Report No: ICR2567 ON A LOAN IN THE AMOUNT OF EURO 34.8...

Document of The World Bank

Report No: ICR2567

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-72390 IBRD-74870)

ON A

LOAN

IN THE AMOUNT OF

EURO 34.8 MILLION

(US $44.9 MILLION EQUIVALENT)

TO THE

REPUBLIC OF TUNISIA

FOR A

SECOND EXPORT DEVELOPMENT PROJECT

March 28, 2013

Finance and Private Sector Development Group Maghreb Department Middle East and North Africa Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective January 28, 2013)

Currency Unit = Dinar 1.0 TND = U.S. $ 0.63

U.S. $1 = 1.58 TND

FISCAL YEAR 2013

ABBREVIATIONS AND ACRONYMS

AAEU Association Agreement with the European Union ADEMAR Acceleration of Maritime Forwardings (Accélération des expéditions maritimes) AMC Authorization for Consumption (Autorisation mise à la consommation) APE Provisional Authorization for Lifting (Autorisation provisoire d'enlèvement) CAS Country Assistance Strategy CBT Central Bank of Tunisia CEPEX Center for Export Promotion (Centre de promotion des exportations) CNI National Data Processing Center (Centre national de l’informatique) COTUNACE Tunisian Company for the Insurance of Export Credit

(Compagnie tunisienne pour l’assurance du commerce extérieur) ECAL EMAF

Economic Competitiveness Adjustment Loan Export Market Access Fund

EU European Union FDI Foreign Direct Investment FEDEX Federation of Private Exporters (Fédération des exportateurs privés) FOPRODEX Export Promotion Fund GDP Gross Domestic Product GoT Government of Tunisia IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding INNORPI National Institute of Standard and Intellectual Property

(Institut national de normalisation et de propriété intellectuelle) MENA Middle East and North Africa Region LCAE Central Laboratory for Analysis and Testing (Laboratoire Central d’Analyse et d’Essai) MFA Multi-fiber Agreement MOP Manual of Procedures PCMU Project Coordination and Monitoring Unit PEFG Preshipment Export Finance Guarantee PREM Poverty Reduction Economic Management Unit SBD Standard Bidding Documents SINDA Tunisia Customs Information System SMEs Small and Medium Enterprises TD Tunisian Dinar TTFSE Trade and Transport Facilitation in South Eastern Europe TTN Tunisie Trade Net WTO World Trade Organization

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Regional Vice President: Inger Andersen Country Director: Simon M. Gray Sector Director: Loic Chiquier Sector Manager: Simon C. Bell

Task Team Leader: ICR Team Leader:

Djibrilla Adamou Issa Mehdi Benyagoub

iv

TUNISIA Second Export Development Project

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design ............................................... 12. Key Factors Affecting Implementation and Outcomes .............................................. 63. Assessment of Outcomes .......................................................................................... 154. Assessment of Risk to Development Outcome ......................................................... 295. Assessment of Bank and Borrower Performance ..................................................... 306. Lessons Learned ....................................................................................................... 347. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 38Annex 1. Project Costs and Financing .......................................................................... 39Annex 2. Outputs by Component ................................................................................. 41Annex 3. Economic and Financial Analysis ................................................................. 47Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 52Annex 5. Beneficiary Survey Results ........................................................................... 53Annex 6. Stakeholder Workshop Report and Results ................................................... 54Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 55Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ....................... 56Annex 9. List of Supporting Documents ...................................................................... 57

Annex 10: Summary of Impact Analyses……………………………………………..58 MAP

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A. Basic Information

Country: Tunisia Project Name: TN-Export Development II

Project ID: P071115 L/C/TF Number(s): IBRD-72390,IBRD-74870

ICR Date: 03/21/2013 ICR Type: Core ICR Lending Instrument: SIL Borrower: GOVT. OF TUNISIA

Original Total Commitment:

USD 42.00M (36M+6M in additional financing in April 10, 2007)

Disbursed Amount: USD 41.01M

Revised Amount: USD 41.82 M Environmental Category: C Implementing Agencies: Ministry of Commerce, Center for Export Promotion (CEPEX), Compagnie Tunisienne Pour L’Assurance du Commerce Extérieur (COTUNACE), National Institute for Standardization and Industrial Property (INNORPI), Tunisian Customs Administration Cofinanciers and Other External Partners:

B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 11/27/2002 Effectiveness: 01/14/2005 01/14/2005 Appraisal: 02/10/2004 Restructuring(s): 01/13/2010 Approval: 06/29/2004 Mid-term Review: 10/31/2007 11/12/2007 Closing: 03/31/2010 09/30/2012

C. Ratings Summary C.1 Performance Rating by ICR

Outcomes: Satisfactory

Risk to Development Outcome: Moderate

Bank Performance: Moderately Satisfactory

Borrower Performance: Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Satisfactory Government: Satisfactory

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Quality of Supervision: Moderately Satisfactory

Implementing Agency/Agencies: Satisfactory

Overall Bank Performance:

Moderately Satisfactory

Overall Borrower Performance: Satisfactory

C.3 Quality at Entry and Implementation Performance Indicators

Implementation Performance

Indicators QAG Assessments

(if any) Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA):

Satisfactory

Problem Project at any time (Yes/No):

No Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Satisfactory

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing) Agro-industry, marketing, and trade 15 15 Central government administration 30 30 General industry and trade sector 30 30 Other industry 20 20 SME Finance 5 5

Theme Code (as % of total Bank financing) Export development and competitiveness 40 40 Micro, Small and Medium Enterprise support 20 20 Other public sector governance 20 20 Trade facilitation and market access 20 20

E. Bank Staff

Positions At ICR At Approval

Vice President: Inger Andersen Christiaan Poortman Country Director: Simon M. Gray Theodore O. Ahlers Sector Manager: Simon C. Bell Zoubida Allaoua Project Team Leader: Djibrilla Adamou Issa Hamid Alavi ICR Team Leader: Mehdi Benyagoub

ICR Primary Author: Mehdi Benyagoub & Peter McConaghy

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F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document)

The focus of the project was to build upon and anchor more deeply the institutional reforms started under the first Export Development Project (EDP I) with the intention of creating a conducive export environment and encouraging trade. The project's development objectives were to improve access to export markets and finance, and enhance the efficiency and performance of trade clearance processes including customs operations and technical controls, thereby making trade logistics more efficient. By building on the lessons and achievements of the EDP I, the implementation of the Second Export Development Project (EDP II) was expected to strengthen market institutions for export development, enhance competitiveness of Tunisian exporters, and strengthen public-private interface to administer and promote exports.

Revised Project Development Objectives (as approved by original approving authority) The components were not revised during implementation.

(a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Total Exports Generated (USD 000)

Value (quantitative or qualitative)

0 US$787 million ($528 EMAF+ $259 PEFG)

US $665 million

Date achieved 01/17/2005 09/30/2012 09/17/2012

Comments (incl. % achievement)

The project achieved 84% of this target. The target was comprised of two sub-figures, a $528 million target for EMAF II (matching grants; component 1); and a $259 million target for PEFG (pre-shipment export finance guarantees facility).



approval documents)


Actual Value Achieved at Completion or Target Year

Indicator 2: Maximum Clearance Time for Movements of Goods (days) Value (quantitative or 8.1 2 N/A 3

viii

qualitative) Date achieved 01/14/2005 09/30/2012 09/17/2012 Comments (incl. % achievement)

The project achieved 83% of this target.

(b) Intermediate Outcome Indicator(s)*


Original Target Values

(from approval

documents)


Formally

Revised Target Values



Indicator 1 : Number of Firms Assisted Through EMAF II Value (quantitative or Qualitative)

0 500 800 (2008)

1,000 (revised 01/2009 1,239

Date achieved 01/17/2005 11/01/2007

06/2008

10/01/2009 09/28/2012


EMAF II exceeded initial target values of number of firms assisted by 146% . EMAF II exceeded targets revised in 2008 by 54%. EMAF II exceeded targets revised in January 2009 by 24%.



approval documents)

Formally Revised

Target Values



Indicator 2: Number of export and professional associations assisted by EMAF II

Value (quantitative or Qualitative)

0 40 50 (revised 01/2009) 93

Date achieved 01/17/2005 03/30/2009 09/30/2009 09/11/2012 Comments (incl. % achievement)

The project exceeded target values by 133%.

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approval documents)

Formally Revised

Target Values



Indicator 3: Additional Exports by Firms Supported by EMAF II (000 USD)


0 $528 N/A $550

Date achieved 01/17/2005 09/30/2012 09/17/2012 Comments (incl. % achievement)

EMAF II exceeded its target by 4% or $16.8 million in exports ($550M realized versus $528 M planned).



approval documents)

Formally Revised

Target Values



Indicator 4: INNORPI – Reduced Time for Notification to WTO of New Technical Regulations (months)


6 2 N/A 2

Date achieved 01/17/2005 12/01/2007 09/30/2012


100% of target achieved. Notification to WTO TBT Committee of draft mandatory technical control requirements reduced to two months since Dec 2007; Time to access WTO notifications of new foreign technical control requirements reduced to 2 months since 2006.



approval documents)

Formally Revised

Target Values



Indicator 5: PEFG - Amount of Export Working Capital Loan Guaranteed (US $ mil.)


0 210 N/A 54


26% of target was achieved.

x



approval documents)

Formally Revised

Target Values



Indicator 6: PEFG - Additional Exports Generated (US $ mil.)


0 259.3 N/A 115


44% of target was achieved.



approval documents)

Formally Revised

Target Values



Indicator 7: Reduced Time for Processing of Technical Control Requests APE (days)


2 days 0 to 2 days N/A 3 hrs


100% of target achieved.



approval documents)

Formally Revised

Target Values



Indicator 8:

Reduced Time for Processing of Technical Control Requests AMC for other goods (days)


11 0-2 N/A 2



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approval documents)

Formally Revised

Target Values



Indicator 9:

Reduced Time for Processing of Technical Control Requests AMC for Goods Re-Exported (days)


11 0-2 days N/A 3 hours





approval documents)

Formally Revised

Target Values



Indicator 10: Reduced Processing time of Customs Declaration (minutes)


3.6 days 15 15





approval documents)

Formally Revised

Target Values



Indicator 11:

Percentage of Import Declarations Assigned to the Green Channel (immediate release)


6% 80% 50%


63% of target value was achieved.

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G. Ratings of Project Performance in ISRs

No. Date ISR Archived

DO IP Actual

Disbursements (USD millions)

1 06/30/2004 Satisfactory Satisfactory 0.00 2 12/20/2004 Satisfactory Satisfactory 0.00 3 04/29/2005 Satisfactory Satisfactory 1.48 4 10/31/2005 Satisfactory Satisfactory 2.51 5 05/12/2006 Satisfactory Satisfactory 6.63 6 09/15/2006 Satisfactory Satisfactory 10.35 7 12/21/2006 Satisfactory Satisfactory 11.07 8 06/22/2007 Satisfactory Satisfactory 13.63 9 02/19/2008 Satisfactory Satisfactory 16.34

10 01/28/2009 Satisfactory Satisfactory 25.25 11 11/13/2009 Satisfactory Satisfactory 29.06 12 12/03/2009 Satisfactory Satisfactory 29.06 13 06/23/2010 Satisfactory Satisfactory 35.94 14 01/16/2011 Satisfactory Moderately Satisfactory 38.15 15 01/11/2012 Satisfactory Moderately Satisfactory 42.04 16 06/17/2012 Satisfactory Satisfactory 42.31 17 11/24/2012 Satisfactory Moderately Satisfactory 42.56

H. Restructuring (if any)

Restructuring Date(s)

Board Approved

PDO Change

ISR Ratings at Restructuring

Amount Disbursed at

Restructuring in USD millions

Reason for Restructuring & Key Changes Made

DO IP

01/13/2010 S S 33.79 Addressed very strong demand for EMAF II program.

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I. Disbursement Profile

1

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal 1. The project was developed during a period in which Tunisia’s commendable export

performance was coming under increasing pressure due to changing economic, competitive, and structural conditions. The phasing out of the MFA (Multi-fiber Agreements) in 2004-2005 caused increased competition for Tunisia’s primary export articles (subcontracted apparel exports from the offshore sector) from countries such as India, China, Bangladesh and Eastern Europe. Tunisia encountered a more competitive environment following the dismantling of trade barriers with the EU through the Association Agreement with the European Union (AAEU). In 2008, the agreement was fully implemented with trade barriers being reduced completely for industrialized goods.

2. In addition, Tunisia’s past impressive export performance was no longer sustainable because of a number of structural vulnerabilities. Tunisian exporters were often sub-contractors for large foreign companies rather than arms-length exporters. Export growth had been led almost exclusively by the off-shore garment firms (composed of firms exporting more than 80 percent of their production) that had benefited from preferential export incentives. These firms established little linkage to domestic firms. As a result, Tunisian exporters generally produced relatively simple goods (mainly garments) that could be easily replaced with similar products from lower cost locations. Structural vulnerabilities were further exacerbated by the fact most on-shore firms remained largely unprepared for the international competition arising from Tunisia’s international agreements (AAEU and MFA).

3. Inefficient procedures and institutional structures made conducting trade in Tunisia time

intensive and costly. For example, Tunisia's procedures for external trade required that documents be processed by multiple entities including the Ministry of Commerce, banks, the port authority, and the customs agency, as well as the usual professional organizations such as customs brokers, shipping agents, and freight forwarders. Documents were exchanged manually. Hard copies of documents had to be delivered and in some cases picked up again (after several days) for processing. 19 distinct steps were required for import transactions and 15 steps were required for export transactions. These cumbersome processes severely impeded the ability of Tunisian companies to respond to or accept short-notice orders, further undermining their competitiveness.

Rationale for Bank involvement 4. The proposed project built on an already strong dialogue on competitiveness (e.g., ECAL I,

II, III, EDP I, Trade Strategy Note) with the Tunisian authorities and the private sector. In addition, it was expected that the Bank would bring a multi-dimensional cross-country perspective and experience with the design and implementation of matching grant schemes, e-government solutions and trade facilitation mechanisms. The Government of Tunisia had been very selective in accessing IBRD financial assistance and had determined that export development continued to be a high priority where Bank assistance has proved to be beneficial. Through EDP II, Tunisia leveraged the ability of the Bank to assist in creating market oriented institutions for trade promotion and finance, as it has also done with EDP I.

2

1.2 Original Project Development Objectives (PDO) and Key Indicators (as outlined on page 3 of PAD) 5. The focus of the project was to build upon and anchor more deeply the institutional reforms

started under the first Export Development Project (EDP I) with the intention of creating a conducive export environment and encouraging trade. The project's development objectives were to improve access to export markets and finance, and enhance the efficiency and performance of trade clearance processes, including customs operations and technical controls, thereby making trade logistics more efficient. By building on the lessons and achievements of the EDP I, the implementation of the Second Export Development Project (EDP II) was expected to strengthen market institutions for export development, enhance competitiveness of Tunisian exporters, and strengthen public-private interface to administer and promote exports.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 6. The PDO was not revised during project implementation.

1.4 Main Beneficiaries 7. The main beneficiaries were private-sector firms and trade associations as well as

Government ministries and agencies involved in the Tunisian trading system. The Second Export Market Access Fund (EMAF II) was intended to benefit firms and professional trade organizations including export associations, chambers of commerce, and professional consulting organizations. Beneficiaries also included Government agencies who received technical assistance related to market access, technical controls, and trade facilitation. For example, the Tunisian Standards and Intellectual Property Institute (INNORPI) received technical assistance for the collection, analysis, and dissemination of standards material. The Tunisian Ministry of Commerce received financing for the implementation of an automated work flow system across seven technical control agencies. The Tunisian Customs Agency received financing to streamline customs clearance procedures in order to reduce border clearance delays while simultaneously strengthening internal control processes. In addition the unit in charge of trade facilitation and logistics received financing to support a data collection program on supply chain barriers in transportation and logistics.

1.5 Original Components (as approved) 8. Component 1: Second Export Market Access Fund (EMAF II) – (total cost was US$37.6

million of which IBRD was to finance US$21.1 million); Provide non-reimbursable co-financing of 50 percent for individual firms and 70 percent for

professional associations on a demand-driven basis to help implement investments in market research and pre-competitive programs that increase export market access and competitiveness, with the remaining 50 to 30 percent mobilized from participating private sector firms and professional organizations.

9. Component 2: Pre-shipment Export Finance Guarantees (PEFG) Facility – (total cost is

US$1.0 million of which IBRD was to finance US$ 0.8 million); Strengthen the management of PEFG program that was set up under the EDP I, with the aim

of further encouraging financial institutions to provide pre-shipment working capital financing to emerging exporters with viable export contracts. Eligible sub-loans financed by

3

the PEFG facility (see Annex 4) was guaranteed for up to 90 percent of the outstanding principal amount, which represents nonperformance risks of SMEs and emerging exporters which the participating financial institutions bared for up to 180 days (and in cases where the period of production is high, up to 300 days).

