Document of The World Bank Report No.16301 YEM PROJECT APPRAISAL DOCUMENT ON A PROPOSED IDA CREDIT IN AN AMOUNT OF SDR 21.7 MILLION TO THE REPUBLIC OF YEMEN FOR A SOCIAL FUND FOR DEVELOPMENT PROJECT April 24, 1997 Human Development Group Middle East and North Africa Region CURRENCY EQUIVALENTS Currency Unit = Yemeni Rials (YR) US$1.00 = YR 140 Fiscal Year January 1 - December 31 CAS Country Assistance Strategy EDI Economic Development Institute (World Bank) EIRR Economic Internal Rate of Return ERR Economic Rate of Return FRR Financial Rate of Return GDP Gross Domestic Product IDA International Development Association LIBOR London Inter-Bank Offered Rate MIS Management Information System NGO Nongovernmental Organization NPV Net Present Value OED Operations Evaluation Department ODA Overseas Development Assistance O&M Operations and Maintenance PPF Project Preparation Facility PTI Programs of Targeted Interventions SFD Social Fund for Development SIL Specific Investment Loan TA Technical Assistance UNCDF United Nations Capital Development Fund UNICEF United Nations Children's Fund YR Yemeni Rials Vice President Kemal Dervi§ Country Director Inder Sud Sector Director Jacques Baudouy Task Managers Qaiser Khan/Sarosh Sattar Republic of Yemen Social Fund for Development Project TABLE OF CONTENTS Project Financing Data ...................................................................1l Block 1: Project Description ....................................................................2 1. Project Development Objectives ....................................................................2 2. Project Components ....................................................................2 3. Benefits and Target Population ....................................................................3 4. Institutional and Implementation Arrangements ......................................................3 Block 2: Project Rationale ....................................................................5 5. CAS Objective(s) Supported by the Project ........................................................... 5 6. Main Sector Issues and Government Strategy ........................................................ 5 7. Sector Issues to be Addressed by the Project and Strategic Choices .......................5 8. Project Alternatives Considered and Reason for Rejection ..................................... 5 9. Major Related Projects Financed by the Bank and/or other Development Agencies 6 1 0. Lessons Learned and Reflected in the Project Design ............................................. 6 11. Indications of Borrower Commitment and Ownership ............................................6 12. Value Added of Bank Support ..........................6 Block 3: Summary Project Assessments ....................................................................6 13. Economic Assessment ....................................................................6 14. Financial Assessment ....................................................................7 15. Technical Assessment ....................................................................7 16. Institutional Assessment ....................................................................7 17. Social Assessment ....................................................................8 18. Environmental Assessment ....................................................................8 19. Participatory Approach ....................................................................8 20. Sustainability ....................................................................8 21. Critical Risks ...................................................................X8 22. Possible Controversial Aspects ....................................................................9 Block 4: Main Loan Conditions ....................................................................9 23. Effectiveness Conditions ....................................................................9 24. Other ....................................................................9 Block 5: Compliance with Bank Policies ....................................................................9 List of Annexes Annex 1: Project Design Summary Annex 2: Detailed Project Description Annex 3: Implementation Arrangements Annex 4: Estimated Project Costs Annex 5: Economic Analysis Annex 6: Financial Summary Annex 7: Procurement and Disbursement Arrangements Annex 8: Criteria for Sub-Project Selection Annex 9: Statement of Loans and Credits Annex 10: Republic of Yemen at a Glance INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Middle East and North Africa Region Human Development Group Project Appraisal Document Republic of Yemen Social Fund for Development Project Date: April 24, 1997 [ ] Draft [X] Final Task Team Leader: Qaiser Khan/Sarosh Sattar Country Director: Inder Sud MN2YE/MNSHD Project ID: 41199 Sector: Social Lending Instrument: SIL PTI: [X] Yes [ ] No Project Financing Data [] Loan [X] Credit [] Guarantee [] Other [Specify] For Loans/Credits/Others: Amount (US$m/SDRm): US$30.0 / SDR 21.7 M roposed Terms: [] Multicurrency Single currency Grace period (years): 10 [X] Standard IDA [] Fixed [] LIBOR-based Years to maturity: 40 Commitment fee: 0.00% Service charge: 0.75% Financing plan (US$m): Source Local Foreign Total Government 0.7 0.0 0.7 Beneficiaries 4.3 0.0 4.3 IDA 26.9 3.1 30.0 European Union 23.8 1.2 25.0 Government of Netherlands 10.0 0.0 10.0 Arab Fund for Economic and Social Development /1 10.0 0.0 10.0 Other /2 TBD TBD TBD TOTAL- - -:- . . - - - -. 75.7 4.3 80.Q Borrower: Government of Yemen Guarantor: N/A Responsible agency(ies): Social Fund for Development Estimated disburseme-nts MUS$m). - 9-l98 1999 200W 2001 2002 Annual 1.1 4.5 6.8 10.0 7.6 Cumulative 1.1 5.6 12.4 22.4 30.0 For Guarantees: NA Expected effectiveness date: December 31,1997 Closing date: June 30, 2003 1/ The Arab Fund has expressed its interest in writing to co-finance the project to the amnount of US$10 million. It will appraise the project in May - June 1997. 2/ ODA has expressed a strong interest in co-financing (amount to be determined). Project Appraisal Document Page 2 Country: Republic of Yemen Project Title: Social Fund for Development Block 1: Project Description 1. Project development objectives: (see Annex I for key performance indicators) The project seeks to reduce poverty by improving living conditions and providing income generation opportunities to the poor. This objective would be pursued through the establishment of a demand-driven mechanism to: (a) provide community development services to poor communities; and (b) support income generation activities through the development of small and microenterprises. 2. Project components: (see Annex 2 for a detailed project description and Annex 4 for a cost breakdown) The project has three components: (i) community development; (ii) small and microenterprise development; and (iii) capacity building. These components are discussed below: Cost including Contingencies % of Component Category (US$m) Total * Community Development supports the identification and Physical, Policy, Institution 38.3 48 implementation of subprojects for small-scale labor- building, Credit, Project intensive works and the delivery of community services. management Subproject selection will be transparent and based on: (i) efficient resource use; and (ii) sustainability, measured as the ability to recover operations and maintenance (O&M) costs. Intermediary organizations including NGOs and local governments will assist communities in preparing and implementing subprojects. The component is targeted to poor communities. o The small-scale labor-intensive works subcomponent will provide income generation opportunities and temporary employment to the poor while improving basic services (especially basic infrastructure) in disadvantaged communities. The subcomponent will create partnerships between beneficiary communities and the Social Fund for Development (SFD), with beneficiaries making contributions in cash and kind. o The delivery ofcommunity services subcomponent supports subprojects involving Government, NGOs and communities. The SFD will finance demand-driven social and community services. Successful subprojects would be used as models for larger sectoral operations. * Small and Microenterprise Development. This component Policy, Institution-building, Credit 27.4 34 supports the development of small and microenterprises through technical assistance, training, and access to credit. During the initial phase the focus will be on capacity building. Microenterprise pilots have already started in two of the poorest provinces, with support from the Dutch Government and the European Union. o The microenterprise subcomponent will deliver credit, technical assistance, and training to microenterprises through NGOs. o The small enterprise subcomponent will provide training, technical assistance, and loan guarantees to banks and other financial intermediaries in order to assist them in developing a portfolio of small enterprise loans. Direct technical assistance and training for small enterprises will be provided through NGOs, commercial banks, and other financial intermediaries. Project Appraisal Document Page 3 Country: Republic of Yemen Project Title: Social Fund for Development The Capachy Building component will assist stakeholders Physical, Policy, Institution- 14.3 18 such as communities, NGOs, the private sector and the SFD building, Project management to improve their effectiveness in identifying, implementing and operating development subprojects. Capacity building will include several sub-components: o Develop capaciLy in NGOs, community groups and the private sector for involvement in small-scale development activities by (i) helping local associations and groups develop and execute development projects (TA in fostering and managing community participation, conducting competitive bidding, preparing contracts, and monitoring work progress), (ii) enhancing the ability to execute sustainable microenterprise programs, and (iii) providing technical assistance to small contractors and consulting firms on engineering and construction standards, bids, and undertaking small- scale works successfully; o Support to the SFD to help strengthen training, procurement, and accounting capacity; and o Poverty monitoring nationwide. Total 80.0 100i 3. Benefits and target population: The target population for the project is poor and disadvantaged communities lacking access to essential services or with high unemployment or underemployment. Project benefits will be in three areas. First, benefits will accrue directly to the poor duhough (a) temporary and pe.manent employment creation; (b) greater access to essenial social services; and (c) greater economic integration of women. Second, the project will improve domestic nongovernmental and local government capacity to plan and implement development projects, thus providing a complement to the central government's activities. Third, the project will also provide a means to promote donor coordination and channeling of donor funds to poverty alleviation. .4 ~~~ ... ................................................................................................................................................................ 