Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 18763

IMPLEMENTATION COMPLETION REPORT

MEXICO

SCIENCE AND TECHNOLOGY INFRASTRUCTURE PROJECT(LOAN 3475-ME)

December 30, 1998

Finance, Infrastructure and Private Sector Management UnitMexico Country Management UnitLatin America and the Caribbean Regional Office

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

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(Exchange Rate Effective October 1, 1998)

Currency Unit = Mex$Mex$10.16= US$1

FISCAL YEARJuly I - June 30

ABBREVIATIONS AND ACRONYMS

CAS Country Assistance StrategyCCC President's Science Advisory Council - Consejo Consultivo de CienciasCENAM National Center for Metrology - Centro Nacional de MetrologiaCONACYT National Science and Technology Council - Consejo Nacional de Ciencia y TecnologiaDGN Director General of Standards - Direcci6n General de NormasFY Fiscal YearGDP Gross Domestic ProductGFCYT Federal Expenditure on Science and Technology - Gasto Federal en Ciencia y

TecnologiaGOM Government of MexicoIACyT Scientific and Technologic Activity Indicators 1996 - Indicadores de Actividades

Cientificasy Tecnol6gicas 1996, Mexico, CONACYT, 1997IBRD Intemational Bank for Reconstruction and DevelopmentICR Implementation Completion ReportIADB Inter-American Development BankIMPI Mexican Institute for Industrial Property - Instituto Mexicano de la Propiedad

IndustrialINEGI National Institute of Statistics, Geography, and Informatics - Instituto Nacional de

Estadistica, Geografia e InformaticaIPR Intellectual Property RightsISI Institute for Scientific InformationKIP Knowledge and Innovation Project - Proyecto de Conocimiento e Innovaci6nMSTQ Metrology, Standards, Testing and QualityNAFIN Nacional Financiera, S.N.C.NAFTA North American Free Trade AgreementNIST National Institute of Standards and TechnologyNPSTM National Plan for Science and Technology Modernization (of Mexico)NSF National Science FoundationOECD Organization for Economic Cooperation and DevelopmentPACIME Support Program for Science in Mexico - Programa de Apoyo a la Ciencia en Me'xicoR&D Research and DevelopmentSAR Staff Appraisal ReportS&T Science and TechnologySECOFI Ministry of Commerce and Industrial Development - Secretaria de Comercio y

Fomento IndustrialSECODAM Ministry of the Comptroller GeneralSEP Ministry of Education - Secretaria de Educacion PuiblicaSHCP Ministry of Finance and Public Credit - Secretaria de Hacienda y Credito PublicoSNI National System of Researchers - Sistema Nacional de InvestigadoresSTIP Science and Technology Infrastructure ProjectWIPO World Intellectual Property Organization

Vice President: Shahid Javed BurkiCountry Management Unit Director: Olivier LafourcadeSector Management Unit Director: Danny M. Leipziger

Task Team Leader: Daniel Crisafulli

FOR OFFICIAL USE ONLYCONENTS

PREFACE .......... V

EVALUATION SUMMARY ................... vi

PART I: PROJECT IMPLEMENTATION ASSESSMENT ............................................................. 1 I

A. PROJECT OBJECTIVES AND DESCRIPTION ...................... ....................................... IB. ACHIEVEMENT OF PROJECT OBJECTIVES ..................... ........................................ 2C. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING THE PROJECT ............ ..............7D. PROJECT SUSTAINABILITY ............................................................. 9E. BANK PERFORMANCE ............................................................. 10F. BORROWER PERFORMANCE ............................................................. 11G. ASSESSMENT OF OUTCOME ............................................................. 11H. FUTURE OPERATION .............................................................. 11I. KEY LESSONS LEARNED ............................................................. 12

PART II: STATISTICAL TABLES ............................................................. 14

TABLE 1: SUMMARY OF ASSESSMENTS ............................................................. 14TABLE 2: RELATED BANK LOANS ............................................................. 15TABLE 3: PROJECT TIMETABLE ............................................................. 16TABLE 4: LOAN DISBURSEMENTS: CUMULATIVE ESTIMATED AND ACTUAL ............. ................ 16TABLE 5: KEY INDICATORS FOR PROJECT IMPLEMENTATION ...................................................... 1 7TABLE 6: KEY INTDICATORS FOR PROJECT OPERATION ............................................................. 1 7TABLE 7: STUDIES INCLUDED IN PROJECT ............................................................. 1 8TABLE 8A: PROJECT COSTS ............................................................. 19TABLE 8B: PROJECT FINANCING ............................................................. 20TABLE 9: FINANCIAL AND ECONOMIC COSTS AND BENEFITS ....................................................... 21TABLE 10: STATUS OF LEGAL COVENANTS ............................................................. 21TABLE 1 1: COMPLIANCE WITH OPERATIONAL MANUAL STATEMENTS ................... .................... 22TABLE 12: BANK RESOURCES: STAFF INPUTS ............................................................. 22TABLE 13: BANK RESOURCES: MISSIONS .................................. 23

Annex 1: ICR Mission Aide Memoire ................................... 24

Annex 2: Operation Plan for the Project ................................... 27

Annex 3: Borrower's Contribution to the ICR ................................... 33

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not, otherwise be disclosed withoutWorld Bank authorization.

IMPLEMENTATION COMPLETION REPORT

MEXICO

SCIENCE AND TECHNOLOGY INRASTRUCTURE PROJECT

(LOAN 3475-ME)

PREFACE

This is the Implementation Completion Report (ICR) for the Mexico Science andTechnology Infrastructure Project, for which Loan 3475-ME in the amount of $189 million wasapproved on May 26, 1992, and made effective on 15 October, 1992.

The loan was closed on June 30, 1998. A final supplemental disbursement ofUS$1487.00 took place on September 3, 1998.

The ICR was prepared by Daniel Crisafulli, Task Manager, Private Sector DevelopmentDepartment and John Daly, Science and Technology Policy Specialist. The report was reviewedby Fernando Montes-Negret, Sector Leader of Finance, Private Sector Development andInfrastructure Department and Maria Victoria Lister, Quality Assurance Officer, Latin Americaand the Caribbean Region. The Borrower provided inputs to the ICR that are reflected in Part Iand II of the ICR as well as in Annex 3.

The Government, Borrower and Beneficiaries contributed to the preparation of the ICRby exchanging views on all parts and phases of the Project including policy aspects, preparation,procurement, implementation experience and related issues and by preparing its own contributionto this ICR.

v

MEXCO

SCIENCE AND TECHNOLOGY INFRASTRUCTURE PROJECT

(LOAN 3475-ME)

Evaluation Summary

Introduction

1. The project was conceived during the implementation of the broad program of structuraladjustment undertaken by Mexico during 1986-1991 with support from the Bank. As Mexicoemerged from a period of high inflation and macroeconomic instability, it became clear thatstrengthening of the basic science and technology infrastructure of the country would prove criticalin meeting the challenges posed by the newly opening economy. Negotiated in the same year asthe North American Free Trade Agreement (NAFTA), the project aimed to improve thecompetitiveness of Mexican firms and attract foreign investment while embarking on a program oflong term institutional development.

Project Objectives

2. The objectives of the project were to:

* Rationalize public sector funding (for science and technology) by supporting increasedpublic spending for: (i) grants for basic scientific research projects and equipmentinfrastructure projects, with improved allocation on a competitive basis to generaterelevant research and train scientists; and (ii) technology infrastructure in the area ofmetrology, standards and quality assurance, and intellectual property protection to improveservices to industry, thereby encouraging modernization and enhancing competitiveness,and increasing attractiveness for foreign investment.

* Develop institutions through (i) supporting the restructuring of a science research program,and (ii) development of institutions providing support to industry in metrology, standardsand quality assurance, and intellectual property protection to improve the efficiency ofpublic support in these areas.

Implementation Experience and Results

3. Overall, substantial progress was made toward meeting these objectives. In the areas ofinstitutional development (all components) and increased attractiveness to foreign investment(technology components), the project was largely successful in meeting the established goals. Theimpact of the project on the competitiveness and modernization of Mexican industry appearspositive but is not yet fully realized. The project's impact on overall financing to science andtechnology activities, however, is ambiguous as a result of the financial crisis of 1994-1995.

4. The Mexican financial crisis of 1994-1995 strongly impacted the availability of funds forproject activities. In November 1995, the Government and Bank agreed to accelerate thedisbursement of funds through retroactive financing of US$80 million for activities associated with

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the project which were previously funded by the GOM. In spite of this reduction of funding, theproject was largely successful in meeting basic goals.

5. The Scientific Research Component saw an increase in the number of Mexican scientificresearch publications and their impact, a significant production of research-trained personnel, arenewal of the Mexican research instrumentation infrastructure, the institutionalization of merit-based peer review, and improvements in the efficiency of the National Science and TechnologyCouncil (Consejo Nacional de Ciencia y Tecnologia - CONACYT).

6. The project supported the creation of the Mexican National Center for Metrology (CentroNacional de Metrologia - CENAM). With 104 laboratories now operating, demand from industryfor calibration service has far outstripped projections. CENAM appears to be helping to attractforeign investment and promoting the competitiveness of Mexican industry.

7. The project supported the creation of the Mexican Institute of Industrial Property (InstitutoMexicano de la Propiedad Industrial - IMPI), significantly reducing delays in award of patents,increasing enforcement activities, and increasing inspections related to intellectual propertyviolations. Use of the system by Mexican firms and individuals has remained low, but this lack ofuse is arguably the result of underlying weaknesses in the system of institutions and firms involvedin creation, diffusion, and application of industrially-useful knowledge in Mexico.

8. The standardization component was intended to support the Directorate General ofStandards (Direcci6n General de Normas - DGN) of the Ministry of Commerce and IndustrialPromotion, but Govermment budgetary allocations were never made available for the componentactivities. Funds were either cancelled (US$1 million) or reallocated to the CONACYT component(US$2 million).' Despite the lack of disbursement under the loan, the DGN accomplished many ofthe objectives agreed during Appraisal.

9. Overall, the Bank performance in the implementation of the project is consideredsatisfactory. Implementation costs were held low, and the considerable capacity of the counterpartinstitutions was allowed to grow and be applied to the management of the project. Overallperformance of the borrower was satisfactory. However, disbursement was subject to initial delays.The complexity of procurement and disbursement arrangements under the science researchcomponent were the single largest weakness in project design, resulting in excessive delays andburdensome procedures for beneficiaries and staff of CONACYT, NAFIN, and the Bank (para.32).