10. Component 3 – WTO Technical Barriers to Trade Enquiry Point – (total cost is US$1.0 million of which IBRD was to finance US$1.0 million); Strengthen the capability of the Standards and Intellectual Property Institute (INNORPI) for

collection, analysis and dissemination of standards information. As such, it supported both the efforts of Tunisian firms in meeting voluntary standards critical to export expansion, and Tunisia’s efforts to meet multilateral trade obligations and prepare for regional and bilateral Free Trade Agreements (European Union and others). This assistance also helped enhance transparency of technical regulatory control requirements in Tunisia for importers by providing more rapid access to these regulations. This assistance was particularly important given the strategic trade policy objectives of the Government shaped, in part, by on-going negotiations in the Doha Development Agenda of the WTO. Specifically this component included:

a. Assistance to the Ministry of Industry (INNORPI) to strengthen its capacity related to the WTO Enquiry Point for TBT Agreement.

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

c. Training of INNORPI and Ministry staff in best practice management of information on standards and technical control regulations to meet WTO obligations in the TBT Agreement, drawing on best practice in other countries.

d. Technical assistance for dissemination in the following areas: Activities to disseminate information to private firms on voluntary, de-facto

international standards, such as those of the International Standards Organization, International Electro-technical Commission, CODEX, ANSI, and others;

Publications and dissemination of a manual of international standards (CODEX, ISO, IEC, and others); and

Assistance to expand web-based information dissemination on standards, through the new INNORPI website.

11. Component 4: Trade Logistics: Extends the trade facilitation component of the EDP I and

consisted of a set of actions aimed at: (i) rationalizing technical control regulations, (ii) disseminating of information on standards and technical control regulations to emerging exporters, (iii) increasing efficiency, timeliness and effectiveness of customs control procedures, and (iv) providing technical assistance to generate comprehensive logistics indicators.

12. Sub-component 4.1 - Enhanced integration of technical control procedures and strengthened risk management protocols – (total cost is US$1.41 million of which IBRD was to finance US$1.13 million). This sub-component consisted of the following activities: Automation of workflow and decision making processes of technical control agencies Implementation of an integrated risk management system at the level of each of the technical

control agencies Implementation of the technical control digital dataset

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13. Sub-component 4.2 - Streamlining and Strengthening of Customs Procedures – (total cost is US$12.9 million of which IBRD was to finance US$10.32 million). This sub-component consisted of the following activities: Further streamline customs clearance procedures in order to reduce border clearance delays

while at the same time strengthening control processes. This would be achieved by a comprehensive set of complementary customs procedures and capacity building.

Technical assistance for the implementation of the risk analysis, management and selectivity techniques to customs control and administration. This included developing a risk management information system that responds to and streamlines inspection and monitoring requirements of both technical control agencies and customs.

Techniques for deferred control and post event audit within Tunisian customs. These procedures acted as a safety net for facilitation by providing a range of control mechanisms (documentary, physical, and accounts verification) that also acted as strong deterrents to customs fraud and smuggling.

Improving the management information system of Tunisia Customs by adding database definitions for collection of data within SINDA (Tunisia Customs Information System) which enabled regular analysis of customs operations effectiveness, productivity measures, fraud cases, detection rate, and other management indicators. This also enabled the automated collection of data for performance indicators for this component.

Strengthen technology infrastructure to support these changes; procurement was to consist of scanners, computer hardware and other equipment.

14. Sub-component 4.3 - Trade Logistics Performance Indicators. (total cost is US$1.25 million of

which IBRD was to finance US$1.0 million. This sub-component consisted of the following activities:

A detailed assessment and data collection program on supply chain barriers in transportation and logistics

15. Component 5: Project Management – (total cost is US$310,000 of which IBRD was to finance

US$250,000) Training in procurement and modern techniques of financial management, as required by

Bank Guidelines. Training and consulting services to enable the PSCU to effectively perform the following

functions: a. the coordination of executing agencies and monitoring the performance indicators of

the project; b. the preparation of the progress reports and working documents required by the

supervision missions; c. the provision of information and reports to the Steering Committee and the Bank; the

monitoring and consolidation of the project's financial management, and assistance to the executing agencies in procurement and financial management and in meeting the reporting requirements of the Bank;

d. Computer and office equipment;

5

Cost Breakdown of Project Components (as outlined in approved PAD): Component

Indicative Cost US $ Million

% of Total

Bank financing US$ Million

% of Bank Financing

EXPORT MARKET ACCESS FUND - EMAF II -Consulting and training services -Vendor development program

Total EMAF II

31.60 5.00 1.00

37.60

56.6 8.9 1.8

67.0%

16.60 4.00 0.50

21.10

0.52 0.80 0.50

0.56 %

PEFG MANAGEMENT

1.00

1.8%

0.80

0.02

WTO TBT ENQUIRY POINT

1.00 1.8% 1.00 100%

Component

Indicative Cost US $ Million

% of Total

Bank financing US$ Million

% of Bank Financing

TRADE FACILITATION -Technical Control -Customs -Logistics indicators

Total Trade Facilitation

1.41

12.90 1.25

15.56

2.50

23.00 2.23

27.80%

1.13

10.32 1.00

12.45

0.80 0.80 0.80

0.80

PROJECT MANAGEMENT 0.31 0.50 0.25 0.80

Total Project Costs 55.47 0.99% 35.60 0.64% Front-end fee

0.36 0.01 0.36 0.01

Total Financing: 55.83 1.00 36.00 1.00

1.6 Revised Components 16. The components were not revised during implementation.

1.7 Other significant changes

17. There were no significant changes to the design of the project or the implementing arrangements.

18. Regarding scale of the project, output indicators were revised upwards to reflect strong demand for the matching grant program (component 1; EMAF II). The original output called for 500 firms and 40 association assisted through EMAF II funding by year 5. As of 30 September 2006, FAMEX 2 approved 500 individual export plans (representing a total value of $ 18.33 million). Six million in additional financing became effective in March 2008 specifically to finance the scaled-up activities associated with increased demand for EMAF II. The intended target for number of firms assisted was increased from 500 to 800 in early 2008 and later to 1,000 after additional financing from the Government was put into the project in January 2009. At project closing (September 30 2012) 1239 firms and 93 associations had been services by EMAF II.

19. The project was extended three times to reflect changes in project performance and the external environment. An initial extension from March 2010-March 2011 was designed to ramp up

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highly successful components, particularly EMAF II and reforms within the customs administration, as well as allow more time to complete activities that were not going to be completed in the given time frame, for example, technical control procedures. In March 2011 the Government requested a 12 month extension because of delays in implementing IT equipment and staff training related to enhancing technical controls (sub-component 4.1). In addition, EMAF II and the PEFG facility needed to be given more time to complete remaining activities (completion of export plans and awareness campaigns). Uncertainty created by the Tunisian revolution created delays in completing remaining tasks, including training, procurement, and institutional capacity building given high turnover of key personnel during this period.

20. The project was extended a third time for six months from March until September 2012 to complete wrap up activities under EMAF II (finalizing last batch of export plans and database management), ensure administrative and other follow-up to consultant work, under the EMAF II component; (ii) completing procurement procedures for the installation of new equipment for the Customs Administration; (iii) installing and testing equipment for the technical control component.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry 20 The project’s preparation, design, and quality at entry are considered satisfactory and

comprehensive.

21 The QEA7 assessment determined the project’s overall quality at entry to be satisfactory. The assessment was based on review of key project documents and a lengthy interview with several members of the task team and two representatives from the Government executing agencies. The report cites staff continuity from EDP I, effective use of experience from the first project, and the project being part of a robust framework of overall assistance for Tunisia by the Bank. The assessment also assigned a Satisfactory rating to the eight quality dimension and to the Bank’s Inputs and Processes. These ratings reflected the panel’s judgment on the good use made during project design of internal experience with export development and the experience gained under EDPI I, as well as the team’s careful selection of components that have a high likelihood of being implemented successfully.

22 The QEA7 assessment found that it was likely the project would be sustainable given project design and past experience given the first EDP. The panel also found that the lessons learnt in the ICR for EDPI I was fully reflected in the design of EDP II. In addition, the assessment notes that the overall arrangement for monitoring implementation and evaluating impact was appropriate given sound indicators outlined in the PAD and the extensive M&E system developed under the first project. The assessment stated the M&E system was strengthened by the sub-component related to logistics performance indicators that was included within the project design.

23 With regards to preparation, the project built on past work completed on export competitiveness by the Bank and the Government, specifically EDP I (2000-2004) and four economic competitiveness development policy loans (ECAL I, II, III, and IV). The project was closely aligned with the FY2005-2008 CAS which called for the strengthening of the business environment to support the development of a more competitive, internationally integrated private

7

sector, and to improve the competitiveness of the Tunisian economy.1 The CAS also called for improvements to the education system and improved linkages between research, higher education, and the marketplace to achieve greater innovation and competitiveness.

24 The project design reflected lessons learnt from export development projects in other emerging markets. PEFG schemes have played a pivotal role in exploiting export potential: about half of the export value added has been generated by SME exporters in successful economies (World Bank 2005). PEFG was structured on schemes developed in Korea and Taiwan, China. With regard to customs and efficient border crossings, the project drew on international experiences such as ADEMAR, which is an electronic logistics network in France that interfaces customs computer systems with container terminal operators, the port authority and market players in the transport business (shipping agents, freight forwarders, haulers).

25 The project design reflected the economic, sectoral (trade), and political-economic context of Tunisia during project preparation. Institutional settings at that time were seen as “rigid” with options for institutional reorganization and addressing public-sector inefficiencies limited. There was little flexibility within public agencies in terms of finding ways to improve services to enterprises. The Government would not consider any type of activities that involved a change of the existing institutional context of public agencies. This included measures affecting the incentive structure of public agencies. As a result, EMAF II relied on staff composed of consultants and managed based on volume targets. This was not an option considered feasible within a public institution such as CEPEX, the public agency responsible for export promotion in Tunisia. Connected, international experience with export promotion demonstrated that independent entities were largely more effective from a financial and managerial standpoint.

26 Project preparation was further strengthened by incorporating lessons from the first EDP

project. Important lessons that were incorporated from EDP I included incorporating a public-private approach to export promotion, which is more effective and sustainable than purely public and centralized support on a demand-driven basis without targeting. Similarly, EMAF II reinforced market creation benefits of the matching grant schemes through providing assistance to business associations as well as firms, increasing substantially the number of firms assisted by the program, and focusing on a broad cross-sectional set of sectors targeted. Because of the multiplicity of actors involved in trade and export transactions, the project incorporated structures to help promote collaboration amongst Government entities and market players. This included a steering committee and a technical committee composed of key stakeholders at early stages of the process. Project management also underlined the importance for strong Government commitment and strong PCMU management.

27 With regards to export financing guarantees (component 2), the project incorporated the key

lessons from EDP I that export finance schemes should not be managed as export credit insurance schemes, but rather require a strong and credible management team focused on cultivating strong relations with financial institutions. This is particularly true given many banks are risk averse in Tunisia and are reluctant to finance exporting firms.

1 2004 CAS for Tunisia: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2004/07/13/000012009_20040713125947/Rendered/PDF/287910rev.pdf

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28 The project also incorporated leading research on the importance of trade facilitation reform on export development into project design. Leading research2 demonstrated that trade facilitation reforms do improve the export performance of developing countries. This is particularly true with investment in physical infrastructure and regulatory reform to improve the business environment. Research showed that activities seeking to enhance export activities must be coupled with important trade facilitation reforms including customs efficiency reform, standards harmonization, and streamlined border and technical control procedures. Component 4 (trade logistics) sought to operationalize this research through reform of customs, integration of the technical controls database, and the development of trade logistics indicators.

Risk Identification and Mitigation: Foreseeable risks were well outlined in project documents and mitigation strategies were built into project design as well as the monitoring and evaluation framework. 28 Three critical risks were identified upon entry:

i) external market dynamics and the demand for Tunisian exports; ii) inefficiency of the PEFG management team (as experienced under EDP I); iii) risk of agencies involved in trade transactions continuing with their manual processing of

trade documents and existing inefficient clearance procedures. 29 The first risk was deemed manageable because of the country’s commendable export

performance leading up to EDP II and the strong institutional history Tunisia possessed with regards to export performance given EDP I. Tunisia’s growth and development successes over the past decades have largely been fuelled by export of goods. The export sector grew at an average yearly rate of about 5.3 percent between 1997 and 20103. Over the years, Tunisia had initiated two waves of economic structural changes in its export sector. The first wave of transformation entailed a diversification away from oil toward light manufacturing and tourism. This was done by the creation by the Government of an “offshore” sector with generous fiscal and financial incentives to attract foreign direct investments (FDI) and boost exports. In the second, major shifts occurred with the manufacturing sector. Within the manufacturing sector, electrical and mechanical products emerged as important exporting sub-sectors. The sectors have been able to attract investment, raise factor productivity and boost job creation. Overall, Tunisia was seen as a regional leader with regards to export promotion. Similarly, under EDP II the Government was addressing export competitiveness directly. The risk of export demand was considered moderate, however, because of the overall high trade transaction costs imposed on Tunisian firms and increased competitive pressures (see section 1.1 for greater detail).

30 The second risk was also seen as moderate given project design of PEFG, strong project

oversight by the project coordination and monitoring unit (PCMU), and the institutional commitment to the project shown by the Tunisian Company for the Insurance of Export Credit (COTUNACE) – the institution that managed PEFG. The project team studied the limited success of the export guarantee scheme under EDP I and built lessons learnt into project design moving into EDP II. These lessons included the need for a strong and credible management team and the need to develop strategies to overcome the challenging relations between banks and firms in Tunisia. Under EDP II PEFG was designed with the use of expert consultants that were allowed to operate relatively independently from COTUNACE management. This included developing appropriate terms of

2 See: “Export Performance and Trade Facilitation Reform: Hard and Soft Infrastructure,” World Development Vol. 40, No. 7, pp. 1295–1307, Portugal-Perez, A., & Wilson, S.J. Note John S. Wilson was a member of the project preparation team. 3 - This rate is however slightly below the growth rate of world exports in goods and services which stood at 7 percent over the period.

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reference and incentives for management. Similarly, banks were made aware of the scheme as early as possible through consistent marketing and education. COTUNACE management had dedicated personnel to outreach to Banks in order to overcome risk aversion that prevented participation of the program under EDP I. All of these measures helped promote Bank commitment in the program, moderated the risk of inefficiencies in PEFG management, and helped increase the chances of program success.

31 The third risk was mitigated through the requirement for electronic processing of trade

clearances by key agencies within the project. A core section of the project was the requirement of technical control agencies to process their clearances on line as well the modernization of customs processing that would contribute to enhanced transparency, efficiency, and electronic processing of exports. The project also included the development of trade facilitation indicators to track progress amongst customs and other Government ministries involved in automation of trade processes. These measures were also meant to act as risk mitigators and encourage the use of information technology and selectivity in customs clearance and efficient border crossings.

32 At the project level, the World Bank had strong confidence in the institutional capacity of the

Government in light of EDP I, as well as the overall commitment of the Government to achieve project objectives. The benefits of automatic processing of trading procedures to enhance the overall efficiency of trade were well understood by Government ministries and discussed at lengths during project preparation. Earlier experience from EDP I reinforced this dialogue. These factors as a whole helped mitigate the risk of continued manual processing of documents amongst Government ministries.

2.2 Implementation 33 The strong capacity of the executing agencies and high level of ownership at the onset of EDPII

were key factors in the successful implementation of the project objectives. The PCMU was set up within the Ministry of Commerce and was responsible for project management and timing, reporting to Government and to the Bank, and coordination amongst implementing agencies. The PCMU was in charge of ensuring that budgetary, procurement, contracting, disbursement, administrative, accounting, auditing, and reporting arrangements were undertaken according to Bank’s procedures. The PCMU was very effective at program management, consistently overseeing component implementation, reporting to the Bank in a timely manner, identifying challenges and opportunities within various components as they came up, and encouraging synergies through dialogue between executing agencies and the steering committee. When the PCMU did encounter challenges, for example difficulties surrounding understanding the day-to-day progress of particular components given the project complexity, they responded accordingly with action plans to overcome such challenges. For example, in March 2011 when the PCMU was assessed as lacking the required personnel and capacity, it promptly hired a new program coordinator which helped refocus the PCMU and successfully carry out needed activities prior to the project’s closing in March 2012.

34 The structure of the PCMU was designed to maximize organization and coordination while

minimizing decision-making authority over the implementing agencies of specific components. This design was structured to minimize bureaucracy and allow implementing agencies to apply their expertise and complete project components. The various components had a relatively high level of independence from each other as well as from the PCMU within the Ministry of Commerce. The autonomy helped ensure effective implementation, as each implementing agency was able to focus on their specific component. This autonomy also helped World Bank staff identifies critical implementation issues early on within specific components and act accordingly. Similarly, the use of independent consultants to manage certain components (PEFG, EMAF II) provided an experienced

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set of personnel to manage the project, which also enhanced efficiency, transparency, and a focus on results.

35 The implementation of these structures allowed for a high degree of independence and did

contribute to the project component achieving their goals, often ahead of schedule. Similarly, the use of consultants throughout EMAF II and PEFG helped reinforce the capacity of executing agencies and enhanced efficiency of the project. Particularly towards the end of the project, however, the scheme did suffer from a lack of coordination that prevented synergies from fully emerging. The leadership of the PCMU changed three times throughout the project. Each leadership change brought administrative and coordination challenges and often delays. The PMCU made serious efforts over the last 6 months of 2010 to ensure procurement procedures were being followed according to Bank standards and that delayed financial management audits had been completed. In March 2012, however, a new head was appointed which helped refocus the project and used the remaining six month to finish necessary tasks and keep the project on course. Coordination issues must be analyzed, however, within the context of both the financial crisis and the December 2010 revolution which caused significant changes to Government personnel and social and economic instability that made project progression more difficult.