4. Insttutional and implementation arrangements: Implementation period: December 31, 1997 - December 30, 2002 Executing agency: The Social Fund for Development is the executing agency. Law No. 10 in 1997 established the SFD as an autonomous agency with financial and administrative independence. The SFD also possesses the authority to enter into contracts, recruit staff from outside the civil service, and establish its own operating procedures, including procurement and disbursement. The IDA credit will be passed onto the SFD on a grant basis under a Subsidiary Agreement. The SFD will distribute funds to the beneficiaries of the community development program on a grant basis, and through loans for the microfinance component. (See Annex 3 for implementation details on the subproject cycle and disbursement mechanisms). The project will be implemented in accordance with the Operating Manual. Any changes to the manual would be subject to agreement by IDA. The Operating Manual contains the criteria and procedures for appraising, approving, contracting, and monitoring subprojects which will guide implementation of SFD subprojects. In order to avoid duplication of efforts and to ensure adherence to sector priorities, the SFD has explicit eligibility and technical appraisal criteria (contained in the Operating Manual) to finance subprojects not covered by existing programs and projects of sector ministries and other public agencies. In order to ensure this coordination, ministers from sector ministries are members of the Board of Directors. Subproject proposals will be submitted to the SFD's regional offices following an intensive promotional campaign aimed at disseminating information on the SFD-financed activities (see Annex 3 for details). Totals may not add due to rounding. Project Appraisal Document Page 4 Country: Republic of Yemen Project Title: Social Fund for Development Proposals received would be reviewed against criteria specified in the Operating Manual which emphasize community defined priorities, efficiency, impact, and participation. Broad criteria for subproject evaluation and selection encompass: (i) technical considerations; (ii) cost parameters, including cost per beneficiary; and (iii) project sustainability. The selection criteria give greater weight to indicators which reflect community needs. Following formal approval of a subproject proposal, a framework agreement defining fnancing conditions, implementation schedules, and administrative responsibilities would be signed. A project launch workshop designed to disseminate information and answer questions on the subproject process would be held for every subproject prior to the release of funds. Initial disbursement of 10 percent to 30 percent of the SFD's contributions (depending on the type of subproject) would be paid to contractors; subsequent payments would be made on the basis of work completed and against goods and services purchased following field visits by the SFD's staff. Monitoring of physical and financial progress would be performed by the SFD's staff, contracted NGOs, or both. Progress data will be entered in the SFD's Management Information System (MIS), which will provide accurate information for the SFD's staff. Regional offices will be connected to the MIS, giving them immediate access to up-to-date and relevant performance information. The system will reduce administrative bottlenecks and enable staff to monitor progress benchmarks in a detailed manner. A certificate would be issued when a subproject has been completed. O&M will be managed by communities and partially financed by them through cost sharing arrangements detailed in the framework agreement. Subproject proposals under the community development component would be identified by communities with the assistance of NGOs or local governments and then submitted to the SFD. Following approval, the NGO or local government and the SFD would sign an agreement defining the use of funds and the roles and responsibilities of each stakeholder (e.g., NGO, local government, community and the SFD). The SFD will finance subprojects in health (e.g., small extensions, rehabilitation, and establishment of revolving fund based on cost-sharing by users), education (e.g., girls' bathrooms and additional classrooms) and basic infrastructure. Microenterprise development will take place with the assistance of NGOs. NGOs would initially receive grants (subsequently loans after they are able to cover O&M costs within an agreed time period) from the SFD for on-lending to individuals at commercial interest rates. Group lending mechanisms, such as those employed by the Grameen Bank and other successful micro-credit programs, will be used to ensure high repayment rates. Since there is presently excess liquidity in the financial system, the project will not provide banks with credit for on-lending to small enterprises. However, the SFD will provide technical assistance to banks and other financial intermediaries to assist these in developing small enterprise portfolios. The SFD will also provide a guarantee mechanism to banks to partly cover losses incurred in the first two years of small enterprise lending. Project coordination: The Managing Director of the SFD will be responsible for overall project coordination. Project oversight: The Board of Directors, headed by the Prime Minister, oversees the SFD's activities and is responsible for setting broad policy guidelines for the SFD's operations. The Board comprises fourteen members, including Government, NGO and private sector representatives. The SFD's daily operations are the responsibility of the Managing Director, who reports directly to the Board of Directors. The SFD reports to IDA on the progress and impact of its activities. These arrangements are in place and would be retained under the project. Accounting, financial reporting and auditing arrangements: The SFD is responsible for accounting and administrative matters. An MIS is being developed which will facilitate management of the SFD and financial reporting. The SFD will select internationally reputable auditors acceptable to IDA. Monitoring and evaluation arrangements: Regular and comprehensive monitoring and evaluation are important for ensuring the effectiveness of the SFD. The SFD will conduct monitoring and evaluation through regular on-site visits with local NGOs and beneficiary communities and through MIS reporting, auditing, and impact assessments. Expansion of coverage in poor communities will occur through regional offices. These regional offices will conduct regular supervision missions on subprojects and individual investments to beneficiaries, compiling relevant information through the MIS for review and evaluation by the SFD. Regional offices will also provide the central office with regular supervision reports received from consultants and NGOs responsible for subprojects. Evaluation and impact studies will be undertaken by the SFD or independent consultants. Until the regional offices are established, the SFD will undertake all supervision of contracted activities. Project Appraisal Document Page 5 Country: Republic of Yemen Project Title: Social Fund for Development IDA, through a task manager based in the Sana'a resident mission, will review progress towards achievement of development objectives and key indicators, provide advisory services, ensure that principles and procedures outlined in the Operating Manual are followed, review proposed training programs and TA expertise, and assist the SFD in developing a strong portfolio of subprojects with proper targeting and sound development impact potential. The mid-term review, scheduled for December 31, 2000, will also entail a comprehensive evaluation of project performance and will be undertaken jointly with other donors. Block 2: Project Rationale 5. CAS objective(s) supported by the project Document number and date of latest CAS discussion: 15286-YEM, January 19, 1996 | IDA's strategy in Yemen focuses on poverty alleviation and promoting human resources development. This project directly supports these objectives by (i) increasing income generation opportunities for the poor by fostering small-scale labor-intensive works and microenterprise development; and (ii) improving living conditions in disadvantaged communities by providing opportunities to implement subprojects for delivery of community services such as health, education, and basic infrastructure (ie., sanitation and potable water). Since government agencies presently have insufficient capacity to deliver basic physical and social infrastructure to a large segment of the population, this project provides a complementary mechanism to state-run service delivery for the provision of social services and assistance to the poor. 6. Main sector issues and Government strategy: There are several issues in addressing poverty in Yemen. First, defmed as access to essential services (social and basic infrastructure), poverty is widespread. This is evident in quality of life indicators (e.g., life expectancy, access to safe water, and enrollment rates) which show poor living conditions for a large share of the population. Second, the poor (as measured by household expenditures) are difficult to target because they live primarily in rural areas. Also, since Yemen has a large informal economy, using household earnings to distinguish the poor from the nonpoor would be difficult and, therefore, not a suitable basis for targeting. Third, the central Government has insufficient outreach capacity to provide assistance to many of the poor. Fourth, the NGO sector is weak and lacks funds. Fifth, the financial sector faces many difficulties (such as legal hurdles in collecting on defaulted loans), lacks experience in lending to small enterprises, and is somewhat averse to the risk of providing credit to small enterprises. The Government's poverty strategy is to provide (i) cash and in kind assistance to the unemployable poor; (ii) training and grants to help the employable poor obtain jobs or establish microenterprises; (iii) essential services to a larger share of the population; and (iv) universal wheat and flour consumer subsidies. The Government recognizes the difficulty in targeting poor households based on means-testing and, therefore, prefers to target communities using geographical or self-selection targeting mechanisms. The Government is presently implementing its strategy through public sector entities since it has limited experience working through NGOs or directly with communities. The SFD, which is newly established, will provide the Government with another means for providing assistance to the poor. ..............................................................................................................................................I...................................................................................................... 7. Sector issues to be addressed by the project and strategic choices: The sector issues addressed by the project are targeting of the poor; insufficient institutional capacity of government agencies, (especially outreach capability to poor communities and delivery of small-scale projects); weakness of the NGO sector; and lack of financial sector services for small enterprises. The project will target the poor using geographic and self-selection targeting mechanisms. The SFD will establish a portfolio of subprojects, particularly in those governorates and areas (rural/urban) where poverty is relatively high. Given that government agencies have limitedproject implementation capacities and the diversity of problems affecting poor communities (i.e., lack of health, education, and infrastructure services), a strategic choice was made not to attempt to provide small-scale assistance through existing government ministries. Instead, the SFD will respond to local demand for services by primarily using nongovernmental intermediaries to assist communities in obtaining these services. Though the nongovernmental sector is weak, the increase in funding available for NGOs and the provision of training and other capacity building services through the SFD, will help to develop and expand nongovernmental development activities. Thefinancial sector will be encouraged to provide services to small enterprises. The SFD will fund the training for bank staff in building a portfolio of loans to small enterprises and will provide loan guarantees to banks and other financial intermediaries. . ........................................................................................................................................................................................................................... 