10. Project sustainability is likely to be strong, given the advances in institutional developmentand likely future growth in demand for science and technology services in Mexico. The developmentobjectives (growth with stability, social development, and modernization of the state) of Mexico'sCountry Assistance Strategy (CAS) imply increasing demand for creation and application ofknowledge and technology, highly skilled scientific and technological human resources, technologicalinfrastructure (including metrology, standards, quality control, intellectual property rights protection),and modernization of state institutions supporting science and technology. Conversely, reducedprospects for fuiture growth - or renewed macroeconomic and budgetary instability - could undermine

'US$500,000 in studies under the component were supported under the Mexico Industrial RestructuringLoan (3047-ME).

vii

institutional and other gains. The executing agencies have progressed rapidly under the proj ect, butremain highly vulnerable to changes in their operating environment (particularly to funding levels andstaffing changes).

Summary of Findings, Future Operation, and Key Lessons Learned

11. The project was largely successful in meeting the stated objectives of building a basicinstitutional infrastructure in support of long-term scientific and technological development. Thissuccess is particularly striking in light of the macroeconomic instability experienced duringimplementation. Although this support for creating a supply of basic S&T infrastructure may beconsidered appropriate given the chronic underinvestment during the 1980s, the project shouldhave incorporated measures to promote articulation of demand for S&T services and for linkage ofresearch to societal needs. Given the challenges facing Mexican firms during a period of rapidtrade liberalization, the project clearly should have aimed for a much more direct and immediateimpact on firm-level technological capabilities. A second failure in project design was the lack ofincentives to link research with teaching, thus potentially reducing the impact of research on theformation of skilled human resources.

12. The project enhanced the stability of scientific funding during the crisis of 1994-95, whenas so often happened in the past, research funding was threatened by fiscal cutbacks. The projecthelped to sustain development of an R&D capacity in Mexico which would be hard to replace andwill likely prove increasingly important to future development.

13. The Government requested a follow-on operation to support a second generation of reformsto science and technology (S&T) policy. The Knowledge and Innovation Project (KIP), approved onJune 16, 1998, is designed to enhance the effectiveness of research support programs while increasinglinkages to user groups in society and industry. In addition, the KIP supports a restructuring ofCONACYT's programs to promote university-industry linkage and industrial technologydevelopment. In parallel, SECOFI has initiated a series of studies to assess strategic options incompetitiveness policy with support of a Japanese grant.

14. The project lessons include:

(i) institutionalization of a competitive mechanism for allocation of research funds in adeveloping country can be feasible and beneficial, particularly with close participation ofscientific community in the planning and review process;

(ii) a well-designed system for support of science incorporates incentives for scientificexcellence and national developmental needs in an open, competitive, and transparentmanner. Especially desirable is some mechanism to strengthen fields of science andtechnology that are significantly weaker than appropriate to national developmental needswhile maintaining incentives for excellence;

(iii) development of "one-stop shopping" mechanisms, which aim to reduce theexpenditure of time and effort of researchers in obtaining resources, is a difficult processrequiring a high degree of commitment by implementing agencies over the medium-term;

(iv) development of human resources for science and technology is perhaps the mostimportant output of this project, and this output could have been strengthened by more

viii

explicit incorporation of incentives for training of Masters and Doctoral students inresearch grants. In addition, systems to support scientific research should include amechanism to ensure participation of highly-qualified young researchers in fundingprograms;

(v) in tandem with the creation of a world-class metrology capability, policies to stimulateprivate sector demand for services and formation of a private secondary metrologynetwork are critical to achieving significant medium-term impact on competitiveness oflocal industry;

(vi) similarly, creation of a world-class intellectual property rights (IPR) agency is anecessary but not sufficient condition for productive application of IPR for development.In tandem with institutional strengthening, a systemic approach is needed to addressweaknesses in the judicial system and broader issues in the creation, diffusion andapplication of technical knowledge in the country;

(vii) the project also confirms the truism that continuity in staffing at the managerial andtechnical level is critical in assuring the successful creation or restructuring of an executingagency. The high degree of stability in each executing agency across a change inadministration helped ensure rapid and sustained institutional development.

ix

IMPLEMENTATION COMPLETION REPORT

MEXICO SCIENCE AND TECHNOLOGY INFRASTRUCTURE PROJECT(LOAN 3475-ME)

Part I: Project Implementation Assessment

A. Statement/Evaluation of Objectives

1. The objectives of the project were to:

* Rationalize public sector funding (for science and technology) by supportingincreased public spending for: (i) grants for scientific research projects andequipment infrastructure projects, with improved allocation on a competitive basis togenerate relevant research and train scientists; and (ii) technology infrastructure inthe area of metrology, standards and quality assurance, and intellectual propertyprotection to improve services to industry, thereby encouraging modernization andenhancing competitiveness, and increasing attractiveness for foreign investment.

* Develop institutions through (i) supporting the restructuring of a science researchprogram, and (ii) development of institutions providing support to industry inmetrology, standards and quality assurance, and intellectual property protection toimprove the efficiency of public support in these areas.

2. Given the broad program of structural reforms implemented by the Mexican Governmentduring 1986-1992, including rapid trade liberalization, privatization, and deregulation ofindustry', the project's aim to strengthen the basic infrastructure for scientific and technologicaldevelopment was well-directed and timely. The growing openness of the Mexican economyrequired greater investment in scientific and technological systems to boost long-termcompetitiveness of enterprises.

3. The project supported the Government's National Program for Science and TechnologyModernization 1990-94 (NPSTM), which set the goal of increasing total public and privateexpenditure for S&T from 0.32 percent of GDP in 1991 to 1.0 percent in 1994 and 2.0 percent in2000 (Staff Appraisal Report - SAR, p. 5). In light of evidence from leading industrial countries,the Government's goal was perhaps overly ambitious even in the absence of the financial crisis of1994-1995.2

4. At least one half of the total in 2000 was to be provided by the private sector; however,neither the NPSTM nor the project supported explicit measures to incentivize private spending inthe sector. Although support for creating a supply of basic S&T infrastructure was appropriategiven the chronic underinvestment during the 1980s, the project should have incorporated

I Mexico Country Economic Memorandum - Fostering Private Sector Development in the 1990s.Report No. 11823-ME.

2 1993 public support for research and development in advanced economies ranged from 0.5 to 0.6percent of GDP in Japan and Italy, to 0.9 to 1.1 percent of GDP in France, the United Kingdom and theUnited States. Key determining factors included military R&D spending, Government strategy, and percapita income.

measures to promote articulation of demand for S&T services and for linkage of research tosocietal needs. Given the challenges facing Mexican firms during a period of rapid tradeliberalization, the project clearly should have aimed for a much more direct and immediateimpact on firm technological capabilities. A second failure in project design was the lack ofincentives to link research with teaching, thus potentially reducing the impact of research on theformation of skilled human resources.

5. The project was negatively impacted by the financial crisis of 1994-1995. In early 1995,during the period of severe financial turmoil following the devaluation of the peso, theGovernment requested a restructuring of the entire portfolio of Bank-financed projects undersupervision. A letter of amendment was signed November 17, 1995 to accelerate thedisbursement of funds under the Loan. The Bank agreed to accept retroactive financing ofUS$80 million for activities associated with the Project (research scholarships, chairs ofexcellence and repatriation grants) originally funded by the Government. The rationale for thisrestructuring was to provide additional liquidity support to the Mexican Government at the timeof the financial crisis. Although the decrease in support to Project activities which resulted fromthe financial crisis is unfortunate, the Bank and Government acted appropriately in response tothe financial stress experienced at the time.

B. Achievement of Project Objectives

6. The project achieved a substantial positive impact toward meeting the stated objectives atAppraisal. In the area of rationalization of public sector funding, substantial progress was madetoward creation of the competitive review mechanism for science research projects and increating a basic infrastructure in the areas of metrology and intellectual property protection.Regarding the goal of increased attractiveness to foreign investment (technology components),the project was largely successful in meeting the established goals. The impact of the project onthe competitiveness and modernization of Mexican industry is positive but not yet fully realized.Finally, the project's impact on overall financing to science and technology activities isambiguous as a result of the financial crisis of 1994-1995.

7. As is customary in science and technology projects, net present value, economic rates ofreturn and financial rates of return were not included in the Staff Appraisal Report for thisproject, and it is not possible now to estimate the value of project benefits. While inefficiencies inthe procurement system reduced the positive effect of the project (para. 32), available evidencesuggests that the project did represent a low cost solution to the problems of increasing humanand material resources for science and technology.

Science and Technology Research Component

8. The science research component supported the creation of PACIME (Programa deApoyo a la Ciencia en Mexico - Program to Support Science in Mexico) under the administrationof CONACYT. This component was successful in achieving the goals of supporting high-qualityresearch and human resource formation while building sustainable institutions. Several externalevaluations by international and Mexican experts have agreed that this basic goal has been met.3

3 Aron Kuppernann, Evaluation of PA CIME, April 1997; Dan Newlon, Evaluation ofPA CIME,February 1997; Carlos Elizondo Mayer-Serra, PACIME: Algunos Criterios de Evaluaci6n, 1997; and J. M.

2

9. Rationalization of Public Sector Funding. The project aimed to increase the creation ofscientific knowledge and formation of trained scientists. The number of publications by Mexicanauthors in the ISI data base rose from 1,869 in 1991 to 2,619 in 19954 and 2,974 in 19965. This59 percent increase in five years is a significant indicator of project success. Articles by Mexicanresearchers in the natural sciences and engineering increased from 0.23 percent of the ISI database in 1992 to 0.32 percent in 19956, supporting the conclusion that Mexican scientificproduction increased during the project. The average number of citations per paper for Mexicanpapers was 1.91 in 1992-96, slightly improved from the 1980's, but was still far lower than thethree to five citations per paper found in advanced developed nations.'

10. Public funding of science and technology (Gasto Federal en Ciencia y Tecnologia,GFCYT) was 0.45 percent of Gross Domestic Product (GDP) in 1981, but fell to a low of 0.25percent of GDP by 1988 and 1989. The project was conceptualized when GFCYT wasrecuperating. The percentage of GDP devoted to Federal expenditure on science and technologyincreased to 0.41 by 1994, but with the budget pressures of the succeeding years again dropped to0.35 percent in 1995 and 1996 returning to 0.41 percent in 1997. Thus, in spite of the setback ofthe 1994-95 crisis, the project has been accompanied by increasing public funding for scienceand technology. However, 1997 GFCYT had not reached the level of 1981, and the originalarguably unrealistic targets set by the Government of Mexico were not met. Despite thisshortfall, the project may have forestalled an even more dramatic reduction of public support forscience and technology under the budgetary pressures of 1995-96.