36 At the level of the individual executing agencies, the project was largely satisfactorily implemented, with key personnel demonstrating strong commitment and in many cases delivering ahead of schedule. This is particularly true of EMAF II (component 1) and INNORPI (component 3), who were successful in attaining results targets (serving firms with matching grants and developing a system of WTO notifications of trade respectively) well ahead of schedule. Executing agencies that did experience challenges in implementation were often successful at listening to Bank suggestions and implementing strategies to overcome roadblocks and deliver. For example, the automation and harmonization of technical control procedures was significantly delayed because of coordination delays between Government ministries and consultant non-performance. The primary executing agency DQPC accelerated their work schedule significantly in 2010 and was able to successful complete procurement, purchase, testing, and installation of the system by September 30, 2012. Similarly, administrative procedures and strong aversion of banks and firms to work together made initial performance of PEFG slow. However, COTUNACE showed strong commitment to overcoming bank risk aversion by expanding synergies with banks and other executing agencies in EDP II and engaging in extensive education and marketing outreach to banks.

37 With regards to scope and scale, output indicators were revised upwards to reflect the fact that

targets for the EMAF II matching grant facility had been achieved relatively early in the project lifecycle. The original output called for 500 firms and 40 associations assisted through EMAF II funding by year 5. As of 30 September 2006, FAMEX 2 approved 500 individual export plans (representing a total value of $ 18.33 million). By March 31, 2007 FAMEX approved 529 export plans (representing a total value of $ 18.46 million). Six million in additional financing became effective in March 2008 specifically to finance the scaled-up activities associated with increased demand for EMAF II. The intended target for number of firms assisted was increased from 500 to 800 in early 2008 and later to 1,000 after additional financing from the government was put into the project in January 2009. At project closing (September 30 2012) 1239 firms and 93 associations had been serviced by EMAF II.

38 The project was extended three times to reflect changes in project performance and the external environment. An initial extension from March 2010-March 2011 was designed to a) complete specific projects that were not going to be completed within the given time frame; and b) ramp up highly successful parts of the project that needed to be reinforced, particularly EMAF II and reforms within the customs administration.

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39 In addition, EMAF II and the PEFG facility needed to be given more time to complete

remaining activities (completion of export plans and awareness campaigns). Uncertainty created by the Tunisian revolution created delays in completing remaining tasks, including training, procurement, and institutional capacity building given high turnover of key personnel during this period. Disbursement in 2011 (post-revolutionary period) was US$2.13 million, decreasing from US$6.22 million in 2010.

. 40 In March 2011 the Government re quested a 12 month extension because of delays in

implementing IT equipment and staff training related to enhancing technical controls (sub-component 4.1). In addition, EMAF II and the PEFG facility needed to be given more time to complete remaining activities (completion of export plans and awareness campaigns). Uncertainty created by the Tunisian revolution created delays in completing remaining tasks, including training, procurement, and institutional capacity building given high turnover of key personnel during this period. Disbursement in 2011 (post-revolutionary period) was US$2.13 million, decreasing from US$6.22 million in 2010.

41 The project was extended a third time for six months from March until September 2012 due to delays and uncertainty associated with the political transition in the country and the formation of a new Government. The six month extension was used to address four outstanding issues: (i) ensuring administrative and other follow-up to consultant work, under the EMAF II component; (ii) completing procurement procedures for the installation of new equipment for the Customs Administration; (iii) installing and testing equipment for the technical control component; and (iv) addressing the weakened capacity of the Project Coordination and Monitoring Unit (PCMU) to monitor the project sub-components in a timely and effective manner. The project closed on September 30, 2012.

Environmental and Institutional Context Affecting Implementation:

42 At the onset of EDP II the country and economic context was favorable. There was strong

support from the Tunisian Government (Ministry of Commerce and Ministry of International Cooperation) as well as from World Bank management. The institutional setting was stable with an effective and hierarchical bureaucracy considered capable of implementing the project. Further, there was historically in Tunisia little turnover among heads of agencies and director level positions. The strong implementation structure put in place - whereby implementing agencies were given significant autonomy and the operation was overseen by the PCMU, steering committee, and oversight committee – reinforced the successful implementation of the project.

43 The December 2010 revolution caused significant change to the environmental and institutional

context. The revolution made project implementation more difficult because it saw a high level of turnover within the Ministry of Commerce, CEPEX, and INNORPI, among others. It created a context where implementing sensitive measures became more challenging. For example, a measure that would be unpopular among employees - such as the installation of a more transparent information system within Customs - was now made significantly more difficult. The revolution caused significant political upheaval, which meant Government policy was often unclear for months at a time as the Government moved from revolution to elections. Disbursement rates dropped slightly during and after the 2010 revolution because of institutional and environmental instability. For example registered payments slowed from 9TND in 2010 to 3.4 TND for the first 9 months of 2011.

44 The Government demonstrated strong commitment to maintaining sound project management

during period of high political and environmental volatility. For example, noticing management

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lag in the PCMU due to staff turnover associated with the administrative changes due to the revolution, the Government appointed a new project coordinator and redoubled efforts to make progress on remaining activities. Because the project’s main implementation role was left largely to the agencies in charge (INNORPI, CEPEX for FAMEX) project implementation continued to progress. For example, average delays at Rades port (sub-component 4.2) increased only slightly between 2010-2011. For example, average delays from boat cargo increased 3.55 days to 3.65 day from 2010 to October 2011. With regards to technical controls (sub-component 4.1), the DQPC completed significant work in 2010 and 2011 (at the height of institutional instability) with regards to digitizing technical control procedures (road-map development and follow up software procurement and implementation).

45 The project effectively used the final six month extension (March 2012-September 2012) to

complete remaining activities, some of which were delayed significantly. For example, the last batch of FAMEX export plans were completed, the technical import control software was installed and tested, and the export guarantee application component was finalized for the PEFG (sub-component 2). Finalizing acquisition and installation of customs equipment was delayed due to changes in the Government procurement policy adopted after the revolution. Overall, project implementation from 2010-2012 should be commended given that despite high levels of institutional and political uncertainty, implementing agencies were for the most part able to complete remaining tasks and in some instances (e.g. technical controls) advance activities that were significantly delayed. Personnel within implementing agencies demonstrated strong commitment to the project despite acting often with high levels of information asymmetry.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 46 The M&E of the project was considered robust and worked well throughout project

implementation. The project had a good monitoring and evaluation framework design, with the original set of PAD indicators tracking performance at all stages of the project implementation. M&E was completed by supervision missions and mid-term reviews, supported by the PCMU which provided semi-annual reports to the Bank on project achievements, issues, and performance indicators. The original PAD tracked indicators for the project’s major components and sub-components on an annual basis. The PCMU effectively compiled performance updates from the specific implementing agencies on a quarterly basis. The PCMU also acted as a point of reference for Bank staff in the event they had additional questions regarding performance management of a particular implementing agency. EMAF II developed a well-documented data base on SMEs and their export patterns which was particularly useful for tracking progress and analyzing project effectiveness.

47 Indicators were effectively monitored, with the PCMU providing timely quarterly reports on progress of the project components in accordance with the outcome indicators. Aide memoires provided qualitative analysis in addition to tracking those indicators outlined in the PAD. Indicators were updated in response to progress implementation. For example, the intended target for number of firms assisted through EMAF II increased from 500 to 800 in early 2008 and later to 1,000 after additional financing from the Government was put into the project in January 2009. At points throughout the project, delays in reporting and evaluation were noted. The results monitoring framework did not always adequately capture implementation complexities amongst sub-components. For example, the results monitoring arrangements (annex 3 of the PAD) did not include specific outcome indicators for sub-component 4.3 – Trade Logistics Performance Indicators. While interviews with relevant government counterparts indicate the sub-component was successful initially in constructing data sets and assessing performance related to customs and border clearance times, additional M&E could have better integrated this sub-component.

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48 Results for the project further benefited from two impact evaluations conducted on EMAF II

(see section 3.2 for an analysis of the full results). The impact evaluations assessed changes in export performance that can be directly attributable to EMAF II by comparing what would have happened without EMAF II assistance by using treatment and control groups. The impact evaluations add statistical causality to the results captured in the M&E system.

49 The first evaluation was conducted in 2011 by outside academics with Bank assistance.4 The

evaluation compared changes in relevant outcome before and after across firms that had EMAF II support with firms but did not receive EMAF II support. Given that the authors did not have an ideal ex-ante identical control group, they randomly selected similar Tunisian firms as a control group, and then compared the ‘treatment’ and the ‘control’ groups after controlling for differences along observable dimensions such as size, age, sector, and prior exporting status. The second impact evaluation5 was conducted by economists within the World Bank Development Economic Research Group Trade and International Integration Unit (DECTI). It used PSM and weighted least squares (including difference-in-differences combined with propensity-score matching (PSM-DID) and difference-in-differences weighted by propensity scores) to evaluate the effects of EMAF II on the performance of beneficiary firms. The evaluation looked at both short and long-term effects of the program.

2.4 Safeguard and Fiduciary Compliance

50 Procurement, financial management practices, and the environmental review process for the operation were supported by the operational manual with guidance for the PCMU and implementing agencies. The well-developed operational manual and a diligent PCMU helped ensure effective implementation of these issues. There were no social and environmental safeguards applied to the project. Procurement was satisfactory, with each of the executing agencies carrying out their procurement in line with the applicable procedures given their respective procurement plans. This was particularly true during the transitional period of the project closing.

51 The adequacy of the project's financial management system was initially assessed, as required by the Bank (OP/BP10.02), based on interviews with the project’s executing agencies (CEPEX, COTUNACE, the Tunisian Customs, and the Ministry of Commerce). The analysis found that management and rules of financial management and accounting in the private sector and the public finance systems did not represent major risks. All financial management aspects related to implementation were satisfactory. The ministry of commerce had worked with the World Bank before (Export Development Project (EDP), Economic Competitiveness Adjustment Loan (ECAL) I, II, III, and IV) and was very familiar with the Bank’s fiduciary requirements related to procurement, disbursements and applicable safeguards. There were minor concerns regarding financial management brought up through audit reports of the project. For example, a 2009 audit exercise revealed certain internal control weaknesses and non-eligible expenses by COTUNACE and the Ministry of Commerce due to an application error in the financing rate of transferred funds. All issues related to ineligible expenses identified, however, had been resolved by the project closure dates.

4 Gourdon, J., JM Marchat, S. Sharma, and T. Vishwanath. Ex-Post Impact Evaluation of an Export Promotion Matching Grant: Tunisia's EMAF II. Rep. No. 40. Washington: World Bank, 2011. Print. MENA Knowledge and Learning. 5 Cadot, Olivier, Ana M. Fernandes, Julien Gourdon, and Aaditya Mattoo. Are the Benefits of Export Support Durable? Evidence from Tunisia. Report. Policy Research Working Paper. Washington: World Bank, 2012

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2.5 Post-completion Operation/Next Phase 52 Post-completion operations are robust and comprehensive. They are supported in three ways.

First, there are a number of components of the project where systems launched during the project’s lifecycle are fully operational and continue to contribute to efficiency gains with regards to export promotion. For example, with respect to information on WTO technical barriers to trade (component 3), the electronic information service “Export-Alert” setup by INNORPI in collaboration with the Canadian Council on Norms (CCN) continues to be operational and well used by the private sector (currently close to 600 firms are registered). Procedural reform related to customs processing (sub-component 4.2) have resulted in an average reduction of 40.2% (10.1 days to 6.04 days on average based on October 2011 estimates). Meetings with customs in December 2012 during ICR preparation suggest that these times have been maintained. Customs operations have also benefited from the development of indicators related to customs and border clearance times developed by the Ministry of Commerce and adopted into periodic reporting (sub-component 4.3).

53 Second, there are significant market creation benefits related to EMAF II that provide post-completion sustainability. The project demonstrated that a public-private system of export assistance can be very successful at boosting exports amongst firms and associations through a targeted cost sharing demand driven technical assistance scheme. It demonstrated that firms were willing to pay for such services using market-based principles with the added advantage of increasing accountability and result driven incentives not seen under purely public schemes. In addition to the direct export benefits, the project led to the creation of a private consulting industry of over 80 firms that help Tunisian companies bring their goods to foreign markets. In addition 115 firms successfully installed a branch in foreign markets.

54 EMAF II was successful at getting firms to think strategically about market opportunities

abroad. The program provided firms the skills and experience necessary to capitalize on these market opportunities. Assistance provided would force participating firms to identify their strengths and weaknesses and develop plans to incorporate these points into an export promotion strategy.

55 The project has helped position Tunisia as a regional leader with regards to trade facilitation

infrastructure. This is particularly important given the country’s limited natural resources and the ongoing political transition that is continuing to cause economic challenges (particularly unemployment) for the country. The project has helped Tunisia develop firms engaged in strategic trade activities that contribute to the development of a value-added economy. Tunisia enjoyed a 4.8 percent average annual growth in GDP over most of the 2000’s, placing the country among the leading performers in the group of emerging economies. The export sector grew at an average yearly rate of about 5.3 percent between 1997 and 20106. The ratio of export value to GDP is 47%.

56 At the project design level, sustainability of the project is reinforced by the fact the project is

being replicated in Bank projects in EAP region (e.g. Laos – P085071; Cambodia – P106736). Other components of EDPII, notably customs reform (sub-component 4.2) have been replicated in other Bank projects (e.g. Vietnam; P085071). The impact evaluations done on the project are well referenced around the world and act as important documents for policy debate on export competitiveness.

57 A third export development project is currently being prepared and seeks to deepen progress

made within specific components as well as address deficiencies in continuity and project design. For example, the EMAF II scheme will be managed within CEPEX as opposed to an

6 This rate is however slightly below the growth rate of world exports in goods and services which stood at 7 percent over the period.

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independent entity populated with consultants. The project would further anchor the gains made under EDP II with a particular focus on innovation, competitiveness, and strengthening Government institutions for long-term sustainability. The project is in appraisal stage with Board approval planned for spring 2013. Although there is no direct post-completion program with regards to EMAF II or PEFG, institutional history exists within both CEPEX and COTUNACE that will be applied to the third export development project.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation 58 The objective, design and implementation of the project remain highly relevant to the

development of Tunisia, particularly with regards to private-sector led growth, productivity enhancement, and structural transformation towards a high value-added services based economy.

59 With regards to objectives, the project built on past work completed on export competitiveness by the Bank and the Government, specifically EDP I (2000-2004) and four preceding economic competitiveness development policy loans (ECAL I, II, III, and IV). The project was closely aligned with the FY2005-2008 CAS which called for the strengthening of the business environment to support the development of a more competitive, internationally integrated private sector, and to improve the competitiveness of the Tunisian economy.

60 The 2008 financial crisis followed by the December 2010 revolution have further underscored

the importance of an efficient trading system and export support as a part of broader economic stability. Following the revolution, unemployment increased to 19 percent in 2011, a 6 point increase over the previous year. Fortunately, the unemployment rate in 2012 declined to 17.6 percent but this is not enough to reduce the stock of largely unemployed young educated job seekers. Due to the deterioration of the trade balance, tourism and FDI receipts, the current account deficit widened considerably to 7.3 percent of GDP in 2011. A new Interim Strategy Note (ISN) for Tunisia covering FY13-14 was endorsed by the Board in early July 2012. The ISN outlines a program focused on contributing to the Constituent Assembly Government’s short and medium-term employment creation objective. The program aims at promoting private-sector led recovery and job creation, with a focus on openness, opportunity and accountability. This focus is congruent with the core objectives of EDP II. The fact that the team has nearly completed preparing a third export development project further underscores the continued relevance of the project.

61 The design of the project remains highly relevant to Tunisia, the broader MENA region, as well as Bank operations in other regions. EDP II was one of the first projects within the Bank to use a large-scale matching grant scheme to promote export development. The matching grant was highly successful and exceeded its goals in terms of export volume and number of firms and businesses associations assisted (see section 3.2 for a full description of results). This model has since been applied to Bank projects in EAP region (e.g. Laos – P085071; Cambodia – P106736). The matching grant mechanism has been applied within regional FPD project in complementary sectors, for example with SME upgrading in Yemen (P128161). The export finance guarantee facility (component 2-PEFG) was an innovative mechanism for Tunisia to address a critical challenge in developing the country’s financial sector, specifically overcoming the risk aversion of Tunisian banks to lending to exporting companies. Other components of EDPII, notably customs reform (sub-component 4.2) have been replicated in other Bank projects (e.g. Vietnan; P08507). The fact the Government has prioritized the preparation of a third project that includes both a matching grant and

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export financing guarantee facility underscores the continued relevance and effectiveness of the project design.

62 The project has been used as an important demonstration piece for further study and analysis

on the benefits of matching grant schemes in private sector development. The project benefited from two impact evaluations that established with statistical certainty the effectiveness of the scheme at enhancing export growth amongst recipient firms (see annex 10 for full description of impact evaluations). Thus, the project is a great example where the Bank’s research and operations departments working together to come to a better understanding of how effective particular interventions can be. Furthermore, the incorporation of trade facilitation components into the project operationalized contemporary research arguing for a comprehensive approach to export development that combined subsidy with broader institutional reforms. Trade facilitation has become an increasingly central component of the global trading regime. Research and policy development on trade facilitation has been prioritized by the WTO and leading research institutions such as the OECD and DECTI within the World Bank. EDP II provided a successful early example of how trade facilitation reform can be operationalized.