8. Project alternatives considered and reasons for rejection: The option of implementing the activities through existing ministries was considered, but in view of their difficulty decentralizing service delivery to the community level this approach was rejected. Furthermore, Government provision of services would also be Project Appraisal Document Page 6 Country: Republic of Yemen Project Title: Social Fund for Development more expensive than through the SFD due to their high overhead costs as well as the difficulty of achieving economies of scale in small communities. The purely private sector approach was not feasible, as many of the activities are not profitable and consist at least in part of providing public goods. The public-private-NGO partnership was adopted to maximize the comparative advantage of each sector. (See Annex 5.) . ....................................................................................................................................I...............................................................................I............. 9. Major related projects financed by IDA and/or other development agencies (completed, ongoing and planned). Related IDA projects are the Yemen Civil Works Project (FY96) and the Southern Governorates Project (planned FY97). The Dutch Government has supported community development and microenterprise projects. It is also financing a small enterprise development project with UNCDF. The project is working closely with other World Bank teams, the Dutch Government, and UNCDF. . ...................................................................................................................................I............................................................................................................... 10. Lessons learned and reflected in the project design: The primary lessons learned for establishment and functioning of a successful social fund are the need for (i) financial, institutional, and administrative independence; (ii) adequate compensation to the core organizational team; (iii) use of NGOs and other community organizations as intermediaries and implementing agencies; (iv) transparency of selection criteria of subprojects; and (v) full staffing of the organization prior to start-up. These considerations have been included in the project design. The law which established the SFD as a legal entity ensures its independence from the Government. It also allows the SFD to hire staff on a competitive basis. The Government has already hired the Managing Director (who has extensive experience in the financial sector and in working with donors) and other key personnel. The project will rely on GovernmentlNGO/private sector partnerships to facilitate delivery of services and creation of employment opportunities in poor communities. The Operating Manual ensures transparency of subproject selection (thus also helping to maintain popular political support). 11. Indications of borrower commitment and ownership: The Borrower has willingly and promptly taken the most important step towards ensuring the success of the project: establishment of the SFD as an independent agency. The National Assembly approved Law No. 10 in 1997 which established the SFD. Furthermore, staff appointments at all levels have been done on an open and competitive basis. The Government has shown its ownership of the project by encouraging the rapid implementation of pilot projects started with a PPF advance and support from other donors. J E W . ................................................................................................................................................................................................................................................ 12. Value added of IDA support: IDA's value added will be in several key areas: (i) application of lessons learned from the Bank Group's global experience in social funds; (ii) IDA's knowledge of Yemen through the large number of projects in various sectors; (iii) IDA's role in the provision of lending and nonlending services to Yemen which has resulted in a good dialogue with the Government and facilitates the implementation of complex projects such as social funds; and (iv) improving donor coordination and mobilization of resources (56% of this project's total cost) in poverty alleviation and small and microenterprise development operations. Block 3: Summary Project Assessments (Detailed assessments are in the project file. See Annex 8) 13. Economic assessment [] Cost-Benefit Analysis: [XI Cost Effectiveness Analysis [I Other (see Annex 5): [Specify] Fiscal impact (for all projects): The fiscal impact of the project over the implementation period is minimal. The Government's contribution is relatively small (less than US$1 million per year during the project period). This is due to the modest size of the SFD, its low overhead, and the use of NGOs and other intermediaries in the implementation of subprojects. The capital cost (funds channeled to subprojects) of the project will be financed primarily by donors which will further allay the impact of the project on the Government's budget. The project actually yields significant savings to the Government. An analysis of the comparative costs of delivering the same amount of investment (US$71.5 million) through Government agencies (using regional development agencies as a comparator) as opposed to the SFD shows that the overhead costs are three times lower for the SFD, leading to savings of US$1 1 million over the project implementation period. After project completion, the fiscal impact of the SFD will continue to remain low. The incremental recurrent costs will be relatively constant at less than US$0.7 million per year (approximately 2.3 percent of the budget of Ministry of Planning and Development), Project Appraisal Document Page 7 Country: Republic of Yemen Project Ttle: Social Fund for Development since the Government will need to finance only the SFD's operations because subproject operating costs will be paid by communities, individual beneficiaries, and NGOs. If the project is successful, its future capital cost to the Government will most likely be small because, in general, donors provide financial support to social funds since they view it as a cost effective and targeted mechanism for reducing poverty. 14. Financial assessment (see Annex 6) NPV iN/A FRR= N/A During the implementation period donor funds will play a major role in financing the initial investment. Once implementation is complete, beneficiaries will be the primary source of funds for O&M. Most revenue generation will be in the form of user charges for community facilities. .. .......I.............I...... ... ....................I.......I............... ............................. ................................................................I..........................................I............. 15. Technical assessment: The Operating Manual which specifies the basic procedures for the SFD (such as for the microenterprise program and procurement), has been examined and found to be satisfactory. The procedures are being tested through pilot activities; results of these field tests will be used to revise the Operating Manual. A legal covenant will require that the Operating Manual be reexamined periodically and that it remain acceptable at all times to IDA, the Borrower, and other donors. 4 ~ ............................................................................................................................................................................................................................................ 16. Institutional assessment: There are five main stakeholders (SFD, NGOs, local governments, community groups, and the private sector) in this project. The institutional capacity of each will have an impact on project implementation, and on the quality of subprojects. Project design takes into account the weaknesses of the stakeholders in implementing development subprojects and will address these weaknesses through training, technical assistance, and twinning arrangements. The SFD, which is the executing agency, has recently been established. Its institutional capacity is expected to develop rapidly because: (i) a highly qualified core team has been recruited; (ii) the Board of Directors headed by the Prime Minister has given its support to the SFD's mandate, which is also protected by law; and (iii) an IDA team is providing intensive TA to help initiate pilot subprojects. These will be used as learning examples for the new SFD staffand as a basis for tailoring the Operating Manual to conditions in Yemen. The SFD's core team has strong qualifications and extensive experience in the private and nongovernmental sectors. The Managing Director is dynamic, has financial sector expertise, and is experienced in working with donors. The staff includes two community development project officers, a microcredit project officer, a civil engineer, an accountant/financial officer and an MIS specialist. A special effort has been made to recruit women particularly as community development officers in order to help increase the share of female beneficiaries and participation. Five to six regional offices are planned so that SFD decision making and implementation may be closer to beneficiaries. Establishment of regional offices will depend on the volume of activities in an area. The capacity of potential SFD partners (community groups, NGOs, local Government, and the private sector) was assessed by the appraisal mission. A summary