11. The NPSTM targeted an increase of the number of Mexican researchers in the NationalSystem of Researchers (Sistema Nacional de Investigadores - SNI) from 6,442 in 1991 to 19,300in the year 2000 (SAR, page 36). The number of enrolled researchers was 5,969 in 1996 (IACyT,page 84) and 6,278 in mid 1998 (Project Implementation Plan, Knowledge and InnovationProject - KIP). However, the initial reduction in numbers of researchers appears to have beenlargely due to reduction of the numbers of SNI Candidates, confined primarily to the category ofmembership for engineers and technological researchers. Thus SNI shifted away fromtechnological research toward increased support for basic researchers. Survey results indicatethat well over 30,000 people were actively involved in research in Mexico in 1996. The 1,300retention and repatriation grants made during the project, and the estimate of some 250 doctoralstudents graduating per year in Mexico (many with CONACYT financial assistance for theirresearch) suggest that the project has made a substantial contribution to sustaining and increasinghuman resources for research in Mexico.

12. Institutional Development. The project has succeeded in institutionalizing a process ofallocation of resources for research and research infrastructure in CONACYT through merit

Rojo, PACIME Science Programme Report, April 1997 available in project file. Also see, Programa deRepatriaciones: 1991-96: Parte L Resultados, Anailisis e Impacto, SEP-CONACYT, November, 1997.4 Indicadores de Actividades Cientificas y Tecnol6gicas, 1996: Mexico, Table HI..15, CONACYT, 1996.5Uribe E., Misael and Hector Delgado A., Producci6n Cientif ca Mexicana 1980-1996 por Areas del

Conocimiento, Unidad de Apoyo para la Evaluacion de la Actividad Cientifica, CONACYT, undated.

6 Science and Engineering Indicators; 1998; Table 5-49, U.S. National Science Foundation, 1998.

7 "U.S. Share of World Papers Slides as Europe, Asia Rise", Science Watch, Vol. 8, No. 3, May-June 1997.

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based competition judged by independent scientific review boards. This is a significantaccomplishment. Perfecting peer review is by its nature an ongoing process. The KIP supports asecond generation of reforms to the system. CONACYT also has established a science andtechnology indicator program for the first time, and the data is widely available through hardcopy and Internet publication. This accomplishmnent is likely to help further rationalizemanagement of science and technology in Mexico.

13. One objective of the project was to decrease fragmentation of CONACYT funding, bothconcentrating resources in the best projects and allowing integrated support for research projects(one stop shopping). The project did result in an initial increase in the size of research grantsprovided by CONACYT, but the average research grant size peaked in 1993 at US$62,000,dropped to US$35,000 by 1995, and returned to US$51,000 in 1997. Early progress in de-fragmentation was interrupted at the time of the economic crisis and change in administration.The infrastructure grants, which were the largest in the program, were reduced in number in1994, and eliminated thereafter. Similarly, the numbers of projects per year strengtheningpostgraduate education was reduced greatly in 1994 and thereafter. Several new modalities ofchairs of excellence grants were introduced, and the numbers of these grants increased in thelatter years of the project, as did the individual research grants. A new category of grants forsabbaticals and postdoctorates was introduced and many such grants were made in 1996 and1997. Overall, the program went from 1,306 grants in 1992 with a total value of US$32.1 millionto 1,796 grants in 1997 with a value of US$65.8 million. Thus overall, the average value pergrant rose faster than inflation, but was still less than US$37,000 in 1997. The KIP seeks tocontinue the effort to provide "one-stop shopping" for Mexican researchers.

14. During 1990-1995, CONACYT reduced staff by 21% while adding new responsibilities,making the agency considerably more staff efficient, but less efficient than was planned in theSAR. With 1150 staff positions in 1990, CONACYT reports 360 staff in the Joint Directorate forScientific Research (DAIC) and a total staff of 843 in 1992. There was a modest increase inCONACYT staff in mid-project with the addition of two responsibilities: (i) administration ofSNI, transferred from SEP; and (ii) coordination of the SEP-CONACYT system of science andtechnology institutes. Total staff is reported to be 912 in 1998. Prior to the 1992 reorganization,CONACYT had 162 management positions. The SAR reported that higher and mid levelpositions were reduced 54 percent in 1992, with 72 Directorships or Sub-directorships.Retrospective data show that there were 76 such positions in 1992. The number of managementpositions was increased to 172 in 1993, with the transfer of new responsibilities to CONACYT,and remains at that level today.

Metrology Component

15. Industrial Competitiveness and Foreign Investment. The CENAM component did notinclude direct indicators of impact on either industrial competitiveness or attraction of inwardforeign investment to Mexico. However, project output indicators and firm interviews indicate apositive impact on both areas. The calibration services provided by CENAM are indicative. TheSAR projected that CENAM would calibrate 820 instruments during project implementationversus the actual figure of over 5700 during 1992-1997. Demand from industry for calibrationservice has far outstripped projections. In addition, CENAM's client list includes a large numberof foreign-owned enterprises - an indication of perceived quality of CENAM services as well asthe agency's role in helping to attract foreign investment. The high demand for CENAM's

4

relatively high-cost services, however, indicates the weakness of the system of secondarymetrology facilities in Mexico (see para. 45 for further discussion).

16. Institutional Development. The component was highly successful in achieving goals ofinstitutional development, especially in light of the budgetary reductions resulting from thefinancial crisis. Following initial delays in construction, CENAM management moved rapidly toestablish a world-class facility with international recognition from peer organizations. CENAMwas selected to preside over the Interamerican Metrology System during 1995-98, a positionwhich involves coordination of five basic measures on a regional basis.

17. In spite of the initial construction delays, CENAM achieved most Appraisal estimates ofinvestment and institutional development during the originally scheduled implementation period.By 1995, end of the implementation period projected in the SAR, CENAM had established 83laboratories versus 31 as planned. Expenditure on equipment during 1992-95 was only slightlyhigher than Appraisal estimates (US$30.5 million versus US$26.6 million at Appraisal). Thisincreased number of laboratories was achieved primarily through a review of metrologicalpriorities and cost effectiveness of equipment purchases.

18. After the financial crisis of 1995, budgetary allocations for component activities weredramatically reduced (para. 5). Annual budgetary allocations, including Government and Bankfunding, fell from a high of US$32.1 million in 1994 to US$13.72 million in 1996. As a result,loan disbursements were delayed. In October 1997, the Government requested the reallocation ofremaining funds of US$3.8 million for retroactive financing of activities under the CONACYTcomponent.

19. Nevertheless, total financing for the component, including Government contributions,reached US$111.9 million by 1997, versus US$62.6 million at Appraisal.8 US$11.8 million ofthe increased cost was due to construction cost overruns during 1993 and 1994 resulting fromunforeseen redesign requirements for conversion of the facilities of a former horticulturalresearch center. CENAM reports that the remaining US$37.5 million in increased cost resultedprimarily from operational costs arising from the longer implementation period.

Intellectual Property Component

20. Industrial Competitiveness and Foreign Investment. As in the case of the metrologycomponent, the SAR did not include explicit impact indicators in this area. Nevertheless,institutional development indicators cited below, (e.g., reduced delays, improved enforcement)imply that the component has supported incremental progress toward the goal of industrialcompetitiveness. The overall system of intellectual property protection, however, continues toexperience weaknesses in two areas: (i) enforcement and (ii) utilization by Mexican nationals.9

Interviews with private firms indicated continuing problems in enforcement of intellectualproperty rights due to inconsistent treatment by the judiciary. Increased training of judicial staff

sCENAM project cost includes US$1.0 million provided under the Mexico Industrial Technology Loan(2747-ME) for building remodeling and physical contingencies.

9IMPI is responsible only for "industrial property", e.g., patents and trademarks. Other forms of IPR,including copyright and plant variety protection, are undertaken by other agencies.

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and the creation of a specialized intellectual property court are measures which could improveenforcement activities. Use of the system by Mexican firms and individuals has remained low.Only 116 patents were awarded to Mexican entities in 1996 out of a total of 3,186 (3.6 percent).In 1992, by contrast, 9.1 percent of patents (out of 3,160) were awarded to Mexicans.

21. Factors which may explain this reduction include the tighter requirements for granting ofIPR after legal reform in 1993, higher fees charged by IMPI, reciprocation agreements with theUnited States and European Union, and the financial crisis of 1994-1995. The optimal level ofIPR protection accruing to Mexican firms is a complex issue, depending on the strength of localtechnology institutions and openness to imported technology arnong other factors, and will not befully explored in this paper.

22. The low level of IPR use is also a result of weaknesses in the system for generation anddiffusion of knowledge. Although selected Mexican universities and research institutes havedeveloped world-class scientific capabilities, incentive systems and regulations too often impedecollaboration with industry and utilization of IPR.

23. With respect to foreign investmnent, the component supported strengthening ofintellectual property rights critical to the implementation of the North American Free TradeAgreement (NAFTA) in 1994. The high proportion of intellectual property protection providedto foreigners in Mexico (96.4% of patents in 1996) gives a clear indication to foreign investorsthat Mexico is committed to providing intellectual property protection.

24. Institutional development. IMPI has substantially met project objectives in terns ofinstitutional development criteria. Created by decree in December 1993, IMPI reduced delays inaward of patents from 6 years to 2.5-3.0 years by 1996, a performance level similar to worldwidebest practice. Enforcement activities have increased in tandem, from 886 resolutions/opinionsissued in 1994 to 1711 in 1997. Inspections related to intellectual property violations have alsoincreased, from 947 in 1994 to 1504 in 1997. This progress is largely due to two factors: theimproved quality of IMPI staff, through training and staffing renewal; and investment ininformation systems (e.g., digital scanners, networked databases) which radically simplifiedoperations. Benefits of informatics use include eliminating the printing of over 23,000 documentpages per month, with corresponding reductions in processing time and staffing and storagerequirements.

25. The SAR indicators focused on project inputs rather than results. IMPI surpassed thesole operational indicator established at Appraisal. As estimated at Appraisal, IMPI's ownincome from services was expected to cover 2.5 times the agency's operational costs. Actualcost recovery averaged 3.2 times operating costs during implementation.'0

26. Overall cost of the component, at US$32.1 million, was less than the Appraisal estimateof US$40.6 million. Component investment in informatics was slightly greater than planned atAppraisal, due to rapid obsolescence of computer equipment. In addition, the agreement with the

°0 IMPI pricing policy has remained constant in nominal terms since 1994, reducing the income/expenseratio from 4.3 to 2.7 between 1994 and 1996 (versus an appraisal projection of 2.5). This realreduction in pricing was justified due to (i) reduced demand which resulted from financial crisis; and(ii) continuing difficulties in enforcement which reduce effective value of IPRs.

6

World Intellectual Property Organization (WIPO) was renegotiated in 1996, resulting in a savingsin technical assistance expenditure. Administrative expenses Were responsible for the majority ofcost savings for this component (US$26.2 million actual versus US$34.6 million SAR). TheBank financed US$4.1 million in component cost, with the remaining US$1.9 million reallocatedto support CONACYT activities under the project.