63 The implementation experience further underscores the relevance of the project to the broader development agenda of Tunisia and the region. The project’s design - structured on providing a high degree of autonomy amongst implementing agencies, heavy use of consultants, and a central PCMU and steering committee –allowed for efficient implementation of project activities, often ahead of schedule (see section 3.2 for full results analysis). The design encouraged effective central reporting, a particularly difficult task given the multiple components and the high level of overall project complexity. Implementation brought significant learning on how to best manage complex projects. Particularly towards the end of the project, however, the scheme did suffer from a lack of coordination and prevented synergies from fully emerging. The leadership of the PCMU changed three times throughout the project. Each leadership change brought administrative and coordination challenges and often delays.

64 The project effectively identified coordination and operational issues throughout

implementation and modified operations accordingly. For example, output indicators were revised upwards to reflect the fact targets for the EMAF II matching grant facility had been achieved relatively early in the project lifecycle. Six million in additional financing became effective in March 2008 specifically to finance the scaled-up activities associated with increased demand for EMAF II. Project extensions were used to complete outstanding project components, to accelerate delayed work (e.g. technical control agencies component 4.1). These extensions also allowed the project to adapt given the change in personnel due to the revolution and the associated economic uncertainty given the global economic slowdown beginning in 2008. Delays, for example with customs procurement of new IT equipment or finalizing applications with respect to EMAF II or PEFG, were well outlined in supervision missions and as a result the Government and Bank were able to develop strategies to move forward the project accordingly.

65 Despite challenges caused by the political and economic instability associated with the December 2010 revolution, EDP II continued implementing key sections of the project between 2010-2012. This was largely a function of commitment to the projects within implementing agencies and amongst Bank staff. For example, with regards to technical controls (sub-component 4.1), the DQPC completed significant work was completed in 2010 and 2011 (at the height of institutional instability) with regards to digitizing technical control procedures (road-map development and follow up software procurement and implementation). Similarly, despite a slowdown in applications processed, export plans payments were finalized under EMAF II and PEFG. The project effectively used the two extensions to complete remaining activities and address key challenge areas. The

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additional financing was also effectively used to meet demand for EMAF II. Unfortunately acquisition and installation of new IT equipment for the customs administration (component 4.2) was delayed due to significant staff changeover after the revolution and to new procurement procedures.

66 Project implementation from 2010-2012 should be commended given that implementing agencies were able to complete remaining tasks and in some instances (e.g. technical controls) advance activities that were significantly delayed, despite high levels of institutional and political uncertainty. Personnel within implementing agencies demonstrated strong commitment to the project despite having to adjust quickly to changing conditions (both economically and politically) that made it more difficult to complete remaining tasks. Weaknesses were reported in the PCMU during 2011 because the head of the unit, sitting in the Ministry of Commerce, was unable to dedicate full time to the project due to the political situation. In March 2012, however, a new head was appointed which helped refocus the project and used the remaining six month to finish necessary tasks and keep the project on course. The fact the PCMU made serious efforts over the last 6 months of 2010 to ensure better coordination and preparation of procurement documents also helped ensure sound project management.

67 The fact that project implementation went largely according to plan, with project components

having met their deadlines and targets (with the exception of the procurement of new IT equipment for the customs component), is a significant accomplishment given the challenging external environment the project faced. The project was thus particularly relevant as a learning tool for how to manage projects given dramatically deteriorating external environments, in this case due to the drastic change in the political situation as well as the slowdown in the global economy.

3.2 Achievement of Project Development Objectives 68 The PDOs were satisfactorily achieved.

69 Analysis of Achievements by Development Objectives outlined in PDO:

a. Improve access to export markets and finance

b. Enhance the efficiency and performance of trade clearance processes including customs operations and technical controls, thereby making trade logistics more efficient

a) Improve Access to Export Markets and Finance: This objective is rated satisfactory. 70 The program was highly successful in addressing market deficiencies and knowledge gaps

preventing Tunisian firms from reaching their export potential. Because of sound project management and the effective promotion of the program to both exporters and buyers in foreign markets abroad, the component was successful in attracting a significantly higher level of demand than initially envisioned. EMAF II was initially slated to serve 500 firms and 40 associations (as outlined in the PAD) by year 5 of the project. By the mid-term review in March of 2007 424 firms has received FAMEX assistance and completed marketing plans while an additional 188 were in the process of finalizing plans. At project closing EMAF II processed 1239 firms and 94 export associations, representing an estimated $374 million in additional exports. 870 export plans were finalized. The results indicators were twice updated (from 500 to 800 in early 2008 and later to 1,000 after additional financing from the Government was put into the project in January 2009) to reflect the success of EMAF II of reaching targets early. EMAF II management was highly efficient in

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reviewing proposals and processing payment and services, taking on average only 10 days for reimbursement. In addition 115 firms successfully installed a branch in foreign markets.

71 The 2011 impact evaluation found that annual export growth was 38.9% higher for assisted firms compared to control firms in 2004-2008. Similarly, annual growth in destination markets reached was 4% higher for firms assisted by EMAF II.

72 EMAF II was successful at targeting firms who had little capacity in export development. 75%

of firms served had fewer than 100 employees. 350 plans (28%) were of new exporters. 651 (53%) reached new markets, while 238 plans (19%) engaged in new activities. The number of firms and export associations assisted far superseded the number original intended in the PAD (500 firms and 40 business associations). EMAF II also promoted foreign market penetration. Out of 273 firms applying for support to open a foreign branch, 115 succeeded mainly in newer non-traditional markets (Maghreb and other parts of Europe). 52% of those were seeking new export markets, indicating the correct anticipation that Tunisian export increasingly sought new markets and product to diversify. Firms receiving assistance were found in relatively diverse industries (see figure 1).

Figure 1: Participation of Firms in EMAF II by Sector and Size

Increased Sustainable Export Capacity at the Business Association Level:

73 In addition to directly assisting firms with technical assistance related to export promotion, EMAF II was successful at getting firms to think strategically about market opportunities abroad. The program provided firms the skills and experience necessary to capitalize on these market opportunities. Assistance provided forced participating firms to identify their strengths and weaknesses and develop plans to incorporate these points into an export promotion strategy. It also proved that technical assistance could be provided to firms on a competitive commercial basis and as such, helped in the creation of an associated consulting industry.

74 Minor shortcomings included the fact that certain firms expected assistance to continue long-term. The question of whether matching grant assistance should have been provided for longer was raised by certain stakeholders as well as in both impact evaluations completed (see section 2.3 and Annex 10 for additional information). Similarly, certain stakeholders felt the program could have been more strategic about which sectors to target to maximize development impact. As demonstrated in figure 1, the program provided assistance broadly across sectors. Similarly, certain CEPEX

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representatives felt the program could have placed more attention on assisting first time exporters. Out of the 1232 firms assisted, 350 firms were first time exporters. This could be easily modified with eligibility criteria designed to support smaller first time exporters. A third export development project currently being prepared focused on a small number of sectors of strategic importance to Tunisia.

75 A number of additional outcomes help ensure the sustainability of EMAF II. First the project contributed to supporting and developing a local consulting industry which provides expertise in developing export plans and facilitating export finance. Today in Tunisia there are some 80 export consultants that have become more specialized under EDP II. Second, the technical assistance received under EMAF II coupled with a number of training activities have allowed firms to develop a strategic approach to export operations. Beneficiary firms now have enhanced knowledge of the technical, competitive and technical market environment in which they operate. These firms are conscious of the importance of knowledge over direct financial assistance, as evidence by the strong demand for cost sharing technical assistance throughout the project and even after its closure.

Impact Evaluations Conducted on EMAF II:

76 The project further benefited from two impact evaluations conducted on EMAF II. The impact

evaluations assessed changes in export performance that can be directly attributable to EMAF II by comparing what would have happened without EMAF II assistance by using treatment and control groups. The impact evaluations establish with statistical certainty EMAF II was successful at promoting export growth, particularly in the short to medium term.

77 The first evaluation was conducted in 2011 by outside academics with Bank assistance.7 The evaluation compared changes in relevant outcome before and after across firms that had EMAF II support with firms but did not receive EMAF II support. Given that the authors did not have an ideal ex-ante identical control group, they randomly selected similar Tunisian firms as a control group, and then compared the ‘treatment’ and the ‘control’ groups after controlling for differences along observable dimensions such as size, age, sector, and prior exporting status. The treatment and control groups were compared with respect for export promotion after controlling for size, age, sector, and prior exporting status of the firms. Using propensity score matching (PSM), the study found that annual export growth was 38.9% higher for assisted firms compared to control firms in 2004-2008 (see chart 1). Similarly, annual growth in destination markets reached is 4% higher for firms assisted by EMAF II. The evaluation also found that EMAF II has a positive effect on the number of products exported, although this finding was not statistically significant.

7 Gourdon, J., JM Marchat, S. Sharma, and T. Vishwanath. Ex-Post Impact Evaluation of an Export Promotion Matching Grant: Tunisia's EMAF II. Rep. No. 40. Washington: World Bank, 2011. Print. MENA Knowledge and Learning.

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Chart 1: EMAF II Key Outcomes (Growth rates)

78 The same dataset was also used to assess the employment impact of EMAF II. Although not a direct objective of EMAF II, the employment impact is important given Tunisia’s persistent unemployment and ongoing economic and social uncertainty due to the December 2010 revolution. The PSM approach yields similar results though the gap is larger: annual growth of 10.2 % for EMAF II firms against 5.1 % for the control group. This suggests EMAF II had a positive impact on employment, though it must be noted that the small sample size implies results are sensitive to the specification used and not always statistically significant.

79 In addition to firm-level data, Gourdon et al completed the impact evaluation exercise on a larger sample of customs data. Transaction-level export data with exporter ID, transaction value, country of destination, and produce code were obtained from Tunisian Customs for 2000-2008 for 3000 firms, including 400 EMAF II firms. The sample represents approximately 55% of export of goods (excluding oil) in Tunisia.

80 Using PSM on this customs data, the authors found that EMAF II support had increased the difference in growth rate in the two years of treatment for export outcomes, specifically the volume, number of destinations and number of products. Increase in growth was slightly higher than with the firm level survey data. The customs data, however, had limitations because it did not take into account firms in the services sector, which represent approximately 30% of EMAF II firms. Using customs data the authors found that over the long-term, outcomes do not differ much from random non-EMAF II firms (see chart 2).

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Chart 2: EMAF II Key Outcomes Over time (Assisted Firms; % Growth)

Source: Authors’ calculations based on custom’s data

81 Conclusion: Although the short duration of the impact and limited additionally for a specific class of

manufacturing firms joins earlier criticisms of matching grants, overall results using PSM based on two different data sources suggest the EMAF II was successful. It had a statistically significant, positive impact on firm performance along targeted dimensions of total exports, number of export product and export destinations. It is also likely to have a positive impact on employment.

82 The second impact evaluation8 was conducted by economists within the World Bank Development Economic Research Group Trade and International Integration Unit (DECTI). It used PSM and weighted least squares (including difference-in-differences combined with propensity-score matching (PSM-DID) and difference-in-differences weighted by propensity scores) to evaluate the effects of EMAF II on the performance of beneficiary firms.

83 The evaluation looked at both short and long-term effects of the program. The evaluation found that beneficiaries initially saw faster export growth and greater diversification across destination markets and products. However, longer-term effects surpassing three years are moderate as export growth rates were not found to be significantly different from those of non-beneficiary firms. However exports of beneficiaries did remain more diversified. The evaluation also found no evidence that the program produced spillover benefits for non-beneficiary firms. The evaluation suggests that EMAF II may have been most useful for diversifying exports over the long-term with limited impact on increases in volume on exports.

84 The authors suggest that the results must also be understood in the context of the global economic recession. Similarly, there may be a bias in that firms participating in FAMEX may have ventured into riskier markets. Their evidence demonstrates that the increased diversification of beneficiary firms did not result in reduced volatility of exports. Given that exports were not sustained and that effects did not spillover to non-treated firms, the authors suggest that matching

8 Cadot, Olivier, Ana M. Fernandes, Julien Gourdon, and Aaditya Mattoo. Are the Benefits of Export Support Durable? Evidence from Tunisia. Report. Policy Research Working Paper. Washington: World Bank, 2012

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grants programs alone may not be the best use of public funds for long-term sustained export development.

85 The authors conclude that their research adds to the small existing literature by taking a longer view of impact of interventions. They find that EMAF II had a durable impact in terms of export destinations and products but provided only a temporary boost to exports. The results are statistically robust.

86 See Annex 10 for more information regarding both impact evaluations of EMAF II.

87 Overall, the impact evaluation are noteworthy because they establish with statistical certainty the effects of EMAF II, confirming that the project was successful at boosting export and establishing export diversification, at least in the short to medium term. Key personnel within the World Bank that prepared EDP II as well as key stakeholders within the Government underscored that they welcomed and accepted the results of the impact evaluations completed. They stressed, however, that EMAF II was at its core a short-term intervention designed to create market linkages and boost exports for those firms assisted. EMAF II would be complemented by other measures designed to promote trade such as the pre export finance guarantee and continuing the improvements on trade facilitation undertaken under EDP I. These stakeholders encouraged readers to analyze the results of the impact evaluation keeping in mind the short-term nature of the EMAF II intervention.

Facilitate access to pre-shipment export finance:

88 Overall COTUNACE was successful in implementing an export finance guarantee program targeted to Tunisian SMEs both in the capital and regionally. COTUNACE guaranteed $54 million in working capital for exporters, generating an additional $115 million dollars in exports for approximately 225 exporters (see figure 2 below).

89 In 2007 the project achieved the objective outlined in the operations manual of having applications processed in 13 days. Average application processing was down to 6 days in 2011. The project was successful at extending the scheme to regional economic centers. As of October 2011, approximately 78% of credit guaranteed and 77% of exports realized occurred outside of Tunis (see exhibit 5 below). The guarantee facility was able to develop strong links with Banks through a communication campaign and subsequent workshops designed to capture the adherence of bankers. In terms of operational effectiveness COTUNACE was able to reduce its processing time from 12 days in 2007 to 8 days in 2012.

90 COTUNACE reported challenges working successfully with commercial banks given their insistence on real collateral in addition to the export financing guarantee itself to cover the non-performance risk of guaranteed firms. The risk of firms not repaying can even in isolated cases can significantly disincentivize participation from the banking sector. This is a long-term problem in financial sectors in many developing countries. The PEFG scheme is an important step in overcoming this risk aversion problem by incentivizing banks to finance exporting firms through guaranteeing losses. The COTUNACE management team should be commended for consistent outreach to the Banks during the project life cycle. COTUNACE engaged heavily in marketing and educational initiatives to ensure Banks were familiar with the program’s benefits. This was a major improvement from EDP I where a lack of communication prevented bank participation in the program.

91 PEFG was also hampered by the global financial crisis and subsequent recession. The European Union (EU) accounts for over 70 percent of Tunisia’s exports in 2010 (mostly France, Italy and Germany which alone accounted for 56 percent of all exports in 2010 (IMF World Economic

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Outlook). Tunisian trade was thus directly affected by the deterioration of economic conditions in the EU. The amount of credit guaranteed under PEFG fell nearly 48% between October 2009 and December 2010 (see figure 2 and 3 below). COTUNACE also found it difficult to extend the credit guarantee scheme beyond the planned closing date of March 2011 (the project was extended ultimately until September 2012). COTUNACE stopped pre-shipment financing in July 2011 given the intricate nature of export finance, the time taken to complete due diligence, and communications challenges due to the number of partners involved. Given the intricate nature of the scheme, the early stopping of the program is understandable.

Figure 2: Credit Guaranteed and Exports – March 2005 to December 2010 (Cumulative)

Source : COTUNACE statistics

Figure 3: Evolution of Credit Guarantees – PEFG Facility

Source: COTUNACE statistics

92 Following the revolution, more attention was devoted to address the need of firms outside the Tunis region. As a result about 78 % all credit guarantees for 2011 benefited firms located outside the Tunis area (see figure 4 below).

93 Overall, the project succeeded in implementing an export finance guarantee scheme for SMEs across Tunisia. Among its indirect outcomes, PEFG has raised awareness among participating bankers that the guarantee provided by COTUNACE could replace collateral that often exporters lacked to conduct their operation, particularly for first time exporters.

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Figure 4: PEFG – Activities outside of Tunis (%)

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B) Enhance the Efficiency and Performance of Trade Clearance Process Including Customs Operations and Technical Controls, Thereby Making Trade Logistics More Efficient: This objective is rated satisfactory.

Enhanced interactions and compliance with WTO:

94 Strengthening the capacity of INNORPI to collect, analyze, and disseminate information resulted in significant enhancements to interaction and compliance with the WTO. Since 2006, the notification delay to the WTO TBT committee of draft mandatory technical control requirements was reduced to the objective outlined in the PAD of 2 months. In 2005 these delays averaged 5-6 months. Similarly the delay for accessing texts on WTO notification of technical controls for export was reduced to the objective outlined in the PAD of 2 months since 2006. In 2004 these delays were 5-12 months on average. Tunisian norms related to ISO 15,000 were numerised and put on INNORPI’s website in 2008. The electronic information service “Export-Alert” setup by INNORPI in collaboration with the Canadian Council on Norms (CCN) continues to be operational since May 2009 and has over 500 firms who are members. The Export-Alert system created an electronic platform for fast and efficient dissemination of changes with regards to TBT or associated norms and technical specifications. The Export-Alert electronic platform has enhanced coordination amongst suppliers and government agencies involved in trade, improved the ability of firms to access information on TBT, and overall simplified and made more efficient trade activity in the country. The system is sustainable in that it remains functional and well used by firms after project closing.