of its findings follows. Community Groups. Yemen has a strong tradition of community groups; the question is how to harness their energies. The presence of regional welfare associations provides a means for the SFD to establish contact with community groups since members in these associations retain close links with regional communities. However, these associations have a charity focus. Concerted support will be needed to make them more development oriented. NGOs. Although there are some active and strong NGOs most of the sector is weak. A long-term training plan has been developed and weaker NGOs will be teamed with stronger ones. Local Governments have recently received increased authority under a proposed decentralization law (parts of which have already been implemented). However, project implementation capacity is weak. The SFD will consequently need to manage contracts related to sub-projects. Private Sector. The private sector partners are consulting firms to help small businesses and engineering consulting firms to design and supervise small-scale labor-intensive civil works and contractors. There is a lack of capacity in the first type of firm; training programs for those involved will be needed. The engineering consulting business is more established and needs little help to focus on labor-intensive construction techniques. Contractors are also common though some may require cost-accounting training. Project Appraisal Document Page 8 Country: Republic of Yemen Project Title: Social Fund for Development 17. Social assessment: Project preparation included participative social surveys and intensive consultations with community groups, NGOs, and other stakeholders. Project design has been adjusted to reflect the findings of these studies. ..i fw .........i.................................................................................I................................................................................ ................................................................... 18. Environmental assessment: Environmental Category [ ] A [X] B I ] C The community development component will support basic infrastructure through financing subprojects requested by communities. Subprojects may range from rehabilitating community water supply systems, waste water treatment, solid waste management, community centers, markets, and rural roads. All subprojects will be subject to environmental screening criteria. No major environmental impact is expected. Some subprojects, such as waste water treatment and solid waste management, may have positive side-effects. 19. Participatory approach: Identification/Preparation Implementation Operation Beneficiaries/community groups COL COL COL Intermediary NGOs COL COL COL Academic institutions IS CON CON Local government COL COL COL Other donors COL COL COL Private Sector CON COL COL Professional Associations CON IS IS Private Regional Welfare Associations CON IS IS Note: Infornation sharing (IS); consultation (CON); and collaboration (COL). 20. Sustainability: Five areas will be important to ensuring project sustainability: (i) institutional capacity, which the project will help to develop at the national level (SFD and NGOs) and at the local and community level (local NGOs and community groups) through the capacity building component and through hands-on training for NGOs; (ii) quality of subprojects, which will be ensured through following strict eligibility criteria which emphasize firm community commitment to the subproject, its future operations and maintenance; (iii) building partnerships with communities in subproject implementation, which experience has shown to increase the likelihood of sustainability; (iv) providing support to small and microentrepreneurs which provide financially sustainable proposals; and (v) low fiscal impact of this project. (See section 13 above.) 2i; Critic is ks (see fourth column of An nex 1). )........... -_ ----------.-.. ------------ Project outputs 1. Despite founding law of the SFD, the 1. Low 1. NGO and private sector members to development Government may compromise SFD's of the SFD Board of Directors as objectives independence well as explicit criteria in the Operating Manual will mitigate this 2. Government will inhibit NGO activity 2. Medium 2. Establish dialogue with and by redrafting NGO legislation provide TA to the Government on NGO legislation reform 3. Weak NGO capacity 3. Low/Med. 3. Hands on training 4. Difficulty in identifying the poor 4. Low 4. Identify poor through community groups 5. Financial sector may remain weak, 5. Medium 5. The actions enacted in the last which may reduce the incentive to banks two years and the stabilization to engage in small business lending and program have improved the which may make small business lending business environment and reduced non-sustainable risk Project components to 1. NGOs may not become interested or 1. Low 1. Training and using a partnership outputs effective approach Project Appraisal Document Page 9 Country: Republic of Yemen Project rTle: Social Fund for Development 2. Approval and continued financing of 2. Low 2. Use of specific subproject criteria poor quality subprojects and close supervision including spot checks and supervision by resident mission 3. Targeting is inadequate 3. Low/Med. 3. Use beneficiary assessments 4. Poor quality commercial banks to act 4. Medium 4. Work with private banks and as intermediaries for small enterprise more solvent public banks lending Overall project risk rating Medium 22. Possible controversial aspects: The potential for controversy has been reduced through the highly participative approach taken in preparation. During implementation this will continue through the project approach, in which the SFD will work in partnership with beneficiaries, community groups and NGOs. Members of the political opposition were consulted during parliamentary debates. The SFD's Board includes Government, opposition members, the private sector and NGOs. There may be a long-term sustainability problem in working outside public sector structures but the benefits of doing so appear to outweigh the risks, given that government ministries suffer from institutional weaknesses. Block 4: Main Loan Conditions 23. Effectiveness conditions: None .N........... ............. .....................................................................................I............................................................................................. ... ....................... . ......... 24. Other: Managerial Covenants: The following requirements are included (a) maintain the Operating Manual as agreed with IDA and revise it periodically to reflect field conditions; (b) maintain staffing of key positions in the SFD with personnel of agreed qualifications; (c) ensure that sub-loans are made in accordance with the Operating Manual; (d) conduct annual functional audits to assess compliance with the Operating Manual and to determine whether subprojects meet eligibility criteria and are cost-effective; (e) prepare annual evaluations and monitoring reports and send them for IDA review and approval by November 30 of each year; and (f) conduct a joint mid-term review with the Government, SFD, IDA, and donors by December 31, 2000. Financial Covenants: Regular audits Block 5: Compliance with Bank Policies [X] This project complies with all applicable Bank policies. Task Team Leader: Qaiser Khan/ Sector Director Jacques Baudouy Country irector: Inder Sud Sarosh Sattar 'Team members include Ms. Sarosh Sattar (back-up Task Manager), Ms. Judith Brandsma (Small and Microenterprises Specialist), Mr. Omer Karasapan (Private Sector Infrastructure Specialist), Mr. Yasser El Gammal (Social Fund Specialist), Ms. Randa El Rashidi (Human Resources Specialist), Ms. Eileen Sullivan (Procurement/Disbursement), Ms. Alia Al-Dalli (Consultant/NGO Specialist) and Mr. Marc van Imschoot (Consultant/Labor-Intensive Works Engineer). In addition the Bank team received support from Messrs. Michael Kohler and Rainer Freund (EU) and Kees Kieft (Dutch Embassy). Amnex I Page I of 4 Annex 1 Project Design Summary Narrative S*mmary Key Performanee Idie,tors' MRit*rg sad Spervisxion riic. l Asmpti Jii Ris CAS Objectives: Sustained Economic Growth and Poverty 1. Growth Measures 1. GDP estimates 1. GDP estimates do not properly measure Reduction performance because economy is still informal. 2. Poverty Measures 2. Poverty estimates based on sampling 2.1 Surveys to measure poverty delayed. 2.2. Survey samples biased. Project Develpment Objectives: 1. 190 community-based social 1. I Administrative reports and spot 1.1 Goverwnent does not allow SFD to be Poverty reduction through establishing an infrastructurc projects identified, inspections. independent (Law ratified) efficient demand-driven mechanism prioritized, planned, and executed by the aimed at capacity building and the implementing agencies. 1.2 Initial activities carried out in 1.2. Weak NGO capacity (hands-on provision of (a) community and human community development and micro- training). resources development services in poor enterprises communities; and (b) income generation 1.3. Difficulty in identifying the poor through small and microenterprises. (have communities identify). 2. 2,150 small businesses assisted, and 2. Quarterly reports by NGOs, banks, and 2. Poor quality commercial banks to act as 28,500 loans disbursed against micro- other financial intermediaries to SFD. intermediaries for small enterprise lending enterprise activities. (work with private and more solvent public banks). Project Outputs: 1. Social Fund for Development (SFD) 1. SFD operational and fully staffed by 1. Annual report from SFD on number of 1. Lack of Government commitment established. September 1997. employees, funds disbursed, and number (Board of Directors includes members of of subprojects funded by component current Government and main opposition category. political party). 2. Expand NGO involvement in 2. 82 NGOs trained in executing 2. Administrative reports and spot 2. NGOs may not be interested or development activities. development projects by end of the inspections. effective (mitigated by training and using project. I_I a partnership approach). Unless specified otherwise, all target amounts are to be achieved by the end of the project (December 31, 2002). Refer to Annex I Supplement for break-down of targets by calendar year for individual project components. Annex I Page 2 of 4 Narate $ummaryKey~ Prformance Iniaor'Mntorg aam.priio rii Asptin 'awl ........ 3. Small-scale private sector enterprises 3. 2,500 micro-enterprises and 645 small- 3. Progress reports 3. NGOs may not be interested or capable developed. enterprise owners trained by end of the of helping the development of project. microenterprises (mitigated by training and using partnership approach). 4. Assist NGOs in establishing 4. 5 NGOs receive TA and training in 4. Progress reports 4. Risks of failure may be high in areas microfinance programs. establishing microfinance programs to without a tradition of such activity. assist microenterprises. 