27. The financial crisis of 1994-1995 reduced IMPI's budget significantly during 1995-1996;however, IMPI was able to meet project institutional development objectives through a greateremphasis on information technology and reliance on bi-lateral relationships for informationsharing and technical assistance.

Standardization Component

28. The standardization component was intended to support strengthening of the DirectorateGeneral of Standards of the Ministry of Commerce and Industrial Promotion, with an appraisedcost of US$17.3 million. The project included US$3.0 million in Bank financing under Loan3475-ME for equipment purchases, promotion, technical assistance, and training, plus anadditional US$0.5 million from a previous Bank loan to undertake two studies11 . US$3.6 millionwas to be recovered from the private sector, and the remaining US$10.2 million was to beprovided by the Government.

29. The condition for disbursement under the component, completion of the two studiesaccording to terms of reference agreed with the Bank, was met in a timely manner. However,Government budgetary allocations were never made available for the component activities and nofunds were disbursed. US$2 million of the funds were cancelled on July 14, 1995 at the requestof the Government. The remaining US$1 million were reallocated to support CONACYTactivities in October 1997.

30. Despite the lack of disbursement under the component, the DGN accomplished many ofthe objectives agreed during Appraisal. A variety of measures to rationalize the system ofindustrial norms and increase private sector participation have been undertaken. These measuresinclude a strengthened role for private sector consultative committees, creation of an informationcenter, and launch of an internet site with full-text downloading of official standards issued since1993.

C. Implementation Record and Major Factors Affecting the Project

31. Considering the severe budgetary impact of the financial crisis of 1994-1995, the projectperformed strongly during implementation. Following initial delays often associated with newexecuting agencies, institutional development goals were generally met or exceeded. ",Thissuccess was due to the outstanding effort of teams encharged with reform/creation of theexecuting agencies and strong support provided by NAFIN to reverse systematic delays inprocurement.

1 The studies, "Policy of Privatization of Activities in Standardization and in Verification andCertification of Quality" and "Analysis and Alternatives for the Development of the LaboratoryInfrastructure in the Country" were financed under Loan 3074-ME in 1992.

7

32. Procurement/disbursement. The complexity of procurement and disbursementarrangements was the single largest weakness in project design, resulting in excessive delays andburdensome procedures for beneficiaries and staff of CONACYT, NAFIN, and the Bank.Procurement arrangements entailed multiple review stages and an enormous paper flow betweenparticipating universities, CONACYT, NAFIN and the Bank. The extreme degree ofcentralization, predictably, produced long delays and increased the burden on beneficiaries in theresearch community. The project did not take into account widely used best practices inprocurement of scientific equipment from OECD countries, which entail making the recipientinstitution responsible and accountable for procurement activities. In addition, changes during1996 in Government procurement procedures applicable under the General Procurement Lawresulted in further delays and additional burden for CONACYT, NAFIN, and participatinguniversities.

33. In June 30, 1995, just prior to the restructuring of the project (para. 5) total disbursementshad reached only US$37.5 million versus Appraisal estimates of US$120.0 million.Commitments were to have been complete by December 30 of the same year, at which time theyhad only reached US$90 million.'2 The discrepancy between the Appraisal estimates and actualnumbers must be attributed in some degree to overly optimistic estimates in the Staff AppraisalReport. For example, the SAR did not take multi-year research projects into consideration incompiling disbursement estimates. A series of other issues also impacted disbursement. First,available retroactive financing of up to US$18.9 million in projects approved by CONACYT in1992 prior to loan effectiveness was not requested by the Government. In addition, the projectwas designed so that loan disbursement was made against procurement of specific goods insteadof against grants for research projects. This design flaw resulted in excessive centralization andex-ante review by CONACYT, NAFIN and the Bank. Finally, further delays in disbursementwere experienced due to complexity of financial management system and initial start-upproblems within CONACYT and NAFIN.

Factors not Subject to the Borrower's Control

34. The economic contraction resulting from the financial crisis of 1994-1995 caused areduction of budgetary support for all project activities. In response to the crisis, the Governmentrequested a restructuring of the project as described in para. 5.

35. The CONACYT component was affected by the growing but still low demand ofMexican industry and government for research services, and for hiring of staff with research-based degrees from Mexican institutions. More positively, the strong economic performance ofMexico just before and in the early years of the project and recently has contributed to the growthof support for research from both the public and private sectors.

36. Regarding the CENAM component, unforeseen design problems and construction delaysresulted in slippage of startup by approximately one year. Only one laboratory was launchedduring 1993 versus a projected Appraisal estimate of 13. This delay was offset in 1994, as 51laboratories were under operation versus SAR estimate of 22.

12 The reallocation of US$80 million for rapid disbursement in November 1995 enabled the originalclosing date of June 30, 1998 to be met.

8

37. The financial crisis negatively impacted industry demand for intellectual propertyprotection during 1995. Growth in demand for IMPI services returned in 1996 and continues toexpand rapidly.

Factors Subject to the Borrower's Control

38. As in other projects in Mexico, annual delays in transfer of budget allocation to theproject affected the project adversely. Regarding the science research component, regulationsand procedures of the Mexican customs service were poorly suited for the importation ofscientific equipment, resulting in delays and damages. To this end, special rules werepromulgated in 1997 to facilitate importation of sensitive equipment.

39. Customs procedures involved excessive delays. Researchers reported that physicalinspection practices too often resulted in damaged equipment. Financing of customs duties wasalso problematic. Initially, customs duties were paid from a special fund endowed by theGovernment. However, that fund was not replenished as it was used, and research institutes wererequired to pay their own duties. In 1997, research equipment was granted an exemption fromcustoms duties. Despite this recent improvement, researchers and their institutions report that thecustoms system remains responsible for continuing delays and onerous procedures.

Factors Subject to the Implementing Agency's Control.

40. Continuity in staffing at the managerial and operational level has played a critical role inassuring the successful reform/establishment of the executing agencies. Two of the agencies(CONACYT and CENAM) received a new Director General following the change ofadministration in 1994 but key operational staff remained in place. IMPI has maintained thesame leadership since its creation in January 1994. Changes in senior staff responsible for theproject were kept to a minimum by the Government. This stability has played a key role inensuring rapid institutional development of the entities.

D. Project Sustainability

41. Project sustainability is likely to be strong, given the strong institutional development andlikely future growth in demand for science and technology services in Mexico. The developmentobjectives (of growth with stability, social development, and modernization of the state) stated inMexico's CAS imply increasing demand for creation and application of knowledge and technology,highly skilled scientific and technological human resources, technological infrastructure (includingmetrology, standards, quality control, intellectual property rights protection), and modernization ofstate institutions supporting science and technology. Conversely, reduced prospects for futuregrowth - or renewed macroeconomic and budgetary instability - could undermine institutional andother gains. The executing agencies have progressed rapidly under the project, but remain highlyvulnerable to changes in their operating environment (particularly to funding levels and staffingchanges).

42. Science Research component. CONACYT's competitive review process appearssustainable, enjoying a continuing high level of support from the academic community. A return tothe previous allocation system is highly unlikely. The follow-on Knowledge and Innovation Projectsupports a second-generation of reforms to improve effectiveness and increase linkage of research

9

with potential users groups and applications. Bank financing is programmed to decline as aproportion of total CONACYT funding to ease the transition to full counterpart financing.

43. Metrology component. CENAM appears well-positioned to continue to serve the needs ofMexican industry and society, with a well-trained technical staff and administration, state-of-the-artequipment and strong demand for service from industry. Several areas of CENAM's strategy,however, will be critical for the future health of the organization.

44. Retention of highly trained technical staff and administrators isa top priority for CENAM.However, there is evidence that salary levels for technical staff are non-competitive withcomparable positions in industry. Analysis of CENAM staff hired away by industry during 1996-1997 indicates an average 60% increase in salary. Given the high expense, large time requirements,and bi-lateral cooperation required to train technical staff, remuneration policy should encouragelong-term employment and career building within CENAM.

45. In addition, CENAM's strategy for promoting the development of the network of privatesecondary metrology facilities will be critical for achieving the long-term project objective ofindustrial competitiveness. CENAM's Mesura program was established in 1995 to encourageformation of a network of metrology service suppliers through technical assistance to laboratoriesand end users. The continued evolution of this program will be important to assure long-termproject objectives of supporting industrial competitiveness are met.

46. Intellectual Property Rights. Prospects for sustainability at IMPI appear strong as a resultof capable management and financial self-sufficiency. In order to meet the growing needs ofindustry, IMPI has developed plans for expansion of services and capabilities. Beyond IMPI,however, the broader system of intellectual rights protection requires additional development toensure the benefits of IPR accrue to Mexican industry and academia. Interviews with privatefirms indicate that a greater specialization and expertise in IPR is required in the judiciary. Inaddition, efforts of IMPI and CONACYT to diffuse information and strengthen IPR capacitywithin universities and research institutes is an important element of an overall strategy.

E. Bank Performance

47. Overall, Bank performance is considered satisfactory. Implementation costs were heldlow, and the considerable capacity of the counterpart institutions was allowed to grow and beapplied to the management of the project.

48. Preparation and Appraisal: The Bank had relatively little experience in support ofgovernmental institutions providing R&D funding and technological services outside of sectorspecific mission contexts (such as agricultural research and development, or health research) andtherefore relied heavily on external experts for project design. As discussed in para. 3, severaltargets related to the objectives of the project were perhaps overly optimistic. The Bank changedthe project team during negotiations, and some Mexican counterparts report difficulties incontinuity as a result.

49. Implementation. The delays in procurement, described in para. 32, were partially theresult of normal start-up difficulties within new implementing agencies. However, the design ofprocurement arrangements agreed with the Bank were clearly sub-optimal. Given the Bank'srelative lack of experience with funding of scientific research, lessons of worldwide best practice

10

for procurement of scientific equipment were not fully taken into cqnsideration. The successorKnowledge and Innovation Project addressed this issue by (i) disbursing against individual grantagreements vs. procurement of goods; and (ii) strengthening accountability and capacity at theuniversity level. Similarly, delays between disbursement of funds by the Government of Mexicoand disbursement by the World Bank occurred due to inefficiencies in the financial managementsystem. The Bank, as a participant in the design of that system, bears some of the responsibilityfor the delays.

50. A cadre of technical advisors was involved by the Bank in the design, implementationand evaluation of the project. Counterparts in Mexico report a very positive experience withthese consultants and the continuity in project supervision they helped provide.

51. The project was radically changed during the economic crisis of 1994-95. Bank effort toquickly reprogram funds from existing projects to meet Mexican foreign exchange needs duringthe crisis should be commended.