95 A communications strategy was developed in the last two years of the project. An educational seminar targeted to firms and Government stakeholders on INNORPI services and tools developed throughout the project took place in July 2011. Regional seminars were planned for outside of Tunis but were not completed due to administrative delays.

96 INNORPI successfully collaborated bilaterally (across governments) and multilaterally via

international institutions involved in technical barriers to trade policy. INNORPI’s management successfully completed study tours in China and Thailand (2009) and Turkey (2010) of complementary public institution involved in standards and intellectual property. INNORPI received training from the Canadian Council on Norms (CCN) on the implementation of the Export Alerte system and associated back office support. Similarly, the team worked with the European Commission’s committee on technical barriers to trade (TBT) for further harmonization of Tunisia’s

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TBT procedures with EU policy. Overall, the level of international cooperation was extensive on the project and helped ensure INNORPI’s activities were congruent with international norms.

97 The project continued progressing satisfactorily despite leadership changes within INNORPI. A

new Director General was appointed as the head of INNORPI in September 2011. Bank staff commended INNORPI for their commitment to the project despite these leadership changes and a deterioration operational and economic environment associated with the December 2010 revolution. Bank staff encouraged INNORPI to highlight results of the project through sector workshops after the project closes as a way to encourage sustainability of project results.

Enhanced Efficiency of Technical Control Clearance: 98 This sub component sought to build on reforms started under EDP I to streamline the workflow of

technical control procedures, specifically the back-office procedures carried out by Government employees and agencies. Through this streamlining, which would be done through the automated trading system (Tunisia Trade Net – TTN) setup under EDP I, processing times would be reduced for technical control requests for goods placed in warehouses (autorisation provisoire d’enlèvement – APE) and goods allowed to be placed on the market (autorisation mise a la consummation - AMC).

99 The Directorate of Quality and Consumer Protection (DQPC) was the technical control institution that realized the largest number of processing efficiency gains throughout the project. The DQPC had been able to decrease time needed for processing technical requests for goods to leave the customs sites and be placed in a warehouse (autorisation provisoire d’enlèvement – APE) from 2 days to 2.75 hours. Processing times for goods to clear customs and be placed on the market (autorisation mise à la consummation- AMC) was reduced from 11 days to 3 hours as of November 2007. There is no evidence that may not have been maintained.

100 Processing times amongst other agencies within the Tunisian Government vary significantly.

The average processing times for all other agencies is 24.96 hours, making aggregate (including the DQPC) average delays across all institutions to be 9.84 hours. While DQPC automated their processes in 2008 and CERT in 2008, other agencies involved in technical control procedures continue to complete procedures manually.

101 Figures for technical request processes were produced through a study on the Radis Port dating

from November 2007. The Bank had requested more updated figures specifically with regards to APE and APC although none were produced prior to the closing of the project. The project was unable to connect all agencies to a new web-based information system, citing administrative and project management delays amongst certain ministries. This contributed to an inability to quantify recent progress forcing Bank staff to rely on the November 2007 figures.

102 Work on the technical controls database accelerated significantly from 2009-2011. The project

used the final six month extension to successfully i) install the IT equipment; ii) test/operationalize the system; and iii) settle supplier contracts. The team should be commended for achieving the installation of the automated customs clearance database despite early challenges including administrative delays, departure of consultants, and difficulty at achieving the full commitment and organization from various ministries contributed to such delays. The project provided important insight into the challenges of working with multiple different Government Agencies on a single automation system (see section 6 – lessons learned for more information).

103 Significant diagnostic and preparatory work was completed on designing the integrated risk

management system at the level of each technical control agency. A consultant completed

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diagnostic work regarding the system structure and approach to be taken, which was described in outlined in a technical specification document. Developing the risk management system was delayed by nearly two years. This delay made it significantly more difficult to get the risk management system developed, tested, and operational across all technical control agencies by the project’s closing. This process was completed in March 2012.

Reduced transactions and trade logistics costs by improving and streamlining customs clearance and border crossing procedures: 104 The project was successful is developing robust performance indicators measuring trade

logistic performance (sub-component 4.3). The team adopted methodologies from the World Bank (Trade and Transport Facilitation in Southern Europe (TTFSE) and the World Customs Organization (Time Release Study) to analyze different time segments in the customs clearance process. A number of studies evaluating customs and supply-chain procedures were completed throughout the project, providing empirical estimates to trade facilitation delays. The unit, however, was not able to sustain this early effort and was unfortunately unable to continue coordinating with customs and sharing logistics data throughout the project lifecycle.

105 With regards to customs procedures (sub-component 4.2) the project was successful in reducing average delay times for customs process (reduction of approximately 40.2%; delay decrease from 10.1 to 5.95 days). Processing time due to customs (between declaration and release) passed from three days in December 2005 to half a day in October 2011. The percentage of customs declarations in the green channel was 50% as of October 2011, against a PAD objective of 80%.

106 The transition from the current customs information system (SYNDA) to a modern and more

transparent information system was not completed. One option was the UNCTAD supported system (ASYCUDA) but the Tunisian authorities decided against because of they had built up institutional knowledge of the existing system. Activities to improve the risk management function of customs were also not completed as was the acquisition of computer equipment for customs due to new approval guidelines by the National Procurement Office. Customs decided that the procurement process needed to be re-launched to comply with new public procurement guidelines adopted after the revolution. In general administrative and strategic changes due to the revolution have significant impacts on team formation of the Customs Administration. This has helped explain delays in the final two years of the project. During ICR preparation it was difficult to get updated data and a summary of activities for the last two years of the project.

3.3 Efficiency 107 The project can be considered efficient in terms of its overall PDO which was to generate exports in

relation to the amount of matching grant fund allocated. Both the economic analysis and EMAF data show that every $1 of grant money allocated under EMAF II generated over $8 in additional exports. Peer reviewers and trade specialists noted this is an excellent return, particularly given the challenging domestic and international environment Tunisian firms faced during that period. For PEFG for every dollar used in the guarantee, the facility generated close to $3 in additional exports. The project estimated net present value (NPV) is around $485.7 US millions with approximately $665 US Millions ($550 US + $115 US) millions in additional exports generated. Furthermore additional value added from salaries generated, financing cost, and profits are estimated to be around income from fiscal receipt are estimated to be around $215 US millions for EMAF II. Annex 3 provides full details on the economic analysis used to derive this figure.

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3.4 Justification of Overall Outcome Rating (Combining relevance, achievement of PDOs, and efficiency) Rating: Satisfactory 108 Based on the relevance of the project, achievement of the PDO, and efficiency, the project is

rated satisfactory. The development objectives of the project remain highly relevant for the Government of Tunisia as well as the Bank at the time of ICR preparation. The GoT’s strong commitment to developing a third export competitiveness project deepening gains and addressing shortcoming of EDP II further reinforces the project’s relevance to the country. The project was effectively implemented. Its major achievements included contributing to increased export activity (both volume and diversity) amongst firms through EMAF II and PEFG II, and more strategically creating a commercial industry for export development services. Two independent impact evaluations established with statistical certainty that firms that participated in EMAF II saw increased export growth (in the short term) and greater diversification amongst markets and products. The project also provided the skills and experience necessary to firms to think strategically about export opportunities and implement appropriate associated policies. The project also created a market for business consulting services with regards to export promotion. Base on available estimates the project was efficient (see paragraph 106 just above).

109 The project led to improvements in the enabling environment for trade. This was done through

policy reform which caused significant decreases in the time and cost of customs processing, increased coordination amongst technical control agencies, enhanced use of trade facilitation performance indicators, and greater use of modern information systems amongst key stakeholders (Government ministries, firms) that enhanced efficiency and transparency. In certain instances the project was successfully at coordinating and bringing market actors together who traditionally did not work together. For example, the PEFG facility was able to encourage greater banking sector involvement in facilitating finance for exporting firms across Tunisia, a significant achievement given banks in Tunisia are risk adverse and generally do not serve first time exporters.

110 The December 2010 revolution led to a deterioration of macro-level economic stability and

public-sector stability. This often translated into changes in key personnel and procedures within Government ministries as well as the PCMU that contributed to project delays. For example, the acquisition of computer equipment for customs was delayed due to a new approval guideline by the National Procurement Office adopted after the revolution. Administrative hurdles, particularly with regards to procurement and decision-making through the PCMU, also contributed to operational delays that affected project implementation. Despite these delays, a significant majority of outcome indicators were met, a testament to the resilience, adaptability, and commitment of both the Government and key personnel within executing agencies.

111 The project also acted as a model for export development strategies within the MENA region,

within the Bank, and to a broader set of policymakers and researchers. The project is notable not only for the successful implementation of a large-scale matching grant scheme to expand exports, but an integrated project that combined a diverse set of activities related to trade. For example, matching grants were combined with export finance guarantees, and a broad set of trade facilitation measures designed to decrease the cost and time of trading. The project has helped position Tunisia as a regional leader with regards to trade facilitation infrastructure. This is particularly important given the country’s limited natural resources and the ongoing political transition that is continuing to cause economic challenges (particularly unemployment) for the country. The project has helped Tunisia develop firms engaged in strategic trade activities that contribute to the development of a value-added economy.

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112 The project was successful at getting research and operational communities (both within and outside of the Bank) to dialogue, at both the project design stage and at the impact evaluation completion stage. An essential difficulty in preparing and managing a matching grant scheme is demonstrating the counter-factual. The team deserves recognition for the fact the project has been subject to some significant impact evaluation work that genuinely tries to assess the counter factual. The impact evaluations establish with statistical certainty that firms receiving EMAF II assistance were successful at boosting export growth, export diversification, and in many instance employment across the period of the project. While the long-term results of the second impact evaluation are noted, it is important to keep in mind the methodological limitations of these impact evaluations, particularly the fact the control group was randomly selected ex-post. Few projects are able to match this level of rigor in terms of establishing not only achievement of results indicators but also effectiveness of PDO based on empirical rigor.

3.5 Overarching Themes, Other Outcomes and Impacts (if any, where not previously covered or to amplify discussion above) (a) Poverty Impacts, Gender Aspects, and Social Development 113 The project’s impact on poverty was indirect as it helped export and enhanced trade logistics to

minimize the cost and time associated with trading goods. These outcomes are associated with economic growth and job creation, both of which can decrease poverty. At the macroeconomic level, the project supported expanding export activity, which contributes to economic growth and social development. Connected, within both EMAF II and PEFG activities significant efforts were made by implementing agencies to expand into underserved regions within Tunisia. For example, within PEFG’s operation, 78% of credit guaranteed and 77% of exports realized occurred outside of Tunis (see figure 4 for further detail).

114 The project supported gender indirectly. Although women may have benefited through additional job opportunities and increased income from expanding exporting firms and an improved overall trading environment, gender disaggregated indicators were not included as part of the M&E framework of the project.

(b) Institutional Change/Strengthening 115 The project has clear and significant benefits in terms of institutional strengthening. All

Government institutions involved in the project (from CEPEX to Customs) stated in ICR preparation qualitative interviews that they are far more aware of the importance of export promotion to overall economic development. Coordination and integration of activities was an important component of their individual work plans. For example, technical control agencies are now much more aligned with each other on standardized steps needed to enhance efficiency and coordination of goods. The partial automation of workflow through TTN and through the diagnostic development of an integrated risk management reinforces this coordination. CEPEX is looking to replicate the successes of FAMEX in current operational settings. This institutional strengthening and awareness is a significant achievement for the project and remains an important component of enhancing overall export competitiveness in Tunisia.

(c) Other Unintended Outcomes and Impacts (positive or negative) 116 In addition to export growth and diversification supported directly through PEFG and EMAF

II or indirectly through strengthening trade logistics, the project has important market

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demonstration effects. EMAF II demonstrated that firms are willing to pay on a commercial basis for export promotion services and technical assistance. Demand far exceeded intended targets for EMAF II. Many firms continue to ask for associated technical assistance after project closure. The project also led to the development of a commercial consulting industry for export assistance. Today there are 80 export consultants providing such services (according to qualitative interviews with project managers). In addition to the market demonstration effects, an enhanced knowledge of reaching export markets has helped develop a culture of value-added entrepreneurship in the country. This will enhance Tunisia’s competitiveness moving forward. Finally, the EMAF II concept is currently being replicated in other developing/emerging economies. For example, Malaysia – a country with significantly higher income and institutional complexity than Tunisia – is studying the semi-commercial matching grant model put forth through EMAF II.

117 The project also had unintended positive outcomes on employment. The 2011 impact evaluation

found that employment in EMAF II firms grew annually by 5.5 % in 2004-2008 and by 4.6 % for firms in the control group. Although not a stated objective of the EMAF II matching grant program, the employment impact is important given Tunisia’s persistent unemployment and ongoing economic and social uncertainty due to the 2010 revolution. It is important to note that the small sample size implies results are sensitive to the specification used and not always statistically significant.

4. Assessment of Risk to Development Outcome Rating: Moderate 118 Risks to the project outcomes encompass general country risks, risks to macroeconomic

stability and export competitiveness, and project specific risks. 119 EDP II was prepared and began implementation well before the events of the Tunisian revolution.

The political situation in Tunisia has changed dramatically since 2005. The revolution has affected key ministries, administrative procedures, Government priorities, and overall public-sector capacity. These events were outside the control of the project yet had significant impacts on project completion. In many cases the heads of implementing agencies were replaced (three times in the case of the technical controls component) and as a result institutional memory was fractured. The revolution and the 2011 general elections caused daily economic and political uncertainty, which made implementing complex project components more challenging. For example, new procurement rules adopted after the revolution caused delays in the finalizing acquisition and installation of equipment for the Customs Administration. Despite these political-economy challenges, the project was successful in moving forward activities, for example maintaining levels of assistance to exporters and pushing through trade logistics reforms, in part due to multiple project extensions. The long-term benefits of the project, including enhanced ability of firms to access markets and enhanced knowledge of trade logistics amongst Government ministries, have remained and are in many ways are now more important given Tunisia is squarely focused on maintaining growth and competitiveness and addressing the country’s unemployment issue.

120 Another key risk to sustained project outcomes is the macroeconomic situation. Following the

revolution, growth fell to -1.1% for fiscal year 2011, largely because of downturns in tourism and foreign direct investments, decreased in trade remittances from both neighboring countries (also in political transition) and from recessionary conditions in Europe. Growth started to recover in 2012 and is expected to increase to approximately 3.7 percent in 2013 and 4.9 percent in 2014 as a result of the sustained recovery in exports, tourism and FDI, the continuation of major public investments, and reform measures adopted by the Government. The state of the economy impacts significantly export

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demand. Similarly, a deteriorating economic situation generally strains public budgets making it more difficult for reforms under EDP II to be maintained.

121 With regard to project specific risks, the largest risk relates to implementation capacity and long-term

follow through of trade facilitation reforms as governments ministries continue to change personnel and procedures. This risk is mitigated by extensive documentation of reforms related to trade facilitation and by the institutional memory within the Ministry of Commerce. The Government can play a coordination and strategic planning role post project to ensure implemented reforms continue. Similarly, the Bank is currently preparing a third competitiveness project which seeks to further anchor the reforms begun under EDP II and ensure development outcomes are maintained. Under the third competitiveness project the matching grant portion will be housed within CEPEX (a permanent Government structure) and the focus will be on capacity building of CEPEX stand to ensure long-term implementation of the matching grant scheme.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 122 The quality at entry assessment determined the project’s overall quality at entry to be

satisfactory. The assessment was based on review of key project documents and a lengthy interview with several member of the task team and two representatives from the Government executing agencies. The report cites staff continuity from EDP I, effective use of experience from the first project, and the project being part of a robust framework of overall assistance for Tunisia by the Bank. The assessment also assigned a Satisfactory rating to the eight quality dimension and to the Bank’s Inputs and Processes. These ratings reflect the panel’s judgment on the good use made during project design of internal experience with export development and the experience gained under EDPI I, as well as the team’s careful selection of components that have a high likelihood of being implemented successfully.

123 The project’s identification and design were compatible with the CAS, the project built on the lessons learned under the first EDP, and it was consistent with the Government’s development strategy for the sector as also noted in section 2.1. Importantly, the project had the benefit of learning from a predecessor operation, the first EDP, and it was able to refine the project to ensure a successful implementation. Learning from EDP resulted in innovation in project design including a greater focus on technical control harmonization to enhance overall trade facilitation, ambitious volume targets for PEFG and EMAF II components, and integration of Government and private agencies involved in trading through online platforms. A particular strength was the development of a detailed operational manual, which helped ensure that the project was implemented effectively and that the PCMU was following bank procedures and effectively coordinating between the many implementing agencies.