5. Selected banks providing credit to 5. Training 9 financial institutions 5. Administrative data and community 5. Targeting is not good (mitigated by use small enterprise and their institutional involved in credit provision to small visits. of beneficiary assessments). capacity to do so strengthened. enterprises. Community Development Component: 1. Development of small scale community 1.1 924 social infrastructure subprojects 1.1 Administrative reports and site visits. 1.1 Poor quality subprojects get financed infrastructure. completed. (mitigated through use of specific subproject criteria and spot checks by supervision teams). 1.2 1,132 economic infrastructure 1.2 As above, as well as spot assessment 1.2 Quality of works acceptable (labor subprojects completed. by labor intensive works expert. intensive works specialist will help). 2. Improving the quality of life in 2. 950,000 beneficiaries reached, of 2. Administrative reports, spot checks, 2. Poor quality subprojects get financed communities. whom 20% are female. and beneficiary assessments (see 1.1 above). Small and Microenterprise Development Component: 1. Support the development of at least two 1.1 Training delivered in functional 1.1 Reports produced by NGOs delivering 1.1 Microenterprises could fail (risk local NGOs in providing credit to aspects of delivering microenterprise micro-credit. minimized by screening and loan microenterprises. credit to 2 NGOs by July 1998 monitoring of microenterprises). 1.2 Number of microentrepreneurs being 1.2 Beneficiary profile surveys and 1.2 Default rates would be reduced by helped. financial analysis of portfolio and selected appropriate TA (risk minimized since microentrepreneurs. other donors have independently allocated funds for TA). Annex I Page 3 of 4 Narrative Su *r d:: Perfrn iirs Mtit6rii sod Sunii Critkit M*wnptioas and Riks 2. Support banks in delivery of credit to 2.1 Improved portfolio performance 2.1 Reports produced by small enterprise 2.1 Small enterprises could fail (risk small enterprises. through repayment of 80% of loans. unit. minimized by screening and loan monitoring of small enterprises). 2.2 645 small entrepreneurs helped. 2.2 Financial analysis of portfolio and 2.2 High default rates would be reduced selected small entrepreneurs. by appropriate TA (risk minimized since other donors have independently allocated funds for TA). Capacity Building Component: 1. Increasing the capacity of Community 1. Training provided to 91 community I. Administrative reports and spot 1. Communities may not be interested or Groups in designing, implementing and groups in subproject proposal design, inspections. effective (mitigated by training and using maintaining subprojects. implementation and O&M. a partnership approach). 2. Develop capacity of local NGOs to 2.1 82 NGOs trained in design, 2.1. Administrative data and spot checks. 2. NGOs receiving capacity building carry out development projects. implementation, and supervision. support do not follow up on development projects (risk will be reduced through 2.2 183 NGOs and communities carrying 2.2 Same as above experience gained in execution of SFD out projects financed by Social Fund for subprojects, eliminating reluctance). Development (SFD). 3. Develop small contractors for labor 3.1 Thirty training modules provided to 3.1 Administrative data and verification 3. Poor quality works by small contractors intensive works. small contractors in issues related to labor by labor intensive works expert. (would be reduced by hands on training intensive civil works. and supervision by expert on labor intensive works). 3.2 Skills developed in 60 small 3.2 Same as above. contractors which carry out SFD financed labor intensive works. Annex 1 Page 4 of 4 Annex 1 - Supplement Project Design Summary - Targets by Calendar Year Target 1997 1998 1999 2000 2001 2002 Total Avg Cost A. Community Development Program Sub-Projects 1. Number of Sub-Projects 5 20 30 40 45 50 190 2. Number of Beneficiaries 25,000 100,000 150,000 200,000 225,000 250,000 950,000 $30 B. Mkro-Enterprse Development Loans Number of Microentrepreneurs 500 1,500 5,000 6,000 7,500 8,000 28,500 $100 C. Small Enterpris Development Loans Number of Enterprises 0 200 350 500 600 500 2,150 $20,000 D. Capacity Buiding 1.NumberofNGOs/CooperativesTrained 2 10 15 20 20 15 82 2. Number of Community Groups Trained 1 10 15 20 20 15 81 3. Number of Microentrepreneurs Trained 200 500 600 700 500 2,500 4. Number of Small Enterprise Owners Trained 60 105 150 180 150 645 5. Number of Financial Institutions Trained in Small Enterprise Lending 1 2 3 3 Note: Project design is not done on a sectoral basis since subprojects are demand-driven by communities. Thus, the number of communities serviced are the target and not specific activities. Annex 2 Page I of 4 Annex 2 Detailed Project Description Community Development - US$38.3 million (total cost of component) Community development activities would be targeted to poor communities and would include (i) Small-scale labor-intensive works in partnership with the communities, which would be implemented through partnerships between beneficiary communities and the SFD, with beneficiaries making contributions in cash and kind; and (ii) Delivery of community services using innovative approaches, supporting projects involving Government, NGO, and community partnerships. The SFD would finance demand-driven social and community services. If successful, these subprojects could eventually be developed into larger operations. As they will involve partnerships with beneficiaries and NGOs, these approaches would differ from past World Bank supported activities. Projects could include rehabilitation of a community market, support to a community-based health center, or non-formal education for women. These activities would be proposed by communities and their NGO partners and appraised by SFD staff (see Annex Table 2. 1). The SFD will work through a series of partnerships either directly with the community, an NGO operating in the area, or successful community-based projects run by other donors. These partnerships are best illustrated by examples from the pilot phase. The SFD is working directly with a poor fishermen's cooperative near Aden to help develop community infrastructure and social services in partnership with the community. This subproject provides support for equipping and rehabilitating a health center, developing a fish auction center to help fishermen receive better prices, and developing a community solid waste management system. User fees will be charged at the health center and funds generated will be managed by the community. Fees will also be collected for the market and for solid waste management. An example of SFD-NGO partnership is found in a remote region of Sana'a province (about seven hours by road from Sana'a City), where the SFD will support a health program providing full coverage centered around a secondary hospital. Again, substantial community contributions are being collected to assure a sustainable approach. SFD-financing will supplement resources from an existing NGO which is currently running the program. The third approach is being followed in Ibb province where the SFD is providing supplemental resources for a non-formal education project operated by UlNICEF. Small and Microenterprise Development - US$27.4 million (total cost of component) This component consists of two parts: (i) microenterprise credit and (ii) small business finance. The microenterprise subcomponent provides loans averaging $100 to individuals through NGO intermediaries. The small business development subcomponent provides technical assistance and loan guarantees to banks and other financial intermediaries to help them develop a portfolio of loans to small enterprises. Micro-finance Microenterprises in Yemen employ the majority of Yemen's labor force, help the entrepreneurial poor to generate income, and contribute to grassroots private sector development. Worldwide experience indicates that micro-entrepreneurs (especially women) not only reinvest revenues from their businesses, but also use revenue to upgrade family standards of living (nutrition, health, and education). Micro-businesses are financed almost exclusively from limited family savings. Access to formal finance to assist business survival and growth is severely limited. Yemen has neither the experience nor institutional capacity to effectively and efficiently deliver financial services to the poor. For this reason, grant funding was raised from the Dutch Government and the EU for two pilot micro-finance programs. Pilot objectives are: (i) to develop local institutional capacity to build and manage sustainable micro-finance programs; (ii) to test and leam which financial services approaches work best in different local or regional settings (urban/rural, group lending/individual lending); (iii) to test and learn Annex 2 Page 2 of 4 which institutional arrangements work best in different regional settings; (iv) to test and learn whether and under what conditions use of micro-finance intermediaries can be sustainable in Yemen; and (v) to identify legal and regulatory factors that may distort or complicate development of sustainable micro-finance intermediaries. The micro-finance pilot programs will be implemented in Hodeidah city and in rural areas of Dhamar. Preparation of the Hodeidah pilot is more advanced; it is currently being designed and implementation has just been initiated. The Dhamar pilot will begin in April 1997. Both pilots are fnanced by the Dutch Government, the EU, and the SFD (which contributes about 10 percent of total cost). Depending on the success of these pilots, they will be replicated in other parts of Yemen. The Hodeidah Micro-Finance Pilot (HMFP) program will be implemented through the Hodeidah Women's Union (HWU), a local organization selected on the basis of eligibility criteria. The most important criteria was the institution's capacity to achieve outreach and scale. Eligible borrowers are the poor living in squatter areas of Hodeidah city. Initially, only those with existing micro-businesses will be eligible while in later phases start-ups will also be included. Extensive field work, including numerous focus group discussions, was undertaken to identify borrower needs. A group guarantee mechanism will be used to enforce repayment and decrease transaction costs. The average loan size per group member is expected to be around US$100. Maturity of the first loans will be between three and six months and loans will be given at market rates of interest. Loan sizes and maturity will increase with successful repayment. The program's objectives are to have at least 5,000 active borrowers by the year 2001 and to become operationally sustainable in two to three years and financially sustainable in three to four years. To enable the program to reach financial sustainability the imputed cost of capital is included in the calculation of the annual effective interest rate. Key program staff have been recruited. A training and institutional development plan for the local staff has been drafted which includes travel to Egypt to visit best practice programs and to receive formal training. Office space has been provided by the HWU. Technical advisors will work closely with program staff to draft