F. Borrower Performance

52. Overall, the Borrower performed well in the implementation of the project. Despite theunfavorable macroeconomic environment, most implementation indicators were met or exceeded.CONACYT was successful in establishing a merit-based, competitive review process.Evaluation committees were appointed quickly, and met frequently during the life of the project.CONACYT staff developed a data base of some 3,000 scientific reviewers, and indeed involvedthousands in actual proposal reviews. CENAM attained a high level of operational effectivenessand international recognition within a remarkably short time period. IMPI has also established asolid record - in terms of operational effectiveness and impact on IPR protection - during a shortfour-year history.

G. Assessment of Outcome

53. The project contributed positively to the development of the scientific and technologicalinfrastructure critical for Mexico's transition to a higher-value added, knowledge-basedeconomy. Designed in the midst of Mexico's economic liberalization, this project should beviewed as a direct compliment to the structural adjustment program. Creation of basic S&Tcapability and institutions is likely to remain critical for the long-term competitiveness ofMexican industry. Without well-trained human resources, intellectual property protection,accurate measurements, and appropriate industrial standards, Mexico would be unable to attainsustained economic growth necessary to boost real incomes and living standards. The direct andimmediate impact on productivity is not possible to measure given available information, andwould be difficult under any circumstances. However, evidence from institutional developmentindicators and available impact indicators suggest a positive potential contribution towardMexico's long-term economic development. The project outcome is rated as satisfactory.

H. Future Operation

54. The Government requested a follow-on operation to support a second generation of reformsto PACIME. The Knowledge and Innovation Project (KIP), approved on June 16, 1998, is designedto enhance the effectiveness of research support programs while increasing linkages to user groupsin society and industry. In addition, the KIP supports a restructuring of CONACYT's programs to

11

promote university-industry linkage and industrial technology development. In parallel, SECOFIhas initiated a series of studies to assess strategic options in competitiveness policy with support of aJapanese grant.

I. Key Lessons Learned

55. In tandem with a program of structural adjustment, a country assistance strategy shouldaddress the longer-term development of the infrastructure necessary for creating higher rates ofsustained economic growth.

56. It is possible to institutionalize competitive allocation of research funds in a country atMexico's level of development, and to do so using a merit-based approach which maintains theproactive role of the researcher and involves the scientific community as the critical elements inthe review process.

57. Standard peer review-based systems tend to reward the areas of existing strength in acountry. A well-designed system for support of science incorporates incentives for scientificexcellence and national developmental needs in an open, competitive, and transparent manner.Especially desirable is some mechanism to strengthen fields of science and technology that aresignificantly weaker than appropriate to national developmental needs while maintainingincentives for excellence.

58. In funding research grants programs, it is important to recognize the uniquecharacteristics of procurement of scientific instrumentation and supplies.

59. Projects which support an organization with only partial control over resources used bythe direct beneficiaries must take this fact into account in various ways, including being willing toshare or donate the benefits of projects (e.g. intellectual property rights) with other providers ofresources, and to accept and exercise influence in the sector rather than control over it.

60. Progress in development of "one-stop shopping" mechanisms, which aim to reduce theexpenditure of time and effort of researchers in obtaining resources, is a difficult processrequiring a high degree of commitment by implementing agencies over the medium-term.

61. The development of human resources for science and technology is perhaps the mostimportant output of this project, and this output could have been strengthened by more explicitincorporation of incentives for training of Masters and Doctoral students in research grants.

62. Systems to support scientific research should include a mechanism to ensure participationof highly-qualified young researchers in funding programs.

63. Creation of a locally-available, world-class metrology capability is likely to have apositive influence on competitiveness of local industry and attractiveness to foreign investment.However, policies to stimulate private sector demand for services and formation of a privatesecondary metrology network are critical to achieving significant medium-term impact.

64. Similarly, creation of a world-class intellectual property agency is a necessary but notsufficient condition for productive application of IPR for development. In tandem with

12

institutional strengthening, a systemic approach is needed to address weaknesses in the judicialsystem and broader issues in the diffusion and application of technology in the country.

65. This project also confirms the truism that continuity in staffing at the managerial andtechnical level is critical in assuring the successful creation or restructuring of an executingagency. The high degree of stability across a change in administration helped ensure rapid andsustained institutional development.

13

PART II: STATISTICAL TABLES

TABLE 1: SUMMARY OF ASSESSMENTS

Achievement of ObjectivesNot

Substantial Partial Negligible Applicable

Macroeconomic policies XSector policies XFinancial objectives XInstitutional development XPhysical objectives XPoverty reduction XGender concems XOther social objectives XEnvironmental objectives XPublic sector management XPrivate sector development X

Project SustainabilityLikely Unlikely Uncertain

x

Bank PerformanceHighly Satisfactory Satisfactory Deficient

Identification XPreparation XAppraisal XSupervision X

Borrower PerformanceHighly Satisfactory Satisfactory Deficient

Preparation XImplementation XCovenant compliance X

Assessment of Outcome

Highly Satisfactory Satisfactory Unsatisfactory Highly Unsatisfactory

x

14

TABLE 2: RELATED BANK LOANS

Year ofLoan Tile Purpose Approval Status

Preceding OperationsIndustrial Technology Finance development of industrial 1987 Completed. PCRDevelopment (2747-ME) technology upgrading; US$1.0 million (Report #1327 1) issued

reallocated to support initial stage of 6/30/94.CENAM construction.

Industrial Restructuring Support for financial restructuring of 1989 Completed. PCR(3047-ME) industrial enterprises; US$0.5 million (Report #14679) issued

reallocated to support preparatory studies 6/26/95for DGN component.

Following OperationsKnowledge and Support generation, diffusion and 1998 Effectiveness expectedInnovation Project application of knowledge through 10/98(4349-ME) support for research, linkage of

universities with industry and industrialtechnology development and application.

Competitiveness Strategic assessment of support services 1997 Under implementationEnhancement Japanese for small- and medium enterprisesGrant

15

TABLE 3: PROJECT TIMETABLE

Steps in project cycle Date planned Date actual

Identification 06/89 06/89Project Brief N/A N/APreappraisal 6/91 6/16/91Appraisal 9/91 1/22/92Negotiations 4/6/92 4/6/92Board Presentation 12/91 5/26/92Signing 6/16/92 6/16/92Effectiveness 6/92 10/15/92Project Completion 12/31/97 12/31/97Loan Closing 6/30/98 6/30/98

TABLE 4: LOAN/CREDIT DISBURSEMENTS:

CUMULATIVE ESTIMATED AND ACTUAL ($ MILLION)

FY93 FY94 FY95 FY96 FY97 FY98 Total

CONACYT - Research 0.00 9.74 27.03 22.78 9.59 8.96 78.10Equipment

CONACYT - Procurement 0.00 0.06 0.17 0.00 0.02 0.00 0.25consultants

CONACYT - Scholarships, 0.00 0.00 0.00 80.00 0.00 0.00 80.00Stipends

CENAM - Equipment 0.95 1.24 9.35 6.08 2.29 1.65 21.56CENAM - Technical 0.00 0.62 0.92 0.54 0.71 0.24 3.03

AssistanceIMPI - Equipment 0.00 0.00 0.00 0.85 1.01 1.64 3.49

IMPI - Technical assistance 0.00 0.00 0.00 0.42 0.14 0.00 0.56

Totalbyyear 0.95 11.67 37.48 110.66 13.75 12.49 187.00(1) Fiscal year (July-June)

16

TABLE 5: KEY INDICATORS FOR PROJECT IMPLEMENTATION

|Key Implementation Indicators in SAR Unit Estimated ActualCONACYT

Budget by ProgramResearch US$ Millions 237 218.97Infrastructure US$ Millions 350 216.55Chairs of Excellence US$ Millions 70 41.81Repatriation US$ Millions 100 26.96Duration of research projects Number Amount Number AmountOne year Number/US$000s 522 43,804 1,225 32,771Two year Number/US$000s 792 68,434 2,693 121,291Three year Number/US$000s 1,382 130,383 828 57,636More than three years Number/US$000s - 4 171

Repatriations and chairs of excellenceRepatriation Number 500 1,364Chairs of excellence Number 60 1,886Postgraduates/Visiting Professors Number 100 253

CENAMEquipment US$ Millions 26.57 34.59New Staff Number 283 208Training Staff Months 1,420 918.28Technical Assistance Staff Months of 57 54.03

SpecialistLaboratories Startup 31 104

IMPIHardware, software, equip, doc, databases $000 purchased 2,362 3,894Technical Assistance Staff months 52 103Training $000 costs 250 437.87New Staff Number 30 77Cost Recovery % operational cost 500 1,525

TABLE 6: KEY INDICATORS FOR PROJECT OPERATION

Indicators for project operation not included in SAR. Please refer to Project Operation Plan,Annex 2.

17

TABLE 7: STUDIES INCLUDED IN PROJECT

Study Purpose Status Impact of StudyAnalysis and Alternatives Restructuring of Completed by Policy to develop privatefor Development of network of public Covenant date of testing laboratory networkNational Laboratory testing laboratories November 15, 199:2Infrastructure

Privatization of Standards Increasing private Completed by Progress in increasing privateand Quality Testing and sector role in Covenant date of sector role in standardizationCertification standardization November 15, 1992 began slowly, with greater

activities momentum since 1996

18

TABLE 8A: PROJECT COSTS ($ MILLION)

Appraisal Estimate Actual/LatestItem Local Foreign Total Local Foreign TotalCONACYT

Research Assistants 17.18 - 17.18 21.90 - 21.90Repatriations 40.00 40.00 80.00 24.27 2.69 26.96

Chairs of Excellence 29.40 - 29.40 12.76 - 12.76Visiting Professors 8.40 8.40 16.80 23.24 2.80 26.04

Postdoctoral Fellowship - - - 23.34 13.30 36.64Scholarship (Becas) - - - 14.30 70.30 84.60

Text Books 9.80 - 9.80 1.31 - 1.31Laboratory Equipment 44.72 288.63 333.35 39.88 209.54 249.42Computing Equipment 6.16 14.29 20.45 16.65 71.00 87.65

Consumables 8.90 24.02 32.92 43.19 - 43.19Seminars 19.28 3.92 23.20 - -

Current Expenses - - - 33.33 - 33.33Consulting - - - - 0.56 0.56

Administrative Expenses 176.21 - 176.21 218.96 - 218.96Contingencies 10.60 15.36 25.96 - - -

Subtotal 370.65 394.62 765.27 473.13 370.19 843.32

CENAMAdministrative Expenses 13.35 - 13.35 13.74 - 13.74

Operational Costs 2.97 - 2.97 39.28 - 39.28Seminars and Promotions 0.49 1.97 2.46 0.56 2.23 2.79

Technical Assistance - 0.32 0.32 - 1.94 1.94Studies and Training 0.92 3.68 4.60 0.31 1.23 1.54

Laboratory Equipment 6.64 19.93 26.57 7.63 22.88 30.51Vehicles 0.30 - 0.30 0.45 - 0.45

Building remodeling 9.85 - 9.85 21.66 - 21.66Price Contingencies 2.18 - 2.18 - - -

Subtotal* 36.70 25.90 62.60 83.62 28.29 111.91

IMPIAdministrative Expenses 34.60 - 34.60 26.16 - 26.16

Informatics 3.14 0.78 3.92 4.26 1.06 5.32Technical Assistance - 1.06 1.06 - 0.58 0.58

Price/Phys. Contingencies 1.02 - 1.02 - - -

Subtotal 38.76 1.84 40.60 30.42 1.64 32.06

DGNAdministrative Expenses - - 8.00 - - -

Consultants - - 0.76 - - -

Training - - 3.85 - - -

Studies, Seminars, Prom. - - 2.32 - - -

Infonnation Center - - 0.78 - - -

Equipment - - 1.00 - - -

Contingencies - - 0.60 - - -

Subtotal* 13.69 3.62 17.31 - - -

Project Total* 459.80 425.98 885.78 587.17 400.12 987.29

*Includes financing from previous Bank loans, as follows: US$1.0 million from Industrial TechnologyLoan (2747-ME) for CENAM component; and US$0.5 million from Industrial Restructuring Loan (3047-ME) for DGN component.

