'9 ' ra ~~~DoLument of ._ - } > The.World tank ` FOR FiMCIA]LVSE ON' `` /~ 3QLS/. 772, 'I~~4 z ' iepu` " o. P-5037-TUN EI*10M AN» RIECOMMNHDATION . THUE -'PRES t4T OF THE INTERNATIO»AL BM FOR RECONSTRUCTION AND D~VELOPMENT Tc TW;, ,, . J- r ` - EXECUTIVE DIRCTORS ON A PROPOSED EDUCATION AND TRANING SECTOR LOA ) IN AN A4OUliT OF, US$995.0 LLION, TO TUE REPUBLIC OF TUNISIA APRIL 6, 1989 This document bas a restricted distbution and may be used by redpients ony lu tlle perfermsoe of their o0clid dutttes. Its contents, may uot otherwse be dWeosed wlffow, Wo ld 8anl aulleoSzationl; c - -' = 1~~~amay r eebr3 -CIRENCY EoUIVALRUTS qn1 (As of December 1988> Currency Unlt * TuviiEon Dinar (TO> USO e.O a T TD 0.86 TD 1.00 . US$1.16 ~~~~ ~~~Jauuazy l - Decemaber 31 ~ - . ~~GLOSSARY OF ABBREVIATIO! - NEN Ninistlre de l'Education Nationa1ut i Nlinistry of Education /. omP Office de la Formation Professionnelle et de i 'Emploi Offfice of Vocational Trainina and Labor. FOR OFFICIAL USE ONLY REPUELIC OY TQRISIA EflIJCATION AUD TRIAIUIG SECYOR LOau Loan and Proiget Summarr Borrower: Republic of Tunisia àmouEt: .*USS95.0 million equivalent Terms,: ' Repayable iin seventepn years, including a five-year 8race perI$d at the Bank's standard variable intetest ?éte. Financina Plan: Government USf 88.0 million 'IBBD USt 95,0million Total US$ 183.0 million Economie Rate of Return: N.A. Staff Aooraisal Renort: Report No. 7696-TUN This document hu a resticted distrbution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without IFC authorization. RAU AD Au CNSION Or TuE PUSI»UaZ OF THE IlElTIONAL EUK FtltCOIRS2 lm O X AID DEVILOPET TO TED XCUTIVE DIICTOIS on A PRVOS8 `- IDUCATION AID TRAIUTN SECTOR L:OA` TO TUE REPUELIC 0F TSIAU 1. The following memorandum and recommendatlotn04 proposed loan to the Republic of Tunisia for US$95.0 million equivalent i submitted. for approval. The proposed loan would provide investment finance for th8 èducctipis and training reform program prepared by the Government with Bank assistance, and help the authorities implement pollcy changes iutitàti lu88. The loan would have a term of 17 years, including five years of grace, at `theîstandard variable interest rate. 2. Backaround. The Tunisian Government l8 contiagü'i i`t` ecnnomie adjustment program with a new e*phasl , on reform in thle hmn ,roe8utcos,' sector. A major concern for the -gvovrnment la the cont$nutng di- l.evai 0f unemployment (over 14 percent in 19U8') despite significant 4e`*e`8'tie price of labor relative to capital in the last five yearae iThe ,comic adjustment progrnm la likely to increase unempleyment in t1e soett term' »'s I reduces the size of the public sector. In the medium an4 long-ter, * "', demand for labor ahould increase as grovth accelerates, and the lEpact\of\$at and prêsent family planning efforts ahould moderate tlhe supply of labê* &' e` '' same time as enhanced education and training setvices laprove the pr, dî. bf the labor force and it9 responsiveness to changing'demand condition.. 3. Tuaisia has undertaken a massive effort since 1956 to develop its humma resources, paylng special attention to family velfare, education, and:' training. As a renult, from the'early 19609 to 1985, Infant mortality vas more than halved from almost 160 to 60 per thousand, life expectancy at birth rose from 48 to 62 years, and adult literacy rates increased from 15 percent to 62 percent. An active fam$ly planning policy, long supported by the Bank, led to a decline in birth rates of 27 percent between 1965 and 1985. ' Mortality also declined by 45 percent, and population growth is still about 2.5 percent a year. The young age structure of the population, together with the increasing entry of vomen into paid vork, caused the labor force to grov at 2.8 percent a year in the mid-1980s. 4. The education and training system is called upon to play a major role in responding to the challenge of a rapidly, changing economy. The Government*s export driven growth strategy places a prealum on the avallability of a highly skilled and vell educated labor force. At the oame timee tatense vorld market competition - in particular the development of a very active £BC market - and rapid technological change require the best possible use of human potential. Iu order to be internationally competitive in the next century, Tunisia needs a labor force vith much higher levelas of mastery of math, science and language skillî than la presently the case. There la an urgent need to step up investments in education ad training to enhance the broad cognitive and problem solving skills and personal qualities that make vorkers trainable and more productive. The Goverament la cmmitted to a major improvement of the education and training system, at the same time as it reinforces lts family planning services. 5. Despite remar' ble quantitative achievements in primary education (99 percent of the 6 year olds are enrolled in grade 1), there are st1li -2 - serious shortcomings. Only 1 ln 3 chlldren goes beyond grade 6, 1 ln 5 goes beyond grade 9, and 1 in 20 progresses to higher education. -The internal eff$ciency of the education system is seriously impeded by a lack of facllities in the lover gtades of secondary education, and by the relatively poor quality of education programs. Repetition rates are high (between 20 and 30 percent), and a sizeable number of children who drop out during primary education vill lapse back to llliteracy. The Minlstry of Education (MEN) has offered varlous vocational education programs, but ln practice these do not prepare students for specific jobs. The type of labor force necessary for Tunisia's expott development strategy requires the teaching of problem- solving akills up to a level that cannot be attained in six years. A key prerequisite for broadenlng individual employment options and improving labor force productivity is access to an expanded and reinforced cycle of basic schooling (grades 1 through 9), whether it is folloved by further formal education, formal and non-formal vocational training, or direct entry to the labor force. 6. In upper secondary schools (grades 10-13) there la a need to revamp course offerings, update programs and enaure complementarity between technical education offered by KEN and the vocational training programs run by the Vocational Training and Labor Office (OCM ). The OFPE vocational training systenm e hampered by weak labor market linkages and is not geared up to the production of highly skilled labor that the economy requires. Shortages of ekilled and technical maupover, particularly technicians, may inhibit the Government'a effort to restructure the Tunisian economy and blunt the export drive. The skill distribution of the work force i characterized by a remarkably 'v share of higher-level professionals and even fewer mid-level technicians. Production line technicians and senior technicians represent only 3 percent of the total number of people employed la all branches of the economy. Moreover, there le an urgent need to develop or adapt progrmam on the basis of up-to-date labor market signale. Greater employer involvement in program definition, skill certification, and management and financing of training institutions is alo highly desireable. 7. Policy measures and Rationale for Bank Involvement. The Government has decided to engage ln far-reaching reforma of the education and trainin8 system. This refomn program has been prepared vith Bank assistance and in collaboration with local, regional and national administrations, and extensive consultations vith teachers and parent teacher associations have taken place. These reforme will be introduced ln two phases. The firet phase of the reforma, which will be supported by the proposed loan, i designed to rake the education and training system more consistent vith the country's medium-term development needs, more equitable and more coat-effective. It vould do this through three major policy changes: (i) allocation of a larger share of resources to a self-contained basic education cycle of sound quality (grades 1-9); (ii) improvement in the quality and relevance of secondary education (grades 10-13), while better controlling accesa to it; and (iii) promotion of pre-service and ln-service training