operating manuals. Loan officers will start working in May 1997 and will receive intensive on-the-job training as well as exposure trips to neighboring countries. The first micro-loan is expected to be disbursed in June 1997. Small Business Development: Financial and Business Services The SFD would implement a pilot Bank Small Business Lending Institutional Development Program. This program would initially assist two eligible banks to build sustainable and profitable small business loan portfolios. The package offered to the banks would consist of: (i) a grant-funded institutional development program; and (ii) a first-loss guarantee mechanism. Banking representatives have stated that due to high liquidity in the sector they do not need funds for on-lending at present. They would however require risk- sharing arrangements to participate in a small-business lending pilot. The first-loss guarantee would be easy for the SFD to administer as no due diligence is required on loan evaluation. The pilot will cover the territories surrounding Taiz, Aden, and Mukallah with two branches of one state commercial bank (soon to be privatized) and two branches of one local private commercial bank. Candidates have been identified and initial discussions are underway. As there is insufficient funding (especially grant funding) for institutional development at this stage of project preparation, pilots will be finalized after loan effectiveness. Existing small businesses with less than 20 employees would be eligible for working capital and investment capital loans. The loan ceiling would initially be US$30,000 with an expected average of US$10,000. Maturity would be up to three years for investment capital loans and up to one year for working capital loans. Banks would charge market interest rates. Given that start-ups are more risky than existing businesses, banks would fund start-ups to a limited extent. Only 10 to 20 percent of a bank's total small business loan portfolio would be in start-ups. Under the pilot, a special loan product would be offered to associations and cooperatives to purchase equipment for rental use by their members. Eligibility criteria will focus on: (i) the number of association or cooperative members; (ii) the business value of the project to be financed, especially the cash flow from the Annex 2 Page 3 of 4 investment; (iii) equitable and fair participation of the members in the project; (iv) the administrative, accounting, and bookkeeping systems used and the management skills of the Board members; and (v) the collateral offered by the association or cooperative. Individual members cannot afford to purchase the type of equipment to be financed, but could rent it on an as needed basis. The SFD has an impressive pipeline of projects including tractors, packaging machines, food processing equipment, and greenhouses and cold storage facilities (in which members would rent space). The association or cooperative would be the legal borrower. Repayment is virtually risk-free given the rental income. In addition, the association or cooperative would guarantee the loan with its (member-funded) share capital. Associations and cooperatives would have to present a viable business project and prove that members would benefit in a fair and equitable way to be eligible. Banks would charge market interest rates. Yemen has very little experience or capacity to deliver business services to start-ups and existing businesses. Worldwide experience indicates that business services programs have difficulties becoming sustainable. This is particularly the case of business services focusing on start-ups. This does not mean that these programs should not be undertaken. However, donors and program managers should acknowledge that programs may remain dependent on subsidies for a long time. Risks under this project can be mitigated by carefully designing programs and funding them based on impact and performance indicators. Successful programs often offer services to both start-ups and existing businesses, using fee revenues from existing businesses to subsidize losses incurred in delivering services to start-ups. In order to avoid undue risk the SFD would carefully implement several (low budget) pilot programs to test successful best practice business services programs in Yemen to leam which approaches are appropriate. If successful these programs would be replicated and linked to either the micro-lending or small enterprise lending program. Capacity Building - US$14.3 million (total cost of component) Capacity building will include several subcomponents. First, capacity development of NGOs, community groups, and private sector actors for involvement in small-scale development activities. This would include, but not be limited to (i) helping local associations and groups develop and execute development projects, (ii) expanding NGO ability to run sustainable microenterprise programs, and (iii) assisting small contractors and consulting firms in the context of the labor-intensive works component. Second, capacity building support would be provided to the SFD. Finally, poverty monitoring and surveys would be conducted to assess the impact of the SFD's programs. NGO, community, and private sector capacity building will be done not only through formal and informal training, but also through close working collaboration with specific organizations. The SFD is using the former Manager of an international NGO to prepare the training program and is also working directly and closely with some NGOs. International NGOs are also being contacted to work in partnership with local NGOs. The developed NGOs are expected to work with the SFD in developing community capacity and, in some cases, the SFD may work directly with the community. The SFD is providing financial support as well as training and technical assistance to two NGOs in the pilot phase so that they may become apex microenterprise organizations. If this approach is successful it will be replicated in other areas. Private sector capacity building is relevant to small enterprise development. This includes support to (a) banks to develop small enterprise lending capacity; (b) local consulting firms and training institutions to help potential small entrepreneurs develop bankable business plans; and (c) potential small entrepreneurs. Finally, because of the variety of small-scale labor-intensive works to be financed by the SFD, there is a need to develop the capacity of small contractors and small engineering consulting furms to design, supervise, and execute small-scale labor-intensive public works. An international expert with experience in this area has developed a program to be executed in cooperation with the public works project. Poverty monitoring will be done in cooperation with the Central Statistical Organization. Other more targeted formal surveys and beneficiary assessments will be carried out to assess the impact of selected SFD subprojects. Annex 2 Page 4 of 4 Annex Table 2.1: Type of Labor-intensive Small-Scale Works to be Undertaken by SFD and their Priorities Subprojects are classified in several categories, and the expected community contribution for CWSP is given as an indication only. The level of contribution has to be determined for each subproject, depending on the nature of the project and the community's capacity to contribute. Type of Community Infrastructure Community training & assist. ] Priority [ Contrib. Social Infrastructure Social Development Health such as: Health such as: Construction or rehabilitation of health posts Packages of medicines and maternity clinics Primary health care Health materials and equipment Preventive health campaigns Family planning Health posts management committees Education such as: Education such as: Construction and rehabilitation of classrooms Literacy classes Preschool care and nurseries Support for school nurseries 1 5 to 10% School furniture School packages Water and sanitation such as: Water and sanitation such as: setting Rural water supply and sanitation schemes, up of water users' committees Water harvesting schemes, Septic tanks and latrines, Water purification, Sewerage Other social infrastructure such as women's centers Economic Infrastructure Economic Development Irrigation such as: small-scale irrigation Irrigation such as: establishing water schemes, spate irrigation schemes distribution systems and water users' committees 2 variable Markets such as: Farmers markets, Fish Markets such as: setting up management 10 to 50% markets units Other productive facilities such as: Other productive facilities storage centers, small processing units, refrigerated storage, cattle troughs Labor-intensive works such as: Labor-intensive works such as: training water and soil conservation, afforestation or small contractors, consultants and reforestation schemes, stone paving footpaths upgrading laborers' skills. and small streets, feeder roads, 3 variable restoration of ancient buildings, garbage collection Other works such as: small rural electrification schemes, vocational training min. centers, community sports centers 4 25% Note: The SFD will not finance the equipment of sponsoring agencies (such as vehicles and computers) acting as intermediaries between the communities and the SFD. For infrastructure development, benefiting communities will be asked to acquire the needed land prior to the project start. Annex 3 Page I of 10 Annex 3 Implementation Arrangements The Social Fund for Development: Structure & General Principles The Social Fund for Development (SFD) has been established as an autonomous entity outside the regular government structure. This will enable it to: (i) have the flexibility necessary to respond quickly and efficiently to requests for subproject support; and (ii) provide funding and technical assistance for institutional strengthening of communities, NGOs, and grassroots organizations, thereby promoting self-reliance in communities as well as stimulating community organization and participation. The functions of the SFD would be to: (i) facilitate project generation by providing technical assistance geared towards promoting self-help in communities as well as stimulating community organization and participation; (ii) appraise and approve project proposals; (iii) administer disbursement of funds for project implementation; (iv) monitor project implementation and undertake beneficiary assessments; and (v) mobilize funds. The SFD was established through Law No. 10 of 1997 and is governed by a Board of Directors. The Board is headed by the Prime Minister and is composed of representatives from the Ministry of Insurance, Social Affairs, and Labor, Ministry of Planning and Development, Ministry of Finance, Ministry of Local Administration, and Ministry of Education, and two representatives each from the private and NGO sectors. In addition to responsibility for policy- making and for approving the SFD's operating procedures, annual budget plans, and semi-annual reports, the Board would also review quarterly audits and annual reports. Authority over the SFD's daily operations rests with the Managing Director, who is responsible for the SFD's personnel, administrative, fnancial, and