19

TABLE 8B: PROJECT FINANCING ($ MILLION)

Appraisal Estimate Actual/LatestComponent Local Foreign Total Local Foreign Total

CONACYTBank 3.62 146.38 150.00 68.27 90.09 158.36

Government 214.53 113.34 327.87 140.84 238.74 379.58Grant Recipient 152.50 134.90 287.40 264.02 41.36 305.38

InstitutionsSubtotal 370.65 394.62 765.27 473.13 370.19 843.32

CENAMBank* 5.10 25.90 31.00 - 24.60 24.60

Government 31.60 - 31.60 83.62 3.69 87.31Subtotal* 36.70 25.90 62.60 83.62 28.29 111.91

IMPIBank 4.16 1.84 6.00 2.41 1.64 4.05

Government 34.60 - 34.60 28.01 - 28.01Subtotal 38.76 1.84 40.60 30.42 1.64 32.06

DGNBank* 1.00 2.50 3.50 - - -

Government 9.08 1.12 10.20 - - -

Private Sector 3.61 - 3.61 - - -

Subtotal* 13.69 3.62 17.31 - - -

Project TotalBank* 13.88 176.62 190.50 70.68 116.33 187.00

Government 289.81 114.46 404.27 252.47 242.43 494.91Grant Recipient 152.50 134.90 287.40 264.02 41.36 305.38

InstitutionsPrivate Sector 3.61 - 3.61 - - -

Total* 459.80 425.98 885.78 587.17 400.12 987.29

*Bank financing includes US$ 1.0 million from Industrial Technology Loan (2747-ME) for CENAMcomponent and US$0.5 million from Industrial Restructuring Loan (3047-ME) for DGN component.

TABLE 9: FINANCIAL AND ECONOMIC COSTS AND BENEFITS

*No formal financial or economic cost benefit analysis was undertaken for this project.See para. 7 for discussion.

20

TABLE 10: STATUS OF LEGAL COVENANTS

Agreement Section Covenant Status Original Revised Description of Covenant CommentsType Fulfillment Date Fulfillment

Date

Guarantee 2.03 4 C Counterpart financingavailability

3.01 10 NC SECOFI/DGN No funds disbursed unresponsibilities under part C DGN component.of project

3.03 5 C Creation of IMPI Created in December:3.05 10 C 11/15/92 Completion of DGlb studies3.06 5 C Transfer of facilities to

CENAM3.07 9 C Annual reviews of DGN

program4.01 1 N/A Within six months Audit reports of DGN No commnitments or

of end of each accounts disbursement underfiscal year component.

Loan 2.03 3 C 6/30/98 Closing Date3.01 (a) 5 C Subsidiary Agreement

between Borrower,Guarantor, CONACYT andCENAM

3.01 (b) 5 C Subsidiary Agreementbetween Borrower,Guarantor and IMPI

4.01 1 C Within six months Audit of Special Accountof end of each and SOEsfiscal year

Sch. 1, 5 C Conditions of disbursement3(d) for IMPI

CONACYT 4.02 1 C Within six months Audited financial statementsof end of eachfiscal year

CENAM 4.02 1 C Within six months Audited financial statementsof end of eachfiscal year

21

Covenant Types: Present Status:I = Accounts/audits 8 = Indigenous people C = covenant complied with2 = Financial performance/revenue 9 = Monitoring, review, and reporting CD complied with after delay

generation from beneficiaries 10 = Project implementation not CP complied with partially3 = Flow and utilization of project covered by categories 1-9 NC = not complied with

funds 11 = Sectoral or cross-sectoral4 = Counterpart funding budgetary or other resource5 = Management aspects of the allocation

project or executing agency 12 = Sectoral or cross-sectoral policy/6 = Environmental covenants regulatory/institutional action7 = Involuntary resettlement 13 = Other

TABLE 11: COMPLIANCE WITH OPERATIONAL MANUAL STATEMENTS

There was no significant lack of compliance with an applicable Bank Operational ManualStatement (OD or OP/BP).

TABLE 12: BANK RESOURCES: STAFF INPUTS

Stage of project cycle Weeks US$

Through Appraisal 136.1 344,300

Appraisal-Board 6.1 18,700(Negotiation)

Board-effectiveness -

Supervision 77.3 202,500

Completion 7.3 25,800

Total 226.8 591,300

22

TABLE 13: BANK RESOURCES: MISSIONS

Month! No. of Days in Specialized skills/a Impl. Dev. Type ofyear persons field status obj. problems/

bThrough 06/89 4 3Appraisal 03/90 2 5

08/90 1 9 CSP11/90 2 7 Ec, TM, CTP01/91 6 17 Ec, TM, CSP, CTP05/91 1 3 Ec.06/91 8 11 Ec, TM, CSP, CTP09/91 3 4 TM, Ec12/91 3 11 TM, Ec

01/92 5 11 TM, Ec

Appraisal through Board N/AapprovalBoard approval through N/AeffectivenessSupervision 11/92 1 3 TM 2 2 PR, CI

02/93 4 11 TM, CS, TM, CT 2 2 PR, CI

07/93 3 4 TM, T, CT 2 2 PR, CI

08/94 3 7 TM, CTP, CSP S S PR, PO03/96 2 5 TM, TP S S CF

02/95 2 5 TM, CTP S S PR, CF

02/97 3 4 CSP, TM, CTP S S CF, POCompletion 06/98 2 7 TM, CSP S S

a/ CSP - Consultant Science Policy, CTP - Consultant Technical Policy Specialist, TM - Task Manager, CS -Cons. Science, T - Technology, CT - Cons. Tech., Ec - Economist, TP - Technology Policyb/ PO - Policy, CF - Counterpart Funding, PR - Procurement, CI - Construction, Installation Progress

23

ANNEX 1

ANNEX 1: ICR MISSION AIDE MEMOIREMexico Science and Technology Infrastructure Project

Loan 3475-MEImplementation Completion Mission Aide Memoire

July 7, 1998

1. A World Bank mission visited Mexico from June 28 to July 7, 1998 to undertake thefinal supervision mission for the Science and Technology Infrastructure Project (STIP) and toinitiate preparation of the corresponding Implementation Completion Report (ICR). The missionwas comprised of Daniel Crisafulli (Task Manager) and John Daly (technical advisor). Themission team would like to extend the warmest appreciation to the staff of CONACYT, IMPI,SECOFI/DGN, CENAM (executing agencies), NAFIN (the borrower), and SHCP (guarantor) aswell as members of the research community with whom they met during the mission.

2. The mission was intended to evaluate implementation of the project since the previoussupervision mission in early 1997. In addition, the mission team discussed experience ofimplementation during the life of the project with executing agencies and beneficiaries. Themission also reviewed the information prepared in advance by the executing agencies asrequested by the Bank. All information requested by the mission has been made readily availablein a timely manner by the executing agents or has been agreed for early delivery.

3. Overall experience under the project has been satisfactory, with significant positiveimpact having been achieved in spite of the high degree of macroeconomic and fundinginstability during the implementation period. The final disbursement was made prior to theclosing date of June 30, 1998. Experience under the four project components is discussed ingreater detail below.

4. The mission discussed the overall structure of the ICR as required by the Bank alongwith the timetable for preparation of Part II of the ICR by the Government. The content of theProject Operational Plan (Annex), which outlines the Government's strategy for projectmanagement following the completion of implementation, was also reviewed by the missionteam.

Timing5. The mission agreed with NAFIN and the executing agencies the following timetable forpreparation of the ICR:

- Bank to send draft of Part I and Annexes to Government by July 31, 1998.- Govermment to provide Part II by September 15, 1998 (to be coordinated by NAFIN).

Audit Reports6. The Government has requested an extension of one month in the submission of theProject's audit reports for 1997. The Director for Mexico will convey to NAFIN the decisionregarding the request for an extension via official letter.

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ANNEX 1

CONACYT

7. Current Status. Funds for the Science Research component executed by CONACYT hadbeen completely committed prior to 1997 and therefore no new activities were supported by theproject since the previous supervision mission. In March 1997, CONACYT began preparation ofthe successor Knowledge and Innovation Project (KIP), approved by the Bank on June 16, 1998.The KIP incorporates the experience gained during implementation of the STIP and supports asecond stage of reform to the system of support for science and technology in Mexico.

8. Staff Reductions. The STIP included provisions for CONACYT internal reform andstaffing reductions as described in the Staff Appraisal Report (SAR). CONACYT provided a fulldescription of the staffing changes undertaken since Appraisal.

9. Initial Delay in Implementation. As is often the case with new executing agencies underBank projects, significant delays in project disbursement were experienced during project start-up. These initial delays were the result of weak procurement and financial management systemsat the university level and within CONACYT and difficulties in interfacing with complexrequirements of the Bank, NAFIN, SHCP, and SECODAM. Bank procurement anddisbursement arrangements for the project were not well-suited to support science researchprojects. In addition, the transfer of CONACYT from the Ministry of Planning and Budget (SPP)to the Education Ministry (SEP) resulted in delayed disbursement of the Loan. The lessons of theSTIP were incorporated into the innovative implementation arrangements agreed under the newKIP, which decentralized greater responsibility (with accountability) to the university level. Themission would like to emphasize the importance of close coordination between CONACYT,NAFIN, SHCP, and the Bank to ensure a smooth start-up period under the new loan.

Centro Nacional de Metrologia (C

10. The mission reviewed the progress in implementation under the component durinig 1997-98. Although disbursements rose slightly from the 1996 post-crisis low, CENAM was unable tomake use of approximately US$3.8 million (out of US$30 million in original category) due tobudgetary restrictions. The undisbursed balance for this component was reallocated to supportCONACYT expenditures.

