Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 73677 – YE

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED GRANT

IN THE AMOUNT OF US$3.72 MILLION

FROM THE MIDDLE EAST AND NORTH AFRICA TRANSITION FUND

TO THE

REPUBLIC OF YEMEN

FOR AN

ENTERPRISE REVITALIZATION AND EMPLOYMENT PILOT PROJECT

June 4, 2013

Finance and Private Sector Development Group

Middle East and North Africa Region

This document has a restricted distribution and may be used by recipients only in the

performance of their official duties. Its contents may not otherwise be disclosed without World

Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective May 29, 2013)

Currency Unit = Yemeni Rial (YR)

YR 215.00 = US$1

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

BDP Business Development Plan

BDS Business Development Services

CSO Civil Society Organizations

DB Doing Business

EOF Economic Opportunities Fund

EPA Environmental Protection Agency

EU European Union

GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit

GNR Government of National Reconciliation

GoY Government of Yemen

IEG Independent Evaluation Group

IFAD International Fund for Agricultural Development

IFC International Finance Corporation

IFRs Interim Financial Reports

ISDB Islamic Development Bank

ISN Interim Strategy Note

ISO International Organization for Standardization

M&E Monitoring and Evaluation

MAF Mutual Accountability Framework

MENA Middle East and North Africa

MFIs Microfinance Institutions

MIS Management Information System

MOPIC Ministry of Planning and International Cooperation

MTVET Ministry of Technical and Vocational Education and Training

OFID OPEC Fund for International Development

PDO Project Development Objectives

PSD Private Sector Development

SEDF Small Enterprise Development Fund

SEZ Special Economic Zones

SFD Social Fund for Development

SME Small and Medium Enterprise

SMED Small and Micro Enterprise Department

SMEPS Small and Micro Enterprise Promotion Service

SNACC Supreme National Authority for Combating Corruption

TA Technical Assistance

TEVT Technical Education and Vocational Training

TPSD Transitional Plan for Security and Development

UNDP United Nations Development Programme

WBG World Bank Group

Regional Vice President: Inger Andersen

Country Director: Hartwig Schafer

Sector Director: Loic Chiquier Sector Manager: Simon C. Bell

Task Team Leader: Nabila Assaf

YEMEN

Enterprise Revitalization and Employment Pilot (EREP) Project

TABLE OF CONTENTS

Page

I. STRATEGIC CONTEXT .................................................................................................1

A. Country Context ............................................................................................................ 1 B. Sectoral and Institutional Context ................................................................................. 2

C. Higher Level Objectives to which the Project Contributes .......................................... 6

II. PROJECT DEVELOPMENT OBJECTIVES ................................................................7

A. Project Development Objective (PDO) ........................................................................ 7 Project Beneficiaries ........................................................................................................... 8

III. PROJECT DESCRIPTION ..............................................................................................9

A. Project Financing ........................................................................................................ 10

Lending Instrument ........................................................................................................... 10 Project Cost and Financing ............................................................................................... 11

B. Lessons Learned and Reflected in the Project Design ................................................ 11

IV. IMPLEMENTATION .....................................................................................................13

A. Institutional and Implementation Arrangements ........................................................ 13

B. Results Monitoring and Evaluation ............................................................................ 16 C. Sustainability............................................................................................................... 16

V. KEY RISKS AND MITIGATION MEASURES ..........................................................17

A. Risk Ratings Summary Table ..................................................................................... 17

B. Overall Risk Rating Explanation ................................................................................ 17

VI. APPRAISAL SUMMARY ..............................................................................................17

A. Economic and Financial Analyses .............................................................................. 17 B. Technical ..................................................................................................................... 18

C. Financial Management ................................................................................................ 19 D. Procurement ................................................................................................................ 20 E. Social (including Safeguards) ..................................................................................... 21 F. Environment (including Safeguards) .......................................................................... 21

Annex 1A: Results Framework and Monitoring ............................................................................22 Annex 1B: Beneficiary Profile and Performance ..........................................................................24 Annex 2: Detailed Project Description ..........................................................................................25

Annex 3: Implementation Arrangements .......................................................................................30 Annex 4: Operational Risk Assessment Framework (ORAF) .......................................................48 Annex 5: Implementation Support Plan .........................................................................................52 Annex 6: Country At-A-Glance .....................................................................................................54

MAP

i

PAD DATA SHEET

Yemen

Enterprise Revitalization and Employment Pilot Project

PROJECT APPRAISAL DOCUMENT

Middle East & North Africa

Financial and Private Sector Development

Basic Information

Date: June 4, 2013 Sectors: Private Sector Development (100%)

Country Director: Hartwig Schaefer Themes: Private Sector Development, Micro and

Small

Finance, Market Access, Innovation

Sector Manager/Director: Simon C. Bell/ Loic Chiquier EA Category: C

Project ID: P143715

Lending Instrument: Investment Project Financing

Team Leader(s): Nabila Assaf

Joint IFC:

Recipient: Republic of Yemen – Ministry of Planning and International Cooperation (MOPIC)

Responsible Agency: The Small and Micro Enterprise Promotion Service (SMEPS)

Contact: Wesam Qaid Title: Executive Director

Telephone No.: +967 1 450910/11-205 Email: wqaid@smeps.org

Project Implementation Period: Start Date: June 4, 2013 End

Date:

July 1, 2015

Expected Effectiveness Date: June 16, 2013

Expected Closing Date: December 31, 2015

Project Financing Data(US$M)

[ ] Loan [ ] Grant [ X ] Other (Trust Fund Grant)

[ ] Credit [ ] Guarantee

For Loans/Credits/Others

Total Project Cost (US$M) : 4.15 million

Total Bank

Financing :

Total Cofinancing (US$M) : 4.15 million Financing Gap :

ii

Financing Source Amount(US$M)

BORROWER/RECIPIENT

IBRD

IDA: New

IDA: Recommitted

Others

Bank-Executed TF

3.72

0.43

Financing Gap

Total 4.15

Expected Disbursements (in USD Million)

Fiscal Year 2014 2015 2016

Annual 1.50 1.80 0.42

Cumulative 1.50 3.30 3.72

Project Development Objective(s)

The objective of the Project is to improve individual employability of college and university graduates and to improve the

business capabilities of enterprises participating in the Project

Components

Component Name Cost (USD Millions)

Component 1: SME Internship and Upgrading Program 3.72

Component 2: Bank-Executed activities: Impact Evaluation, Technical Assistance,

and Support

0.43

Compliance

Policy

Does the project depart from the CAS in content or in other significant respects? Yes [ ] No [ X ]

Does the project require any waivers of Bank policies? Yes [ ] No [X]

Have these been approved by Bank management? Yes [ ] No [ ]

Is approval for any policy waiver sought from the Board? Yes [ ] No [X]

Does the project meet the Regional criteria for readiness for implementation? Yes [X] No [ ]

Safeguard Policies Triggered by the Project Yes No

Environmental Assessment OP/BP 4.01 X

Natural Habitats OP/BP 4.04 X

Forests OP/BP 4.36 X

iii

Pest Management OP 4.09 X

Physical Cultural Resources OP/BP 4.11 X

Indigenous Peoples OP/BP 4.10 X

Involuntary Resettlement OP/BP 4.12 X

Safety of Dams OP/BP 4.37 X

Projects on International Waterways OP/BP 7.50 X

Projects in Disputed Areas OP/BP 7.60 X

Legal Covenants

Name Recurrent Due Date Frequency

Description of Covenant

Team Composition

Bank Staff

Name Title Specialization

Nabila Assaf (TTL) Senior Private Sector Development Specialist Private Sector Development

Sara Al Rowais Private Sector Development Specialist Private Sector Development

Amir Althibah Economist Macroeconomics

Moad Alrubaidi Financial Management Specialist Financial Management

Samira Al Harithi Procurement Specialist Procurement

Alaa Sarhan Environmental Specialist Environmental Safeguards

Concepcion Esperanza Del Castillo Social Specialist Social Safeguards

Hassine Hedda Finance Officer Loan Accounting

Steve Wan Operations Analyst Operations

Suzanne Parris Program Assistant Program Assistant

Nikolai Soubbotin Lead Counsel Legal

David Mckenzie Lead Economist Impact Evaluation

Mira Hong Operations Officer Social Protection

Non Bank Staff

Name Title Office

Phone

City

Sami Soufan Short-term Consultant

1

I. STRATEGIC CONTEXT

A. Country Context

1. The complex challenges facing Yemen today must also be understood in the context

of Yemen’s broader economic and social context and the effects of the recent crisis on

social and economic conditions. A contraction of economic activity, due to the crisis, affected

all sectors of the economy and continues to do so. Since 2011, the economy has contracted by

almost 11 percent, and the number of people living below the poverty line increased by an

estimated 12 percentage points in two years.1 Even prior to this latest crisis, Yemen was already

one of the poorest countries in the world. The country has a GDP per capita of US$1,160 (2010)

compared with an average US$2,321 for lower middle-income countries and US$3,597 for the

Middle East and North Africa (MENA) region. The population living below the national poverty

line was 35 percent in 2005/2006, increasing to 54.5 percent by the end of 2011 with poverty

more widespread and persistent in rural areas.2 On the United National Development Programme

Human Development Index, Yemen ranked 154th out of 187 countries in 2011.3 On the other

hand, indicators have improved over the past few decades. The report shows that average life

expectancy is up from 41.6 years in 1970 to 62.7 in 2010. Enrollment rates in basic education

have increased significantly (up from 68 percent to 76 percent from 1999-2011), and enrollment

in technical education and vocational training (TEVT) has increased 15 times from 2000-2009.

While there have been gains over the years, women’s inclusion in development gains is an acute

challenge in Yemen. Female literacy rates stood at only 44 percent in 2006, but that was almost

double the level of ten years earlier. Maternal mortality stood at 210 per 100,000 births in 2009,

the highest in the region, but that is down 38 percent since 2000. Women’s economic

participation has not progressed as well; at 21 percent female labor force participation is among

the lowest in the world and women’s participation in business is even more limited.4

2. Despite the serious and complex challenges facing Yemen today, the Government of

National Reconciliation (GNR) has an opportunity to start addressing the underlying factors of

instability and social strife to rebuild Yemen’s social and economic base and restore

macroeconomic stability. Regional and international partners have pledged their support to help

Yemen to overcome the short term social and economic impact of the crisis and sustain

development. At the donor conference in Riyadh in September, 2012, the international

community committed to support Yemen in its recovery. Donor countries and agencies

(Kingdom of Saudi Arabia, United States of America, Germany, United Kingdom, Netherlands,

Switzerland, France, Spain, Arab Fund, Arab Monetary Fund (AMF), World Bank, European

Union (EU), Islamic Development Bank (ISDB), OPEC Fund for International Development

(OFID), and International Fund for Agricultural Development (IFAD)) pledged US$6.372 billion

towards the priorities of the Transitional Plan for Security and Development (TPSD). The

subsequent Mutual Accountability Framework (MAF) committed both the GNR and donors to a

set of specific actions towards recovery and growth.

1 Joint Social and Economic Assessment, World Bank, UN, EU, Islamic Development Bank, and MOPIC, 2012.

2 Ibid.

3 Human Development Report, UNDP, 2011.

4 Micro and Small Enterprise Baseline Survey – Yemen: Final report of a nation-wide baseline survey among micro

and small business enterprises (MSEs) in Yemen, Social Fund for Development, prepared by NEI Macro and Sector

Policies, 2000.

2

3. In October, 2012, Yemen joined the Deauville Partnership with Arab Countries in

Transition, in which G-8 countries, regional partners, and international financial institutions

committed to working in partnership with countries undergoing historic political and social

transitions in MENA.5 At the October 2012 meeting in Tokyo, the Partnership launched a new

Transition Fund to provide Partnership countries with technical assistance to undertake policy

reforms to build more inclusive and transparent economies, boost trade and integration of the

region, and enhance the environment for private sector growth.6

4. Key among the objectives, actions, and commitments made in Riyadh, the subsequent

MAF, and the Deauville Partnership Transition Fund are those related to private sector

development and job creation, particularly for youth and through Small and Medium Enterprises

(SME). This pilot project proposes to create such a program for SME revitalization and

employment that can inform public policies for job creation and SME development.

B. Sectoral and Institutional Context

5. Private Sector Development can be a vital tool in conflict-affected environments. In the

World Bank’s 2011 World Development Report on Conflict, Fragility and Development (WDR)

and elsewhere, it is now recognized that low GDP per capita and unemployment are major

drivers of conflict. This is supported by survey data cited in the WDR: Asked for the reasons

why young people join rebel groups or gangs, the biggest share of respondents indicated

unemployment as the main reason. The report concludes that the path to longer-term

development and peace "is dependent on a healthy private sector".7 Private Sector Development

(PSD) is therefore crucial, "especially if creating jobs and incomes is to out-last donor-funded,

short-term emergency works." Since in Yemen, as in many other developing countries, the

private sector consists predominantly of micro, small, and medium enterprises, this places their

competitiveness and growth at the top of the development agenda in fragile and conflict

situations.

6. In addition to these typical challenges, private enterprises in Yemen face a particularly

difficult business environment and the need to overcome the impacts of the 2011 crisis on their

businesses with limited resources. Overcoming these combined factors will require an

intervention that can address both the short-term challenges of revitalizing businesses after the

2011 crisis and the challenge of competitiveness and growth in the longer term. The 2011 World

Development Report on Conflict, Fragility and Development emphasizes the importance of early

results and confidence building measures that promote jobs and business confidence, including

5 Countries in the Partnership currently include the Partnership countries (Egypt, Tunisia, Jordan, Morocco, Libya,

[and Yemen]), the G‐8, Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, and Turkey. The International

Financial Institutions include the African Development Bank, the Arab Fund for Economic and Social Development,

the Arab Monetary Fund, the European Bank for Reconstruction and Development, the European Investment Bank,

the Islamic Development Bank, the International Finance Corporation, the International Monetary Fund, the OPEC

Fund for International Development, and the World Bank. The Organization for Economic Cooperation and

Development is also a Partnership member. 6 The United States, United Kingdom, Saudi Arabia, Canada, Japan, France, Kuwait, Russia, and Qatar all

announced their proposed contributions, totaling about $165 million towards a goal of $250 million over several

years. 7 World Development Report: Conflict, Security, and Development, World Bank, 2011.

3

initiatives for private sector recovery. The WDR takes note of approaches that have been found

effective in fragile and conflict situations, including matching grant facilities for new market

development that exploit the private sector’s capacity to innovate and help entrepreneurs develop

new product lines while sharing the risk of investment, and value chain approaches that address

breakdowns in business and market linkages.8

7. Yemeni private enterprises demonstrate relatively low productivity and innovation,

the underpinnings of competitiveness. Total factor productivity in Yemen is the lowest among

several comparator countries in the region (including Lebanon, Egypt, Saudi Arabia, and Syria).9

Only a minority of small enterprises demonstrate uptake of technology, innovation, or best

practices, the very types of activities that tend to be correlated with higher growth SMEs and

competitiveness.10

According to the 2011 Yemen Investment Climate Assessment (ICA) update:

only three percent of surveyed firms have International Organization for Standardization (ISO)

quality system certification, 22 percent developed a new product line, 33 percent upgraded an

existing product line, 13 percent obtained a new licensing agreement, and 9 percent provided

formal training to employees. This is in contrast to medium and large enterprises, which had

significantly higher rates of uptake of these activities across the board. The use of these services

by microenterprises is expected to be even more limited.11

However, a micro and small

enterprise baseline study in 2000 showed a significant interest among such firms for advisory

services on marketing and investment plans.12

8. Micro and small enterprises are particularly important in Yemen since the vast majority

of private firms have less than five workers (88 percent). Of the remainder, about 4.7 percent

(19,000 enterprises) had less than 10 workers, 3.5 percent (14,000 enterprises) had more, and the

remainder was unspecified.13

These smaller firms tend to face even greater challenges in

improving competitiveness, largely due to more limited resources and information.

9. And yet, there are rich opportunities for gains in enterprise performance that would lead

to growth and improved competitiveness. Increasing the penetration of foreign licenses, quality

systems and certification, good management and marketing practices, and export activities can

increase firm level productivity and provide a demonstration effect that can improve Yemeni

private enterprise competitiveness overall in the medium term. There are also distinct sector and

cluster-based opportunities. For example, value chain analysis and programs offered to the coffee

industry showed that farmers and traders lack information on lucrative final market opportunities

and requirements. It was also found that consistent systems for quality grading, certification, and

traceability are lacking; as is origin-based branding. In the fisheries sector, there is a need for a

regulatory framework to safeguard the fish population, and to build awareness of consumer

8 Ibid

9 Yemen Investment Climate Assessment Update, World Bank 2011

10 SME Innovators and Gazelles in MENA – Educate, Train, Certify, Compete!, MENA Knowledge and Learning

Quick Note Series, Andrew Stone and Lina Tarek Badawy, September 2011, No. 43. 11

Throughout this report, the Yemen 2011 ICA update definitions of firm size will be used: (1-4) = micro, (5-

19)=small, (20-99)=medium, and (100+) = large. 12

Micro and Small Enterprise Baseline Survey – Yemen: Final report of a nation-wide baseline survey among micro

and small business enterprises (MSEs) in Yemen, Social Fund for Development, prepared by NEI Macro and Sector

Policies, 2000. 13

Establishments Census, Yemen Central Statistics Office, 2004.