operational activities and issues. The Managing Director oversees the operations of the following units: (i) Projects Unit; (ii) Programming, Institutional Building, and Evaluation Unit; (iii) Infrastructure Management Unit (IMU); (iv) Monitoring and Information Unit and; (v) Finance and Administration Unit. The Project Unit is responsible for all aspects of subproject funding, including identification, appraisal, monitoring and evaluation. The Programming, Institutional Building and Evaluation Unit is responsible for planning the SFD's activities in line with its resources and subproject evaluation (see Annex Table 3.1). The IMU is responsible for assessing and evaluating social and infrastructure subproject proposals as well as managing civil works subprojects. The Monitoring and Information Unit is responsible for implementing the necessary databases for all of the SFD's vital activities, including establishing a database of on-going and pipeline projects as well as monitoring the progress and the implementation of subprojects. The Finance and Administrative Unit will be responsible for preparing the SFD's financial plans, overseeing equipment and materials procurement, preparing fnancial and administrative reports, authorizing payments and disbursements, and processing requests for replenishment of the special account. The national office in Sana'a provides support to the regional offices, deals with subproject financial transactions, assists with procurement, and plans and coordinates training. The SFD will be represented through regional offices to allow quick response and implementation of subprojects in geographically remote and dispersed areas. The preparation of technical plans and budgets for subprojects will be prepared by the SFD's national and regional offices. The regional offices would be the main point of contact between requesting agencies and the SFD. They would perform various functions and tasks including: provide advice to communities, NGOs, and local governments on SFD procedures; receive applications; coordinate subproject appraisal committees and conduct field appraisals; conduct launch-workshops; assist in targeting the poor; participate and facilitate procurement payments, supervision, and monitoring; and perform records maintenance and project evaluation. Regional Office Heads would be authorized to approve subproject funding of US$10,000 or less. Subprojects above US$10,000 would require approval from the Managing Director. Annex 3 Page 2 of 10 Transparent subproject evaluation and selection criteria specified in the SFD's Operating Manual would be applied. These emphasize the size and simplicity of the proposed subproject, capacity of the requesting entity to undertake the subproject, relevance of the subproject to community need, and relative poverty of the community. The principal elements of the subproject selection procedure would be: (i) beneficiary analysis; (ii) technical requirements; (iii) sustainability, including financial and institutional analysis; and (iv) minimum cost parameters. Individual subproject implementation would be assisted by the SFD and sponsoring agencies. Supervision would be undertaken in collaboration with the communities. Functional audits by external auditors would be undertaken every six months. This would include field-level monitoring of selected projects to ensure the quality of works and beneficiary satisfaction as well as adherence to contractual agreements. In addition, annual beneficiary assessments would be undertaken by the SFD to monitor the impact on beneficiaries of SFD-funded subprojects and, more generally, to improve data on poverty. The results of functional audits and beneficiary assessments would be used to refine and develop the SFD's interventions as well as to gradually provide a household and community level database used for policy formulation by the Government. The SFD subproject financing for the community development component would be in grant form. This could cover technical assistance, civil works, and equipment and, in some cases, spare parts and consumables for start-up activities. It would also finance technical assistance for project preparation when necessary. The SFD would coordinate closely with other programs and projects rehabilitating social infrastructure in Yemen. In particular, it would coordinate with programs funded by other bilateral donors, ministerial bodies, UN agencies, and major NGOs as well as Bank-funded projects. During design of the SFD, the coordination function was actively and successfully developed by the preparation team. The Subproject Cycle Promotion. The SFD's promotional activities would be headed by the field offices and would have the following objectives: (i) informing community leaders and target populations (particularly at the grassroots level) of the aims and activities of the SFD and of requirements for subproject proposals; (ii) assisting communities and NGOs in developing subproject proposals; (iii) identifying communities with weak or inadequate skills in subproject development and tailoring support to suit the needs of individual communities; and (iv) building a database on target populations. The promotion strategy would include field-level workshops, with follow-up visits targeted to slow-activity areas, briefings for members of parliament, government officials, NGOs, and other entities active in community development and mass media communications. A properly focused promotion mechanism is essential in generating an active project portfolio. It is also crucial for engendering a perception (by both the public and policymakers) of the SFD as a participant in and resource for grassroots initiatives, rather than as a government assistance agency. This function is especially important, as local ownership and consequently sustainability of subprojects, will otherwise be weak. Training for promoters will largely focus on imparting appropriate communications skills for local operations. Subproject Evaluation and Selection. As subprojects would be demand-driven, sponsors would prepare proposals in accordance with a standard Project Proposal which would allow defined subproject selection criterialo be applied. The Project Proposal Form would include: (i) identification of the subproject; (ii) objectives; (iii) location; (iv) technical feasibility; (v) estimated cost; (vi) estimated benefits; (vii) commitment of interested parties to the project; and (viii) sustainability. An initial screening, which would result in rejection, further elaboration, and/or forwarding to the SFD's headquarters, would be undertaken by the SFD's promoters working at the field level. At headquarters, a thorough evaluation of proposals using clear evaluation criteria would be undertaken by subproject evaluators with good technical qualifications. In most cases, evaluations would be desk reviews. Evaluation and selection criteria would emphasize locally defined priorities, efficiency, impact, and participation criteria detailed in the Operating Manual. In general, social sector and small infrastructure projects should minimize costs and respond to documented community demand as well as being appropriately targeted to needy groups. Basic technical norms can be assumed to minimize cost. Broad criteria for subproject evaluation and selection would be: (i) technical considerations (engineering standards); (ii) cost parameters, including cost per beneficiary; and (iii) project sustainability, including community commitment to financing operating and maintenance costs. The SFD would also determine the need for training in the management, operations, and maintenance of subprojects. Annex 3 Page 3 of 10 The SFD may receive proposals for more subprojects than it can accommodate, making a system of establishing priorities essential. To ensure that support is given to activities which further the SFD's objectives, greater weight would be given in the evaluation process to indicators reflecting community need. Contracting Procedures. After a proposal is approved for support, a contract would be signed between the community representatives and the SFD. Where a community is supported by an NGO, the framework agreement would be signed by the SFD, the NGO, and the community. The agreement would stipulate activities and physical works, prices, implementation schedules, and administrative responsibilities. It would also include an agreement on management of operations and maintenance for the completed project. When the subproject contract is signed, an initial mobilization payment of 20 percent of the SFD contribution to the subproject would be paid to the contractor or supplier. Subsequent payments would be made on the basis of work completed or goods and services purchased, following a field visit by SFD staff. Implementation. Construction subprojects would be carried out by local contractors or sponsors, under the supervision of the SFD. If the SFD lacks the capacity to do this in any instance, a suitable technical agency would carry out supervision. Implementation would be monitored through: (i) supervision by the communities themselves, with or without technical assistance depending on the complexity of the task (supervision fees could be included in the subproject cost); and (ii) SFD supervision on a frequent basis. The SFD's supervision would include regular on-site visits by an SFD staff member, who would ensure that community contribution obligations are met, the contractor is adhering to the agreement, and agreed procurement procedures are being followed. Once a subproject is completed there would be a formal handover of the infrastructure to the entity in charge of managing the facility. Subproject Monitoring. The SFD's monitoring system would consist of a short-run mechanism for monitoring subproject execution, and a longer term ex-post subproject evaluation system. The former would be designed to monitor the efficiency and quality of subproject implementation and would complement sponsor monitoring. The ex post system would evaluate subprojects' longer term development impact. It would include surveys carried out on subproject beneficiaries to provide information for improving future subproject design and evaluation and to monitor effects of subprojects on target population groups. In addition to regular supervision, the SFD would undertake annual beneficiary assessments to evaluate the longer term development impact of subprojects. A mid-termn evaluation would take place 24 months after the start of operations. The overall monitoring data would be managed with a Management Information System (MIS) designed for the purpose. Disbursements would be monitored through the MIS. The SFD would produce reports containing a summary of the findings of the monitoring activity, with recommendations to improve subproject implementation and design. Implementation of subprojects would be monitored against a set of quantified performance indicators, which would be adjusted every year. The indicators would relate to: (a) financing, (b) project flows, (c) direct impact, and (d) efficiency of operations. Subproject Disbursement and Procurement Mechanism Subproject Disbursement Procedures Subproject