11. The mission is concerned that CENAM is not receiving a sufficient level of budgetarysupport to cover the growing needs of Mexican industry for primary metrology services.Although a highly technical subject, metrology forms one of the most basic elements of thetechnological infrastructure of any country - and is one which continues to require a high level ofsubsidy throughout the OECD. Despite extremely strong performance since start-up, CENAM isa young organization which requires further investment in order to fulfill its mission. Currently,CENAM covers only a fraction of the nation's metrological needs and should be grownsignificantly in the medium-term.

12. A second strong concern of the mission is the risk of loss of highly skilled (andexpensively trained) human resources due to non-competitive salary levels in CENAM. Thehuman capacity in CENAM was developed at great cost under the project and via generous bi-lateral support. The mission views the Government's commitment to improve salary levels ascritical to project sustainability.

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ANNEX 1

13. The mission views that the organizational status of CENAM should be re-examined tooptimize decentralized decision-making and conditions for success.

14. The strategy of CENAM has been to develop a strong primary metrology capabilitywhile promoting demand in industry for metrological services and the creation of a private-sectornetwork of secondary laboratories through the Mesura program. The mission views this strategyas appropriate, and that care should be taken to ensure that the program remains highly demand-driven and tied to industrial needs.

Instituto Mexicano de Propiedad Industrial (IMPI)

15. The execution of IMPI during 1997-98 has been exemplary, with disbursementsaccelerating to approximately US$2.8 million. The growth in demand for IMPI services hasremained very strong, an indicator of IMPI's value to its clients. In addition, IMPI has beenrequested by the World Intellectual Property Organization (WIPO) to provide technicalassistance to other developing countries, a strong indicator of perceived excellence.

16. Despite the institutional success of IMPI, the Mexican system for intellectual propertyrights (IPR) remains highly problematic. Patent enforcement procedures via the judicial systemremain time-consuming and costly. Although the primary problem resides in the legal/judicialcommunity, IMPI has addressed the issue via increased hiring of inspectors, use of informationsystems, and preparation of training materials/manuals for judicial staff. The lack of aspecialized court for intellectual property disputes is a critical constraint. Partly as a result of theweak enforceability of patents granted, INPI has effectively frozen its tariffs since 1996.

17. In addition, applications for IPR by Mexican nationals continues to decrease as a percentof total applications. The small number and slow growth of Mexican patents is due to a varietyof factors, including the lack of tradition of patenting in the academic community. The missionrecommended that IMPI consult with CONACYT regarding IPR coverage in the new proceduralmanual for researchers which is currently under preparation.

Direccion General de Normas (DGN)

18. The original US$3 million allocation for standardization activities in Mexico was neverrequested for disbursement, although all conditions for disbursement were met. At the time ofthe 1994/5 financial crisis, US$2 million of the funds were cancelled at the request of theGovernment. The remaining US$1 million were reallocated for use by CONACYT.

19. Despite the lack of Bank financing, DGN has embarked on a strong program of activitiessince 1996. These activities were oriented toward building the basic infrastructure for industrialstandards - including the promotion of greater leadership in standardization on the part of theprivate sector.

20. The recent accomplishments of DGN notwithstanding, standardization remains acutelyunderdeveloped in Mexico. The mission recommends that the Government place a renewedemphasis on standardization as a tool for the competitiveness of Mexican industry.

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ANNEX 2

ANNEX 2: PROJECT OPERATION PLAN

Operational Plan for Science and Technology Infrastructure Project

CONACYT

The Secretariat of Education and the National Council for Science and Technology havepromulgated the National Program of Science and Technology 1995-2000 which is in turndeveloped within the context of the National Development Plan, 1995-2000. The Programincludes a number of goals for science and technology, among the most noteworthy beingI:

"a. To orient resources of the society toward the financing of scientific and technologicalactivities so that the national expenditure on research and experimental development reaches 0.7percent of the Gross National Product in the year 2000.

"b. To significantly increase during the six year period the number of scholarships which areauthorized each year and substantially increase the number of excellent graduate programs.

"c. To increase significantly the quality of research.

"d. To assure that, as far as possible, research is linked effectively to social and economicdevelopment problems of the nation. With this objective, various studies are to be undertaken toidentify the themes of national interest in which science and technology can provide significantsupport.

"e. To promote the development of practices in Mexican enterprises which lead to innovation andcontinual improvement of quality.

"f. To increase the productive interchange between the scientific community and theentrepreneurial community as much as possible.

"g. To promote the development of scientific and technological culture.

"h. to strengthen the process of decentralization of scientific activities and technologicalmodernization.

"i. To assure that the SEP-CONACYT system is an effective instrument for decentralization ofscientific and technological activities, as well as an effective medium for linking scientificresearch with the technological and social necessities of the country.

"j. To assist the active and free participation of persons, groups of researchers and institutionswhich propose projects of interest for the scientific and technological development of the nation.

"k. To increase international cooperation in science and to stimulate more intense contact of thescientific and technological communities with the outside.

l http:H!www.main.conacyt.mx/procytl/intro.html

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ANNEX 2

"1 to significantly increase the qualifications of the faculty of institutions of higher learning,putting in place the necessary training programs to achieve this purpose.

"m. To achieve better coordination of the various actions promoting scientific and technologicalactivity, in order to perform tasks with greater reach as well as to resolve various deficiencieswhich burden the national science and technology system."

Within the overall framework provided by this plan, CONACYT in the implementation plan forthe Knowledge and Innovation Project (KIP) has proposed to spend at least US$ 71.5 million peryear on its science programs for the next five years, with the following allocations:

Table 1. Total Estimated Budget of CONACYT for Science (UJS$ 1000s)

Subcomponent\Year 1998 1999 2000 2001 2002 TotalResearch Support (KIP) 69,600 55,875 50,000 39,125 28,250 242,850Field Development (KIP) 150 8,000 8,000 8,000 8,000 32,150Administration, studies, 2,000 2,000 2,000 2,000 2,000 10,000M&E (KIP)Unallocated Resources 5,000 10,000 15,000(KIP)_ _

Total of Resources 71,750 65,875 60,000 54,125 48,250 300,000included in KIPResources of CONACYT 0 5,875 11,750 17,625 23,500 58,750not included in KIP ITotal 71,750 71,750 71,750 71,750 71,750 358,750

The KIP Research Support is itself further subdivided into Research Projects, support specificallydirected to young investigators, and programs for the dissemination of scientific andtechnological information as follows:

Table 2. Support for Scientific Research (US$ 1000s).

Activity\Year 1998 1999 2000 2001 2002 TotalResearch Projects 56,980 45,744 40,934 31,124 21,314 196,096

Program for Young 12,320 9,891 8,851 7,811 6,771 45,642Investigators I I_I IDissemination 300 241 216 190 165 1,111Total 69,600 55,875 50,000 39,125 28,250 242,850

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ANNEX 2

Further, the Research Projects from Table 2 are divided into individual and group/infrastructuremodalities as follows:

Table 3. Research Projects from the Knowledge Innovation Project (US$ 1000s).

Modality\Year 1998 1999 2000 2001 2002 TotalIndividual Projects 40,361 32,402 28,995 20,588 12,181 134,527Group/Infrastructure 12,000 9,634 8,621 7,608 6,595 44,457ProjectsOther _ 4,619 3,708 1 3,318 2,928 2,538 17,112Total 56,980 45,744 40,934 36,124 31,314 196,096

The individual research projects will be three to four years in duration, with a maximum budgetof US$ 150,000 per project. The group and infrastructure projects will have a maximum value ofUS$ 1 million each. The decreasing funding shown in Table 3 represents only the portion fundedby the Knowledge Innovation Project, and the added funding of CONACYT shown in Table 1 isintended to assure that the Individual Projects continue at at least the level of US$ 40 million peryear, while the Group and Infrastructure Projects continue at US$ 12 million per year. Theallocation among project types is only indicative, and will vary as Evaluation Committees varythe assignment of funds to project modalities, and as CONACYT varies the assignment of fundsto areas corresponding to Evaluation Committees.

CONACYT is initiating a new program to strengthen scientific and technological capacity in suchfields which are currently inadequate to Mexico's needs. This program is a result of theexperience of PACIME, and emphasizes stimulating development of new and emergent fields ofscience and technology. The "Field Development" program will initiate support for some eightnew fields (and continue support for one field established on a test basis in 1997) according to thefollowing schedule:

Table 4. Funding for Field Development (US$ 1000s)

1998 1999 2000 2001 2002 TotalNew Fields Selected 0 2 2 2 8(number)Funding (US$ 1000s) 150 8,000 8,000 8,000 8,000 32,150

Funding for Young Investigator Programs is also divided into several modalities as shown inTable 5.

Table 5. Modalities for Young Investigators: Amount of Resources (US$ 1000s).

Modalities\Year 1998 1999 2000 2001 2002 TotalResearch Projects 4,300 3,452 3,089 2,726 2,363 15,930Installation 2,000 1,606 1,437 1,268 1,099 7,409Postdoctorates 1,520 1,220 1,092 964 835 5,631Repatriations and 4,500 3,613 3,233 2,853 2,473 16,671RetentionsTotal 12,320 9,891 8,851 7,811 6,771 45,642

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ANNEX 2

The individual research project grants for young investigators will be 20 percent larger than thosein the general competition, and will represent special incentives for outstanding younginvestigatoTs. Installation grants will be available to assist young investigators beginning theircareers to establish their research. Repatriation grants will be available to encourage Mexicanresearchers abroad to return to Mexico, and Retention grants to encourage Mexican researchersto relocate in Mexico rather than move abroad.

The financial resources would find substantial numbers of grants, as shown in Table 6.

Table 6. Expected Number of Projects to be Funded in 1998

Expected Number ofProjects

Individual Projects 600Installation Grants 200Young Investigator Grants 30Group /infrastructure Grants 20

Further, CONACYT has proposed to continue its institutional development, implementing "one-stop shopping" to allow researchers to seek more comprehensive support for their efforts througha simplified proposal process. One-stop shopping is to be implemented by 1999.

The monitoring and evaluation system developed under PACIME will be strengthened, especiallythrough improved ex-post evaluation and follow-up of projects, and feedback of that infornationinto the proposal review process. The performance indicators used in the KIP project will also beimproved from those used in PACIME.

CONACYT has also proposed to complete several studies during the KIP project, including:- a study of sources of financing for research in Mexico;- a study on the use of research results;* a continuing survey of graduate students in science and engineering at the Masters

and Doctoral levels;* a study on scientific infrastructure and the maintenance of scientific equipment.

Centro Nacional de Metrologia (CENAM)

CENAM plays a unique role in Mexico's basic infrastructure for science and technology insupport of industry and commerce, academia, and government. Metrology plays a particularlycritical role in industry through quality assurance and standardization.