4

expectations and support product differentiation. In the honey sub-sector of agro-business,

surveys show that consumers lack confidence in honey quality and reflect the need to build

quality systems, as well as improve packaging, export certificate facilitation and wholesaler

marketing and promotion.14

Table 1: Percent of Yemeni enterprises evaluating constraints

as “major” or “very severe”

Top Constraints in 2010 and 2012 Enterprise Surveys

2010 Investment Climate

Assessment (ICA)

2012 Rapid Assessment of Effects of

Crisis

Corruption (74%) Electricity (83%)

Electricity (61%) Macroeconomic Uncertainty (82%)

Access to Land (57%) Political Instability (78%)

Political Instability (56%) Corruption (77%)

Regulatory Policy Uncertainty (50%) Transport (61%)

Courts (45%) Crime, Theft, and Disorder (54%)

Tax Rates (44%) Price of Land (53%) Source: MENA Knowledge and Learning Quick Note Series: The Plight of Yemeni Private Enterprises since the

2011 Crisis: A Rapid Assessment. Andrew Stone, Lina Badawy, Nabila Assaf. September 2012 – No. 72.

10. However, the business environment in Yemen is increasingly challenging and not

conducive to investment. Even prior to the 2011 crisis, Yemen faced mounting challenges in

moving toward diversified, private sector-led economic growth. Yemeni enterprises have

consistently identified corruption as a leading constraint to private enterprise activity and growth,

and increasingly reported electricity, access to land, political instability, and regulatory policy

uncertainty as other key constraints.15

Corruption has been reported as the leading constraint

across firm size, ownership, and sector. These challenges continued through the 2011 crisis, as

reported in a rapid assessment of the effects of the crisis on private enterprises.16

The assessment,

which was undertaken in June 2012 of 200 enterprises in six urban centers, showed that the

negative effects were widespread and felt more acutely among smaller enterprises. Sales,

exports, employment and access to input and markets were all affected. On employment, the

developmental bottom line, over 40 percent of small enterprises reported having decreased

employment by 40 percent between December 2010 and June 2012. The latest Doing Business

(DB) indicators also provide evidence of the deterioration in the business climate. Yemen’s

overall DB rank fell from 101 to 118 last year, with the most severe deterioration in the rankings

on getting electricity, starting a business, and dealing with construction permits.

Institutions

11. The Small and Micro Enterprise Promotion Service (SMEPS), a subsidiary of the Social

Fund for Development (SFD), facilitates business training services to businesses and

14

“Analysis of 5 Value Chains in Yemen” by the Yemen Small Micro Enterprise Promotion Service (SMEPS) and

Royal Tropical Institute (KIT) of the Netherlands, July 2009. 15

Yemen Investment Climate Assessment Update, World Bank 2011 16

MENA Knowledge and Learning Quick Note Series: The Plight of Yemeni Private Enterprises since the 2011

Crisis: A Rapid Assessment. Andrew Stone, Lina Badawy, Nabila Assaf. September 2012 – No. 72.

5

entrepreneurs, including services tailored to youth and women, reaching so far over 34,200 micro

and small enterprises. They also conduct value chain studies and activities with Dutch support

that have promoted innovation in key sectors, including fisheries, coffee, and horticulture. For

example, in the coffee sector, SMEPS has been working to introduce international standards to

local coffee growers and organized the Arabica Naturals International Conference in Sana’a with

participants from the global coffee market from 27 different countries.

12. On the financing side, the Small Enterprise Development Fund (SEDF), a government

fund affiliated with the Ministry of Industry and Trade, provides finance to small enterprises as

its primary mandate. The Small and Micro Enterprise Development (SMED) department in the

SFD is the de-facto apex institution for microfinance in Yemen and supports Micro Finance

Institutions (MFIs) through the provision of loans for on-lending and through the provision of

grants for capacity and institution building. While most of SMED’s partners engage in

subsistence microfinance, targeting the low end of the market, some target the high-end of the

microfinance market as well as small businesses. In addition, the EU is currently about to launch

a Euro 8.5 million small finance project in the Yemeni market.

13. Donors active in financial and private sector development are in various stages of re-

examining their strategies and planned projects. Several donors currently provide assistance for

financial and private sector development, with a number of donors funding SFD activities,

including SFD’s micro and small finance, services, training activities, and some targeted value

chain work. However, a large number of these activities have come to a close, have been

discontinued, or are under re-examination at this time with new initiatives emerging. Throughout

2012, the World Bank has conducted a series of consultations with donors active in private sector

development to coordinate efforts and better identify the Bank’s value added in this sector. A

brief summary of current donor activities is provided below:

Table 2: Key Programs in Private Sector Development in Yemen Country/Agency/

Program Name

Program Description

Economic

Opportunities Fund

(IFAD/ EU, ISDB)

The Economic Opportunities Program (EOP) has begun providing support to rural

enterprises by funding cluster-level infrastructure and services, establishment of

Producers Associations, and provision of business services to producers and their

associations. The EOF also funds a Fisheries Project.

European Union The EU has nearly concluded a call for proposals to provide a line of credit and

technical assistance for small finance (scaling up from microfinance) in the

amount of Euro 8.5 million.

GIZ (Deutsche

Gesellschaft für

Internationale

Zusammenarbeit)

GIZ will launch the next phase of its private sector project (Euro 3 million with

additional Euro 3.5 million likely within the next 2-3 years) in April 2013 with a

focus on technical assistance for value chain development and business

development services, as well as support for local public-private dialogue. GIZ

also plans to continue to support the Ministry of Technical and Vocational

Education and Training (MTVET).

Arab Fund The Arab Fund has financed a US$10 million line of credit for micro and small

finance through SFD.

Netherlands

Ministry of Foreign

Affairs

The Dutch have introduced a Private Sector Investment (PSI) program which

provides matching equity investments for joint domestic-foreign investments in

the productive sectors. The assistance is contingent on having a Dutch partner and

6

provides Euro 6 million for investments in eight MENA countries.

IFC (International

Finance

Corporation)

IFC’s main areas of focus during this transition period include plans to provide

direct technical assistance to Al-Amal microfinance bank for upgrading to small

finance, with possible interest in taking an equity position, and a broader TA

program with Al-Kuraimy microfinance bank. They are also working on some

parts of their previous regulatory reform agenda, primarily the Public-Private

Partnership (PPP) regulation.

UNDP UNDP is preparing a large scale youth economic empowerment project. A needs

assessment is currently planned and the project would aim to provide training and

job placement to 4,000 youth with an estimated budget of US$2 million.

Islamic

Development Bank

The Islamic Development Bank has provided a US$4 million loan to SMEPS for

the development of value chain studies and initiatives. Source: World Bank staff interviews with donors and implementing agencies.

14. The World Bank has undertaken significant analytical and technical assistance work in

the financial and private sector in Yemen, including the World Bank’s investment climate

assessments, the World Bank’s 2012 Rapid Assessment of the impacts of the 2011 crisis on

private enterprises, the Doing Business reports and studies of the micro and small finance

market, and technical assistance on the financial sector and business climate.17

These products

have diagnosed the limitations of the business environment and the factors contributing to the

low competitiveness of the Yemeni private sector. Work undertaken by the Yemeni institutions

SMEPS and SFD, as well as recent interventions by IFAD, IFC, and GIZ have begun to respond

to micro-enterprise and SME needs but are far from meeting them. Building on the World

Bank’s analytical foundation, partnerships with active stakeholders already on the ground, and

the Bank’s successes in market-based approaches in Tunisia and the West Bank & Gaza among

others, the World Bank is now well positioned to pilot a market-based mechanism to catalyze

new market and product development towards higher competitiveness, productivity, and job

growth among private enterprises.

C. Higher Level Objectives to which the Project Contributes

15. The recently released Transitional Program for Stability and Development (TPSD)

of the GNR lays out two main national priorities addressing the political and economic

transition for the next two years: i) political and security stability and state building, and ii)

socio-economic recovery. Under the latter priority, one of the focus areas is economic recovery

which comprises an agenda for private sector recovery and growth including jobs, revival of the

productive sectors, public-private partnership, and enhancement of the investment environment.

16. The national priority of economic revival and growth through the private sector will

need to focus to a large extent on micro, small, and medium enterprises, particularly in the

short term. The Yemeni economy is comprised primarily of micro and small enterprises.

Medium and especially large enterprises are few, with a heavy presence of state-owned

17

Prior to 2011, much of the private sector development work in Yemen was informed by donor programs focused

on the regulatory environment including microfinance regulation, credit registry, tax law, private public dialogue,

and other related regulatory issues. Microfinance regulation is perhaps the greatest success among these, with

Yemen having passed laws and regulations to allow the functioning of commercial, deposit taking microfinance

banks and the operation of traditional banks in the microfinance space

7

enterprises (so not part of the private sector per se, although many are operating in the

commercial sphere) and a few family owned enterprises and conglomerates. Although more

recent figures are not available, the enterprise census conducted in 2004 showed a tendency

towards micro and very small enterprises in Yemen – 93 percent of enterprises had less than ten

employees.18

17. The overriding objective of the World Bank Group’s Interim Strategy Note (ISN) for

Yemen, discussed by the Board of Executive Directors on November 13, 2012, is to help the

Government produce tangible results that stabilize the transition in the short term, while laying

the groundwork for medium-term reforms and sustainable longer-term benefits. The ISN

proposes to support these objectives across three strategic pillars: (i) achieving quick wins and

protecting the poor by creating short-term jobs, restoring basic services, improving access to

social safety nets, and revitalizing livelihoods; (ii) promoting growth and improving economic

management by helping maintain macro stability, strengthening fiscal policies and public

financial management, and improving the enabling environment for private sector growth and

competitiveness; and (iii) enhancing governance and local service delivery by supporting

transparency, accountability, capacity building, institutional strengthening, and improved citizen

engagement. It recognizes the centrality of the private sector in ensuring national stability and

well-diversified growth, but limits private sector development activities during the transition

phase (through February 2014) to technical assistance with a view to building a medium term

agenda. This pilot project is in line with the proposed technical assistance and envisages

opportunities for job creation even during early recovery and aims to complement the ISN’s

focus on economic stabilization and social protection with a program that includes small

enterprises in the recovery, which has potential medium term development benefits as well.

18. This project is complementary with other projects and activities ongoing or recently

prepared in Yemen. The Social Fund for Development IV Project (P117949) also provides US$5

million in support to small and micro finance through the SME Department in the SFD. The SFD

IV project, however, is limited to technical assistance to improve the performance of MFIs and

of SFD’s oversight of the MFIs.

19. The recently approved Labor Intensive Public Works Project (P122594), and the labor

intensive works component under SFD IV both promote immediate/short-term job creation, a

very appropriate objective for this transition period in Yemen. This proposed Enterprise

Revitalization and Employment Pilot (EREP) Project complements that job creation objective

and looks forward to the short/medium term by supporting the potential of small and medium

enterprises to create sustainable private sector jobs by supporting their recovery and improving

their competitiveness and growth.

II. PROJECT DEVELOPMENT OBJECTIVES

A. Project Development Objective (PDO)

20. The objective of the Project is to improve individual employability of college and university

18

Establishments Census, Yemen Central Statistics Office, 2004.

8

graduates and to improve the business capabilities of enterprises participating in the Project.

Project Beneficiaries

21. The EREP project’s direct and indirect beneficiaries fall into three categories i) private

enterprises, ii) unemployed youth, and iii) Government of Yemen (GoY) entities and private

sector organizations concerned with private sector development in Yemen. The pilot components

will be implemented in two locations, Sana’a and Aden.

22. Private enterprises. The project aims to provide direct support to an estimated 400

enterprises, although additional firms are expected to benefit indirectly. The focus is on SMEs

that exhibit initiative towards market, product, and process development and innovation, the

types of behaviors associated with enterprise growth. Research has shown that firms that

innovate in products or processes, or attain higher productivity have higher employment growth,

including both skilled and unskilled labor.19

Research in MENA has confirmed these findings,

showing that high growth SMEs are more likely to have introduced/ upgraded a new product,

created a company website, or provided formal training to employees.20

23. The project will focus on small and medium enterprises; although the project will not

limit eligibility by firm size, its design is geared towards SMEs.21

According to the latest census

data (conducted by the Central Statistics Organization), over 400,000 enterprises were operating

in Yemen in 2004. Most private enterprises (88 percent) in Yemen are microenterprises (less

than five employees). Of the remainder, about 4.7 percent (19,000 enterprises) had less than ten

workers, 3.5 percent (14,000 enterprises) had more, and the remainder was unspecified.22

The

knowledge gained on policies and programs will also be SME focused but will also have indirect

benefits to microenterprises and large enterprises as well (e.g., through the proposed TA on

financial literacy, special economic zones, and other elements).

24. Unemployed youth. The project seeks to leverage facilitation and support for SME

development towards engaging the private sector on internship programs that improve

employability and employment outcomes for recent graduates. The project will focus on recent

graduates of vocational colleges and universities who can contribute towards the SME business

upgrading activities envisioned to be supported in the project.

25. Government of Yemen. The technical assistance component will be provided to the

Ministry of Planning and International Cooperation (MOPIC), the implementing agency (Small

and Micro Enterprise Promotion Service), and other government agencies and private sector

organizations with a mandate or direct interest in private sector development in Yemen as

defined by the emerging policy priorities. Ultimately the benefit of any policy or program

initiatives or reforms will flow to the private sector.

19

Competition and innovation-driven inclusive growth, Mark A. Dutz et al, in Promoting Inclusive Growth –

Challenges and Policies, Luiz de Mello and Mark A. Dutz eds, World Bank and OECD, 2012. 20

SME Innovators and Gazelles in MENA – Educate, Train, Certify, Compete!, MENA Knowledge and Learning

Quick Note Series, Andrew Stone and Lina Tarek Badawy, September 2011, No. 43. 21

Throughout this report, the Yemen 2011 ICA update definitions of firm size will be used: (1-4) = micro, (5-

19)=small, (20-99)=medium, and (100+) = large. 22

Establishments Census, Yemen Central Statistics Office, 2004.

9

26. Women business owners and graduates. In both beneficiary categories, steps will be

taken in the design of operations and monitoring and evaluation to facilitate and support access

of women business owners and graduates as beneficiaries of the project, including the

recruitment of women as part of the project team and specific outreach activities to women’s

business organizations or groups

PDO Level Results Indicators

27. Progress towards achieving the project’s development objectives will be measured by a

series of quantitative and qualitative indicators at the PDO level and at the component level. The

expected key results of the pilot project are:

Participating youth employed (percentage female)

Participating firms have improved capabilities after completion of services.

Policies and programs utilize the outcomes of the pilot project.

Direct project beneficiaries (percentage female)

III. PROJECT DESCRIPTION

28. The project aims to inform private sector development policies and programs in Yemen,

with a particular emphasis on SME development and employment. This focus on SMEs and

employment stems from the conflict-affected nature of the country context and evidence of the

importance of SMEs in private sector development and employment generation. (See Annex 2

for detailed project description).

Project Components

Component 1: SME Internship and Upgrading Program (US$3.72 million)

This component will finance three sub-components:

29. Sub-component 1A: Internship Pilot: This Sub-component would aim at providing paid

internships for an estimated 400 graduates through private enterprises on a cost-sharing basis

(typically a 50 percent match is required by the firms). The program would facilitate and support

the placement of the interns through a matchmaking process, providing basic skills training to all

accepted applicants and basic orientation training to participating interns (work ethics, personal

productivity), and a subsidy of 50 percent or more of the internship cost (expected length of 6

months or longer). These activities would be implemented at firms in two locations, Sana’a and

Aden. Under this component, the project will finance partial grants for youth internships as well

as training costs for internship applicants.

30. Sub-component 1B: Business Development Matching Grants Pilot: This program will

provide up to 400 firms, depending on uptake, with a matching grant (typically 50 percent of the

cost) for the procurement of business development services (BDS), training and goods (as a

minority component) to improve management practices, technology, or products or to reach new

markets (domestic or export) as defined in a Business Development Plan submitted by the firm.

10

Firms may apply to the business development matching grants in addition to the internship grants

(Component 1A). These activities would be implemented at firms in two locations, Sana’a and

Aden. Under this component, the project will finance partial grants for services (including both

consulting and non-consulting services) and minor goods (such as office and IT equipment,

measurement and test equipment, spare parts) within the scope of the business development

plans and outreach, communications, consulting services, and associated costs related t the

delivery of these business development grants.

31. Sub-component 1C: Project Management: This Sub-component will support SMEPS

project management for this pilot. It will finance goods, services, travel (including international

travel), and incremental operating costs incurred by SMEPS in the implementation and

management of the project.

Component 2: Bank-executed activities: Impact Evaluation, Technical Assistance, and

Support (US$0.43 million, to be financed from a separate Bank-executed grant for an

analytical and advisory (AAA) activity)

32. This component will include the implementation of an impact evaluation and provision of

technical assistance to the GoY to inform policies and programs on SME development and

employment based on the outcomes and demonstrated effect of the pilot. The component will

finance the costs of the impact evaluation and technical assistance (TA) provided to GoY entities

and SMEPS, particularly on monitoring and evaluation.

33. The rationale for World Bank execution of this component lies primarily in the need to

conduct a robust impact evaluation, and SMEPS has requested that the World Bank take

responsibility for the implementation of the impact evaluation to ensure its independence.

Furthermore, the second element of this component is the provision of technical assistance to the

GoY by the World Bank, bringing the results of the impact evaluation as well as lessons learned

from this project and global practices to serve the GoY’s policies and programs, which is most

effectively undertaken by direct World Bank execution.

A. Project Financing

Lending Instrument

34. The lending instrument is an Investment Project Financing in the amount of US$3.72

million, which will be financed through trust fund financing. The project has been submitted for

financing by MOPIC to the MENA Transition Fund and financing was approved on January 16,

2013. The project will be financed through a Recipient-executed grant agreement for Component

1 (US$3.72 million) and a separate Bank-executed grant for Component 2 (US$ 0.43 million),

processed separately as an analytical and advisory (AAA) activity.

11

Project Cost and Financing

35. The project costs and financing are detailed in the table below.

Table 3: Project Costs and Financing

Project Components Project cost

(US$M)

Trust Fund

Financing % Financing

1.SME Internship and Upgrading

Program

1A. Internships

1B. SME upgrading

1C. Project Management

2. Impact Evaluation, Technical

Assistance and Support

2A. Impact Evaluation

2B. Technical Assistance

3.72

0.77

2.43

0. 52

0.43

0.30

0.13

3.72

0.43

90%

10%

Total Project Costs

Total Financing Required

4.15

4.15

4.15

4.15

100%

Note: This grant will finance only Component 1 for US$ 3.72 million. Component 2 for US$0.43 million will

be financed from a separate Bank-executed grant as part of the Bank’s analytical and advisory activity, not from

this project grant.

36. In addition to the trust fund financing, participating firms will jointly finance business

development plans and interns’ stipends (firms will cover at least 50% of the cost) at a total

estimated value of US$2.36 million (based on achieving full estimated uptake from firms for

interns and business plan support). SMEPS, the recipient and implementing agency, will also

contribute in-kind by providing additional staff support not financed by the project.

37. Retroactive financing will be sought in accordance with the financing trust fund

requirements for the Recipient-executed component to cover costs of hiring of project team

members and other preparatory activities and the Bank-executed component in an amount not to

exceed 10 percent of the total grant amount incurred no more than six months prior to the grant

approval.

B. Lessons Learned and Reflected in the Project Design

38. The degree of success of “matching grant” facilities has been shown to be mostly a

function of design rather than country circumstances. In the MENA Region, the export

promotion fund in Tunisia (“FAMEX”) supported by the World Bank under two projects (First

and Second Export Development Projects) and the Facility for New Market Development in

West Bank Gaza have been among the successful matching grant funds supported by the Bank.

The project would build on the successful designs of these projects as well as best practice

features derived from experience in other countries, particularly in Latin America and Africa

where the approach has been used extensively.

12

39. Design principles are informed by both individual projects with similar programs, as well

as reviews, such as that of David Philips in 200023

, which assessed Bank-supported projects in

business and export development that used matching grant schemes. Regarding design

implications, this assessment emphasized the importance of securing government understanding

and commitment to what may be an unfamiliar tool, and to defining flexibly organized and

demand-responsive support that finances competitive private service providers responding to the

evolving needs of client enterprises. It considered that grants should generally be for know-how

and not for equipment, but this does not account for special needs in conflict-affected situations.

It counseled use of a simple norm for grants, reimbursing 50 percent of costs subject to

indicative maximum per firm (allowing multiple grants per firm), with streamlined processing on

a first-in-first-out basis using clear eligibility criteria. It further considered that grants should be

available for both sides of the market, to enable service providers to provide the upgraded

services demanded by new and upgraded users and to enable a complete market matchmaking

approach by the facilitating entity and fund managers.

40. A subsequent review by the Bank’s Latin America and Caribbean Region in 2008 of

Private Sector Development (PSD) and Competitiveness projects with matching grant schemes

across the Bank, concluded that particular importance should be given to identifying

obstacles/problems to be solved, well-designed matching grants and well-structured

implementation units. 24

Regarding design, it emphasized the need for demand-driven activities,

clearly defined eligibility criteria, attractive grant amounts and percentages, easy to understand

requirements and procedures, broad promotion and wide geographical access and consistency

with the government’s national plan. Regarding implementation, it pointed particularly to the

need for supportive government authorities, a transparent selection process, satisfactorily trained

staff, a complete operations manual, an independent approval process for grants to avoid political

intervention, and an efficient Management Information System (MIS).

41. A more recent examination of attempted impact evaluations on matching grant projects in

Africa has highlighted a number of lessons focused on attaining sufficient uptake of matching

grants from businesses. These include simple eligibility criteria, simple procurement processes,

speedy reimbursement within a few days (or upfront payment of the matching grants), and

incentives for project staff for high uptake. Lessons learned for matching grant projects with an

intended impact evaluation also include advance agreement on random selection of recipients of

the grants with the implementing authorities. 25

42. The design of the internship program is informed by recent empirical evidence assessing

the effectiveness of youth employment programs. Recent evaluations of temporary youth

employment schemes have found limited success on long-term employment outcomes of

participants. For example, a recent randomized control trial of a job voucher program (Jordan

Now) found that employment almost entirely dropped off after the subsidy period had ended.

23

“Implementing the Market Approach to Enterprise Support: A Comparative Evaluation of Matching Grant

Schemes” by David A. Philips for ECSPF, December 2000. 24

“Matching Grants – A review of Matching Grants System in Private Sector Development Projects” by the Finance

and Private Sector Development Unit, LAC, 2008. 25

Campo, Francisco et al. “Learning from the experiments that never happened: Lessons from trying to conduct

randomized evaluations of matching grant programs in Africa.” (to be published)

13

Business training services alone did not have a significant impact on the ability of women to find

work. Similarly, researchers found that in the Dominican Republic (Juventud y Empleo

program), extensive job training and job placements services led to limited effects on

employment outcomes, although some evidence of a modest effect on earnings (conditional on

working).

43. A recent report from the World Bank Independent Evaluation Group (IEG) report noted

that “temporary wage subsidies paid to employers to hire youth can have a positive impact on

individual employment – mainly if work provides them with higher level skills.”26

The report

noted the importance of demand-side activities, sufficient subsidies to overcome tendency for

low-uptake, and ensuring interns are gaining higher level skills.

44. The EREP project proposes to link the employment intervention to the demand side, as

recommended by IEG, by beginning with firms and their demand and providing facilitation and

wage subsidies to the employers (rather than the youth). This focus on firm demand is combined

with design elements meant to increase uptake and use of interns for higher level skills, including

a 50 percent subsidy requirement on the part of the firm, focusing on tertiary educated youth,

implementing monitoring of the interns’ activities, and reporting on the nature of the internship.

These design features are intended to provide interns with higher level skills. The project will

seek to determine the impact of the internships not only on the employment status of the

beneficiaries after the internship, but also the impact on the employability of the youth

completing the internships as judged by their hiring firms. This additional aspect of measuring

the success of the internship program is important in reflecting the benefits of internship

programs on creating a cadre of skilled graduates that can be created by private sector-led job

training and which may be a key to improving job skills, a constraint cited by firms in investment

climate assessments in Yemen and MENA.

45. In addition, the project seeks to test the hypothesis that placing interns in firms also

undertaking the implementation of a Business Development Plan (BDP) will have better

employment outcomes, since the intern is likely to be associated with the incorporation of new

knowledge in the firm, and thus be more likely to gain higher level skills and be valued by the

firm. Overall, this combined approach is meant to test a specific approach for youth employment

in the Yemen context taking into account learning from previous experience.

IV. IMPLEMENTATION

A. Institutional and Implementation Arrangements

Institutions

46. According to Law No. 10 of 1997 for the Establishment of the Social Fund for

Development (SFD), SFD is the institution mandated with, among other things, “financing

manufacturing and service projects, either directly or indirectly, for individuals, households,

26

Youth Employment Programs – An Evaluation of World bank and IFC Support. World Bank Independent

Evaluation Group. September 2012.

14

small enterprises, and other beneficiary groups under legitimate, soft terms”.27

The SMED

department in the SFD has been focused on finance and technical support for both micro and

small enterprises and provides SFD oversight over SMEPS. SMEPS is a subsidiary of SFD with

a focus on technical assistance, training, and value chain interventions. The project will be

implemented by SMEPS, as the recipient and implementing agency.

47. Very few agencies in Yemen have capacity and experience working on overcoming

information gaps of small enterprises with respect to international best practices and

management techniques such as quality systems, cost accounting, and directed marketing.

SMEPS has an appropriate combination of internal business culture within it and a set of

operational experiences closely related to the kind of work that the EREP project would support.

SMEPS has carried out a survey of BDS providers throughout Yemen (providers of technical,

management, training, legal, and other services) and launched a BDS website

(www.istishaari.com). They have also conducted some specific interventions in the fisheries and

coffee value chains to introduce new technology, market research, and information to the supply

chain, and believe there is high demand and potential for further work in this area. SMEPS also

facilitates the provision of a range of management and entrepreneurship training courses,

including IFC’s Business Edge, through the qualification of trainers and training institutions,

including some subsidies to training costs. Moreover, SMEPS has undertaken a youth

employment program for internally displaced youth in Aden during the height of the crisis, with

good results in providing training, internship programs, and even permanent jobs for some of the

youth beneficiaries.

Implementation of Activities

48. SMEPS will implement Component 1 of the project, including the internship program,

business development plan support program, and overall project management. Component 2, for

technical assistance, is a Bank-executed component, and will be implemented by the World Bank

as an analytical and advisory activity. Detailed implementation arrangements are available in

Annex 3.

49. SMEPS has provided a Work Plan to the World Bank describing activities, timeline, and

budgets for activity implementation. SMEPS has developed an Operations Manual (OM)

acceptable to the Bank. The OM describes the policies and procedures to be followed for

activities 1A, 1B and 1C under Component 1 (see Annex 2, Detailed Project Description),

including grant making activities for the internships and BDP support activities; EREP Project

organization and roles and responsibilities; and the financial, procurement, and operational

systems supporting implementation. The OM will be supported by detailed instructions, and

templates, which will not require World Bank no-objection.

50. Project Team: The Project will be implemented by leveraging the SMEPS in-house team

with a team of local consultants, managed by a dedicated Project Manager reporting to the

SMEPS Executive Director and supported by a Procurement Officer and Accountant hired for

the project. The local consultants will act as an extension to the SMEPS team, working directly

with firms and graduates to facilitate matching of services and interns with firms. These local

27

World Bank staff unofficial translation of the Arabic text of the Law.

15

consultants will include at least one female consultant in each location to facilitate outreach to

and participation of female business owners, managers, and interns. BDP Advisors support firms

in developing business plans and assess their viability, while Internship Advisors bring

internship applicants and host firms together. Both will be supervised by SMEPS Project

Officers (existing SMEPS staff) assigned to work on the EREP project and reporting to the

EREP Project Manager for the purposes of the project. SMEPS has followed this model of using

local consultants successfully in the past, including most recently in its implementation of an

internship program for IDPs in Aden. SMEPS has assembled the core Project team, including the

Project Manager, Project Officers, and Procurement Officer. The SMEPS Business Development

Director and Finance Manager also make up an important part of the team and are part of the

Management Committee that approves the grants and reviews the project portfolio.

51. Ad-hoc Advisory Committee: An ad-hoc advisory committee comprising

representatives from the private sector, public sector, and academia will be formed to advise the

project based on ad-hoc briefings provided by SMEPS throughout the lifetime of the project.

52. The BDP grant-making process: The grant-making process for partial support of BDPs

will follow a transparent process with clear and simple eligibility criteria with appropriate due

diligence measures and governance to ensure independence of the selection process from

application to approval and preventing capture, all of which will be documented in the OM. Key

aspects of this process are the BDP Advisors’ role in guiding and advising on the development of

these plans, and the EREP Project Management Committee’s role in the review and approval of

the plans. The BDP Advisor also has a key role in guiding the firm in the procurement of

services. This is particularly important as SMEs often have no prior experience in procuring

BDS, and this provides a learning experience to increase the likelihood of the firm’s repeated use

of BDS after the project. Selection of firms will be transparent, planned through a public lottery

with results posted on the project website.

53. Internship process: The internship process will have clearly defined eligibility criteria

for both host firms and graduates. The key element of the internship process is the matchmaking

which will require the Internship Advisors to match internship applicants from a sorted pool to

firms based on the firm needs. The matchmaking process is expected to be an important

determinant of the successful outcome of the internship for both firms and recent graduates.

After screening and sorting, selection of intern applicants for interviews with firms is planned

through a random selection process.

54. Bank-executed component: The Bank-executed component will be executed by World

Bank staff and consultants to provide an independent, robust impact evaluation and technical

assistance. Coordination and responsiveness to MOPIC and other agencies mandated with SME

development and employment will be central to this activity. Technical assistance will be

provided through policy notes, workshops, and direct support on a just-in-time basis as well as at

the end of the project in the form of a policy note based on the results of the impact evaluation.

The Bank will also provide technical assistance to SMEPS for improving Monitoring and

Evaluation (M&E) capacity by providing direct support in developing the M&E system for the

project as well as other learning opportunities.

55. Coordination Activities: SMEPS will undertake to coordinate with other private sector

development activities throughout the implementation of the project. Steps will be taken to

16

identify synergies with other projects and to leverage linkages between them. For example,

outreach will be undertaken through the Economic Opportunities Program in Sanaa and Aden

governorates to inform them of matching grant opportunities available. Similarly, SMEPS will

seek opportunities to link supply-side BDS activities undertaken under the GIZ program with

demand-side matching grants. Linkages with micro and small finance projects will also be

established to better guide project beneficiaries in need of financing for capital goods or working

capital.

B. Results Monitoring and Evaluation

56. The results framework for the project is centered around the PDO and specifies PDO

level and intermediate indicators which will be monitored to evaluate project performance

towards the objectives (see Annex 1A). Lower level output level indicators may be developed at

the beginning of the project for operational purposes in addition to supplementary performance

information on SME applicants and beneficiaries (see Annex 1B). Monitoring and evaluation of

project components, sub-components, and activities will be kept simple and integrated into

project implementation at every stage (application, implementation, and follow-up). Primary

responsibility for results monitoring will fall on SMEPS. SMEPS will present an M&E report to

the World Bank on a quarterly basis.

57. M&E is an aspect of SMEPS capacity which will require reinforcement. To this end, the

Bank will provide implementation support for the development of the project’s M&E system and

to improve SMEPS staff capacity on M&E through training and technical advice provided by

Bank staff and consultants.

58. In addition to the M&E integrated in the pilot project, the Bank will execute an

independent impact evaluation on the results of the project. Designed by Bank staff, the impact

evaluation will use data from the M&E system, particularly from the application stage, as well as

follow-up data collected after completion of implementation (using various methods as

appropriate, including online self-reporting, phone or in-person interviews for youth, and in-

person interviews for firms conducted by an independently contracted survey firm). Subject to

adequate uptake and numbers of applicants, the impact evaluation will seek to identify the

impact of the internship facilitation, training, and subsidy on employability, as well as the impact

of matching grants for business development activities on the capabilities and performance of

firms.

C. Sustainability

59. As a pilot project, the sustainability of the project’s results will be achieved through the

adoption of policies and programs informed by the evidence produced from the impact

evaluation and lessons learned from the project. If successful, the piloted approaches are

expected to be scaled up for implementation on a larger scale throughout Yemen (with IDA or

other funding). The sustainability of the project will also be demonstrated through the

demonstration effect of its activities. The implementation of BDPs with the facilitation and

matching grants provided by the project act as learning experiences, opening up new

opportunities for participating firms, creating incentives for firms to continue to develop and

innovate, and demonstrating benefits to other firms.

17

V. KEY RISKS AND MITIGATION MEASURES

A. Risk Ratings Summary Table

Table 4

Stakeholder Risk Substantial

Implementing Agency Risk

- Capacity Substantial

- Governance Substantial

Project Risk

- Design High

- Social and Environmental Low

- Program and Donor Low

- Delivery Monitoring and Sustainability High

- Other (Political and Security) High

Overall Implementation Risk High

B. Overall Risk Rating Explanation

60. The overall risk for this operation is High due to country context, as well as design and

delivery risks (see Annex 4). The volatility of the political, security, governance, and donor

environment pose risks both during preparation and implementation. The retail nature of the

operation, with services potentially being delivered to hundreds of firms throughout Yemen,

poses fraud and corruption and monitoring risks. Potential risks for Bank supervision of the

project are also high and require mitigation. The incorporation of control features into the

implementation structure, the use of local capacity, and provision of technical assistance to the

implementation agency is expected to mitigate these risks to the extent possible, but

implementation risks are likely to remain substantial throughout the duration of the project, so a

key mitigating measure will be to maintain flexibility and adaptability in the project design.

VI. APPRAISAL SUMMARY

A. Economic and Financial Analyses

61. The proposed Enterprise Revitalization and Employment Pilot (EREP) project is based

on a demand-driven approach with the aim of increasing employment, youth employability and

ultimately incomes through the development of internship programs and the support to private

enterprises. The development objective of the Project is to improve individual employability of

college and university graduates and to improve the business capabilities of enterprises participating

in the Project.

18

62. The EREP provides more than a few return benefits to the participants though mostly

additional generated income, client value-added within incremental revenues, and the generation

of youth employment especially within participant firms. Economic benefits and outcomes

include:

Enhancing the growth of youth employment and opportunities while

increasing incomes through the hiring and training of the youth interns.

Fiscal return for the government from taxation on incremental revenues,

income and employment.

Positive spillover effects to the overall business community by: a)

enhancing firm potential to qualify for financing from the banking sector

by virtue of having a sound BDP; b) encouraging innovation and new

market ‘mindset’; c) promoting growth in local BDS.

Substantial growth in firm sales and employment from market

diversification.

Qualitative growth in sustainable business capacity to build new markets

for example, when national SMEs obtain new overseas business contacts,

partnerships and buyers from participating in trade fairs and study tours,

which could link them with potential buyers, suppliers, and distributors.

63. The outcomes of capacity changes, incremental revenues, and employment effects

generated by the EREP would, as seen in other similar projects, be only visible at the completion

of BDPs. However, a full measure of results, upon which the above-mentioned are based, would

be most likely to be achieved within 1-2 years after their completion. An approximation of return

at the pilot scale may be through rough estimates of average value added within incremental

revenues generated, as well as the incremental fiscal revenues derived from value added taxes

and corporate and individual income taxes from the perspectives of the firm and of the project.

Using a ratio of additional sales against the EREP funded portion of cost-sharing funds (5 to 1),

and an estimated employment rate of 50% of interns trained, the Internal Rate of Return (IRR) of

the project including fiscal revenues to the government through taxation revenue can be

estimated at 17 percent. Likewise, looking at the firm and intern level only, excluding project

management costs and fiscal benefits to the government, an IRR of 16 percent can be expected.

64. However, as both the internship and SME upgrading programs are both pilot activities,

the assumptions made in the economic analysis will be tested by the pilot, and ultimately the

economic and financial analysis will need to be determined based on the outcomes of the pilot

and the findings of the impact evaluation and calculated at full scale rather than at the pilot scale.

B. Technical

65. The project is appropriate to Yemen’s needs and technically viable. It focuses on two key

economic development priorities in the Government of Yemen’s TPSD and the Mutual

Accountability Framework, youth employment and SME growth. The design is informed by

lessons learned from World Bank and other experiences, and is designed as a pilot project with a

strong impact evaluation component that will enable the extraction of learning from the project.

The technical assistance component ensures that the learning from the pilot project can be

appropriately leveraged to formulate policies and scaled up programs based on the evidence

provided by the project.

19

C. Financial Management

66. The implementing entity of the project (Component 1) is the Small and Micro Enterprise

Promotion Service, SMEPS. A Financial Management (FM) assessment was conducted on

SMEPS with the objective of determining whether: (i) the implementing entity has adequate FM

arrangements to ensure Project funds will be used for the purposes intended in an efficient and

economical way and (ii) the controls and processes at the implementing entity can be relied

upon. The Assessment confirmed that SMEPS has adequate FM capacity to implement the

project with the need to establish a project’s operations manual and develop the accounting

software to generate the Interim Financial Reports (IFR).

67. Although SMEPS maintains its own FM Manual that adequately describes the related

guidelines encompassing the authorization and internal control cycles, SMEPS has now prepared

a project FM Manual to reflect the special reporting requirements and to cover the activities

related to the proposed Project in addition to the related internal control procedures. This is part

of the OM (one of its sub-manuals) and sets forth the: (i) institutional and organizational aspects,

the interrelationships and the responsibilities of each party, including all the criteria and

procedures for the selection of grants and eligibility criteria; and (ii) a detailed technical and

financial audit mechanism to verify compliance of the eligibility conditions as the basis for

grants.

68. SMEPS maintains adequate staffing arrangements in the FM department which is led by

a Financial & Administrative Manager and supported by three accountants. Additionally,

SMEPS has an internal auditor supported by an assistant. As the SFD is still the parent institution

of SMEPS, SFD will continue acting as SMEPS' Board of Directors, including SMEPS in their

internal audits. SMEPS has an acceptable accounting system which follows the cash basis of

accounting; however since the appraisal of the project, the reporting function has been developed

to generate the Interim Financial Reports (IFRs) automatically.

69. To ensure that funds are readily available for implementation, SMEPS will open a

separate Designated Account (DA) in US Dollar for the Project in a bank acceptable to the

World Bank. The Withdrawal Applications will be signed by the Executive Director of SMEPS

and the Financial Manager.

70. The proceeds of the Grant would be disbursed in accordance with the traditional

disbursement procedures of the Bank and will be used to finance project activities through the

disbursement procedures currently used in accordance with the procedures described in the

Disbursement Letter and the Bank's "Disbursement Guidelines". Interim Unaudited Financial

Reports and Annual Financial Statements will be used as a financial reporting mechanism and

not for disbursement purposes.

71. SMEPS will prepare quarterly IFRs and submit them to the Bank within 45 days

following the end of each quarter. The IFRs shall be reviewed by an independent external

auditor. All project transactions are subject to annual independent audits by a private audit firm

and based on agreed terms of reference. The following audit reports along with the related

Management Letter will be submitted to the World Bank within six months from the end of each

calendar year:

20

Project audited financial statements

SMEPS consolidated audited financial statements.

72. Given the nature of the inherent risks in the country system and the project and in view of

the FM arrangements already in place in the implementing entity, the overall FM risk rating of

the project has been assessed as High. The mitigating measures include the establishment of an

acceptable operations manual, developing the accounting reporting system to enable automatic

preparation of IFRs, continued oversight by the capable and well established SFD as SMEPS

Board of Directors and through its audit functions, and the use of consultants to review the

business plans and approve payments.

D. Procurement

73. Procurement for the project will be carried out in accordance with the Bank's

Procurement Guidelines: “Guidelines: Procurement of Goods, Works and non-consulting

services under IBRD Loans and IDA Credits and Grants by World Bank Borrowers dated

January 2011” and “Guidelines: Selection and Employment of Consultants under IBRD Loans

and IDA Credits and Grants by World Bank Borrowers dated January 2011” and the provisions

stipulated in the Grant Agreement.

74. The Small and Micro Enterprise Promotion Services (SMEPS) will be implementing the

project and will be responsible for the management and direct oversight of the financial

management and procurement.

75. A Procurement Assessment of SMEPS was conducted in November 2012. Under that

assessment, the organizational structure, procurement staffing, and procurement administration

were carefully reviewed.

76. The SMEPS team includes an executive director, financial and administrative manager,

accountant, internal auditor, IT officer, project officers, and a team assistant. SMEPS currently

does not have a procurement department and the technical team working with the financial

manager in SMEPS is responsible for handling all procurement activities according to the agreed

procurement manual of the SFD. Also, they hire consultants in case they lack the experience as

needed. Mostly national shopping procurement method will be used because the activities costs

are estimated between US$1,000 – US$10,000. Any procurement activity with cost exceeding

US$30,000 would require the prior approval of SFD’s Managing Director.

77. Procurement Risk/Mitigations Measures: In terms of the procurement risk assessment,

the risk is considered ‘Substantial’.

78. The key action proposed for mitigating the procurement risks is the hiring of a

Procurement Officer to provide support to both SMEPS and SMEs for handling procurement

activities. SMEPS and beneficiary SMEs will maintain proper filing for auditing and post

review. The Procurement Officer has been hired.

21

E. Social (including Safeguards)

79. Social safeguard policies are not triggered, and the social impacts of this project are

expected to be positive. The activities will build confidence of small enterprises and help them

recover or grow their activities. The inclusion of unemployed graduates in the program will also

provide benefits through the training, job matchmaking, skills and experience gained through the

internships, and if successful, long-term employment. The OM describes design features to

facilitate inclusion of women as beneficiaries of the project. The OM describes how internship

health and safety will be adequately addressed.

F. Environment (including Safeguards)

80. Environmental safeguards policies are not triggered. The expected size of the grants and

loans under this project are very small, in the range of up to US$10,000, but most will be less.

The nature of most of the activities will be procurement of services and other intangibles, with

possible small scale goods or equipment which are not anticipated to have any major or

irreversible environmental impacts. The OM will include a negative list of activities, the process

of screening out any activities with anticipated social or environmental negative impacts, and the

principles of giving due consideration to social and environmental implications of technical

advice provided.

22

Annex 1A: Results Framework and Monitoring

YEMEN: Enterprise Revitalization and Employment Pilot (EREP) Project

Results Framework

Project Development Objective (PDO): The objective of the Project is to improve individual employability of college and university graduates and

to improve the business capabilities of enterprises participating in the Project

PDO Level Results

Indicators* Co

re

Unit of

Measure Baseline

Cumulative Target Values** Frequency Data Source/

Methodology

Responsibility

for Data

Collection

Description

(indicator

definition etc.)

YR 1 YR 2 YR3

Indicator One: Participating

youth employed

(percentage women)

Percent

(percent

female)

0 - 20 percent

(5 percent)

50 percent

(5 percent)

3 months and

6 months

after the end

of the

subsidy

M&E System/

on-line self-

reporting and

interviews

Independent

verification

for Impact

Evaluation

SMEPS

World Bank

Employed in the

same firm or

another job

(without subsidy)

Indicator Two: Participating

firms with improved

capabilities after completion

of services

Percent 0 - 30 percent 65 percent 6 months

after

completion

M&E System/

follow-up

visits

Independent

verification

for Impact

Evaluation

SMEPS

World Bank

Improved

capabilities

means the firm

demonstrates

improved

product/ process/

or market access

Indicator Three: Policies and

programs utilizing the

outcomes of the pilot project.

Number 0 - - 3 6 months

after

completion

Aide

Memoires

World Bank Policies and

programs could

be government

strategy, scaled

up project, or

other program.

Indicator Four: Direct

project beneficiaries

(percentage women)

Number

(Percent

female)

0

(2.5

percent)

600

(3

percent)

1,200

(3 percent)

1,900

(3 percent)

Semi-

annually

M&E System SMEPS Note 28

28

Direct project beneficiaries counted as total graduates receiving at least basic training (1000 receiving basic skills) plus total estimated employees of participating firms

(assuming average firm size 3 workers, 300 firms receiving services). The percent women baseline is based on the 2011 Yemen Investment Climate update which found less than

2% participation among labor force in small firms, and 11% women ownership among small firms. (Small firms were used as they are the most likely beneficiaries).

23

INTERMEDIATE RESULTS

PDO Level Results Indicators*

Co

re

Unit of

Measure Baseline

Cumulative Target

Values** Frequency

Data Source/

Methodology

Responsibility

for Data

Collection

Description

(indicator

definition etc.)

YR

1

YR

2

YR

3

Intermediate Results (Component One): Successfully facilitate internships and business services to private enterprises.

Intermediate Result indicator One: Number of

firms requesting business services

Number

0 200 400 600 Ongoing Firm

applications

Project Officers

Intermediate Result indicator Two: Number of

firms participating in BDS program

Number

0 133 266 400 Ongoing Firm

applications

Project Officers

Intermediate Result indicator Three: Number of

firms procuring business services (with

percentage women owned or managed tracked)

Number

0 50

150

300 Ongoing M&E System/ follow-up visits

BDP Advisors

Intermediate Result indicator Four: Number of

youth applying internships (with percentage

women tracked)

Number

0 300

600 1,000 Ongoing Youth applications

Project Officers

Intermediate Result indicator Five: Number of

youth selected for interviews but not placed

(with percentage women tracked)

Number

0 50 100 200 Ongoing M&E System/ status reports

Internship Advisors

Intermediate Result indicator Six: Number of

youth placed in internships (with percentage

women tracked)

Number 0 200 400 400 Ongoing M&E System/

status reports

Internship

Advisors

Intermediate Result indicator Seven: Number of

youth completing internships (with percentage

women tracked)

Number 0 - 180 360 Ongoing M&E System/

follow-up visits

Internship

Advisors

Intermediate Result indicator Eight: Percent

participating youth with improved employability

upon completion of the internship (with

percentage women tracked)

Percent 0 - 50% 75% Once upon

completion

M&E System/

follow-up visits

Internship

Advisors

As measured by

assessments from

employing firms

24

Annex 1B: Beneficiary Profile and Performance

YEMEN: Enterprise Revitalization and Employment Pilot (EREP) Project

In addition to the Results Framework that is designed to specifically target the objectives of this pilot

project, SMEPS will also monitor and report on specific indicators of beneficiary profile and performance

for all enterprises that receive grants and seek baseline information at least, but preferably beyond that,

for all those that apply for grants– irrespective of their receipt of grants. These indicators will be finalized

in the Operations Manual, but preliminary expected indicators are shown below.

A. Beneficiary Profile Data

Name of Enterprise:

Sector in which SME operates

Geographic Area of operation

Did firm apply for a BDP grant, internship grant or both?

Did firm receive the applied for grant? If no, why not?

Is this the first time the firm has accessed BDS?

Does the firm prepare annual financial statements?

Does the firm export? If not, does it plan on doing so in the near future?

B. Beneficiary Performance

Beneficiary Performance Unit of

Measure

Base-

line

Cumulative

Values Frequen

cy Data Source

YR1 YR2

Sales $000 Annual Survey

Operating Margin % Annual Survey

Exports (if any) $000 Annual Survey

No. of full-time employees Number Annual Survey

Of which % women % Annual Survey

Of which % youth (age<25 yrs.) % Annual Survey

No. of indirect jobs (outsourced, contractors

and sub-contractors, suppliers or others in

value chain (estimate)

Number Annual Survey

Volume of other sources of financing

a) Loans from commercial banks

b) Equity from other sources

Ratio Annual Survey

C. Innovative Practices

Do you currently have any accreditations and certifications for quality?

(Please describe)

Do you have plans to obtain accreditation/certification in the next 3 years?

(If yes, please describe nature of the certification and time planned)

Do you use online communication for business purposes? If so, please

explain how.

Do you provide training for your professional/technical staff? If yes,

please list kinds and frequency of the training

Do you provide managerial training for staff? If yes, please list kinds and

frequency of the training

Do you have access to market research and best practices in your

area/sector of operation? If so how?

25

Annex 2: Detailed Project Description

YEMEN: Enterprise Revitalization and Employment Pilot (EREP) Project

1. The project aims to inform private sector development policies and programs in Yemen,

with a particular emphasis on SME development and employment. This focus on SMEs and

employment stems from the conflict-affected nature of the country context and evidence of the

importance of SMEs in private sector development.

2. Private Sector Development can be a vital tool in conflict-affected environments. In the

World Bank’s 2011 World Development Report on Conflict, Fragility and Development and

elsewhere, it is now recognized that low GDP per capita and unemployment are major drivers of

conflict. This is supported by survey data cited in the WDR: Asked for the reasons why young

people join rebel groups or gangs, the biggest share of respondents indicated unemployment as

the main reason. The report concludes that the path to longer-term development and peace "is

dependent on a healthy private sector".29

PSD is therefore crucial, "especially if creating jobs and

incomes is to out-last donor-funded, short-term emergency works." Since in Yemen, as in many

other developing countries, the private sector consists predominantly of micro and small, and

medium enterprises, this places their competitiveness and growth at the top of the development

agenda in fragile and conflict situations.

3. Literature on small and medium enterprises (SMEs) suggests that the majority of new

jobs in diverse economies are generated by a small percentage of fast-growing SMEs, or

“gazelles”. While accounting for some gaps in available data, being a high employment growth

SME in MENA is positively correlated with specific initiatives and activities including new/

improved product development, offering workers formal training, having international quality

certification, and having a company website.30

4. And yet these are precisely the type of practices that smaller firms are particularly

challenged to adopt. Business owners are often reluctant to take the decisions to invest in

learning and innovation that are essential to meet market requirements. They under-invest in the

business and technical skills, know-how, information and advice and tend to seriously

undervalue the gains from using business development services (BDS) to deal with

competitiveness adjustments, or simply cannot afford them in the near term. They also tend to

be uncertain that the substantially higher initial investment costs in learning and pre-competitive

investments required to grow are justified by expected benefits. This is particularly true in

fragile and conflict contexts, where small businesses may be more isolated and less sophisticated

than their counterparts in other countries with similar income levels.31

5. In addition to these typical challenges, private enterprises in Yemen face a particularly

difficult business environment and the need to overcome the impacts of the 2011 crisis on their

businesses with limited resources. Overcoming these combined factors will require an

29

World Development Report: Conflict, Security, and Development, World Bank, 2011. 30

SME Innovators and Gazelles in MENA – Educate, Train, Certify, Compete!, MENA Knowledge and Learning

Quick Note Series, Andrew Stone and Lina Tarek Badawy. World Bank, September 2011, No. 43. 31

Private Sector Development in Conflict Regions: Viable Support Options in the West Bank and Gaza, MENA

Knowledge and Learning Quick Note Series, John Nasir, Ranan Al-Muthaffar, and Rimal Kacem. World Bank,

January 2012, No. 52.

26

intervention that can address both the short-term challenges of revitalizing businesses after the

2011 crisis and the challenge of competitiveness and growth in the longer term. The 2011 World

Development Report on Conflict, Fragility and Development emphasizes the importance of early

results and confidence building measures that promote jobs and business confidence, including

initiatives for private sector recovery. The WDR takes note of approaches that have been found

effective in fragile and conflict situations, including matching grant facilities for new market

development that exploit the private sector’s capacity to innovate and help entrepreneurs develop

new product lines while sharing the risk of investment, and value chain approaches that address

breakdowns in business and market linkages.32

6. Engaging with SMEs on business capability upgrading also creates an opportunity to

leverage businesses’ interest in improving their capabilities for job creation by linking their

business development activities with job opportunities for youth. Inserting recent unemployed

graduates from vocational colleges and universities as interns into the participating businesses

can improve their employability and even their employment outcomes. An IEG evaluation of

wage subsidies to provide hiring incentives has found that this approach can have positive impact

on individual employment, but that the improved job outcomes can be dependent on the intern

acquiring higher-level skills during the internship period and that such programs can suffer from

low firm uptake. 33

Linking the internships with the support for business capability upgrading

may contribute positively towards both of these elements; the validity of this hypothesis will be

one of the aims of the impact evaluation.

7. The project will seek to determine the impact of the internships not only on the

employment status of the beneficiaries after the internship, but also the impact on the

employability of the youth completing the internships as judged by their hiring firms. This

additional aspect of measuring the success of the internship program is important in reflecting

the benefits of internship programs on creating a cadre of skilled graduates that can be created by

private sector-led job training and which may be a key to improving job skills, a constraint cited

by firms in investment climate assessments in Yemen and MENA. The internship program can

also demonstrate to the GoY, academic institutions and the private sector a model of private

sector-led job training and inform the introduction of such programs in Yemen.

8. Finally, the outcomes and lessons learned from these initiatives will inform the technical

assistance aspect of the project, whereby an impact evaluation and collection of lessons learned

will inform policies and programs of the GoY, donor community, and private sector

organizations. Job creation, particularly through SMEs, is a central pillar of the MAF and a

priority of the TPSD. This project will bring evidence and lessons learned to MOPIC and other

agencies mandated with SME development and job creation to inform public policies, strategies,

and programs throughout the life of the project.

32

Ibid 33

Youth Employment Programs – An evaluation of World Bank and IFC support. IEG, World Bank. September

2012.

27

Project Components

Component 1: SME Internship and Upgrading Program (US$3.72 million)

Sub-component 1A: Internship pilot

9. Youth unemployment is particularly acute amongst university graduates and vocational

college graduates when compared youth with basic education.34

This component would aim at

providing paid internships for an estimated 400 fresh graduates (depending on demand) from

universities or community/technical and vocational colleges in Yemen through SMEs who

express an interest in hiring the interns. The program would facilitate and support the placement

of the interns through a matchmaking process, providing basic skills training to all eligible

applicants and basic orientation training to those participating in the program (work ethics,

personal productivity), and a subsidy of 50 percent or more of the internship cost for 6 months.

Sub-component 1B: Business development matching grants pilot

10. The program would provide up to 400 firms, depending on uptake, with a matching grant

(typically 50 percent of the cost, defined in OM) for the procurement of business development

services (BDS), training and goods (as a minority component) to improve management practices,

technology, or products or to reach new

markets (domestic or export) as defined in a

BDP submitted by the firm. Priority and

possibly other incentives defined in OM, such

as a higher match rate, increased grant ceiling,

or training vouchers may be granted to firms

also hiring an intern. Services such as

transport, maintenance, health, education and

business service providers themselves; agro-

processing such as fishing, honey and coffee;

and light manufacturing, such as food

processing, stone, garments, and fabricated

metals, are expected to be prominent industries

as reflected in the composition of the economy.

A grant ceiling of US$ 10,000 is proposed,

defined in OM. By virtue of design the project

would aim to support mainly small scale firms,

but micro or larger firms would not be

excluded. Both this and the internship

component would be implemented in two

locations, Sana’a and Aden.

11. While the project will pilot the effects

of firm-level interventions, proactive measures to generate demand and produce good quality

34

Unemployment rates for tertiary educated vs. basic educated youth were estimated at 15.9 percent and 10.7

percent respectively in 2009. Current comparable data is unavailable, however a recent UNDP report currently

estimates overall youth unemployment (ages 15-24) at 52.9 percent.

Indicative services (and some goods) eligible for

matching grants:

sustainable business recovery plans (possibly

including small scale equipment, small scale

spare parts, software, advisory services);

quality assurance and control systems, quality

certification, Hazard Analysis and Critical

Control Points (HACCP) or similar certification;

minor measurement and test equipment

introduction of good management practices such

as cost accounting, operations management and

inventory control systems;

market strategies, plans, research, and trade fair

participation;

new product development or improvement

production process upgrades or improvements;

packaging and labeling design and production

services.

Introduction of information and

telecommunication technology.

Training activities (particularly associated with

the employment of interns through the program)

Minor goods associated with the plan (e.g.,

measuring and test equipment, IT equipment)

28

BDPs from SMEs for business development and upgrading services will also be undertaken.

Outreach activities will be undertaken to reach SMEs, with specific steps to reach women owned

and managed businesses. SMEPS will use its network of women entrepreneurs (developed

though past activities) and women’s business organizations to promote the project among women

business owners and managers. Direct assistance will be provided to firms in producing viable

BDPs. Furthermore, SMEPS will engage at a sector/cluster level by facilitating access to

information and services on good management practices, standards and regulations, quality

systems and certification, export market requirements, advanced buyer requirements, and

technology. Such initiatives may involve for example: workshops and training, transfer of

technology activities, facilitation of public-private dialogue, hosting of export buyers and market

experts, coordination and organization of BDS providers, and linkages between academic/

vocational education and specific sectors on job skill needs. Examples of such initiatives can be

found in some of the work already undertaken by SMEPS in collaboration with BMOs and

consortia of firms in various clusters, such as:

the introduction of GPS technology in the fisheries sector,

facilitating an international coffee conference in Yemen,

transferring international expertise on greenhouse seedling production in agribusiness,

initiatives to mobilize the BDS sector to better serve SMEs, and

partnering with the Ministry of Technical and Vocational Education and Training to

introduce entrepreneurship and business training across its programs.

12. These sub-components (1A and 1B) will finance the partial grants for the internships and

goods and services procured through the business plans.

Sub-component 1C: Project management

13. The component will also cover the costs of SMEPS implementation and management of

these activities, including project team members hired for the project (Project Manager,

Procurement Officer, and Accountant), goods and services (including audit), travel (including

international travel), and financing of incremental operating costs, training and incremental fees.

Component 2: Bank-executed activities: Impact Evaluation and Technical Assistance

(separate Bank-executed trust fund: US$0.43 million)

14. This second component is actually implemented directly by the World Bank as part of its

analytical and advisory activity (AAA) and is not considered part of this Recipient-executed

project. It is included here in this project document for the sake of a complete presentation of the

proposal submitted to the MENA Transition Fund, and its activities are tied to Component 1 of

this project.

15. The Mutual Accountability Framework, an outcome of the Riyadh Donor Conference,

commits the GoY to “Adopt more conducive policies for micro, small and medium enterprise

development and expand micro and SMEs programs”, with specific commitments on

establishing facilities for providing TA and access to finance for SMEs. The MAF further

commits the donor community to provide “technical assistance to promote micro, small, and

medium enterprise employment, particularly targeting youth and women”. In line with these

29

commitments, this component will leverage lessons learned from the design and implementation

of the pilot project, information collected throughout the lifetime of the project from youth and

private enterprises, information gained on key clusters and sectors and their competitive

challenges, and finally the outcome of the planned impact evaluation and other data analysis

undertaken to evaluate project results, which will be used for the following purposes:

To advise MOPIC on SME development and employment strategies and programs. This

will be in the form of a policy note and the impact evaluation report.

To prepare for scaled up SME development and employment projects, financed by the

GoY or international assistance. The World Bank has a planned pipeline project for SME

revitalization and growth whose design is expected to be shaped by the outcomes of this pilot

project.

To contribute to the knowledge base and share this knowledge with other GoY agencies,

donor community, and private sector on challenges to SME development and employment in

Yemen. This will be in the form of policy notes and workshops undertaken at intervals

during the lifetime of the project.

16. The impact evaluation will examine the impacts of the piloted interventions on

participating graduates and SMEs. It will be executed through project M&E activities and

independent survey firms. The final impact evaluation study would be used to design scaled up

programs for private sector-based job creation and SME competitiveness programs in Yemen.

17. Just-in-Time TA will be provided in areas prioritized by the MAF and as emerging from

public-private dialogue, which may include:

TA to MOPIC and other GoY counterparts for the development of a SME Strategy. This

TA may be provided in partnership with the Islamic Development Bank. TA on access to finance, the scope and nature of which will be determined to support the

GoY commitment in the MAF on improving access to finance. This may focus on less

analyzed demand side issues, such as financial literacy and financial product needs.35

TA on Special Economic Zones (SEZ), including the draft SEZ law, in support of the

MAF commitment. This would be undertaken in collaboration with IFC, who are also

expected to provide support on the PPP legislation.

18. This component will also cover TA to SMEPS related to the implementation of this

project, particularly on monitoring and evaluation and the sustainability of SMEPS.

19. The rationale for World Bank execution of this component lies primarily in the analytical

nature of the activities and the need to conduct a robust impact evaluation, and SMEPS has

requested that the World Bank take responsibility for the implementation of the impact

evaluation to ensure its independence. Furthermore, the second element of this component is the

provision of TA to the GoY by the World Bank, bringing the results of the impact evaluation as

well as lessons learned from this project and global practices to serve the GoY’s policies and

programs, which is most effectively undertaken by direct World Bank execution.

35

Access to finance here is defined in the broad sense of access to financial services of all kinds, not just credit.

30

Annex 3: Implementation Arrangements

YEMEN: Enterprise Revitalization and Employment Pilot (EREP) Project

Institutions

1. According to Law No. 10 of 1997 for the Establishment of the Social Fund for

Development (SFD), SFD is the institution mandated with, among other things, “financing

manufacturing and service projects, either directly or indirectly, for individuals, households,

small enterprises, and other beneficiary groups under legitimate, soft terms”. 36

The Small and

Micro Enterprise Development (SMED) department in the SFD has been focused on finance and

technical support for both micro and small enterprises. The Small and Micro Enterprise

Promotion Services (SMEPS), is a subsidiary of SFD with a focus on technical assistance,

training, and value chain interventions. Component 1 of the project will be implemented by

SMEPS as the recipient and implementing agency. Component 2 of the project will be executed

by the World Bank in coordination with government and other agencies, particularly the Ministry

of Planning and International Cooperation, to aid in setting the analytical agenda.

2. The SFD is an autonomous organization under the Prime Minister’s Office. Its Board of

Directors has government representation, NGO representation, private sector representation, and

financial sector representation. The Board reviews policy issues and approves important

documents such as annual plans, and budgets and amendments to the Operational Manual.

Besides the SFD’s office in Sana’a, there are nine regional branch offices country-wide. SFD

acts as the parent agency and Board of Directors of SMEPS, its subsidiary which, consistent with

the law enacting SFD that allows it to form agencies to implement its functions, it formed in

2010 to focus on business services for small and micro enterprises.

SMEPS Assessment

3. Very few agencies in Yemen have capacity and experience working on overcoming

information gaps of small enterprises with respect to international best practices and

management techniques such as quality systems, cost accounting, and directed marketing.

SMEPS has the appropriate combination of internal business culture, a set of operational

experiences closely related to the kind of work that this pilot project would support, a network of

relationships with public and private sector actors, and well developed fiduciary systems, that

make it well positioned to implement this project.

4. SMEPS has carried out a survey of BDS providers throughout Yemen (providers of

technical, management, training, legal, and other services) and launched a BDS website

(www.istishaari.com) and Facebook page. Their Istishaari project creates an interactive space for

BDS providers in Yemen, organizes and facilitates training services (such as a recent training

event in Cairo on management consulting for SMEs). They have also conducted some specific

interventions in the fisheries and coffee value chains, with Dutch assistance, to introduce new

technology, market research, and information to the supply chain, with high potential for further

work in this area. SMEPS also facilitates the provision of a range of management and

entrepreneurship training courses, including IFC’s Business Edge and the International Labor

Organization’s (ILO) Know About Business (KAB), through the qualification of trainers and

36

World Bank staff unofficial translation of the Arabic text of the Law.

31

training institutions, including some subsidies to training costs. Moreover, SMEPS has

undertaken a UNDP funded youth employment program for internally displaced youth in Aden

during the height of the crisis, with good results in providing training, internship programs, and

even permanent jobs for some of the youth beneficiaries.

5. SMEPS carries out its programs in partnership with a range of organizations: Yemeni

SMEs themselves that employee between 4-50 workers across all sub-sectors; service providers

across the full range of business service provision including: marketing, accounting, training,

advertising, information etc.; the SFD, German Technical Cooperation (GTZ) and Dutch

technical assistance, the IFC (Business Edge Program), the UK Department for International

Development (DFID), the Islamic Development Bank, and others.

6. The SMEPS team is made up of project staff, a team assistant, financial and

administrative manager, accountant, information and technology officer and the executive

director. Please see Figure 2 for a full organizational structure of SMEPS. Its activities are

organized through corporate and operational manuals, including:

a. Statement of SMEPS mission and objectives

b. Organizational Structure and job descriptions

c. Human Resources Manual

d. Financial Policies Manual (includes procurement)

e. Accounting Manual

f. Accounting Procedures

7. The Bank has assessed the financial management capacity of SMEPS and the assessment

concluded that with some defined improvements, SMEPS possesses a sound financial

management system which is capable of capturing, summarizing, recording, and reporting its

transactions in an accurate and timely manner. The improvements needed are revising the

financial manual to account for the nature of the activities of this project, and the improvement

of accounting reporting to enable automatic preparation of IFRs.

8. SMEPS’ capacity deficiencies lie primarily in its MIS, and its monitoring and evaluation

systems (M&E). These two capacity areas will be addressed in the course of this project through

technical assistance provided by Bank staff and Bank contracted consultants, and through

SMEPS’ procurement of a client relationship management (CRM) system and development of a

monitoring and evaluation system for this project.

9. Ineligibility as direct BDS provider. As the SMEPS is the recipient and implementing

agency, this makes it ineligible as a potential service provider to individual firms, consortia of

firms, and business associations under the cost-sharing financing (Component 1) under the

conflict of interest provision of the EREP Project.

32

Figure 2: Organization Structure of SMEPS

Trust Fund Arrangements

10. Recipient-Executed Component (Component 1): The Deauville Partnership Transition

Fund (DPTF) first enters into a Financial Procedures Agreement with the World Bank as the

Implementation Support Agency. Upon approval by the Steering Committee of the DPTF of the

grant application for the proposed project the Bank, acting as Implementation Support Agency

(ISA), will enter into a Grant Agreement with the SMEPS which according to the provisions of

the DPTF OM and the TF Grant Application is a Recipient Entity for the purposes of this grant.

11. Bank-Executed Component (Component 2): The Deauville Partnership Transition Fund

(DPTF) approves a grant funding request from the World Bank as implementing agency.

Implementation of Activities

12. SMEPS will implement Component 1 of the project, including the internship program,

business development plan support program, and associated implementation and management

Board of Directors (SFD Executive Management)

Executive Director

Sana'a Branch

Business Development

Director Project Officers (3)

IT Manager Communications

Officer

Accountant Admin Officer

Aden Branch

Branch Manager

Project Officers (3)

Project Coordinator (2) Admin Assistant

Mukula Branch

Project Coordinator

Project Officer

Finance & Admin Manager

33

activities. Component 2 for technical assistance, is a bank-executed component, and will be

implemented by the World Bank.

13. The EREP pilot project will be implemented through SMEPS using its staff and

organization. SMEPS has provided a Work Plan to the World Bank describing activities,

timeline, and budgets for activity implementation. SMEPS has adopted an Operations Manual

(OM), acceptable to the Bank. The OM describes the policies and procedures to be followed for

Component 1, including grant making activities for the internships and BDP support activities.

The Operations Manual will be supported by detailed instructions and templates which will not

require Bank no objection.

14. SMEPS Project Oversight: SMEPS has ultimate responsibility for the implementation

of the project. This involves preparing the OM (with Bank no objection) and its policies and

procedures, recruiting the project manager and other project staff, developing work plans and

budgets, financial management and procurement for all project activities, operations and

implementation, and M&E of implementation progress.

Figure 3: Project Organizational Structure

15. EREP Project Manager: The Project Manager will have the following responsibilities:

i) guarantee project team compliance with the OM and its policies and procedures; ii) establish

and maintain appropriate systems (i.e. client management, intern management, M&E, FM and

procurement, etc.); iii) manage staff and advisors to ensure proper skills, training and

performance; iv) provide adequate promotion of the project and private sector participation and

drive; and v) ensure quality of EREP process, FM and controls as well as periodic progress

reports to the Executive Manager of SMEPS and the WB.

SMEPS Executive Director

Business Development

Director

EREP Project Manager

Sanaa Project Officer

BDP Advisors (6)

Internship Advisors (6)

Aden Project Officer

BDP Advisors (4)

Internship Advisors (5)

Finance Manager

Accountant

Procurement Officer

Internal Auditor

34

16. SMEPS Project Officers: SMEPS Project Officers are incumbent SMEPS staff that will

be assigned to the EREP project. Project Officers oversee the activities of the BDP Advisors and

Internship Advisors in their locations. Each SMEPS Project Officer in each location will be

assigned to manage either the group of the BDP Advisors or Internship Advisors. The Project

Officers will have the responsibility of: i) overseeing implementation activities by the BDP and

Internship Advisors and ensuring coordination between those working on the same firms; ii)

quality assurance of services (both design and implementation); iii) updating the project manager

and the management committee; and iv) supporting EREP outreach and dissemination.

17. Business Development Plan Advisors: The BDP Advisors are on the leading edge of

the EREP program and drive its pace, quality and, to some extent, its outcomes. They will be

independent consultants contracted to the project. It is critical to the success of the EREP that

consultants recruited as BDP Advisors fully meet job qualification criteria, including: i)

substantial entrepreneurial experience (min 5 years) running his/her own business or employed

as a senior employee of a substantially successful business in Yemen or elsewhere; and ii)

adequate training and practical experience in employing one or more good business practice

disciplines; market research, marketing, financial management, quality assurance management.

The essential responsibilities of these team members are to: i) work with the project team on

ensuring proper client firm demand, screening, and assessment; ii) support client firms in BDP

design, capacity building, procurement of BDS, and implementation of BDPs; iii) processing

claims for payment/ reimbursement; and iv) participate in portfolio reviews of the BDPs.

18. Internship Advisors: The Internship Advisors will act as the front line in creating

linkages between recent graduates and firms. They will be independent consultants contracted to

the project. The essential responsibilities of these team members are to: i) conducting a

marketing and communications program for graduates and firms to ensure demand; ii)

processing graduate and firm applications; iii) undertake matchmaking of graduates to firms; iv)

coordinate interviews and final selection; iv) Monitor and review internship programs; and v)

process and validate claims for payment/ reimbursement;

19. EREP Project Management Committee: The EREP Project Management Committee

(MC) is made up of the Project Manager, Procurement Officer, Project Officers, the Business

Development Director, and the Finance Manager. The MC approves grants for Business

Development Plans (BDPs) and ex-post reviews of internship selections. It is responsible for

undertaking periodic portfolio reviews to assess the nature of the project activities and

beneficiaries.

35

Table 5: Project Management Resources

Expense Category Description

Human Resources

Dedicated Project team

members

Project team members freshly hired for the project: Project

Manager and Accountant (to be hired when deemed necessary as

disbursements increase), acceptable to the World Bank

SMEPS staff team

members

Procurement Officer, Project officers, Assistants, Financial

Manager, Internal Auditor, and IT and Systems Specialist partially

or wholly allocated to the project by SMEPS (costs covered by

SMEPS)

Goods and Consulting Services

IT Systems and equipment Client relations management (CRM) and website, computer and

office equipment, and miscellaneous project related goods.

Consulting and audit

services

Marketing, legal, external audit, and other project related consulting

services.

Incremental Operating Expenses, Training, and Travel

Training fees Project related training courses, workshops, study tours, materials,

registration, tuition, facilitator’s fees, translation and interpretation,

and other miscellaneous training costs all based on budgets

acceptable to the World Bank.

Travel expenses Reasonable and necessary travel, accommodation, and per diem of

related to training and project management activities based on

budgets acceptable to the World Bank.

Incremental Operating

Expenses

Reasonable and necessary incremental expenditures incurred by the

recipient on account of Project implementation, management and

monitoring, including office rental and maintenance; operation and

maintenance of office equipment; stationary, office supplies and

utilities; office consumables; office administration including

translation, interpretation, printing and advertising, communication

costs, costs associated with the production of bidding documents;

reasonable commercial bank charges; reasonable and necessary

transportation and travel costs of members of the Project Team,

maintenance, insurance and fuel of vehicles; costs of carrying out

meetings and any other miscellaneous costs directly associated with

Project implementation, all based on periodic budgets acceptable to

the Bank, but excluding salaries or honoraria of SMEPS staff.

36

BDP Grant-making process

20. The following steps represent the core workflow practiced by the EREP Project Team in

client identification, business development plan preparation, plan appraisal and grant approval,

plan implementation and impact evaluation.

Figure 4: BDP Grant Process

21. Key Elements in Due Diligence. The EREP Project Team undertakes the following key

steps to help produce a strong positive impact of the client’s business development plan –

application appraisal, grant approval, procurement support and supervision oversight. Each is

described in some more detail below.

a) Applicants for the matching grants will be screened to ensure meeting of simple

eligibility criteria. The screened applicants will be assigned for processing to receive a

matching grant or to a control group through random drawing, this will allow for the

implementation of the impact evaluation. However, if uptake is not sufficiently high, this

will not be possible, and first come first served processing will be adopted.

b) The BDP Advisor appraises a client application for cost-sharing financing. Upon receipt

of a plan and a request for grant financing from an individual firm or association, the

BDP Advisor will visit the firm and appraise the plan. The plan will be assessed

primarily as to its ‘plausibility’, which means: i) it has realistic business development

objectives and targets with verifiable indicators, which are pertinent to its overall

business aims; ii) it has adequately considered various strategies to achieve such

objectives and adopted a plausible and coherent set of activities, services inputs, cost

estimates and work plan sequence to achieve them; iii) it currently has an adequate

product offering locally (or to another national or export destination); and iv) it has

adequate implementation capability and the full commitment of firm or association

leadership to its implementation.

Firm

Ap

plicatio

ns

Screen

ing

BD

P

deve

lop

men

t an

d ap

praisal

Ap

pro

val

Pro

curem

ent

Service p

rovisio

n/

imp

lemen

tation

Re

po

rting

Re

imb

ursem

ent

Monitoring & Evaluation

37

c) The EREP Management Committee considers and, as appropriate, approves a cost-

sharing financing application. The Committee will review the prospective client’s

application and recommendation of the BDP advisor on a fully technical and impartial

basis then make a positive or negative decision on 50-50 grant financing (or 70-30 in the

case of an association or consortia of firms) to support the implementation of the business

development plan.

d) The Committee may also return the plan and financing request to the firm or association

requesting additional information or plan modifications in order to give it positive

consideration (this is not common, given the expectation that BDP Advisors will have

worked sufficiently with potential recipients to ensure that all plan elements are present

upon a first submission).

e) The BDP Advisor oversees procurement of business development services, carries out

supervision oversight and assists clients, as needed, with the approved plans and

financing. The client signs a standard letter agreement with the selected BDS, which

executes the TOR under his/her supervision. Experience shows that the procurement

process may become a significant bottleneck to implementation of plans and gives the

impression to some clients that the matching grants require ‘a long process for little

money’. This might arise due to the fact that many SMEs have never engaged BDS

through a structured procurement process involving written terms of reference, multiple

bidders, structured evaluation and other written documentation. A careful balance will be

maintained between the role of the client to drive and manage the procurement process,

and the BDP Advisor’s role to inform and support the process, and to ensure compliance

with procurement rules. Accordingly, the BDP advisor will: i) clarify the EREP

procurement process for clients; ii) if requested, support the client in his/her procurement

process; iii) focus centrally on the quality of the individual TOR and the BDS provider

selected by the client; and iv) ensure conformity with procurement rules. Implementation

is monitored through, as possible, regular electronic communication (phone, email), and

periodic visits to each client under the BDP advisor responsibility to provide support and

to ensure compliance of BDP execution. Each BDP advisor also needs to ensure receipt

of regular quarterly reports from client recipients, and attach separate supervision

observations. The BDP Advisor’s monitoring work will be backed by a specific

supervision monitoring system to record and be a vehicle for discussion of aggregate

implementation progress and directing attention to any important issues;

38

Internship process

22. The following steps represent the core workflow practiced by the EREP Project Team in

client identification, intern identification, internship matchmaking, placement, implementation

and impact evaluation.

Figure 5: Internship Process

23. Key elements in due diligence. The team undertakes key steps to help produce a strong

positive impact of the internship on both firm and graduate.

a) The Internship Advisor undertakes a matchmaking process: For each firm requesting and

intern applicant, the Internship Advisor not only reviews the application to determine

qualifications needed, but is required to contact each firm to get a better sense of the

firm’s needs. The Internship Advisor will also take into account any BDP being

implemented at the firm during the project duration to better link interns to the BDP

objectives.

b) Applicants for the internships will be screened to ensure meeting of minimum

qualifications. After matching to required qualifications, screened applicants will be

assigned to interview for internships or to a control group through random drawing.

c) Internship Advisors and the Project Officer will conduct site visits to monitor the nature

of the internship activities.

Firm

app

lication

s

Grad

uates

Ap

plicatio

ns

Screen

ing

Match

makin

g

Hirin

g

Intern

ship

p

eriod

Mo

nito

ring an

d

repo

rting

Re

imb

ursem

ent

Monitoring & Evaluation

39

Eligibility

24. Eligibility - firms and associations. All individual Yemeni private firms in Yemen and

their business associations in agro-industries, manufacturing (including artisans) and tradable

services (including, for example, tourism, education and health) having qualifying business

development plans will be eligible to participate. Indirect exporters will also be eligible. In

addition, firms in the business development services sector itself will be eligible for grant

support under qualified business development plans (see below).

25. While the primary focus of the project is on SMEs, export market development and existing

firms, larger firms without new market development capacity or with weak local market

development, and newly established firms existing for at least six months with very sound

market development plans and strong prior related business experience will also be eligible for

grants. While participation in the EREP is largely self-selecting, approval of 50-50 (or 70-30 for

groups) co-financing support will be subject to the following additional conditions:

a) The firm has been established for at least six months;

b) the firm is willing and able to invest 50 percent of the its own resources to cover the costs

of a well-defined and time-bound BDP approved by the EREP Management Committee;

c) the firm has one or more existing products that has good potential to penetrate a new

local or international markets, or new products or services that can be developed and sold

to such markets within the duration of the plan;

d) the firm has the strong commitment and capacity to carefully implement its plan; and

e) EREP funding represents critical additionality needed for the project to be realized -

namely, if the EREP does not approve a grant, will the investment not be made, will it be

delayed or scaled back, or will it be carried out in a markedly less professional manner.

26. In addition, for business associations, approval will be subject to findings that the

association:

multiplies the EREP’s ability to reach firms,

expands the sustainable capacity of the association to provide business services, and

has sufficient commitment to develop a business service capacity.

27. Eligibility - individual firm BDPs. A BDP is the basis for all EREP partial grant

assistance and will be prepared by the firm with the assistance, as needed, of the BDP Advisor

and outside consultants. To qualify, a plan must be of high quality standards; be presented

succinctly (usually in about 4 pages plus annexed supporting information, if necessary); provide

clear objectives, activities, and budget towards a defined positive result on the firm’s products,

process, or markets; and be achievable given the firm’s capacity and commitment. The plan must

not pose any social or environmental risks (no works will be approved).

28. Eligibility – consortium and association business development plans. The EREP will

also enable participation of a self-defined group of businesses, or consortium that coalesces for

specific mutual benefit under a commonly agreed BDP. This might involve, for example, SMEs

that already partner in other supply, production or marketing arrangements, or micro enterprises

that would more spontaneously form a group under a sponsor firm as a ‘BDS club’ to reduce the

40

unit cost of BDS and share its results. It can also include business membership organizations

that provide services to member firms.

29. Eligibility – activities under business development plans. Under an eligible business

development plan, there is a broad and expandable range of activities which may be eligible for

project financing insofar as they are required for and directly contribute to achieving the plan.

By (non-exhaustive) example,

The cost associated with business registration

Company expansion or business improvement diagnostics

Business management or technical training

Domestic and international market research, market intelligence services, market

prospection travel

Trade fair participation

Surveys of competition of same or substitute products in prospective markets

Product design and prototype development

Forming strategic alliances and subcontracting

Production and efficiency diagnostics

Adoption of e-business systems and practices for market development, including

Databases and other information services

Product testing (internal lab and external) and certification services

Securing trademarks

Quality management systems development

Labeling and packaging design

Marketing campaigns, sales promotion materials, events and missions

Establishment of sales representation and distribution in export markets

Daycare services required for participating staff to execute the firm’s business

development plan

Minor goods associated with the activities, such as IT equipment, testing equipment,

spare parts for equipment rehabilitation and repair, or similar.

30. Otherwise, a client firm’s salaries, other recurring costs (such as ongoing office rental or

advertising) and the purchase of capital goods, other than small equipment and parts as noted

above, are not eligible. Goods may only constitute a minority component of the partial grant

(less than 50 percent).

Financial Management, Disbursements and Procurement

Disbursement and Flow of Funds Arrangements

31. The Project funds will be channeled through SMEPS and deposited into a separate

segregated USD Designated Account (DA) in a commercial bank acceptable to the World Bank,

to be opened and maintained by SMEPS and under conditions acceptable to the World Bank.

Eligible expenditures will be financed out of the Grant proceeds including Goods, Non-

Consulting Services, Consultant' Services, Training, Incremental Operating Costs, Internship

Grants and Business Development Grants.

41

32. The proceeds of the Grant would be disbursed in accordance with the traditional

disbursement procedures of the Bank and will be used to finance project activities through Direct

Payments, Advances, Reimbursements and Special Commitment. Replenishment and

Reimbursement Withdrawal Applications will be accompanied by Statement of Expenditures

(SOEs) in accordance with the procedures described in the Disbursement Letter and the Bank's

"Disbursement Guidelines". The quarterly IFRs and the Annual Financial Statements will be

used as a financial reporting mechanism and not for disbursement purposes. The minimum

application size for direct payment and reimbursement will be the equivalent of 20% of the

Advance ceiling amount. The Bank will honor eligible expenditures completed, services

rendered and delivered by the Project closing date. A four months' grace period will be granted

to allow for the payment of any eligible expenditure incurred before the grant closing date.

33. Disbursement to the beneficiaries from the SMEPS’ DA will follow the SMEPS

Operational Manual and the World Bank Guidelines. Typically, client firms of the project will

make full payment to the service provider once business development services are rendered

under a Business Development Plan approved by the project management at the time the grant

was approved. The client firm will then submit a request for reimbursement for the approved

share or percent from the project. The project management will verify documentation, inspect

the systems, products, and other supporting evidence of the claim and, if verified, reimburse the

firm against the claim at the appropriate cost-share level (usually 50 percent). In some cases,

which will be defined in the operations manual, and particularly where warranted by limited

resources for smaller firms, payments may be made directly by SMEPS to the service providers

or to the beneficiary firm for payment to the service provider upon receiving evidence of

payment of the beneficiary’s share. For internships, client firms may submit claims for the cost-

shared amount of the intern’s salary on a monthly basis or at the end of the internship. In this

case, evidence of the client firm’s payment of the intern’s salary and a report on tasks completed

by the interns signed by the client firm and the intern will serve as evidence of “service”

provided along with the SMEPS’ own HR advisor’s reports of the intern’s service at the firm.

Figure 1: Fund Flows

Vendors and

service

providers

Service

providers,

vendors, and

interns

Funds

Services,

invoices

Funds

Invoices Reimbursement

claims &

Payments

Client firm

beneficiaries

WAs +

SOEs

Funds World Bank

Child Trust

Fund

Account

SMEPS Designated

Account

42

34. It is essential to ensure that the turnaround time between presentation of invoices for

expenses incurred by SME clients to the project management and payment disbursements by the

project to such clients not exceed 10 days given the generally weak working capital position of

many Yemeni firms.

Financial Management Arrangements

35. Accounting, reporting and auditing. SMEPS maintains a computerized financial

management system of records, accounts, and reports in accordance with consistently applied

accounting standards acceptable to the World Bank, adequate to reflect the operations, resources

and expenditures related to the project as defined in its Operations Manual. The Manual defines

the (i) roles and responsibilities for all financial management staff, (ii) documentation and

approval procedures for payments, (iii) project reporting requirements, and (iv) quality assurance

measures to help ensure that adequate internal controls and procedures are in place and being

followed. SMEPS has upgraded its accounting reporting to enable the automatic preparation of

quarterly Interim Financial Reports (IFRs) to be submitted to the World Bank within 45 days

from the end of each quarter. The IFRs shall be reviewed by an independent external auditor.

36. All project transactions are subject to annual independent audits by a private audit firm,

acceptable to the Bank, covering all the expenditure categories of the project. Such audits would

include on a representative sampling basis the use of project funds at the client firm level. The

SMEPS will submit to the Bank the following audit reports within six months from the end of

each calendar year:

SMEPS consolidated audited financial statements

Project audited financial statements

37. Organizing and Staffing. SMEPS has adequate staffing arrangements. SMEPS is staffed

with a finance and administrative manager who is supported by two accountants, and another

accountant will be hired for the project. In 2012, SMEPS hired an internal audit manager who is

in the process of hiring two internal audit staff.

Internal Controls

38. Although the SMEPS maintains its own FM Manual that adequately describes the related

guidelines encompassing the authorization and internal control cycles, the proposed Project has

special activities related to grants, so the SMEPS had adopted an Operational Manual, in a form

and substance satisfactory to the World Bank.

39. The SFD has developed a Complaints Handling Mechanism through which SFD

manages, responds and monitors complaints within its activities and other subsidiaries (like

SMEPS) as part of an ongoing process to improve its accountability.

40. SMEPS uses a computerized accounting system, with the accountants having their

individual responsibilities which cannot be duplicated by another staff. Each maintains his own

passwords to perform his/her job.

43

41. The SMEPS prepares monthly bank reconciliation, prepared by the accountant reviewed

and approved by the Finance Manager. For each of the SMEPS branches, one accountant makes

the monthly bank reconciliations and the monthly cash flow report signed by the branch

accountant and the branch officer.

42. SMEPS has a qualified Internal Audit Department (IAD) led by the Internal Audit

Manager, supported by an assistant, and who reports directly to SMEPS’ Executive Director. The

department is responsible for conducting regular audits within SMEPS. The internal auditor

follows-up on any actions agreed upon with the concerned branches, departments or units. It

also coordinates and cooperates with the external auditors. In addition to that, as the SFD is still

the parent institution of SMEPS, SFD will continue acting as SMEPS' Board of Directors,

including SMEPS in their internal audits.

43. External Audit. SMEPS has a contract with Grant Thornton as an External Auditor for

the entity itself and all the projects implemented by SMEPS. It is mentioned in the contract that

the auditor will prepare one annual audit report for the SMEPS (as an entity) and separate audit

reports for each project (The audit report for this Project will be prepared based on terms of

reference cleared by the Bank). The SMEPS will submit both entity audit report and a separate

audit report for the proposed project on an annual basis due within six months from the end of

each year.

44. SMEPS Finance Manager responsibilities – the primary responsibilities of the project’s

Finance Manager at SMEPS will be to:

a) Ensure that the financial and accounting manual of policies and procedures prepared is

appropriately applied in managing the project funds;

b) Maintain the system of records and accounting of the transactions and expenditures and

reimbursements under project management;

c) Prepare the budget and ensure system of internal budget control over expenditures among

project staff;

d) Prepare quarterly project financial reports and explain variances between budget and

actual expenditures;

e) Prepare annual project financial statements and submit it for annual external audit;

f) Supervise the accountants and ensure proper implementation of the project based on the

Grant Agreement, project’s operations manuals and SMEPS’s financial and accounting

manual;

g) Establish a system for verifying payments to ensure that the expenditures have been

properly budgeted, authorized and recorded;

h) Obtain validation from Business Managers of invoices submitted by clients for partial

payment/ reimbursement of expenditures under approved business plans;

i) Maintain the archives of payment/ reimbursement applications, invoices, payments

j) Coordinate the work of the external auditors

k) Perform other project-related duties as requested by the project manager

44

Procurement

45. Guidelines. Procurement for the project will be administered in accordance with the

World Bank’s Guidelines: Procurement of Goods, Works and non-consulting services under

IBRD Loans and IDA Credits and Grants dated January 2011 and Guidelines: Selection and

Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank

Borrowers dated January 2011 and the provisions stipulated in the Grant Agreement. In

addition, the World Bank’s Guidelines on Preventing and Combating Corruption in Projects

Financed by IBRD Loans and IDA Credits and Grants dated October 15, 2006 and revised

January 2011 has been shared with the recipient. The World Bank’s Standard Bidding

Documents, Requests for Proposals, and Forms of Consultant Contract will be used.

Procurement of goods will follow National Competitive Bidding (NCB) procedures and shall be

procured using the agreed Standard Bidding Documents (SBDs) for Yemen. In the event of a

conflict between IDA Procurement/Consultant Guidelines, as per Article 4 (2) and the

Procurement Law of July 2007 and its bay-law 1999 of the GoY, the IDA

Procurement/Consultant Guidelines shall prevail.

46. Given the very small financial dimensions of procurement for the SME business plans

matching grants (Component 1), procurement of goods and services financed under the SME

business plans will be carried out by firms following locally established commercial practices

acceptable to the Bank, and in accordance with the provision of paragraphs 3.13 of the Bank’s

Procurement Guidelines. Types of goods to be financed under the SME business plans for firms

and business associations would include computers, quality control equipment, spare parts and

other small equipment purchases associated with facilities repair.

47. Technical assistance services, or business development services (BDS), for the firms

financed under the SME business plans will be procured by the firms following locally

established commercial practice acceptable to the Bank and or in accordance with the provision

of paragraph 3.13 of the Bank’s Consultant Guidelines. Consultants to be financed under the

SME business plans would include individual consultant and consultant firms. SMEPS will

prior-review the contracts under the first three SME business plans reviewed and submitted

through each BDP advisor, and then shift to ex post review.

48. For procurement of goods and non-consulting services, it will be done using Bank’s SBD

for Goods for all contracts following International Competitive Bidding (ICB) procedures.

National SBDs agreed with IDA, or satisfactory to IDA, will be used for the procurement of

goods following National Competitive Bidding (NCB) procedures. Shopping shall be in

accordance with paragraph 3.5 of the Bank’s Guidelines. Any contract estimated costing more

than US$500,000 shall be procured following ICB procedures. Any contract estimated to cost

more than US$50,000 equivalent and less than US$500,000 shall be procured following NCB

procedures. Any contract estimated to cost less than US$50,000 equivalent shall be procured

following shopping procedures. Goods that meet the requirements of paragraph 3.7 of the World

Bank Procurement Guidelines may be procured following direct contracting procedures with

prior agreement with IDA. These goods, spare parts for example, are as indicated in 3.6 of the

World Bank Procurement Guidelines in “cases that no advantage could be obtained by further

competition and that the prices on the extended contract are reasonable”.

45

49. Consultant firms and individuals will be selected in accordance with IDA Guidelines for

selection and Employment of Consultants (dated January 2011). For firms, all contracts above

US$300,000 would be procured using Quality and Cost Based Selection method (QCBS). Least

Cost-Based Selection (LCS) and selection based on consultant qualification procedures would be

used for small contracts of standard or routine nature estimated to cost less than US$300,000 or

equivalent. Shortlist of consulting firms for services estimated to cost less than US$300,000

equivalent per contract may be composed entirely of national consultants in accordance with the

provisions of paragraph 2.7 of the Consultant Guidelines. All consulting services contracts above

US$300,000 would be subject to IDA’s prior review. All individual consulting assignments

would be selected on the basis of comparison of CVs in accordance with Section V of the

Guidelines for Selection of Consultants.

50. The procurement and selection procedures and contract model are detailed in the Project

Operations Manual.

51. This means that there will not be a procurement plan for the SME business plans.

Eligible business development goods and services under approved cost-sharing grants will be

chosen by the client firm according to local or international commercial practices. This will

involve a process using the client’s own research and knowledge and references to the optional

business development services roster managed by SME business plans, and/or those of another

trusted source, like a business association or outside consultants.

52. Procurement Conformity. To ensure conformity with even this basic requirement and

particularly to address risks of fraud, project management will require from clients: i) validation

of bidders existence and qualifications through written information reflecting this as submitted to

the SME client; ii) original written documentation of bid offers; iii) a brief written statement

describing the bid evaluations process; and iv) a review of the consistency of prices of selected

bidders with others readily available in the market place, as well as with the BDP budget

approved as part of cost-sharing financing approval. Specific procurement requirements and

steps will be published on the project website to ensure broad awareness and transparency.

53. BDS roster. A voluntary roster, that is not limiting, will be managed by SMEPS of

potential local and international business service providers which will support the procurement

work of client firms. This roster will be updated and expanded regularly in collaboration with

beneficiaries. It will be designated clearly as one among other sources of service provider

options and will NOT be used presumptively as a requirement for non-objection of a client’s

procurement decisions. It is also very important that this roster not be viewed as a device mainly

to promote the development of only the Yemeni BDS market, effectively placing BDS

development above the recovery and growth interests of cost-sharing clients, but as a reference

tool for clients to find BDS most appropriate to their business objectives, be they from inside or

outside of Yemen.

54. Areas of concern on procurement operations. Experience shows that the SME business

plan procurement process may become a significant bottleneck to implementation of plans and

yield the impression to some clients that these matching grants require ‘a long process for little

money’. A portion of this problem arises from the common observation that many SME clients

have never engaged BDS through a structured procurement process involving written terms of

reference, multiple bidders, structured evaluation and other written documentation.

46

55. A careful balance will be maintained between role of the SME client to drive and manage

the procurement process, and SMEPS’ BDS Advisors role to inform and support the process, and

to ensure compliance with procurement rules without SMEPS becoming co-owner of

procurement decisions. Accordingly, the BDS Advisor will (1) clarify the project procurement

process for clients, (2) if requested, support the client in his/her procurement process, (3) focus

centrally on the quality of the individual TOR and the BDS provider selected by the client, and

(4) ensure conformity with procurement rules.

Environmental and Social Management (including safeguards)

56. Safeguards policies are not expected to be triggered. The expected size of the grants and

loans under this project are expected to be very small, in the range of up to $10,000, but most

will be less. The nature of most of the activities will be procurement of services and other

intangibles, with possible small scale goods or equipment which are not anticipated to have any

major or irreversible environmental impacts. The OM includes a negative list of activities, the

process of screening out any activities with anticipated social or environmental negative impacts,

and the principles of giving due consideration to social and environmental implications of

technical advice provided. The OM also describes design features to facilitate participation of

women in the EREP, and how internship health and safety will be adequately addressed.

Monitoring and Evaluation

57. Data for monitoring and evaluation will be collected wherever possible in a manner

integrated with project implementation. This means data will be extracted from application forms

received from both graduates and firms, from the BDP Advisors and Internship Advisors

implementation follow-up activities, and from Project Officers supervision activities.

58. A monitoring and evaluation system will be developed with processes and

responsibilities for monitoring and data collection and evaluation defined in the OM.

59. Training activities on the project’s M&E system will be implemented to ensure consistent

data collection from BDP Advisors, Internship Advisors, and Project Officers. This will also be

reinforced by technical assistance provided to SMEPS on M&E systems through the Bank-

executed component of the project.

60. SMEPS will provide the World Bank with quarterly reports on project progress based on

the data from the M&E system. SMEPS will also use the data from the M&E system on a more

regular basis to evaluate implementation and identify where corrective action is needed.

Impact Evaluation – Design and data collection

61. The project will attempt a formal impact evaluation to measure the impact of this

internship program on the employment of youth. Youth will be invited to apply for the program

and basic background information collected on them through this application process. Since

more youth are expected to apply than it will be possible to place in internships during the pilot,

the pool of eligible youth will be divided randomly into three groups: a) a group of 300 youth

who will be matched (if possible) with firms that are given a subsidy to hire these interns; b) a

group of 300 youth who will be matched (if possible) with firms that are given a subsidy to hire

47

these interns and also have been offered a matching grant; and c) 400 youth in the control group.

(Numbers are approximate and will depend on the application rates).

62. Data on firms will be collected from the application forms, through project M&E

activities throughout the lifetime of the project, and then through follow-up data collection after

the project implementation period (by an independent survey firm).

63. Data will be collected from the application forms, through project M&E activities

throughout the lifetime of the project on the internship experience (internship completed, high

skills acquired or not) and immediate employment outcomes of the youth obtaining internships,

and then follow-up data will track the employment outcomes of all these youth after the

internship period has ended (either through phone interviews or incentivized online self-

reporting). This will enable measurement of the impact of the internships on employment of

these youth, and determination of whether the internships have more effect if carried out in firms

that have also been provided with access to the matching grant program.

64. The project will also explore the possibility of evaluating the impact of the matching

grant program on the firm’s performance and employment levels. Ideally this would involve

obtaining a sample of firms interesting in matching grants and also potentially hiring interns, and

randomizing whether they get the grants or not, stratifying this randomization by interest in

hiring interns through the intern subsidy. However, in practice many matching grant programs

have struggled to obtain sufficient take-up of firms to allow such a design to occur, and so this

component of the impact evaluation will be contingent on there being excess demand among

firms for the matching grants.

65. Data on firms will be collected from the application forms, through project M&E

activities throughout the lifetime of the project, and then through follow-up data collection after

the project implementation period (by an independent survey firm).

48

Annex 4: Operational Risk Assessment Framework (ORAF)

YEMEN: Enterprise Revitalization and Employment Pilot (EREP) Project

Stage: Approval

Project Stakeholder Risks Rating Substantial

Description:

(i) There may be limited uptake by SMEs for the cost-shared

activities, particularly the internships but also the enterprise

capability upgrading due to uncertainty of the benefits, limited

resources for the match, and other factors.

Risk Management: The project may provide additional incentives for businesses to take on interns

(subject to considerations related to the design of the impact evaluation and other factors). In

addition, the project is designed to work in two phases to allow for adjustments to be made should

uptake be the constraining factor of the project. Finally, this project is a pilot and is in fact meant to

engage the market to determine the level of demand and interest for scaling up, so it is entirely

appropriate that this would be a relatively unmitigated risk.

Description:

(ii) Civil society and the general public may not perceive

assistance to the private sector as a priority.

Risk Management: Project outreach during implementation will include extensive project

information and promotion activities, which will include sessions with civil society organizations

and be designed to clarify that the project targets primarily micro and small enterprises and is linked

to the national priority of economic recovery in the TPSD. The inclusion of youth employment in the

project is also expected to mitigate this risk substantially. Finally, the project will also be fully

transparent on its eligibility criteria, processes, and grants and grant amounts approved, including a

website and periodic public reports.

Resp: Client Stage: Implementation Due Date : Dec. 2013 Status: Not yet

due

Implementing Agency Risks (including fiduciary)

Capacity Rating: Substantial

Description: SFD, the parent of SMEPS, has shown strong

capacity in implementing Bank and other donor projects. The

Implementation and Completion Results Report (ICR) from SFD

III and latest aide-memoires from the current SFD IV confirm

this. As a subsidiary of SFD, SMEPS benefits from SFD’s strong

fiduciary capacity and SMEPS has demonstrated strong

understanding and initiative in addressing access to business

development services and in youth employment, but its capacity

Risk Management: The Bank executed component will be used to provide technical assistance to

SMEPS on M&E, their highest priority, and the management of the grants component. SMEPS will

receive technical assistance to improve its M&E and MIS systems. In order to limit stress to its

implementation capacity, SMEPS will implement the project by outsourcing first-line client

interaction to local consultants (the BDP Advisors and Internship Advisors), incorporating the

market-based approach of the project in its own structure. Consistency of delivery by these

consultants will be ensured through the Operations Manual, training, supervision of the consultants

by SMEPS Project Officers, and approval of plans endorsed by the consultants by the project

49

in terms of size of staff and systems would be stressed by the

scale of this project.

Management Committee. The implementation support plan will include strong support from World

Bank FM and Procurement Specialists, particularly at the outset of the project, and will include

actions to upgrade FM systems and both FM and procurement capacity (Procurement Officer and

Accountant to be hired).

Resp: Client Stage: Implementation Due Date : Dec. 2013 Status: Not yet

due

Governance Rating: Substantial

Description: There is risk of political interference, particularly in

the matching grant facility. SMEPS may face challenges in its

implementation of the matching grant facility.

Risk Management: At this stage, the proposed governance structure for the matching grant facility

is to be set up to minimize discretion and firm selection will be undertaken in a transparent and

unbiased manner (planned by public lottery). In addition, monitoring and evaluation will be

integrated into the project and SMEPS will receive technical assistance to shore up capacity and

governance in relevant areas as part of the project.

Resp: Client Stage: Preparation

and Implementation Due Date Dec. 2013 Status: In process

Project Risks

Design Rating: High

Description: This is a pilot project meant to test a design for

improving employment outcomes and SME capabilities that

benefits from lessons learned from previous projects (through

Bank financing and otherwise).

Risk Management: As a pilot project, this project design is innovative, and consequently risky, by

definition. However, all efforts were taken during preparation to incorporate lessons learned from

previous designs and to adapt quickly when it becomes clear that certain design features are not

workable. The project is designed to be implemented in two stages to allow for midway corrections

with the second group of beneficiaries as well.

Resp: Both Stage: Both

Due Date : May 2013

(design stage), Jan.

2014 (midway

correction)

Status: In process

Description: The impact evaluation planned to establish the

resulting benefits of the pilot for both interns and SMEs, and

which is at the heart of the learning value of this pilot, may be

threatened by low or asymmetrical uptake or other operational

complications related to assignment of beneficiaries to treatment

and control groups.

Risk Management: The impact evaluation will be designed by the Bank, with expertise from the

Development Economics group. The impact evaluation specialists will inform the design of the

project, in particular the manner in which beneficiaries are targeted and selected, to best ensure the

success of the impact evaluation without threatening operational results. Due to expected higher

uptake among youth applications, the impact evaluation on employment benefits is considered less

risky, however it is quite possible that an impact evaluation on benefits to firm capabilities will be

unsuccessful. In such an event, other forms of statistical analysis, such as bivariate correlations, will

be used to document the pilot results.

Resp: Client Stage: Implementation Due Date : Dec. 2015 Status: Not yet

due

Description: Given the difficult security context, it may be

difficult to implement and supervise the project.

Risk Management: The pilot implementation will be limited to Sanaa and Aden, where SMEPS has

strong local presence. For implementation, SMEPS and the management team will use local capacity

(local consultants who will act as Internship advisors and BDP advisors) and relationships with local

institutions (such as chambers of commerce, industrial associations, CSOs, etc.) to facilitate

implementation. Finally, the project design is such that implementation focus could be shifted

between regions depending on the evolving security situation.

50

Resp: Both Stage: Implementation Due Date : Dec. 2015 Status: Not yet

due

Social & Environmental Rating: Low

Description: Safeguards policies are not expected to be triggered.

The expected size of the grants and loans under this project are

expected to be very small, in the range of up to $10,000, but most

will be less. The nature of most of the activities will be

procurement of services and other intangibles, with possible small

scale goods or equipment which are not anticipated to have any

major or irreversible environmental impacts.

Risk Management: The Operations Manual includes a negative list of activities and the principles

and process of screening out any activities with anticipated social or environmental negative impacts.

The Operations Manual also describes design features to facilitate access of women to the project,

and how internship health and safety will be adequately addressed.

Resp: Client Stage: Preparation

and Implementation Due Date : May 2013 Status: Completed

Program & Donor Rating: Low

Description: As a pilot project driven by priorities and

commitments expressed in the Transitional Plan for Security and

Development (TPSD) and the Mutual Accountability Framework

(MAF), this project is well placed within the GoY and donor

agenda.

Risk Management: Consultations with donors implementing private sector development projects

and programs have been undertaken. As an active agency in the private sector development space,

particularly on small enterprises, SMEPS is well placed to establish links between the pilot activities

and other projects and programs where beneficial. Donor coordination mechanisms in Yemen,

namely the private sector coordination forum among others, will also be utilized to ensure continued

aid coordination.

Resp: Client and

Bank Stage: Implementation Due Date : Dec. 2015

Status: Not yet

due

Delivery Monitoring & Sustainability Rating: High

Description: Monitoring of project delivery will be a challenge

due to the prevalent security situation, the high costs associated

with monitoring, and the likelihood of weak reporting from

beneficiaries and service providers.

Risk Management : Monitoring of delivery of services by BDS and finance providers will be

incorporated into the operations manuals for each component. Requirements for beneficiary

reporting will be incorporated into the grant and financing agreements. The use of third party

monitoring, through individual consultants or a firm, may also be used to mitigate this risk.

Resp:

Client Stage: Implementation Due Date : Dec. 2013

Status: Not yet

due

Description: SMEPS may face a challenge in sustaining activities

beyond the duration of the project.

Risk Management: SMEPS already operates in the areas of facilitation of financial services and

business development services for microenterprises and SMEs in Yemen. The capacity and mandate

is there for SMEPS to continue with these activities after the duration of the project, particularly if

the approach proves successful, which would bode well for attracting IDA and other funds and

external assistance for scaled up projects. At the base of the implementation chain, BDS providers

have clear business incentives to continue providing services and beneficiary firms are expected to

provide a demonstration effect that will spread the benefits of the project and sustain its effect

beyond its closing date.

Resp:

Client Stage: Implementation Due Date : Dec. 2015

Status: Not yet

due

Other Rating: High

Description: Possibility of an upsurge in political unrest and

insecurity could derail project implementation, which could make

it difficult for firms to implement their business plans under the

Risk Management: There is little that can be done to mitigate for this risk. If there is a generalized

impact due to some exogenous deterioration in circumstances at the national level, the project can

only mitigate the risk by including crisis management processes in the operations manual that would

51

matching grants and affect internships. It could also diminish the

benefits of the project to public policies and programs.

likely include stabilization measures and potential shifts between sub-components of the program. In

terms of benefits of the project to GoY policies and programs, the Bank’s approach in the Bank-

executed component of providing just-in-time technical assistance notes that are responsive to GoY

priorities in private sector development , SME development, and employment are expected to

provide adequate flexibility to respond to changing priorities.

Resp: Both Stage: Preparation

and Implementation Due Date : Dec. 2015

Status: Not yet

due

Overall Risk

Implementation Risk Rating: High

Comments: The implementation risk for this operation is High because of country context, as well as design and delivery risks. The volatility of the political, security, governance,

and donor environment pose risks both during implementation and for Bank implementation support of the project are also substantial and require mitigation. The

incorporation of features into the implementation structures of the components as well as use of local capacity is expected to mitigate these risks to the extent possible,

but implementation risks are likely to remain substantial throughout the duration of the project, so a key mitigating measure will be to maintain flexibility and adaptability

in the project design.

52

Annex 5: Implementation Support Plan

YEMEN: Enterprise Revitalization and Employment Pilot (EREP) Project

Strategy and Approach for Implementation Support

1. The World Bank will support the implementation of this pilot project through a

combination of fiduciary and technical supervision, technical assistance, impact

evaluation, and coordination. These activities will be implemented through a combination

of Bank staff, consultants, and third-party monitors. Given the challenging security

context, the project will employ a range of solutions to provide adequate implementation

support.

2. Fiduciary and technical supervision. World Bank fiduciary staff in the San’aa country

office will provide routine supervision of FM and procurement activities. Review and

clearance of the operations manual, interim financial reports, withdrawal requests, and

procurement actions will provide the basic necessary controls over implementation. In

addition, technical assistance and guidance will be provided when necessary on fiduciary

issues, which are anticipated to most likely be on procurement issues but also on the

preparation of the first IFRs, so enhanced implementation support from the locally based

FM and Procurement Specialists is anticipated. Technical supervision will be provided

through Bank staff and local consultants at key design and implementation decision

points, including the clearance of the operations manual and adjustment of design

features during the course of the project. Technical supervision in terms of verification of

implementation of activities will also be undertaken, which is expected to be contracted

to a third-party monitoring contractor.

3. Technical assistance – implementing agency. SMEPS is expected to require technical

assistance on developing M&E and MIS. Technical assistance will be provided by Bank

staff and consultants to advise on the design of these systems and their implementation.

4. Technical assistance - policy. Providing ongoing, just-in-time technical assistance to the

GoY on policies and programs concerning SME development and employment is an

integral part of this project. The Bank will employ staff and consultants, including staff

from the anchor Financial and Private Sector Development Global Practices, to support

technical assistance needs.

5. Impact Evaluation: The impact evaluation will be designed and executed by the World

Bank. The impact evaluation will use data from the M&E system implemented by

SMEPS, and data from independent follow-up implemented by a contracted independent

surveyor (for firms).

6. Coordination: The Bank will maintain coordination with other national entities and

international agencies concerned with financial and private sector development,

particularly in the areas of SME development and employment, to ensure continued

synergy and complementarity with other interventions, and relevance of the project to the

economic development agenda.

53

Implementation Support Plan

7. Technical inputs needed: SMEPS will need technical inputs on designing the operational

aspects of beneficiary outreach and selection in a manner consistent with the

requirements of the impact evaluation while at the same time not causing harm to the

project outcomes and relationships with stakeholders. In addition, technical inputs on the

design of the M&E system, as well as training to SMEPS staff on M&E principles and

implementation will be needed. Consultations with the planned Ad-Hoc Advisory

Committee will aid in finalizing design features, beneficiary relations and outreach, and

operational approaches prior to launching the call for applications.

8. Fiduciary requirements and inputs: SMEPS will hire a procurement officer. World Bank

fiduciary staff will provide implementation support including capacity building where

needed.

9. Safeguards: Social and environmental safeguards are not expected to be triggered. The

Operational Manual will clarify the principles of screening projects for negative social

and environmental impacts and a negative list of activities. It will also include provisions

necessary to guard against known or visible health or safety risks the interns placed under

the program.

What would be the main focus in terms of support to implementation:

Time Focus Skills Needed Resource

Estimate

Partner Role

Throughout

project

Adapting design to

uptake while

maintaining ability to

evaluate for impact

Adapting operations

to volatile

circumstances

Ensuring high value

content of internships

and BDPs

Design of experiments

Private sector development

in fragile and conflict

contexts

SME consulting and BDS,

M&E

US$50,000

US$100,000

US$50,000

Inform the

implementation

support team

on needs to

adapt design

based on

operational

imperatives

and beneficiary

response and

needs

Skills Mix Required

Skills Needed Number of Staff

Weeks

Number of Trips Comments

Private Sector Development

Specialists

Impact Evaluation Specialist

M&E Specialist

Fiduciary Specialists

1-2 weeks of time for

each

1-2

54

Annex 6: Country At-A-Glance

Yemen, Rep. at a glance 3/15/13

M . E as t L ow er

K e y D e v e l o p m e n t I n d i c a to r s & N or th m id d le

Y em en A f r ic a in c om e

( 2 0 11)

P op u lation , m id -y ear (m i l l ion s ) 24.8 337 2,533

S u rf ac e area ( th ou s an d s q . k m ) 528 8,775 20,842

P op u lation g row th (% ) 3.1 1.7 1.6

U rb an p op u lation (% of to ta l p op u lation ) 32 59 39

G N I (A tlas m eth od , U S $ b i l l ion s ) 26.4 1,279 4,488

G N I p er c ap i ta (A tlas m eth od , U S $) 1,070 3,866 1,772

G N I p er c ap i ta (P P P , in tern ation al $) 2,170 8,052 3,837

G D P g row th (% ) -10.5 4.2 5.5

G D P p er c ap i ta g row th (% ) -13.2 2.4 3.9

( m o s t r e c e n t e s t i m a te , 2 0 0 5 – 2 0 11)

P ov er ty h ead c ou n t ra tio a t $1.25 a d ay (P P P , % ) 18 3 30.2

P ov er ty h ead c ou n t ra tio a t $2.00 a d ay (P P P , % ) 47 14 59.5

L i f e ex p ec tan c y at b i r th (y ears ) 65 72 66

In f an t m or ta l i ty (p er 1,000 l iv e b i r th s ) 57 26 46

C h i ld m aln u tr i tion (% of c h i ld ren u n d er 5) .. 6 24

A d u l t l i terac y , m ale (% of ag es 15 an d o ld er) 81 84 80

A d u l t l i terac y , f em ale (% of ag es 15 an d o ld er) 47 68 62

G ros s p r im ary en ro l lm en t, m ale (% of ag e g rou p ) 100 108 106

G ros s p r im ary en ro l lm en t, f em ale (% of ag e g rou p ) 81 101 102

A c c es s to an im p rov ed w ater s ou rc e (% of p op u lation ) 55 89 87

A c c es s to im p rov ed s an i ta tion f ac i l i ties (% of p op u lation ) 53 88 47

N e t A i d F l o w s 19 8 0 19 9 0 2 0 0 0 2 0 11

(U S $ m i l l ion s )

N et O D A an d of f ic ia l a id 574 450 311 664

T op 3 d on ors ( in 2010) :

G erm an y 20 38 32 82

U n i ted K in g d om 9 10 5 64

U n i ted S tates 15 41 57 45

A id (% of G N I) .. 8 .0 3.5 2.3

A id p er c ap i ta (U S $) 72 38 18 28

L o n g - T e r m E c o n o m i c T r e n d s

C on s u m er p r ic es (an n u al % c h an g e) .. 44.9 8.1 -44.5

G D P im p l ic i t d ef la tor (an n u al % c h an g e) .. 12.0 23.3 18.3

E x c h an g e rate (an n u al av erag e, loc a l p er U S $) 4.6 26.2 161.7 213.8

T erm s of trad e in d ex (2000 = 100) .. 80 100 160

19 8 0 – 9 0 19 9 0 – 2 0 0 0 2 0 0 0 – 11

P op u lation , m id -y ear (m i l l ion s ) 7.9 11.9 17.7 24.8 4.1 3.9 3.1

G D P (U S $ m i l l ion s ) .. 5 ,647 9,636 33,758 .. 5 .6 3.6

A g r ic u l tu re .. 24.4 13.8 7.7 .. 5 .1 2.7

In d u s try .. 34.3 46.4 29.4 .. 5 .2 2.0

M an u f ac tu r in g .. 19.0 5.7 6.1 .. 1.8 5.1

S erv ic es .. 41.3 39.8 62.9 .. 6 .1 6.0

H ou s eh old f in a l c on s u m p tion ex p en d i tu re .. 77.0 60.1 80.6 .. 2 .8 7.1

G en era l g ov ' t f in a l c on s u m p tion ex p en d i tu re .. 15.5 13.6 11.8 .. 3 .8 3.6

G ros s c ap i ta l f orm ation .. 12.4 18.9 11.7 .. 10.0 -0 .6

E x p or ts of g ood s an d s erv ic es .. 12.2 41.4 30.5 .. 22.9 1.8

Im p or ts o f g ood s an d s erv ic es .. 17.2 34.0 34.6 .. 11.9 5.4

G ros s s av in g s .. 32.4 32.8 8.8

N ote: F ig u res in i ta l ic s are f or y ears oth er th an th os e s p ec i f ied . .. in d ic ates d ata are n ot av ai lab le.

D ev elop m en t E c on om ic s , D ev elop m en t D ata G rou p (D E C D G ).

(av erag e an n u al g row th % )

(% of G D P )

10 5 0 5 10

0-4

15-19

30-34

45-49

60-64

75-79

percent of total population

Age distribution, 2011

Male Female

0

20

40

60

80

100

120

140

1990 1995 2000 2011

Yemen, Rep. Middle East & North Africa

Under-5 mortality rate (per 1,000)

-15

-10

-5

0

5

10

95 05

GDP GDP per capita

Growth of GDP and GDP per capita (%)

55

Yemen, Rep.

B a l a n c e o f P a y m e n ts a n d T r a d e 2 0 0 0 2 0 11

(U S $ m i l l ion s )

T ota l m erc h an d is e ex p or ts ( f ob ) 3,797 7,718

T ota l m erc h an d is e im p or ts (c i f ) 2 ,484 8,701

N et trad e in g ood s an d s erv ic es 714 -1,688

C u rren t ac c ou n t b a lan c e 1,337 -1,209

as a % of G D P 13.9 -3 .9

P ers on al tran s f ers an d

c om p en s ation of em p loy ees ( rec eip ts ) 1,288 1,404

R es erv es , in c lu d in g g old 2,942 5,941

C e n tr a l G o v e r n m e n t F i n a n c e

(% of G D P )

C u rren t rev en u e ( in c lu d in g g ran ts ) 37.8 26.0

T ax rev en u e 7.1 6.6

C u rren t ex p en d i tu re 24.5 25.4

T e c h n o l o g y a n d I n f r a s tr u c tu r e 2 0 0 0 2 0 11

O v era l l s u rp lu s /d ef ic i t -1.3 -11.7

P av ed road s (% of to ta l ) .. 8.7

H ig h es t m arg in a l tax ra te (% ) F ix ed l in e an d m ob i le p h on e

In d iv id u al .. .. s u b s c r ib ers (p er 100 p eop le) 2 51

C orp orate .. 35 H ig h tec h n olog y ex p or ts

(% of m an u f ac tu red ex p or ts ) 0.0 0.3

E x te r n a l D e b t a n d R e s o u r c e F l o w s

E n v i r o n m e n t

(U S $ m i l l ion s )

T ota l d eb t ou ts tan d in g an d d is b u rs ed 5,162 6,418 A g r ic u l tu ra l lan d (% of lan d area) 45 44

T ota l d eb t s erv ic e 245 274 F ores t area (% of lan d area) 1.0 1.0

D eb t re l ie f (H IP C , M D R I) – – T erres tr ia l p rotec ted areas (% of lan d area) 0.5 0.5

T ota l d eb t (% of G D P ) 53.6 19.0 F res h w ater res ou rc es p er c ap i ta (c u . m eters ) 112 85

T ota l d eb t s erv ic e (% of ex p or ts ) 5.9 2.8 F res h w ater w i th d raw al (% of in tern al res ou rc es ) 161.9 169.8

F ore ig n d i rec t in v es tm en t (n et in f low s ) 6 -713 C O 2 em is s ion s p er c ap i ta (m t) 0.83 1.0

P ortf o l io eq u i ty (n et in f low s ) 0 0

G D P p er u n i t o f en erg y u s e

(2005 P P P $ p er k g of o i l eq u iv a len t) 7.9 8.0

E n erg y u s e p er c ap i ta (k g of o i l eq u iv a len t) 267 298

W o r l d B a n k G r o u p p o r tf o l i o 2 0 0 0 2 0 11

(U S $ m i l l ion s )

IB R D

T ota l d eb t ou ts tan d in g an d d is b u rs ed 0 0

D is b u rs em en ts 0 0

P r in c ip a l rep ay m en ts 0 0

In teres t p ay m en ts 0 0

ID A

T ota l d eb t ou ts tan d in g an d d is b u rs ed 1,216 2,135

D is b u rs em en ts 65 13

P r i v a te S e c to r D e v e l o p m e n t 2 0 0 0 2 0 11 T ota l d eb t s erv ic e 23 70

T im e req u i red to s tar t a b u s in es s (d ay s ) – 12 IF C ( f is c a l y ear)

C os t to s tar t a b u s in es s (% of G N I p er c ap i ta) – 83.8 T ota l d is b u rs ed an d ou ts tan d in g p or tf o l io 12 136

T im e req u i red to reg is ter p rop er ty (d ay s ) – 19 o f w h ic h IF C ow n ac c ou n t 12 90

D is b u rs em en ts f or IF C ow n ac c ou n t 8 0

R an k ed as a m ajor c on s tra in t to b u s in es s 2 0 0 0 2 0 11 P or tf o l io s a les , p rep ay m en ts an d

(% of m an ag ers s u rv ey ed w h o ag reed ) rep ay m en ts f or IF C ow n ac c ou n t 0 7

n .a . .. ..

n .a . .. .. M IG A

G ros s ex p os u re – –

S toc k m ark et c ap i ta l iz ation (% of G D P ) .. .. N ew g u aran tees – –

B an k c ap i ta l to as s et ra tio (% ) .. ..

N ote: F ig u res in i ta l ic s are f or y ears oth er th an th os e s p ec i f ied . 3/15/13

.. in d ic ates d ata are n ot av ai lab le. – in d ic ates ob s erv ation is n ot ap p l ic ab le.

D ev elop m en t E c on om ic s , D ev elop m en t D ata G rou p (D E C D G ).

0 25 50 75 100

Control of corruption

Rule of law

Regulatory quality

Political stability

Voice and accountability

Country's percentile rank (0-100)higher values imply better ratings

2011

2000

Governance indicators, 2000 and 2011

Source: Worldwide Governance Indicators (www.govindicators.org)

IBRD, 0

IDA, 2,135

IMF, 410

Other multi-lateral, 1,114

Bilateral, 2,626

Private, 2

Short-term, 131

Composition of total external debt, 2011

US$ mill ions

56

Millennium Development Goals Yemen, Rep.

With selected targets to achieve between 1990 and 2015(es tim ate c los es t to d ate s h ow n , + /- 2 y ears )

G o a l 1: h a l v e th e r a te s f o r e x tr e m e p o v e r ty a n d m a l n u tr i t i o n 19 9 0 19 9 5 2 0 0 0 2 0 11

P ov er ty h ead c ou n t ra tio a t $1.25 a d ay (P P P , % of p op u lation ) .. .. 12.9 17.5

P ov er ty h ead c ou n t ra tio a t n ation al p ov er ty l in e (% of p op u lation ) .. .. 40.1 34.8

S h are of in c om e or c on s u m p tion to th e p oores t q u n i ti le (% ) .. .. 7.4 7.2

P rev alen c e of m aln u tr i tion (% of c h i ld ren u n d er 5) 29.6 34.2 .. ..

G o a l 2 : e n s u r e th a t c h i l d r e n a r e a b l e to c o m p l e te p r i m a r y s c h o o l i n g

P r im ary s c h ool en ro l lm en t (n et, % ) .. .. 66 76

P r im ary c om p letion rate (% of re lev an t ag e g rou p ) .. .. 58 63

S ec on d ary s c h ool en ro l lm en t (g ros s , % ) .. .. 45 46

Y ou th l i terac y rate (% of p eop le ag es 15-24) .. 60 .. 85

G o a l 3 : e l i m i n a te g e n d e r d i s p a r i ty i n e d u c a t i o n a n d e m p o w e r w o m e n

R atio of g i r ls to b oy s in p r im ary an d s ec on d ary ed u c ation (% ) .. .. 55 75

W om en em p loy ed in th e n on ag r ic u l tu ra l s ec tor (% of n on ag r ic u l tu ra l em p loy m en t) .. 6 7 6

P rop or tion of s eats h e ld b y w om en in n ation al p ar l iam en t (% ) 4 .. 1 0

G o a l 4 : r e d u c e u n d e r - 5 m o r ta l i ty b y tw o - th i r d s

U n d er-5 m orta l i ty ra te (p er 1,000) 126 112 99 77

In f an t m or ta l i ty ra te (p er 1,000 l iv e b i r th s ) 89 80 71 57

M eas les im m u n iz ation (p rop or tion of on e-y ear o ld s im m u n iz ed , % ) 69 40 71 71

G o a l 5 : r e d u c e m a te r n a l m o r ta l i ty b y th r e e - f o u r th s

M atern al m or ta l i ty ra tio (m od eled es tim ate, p er 100,000 l iv e b i r th s ) 610 520 380 200

B i r th s atten d ed b y s k i l led h eal th s ta f f (% of to ta l ) 16 22 .. 36

C on trac ep tiv e p rev alen c e (% of w om en ag es 15-49) 10 21 .. 28

G o a l 6 : h a l t a n d b e g i n to r e v e r s e th e s p r e a d o f H I V /A I D S a n d o th e r m a j o r d i s e a s e s

P rev alen c e of H IV (% of p op u lation ag es 15-49) 0 .1 0.1 0.1 0.2

In c id en c e of tu b erc u los is (p er 100,000 p eop le) 137 137 116 44

T u b erc u los is c as e d etec tion rate (% , a l l f orm s ) 28 69 67 79

G o a l 7 : h a l v e th e p r o p o r t i o n o f p e o p l e w i th o u t s u s ta i n a b l e a c c e s s to b a s i c n e e d s

A c c es s to an im p rov ed w ater s ou rc e (% of p op u lation ) 67 63 60 55

A c c es s to im p rov ed s an i ta tion f ac i l i ties (% of p op u lation ) 24 32 39 53

F ores t area (% of to ta l lan d area) 1.0 .. 1.0 1.0

T erres tr ia l p rotec ted areas (% of lan d area) .. 0 .0 0.5 0.5

C O 2 em is s ion s (m etr ic ton s p er c ap i ta) 0 .8 0.7 0.8 1.0

G D P p er u n i t o f en erg y u s e (c on s tan t 2005 P P P $ p er k g of o i l eq u iv a len t) 8 .6 8.5 7.9 8.0

G o a l 8 : d e v e l o p a g l o b a l p a r tn e r s h i p f o r d e v e l o p m e n t

T e lep h on e m ain l in es (p er 100 p eop le) 1.0 1.2 2.0 4.3

M ob i le p h on e s u b s c r ib ers (p er 100 p eop le) 0.0 0.1 0.2 47.0

In tern et u s ers (p er 100 p eop le) 0 .0 0.0 0.1 14.9

H ou s eh old s w i th a c om p u ter (% ) .. .. .. 4.0

N ote: F ig u res in i ta l ic s are f or y ears oth er th an th os e s p ec i f ied . .. in d ic ates d ata are n ot av ai lab le. 3/15/13

D ev elop m en t E c on om ic s , D ev elop m en t D ata G rou p (D E C D G ).

Y e m e n , R e p .

0

25

50

75

100

2000 2005 2010

Primary net enrollment ratio

Ratio of girls to boys in primary & secondary

education

Education indicators (%)

0

10

20

30

40

50

60

2000 2005 2010

Fixed + mobile subscribers Internet users

ICT indicators (per 100 people)

0

25

50

75

100

1990 1995 2000 2011

Yemen, Rep. Middle East & North Africa

Measles immunization (% of 1-year olds)

57