in collaboration vith companies ln the productive sectors, and mobilization of additional resources for training. The content and timing of the specific reform measures, prepared jointly with the Bank over the past year and reviewed at appraisal, are detailed in a supplemental letter. The second phase of the reforma would introduce measures related to hi8her education access and financing. This second phase le nov being prepared for extensive political consultations, also in collaboration with the Bank. In parallel wvth the proposed sector loan, the Goverument and the Bank are also discussing a set of inscitutional and policy reforme aiming at liberalizing labor markets and improving labor mobility. The Bank -3-~~~~~~~~~~~~~~~3 involvement in the education/training sector has been instrumental in developing the reforme being introduced Izn Tunisia. Conut~ued Bank support in necessary to complete the design of the reform program and implement it over a sequence of several years. These major structural changes in the human resources pollcy framework vill complement, by significant shifts in efficiency of human capital investment, the overall country strategy which is to maximize efficiency of Institutions and investments sad fuel the process of economic growth throu8h liberalization. 8. Proiect DescriDtiQn. The agreed reform program generates the need for major investments in education and trainin8 infrastructure, teaching materials, and related software. The Bank has reviewed the proposed investment program il detail and agrees with its main parameters a14 vith the design, costing and phasing of all its major elements. The proposéd project consista of two parts. The firet part, with the Ministry of Education, would cover 100 percent of the foreign exchange cost of the agreed investment program for the five years covered by the proposed loan (1990-1994). This would cover the following investments: (i) rehabilitation of some 1,600 primary and 330 secondary achools; (il) construction and equipment of 800 echool canteens; (iii) construction and equipment of some 130 nev upper basic education achools (grades 7, 8 and 9); (iv) distribution ot books and educational materials on the basis of pedagogical improvement plans; and (v) technical assistance for improving the quality of education and the effi-elency of education management. The second part, with the Office of Vocational Training and Labor (OFPE), vould provide civil works, equipment and technical assistance, for the development of sector specific vocational training centers in collaboration with industry associations and based on a sub-project approach. 9. Cost and Financin. The total cost of the project with contingencies, net of taxes and duties, i estimated at US$183.0 million equivalent with a foreigu exchange cost of $95.0 million. The Bank loan of US$95.0 million would cover about 52 percent of total project coste and 100 percent of the foreigu exchange cost. Local conte in the amout of US$88.0 million would be financed from the investment budget. Retroactive financing of up to US$4 million (4 percent of the loan amouat) would be allowed to cover eligible expenditures lncurred after January 1, 1989. A breakdown of project costs and the financlng plan are shown in Schedule A. Amouats and methode of procurement and the diabursement achedule ate shown lu Schedule B. A timetable of key processing events and the statue of Bank Group operations in Tunisia are given in Schedules C and D respectively. The staff appraisal report No. 7696-TUN, dated April 6, 1989, la being distributed separately. 10. Aareed Actions. During negotiations, the Goverument provided assurances that: (a) the policy measures, sumarized in para. 7 and detailed in a supplemental letter containing a matrix of specific targets and actions, would be implemented vithin the time frame specified and every year the Government and the Bank vould jointly monitor the progress achieved in the reform program, and the proposed investment and recurrent budgets for the next year, including the level of non-salary expenditures; (b) Om would prepare sub-projects related to the development of sector-specific training centers in accordance with agreed criteria and provide the Bank with detailed appraisal reports for approval of each individual sub-project; (c) MEU would distribute books and educational materiala on the basis of pedagogical improvement plans prepared by individual schools, using agreed criteria; (d) no later than December 1990, a preventive maintenance plan for all ME! achools, desigued -4, vith tho assistance of experts, vould be ready for implementation and thereafter all MN*'s achools vould bè maintained adequately; (e) no later than December 31, 1993 an evaluation study vould be completed to assess the quantitative and the qualitative impact of the proposed refor program as wei.a. as its organisation and finances; and (f) tvo Project Coordinators (one each for MEN and O0MF) vould be maintained for tt. duration of the project under ierms of reforence acceptable to the Bank. 11. Benefita. The education reform progrua supported by the proposed loan is expected to yield very significant development benefits for the country. The reform program vould restructure education and training in Tunisia so that a auch larger number of children vould benefit from a solid foundation ot education and training helping prepare them for active careers in a faut- cbanaing economy. It vould reorient the system izi favor of basic education und vould improve the quality and efficiency of educational inputs. At the saDe time, collaborative training vith industry associations vould be promoted. Thlis vould make training programa more jot-related and vould make young people more employable. Quantitative benefits include an increase in the number of students enrolled in upper basic education of 123,000 *ver the 1992-1996 Plan and 152,000 over the 1997-2001 Plan and a decrease in the number of dropouts, in grade 1 through 9 of 104,000 and 124,000 respectively. A portion of the additional coste neceseazy to finance the expansion at the level ot grades 7, 8 and 9 vould be offset by a decrease in the number of atudents in primary education due to improved effticiency rates. The total HEu recurrent budget is projected to grov at an average yearly rate of 3.2 percent ia real terma aud ite s"are of total Govermaent budget vould remain -t its eurrent level of about 2S percent. 12. Jiàa. The refora program also entails soue risks. The first risk is that some teachers way reslst the introduction of nev educational methode and in particular the utilisation of diagnostic testing and remedial instruction. Th< improevments ln pre- and In-service training for teachers should go a long vay to ensure acceptance of the nov methode. The second risk is that mexpected pressures on the goverment budget may reduce the scope for sustaining the mteady increame in investment allocations the sector program calls for amd vhieh Pariament bas already expresuly approved. This could 810wv tow the itplementation of the reforma, although the proposed loan financing safeguarda the met critlcal softvare expmenditures aimed at building varitus quality iUprovemmnts into the achool systea. Finally, the Government may face opPosition to the next phase of the refora process, complementary to these basic education reforma, involving limitations on free accesa to the upper levels of the uducation and training syste. Hovever, the Tunisian public is increasingly avare of the trade-offa iin this area amd Goverument i8 adamant that the refor prcgram vill progroes steadily on track, as has indeed been the case vith all past reform comitments made by Tunisia vithin the adjustuent proceas. 13. Recomendti 1 au satisfied that the proposed loan vould comply vith the Articles of Agreement of the Bank and recommend that the Executive Directors approve the proposed loan. Barber Conable President Attacbments Washington, D.C. April 6, 1989 -5-~~~~~~~~~~~~~~~~~~~~~~~~~~ Schedule A IEPUELIC OF! TDNISU Est imated Coats sud Fluncetua la EBstiuatec! Prolect Coutu Local Forelsa Total - (US$ Million) - A. School Rehabilitation Program (MM«) 12.1 12.0 24.1 B. Canteens for Primary Schools (Eu) 4.7 5.1 9.8 C. School Construction (MN) 40.9 43.7 84.6 D. Complementawy Equipment Programa ( List of Relevant "?ARs: Education 1I (Cr. 94-TU) PPAR Report No. 2226, Sept. 1978 Education III (La. 1155-TUE) PPAR Report No. 5740, June 1985 - - x Page 1 of 2 rHE 5tATUS 4F eANK GROUP OPERAT INS 3H TUNISIA A. STATEMENT OF SANM LOANS ANO IDA CREDITS (As of March 31, 1989) Loan or US$ Million Amount Crodit (Lais Cancollatiensa Number Year lOrrower Puroose ` 19 Uodiiburred Forty-seven Loans and ten Credits Fully Disbursed 780.11 75.16 1797 1980 Office des Ports Nationaux Third Port 35.20 1.23 1961 1981 Republic of Tunisia Fourth Education 21.0û 6.09 1969 1981 Republic of Tunisia Small-Scale Industry Developmtent 30.00 3.74 1997 1981 Republic of Tunisia. Northwest Rural Development 17.54 2.09 2005 1981 Republic of Tunisia Health and Population 8.50 2.76 2052 1981 Republic of Tunisia Grain Distribution and Storage 33.40 1.01 2108 1982 Republic of Tunisia Fifth Kiohway (Rural Roads> 35.50 7.75 2157 1982 R Qepublic of Tunisia Irrigation Development 15.30 2.14 2223 1983 Republic of Tunisia Urban Developaent 113 25.00 16.02 2230 1983 Republic of-1Tun4si9 Education V 27.00 15.59 2234 1983 Republic of Tunisia Central Tunisia Irrigatio0 13.70 5.08 2255 1983 Republic of Tunisia Urban Sewerage 111 34.00 20.54 2289 1983 Npubl'ic of Tunisia Sfax Flood Protection 2230 .29 2346 1984 kepublic of Tunisia Mining Technical Assistance 7.80 2.31 2368 1984 Republic of Tunisia Seventh Water Supply 50.00 27.54 2429 1984 Republic of Tunisia Second Urban Transport 33.00 " 19.74 2455 1984 Société Tunisienne de l'Electricité et du Gaz fourth Power 21.52 6.25 2502 1985 Republtc of Tunisia Northwest Agricultural Production 8.80 7.49 2522 1985 Republic of Tunisiae Export Industries 32.50 20,06 2554 1985 Republic of Tunisia Second Electrical and Mechanical Industries 32.50 22.84 2573 1985 Republic of Tunisia Irrigation Management Improvement 22.00 16.52 2605 1985 Republic of Tunisia Gabes Irrigation 21.70 12.57 2735 1986 Republic of Tunisia Energy Conservation 4.00 3.87 2736 1986 Republic of tunisia Fourth Urban Developeent 30.20? 24.26.. 2754 1986 Republic of Tunisia Agricultural Sector Adjustment 150.00 42.37 2781 1987 Republic of Tunisia Industrial & Trade Policy Adjust. 150.00 50.11 2865 1987 8Nt ONT IV 30.00 21.86 2870 1987 Republic of Tunisia Agriculture 20.00 17.93 2896 1987 Republic of Tunisia Highways Maintenance a Rehabilitation 63.00 62.99 2911 1988 Republic of Tunisia Second Small & Medium Scale Ind. Development 28.00 t8.00 2962 1988 Republic of Tunisia SAL 150.00 'l50.0O 3023 1989 Republic of Tunisia. Petroleum Exploration /1 5.5û -.50 TOTAL 1,963.00 -75.16 626.54 Of which has been repaid 481.52 J13 Total Now Outstanding 1,481.48 62.10 Amount Sold 34.82 of which has been repaid 26.9 7.89 Total now held by lank and IDA _ ' ~~~~~~~ ~ ~~~~~~1,473.59 Total Undisbursed 626.54 /j Not yet effective. 4798/p5 4/4/89 9 Page 2 of2 a, STATEMENT OF IFC INVESTMENTS IN TUNISIA (as of March 31. 1989) e Fiscal Amount Qf IIS Million Year Oblicr Tyve of Businesso un Eauit Total .1962 NPK Engrais- Fertilisers 2.00 1.5S 3.50 1966/70/78 Société Nationale d'Investissement (now ODET) Dev. Finance Co. 2.30 2.30 1969 COFIT Tourism (now 8NOT) Oev. Finance Co. 8.00 2.2 10.20 1973 Société Touristique et Hôtelière RYN SA Tourism 1.60 0.3 1.90 1974 Industries Chimiques du Fluor Chemicals 0.6 0.60 1975 Société d'Etudes et de Développement de Sousse-Nord Tourism 2.50 0.6 3.10 1985/86 Société Tunisienne de Leasing Leasing Co. 3.40 0.5 3.90 1985 Société Minière de Spath Fluor et de Barytine (Fluobar) Mining Co. 0.3 0.30 1986 Société Industrielle des Textiles (SITEX) Textiles and Fibers 5.0 3.2 8.20 1987 Adwya S.A. Pharmaceuticals 2.0 0.3 2.30 1987 Rozzi Edilizzia Industrializzata (REIT S.A.) Prefabricated Panels 1.3 -0.4 1.70 1987 COMETE Engineering Engtneering Services - 0.04 0.04 1988 Société des Industries Textiles Réunies S.A. (SITER) Textiles & Fibers 4.35 2.14 .A49 Total Cross Comitments 28.4S 14.38 42.83 Less cancellations. Terminations, Repayments and Sales Total Conunitments Held by IFC JL.M of which Undisbursed LQ . , L 4798/p6 f rom IFC/04/14/89