124 While outcome indicators in the PAD generally reflected project objectives and associated activities well, certain indicators could have been more fully developed during project preparation to capture project complexity. For example, clearer outcome indicators related to sub-component 4.3 (trade logistics performance indicators) in the results framework could have a) better guided the client during project implementation, b) provided clarity for how the expected results with regards to developing trade logistics indicators for Tunisia and for the customs administration, and c)

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provided better insight into how sub-component 4.3 linked with larger components. Similarly, outcome indicators for component 2 (PEFG; export financing guarantee) were too ambitious given structural complexities of implementing a pre-shipment financing guarantee scheme in an emerging market where bank are highly risk adverse.

(b) Quality of Supervision Rating: Moderately Satisfactory 125 The Bank was proactive in the identification of opportunities and resolution of problems.

Throughout project implementation, the focus remained on development impact, and the task team did not shy away from changing project elements to reflect project design, for example working through the $6 million in additional finance to meet market demand for EMAF II, or extending the project twice to maximize the possibility of project activities being met, particularly with respect to procurement and other administrative delays. Similarly, the Bank encouraged high performing components to achieve stretch targets. EMAF II indicators were twice increased and both EMAF II and PEFG were encouraged to serve firms outside of Tunis towards more underdeveloped geographic locations. Similarly, the Bank provided constructive feedback to executing agencies encountering difficulties and developed strategies to overcome bottlenecks (e.g. sub-component 4.1 (technical controls and sub-component 4.2 customs).

126 Bank supervision remained strong despite changing TTLs three times. Issues related to external and market volatility after 2010 were highlighted in aide mémoires. Mitigation measures were well outlined. The Bank supervision team was successful at coordinating with many different Government agencies given the large number of components and complex structure of the project. Mitigation plans were made with appropriate implementing agencies to complete or accelerate remaining tasks and to address bottlenecks- often surrounding procurement and launching of new systems – preventing full completion of sub-components. Similarly, Bank staff and the Government pursued project extensions to allow components to be completed given the challenging external environment (see paragraph 19 for summary of extensions). Bank staff should be particularly commended for outlining key issues and liaising with client counterparts effectively given the high turnover in staff following the December 2010 revolution.

127 While project supervision was generally satisfactory, Bank supervision documents were not systematically updated. The ISRs were not always fully completed. Particularly with regards to customs and technical control components, aide memoires and ISRs repeated positive achievements from past years while failing to provide adequate attention to problem areas (institutional capacity, willingness to complete project activities) that prevented effective completion of all components. Similarly, the accuracy of performance indicators used can be questioned as data was at times out of date or would change depending on which document was being referenced (e.g. aide memoir versus ISR versus Government quarterly report). While aide-memoires were well written, and reflected accurately key issues (as determined by stakeholder interviews conducted for ICR preparation), they at times had to rely on old performance indicators (in the case of technical control indicators – although this was outlined as an issue) and had a tendency to be repetitive in their outlining of issues from one mission to the next.

128 Particularly in the final two years of the project, World Bank staff could have been more

proactive regarding delays in activity completion. They also could have paid more attention to operational changes, modifications to Government policy, and administrative turnover that contributed to project delays. Between 2010-2012 additional attention and possibly resources could have been given to implementing agencies in order to ensure project deliverables above that of a project extension. This could have taken the form of additional technical assistance or even just

32

enhanced reporting on project advancement to better understand how the political situation was affecting the project and what (if anything) the Bank could have done to support the project during this time. Given the challenging domestic environment from 2010 onwards, supervision mission could have been increased to twice a year during the 2010-2012 period in response to deteriorating market and internal conditions in the country (see section 6 lessons learnt for more on this).

(c) Justification of Rating for Overall Bank Performance Rating: Moderately Satisfactory 129 Based on the above analysis, the overall Bank performance can be considered moderately

satisfactory. While the Bank’s performance is commendable given the changing economic and administrative conditions due to the December 2010 revolution and given the project was highly complex, additional attention to outcome indicators in project preparation and closer monitoring of project delays during the last two years was needed. The Bank could have provided more direct support to the PCMU and struggling executing agencies during this time. Overall, while the team responded to the changing project conditions, the Bank could have gone further to maximize the conditions for success for each project component.

5.2 Borrower Performance (a) Government Performance Rating: Satisfactory 130 The Government’s performance in creating an enabling environment for project success during

both preparation and implementation was satisfactory. Government ownership and involvement remained high following the completion of EDP I. This was demonstrated by the relatively quick transition to EDP II (six months between closing and effectiveness of second project). This helped ensure the continuation of the current consultants (for both EMAF and PEFG) which helped minimize disruptions in project activities and sent a positive signal to private operators. The Government endorsed the project at the highest level and facilitated the communication campaign for key components of the project such as EMAF II as well as for the PEFG.

131 The fact that many agencies were involved in project implementation made coordination and

stakeholder commitment critical. The Government played a significant role in coordinating the implementing agencies through project preparation, specifically through diagnostic work related to how to best deepen EDP I reforms, determining implementing arrangements amongst the sub-components, and acting as an interlocutor between the implementing agencies and the Bank. This work was often complex. For example, sub-component 4.1 (technical control enhancement) had over 7 different Government agencies involved in migrating to a central operating system and information sharing platform. Managing the administrative and operational structures within each agency to move forward outputs for the entire project was very challenging for the PCMU.

132 Similarly the Government rightly anticipated strong demand for EMAF II and asked, shortly

into the second year of the project, for additional financing from the Bank. This additional financing was crucial in ensuring demand was met for EMAF II components and market creation benefits were realized.

133 Government ownership throughout project supervision was also satisfactory. Regardless of

significant economic and political changes associated with the revolution, the Government kept EDP II a priority, as evidenced by the multiple project extensions asked for and consistent reporting on project deliverables through quarterly reports. Personnel within implementation agencies should be commended for maintaining (to the best of their ability) their commitment to accomplishing

33

project deliverables despite changes in senior management and uncertainty regarding basic Government structure during the last two years of the project. The government’s commitment to the project is also evidence by the ongoing negotiations over a third EDP project that incorporates much of the lessons learned from this project.

134 The PCMU, thorough quick follow-up and early involvement with corrective actions,

contributed to a satisfactory implementation of the project. The PCMU made serious efforts over the last 6 months of 2010 to ensure better coordination and preparation of procurement documents and to complete back-logged financial management audits. This helped ensure sound project management. The PCMU’s effectiveness has however declined slightly towards the end of the project – specifically following the events of the revolutions. The change in project managers (3 during the course of the project) caused certain administrative delays. Implementing agencies cited delays from the Ministry of Commerce (often directed through the PCMU) as an occasional impediment to accomplishing objectives. In March 2012, however, a new head was appointed which helped refocus the project and used the remaining six month to finish necessary tasks and keep the project on course.

(b) Implementing Agency or Agencies Performance Rating: Satisfactory 135 EMAF II implementation performance has been commendable. Starting early on with effective

management and a smooth transition, existing EMAF II staff played an important role in the design and implementation of the project. EMAF II team also demonstrated a good capacity of adaptation to a changing environment. Following additional financing and the global financial crisis and revolution, the management team was able to respond to increased demand and reduced its response time to firms while remaining focus on client requirements. EMAF II management provided timely reports of progress to date to the PCMU and was able to increase the efficiency with which it processed firm applications throughout the course of the project. EMAF II staff could have had a broader geographical representation within Tunisia. There was no EMAF II staff members located in regional offices a directive outlined in the original approved PAD (page 30).

136 COTUNACE has made good progress by significantly improving its management from EDP I.

It ensured adequate implementation in terms of required resources and capacity needed, as well as working on the participation of banks early on. Its activities decreased following successive project extensions due to uncertainty in future commitments among operators (banks and firms alike). This decrease in activities is more due to the intricate nature of export financing guarantees rather than management performance. COTUNACE also encountered challenges working with participating banks on certain guarantee cases, specifically because of Bank often insisted on collateral in addition to export financing and the general non-performance risk of firms. This is an endemic long-term challenge to financial sectors in many developing and emerging markets. COTUNACE should be commended for showing strong commitment to overcome the risk aversion of banks through educational outreach throughout project implementation. COTUNACE should be commended for using EDP II as a launching pad for related endeavors. After assessing feedback from participating firms in the PEFG program, they are currently designing plans to expand investment insurance to help Tunisia firms move into African markets.

137 INNORPI’s management team ensured satisfactory implementation of all sub components

through thorough and systematic follow up of activities. Most targets had been met ahead of project closure. There were instances where the implementation of some activities with respect to procurement and acquisition were delayed because of lack of coordination with the PCMU. INNORPI continued activities largely uninterrupted despite changes in the director general of the institutions in

34

September 2011. Despite stated plans, INNORPI was unable to hold a seminar for private sector firms and Government representatives on INNORPI services in regions outside of Tunis.

138 Customs made significant strides toward implementing the project activities, particularly in

terms of reduction of processing time (from 9 days to half a day by 2010 ), adopting a new code des douanes aligned on international standards, working toward a single windows at the Port of Rades, and improving the access to green channel for merchandise. Processing times increased somewhat in 2011, although this was largely understandable given administrative changes associated with the December 2010 revolution and subsequent political changes. Certain reforms included in the work program were not realized, such as modernizing the custom’s information system and finalizing the risk management system. This was due to a variety of administrative and strategic delays that were prolonged over the second half of the project. Similarly, there were procurement delays with respect to upgrading to an internationally recognized management information systems (ASYCUDA).

139 The Unit in charge of Trade facilitation and Logistics (Unité de Facilitation du Commerce

International et de la Logistique) was successful at delivering performance indicators measuring trade logistic performance. A number of studies evaluating customs and supply-chain procedures were completed throughout the project, providing empirical estimates to connectivity and trade facilitation delays. The DQPC and other technical control agencies were successful at reinforcing information infrastructure, developing a new database on technical controls, and increasing coordination amongst technical control ministries. The unit faced operational challenges at the beginning of the project because they had a relatively undefined PDO and little instruction from the Ministry of Commerce. While coordination was strong with the Customs administration during the first three years of the project, it was unable to sustain this early effort and unfortunately was unable to continue coordinating with customs and sharing logistics data throughout the project lifecycle.

(c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory 140 Overall the Borrower showed a high level of commitment and ownership despite significant

challenges the financial crisis in Europe, the Tunisian revolution, and the high staff turnover on both sides (Bank and government). Two project extensions enabled some of the project component that were delayed to further project activities (EMAF, DQPC, and Customs). Project delays did, however, create some operational uncertainties (particularly for EMAF II and COTUNACE) and prevented a smooth transition to a third project. World Bank staff and the PCMU reported that implementing agencies were occasionally reluctant to share information in a timely manner, which resulted in isolated cases of reporting delays. The coordination unit managed to carry on despite significant lack of human and financial resource during the last year of the project. The remaining implementing agencies demonstrated resourcefulness and creativity in ensuring the completion of their activities.

6. Lessons Learned

The Importance of Coordination, Clearly Defined Procedures, and Mitigation Measures in the Event of Unanticipated Changes

141 Due to the multiplicity of Government agencies, projects such as EDP II require strong and

effective coordination. Almost all implementing agencies reported administrative delays and difficulties because of the need to directly correspond with to the World Bank through the PCMU. Similarly, leadership changes within the PCMU (3 changes to project manager) and with key Bank

35

staff (3 TTLs) throughout the project lifecycle contributed to administrative delays. This was a major point of discussion in qualitative interviews held during ICR preparation. It is understandable the EDPII would encounter administrative challenges, particularly given the complexity of the project components (5 components and 3 sub-components) and the country-specific challenges (Tunisian revolution, political and economic instability). From the Bank and PCMU perspective, the lack of information sharing from implementing agencies made effective reporting and integration a significant challenge through the project.

142 The main lesson to retain is striving to find a balance between the need to improve synergies

among project components and coordination particularly with regards to the flow of information and administrative duties between project components and the coordination unit.

Key lessons to draw include:

Importance of clear procedures with regards to reporting and administrative management;

ensuring these procedures are followed through strong supervision from project management and Bank supervision teams

Need for constant communication between project stakeholders to minimize administrative delays Need for back-up reporting procedures in the event of change in PCMU leadership and other

managerial changes Importance of documentation in order to ensure that during the event of a change in management

within the PCMU, reporting procedures remain in place and transitions become less troublesome.

Program Complexity: 143 EDP II was a very complex program, with five major components, 3 sub-components, and 6 different

implementing agencies. The technical controls component involved migrating 7 different Government agencies to a common information platform. Effectively supervising, tracking progress, and identifying problem areas were made more difficult because of this complexity. While issues were raised during World Bank supervision missions, the mere number of components made effective identification of core problems and tracking associated resolutions difficult given competing priorities. Project complexity was further increased after 2010 when key Government personnel changed and in many cases (for example EMAF II and customs) operational priorities were modified.

144 Future projects must balance the benefits with the challenges of project complexity. Although

multiple components provides an opportunity for greater development impact, managing this complexity is a challenge even for high performing PCMUs and experienced TTLs, both of whom have many competing priorities in project implementation and supervision. This project demonstrates that simplifying projects to focus on core deliverables should be further considered, particularly given the MENA region’s current volatility.

Developing Synergies between Components to Ensure Maximum Development Impact:

145 Implementing units reported a lack of integration with other project components, noting they

often had limited contact with other project components despite the significant cross-over in the work being pursued. A steering committee comprised of management from each implementing agency was launched although the frequency with which it met was limited. For example, while there were natural synergies in the firms receiving EMAF II assistance with the firm profile receiving

36

PEFG assistance, there were no direct integrated efforts to cross-market. COTUNACE officials were present at all FAMEX events, but there was nothing in the project design that integrated these components to truly leverage synergies. While many of the project components were successful at achieving outcome indicators, a heightened focus on component integration may have helped increase development impact.

Efficiency versus Sustainability in Project Design

146 Within project design, there is a trade-off between efficiency and sustainability. The project

relied extensively on consultants throughout implementation, particularly for management of FAMEX and COTUNACE, as well as systems development and capacity building for the trade facilitation components. In many cases consultants were highly successful at project implementation. For example, FAMEX had achieved its outcome indicators by late 2007 and demand outweighed supply throughout the project’s lifecycle. FAMEX was considered an island of excellence within CEPEX. There was nothing in the project’s design to integrate FAMEX into CEPEX, which may have helped ensure efficiency in the short-run while placing much less emphasis on overall sustainability.

147 Future export development projects should recognize the importance of striving for both

efficiency and sustainability. Consultants and independent entities may be recruited by Government to help achieve outcomes more efficiently, however, without building public sector capacity, long-term sustainability may be sacrificed if Government is unable to implement activities once the project is closes. At the time of writing, a third EDP project is being prepared that will seek to achieve greater sustainability by integrating matching grant activities within CEPEX structures. Importance of Strong and Complete Monitoring and Evaluation:

148 EDP II demonstrates that the Bank team will have to pay close attention to monitoring the

achievement of the intermediate targets, and if necessary amend Annex 1 of the PAD throughout the project life cycle. Outcome indicators in the PAD were inconsistent and incomplete for certain project components. In a number of cases targets were set too low or too high. For example, the original indicators listed for FAMEX (assisting 500 firms and 40 professional associations) were accomplished in 2007, while outcome indicators for COTUNACE were never achieved, despite the project being run in a satisfactory manner. Similarly there are no outcome indicators for sub-component 4.3 (trade logistics performance indicators) included directly in the PAD and subsequent aide memoires.

149 As a result we suggest additional analysis was needed in drafting key components of the results

framework. There is a strong need for robust analysis within project preparation documents and outcome indicators to ensure effective indicators exist to capture the complexities of development objectives we are looking to achieve. The project could have benefited from revisiting outcome indicators during project implementation to reflect changes in operational and environmental performance (this was done for FAMEX component 1 but not for other components).

Responsiveness to Changing Market Conditions Reduces Implementation Delays:

150 The revolution coupled with economic deterioration due to the global economic recession had a

profound impact on this project. Certain implementing agencies were able to mitigate these risks through repositioning key staff, effectively communicating with the PCMU regarding changes in key personnel, and changing operational priorities (for example in the case of customs). The need for

37

effective project management and Bank supervision is critical in such changing market conditions. The components that were less successful at weathering these changes could have been more proactive on implementing response strategies. Similarly, the Bank could have been more proactive at monitoring and providing implementation support.

Communication and Ownership:

151 Mechanism such as EMAF II and PEFG require effective but also sustained communication

campaigns. In the case of PEFG the participation of banks would have added benefit to the project had it been sustained.

Impact Evaluations:

152 Projects such as EPD II that contain matching grants can benefit significantly from impact

evaluation studies built into the project’s design. Both impact evaluations completed for EDP II pointed to the need for generating information early on through surveys that include real control groups as opposed to simulated control groups. The third export competitiveness project for Tunisia – currently being prepared – will incorporate an impact evaluation explicitly into its project design. Similarly, impact evaluations must be backed by a coordinated dissemination strategy for policymakers inside and outside of the Bank, as well as the Government counterparts. The methodology and results of the impact evaluations for EDP II continue to be regularly debates. It is important to accurately understand their results as to ensure the results are not taken out of context. Supervision Missions:

153 Given the complexity of multi agencies projects in order to follow the project targets and goals more

closely, increasing the number of supervision mission accordingly may be warranted .

Gender: 154 We cannot provide an adequate assessment on gender outcomes for EDP II because indicators were

not included in annex III of the PAD and subsequently not tracked during project implementation. An export development project such as EDP II can benefit greatly from tracking gender disaggregated indicators as well as dedicating project resources and activities specifically to targeting women beneficiaries. PREM Trade has done significant analytical and sectoral work regarding gender and trade. Future export development projects should incorporate this work into project design.

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7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies None raised. (b) Cofinanciers N/A (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) N/A

39

Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent)

Components Appraisal Estimate

(USD millions)

Actual/Latest Estimate (USD

millions)

Percentage of Appraisal

A. Export Market Access S.1 Export Market Access Fund 31,600

EMAF II Assistance

Consulting and Training Services 5,000

Vendor Development Program 1,000

Sub-Total Export Market Access 37,600

B. PEFG Management 1,000

C. WTO TBT Enquiry Point (INNORPI)

1,000

D. Trade Facilitation S.1 Technical Control Services 1,410 S. 2 Streamlining Customs Procedures 12,900

S. 3 Trade Logistics Performance Indicators 1,250

Sub-Total Trade Facilitation 15,560 E. Project Management 310

Total Baseline Cost 55,470

Physical Contingencies 362 0.00

Price Contingencies 2,187 0.00Total Project Costs 58,019

Front-end fee PPF 356.00 .00Front-end fee IBRD .00

Total Financing Required 58,375

(b) Financing

Source of Funds Type of

Cofinancing

Appraisal Estimate

(USD millions)

Actual/Latest Estimate

(USD millions)

Percentage of Appraisal

Borrower 4.83 4.83 .00

40

International Bank for Reconstruction and Development 36.00 41.82 .00

FOREIGN SOURCES (LOCAL PRIVATE SECTOR) 15.00 15.00 .00

Financing (as of 05-Nov-2012 )

Key Dates

Project Ln/Cr/Tf Status Approval Date Signing Date Effectiveness

Date Original Closing Date

Revised Closing Date

P071115

IBRD-72390 Closed 29-Jun-2004 02-Jul-2004 14-Jan-2005 31-Mar-2010 30-Sep-

2012

P071115

IBRD-74870 Closed 28-Aug-2007 20-Oct-2007 31-Mar-2008 31-Mar-2010 30-Sep-

2012 .

Disbursements (in Millions)

Project Ln/Cr/Tf Status Currenc

y Original Revised Cancelled Disbursed Undisbursed% Disbursed

P071115

IBRD-72390

Closed USD 36,000,000.00 35,820,000.

00180,000.0

0 37,787,377 1,457,861.04 110.00

P071115

IBRD-74870

Closed USD 6,000,000.00 6,000,000.0

0 0.00 3,219,208.50 2,853,602.87 54.00

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Annex 2. Outputs by Component Component 1: Second Export Market Access Fund (EMAF II) EMAF II processed 1239 firms and 94 business associations, largely exceeding the initial objectives of 500 firms and 40 associations served by the end of the project. EMAF II finalized projects with 1,232 firms. This resulted in successful export operations for 870 firms and 54 business associations. Furthermore additional financing of $6 million was provided in 2008 by the World Bank in order to respond to greater demand for assistance to enable firms to enter export markets and to maintain the momentum EMAF II had created. Through EMAF II beneficiaries firms generated incremental exports of $550 million thus exceeding its development target of $528 mn in additional exports. 30% of those firms were new exporters, 52% targeted new markets and 19% of firms exported new products. Extending the project from March 31-September 30 2012 allowed the completion of the remaining marketing plans as well as to finalize pending administrative transactions related to remaining export plans. Beneficiaries firms operated in a diverse set of sectors (see figure below) with a more significant share of services (28%) compared to EMAF I, which focused on manufacturing. EMAF II also promoted foreign market implementation. Out of 273 firms applying for support to open a foreign branch, 115 succeeded mainly in newer non-traditional markets (Maghreb and other parts of Europe). 52% of those were seeking new export markets, indicating the correct anticipation that Tunisian export increasingly sought new markets and product diversification. In addition a number of consortia and business associations were assisted through EMAF II. 38 firms formed consortia to realize export operations, resulting in 54 export plans. It remains unclear, however, whether the business association had been formed with the goals of benefiting from EMAF II assistance.

Figure 1: Participation of Firms in EMAF II by Sector and Size

28.40%

18%

10.40%

10.20%

8.90%

8.80%

6.10%4.10%

2.30% 2.20%0.60%

Services (350)

Textiles and Clothing (222)

Miscellaneous Industries(128)Food and Agriculture (126)

Mechanical and Electrical(110)Artisinal Products (108)

Chemicals (75)

International BusinessAssociations (50)Ceramics and Glass (28firms)

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Component 2: Pre-Shipment Finance Guarantees (PEFG) Facility The Pre Export Finance Guarantee scheme generated around $115 mn of additional exports and allocated $54 mn in working capital guarantees. 225 firms benefited from the guarantees through the participation of 18 banks in the scheme. Particularly in the initial years of the project the guaranty facility was able to develop strong links with Banks through a communication campaign and workshop designed to capture the adherence of bankers. In terms of operational effectiveness PEFG was able to reduce its processing time from 12 days in 2007 to 8 days in 2012. The total export generated through assisted firms (EMAF II + PEFG) amounted to $665 Million, representing 84% of the initial target of $787 million, which represents the total additional export generated by both components (FAMEX and PEFG). This is the case despite EMAF II exceeding its targets of by $16.8 mn (550-528) and is due to the ambition PEFG target of $259 million additional firms supported by EMMAF.

Component 3: WTO Technical Barriers to Trade Enquiry Point Strengthening the capacity of INNORPI to collect, analyze, and disseminate information resulted in significant enhancements to the interaction and compliance with the WTO. Since 2006, the notification delay to the WTO TBT committee of draft mandatory technical control requirements was reduced to 2 months (PAD objective, against 5-6 months on average in 2005-2006). The delay for accessing texts on WTO notification of technical controls for export has been 2 months since 2006 (PAD objective, against 5-12 months on average in 2004). The electronic information service “Export-Alert” setup by INNORPI in collaboration with the Canadian Council on Norms (CCN) continues to be operational since May 2009 2008 and has over 500 firms who are members. Tunisian norms related to ISO 15,000 were numerised and put on INNORPI’s website in 2008.

Outputs for component 3 are as follows:

# Output Amount Date

1 English language training for INNORPI staff USD20,000 April 2006

2

Consultant to prepare terms of reference for a technical assistance mission for the design and implementation of the INNORPI technical barriers to trade (TBT) information system

USD 20,000 2006

3 Selection of a consulting firm for the preparation of the digitization and numbering of Tunisian trade norms

Euro 30,000 2006

4

Technical assistance for the development and implementation of the TBT-INNORPI information portal (completed by Samarcande consulting firm)

USD 100,000 July 2007

4.1 Evaluation of existing information portals on TBT in preparation for INNORPI system

USD 33,000 October 2007

5 Four study trips to examine other information portals USD 105,000 June-July 2007

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6 Training on Information Communications Technology (by ADBS consulting firm) Euro 42,000 March 2008

7 Software necessary for the digitization and numbering of the TBT database TND 94,160,000 September 2008

8 Implementation of the INNORPI information system “Export Alerte” CAN $40,000 November 2008

9 Technical assistance to choose an information systems solution for the PNI-INNORPI information system

Euro 85,000 2008-March 2012

10 Training ‘sur les techniques de veille normative et réglementaire’ by ADBS consulting firm

Euro 42,000 December 2009

11 Purchasing manuals related to management of technical trade norms Euro 16,000

12

Public relations/advertising campaign for new PNI-OTC-INNORPI information service (implemented by Kahia Productions)

TND 45,000 June 2009

13 Acquisition of information systems for PNI-OTC-INNORPI information system TND 206,350,000

14 Research publication: developing a national strategy of trade norms for 2011-2015

Euro 16,000

15 Study Trips to study information systems for technical barriers to trade USD 20,000

November 2009 (China and Thailand); October

2010 (Turkey)

16 Training: third party auditors (implemented by AFNOR) Euro 78,063,000 3rd quarter 2010

17 Development of an online publicity campaign for TBT TND 28,000 November 2009

18 Training: back office support for Export Alerte in Canada with the Canadian Council on Norms (CCN)

USD 20,000 September 2010

19 Equipment: information management TND 305, 500,000 March 2011

20 Delivery of education seminars on TBT and INNORPI’s services TND 10,000 July 22, 2011

21 Study trip: European Commission to study technical barriers to commerce and trade

TND 8,500,000 December 7, 2011

22

Training activities on the implementation of information research services concerning normative, regulatory and patent issues (specialized training bureau)

USD 25,000 June 2012

23 Training of INNORPI trainers (ToT) N/A Organized but not completed

24 Dissemination seminars USD 14,000 September 2012

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Component 4: Trade Logistics Sub-Component 4.1: Enhanced Integration of Technical Control Procedures and Strengthened Risk Management Protocols: The Directorate of Quality and Consumer Protection (DQPC) was the technical control institution that realized the largest number of processing efficiency gains throughout the project. The DQPC had been able to decrease time needed for processing technical requests for goods to leave the customs sites and be placed in a warehouse (autorisation provisoire d’enlèvement – APE) from 2 days to 2.75 hours. Processing times for goods to clear customs and be placed on the market (autorisation mise à la consummation- AMC) was reduced from 11 days to 3 hours. These figures, however, were measured in November 2007. Bank staff repeatedly called for these figures to be updated using more recent data, however this never occurred. Processing times amongst other agencies within the Tunisian Government vary significantly. The average processing times for all other agencies is 24.96 hours, making aggregate (including the DQPC) average delays across all institutions to be 9.84 hours. While DQPC automated their processes in 2008 and CERT in 2008, other agencies involved in technical control procedures continue to complete procedures manually. A risk management system designed to improve efficiencies across technical control agencies was delayed by nearly two years. The system was eventually developed and tested but full implementation was not achieved before project closing. See section 3.2 for full analysis of managerial and administrative delays related to technical controls component. With regards to customs procedures (sub-component 4.2) the project was successful in reducing average delay times for customs process (reduction of approximately 40.2%; delay decrease from 10.1 to 5.95 days). During that period, processing time due to customs (between declaration and release) passed from three days in December 2005 to half a day in October 2011. The % of customs declarations in the green was 50% as of October 2011, against a PAD objective of 80%. Outputs procured within sub-component 4.2 include the following:

Hardware # Output Contract

Date Amount of Contract

Date of No Objection

Amount paid to

the Supplier

Amount paid by the

World Bank

1 500 micro-computers 09/25/2006 TND 765,570,000

09/11/06 TND 765,570

Euro 355,873.22

2 500 printers 09/25/2006 TND 351,320

09/11/2006 TND 343,750

Euro 159,538

3 165 micro-computers 02/25/2009 TND 221,799

01/29/2009 TND 221,799

Euro 95,521

4 Computer equipment for renovation of the “Sinda” information system

07/20/2009 TND 1,809,184

07/01/2009 TND 1,809,184

Euro 945,861

5 Computer equipment 07/20/2009 TND 147,092

07/01/2009 TND 147,092

Euro 62,516

6 4 Scanners/inspection systems

08/21/2007 Euro 4.128,000

07/05/2007 4,034,088 (93,912

Euro 4,034,088

45

penalty) 7 X-ray inspection

system 08/29/2009 Euro

1,315,000 08/11/2009 Euro

1,315,000 Euro

1,315,100 8 Mobile customs

processing systems (vehicles and associated supervision/scanning software; GPS/GPRS software)

01/27/2011 USD 1,054,309

08/01/2011 USD 948,878

Euro 668,695

9 Acquisition of computer equipment

Estimated 1,500,000

Not achieved; new

procurement methods

adopted in 2011 (after the

revolution) prevented

completion of activity;

activity to be completed under new

competitiveness project

currently being negotiated

Training and Consultancies

# Output Contract Date

Amount of Contract

Date of No Objection

Amount paid to

the Supplier

Amount paid by

the World Bank

1 Transition from SYNDA to ASYCUDA information system (consultant: CNUCED)

05/26/2008 USD 279,675 12/04/2007 USD 279,675

Euro 155,392

2 Assistance in change management implementation processes (consultant: Samef)

08/18/2008 TND 52,640 07/11/2008 TND 52,640

Euro 25,036

3 Study on risk management and selectivity procedures (independent consultant: Hatem Ben Ameur)

08/06/2009 TND 61,600 07/15/2009 TND 61,600

Euro 26,193

46

Project objectives were largely achieved regarding the development of robust performance indicators measuring trade logistic performance (sub-component 4.3). The team adopted methodologies from the World Bank (Trade and Transport Facilitation in Southern Europe (TTFSE) and the World Customs Organization (Time Release Study) to analyze different time segments in the customs clearance process. A number of studies evaluating customs and supply-chain procedures were completed throughout the project, providing empirical estimates to connectivity and trade facilitation delays.

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Annex 3. Economic and Financial Analysis At appraisal, the Bank team undertook a socio- economic assessment of EDP II. The design of the project which contains multiple components and sub components as well as a significant institution and capacity building dimension made it challenging to capture its overall social and economic impact. Spillover benefits such as the development of an export consulting industry, the opportunity costs resulting from goods manufactured by beneficiaries firms that would otherwise have been imported, jobs created and added fiscal revenues could not be adequately quantified. Using estimated and real actual figures allows us to test the robustness of the initial model design. In both cases we find that the design and the mechanics of the model used for projections are adequate in terms of projections if used with more conservatives’ assumptions ( see summary result table below)

Table 1. Summary result EMAF II

projected EMAF II realized

PEFG Projected

PEFG realized

Accumulated exports

528 550 259 115

EMAF II Economic impact EMAF II economic impact was estimated based on a total of 540 beneficiaries with a grant of US$34 million. The following assumptions were used:

- Benefits for the business associations (40) and the firms (500) were grouped because it was believed that the number of trade association would remain modest and therefore did not justify using a different trade ratio multiplier for the associations.

- The EMAF II grant would be disbursed over a four year period plus two additional years to

measure the benefits through year six. The number of beneficiaries would be spread over the four years of disbursement. The trade ratio multiplier increased form 2 during the first year to 4 , 6 and 8 for the last year.

- The discount rate used was 8%

- The value added distribution of the export stream was based on EDP I which was inspired from

countries with similar trade profiles (Ecuador, Mauritius)

- Taxes on export were based on average fiscal recovery, with 17.5% for payroll and 20% for income corporate tax. Likewise for employees of exporters with 9.3% on salaries and 3% on VAT paid up salaries.

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Table 2. EMAF II Summary results of simulations (US$ million) EMAF II 4yr

US$34 Million (estimated at appraisal)

EMAF II 4 yr US$44.8 Million (reverse simulation)

EMAF II 4 yr US$44.8 Million

Actual

Accumulated exports

528 952 550

NPV of exports 367 676.3 N.A Salaries generated 56.7 104.4 N.A Financing costs 74.4 137.1 N.A Depreciation 29.3 54.1 N.A Profits 54.5 100.5 N.A Total value added 215 396.3 N.A

According to Table 1 and 2 the initial projected figures of EMAF II show significant gains in incremental or additional exports as well as on total value9. The initial assumptions attempted to account for a number of factors. It was therefore estimated at appraisal that EFAM II would yield approximately US$528 million in accumulated export over 6 years with a Net Present Value of US$367 million for a total value added of 215 (see table 1). We attempt to replicate the model using the same initial model design and assumption which shows that EMAF II yields total incremental exports of US$952 million. Under the hypotheses used at appraisal, the model overestimates the actual number realized (US$ 550 million). Lessons learned A number of challenges presented themselves in order to replicate the models. The EMF II accounts had not been finalized at the time this ICR was written10 so the annual actual numbers for disbursement and beneficiaries were not readily available especially for the last year which was estimated.11 The initial model used at appraisal for EMAF II generates optimistic figures. The assumptions that the exports effects will accrue over 2 years after the life of the project seems to be reasonable but the magnitude of the effect accrued is in our view was too large. In addition the trade ratio multipliers was also large as it based on an overall average and in reality can vary significantly. It would be more realistic to be conservative with this ratio. In fact it has been observed that it tends to diminish with time instead of increase. A potential future model should attempt to present scenarios (sensitivity analysis) based on different disbursement rates, revised export growth rates of past beneficiaries and diminishing trade ratios.

Table 3. Economic Impact of EMAF ((US$ million)

PROJECTED EMAF 2

# Firms 540

Amount 31.6 U.S Million

9 Accounting for employee’s income and taxes collected from additional exports for both firms and employees 10 The fact that the final Financial management audit had not yet been conducted for EMAF II because the consultants left at project closing illustrates some of the sustainability challenges that confronted the project. 11 In addition the economic impact analysis was designed for a four year period but EDP II was extended and EMAF II benefited from added financing from both the bank and the Tunisian government. The initial planned total grant of US$34 Million was exceeded (EMAF II total grant was approximately US$44. million over a 7 year period).

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Period 4 Years year 1 year 2 year 3 year 4 year 5 year 6

Assumed ratio of additional exports to one $ of grant 2 4 6 8

Number of exporters assisted by EMAF2 80 120 160 180

Total matching grant 1.50 5.50 11.60 13.00 Exports generated by exporters assisted in year 1 3.0 6.0 9.0 12.0 Exports generated by exporters assisted in year 2 11.0 22.0 33.0 44.0Exports generated by exporters assisted in year 3 23.2 46.4 69.6 92.8Exports generated by exporters assisted in year 4 26.0 52.0 78.0

Additional annual exports generated by EMAF 2 3.0 17.0 54.2 117.4 165.6 170.8

Cumulated exports 3.0 20.0 74.2 191.6 357.2 528.0

NPV of additional exports $367.01

Investment (matching grant) -1.50 -5.50 -11.60 -13.00 Mgmt & Operating costs -1.1 -1.65 -1.8 -1.45 Additional annual exports 3.0 17.0 54.2 117.4 165.6 170.8

Flow of Funds 0.4 9.9 40.8 103.0 165.6 170.8

NPV $337.21

Value Added 215.07

Including Salaries 56.70Tax revenues form exporters 83.32

Tax revenues form salaries 7.01

EMAF 2 ICR

# Firms 870

Amount 44.8 U.S Million year 1

year 2 year 3 year 4

year 5 year 6 year 7 year8

Period 7 Years Assumed ratio of additional exports to one $ of grant 2 4 6 8 8 8

Number of exporters assisted by EMAF2 75 349 36 144 247 19

Total matching grant 14.50 5.00 7.30 8.00 7.0 3.0 Exports generated by exporters assisted in year 1 29.0 58.0 87.0 116.0 116.0 116.0 Exports generated by exporters assisted in year 2 10.0 20.0 30.0 40.0 40.0 40.0Exports generated by exporters assisted in year 3 14.6 29.2 43.8 58.4 58.4 58.4Exports generated by exporters assisted in year 4 16.0 32.0 48.0 64.0 64.0Exports generated by exporters assisted in year 5 14 28 42 56Exports generated by exporters assisted in year 6 6 12 18Additional annual exports generated by EMAF 2 29.0 68.0 121.6 191.2 245.8 296.4 216.4 196.4

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Cumulated exports 29.0 97.0 218.6 409.8 655.6 952.0 1168.4 1364.8

NPV of additional exports $908.66

NPV of additional exports ( 4yr) $676.29

Investment (matching grant) -14.50 -5.00 -7.00 -8.00 -7.60 -3.00 Mgmt & Operating costs -1.1 -1.65 -1.8 -1.45 -1.5 -1.5 Additional annual exports 29.0 68.0 121.6 191.2 245.8 296.4 217.6 198.8

Flow of Funds 13.4 61.4 112.8 181.8 236.7 291.9 217.6 198.8

NPV $867.55

Value Added 532.48

Including Salaries 140.39

Tax revenues from exporters 206.30

Tax revenues from salaries 17.37 PEFG economic impact The initial analysis was based on fund of shows an estimate based on an initial fund of US$5 million with improved management compared to EDP I and the following assumptions

The guarantee coverage fund ratio will gradually increase from 2 in the first year to 4 in the second and third year to 5 and 6 respectively for year 4 and 5. Representing a more conservative estimate over EDP I.

The average yearly turnover of pre-shipment export finance is equal to 2, with a maximum

maturity of 6-months.

For an export order of US$1 the PEFG covers US$0.81, which is 90 percent loan share times 90 percent guarantee share.

The net default rates decline from 3% in the first year to 2.5% in the second year 2% and 1.5 %

for the third and fourth year and 1% for the last year. These rates reflect the technical assistance supplied to SMEs.

Additional annual exports of US$1 million generate 100 jobs.

The administrative costs would initially represent 1.7% of the guarantee outstanding and decrease

to 1% in the final year. The annual premium fate applied to the guarantee outstanding is 1.8%.

The fund’s annual interest earnings are 4%.

It was estimated that US$1 would covers US$2.47 on annual exports with a PEFG coverage ratio of 1 (1/90%*90%) * 2 =2.4. This meant that with a coverage ratio of 6 at the end of the 5th year, one dollar of fund would cover 2.47*6=14.8 Therefore a US$5 million fund had the potential to cover US$74.1

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million of exports. The NPV of the benefits would represent US$200 million for the first 5 years; while the NPV of net social benefits represented US$92 million for the same period. We obtain these figures by using the same model and actual figures12 Again we find that some of the assumptions seemed slightly overly optimistic, particularly with regard to the guarantee coverage ratio which was the main driver of export generated, and the percent guarantee share – set at 90%. Our results show that the total export generated over 7 years was US$149.4 million with a NPV of additional export of US$118.78 million compared to an initial estimated gain of NPV US$200 million and total exports of US$259 million. The actual export generated was around US$115 million thereby showing the model to overestimate. We revise assumptions as follow:

- On average the actual annual of pre shipment export coverage ration should not exceed 3. loan maturity revolved around 160 to 147 and 196 but varied across industries so it is reasonable to keep it at 180 days

- The percent guarantee share varied between manufacturing and services with around 20% in services to 80: max in industries. An estimated average rate should be around 45%

Using these assumptions and going back to the original formula the model estimates US$1 covers US$ 6.3 of annual exports with a PEFG coverage ratio of 1 (1/40%*90%) * 2=4.5 Therefore according to the model US$5 million could cover 22.5 million of additional exports in year 1 as opposed to US$74 millions as originally estimated. Overall we find that the assumptions could be revised as per the result mentioned. The assumption that the $US 5 million capital of the fund could be available every year to generate exports (based on the 5 million fund capital being exhausted annually) is unlikely and therefore exports and NVPO could be overestimated , along with overly optimist coverage ratio and credit outstanding explain the discrepancies between projected and actual. Readjusting the coverage ratio and credit outstanding assumption could generate more realistic projections.

12 As for EMAF II , the team ran into some challenges in obtaining actual accurate data and had to estimate

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Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/

Specialty Lending

Hamid R. Alavia Senior Private Sector Development Specialist EASFP TTL

Mehdi Benyagoub PSD Specialist MNSF1 Steve W. Wan Yan Lun Operations Analyst MNSF1

Supervision/ICR Djibrilla Adamou Issa Anas Abou El Mikias Consultant MNAFM Radia Benamghar Transport Specialist SASDT Salim Benouniche Lead Procurement Specialist MNAPC Allen Curtis K. Dennis Senior Economist DECPG James C. Hanna Consultant MNSF1 Nora Kaoues Senior Operations Officer OPSRS

Jean Michel Noel Marchat Lead Private Sector Development Specialist AFTFW

Peter McConaghy Junior Professional Associate MNSF1 John S. Wilson Lead Economist DECTI Michel Zarnowiecki Consultant PRMTR

(b) Staff Time and Cost

Stage of Project Cycle Staff Time and Cost (Bank Budget Only)

No. of staff weeks USD Thousands (including travel and consultant costs)

Lending FY01 2.31 FY02 58.02 FY03 183.30

Total: 243.63 Supervision/ICR

FY04 155.76 FY05 148.75 FY06 117.99 FY07 125.75

Total: 548.25

53

Annex 5. Beneficiary Survey Results N/A

54

Annex 6. Stakeholder Workshop Report and Results (if any) No stakeholder workshop was conducted.

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Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR A draft ICR was shared with the borrower for comments. No comments were raised and the borrower did not provide its own ICR for the project.

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Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders N/A

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Annex 9. List of Supporting Documents Cadot, Olivier, Ana M. Fernandes, Julien Gourdon, and Aaditya Mattoo. Are the Benefits of Export Support Durable? Evidence from Tunisia. Report. Policy Research Working Paper. Washington: World Bank, 2012 Export Development Project (EDP I) Implementation Completion Report No: 31785-TN, March 2005 Financial reports for CEPEX, COTUNACE, INNORPI, DQPC and technical agencies, and customs administration From Privilege to Competition: Unlocking Private-Led Growth in the Middle East and North Africa. Report. MENA Development Report. Washington: World Bank, 2009 Gourdon, J., JM Marchat, S. Sharma, and T. Vishwanath. Ex-Post Impact Evluation of an Export

Promotion Matching Grant: Tunisia's EMAF II. Report. Vol. 40. MENA Knowledge and Learning. Washington: World Bank, 2011.

Operational Manual for EMAF and CMU Policy Note on SMEs and Access to Finance in Tunisia. Report. Washington: World Bank, 2009 Project aide memoires, Back-to-office reports, ISRs, etc Rocha, Roberto R., Zsofia Arvai, and Subika Farazi. Financial Access and Stability: A Road Map for the Middle East and North Africa. Report. MENA Development Report. Washington: World Bank, 2011. Second Export Development (EDPII) Project Appraisal Document, Report No: 29178-TN, June 2004.

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Annex 10: Summary of Impact Evaluations Completed on Project Summary of: Gourdon, J, JM Marchat, S. Sharma, and T. Vishwanath. Ex-Post Impact Evaluation of an Export Promotion Matching Grant: Tunisia's EMAF II. Rep. No. 40. Washington: World Bank, 2011. Print. MENA Knowledge and Learning. Method: The authors evaluated EMAF II by comparing changes in relevant outcomes (such as exporting) before and after EMAF II across firms that got EMAF II support (the “Treatment” group) and firms that are similar but did not get EMAF II support (the “Control” group). Ideally, these groups should have been ‘identical’ prior to EMAF II, so that it can be safely assumed that changes in the relevant outcomes during this period would have been the same across the treatment and control groups, had it not been for EMAF II. One way to ensure that such ideal treatment and control groups existed would have been a randomized acceptance of applicants to EMAF II. Unfortunately this best-case strategy was not possible, since acceptance into the program was not random, and that the most promising applicants are systematically more likely to have been accepted. Keeping this is mind, the author’s designed a strategy that attempted to come as close to the idealized approach as possible. The authors wanted to identify a control group which is the most similar to the treatment group, so that it can be argued that changes in outcomes across this control group is a good measure of what would have happened to EMAF II firms during this period had they not received EMAF II support. Given that the authors did not have an ideal ex-ante identical control group, they randomly selected similar Tunisian firms as a control group, and then compared the ‘treatment’ and the ‘control’ groups after controlling for differences along observable dimensions such as size, age, sector, and prior exporting status. They controlled for observable differences using Propensity Score Matching (PSM), a statistical matching technique that attempts to estimate the effect of a policy or program by accounting for the covariates that predict receiving the treatment. The logic behind this approach is that once these observables are controlled for, all other differences across these two groups of firms in outcomes before and after EMAF II are due to their different EMAF II status. This approach was applied to two datasets. One is an in-depth survey of 196 EMAF II firms and 232 similar control firms while the second dataset is based on detailed customs data and compares 400 EMAF II firms to 2600 Tunisians firms. Results: In contrast with the raw comparison (without PSM), PSM gave higher and statistically significant differences for growth in export volume and growth in number of destinations (light shades mean no significant differences in Chart 1 below). Estimates suggest that participation in EMAF II is associated with an increased growth in firms’ total exports. The annual export growth is 38.9 % higher for EMAF II assisted firms compared to controls firm with similar propensity scores in 2004-2008. Similarly, annual growth in destination markets reached is 4 % higher for firms assisted by EMAF II. Finally, the impact of EMAF II is positive but not significant on another output that captures the extensive margins in exports: the number of products. The same dataset was also used assess the employment impact of EMAF II. Although not a stated objective of the EMAF II matching grant program, the employment impact is important given Tunisia’s persistent unemployment and ongoing economic and social uncertainty due to the 2010 revolution. Employment in EMAF II firms grew annually by 5.5 % in 2004-2008 and by 4.6 % for firms in the control group. The PSM approach yields similar results though the gap is larger: annual growth of 10.2 % for EMAF II firms against 5.1 % for the control group. This suggests EMAF II had a positive impact on

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employment, though it must be noted that the small sample size implies results are sensitive to the specification used and not always statistically significant.

Chart 1: EMAF II Key Outcomes

Customs Data: In addition to firm-level data, another ex-post impact evaluation exercise was completed based on a larger sample of customs data. Transaction-level export data with exporter ID, transaction value, country of destination, and produce code were obtained from Tunisian Customs for 2000-2008 for 3000 firms, including 400 EMAF II firms. The sample represents approximately 55% of export of goods (excluding oil) in Tunisia. Using PSM on this customs data, the authors found that EMAF II support had increased the difference in growth rate in the two years of treatment for export outcomes, ie volume, number of destinations and number of products. Increase in growth is slightly higher than with the firm level survey data. The impact is for two years instead of the four years and the impact on extensive margins is higher. The limitation with customs data used is that firms in services, which represent approximately 30% of EMAF II firms, are not taken into account as they are not reported in custom’s data. This, however, allows for i) a more robust matching and disaggregation of results by types of treated firms and ii) to test for the duration of impact of EMAF II. The authors consider here that the impact of EMAF II for a firm receiving support in 2005 should be measurable on export transactions in 2005 and 2006. Over the long-term, outcomes do not differ much from random non-EMAF II firms (see chart 2). The authors suggest that perhaps the duration of support by EMAF II was not sufficient to allow managers to be on their own in export markets. Similarly, the results suggest that limits to production expansion may have been reached after a first large increase.

0

10

20

30

40

ExportsDestinationMarkets Products

18.5

2.82.5

38.90

4.004.30

Without PSM

With PSM

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Chart 2: EMAF II Key Outcomes

Source: Authors’ calculations based on custom’s data

Conclusion: Although the short duration of the impact and limited additionally for a specific class of manufacturing firms joins earlier criticisms of matching grants, overall results from the PSM based on two different data sources suggest the EMAF II was successful. It had a statistically significant, positive impact on firm performance along targeted dimensions of total exports, number of export product and export destinations and is likely to have a positive impact on employment. Summary of: Cadot, Olivier, Ana M. Fernandes, Julien Gourdon, and Aaditya Mattoo. Are the Benefits of Export Support Durable? Evidence from Tunisia. Report. Policy Research Working Paper. Washington: World Bank, 2012 This paper evaluates the effects of the FAMEX export promotion program in Tunisia on the performance of beneficiary firms. While much of the literature assesses only the short term impact of such programs, the paper also considers longer term impact. using a menu of estimation methods, including difference-in-differences combined with propensity-score matching (PSM-DID) and difference-in-differences weighted by propensity scores, designated henceforth as weighted least squares regressions (WLS). The author’s find that, compared to a control group, FAMEX beneficiaries successfully diversify in terms of export destination markets and products, and durably so. However, the beneficiary firms‘ total exports diverges only temporarily from the control group‘s total exports. See Chart 1 for graphical representation. One year after treatment, the differential in growth rates of total exports is not significant anymore. Three years after treatment, even export levels are no longer significantly different. Even though export destination and product counts remain significantly different throughout the sample period, the treatment group‘s diversification does not seem to translate into reduced export volatility. These results suggest that FAMEX has a stronger and more durable effect on firms’ exports at the extensive margin (destination and product growth) than at the intensive margin (total export growth).

0

10

20

30

40

20052006

20072006

17.7

1.8

16.1

3.9

37.9

11.2 Products

Countries

Exports

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The authors also examine the existence of program spillovers by estimating FAMEX‘s indirect impact on the performance of control firms. This is an important—although typically underexplored—part of program impact evaluation, because in the presence of spillovers, the absence of a positive measured treatment effect could reflect a positive true treatment effect transmitted to the control group through positive externalities, which is precisely the combination that would justify Government intervention. In the case of FAMEX, the central result- the lack of persistence of treatment effects on export values – might reflect catching up by control firms rather than vanishing benefits for treated firms, although catching up through imitation should apply equally – perhaps even more – to the extensive margin for which there is observable permanent divergence. For instance, FAMEX beneficiaries’ actions, such as participating in trade fairs or hiring export-marketing consultants, could have been visible to and easily imitable by other firms in their sector or location. Regressing firm outcomes on exposure to FAMEX beneficiaries, the results fail to suggest any positive externalities. The only instance of significant coefficients for total exports and for the number of products is negative, which would certainly not suggest spillover benefits occurred. Finally, the authors study heterogeneity in treatment effects as a function of the beneficiaries‘ objectives and use of assistance. When applying to FAMEX firms had to state an objective, whether they wanted to: (i) become a significant exporter, (ii) export to a new destination markets, or (iii) export a new product. Given the way FAMEX application packages were structures, firms could state only one of these three objectives. The authors re-estimate cumulative treatment effects of FAMEX allowing for these effects to differ across objectives. Firms seeking to expand into new markets or to develop new export products benefit more than firms seeking to become more substantive exporters. Also, market prospection and promotion activities correlate more significantly with export outcomes than other components of FAMEX, like firm or product development, suggesting that informational barriers are the most amenable to effective government assistance. These findings support the broad view that firms seeking and using assistance to expand along the extensive margin are less likely to be disappointed with the longer-term outcome than

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those seeking and using assistance to expand along the intensive margin. Together, these results suggest that export promotion is most effective in helping firms break into new markets and new products. Concluding Remarks: The authors conclude that their research adds to the small existing literature by taking a longer view of impact of interventions. They find FAMEX had a durable impact along the extensive margin in terms of export destinations and products but provided along a temporary boost to exports along the intensive margin. The results are robust. The authors suggest that the results must also be understood in the context of the global economic recession. Similarly, there may be a bias in that firms participating in FAMEX may have ventured into riskier markets. Their evidence demonstrates that the increased diversification of beneficiary firms did not result in reduced volatility of exports. Given that exports were not sustained and that effects did not spillover to non-treated firms, the authors suggest that matching grants programs alone may not be the best use of public funds for long-term sustained export development.

M e d i t e r r a n e a n

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This map was produced by theMap Design Unit of The World Bank.The boundaries, colors, denominationsand any other information shown onthis map do not imply, on the part ofThe World Bank Group, any judgmenton the legal status of any territory, orany endorsement or acceptance ofsuch boundaries.

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