disbursement procedures are designed to ensure that: (a) for subprojects implemented through sponsoring agencies: * Tranche releases are used as milestones for each phase of the project's activities * Financial and procurement procedures are appropriately followed by sponsoring agencies * Potential implementation problems are identified early in the process * Quick and efficient disbursement mechanisms exist in the SFD Annex 3 Page 4 of 10 (b) for subprojects implemented by delegated contract management using local small-scale contractors and consultants: * Payments to contractors are made promptly * Payments to contractors are made in tranches according to the quantities of works executed * Payments to consultants are made in tranches corresponding to the following subproject phases: - Design - Preparation of tender documents - Supervision of works - Handing-over - Completion of works For the first category of subprojects, contracts with the sponsoring agency would set the funding phases (i.e., tranche). Each tranche is associated with a number of milestones that need to be achieved. The sponsoring agency would submit a request to the Regional Office, with a technical and financial report explaining the subproject activities and outcomes during the previous phase, for release of the tranche payment. The responsible Regional Project Officer would then conduct a field visit to the subproject site (representation of the Planning Unit at this stage is preferable) to follow up on subproject activities and check whether agreed milestones have been met. If the milestones have not been achieved the Project Officer will work with the sponsoring agency to solve any implementation problems. An intemal memorandum, a financial report, and a brief description on the status of the project's activities and the relevant milestones for the specific tranche (a comparison of planned and completed activities is preferred) would be forwarded by the Regional Project Officer to the Head of the Administration and Finance Unit when milestones are achieved. A one page form is submitted by the Financial Unit on the release of the tranche, approving the release of the tranche and certifying that: e Agreed financial procedures were followed * Line items allocations in the project budget were followed * Any reallocation in the project budget was approved by the SFD Once the tranche release form is approved by the Managing Director it would be sent back to the Finance Unit, which would release the funds. The Finance Unit would issue a transfer order to the Bank holding the SFD's accounts. The Bank would transfer the funds to a special account established by the sponsoring agency for the subproject. For recording purposes, the transfer order would mention that the amount represents the first, second, or third tranche for the subproject (referring to the subproject by name and number). The cycle for the tranche disbursement should take a maximum of five business days in addition to the field visit. Procurement Mechanisms Under any subproject, the procurement of goods and works financed wholly or in part by the SFD would be conducted in accordance with the procedures specified in the Operating Manual. Procurement will be undertaken per subproject either by the sponsoring agencies or by the regional offices. General Considerations For subprojects implemented by Sponsoring Agencies, the SFD's role is: (i) to ensure that its grant funds are used only for the purposes for which the grant was made, with due attention to considerations of economy and efficiency and without regard to political or other non-economic influences and considerations, and (ii) to encourage the development of local contractors, suppliers, and consultants and the participation of local communities and NGOs in the execution of subprojects (see Annex Table 3.2). For subprojects executed by regional offices through delegated contract management, the IMU's role is to ensure that the regional offices have followed the procurement procedures as specified in the Operating Manual. Annex 3 Page 5 of 10 Procurement Policy and Methods Contract awards for works, equipment, and materials would be used on the basis of National Competitive Bidding (NCB), Local Shopping, or Direct Contracting (negotiated contracts) according to the SFD's procedures as outlined below. National Competitive Bidding (NCB) National Competitive Bidding (NCB) for civil works and goods will be undertaken for subprojects costing between US$50,000 and US$200,000. Standard bidding documents in Arabic will be available at the SFD. The standard bidding documents furnish the information necessary for a prospective bidder to prepare and submit a bid for goods and works to be provided as well as information on the procedures for bid evaluation and contract award and on contract conditions (such as payments, penalties for delays, insurance,force majeure, resolution of disputes, and applicable law). The bidding documents include: invitation to bid; instructions to bidders; form of bid; form of contract; conditions of contract (both general and special); technical specifications; list of goods or bill of quantities and drawings; and bid security and performance security forms. In order to be acceptable to the SFD, the procedures under which NCB is conducted should provide for adequate competition to help ensure reasonable prices. The methods used in the evaluation of bids and the award of contracts should be made known to all bidders. The bidding documents, particularly "Instructions to Bidders," are self explanatory on those points. The following paragraphs summarize some of the main features of the NCB procedures and processes regarding notification of bidding opportunities, eligibility and qualifications requirements, bid price, deadline for bid submission, bid opening and evaluation, and contract award. Notification of bidding opportunities is essential to competitive bidding. Notification could be accomplished by advertising in local newspapers or radio, but may be limited to posting notices in villages, social clubs, schools, and other public locations when other means of notification are not appropriate or applicable. The invitation to bid would be open to all bidders providing satisfactory evidence to the Sponsoring Agency or Regional Office of their eligibility and capability, and the adequacy of their resources to perform the contract effectively. In practice, bidders will in most instances be contractors and suppliers in the local community's district. However, bidding should be open to Yemeni and foreign firns. Rates and prices quoted by the bidders would be fixed for the duration of the contract and would not be subject to adjustment on any account, except as otherwise specifically provided for in the conditions of the contract. Bidders should be given a reasonable time (15 days to one month) for the preparation and submission of sealed bids. The date, hour, and place for latest delivery of bids should be specified in the invitation to bid. This should normally be within one working day of the deadline for bid submission. Any bid received by the Sponsoring Agency or Regional Office after the time stipulated should be returned unopened to the bidder. The time for bid opening should be the same as the latest delivery of bids, and should be announced, together with the place for bid opening, in the invitation to bid. The Sponsoring Agency or Regional Office should open all bids at the stipulated time. Bids should be opened in public so that bidders or their representatives may be allowed to attend. The name of the bidder and the total amount of each bid, and of any alternative bids if they have been requested or permitted, should be read aloud and recorded when opened. The Sponsoring Agency or Regional Office should subsequently ascertain whether the bids meet all eligibility requirements, have been properly signed, are accompanied by any required securities, are substantially responsive to the bidding documents, have any material error in computation, and are otherwise generally in order. If a bid is not substantially responsive, ie.,, if it contains material deviations from or reservations to the terms, conditions, and specifications contained in the bidding documents, it should be disqualified and not considered further. When for these reasons the lowest bid has been disqualified, the SFD should be consulted in this matter. Bidders should not be permitted to correct or to withdraw material deviations or reservations once bids have been opened. Annex 3 Page 6 of 10 The Sponsoring Agency or Regional Office should award the contract to the lowest bidder, provided that the bidder has the capability and resources to effectively perform the contract. If main unit rates employed in the computation of the winning bid are more than 30 percent below the unit rates estimated by the consulting engineer, a satisfactory explanation must be provided by the contractor or its bid will be rejected. The Sponsoring Agency may reject all bids if it believes that they are not substantially responsive. In such a situation, the Sponsoring Agency should review the causes justifying the rejection and consider making either revisions to the specifications or modifications in the subproject, or both, before inviting new bids. All bids should not be rejected and a new invitation to bid issued on the same specifications solely for the purpose of obtaining lower prices, except in cases where the lowest evaluated bid exceeds the Agency's cost estimates by a substantial amount. The SFD should be consulted if re-bidding is proposed for this reason. Local Competitive Bidding Civil works and goods contracts costing between US$20,000 and US$50,000 may be awarded on the basis of regional competitive bidding. The same procedures as described above apply. Local Shopping Civil works and goods contracts valued at less than US$20,000 will be awarded on the basis of local shopping. Community preferences will be given priority if possible. Local shopping is based on comparing price quotes obtained from several (usually at least three) local suppliers or small contractors to ensure competitive prices. It requires no formal bidding documents and is an appropriate method for procuring readily available standard goods or standard specification commodities that are small in value. In some cases it is appropriate for small simple works. For civil works, simplified contracts will be applied by the regional offices. Price quotes (usually in the form of pro forma invoices) should be examined to ensure that they correspond to the works to be done or the equipment and materials to be supplied and are therefore acceptable. The contract should be awarded to the acceptable supplier or contractor submitting the lowest price quote. A database of unit costs will be used to check that the lowest price quote is reasonable. The Sponsoring Agency should then enter into a simple contract (conforming with normal commercial practices) with the selected supplier or contractor which specifies the works to be carried out, equipment and materials to be supplied, the implementation schedule, and the rights and obligations of the two contracting parties. