidelines. These reports w i l l be produced by PCMU computer application relying upon the consolidation o f the accounting and financial data emanating from the execution agencies in the case of the financial aspect. They wi l l be prepared quarterly and transmitted to the Bank 45 days after the deadline [end o f the quarter] at the latest. Instructions of the Bank on the financial follow-up reports w i l l be handed over to UCSP.

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Project Audit: All accounts (including SA) w i l l be verified by an auditor acceptable to the Bank, and the audit reports w i l l be validated by the concerned agencies, under the coordination o f UCSP and World Bank mission 6 months after the end of the fiscal year at the latest. The auditors w i l l have the responsibility to exercise their function in conformity with the generally accepted audit principles and in respecting the specific terms o f reference acceptable to the Bank. On the other hand, according to the new Bank audit instructions, the financial conditions o f the project w i l l indicate at a minimum a statement o f resources and expenses, the adopted accounting principles, the supplementary notes and an attestation produced by every execution agency indicating that the Bank funds have been used to the anticipated ends. This w i l l be in accordance with the applicable provisions contained in the Bank legal agreement.

All execution agencies w i l l provide access to the auditor to project documents and files as well as to information required by the auditor to perform the verification o f accounts. The Reviser o f the project w i l l undertake a competitive audit during the budget year in order to bring to the attention o f the management al l the problems that might arise and which need to be resolved. I t w i l l reinforce the internal control and w i l l also facilitate the early completion o f the annual audit.

Disbursement

Disbursement Method. The proceeds o f the loan would be disbursed in accordance with the traditional disbursement procedures o f the Bank and w i l l be used to finance project activities through the disbursement procedures currently in use: i.e. withdrawal application for direct payment, for special commitments and/or reimbursement accompanied by appropriate supporting documentation or using Statement o f Expenditures (SOEs) in accordance with the procedures described in the Disbursement Letter and the Banks "Disbursement Manual". As the execution o f the project's components i s entrusted to three different execution agencies (CEPEX for part A, COTUNACE for part B and Ministry o f Commerce for parts C & D), each o f the executing agencies wi l l be responsible for submitting the appropriate supporting documentation for services rendered or activities implemented under their component either to the Central Bank of Tunisia (CBT) so that payments can be made from the Special Account (SA) opened for that purpose, or to submit applications for direct payment to the Bank. In case payments are to be made from the SA, the executing agencies are required to send to CBT payment orders for services rendered or activities implemented with supporting documentation. The CBT reviews in turn the documentation received to ensure i t s compliance with the terms o f the loan agreement and project documentation as well as the eligibility o f the expenditures being incurred, then proceeds with the payment, if these expenditures are deemed eligible. The BCT monitors the level o f the SAs and prepares and submits withdrawal applications to the Bank for replenishment o f the SAs. Under existing disbursement procedures, the Executing Agencies w i l l be permitted to submit also withdrawal applications for direct payment as well as Special commitments, accompanied by the necessary supporting documentation. As projected by Bank's standard disbursement profiles, disbursements would be completed four months after project closure .

Special Account: To facilitate disbursement o f eligible expenditures the Government w i l l open two special accounts at the Central Bank o f Tunisia (borrower's Central Bank) to cover part o f the loan's share o f eligible expenditures for the three components o f the project to be managed by CBT. The f i rs t special account (CEPEX special account) w i l l finance activities under part A o f the project whereas the second special account w i l l cover expenditures under the remaining project activities. The authorized allocation o f each SA would be the equivalent o f Euro 2 million, covering an estimated 4 months o f eligible expenditures financed by the loan. The CBT w i l l responsible for submitting monthly replenishment applications with appropriate supporting documentation for expenditures incurred and wi l l retain and make the documents available for review by Bank supervision missions and project auditors. The replenishment applications w i l l be prepared on the basis o f information provided by each executing agency. To the extent possible, all o f loan's share o f expenditures should be paid through the SAs. The

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supporting documentation w i l l include reconciled bank statements and other documents as may be required.

Use of Statement of Expenditure (SOEs). All applications to withdraw proceeds from the loan w i l l be fully documented, except for: (i) expenditures o f contracts with an estimated value o f US$500,000 equivalent or less for goods; (ii) US$lOO,OOO equivalent or less for consulting f i rms, and (iii) US$50,000 or less for individual consultants and the Management Contract , which may be claimed on the basis o f certified Statements o f Expenditures (SOEs). Documentation supporting expenditures claimed against SOEs w i l l be retained by the CBT and w i l l be available for review when requested by Bank supervision missions and project auditors. All disbursements w i l l be subject to the conditions o f the loan Agreement and the procedures defined in the Disbursement Letter.

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Annex 8: Procurement

TUNISIA - EXPORT DEVELOPMENT I1

General

The Bank i s currently conducting a Country Procurement Assessment Review (CPAR) which w i l l cover the overall country procurement architecture. The CPAR findings wi l l be discussed with the Government for possible improvements in the national procurement system. In the meantime, National Competitive Bidding (NCB) procedures w i l l be carried out in accordance with Tunisia’s procurement laws and regulations, acceptable to the Bank, provided that: (i) bids are advertised in national newspapers with wide circulation; (ii) the bid document clearly explains the bid evaluation, award criteria and bidder qualifications; (iii) bidders are given adequate response time to prepare and submit bids (four weeks minimum); (iv) bidders are allowed to deliver their bids in person if they so choose and the disclosure o f their identity on the outer envelope i s not grounds for bid rejection; (v) technical and financial bids are publicly and simultaneously opened; (vi) contracts are awarded to the lowest evaluated bid provided the bid i s responsive and the bidder has the capacity to execute the contract; (vii) no eligible bidder i s precluded from participation; (viii) no domestic preference i s applicable to domestic manufacturers or suppliers; (ix) no foreign bidder i s forced to submit a bid in association with domestic fm; and (x) prior to issuing the f i rst call for bids, a draft standard bidding document to be used under NCB procurement i s submitted to and found acceptable by the Bank.

Use of Bank Guidelines. All Bank-financed contracts for c iv i l works, equipment and materials would be carried out in accordance with the Banks Guidelines for Procurement under IBRD Loans and IDA Credits dated May 2004. Procurement o f consultant services would follow the Banks Guidelines for the Selection and Employment o f Consultants by World Bank Borrowers dated May 2004.

Use of Standard Documents. All procurement under international competitive bidding [ICB] w i l l use Bank standard bidding documents [SBDs] and Standard Evaluation Report. The Standard Request for Proposals (RFP) as developed by the World Bank w i l l be used for requesting proposals for the selection and appointment o f consulting fm. All consulting services w i l l use standard forms for time-based or lump-sum contracts as appropriate for the type o f assignment. Simplified contracts may be used for short-term assignment (less than 6 months).

Notification and Advertising. A draft General Procurement Notice informing the public o f bidding opportunities under the project for all contracts for equipment to be procured using the ICB method as well as all consulting services estimated to cost US$200,000 or more wi l l be transmitted to the Bank before negotiations. The GPN shall be published in the United Nation’s Development Business at the latest 8 weeks before the issuance o f the f i r s t Specific Procurement Notice for ICB contract for goods or the f i rs t request for proposals for services costing US$200,000 or more.

Procurement Implementation Arrangements. The overall responsibility for project execution would be delegated to the Project Coordination and Monitoring Unit (PCMU), which has been set up within the Ministry o f Commerce. However, each executing agency would be individually responsible for the implementation o f their respective programs including procurement decisions that affect their activities. Each executing agency w i l l appoint a procurement specialist (PS) who would ensure timely procurement o f goods and services. Terms o f references o f the PS o f the components would include inter alia: (i) coordination o f the component procurement planning and monitoring, (ii) seek and collect from the technical units o f the component all technical specifications o f goods to be procured and Terms o f references for consultants services, (iii) prepareKnalize bidding documents for goods and requests for

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Expected outcome1 Estimated Estimated No. Activity Description Cost (USD) Duration Start Date

1 Training of Procurement of 2 1,900 3 weeks Nov 2004 goods and consulting services at CESAG Dakar

customs (Intemet Access) possible

support to the PMU and months of possible other components implement

2 Computer equipment for 600 NA As soon as

3 Consultants (procurement) 65,000 First six As soon as

ation

proposals for consultants services, (iv) advertising, (v) preparation o f bid Evaluation reports and procurement progress reports to the attention o f the component head. The PCMU would appoint an experienced PS who would be responsible for procurement o f goods and services for the PCMU, but also the quality control of all procurement documents subject to Bank prior review prepared by the components. Terms o f reference o f the PS o f the PCMU would include inter alia: (i) collectkonsolidation o f procurement plans prepared by the project components, (ii) quality control o f all procurement documents subject to Bank review including procurement plans from the components, (iii) collectiodconsolidation o f all procurement progress reports from the components and updating the overall project procurement plan, (iv) preparation o f overall project procurement monitoring reports for the PCMU coordinator.

Comments

Borrower has decided to come back with alternative proposal b y end August 2004

Readiness for Implementation o f procurement

Procurement Capacity Assessment. An assessment o f the capacity o f the PCMU, FAMEX and Customs was carried out during appraisal. Since the final decision on the project set-up had not been made at time o f appraisal, the capacity assessment was based on the assumption that the PCMU and the respective components w i l l have the same structure as that under EDP I and w i l l include some of the existing staff. The assessment looked at procurement performance under EDP I and included review o f quality o f procurement documents and filing system, and interviews o f staff who have been identified as potential incumbents o f the procurement function under EDP II. The assessment found that the filing system in the respective components was generally satisfactory. I t allowed an easy retrieval and review o f past procurement decisions and documents. On the other hand, the implementation o f some components was adversely affected by the lack o f in-house expertise for the timely definition o f technical specifications and preparation o f terms o f reference and the lack o f procurement planning. The procurement staff seems to have a good understanding o f National procurement procedures but lacked sufficient knowledge o f Bank procurement procedures and standard bidding documents especially in the area o f selection o f consultants. Also, with the exception o f FAMEX, the procurement staff had obsolete computer equipment and some (customs) did not have Intemet access and did not have access to the latest updates o f Bank procurement documents (SBDS and guidelines) available in the Bank website.

Agreed Capacity Building Activities are listed with time schedule

The proposed action plan to strengthen procurement implementation capacity under EDP I1 includes: (i) the reinforcement of the PCMU with an experienced procurement consultant to: (a) assist the newly hired PCMU procurement specialist and provide an adequate procurement oversight capacity during the f i r s t six to eight months o f implementation, (b) finalize project procurement plan for the f i r s t year of implementation, and (c) prepare standard bidding documents for national competitive bidding (NCB) for the procurement o f goods and equipment; (ii) training o f al l procurement specialists on Bank policies and procedures for the procurement o f goods and the selection o f consultants; (iii) adequate computer

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equipment o f procurement specialists as necessary including internet access; (iv) hiring qualified short term consultants as necessary to assist the respective components in the definition of technical specifications for complex equipment and systems and terms o f reference for consultant services. The implementation o f the above Action plan shall be funded under the project and implemented by the respective components. The detailed procurement capacity assessment report i s available in the project technical documents.

Procurement Planning. The procurement plan i s yet to be finalized as the complete l i s t and packaging o f contracts was pending at the time o f appraisal. It was agreed that the PCMU would prepare the overall contract packaging for the entire project with the estimated costs and the proposed procurement methods to be used under EDP 11. It w i l l also prepare a detailed procurement plan for the f i rst year o f implementation, which shows step-by-step procedures for procurement with the estimated dates o f completion until contract execution. The proposed contract packaging and the detailed procurement plan w i l l be discussed and agreed upon at negotiations and finalized prior to Loan effectiveness. The procurement plan w i l l be updated every semester and submitted to the Bank for review and approval and w i l l be part o f the Project Implementation Manual (PIM).

Manual of Procedures (MOP). A draft MOP for the Project describing the administrative, financial, accounting procedures, and internal organization would be prepared and submitted to the Bank for review before negotiations. The MOP would include a specific procurement section which describes: (i) the internal organization for handling supervision and quality control o f procurement including a clear definition o f the respective roles and responsibilities o f each actor in the procurement process and their functional relationships; and (ii) the procedures for calling for and evaluating bids and contract award and management. The MOP wi l l be revised by the government based on Bank's comments and wil l be finalized before effectiveness.

Procurement methods

Goods. IBRD-financed contracts for goods for goods estimated to cost the equivalent o f US$0.5 mil l ion or more each, would be procured through ICB procedures based on Bank SBDs for the procurement o f goods. Bank-financed contracts for goods estimated to cost less than the equivalent o f US$0.5 mil l ion each would be awarded according to NCB procedures acceptable to the Bank. Smaller contracts below US$50,000 would be awarded according to internationaYnationa1 shopping procedures.

Consultant and Training Services. IBRD-financed consulting services w i l l be mostly for short-term consultancy for studies, technical assistance and training services. Complex technical assistance and major studies carried out by f i r m s would be based on competition among qualified short-listed f i r m s through Quality and Cost Based Selection (QCBS). Contracts for services that meet criteria set out in para.3.7 o f the guidelines, and estimated to cost less than US$lOO,OOO, may be procured through selection based on consultants' qualifications (CQ). Consultant services for simple tasks such as: training, seminars, small studies and Technical Assistance that do not need team work or back-up support services, w i l l be procured through comparison o f curriculum vitae (CVs) and references o f at least three qualified individual consultants in accordance with section 5 o f the Guidelines. The PCMU w i l l widely publicize requests for expressions o f interest to get candidacy from consultants, and maintain a l i s t o f consulting firms, which wil l be used to establish short-lists. To ensure that priority i s given to the identification o f suitable and qualified national consulting firms, short-list for contracts estimated to cost under US$200,000 or equivalent, may be comprised entirely o f national fm (in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines), provided that a sufficient number o f qualified f i r m s (at least 3) are available at competitive costs. However, if foreign f i r m s have expressed interest, they w i l l not be excluded from consideration.

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Commercial Practices: Services estimated to cost less than $50,000 equivalent per contract and to be financed under Sub-loans made for Subprojects under PartAl o f the Project, may be procured in accordance with commercial practices acceptable to the Bank.

The program elements by disbursement category, their estimated costs, and procurement methods are summarized in Table A below.

Table A: Project Costs by Procurement Arrangements (US$ million equivalent)

Procurement Method'

Expenditure Category ICB NCB Other2 N.B.F. Total Cost

1. Grants 0 0 16.60 16.60 33.12 0 0 (16.60) 0 (16.60)

2. Goods 10.10 0.58 0.19 0 10.87 (10.10) (0.52) (0.15) 0 (10.77)

3. Services 0 0 11.48 0 11.48 0 0 (8.27) 0 (8.27)

4. Front end fee 0 0 0 0 0.36 0 0 0 0 (0.36)

Total 10.10 0.58 28.27 17.00 55.83 (10.10) (0.52) (25.02) 0 (36.00)

'Figures in parentheses are the amounts to be financed by the Loan. All costs include contingencies.

*Includes goods to be procured through national shopping, consulting services, services o f contracted staff o f the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local govemment units.

Table A 1 : Consultant Selection Arrangements (US$ million equivalent)

Selection Method

Total Cost1 QCBS QBS SFB LCS CQ Other N.B.F. Consultant Services

Expenditure Category A. Firms 1.26 0.00 0.00 0.00 0.12 0.00 0.00 1.38

(1.26) (0.00) (0.00) (0.00) (0.11) (0.00) (0.00) (1.37) B . Individuals 0.00 0.00 0.00 0.00 0.00 10.10 16.60 26.70

(0.00) (0.00) (0.00) (0.00) (0.00) (8.00) (16.60) (24.60)

Total 1.26 0.00 0.00 0.00 0.12 10.10 16.60 28.08 (1.26) (0.00) (0.00) (0.00) (0.11) (8.00) (16.60) (25.97)

Bank Review o f Procurement decisions

Prior review wi l l apply to : (a) contracts for goods estimated to cost US$200,000 equivalent or more, (b) the f irst two contracts for goods and the f i r s t two consultants contracts under each component,

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3. Services

(c) contracts for recruitment o f consulting firms estimated to cost US$lOO,OOO equivalent or more, (d) the first two consultants contracts awarded under CQ, (e) the contracts for the recruitment of individual consultants estimated to cost US$50,000 equivalent or more, (f) all direct contract for goods or single source selection o f consultants, (g) amendments o f contracts rising the contract value above the prior review threshold. Draft standard bidding documents for NCB wi l l be reviewed and agreed upon with the Bank. Training programs including l i s t o f participants and estimated cost w i l l be prepared annually and submitted to the Bank for review prior to their implementation.

Below US$500,000

Below US$50,000

Firms: above US$lOO,OOO

Firms: below US$lOO,OOO

Individuals: above US$50,000

The Bank prior review o f goods contracts would include: (i) all bidding documentation prior to bid advertising, including any changes to the standard documents agreed upon; (ii) evaluation and selection reports prior to contract signing. For consultancy contracts, the Bank would review: (i) TORS, short l i s t , Requests for Proposals (RFP); (ii) evaluation and selection report; and (iii) draft negotiated contracts. Signed contracts would be transmitted with completed Form 384 prior to disbursement. I t i s estimated that th is review would cover 40 percent o f all Bank financed contracts.

Post review. Contracts not subject to Bank prior review would be subject to selective post-award review during supervision mission, or by the auditor. The PCMU wi l l ensure adequate filing to maintain all procurement-related documents for such ex-post reviews or reviews by auditors. The contracts value thresholds above which the Bank would review documentation prior to each further processing step are summarized in Table B below.

Table B: Thresholds for Procurement Methods and Prior Review'

Contract Value Threshold (US$ thousands) Expenditure Category

1. Works None 2. Goods Above US$500,000

Individuals: below US$50,000

Procurement Method

None ICB

NCB

Shopping, (Solicitations of a minimum of 3 quotations) QCBS

QCBSICQ

Comparison of a minimum of 3 CVs (section 5 of Guidelines) Comparison of a minimum of 3 CVs (section 5 of Guidelines) Commercial practices

Contracts Subject to Prior Review

(US$ millions) None

All ICB contracts : estimated Cumulative prior review amount: US$10.1 Prior review of All contracts estimated to cost more than US$200,000 and the f i rs t two contracts (regardless of value) Cumulative prior review amount: US$0.27 Post review

All contracts: Cumulative prior review amount: US$ 1.26 Prior review of the f i rs t two contracts and SSS (regardless of value) estimated Cumulative prior review amount: USSO.12 All: Cumulative prior review amount: US$3.15

Post review

Post review

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Total value o f contracts subject to prior review: US$14.9 mil l ion

Overall Procurement Risk Assessment: High

Frequency o f procurement supervision missions proposed: One every 6 months (includes special procurement supervision for post-review)

Table C: Allocation of Loan Proceeds

Expenditure Category Amount in US$ million Financing Percentage Grants 16.60 100% Goods 10.77 100% Services 8.27 87%

Total Project Costs 35.64 Interest during construction

Front-end Fee 0.36 Total 36.00

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Annex 9: Economic and Financial Analysis TUNISIA - EXPORT DEVELOPMENT I1

ECONOMIC BENEFITS FROM EMAF 11, PEFG AND TRADE FACILITATION

Economic benefits from EMAF I1

EMAF I1 wi l l target 500 f i r m s (SMEs) and 40 professional trade organizations (export associations, chambers o f Commerce, and professional consulting organizations) for a total o f 540 beneficiaries. Beneficiaries are expected to build up expertise o f international markets and knowledge capacity thereby improving their international competitive position and creating sustained outward oriented performances capacity. This would enable Tunisian exporter to access more rapidly growing international markets and increase the volume o f additional export.

Simultaneously, EMAF I1 wi l l also help build the capacity o f 40 professional trade organizations. International experience shows that strengthening these organizations yield significant benefits in the form o f increased knowledge on export markets and buyers. In addition, international experience shows that strengthening professional and trade associations increases knowledge on export markets and buyers and reinforces market access significantly

We prepared, an economic evaluation based on a total EMAF I1 grant o f US$34 million, which groups together both 500 SMEs and 40 trade associations. I t i s likely that participation wil l be lower the f i rs t year and gradually increase according to the schedule in the table. We make the following assumption:

Naturally, the benefits that the grant w i l l generate in term o f export w i l l be more immediate among the 500 firms (additional exports over the l ife o f the project), while the benefit generated among the 40 trade association won’t translate into immediate export increases, as it comes in the form o f expertise. We choose to group them together since the small number o f trade association does not justify revising the trade ratio multiplier agreed on. (See below) (These were revised and mutually agreed on under the diagnostic study o f EMAF I conducted by the Ministry o f commerce).

The EMAF I1 grant would be allocated over a period o f four years with an additional year to complete disbursement benefits would be felt through year 6 as the number o f beneficiaries would be spread over the four years o f the grant allocation schedule depicted in the model. On average, the model i s based upon increasing benefits levels in which every dollar o f grant would increase exports by a factor o f 2 for the f i r s t year after the program i s implemented, 4 times the second year, 6 times the third year; and 8 times the fourth year; then the benefit would cease as enterprises might shift to another market or product (market saturates etc.; as observed under other s i m i l a r conditions elsewhere.)

The benefits generated are discounted at 8%.

As in EDP I, the value added distribution o f the export stream was based on observations f rom countries with similar trade structure as Tunisia (with manufacturing dominating the trade industry, i.e. Ecuador, Mauritius).

Taxes on exports are obtained on an average fiscal recovery basis, which yields 17.5 percent for payroll taxes (Social security) and 20 percent for income tax. The same notion i s applied for

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NPV of exports 367 Salaries generated 56.70

Depreciation 29.36 Profits 54.57 Total value added 215.07

Financing costs 74.43

employees o f exporting firms which gives 9.35% on salaries and 3% based on VAT paid from salaries.

Table 9.2 shows there would be significant additional and incremental exports generated over the l i f e o f the project and beyond. In addition there would also be a substantial positive effect in the form o f a higher total value added, mainly on employment and worker’s income, but also in taxes collected from exports activities (both from employers and employees). Our evaluation also translates qualitative and quantitative benefits into higher exports, which yield a higher overall value added in the form o f salaries and firm profits.

We estimate that a US$34 mill ion investment w i l l produce US$595 mill ion o f incremental exports over a 6-year period with a Net Present Value o f US$431 million. With US$4.5 mill ion in management and operational cost accounted for, the project yields a Net Present value of US$400 mill ion and a total value added o f US$252 million. See table 9.1 below for benefits produced by the Net Present Value of incremental export (US$409 million).

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92. 78.

528. 170.

170.t 170.t

Table 9.2: ECONOMIC IMPACT OF EMAF 11 (Figures in US$ million)

# Firms 54OClients Amount 31.6U.S Million

Period 4Years

Assumed ratio of additional exports to one $ of grant Number of exporters assisted by EMAF2 Total matching grant Exports generated by exporters assisted in year 1 Exports generated by exporters assisted in year 2 Exports generated by exporters assisted in year 3 Exports generated by exporters assisted in year 4 Additional annual exports generated by EMAF 2 Cumulated exports

NPV of additional exports $367.

Investment (matching grant) Mgmt & Operating costs Additional annual exports Flow of Funds

alue Added $337, 215. 56.

I ax revenues form exporters 83. ax revenues form salaries 7,

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

2 ao

1.50 3.0

3.0 3.0

-1.50 -1.10

3.0 0.4

4 120

5.50 6.0

11.0

17.0 20.0

-5.50 -1.65 17.0 9.9

6 160

11.60 9.0

22.0 23.2

54.2 74.2

-1 1.60 -1.80 54.2 40.8

a 1 ao

13.00 12.0 33.0 44.0 46.4 69.6 26.0 52.0

117.4 165.6 191.6 357.2

-13.00 -1.45 117.4 165.6 103.0 165.6

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Expected economic benefits from PEFG

Table 9.3 shows an estimate based on improved management under an initial investment o f US$5 mill ion for five years. The following assumptions are made:

0 The guarantee coverage fund ratio w i l l gradually increase from 2 in the f i r s t year to 4 in the second and third year to 5 and 6 respectively for year 4 and 5. Initially, under EDP I these ratios were much higher. However, given the performance o f the initial management team, we chose to readjust them accordingly.

0 The average yearly turnover o f pre-shipment export finance i s equal to 2, with a maximum maturity of 6-months.

0 For an export order o f US$1 the PEFG covers US$O.Sl, which i s 90 percent loan share times 90 percent guarantee share.

0 The net default rates decline from 3% in the f i r s t year to 2.5% in the second year 2% and 1.5 % for the third and fourth year and 1% for the last year. These rates reflect the technical assistance supplied to SMEs.

Additional annual exports of US$1 mill ion generate 1oOjobs.

0 The administrative costs would initially represent 1.7% o f the guarantee outstanding and decrease to 1% in the final year.

0 The annual premium fate applied to the guarantee outstanding i s 1.8%.

0 The fund's annual interest earnings are 4%.

We estimate that US$1 covers US$2.47 on annual exports with a PEFG coverage ratio o f 1 ([1/90%*90%] * [2] =2.47). This means that with a coverage ratio o f 6 at the end o f the 5" year, one dollar o f fund can cover 2.47*6=14.8. Therefore a US$5 mil l ion Fund can cover US$74.1 mill ion o f exports. The NPV of the benefits amount to US$200 mil l ion for the f i r s t 5 years; while the NPV of net social benefits represents US$92 mill ion for the same period.

- 72 -

Table 9.3: SOCIOECONOMIC IMPACT OF PEFG

ssumptions: remium paid into PEFG verage loan maturity (days) ate of coverage

nitial size of the PEFG ($ million) Flpre-shipment finance at % of UC value E EFG guarantee coverage ratio nnual rate of default dministrative costs as % of outstanding guarantees

ecovery

uarantee outstanding emium income terest income otal income f et guarantee payment dministrative costs otal expenditure F

I

dditional exports generated et Flow PV 6%, net flow excluding exports

PV of net flow otal export credit covered by PEFG ($m)

of additional exports

ofits

dditional employment generated (thousands)

pportunity costs (5% of invested PEFG)

et Social Benefits

1.80% 180

90% 5

9no/,

I

$96.32

Year 1 Year 2 Year 3 Year 4 Year 5 2

3.0% 1.7%

4% 0.350

5 .OO

10 0.18 0.20 0.38

0.3 0.172 0.472

-0.092

24.7 24.6

-0.199 $200.19 $199.99 210.000

117.3 30.9 40.6 29.8

45.45 3.83

2.47 12.35 -0.17 -0.25 -0.72 11.62

4 2.5%

1.72% 4%

0.350 5.41

20 0.36 0.22

0.57656

0.5 0.344 0.844

-0.26744

49.4 49.1

4 2%

1.30% 4%

0.450 5.86

20 0.36 0.23

0.5943684

0.4 0.26 0.66

-0.06563 16

49.4 49.3

5 1.5%

1.25% 4%

0.500 6.44

25 0.45 0.26

0.707775768

0.375 0.3125 0.6875

0.020275768

61.7 61.7

6 1%

1.00% 4%

0.300 7.13

3c 0.54 0.25

0.82502016

0.: 0.: 0.f

0.2250201

74.: 74.:

4.94 4.94 24.69 24.69 -0.X4 -0.66 -0.17 -0.29 -1.11 -0.95 23.58 23.74

6.17 7.4 30.86 37.0 -0.69 -0.6 -0.32 -0.3 -1.01 4 .g 29.85 36.0

-73 -

Expected economic benefits from Trade Facilitation

As noted above, inefficiencies in trade logistics continue to impose significant transactions costs on Tunisian f i r m s - affecting their competitiveness. Modernizing trade-related services (through an efficient use o f electronic commerce) can enhance the efficiency and performance o f trade processes and have a favorable impact on overall trade value by generating substantial cost-savings for Tunisian f m s .

We estimate that an overall 20 to 40 percent o f reduction in transaction costs w i l l generate savings o f the order o f 1% to 2% o f overall trade value (Export plus imports). For the sake o f our analysis we use lower bound values o f 1%, and assume that the benefits from the trade facilitation components are not likely to accrue immediately. A conservative estimate would reduce 25 percent o f the overall transaction cost in year 3 o f the project, and 50 percent 75 percent and 90 percent thereafter. These estimates take into account the knowledge and expertise acquired under EDP I. The customs clearance times i s presently an average o f 2 to 4 days - as was projected under EDP I. For a quantitative evaluation o f the economic benefits, certain assumptions are necessary:

0 Total investments add up to US$14.5 mill ion over 4 years. This figure includes al l cost related to the two sub-components o f trade facilitation namely streamlining customs procedures and Technical control services12. We estimate that all costs under these components can be considered investments since they contribute to improving the overall trade efficiency.

0 The reduction in transaction costs associated with streamlining customs and technical controls (through TTN) wi l l not be felt immediately, and thus a 2-year gap i s adopted to account for benefits to accrue beginning in the third year.

0 International experience demonstrates that overall savings (as a % o f total trade value) can range between 1% to 2.5% with a 30 percent reduction in transaction cost. Progress made under EDP I enables us to estimate reductions in transaction cost to be from 20 to 40 percent. For our analysis we choose a lower bound figure o f 1% o f savings realized on total trade value.

This generates an NPV of US$392 mill ion (with a discount rate o f 8%), and i s expected to yield benefits (cost savings) o f US$23 1.2 mill ion in year 6.

'* We do not include the Standards sub-component due to problems in quantifying i ts impact. We do provide a theoretical justification for its inclusion.

- 7 4 -

Year1 Year2 Year3 Year4 Year5 Year6 Trade value (exports plus imports, 2002) 20,300

Table 9.4 ECONOMIC IMPACT OF TRADE FACILITATION

Trade (exports plus imports) projected annual growth rate

Transactions costs reductions as % of total trade

Trade value Investments (Includes all trade facilitation costs)

Benefits (Transactions costs reduction) Net flows

4% 4% 4% 4% 4% 4% - 0.25% 0.50% 0.75% 1%

21 112.0 21956.5 22834.7 23748.1 24698.1 25686.0 -1.9 -7.1 -4.5 -1.2 -.24

57.1 118.7 185.2 231.2 .1.9 -7.1 52.6 117.5 185.2 231.2

V 8% $392

-75 -

Annex 10: Safeguard Policy Issues TUNISIA - EXPORT DEVELOPMENT I1

There are no safeguard policy issues associated with th i s project.

- 76 -

Annex 11: Project Preparation and Supervision TUNISIA - EXPORT DEVELOPMENT I1

Planned Actual PCN review 11/27/02 11/27/02 Init ial PID to PIC 41 15/03 4/30/03 Init ial ISDS to PIC 4/22/03 6/3/03 Pre-appraisal 12/9/03 12/9/03 Appraisal 1/20/04 2/25/04 Negotiations 51 17/04 5/17/04 Board/RVP approval 6/29/04 Planned date o f effectiveness 101 1/04 Planned date o f mid-term review 0313 1/06 Planned closing date 03/31/10

Bank staff and consultants who worked on the project included:

Name Title Unit Hamid Alavi Team Leader MNSIF Mehdi Benyagoub Consultant MNSIF Steve Wan Sr. Program Assistant MNSIF Arsala Deane Consultant, E-Gov PRMPS Michel Zamowiecki Lead Customs Specialist TUDTR Amadou Tidiane Toure Procurement Specialist MNACS Samia Melhem Sr. Informatics Specialist CITPO John Wilson Lead Economist TUDTR James Hanna Lead Operations Specialist, Matching grants PA9SS Marc Juhel Peer Reviewer TUDTR Faezeh Foroutan Peer Reviewer PRMTR Shweta Bagai Junior Professional Associate DECPG M. Merzghazi Local consultant, E-Gov Donald Lim Fat Bemard Marckovicz Consultant, Trade Logistics

Consultant, Trade facilitation systems

Bank funds expended to date on project preparation: 1. Bank resources: US$120,000 2. Trust funds: US$ 3. Total: US$120,000

Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$53,000 2. Estimated annual supervision cost:US$75,000

- 77 -

Annex 12: Documents in the Project File TUNISIA - EXPORT DEVELOPMENT I1

A. Project Implementation Plan

B. Bank Staff Assessments

Aide Memoires Back-To-Office Reports Minutes o f PCD Meeting Minutes o f PAD Meeting ISDS

-78 -

Annex 13: Statement of Loans and Credits

TUNISIA - EXPORT DEVELOPMENT I1

Original Amount in US$ Millions

Difference between expected and actual

disbursements

Project FY Purpose ID

IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd

PO74398 2003

PO72317 2003

PO55815 2002 PO48315 2002

PO64082 2001

PO05750 2001

PO48825 2001

PO50945 2000 PO35707 2000

PO55814 1999

PO05741 1998

PO43700 1998

PO05746 1998

PO05731 1997

PO05736 1997

PO40208 1996

PO05589 1995

TN-MUNICIPAL DEVELOPMENT I11 PROJECT TN-NW Mountainous and For. Areas Dev. TN-ECAL I11 TN-Protected Areas Management Project

INVESTMENT TN-AGRIC. SUPPORT svcs TN-CULTURAL HERITAGE TN-Education PAQSET I

INVESTMENT PROJECT

DEVELOPMENT TN Higher Education Reform Support I TN-TRANSPORT SECTOR INV TN-HEALTH SECTOR LOAN TN-GREATER TUNIS SEWERAGE TN-NATURAL RESOURCE MGMT TN-INDUSTRY SUPPORT INSTITUTION SOLAR WATER HEATING