The growth of CENAM should correspond to the growing needs of industry and commerce, therecognition of which is critical for continued economic growth. Based on the projected needs ofindustry, CENAM proposes the following program of expansion during the period 1998-2001.These figures are approximate and are under review by CENAM's Executive Council pendingsubmission for approval by higher authorities.

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ANNEX 2

Area Investment Additional Staff Training(Thousands of US$) (Thousands of pesos)

Mechanical 4,977 24 7,128Physical 3,042 22 7,840Materials 4,175 14 9,066Electrical 3,845 17 4,266Technological 945 4 2,916Services

Total 16,984 81 31,216

This investment plan was determined via benchmarking with national metrology labororatories inBrazil (INMETRO) and USA (NIST), considering the expected demand for primary metrologicalservices from Mexican industry, academia and government.

In order to consolidate advances in CENAM, the following activities are planned: finalizeestablishment of national patrones now in process; develop new patrones in magnitudes notcurrently covered; increase endogenous capacity in basic metrological research and development;and continue development of incipient field of chemical metrology and the production of certifiedreference materials.

These activities require a high degree of specialization in CENAM's scientific, engineering, andtechnical staff. Therefore, development of CENAM's human capital takes on a vital importance.

Instituto Mexicano de la Propiedad Industrial (IMPI)

IMPI was created by Executive Decree on December 10, 1993 as a decentralized public agencyencharged with protection of industrial intellectual property. The agency was given additionallegal responsibilities under the Ley Federal del Derecho del Autor (Federal Copyright Law),which took effect in March 1997, to protect copyrights via administrative action.

As a result of the increasing importance of intellectual property protection, the demand forservices of IMPI have grown more quickly than projected at the time of Appraisal. IMPI reachedthe 5-year projections for income generation and net return after only 3 years of operation, inspite of the 1994-1995 financial crisis. Projected growth in demand for intellectual propertyprotection remains very strong due to several factors, including increased foreign investment andmutual recognition agreements with other countries. The expanded mandate of IMPI, togetherwith rapidly growing demand for IMPI services, necessitates increased investment in theInstitute.

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ANNEX 2

Due to rapid growth, and the need to offer high quality services comparable to other internationalagencies, IMPI plans to undertake a three-year program of institutional strengthening. Thisprogram includes the following elements:

* Increase staff by an additional 295 positions from current total of 361 and expand to a secondlocation in Mexico City, creating a special division of copyright enforcement;

* Establish four regional offices (North, Bajio, West, and Southeast) to better interface withclients given increasing decentralization of industrial activity in Mexico;

* Maintain state-of-art in information and telecommunication systems via necessary investmentin hardware and software;

* Upgrade existing systems to obtain maximum output and extend lifespan;* Increase use of information technology in interface with clients, both in provision of services

and via electronic payment systems. The goal is a progressive elimination of paper in IMPIoperations.

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ANNEX 3

ANNEX 3: BORROWER'S CONTRIBUTION TO THE ICR

[Translation of original Spanish version of Borrower's Contribution1 ]

CENAM

Accomplishment of objectives. The construction of CENAM has been clear since itsincubation as a project (1978): "to establish a national metrology center to support thedevelopment of industry".

At the end of the project with the World Bank in 1997, the proposed objectives of theoriginal project have been surpassed. It can now be assured that Mexico counts with aninfrastructure to support the immediate need for meteorological activities of Mexicanindustry. Also, this infrastructure has already gained international recognition.

The limits to future growth of CENAM will depend mainly of the industrial growth ofMexico and on the continuity of government support for maintaining the quality of thenational standards and calibration laboratories that have been already established.

Problems Faced. The first problem that CENAM faced was the short time allocated toadapt the buildings that would be occupied as metrology laboratories. DividingCENAM's development in two stages solved this problem. This also permitted toovercome the financial crisis of 1995, which was the second important problem that hadto be faced.

As soon as the first stage was over in 1994, CENAM started to offer calibration servicesand technical assistance to the national industry. It was detected that the NationalMetrology System needed to be strengthened, so the development of special programs forintegrated metrology was undertaken, resulting in programs such as MESURA.

The special development stage was finished by 1997 with the completion of the buildingfor Chemical Metrology. This area will cover the growing demand for certification anddevelopment of reference materials as well as for analytical services.

World Bank Performance. Since 1995, CENAM has been visited once a year by aSupervision Mission sent by the World Bank. Information about the developingactivities as well as the budgetary details, were submitted to the Mission visits.

Although comments from CONACYT on the draft report were received and incorporated into this ICR,the Goverrnent indicated that the Borrower's contribution (Annex 3) would not include a separatesection regarding CONACYT.

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ANNEX 3

During each visit, the mission discussed the achievements that CENAM had reached aswell as the influence which the economic problems of Mexico could have in CENAM'sdevelopment.

Their advice has been of great value for CENAM, as indicated by the fulfillment of theoriginal objectives of this important project, although as it is expressed in the lastmission's Aide Memoire that "CENAM is a young organization which requires furtherinvestment in order to fulfill its mission".

It is important to state that the final mission clearly understood that CENAM, in itscurrent stage, covers only a fraction of the nation's meteorological needs and should begrown significantly in the medium-term.

IMPI

Attainment of Objectives

At the beginning of the project a number of general problems were identified, asdescribed below:

* The computer infrastructure at the beginning of the project did not allow thedevelopment of new systems to increase the level of automation.

Objective reached: The computer infrastructure of IMPI was converted to an opensystem with improved and more secure performance, acting as the base for client serverapplications. At the same time, one computer for each administrative employee wasinstalled.

The low level of automation of internal operations resulted in delays and failed tosupport the increasing demand for services by industry.

Objective reached: During 1996, 1997, and 1998 new systems and equipment were usedto improve operational efficiency. In trademarks, for example, the number of resolutionsper examiner increased from 250 to 300, while for industrial property protection thecapacity for emitting resolutions doubled.

* The method for consulting documents was not secure and was very slow. In addition,the provisions for storing of supporting documentation were not adequate and wereonly executed after the granting of legal property right.

Objective reached: A new method for inputting files using scanners was implemented.This method has reduced the consultation of those documents in hardcopy and hasavoided the delays associated with microfilining (previous storage method).

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ANNEX 3

* The local network did not meet the performance requirements to allow utilization ofmodem, electronic data management systems.

Objective reached: The local network was completely converted to permit transfer ofdata and images of files.

* No communication infrastructure was in place that allowed dissemination to thepublic of information regarding industrial technology or the overall industrialpropriety system.

Objective reached: A new communication infrastructure based on the internet wascreated. This system allows 80% of IMPI employees to have access to Internet, publicaccess via the IMPI web page, and dissemination of technological information. Diffusionof information regarding trademarks will be underway soon.

* International standards for storage of massive volumes of information haveincreasingly encouraged use of optical and compact discs for the purposes of storage,information sharing with other property offices, and dissemination of information.

Objective Reached: The computer infrastructure was constructed for data storage,organization, consultation and export (for production of databases or CD ROMs,principally containing patent information).

- Initiatives of intellectual property institutes in other countries to upgrade and achievecompatibility of systems increased the need for IMPI to incorporate international bestpractices, in terms of technology and operations.

Objective Reached: New equipment has been installed (comparable to offices in Canada)that reduced the resolution time of requests for trademarks and patents to internationalstandards of 3 months, and 2.5 to 3 years, respectively. Further reductions are likely oncethe systems are fully operational.

* The ongoing establishment of new cooperation agreements, in which IMPI hasparticipated since its creation, obligates IMPI to develop new controls and standardsin the granting of trademarks and patents; in the storage and exchange of electronicinformation, and in the editing process for official publications.

Objective Reached: As of today, IMPI fully complies with its international commitmentsregarding the dissemination and exchange of information. In addition, IMPI has achievedimportant savings in the cost of acquiring databases from abroad via increasedinterchange activity with other industrial property agencies and has contributed to theinformation resources available to other developing countries through donations.

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ANNEX 3

IMPI has also reduced the time required for editing, production, and circulation of theGaceta de la Propiedad Industrial (Industrial Property Gazette) to 1.5 months after theend of the month, compared to the 5 to 7 month delay previously experienced.

Problems Encountered

One of the primary difficulties encountered during the project was the lack ofadministrative human resources for the project implementation, procurement procedures,and most importantly the launch and future support of the new infrastructure.

As of today the demand for technical support outstrips the capacity of availablepersonnel.

Considering the above, it is extremely important for the project implementation to takeinto account the nature of current capacity and be able to provide enough support duringthe installation of the systems and equipment and until the end of the project.

Another difficulty pertained to the timing established by national laws and by the Bankregarding the execution of the procurement procedures. In the case of tenders for whichno offer was received, the time available for the execution of the procurement processeswas exceedingly short (including time for repeat of tender, receipt, and installation).

Performance of the Bank during the project

In general the performance of the Bank during the project execution was satisfactory. Allactivities were finished within the period established by the Bank and the informationwas received on time with clear explanation of the procedures, policies, and norms.

Nacional Financiera (Financial Agent)

The loan was signed on June 16, 1992, however, the disbursement of funds did not beginuntil 1994.

Under category 1-A of project 3475-ME, US$150 million was assigned for theacquisition of scientific equipment, computers, laboratory materials. However, thisamount was reduced to $149 million, and the remaining $1 million was assigned forhiring external consultant to provide guidance during the acquisition process.

Three private consulting companies were responsible for carrying out the national andinternational competitive bidding procedure on behalf of the Research Institutes and theUniversities around the country.

This arrangement made enabled the researchers and consultants to jointly define thetechnical specifications and conduct the process to award the contracts. In addition, the

36

ANNEX 3

World Bank authorized the standard bases that enabled Nacional Financiera (NAFIN)and the Consejo Nacional de Ciencia y Tecnologia (CONACYT) to group internationalcompetitive bidding packages and present them at Bank headquarters in Washington. Thevarious stages of local competitive bidding were reviewed and authorized by NAFIN.

It is important to mention the active participation of Mr. Stephen Carpenter, representingthe United States National Institute of Standards and Technology (NIST), who acceptedthe responsibility for reviewing and approving the technical specifications and proposalsreceived.

Another advantage of hiring consultants [to support procurement] was the possibility toattend to the full range of participating institutions and universities, which were spreadthroughout Mexico.

The main activities, among others, undertaken by the consultants were: guiding theresearcher in the definition of technical specifications; preparing the bidding documents;preparing and participating in the junta de aclaraciones jointly with administrative andtechnical (researchers) staff of participating institutes and universities; supporting anynecessary modification of the bidding documents; participating in the opening ofproposals; participating in the evaluation of proposals; preparing the adjudication ofproposals; preparing the document explaining selection of winning proposals;participating in the contract signing session; and interacting with the Financial agentamong others.

37