Total:

TN-TRANSPORT SECTOR

TN-WATER SECTOR

TN-EXPORT

78.39

34.00

252.50 0.00

37.60

21.33

17.00

99.00 103.00

35.00

80.00

50.00

50.00

60.00

26.50

38.70

0.00 983.02

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

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

0.00

0.00

0.00

0.00

0.00 0.00

0.00

0.00

0.00 5.33

0.00

0.00

0.00

0.00 0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

4.00

9.33

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

6.95

0.00

10.03

0.00

89.84

37.97

104.94 5.66

34.02

24.46

20.30

58.46 80.59

13.99

40.10

11.39

5.31

25.62

6.60

7.84

0.19

15.47

0.27

70.12 0.65

10.19

3.83

3.13

-1.54 9.48

13.99

33.20

14.47

10.64

30.38

9.93

25.62

-0.34

16.98 567.28 249.49

0.00

0.00

-52.47 0.00

0.00

0.00

0.00

0.00 0.00

2.79

0.00

4.02

4.58

1.23

0.00

3.80

0.00 ' 36.05

- 7 9 -

TUNISIA - EXPORT DEVELOPMENT I1

STATEMENT OF IFC’s Held and Disbursed Portfolio

In Millions o f US Dollars ~ ~~~~~~ ___

Committed Disbursed

IFC IFC

M Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. Approval

0/98/00 BIAT 1995 Maghreb IM Bank

1986/92/98 SITEX 1998 Tuninvest

Total portfolio:

0.00 0.29 0.00 0.00 0.00 0.29 0.00 0.00 0.00 0.33 0.00 0.00 0.00 0.33 0.00 0.00 0.00 0.77 0.00 0.00 0.00 0.77 0.00 0.00 0.00 4.29 0.00 0.00 0.00 4.29 0.00 0.00

0.00 5.68 0.00 0.00 0.00 5.68 0.00 0.00

Approvals Pending Commitment

FY Company Loan Equity Quasi Partic. Approval

Total pending 0.00 0.00 0.00 0.00 commitment:

- 80 -

Growth of Investment and GDP (%)

20

10

0

.lo

----GDI -GDP - -

Annex 14: Country at a Glance

TUNISIA - EXPORT DEVELOPMENT I1

POVERTY and SOCIAL

2002 Population, mid-year (mi/lionSl GNI per capita (Atlas mefhod, US$) GNI (Atlas mefhod, US$ billions)

Average annual growth, 1996-02

Population (%) Labor force PA)

Tun Is la

9.8 2,000

59.6

12 2.4

M o s t recent estimate (latest year available, 1996-02)

Poverty (%of population belo wnafional poverty line) Urban population (%of fofalppulaffon) Life expectancyat birth (pars) Infant mortality (per lo00 live births) Childmalnutntion (%ofchi/drenunder5) Access to an improvedwater source (%ofpopulation) Illiteracy (%of populafion age 154 Gross pnmary enrollment (%of school-agepopulafion)

Male Female

67 73 24 4

80 27 1l7 P O l5

KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982 1992

GDP (US$ billions) 81 15.5 Gross domestic InvestmenUGDP 317 343 Eq~orts of goods and serviceslGDP 36.9 39.5 Gross domestic savingslGDP 212 274 Gross national savingsIGDP 225 264

Current account balance/GDP Interest paymentslGDP Total debt/GDP Total debt servicelexports Present value of debt/GDP Present value of debtlexports

-92 -7.0 2.7 2.6

46.4 55.1 162 20.0

1982-92 1992-02 2001 (average annualgrowth) GDP 3.8 4.7 4.9

M . East Lower- & Nor th middle-

Afrlca Income

305 2,070

670

19 2 9

58 69 37

88 35 95 98 90

2001

20 0 27.9 47.1 23 4 23 6

-4 3 21

545 t39 542 0 2 7

2,411 1,390 3,352

1.0 12

49 69 30

81 t3

n

in in m

2002

212 25 6 44.3 214 22 4

-3 5 2 2

572 15.4

2002 2002-05

17 4.7 GDP percapita 13 3 2 3.7 0.5 3.7

STRUCTURE o f the ECONOMY

(%of GDP) Agriculture Industry

Services

P nvate consumption General government consumption Imports of goods and services

Manufacturing

(average annualgrowh) Agriculture Industry

Services

Private consumption General government consumption Gross domestic investment Imports of goods and sewices

Manufacturing

1982 1992

t32 16.1 311 28.5 11.1 16.5

55.8 55.4

62.3 56.6 16.5 16.0

47.4 46.5

1982-92 1992-02

5.3 19 3.6 4.8 2.0 5.6 3.4 5.3

2.7 4.6 3.0 42 0.8 3.7 3.0 4.7

2001

116 28.8 18.5 59.5

60.9 15.7 517

2001

-15 5.7 6.9 6.0

5.4 5.0 6.4 t3.4

2002

0.4 29.1 18.6 60.5

62.3 16.3

48.7

2002

-0.3 3 A 2 2 3.7

3.4 45

-62 -1.7

Development diamond.

Life expectancy

T GN I Gross per primary capita enrollment

1

Access to improvedwatersource

-Tunisia Lo wr-middle-income group

Economic ratios.

Trade

Investment Domestic savings

I Indebtedness

-Tunisia __ Lo wr-middle-income group

- 81 -

Tunisia PRICES and GOVERNMENT FINANCE

Domestlc prices (%change) Consumer prices

1982

Implicit GDP deflator 6 .O

Government flnance (%of GDP, includes current grants) Current revenue Current budget balance Overall surplus/deficit

T R A D E

(US5 millions) Total exports (fob)

Fuel Agriculture Manufactures

Total imports (cif) Food Fuel and energy Capital goods

Export price index(895=W0) Import price index(X995=DO) Terms of trade (895=00)

31.7 6.7

-22

1982

1,980 911 63

965 3,389

356 377

1,032

BALANCE O f P A Y M E N T S 1982

(US5 millions) Exports of goods and services 3,W2

3,859 Resource balance -856 Imports of goods and services

Net income Net current transfers

-294 403

Current account balance -748

Financing items (net) Changes in net reserves

776 -27

M e m o : Reserves including gold (US5 millions) 614 Conversion rate (DEC, locaVUS5) 0.6

EXTERNAL DEBT and RESOURCE FLOWS

(US5 millions) Total debt outstanding and disbursed

1982

3,772 IBRD 376 IDA 68

Total debt service IB RD IDA

Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment Portfolio equity

World Bank program Commitments Disbursements Principal repayments

563 53

1

29 279 29

340 0

0 63 27

1992

5.8 5.7

26.8 4.1

-3.0

1992

4,014 609 4 6

2,432 6,432

430 449

1,578

79 89 89

1992

5973 6,978 -1,005

-654 570

-1,089

I T 1 -82

862 0.9

1992

8543 1,470

56

1 3 2 267

2

140 278 74

526 0

2t3

149 m

2001

1.9 2.7

24.6 5.2

-3.5

2001

6,606 6t3 541

4,981 9,521 654 888

2240

151 t37 141

2001

9 5 8 t3,423

-905

-941 983

-863

118 -255

1,999 14

2001

w 8 4 1297

37

1,465 226

2

365 229

0

328 293 148

2002

2.8 2.8

24.6 4.7 -3.1

2002

6,857 641 489

5272 9,503

653 886

2236

154 XI9 141

2002

9,539 D,431 -893

-984 1,no

-746

895 -149

2,301 1.4

2002

e,t30 1,464

35

1,641 233

2

-90 556

1Q 1 7 156

lnflatlon (%) c

97 98 99 60 01 j -GDPdeflator 4 C P I

Export and Import levels (US$ mlll.)

I I 96 97 98 99 00 01 02

IExportS olnports

Current account balance to G D P (%)

Composit ion o f 2001 debt (US$ mill.)

G: 662 A: 1,297

F 3,638

E: 2,529

A - IBRD B - IDA D - Other multilateral F - Private C-IMF G-Short-term

E - Bilateral

OFFICIAL USE ONLYR2004-0116/1

June 10, 2004

Streamlined ProcedureFor meeting of

Board: Tuesday, June 29, 2004

FROM: The Acting Corporate Secretary

Tunisia: Second Export Development Project

Project Appraisal Document

Attached is the Project Appraisal Document regarding a proposed loan to the Republic of

Tunisia for a Second Export Development Project (R2004-0116). This project will be taken up

at a meeting of the Executive Directors on Tuesday, June 29, 2004 under the Streamlined

Procedure.

Distribution:Executive Directors and AlternatesPresidentBank Group Senior ManagementVice Presidents, Bank, IFC and MIGADirectors and Department Heads, Bank, IFC and MIGA

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contentsmay not otherwise be disclosed without World Bank Group authorization.

- 34 -

Action and Objective Purchase o f information technology equipment

Duration Months ( 1 - 48) 4 months 15 - 17

Operational start Formation o f T IC Start o f production o f information for importers to Tunisia on standards Start o f electronic notifications to the WTO, information manual, European and foreign regulations Technical assistance - Communications strategy for TBT Enquiry Point clients Technical Assistance to evaluate and reinforce methods o f TBT Enquiry Point INORPI

Technical Control Digital Database

3 months 17 - 19 4 months 18-20

Start o f month 22

Start o f month 25

2 weeks Month 26

1 month 35

The duplicative and complex system o f technical control regulations forms a barrier to trade expansion and growth in Tunisia. For example, the time to process inspections can take anywhere between 10 days to 6 weeks depending upon the type o f product, and the ministry involved. When comparing Tunisia with international norms on the basis o f the duration for technical controls, the time taken i s well beyond what i s observed in Canada, Morocco, Turkey, Italy and Japan.

Through a common database for all technical control requirements, al l mandatory technical control requirements could be accessed easily. In addition, th is would also serve as the focal point for the TBT enquiry point. This sub-component w i l l also provide a basis for linkage with SINDA-TTN. The project w i l l also provide funding to produce a best practice manual o f technical regulatory administration outside o f Tunisia, as well as an action plan for streamlining technical control regulations.

Performance indicators

1 Notification to WTO TBT Committee o f draft Tunisian mandatory technical control requirement takes 5-6 months on average in 2004. Reduce time for notification to 2 months.

2. Access to WTO notifications o f new foreign technical control regulations affecting Tunisian exporters takes on average 5-12 months in 2004. Reduce time to 2 months.

3. Completion o f enhanced web-based access for Tunisian f m s o f voluntary international standards (ISO, CODEX, E C , etc.)

Capacity based on new database to access information on foreign technical regulations via the TBT Enquiry Point notifications in sectors o f strategic importance to Tunisian exporters.

Component 4: Trade Logistics

The more tariffs and non-tariffs barriers to trade are brought down, the more conspicuous become the importance o f the procedural, logistic, and regulatory environment that impact on the costs and potential o f trade. In this context, th is component w i l l initiate measures to upgrade logistics links to global markets as an important condition for promoting exports and attracting export-oriented FDI. The trade facilitation component o f EDP I focused on simplification o f trade related documentation (Liasse Unique), electronic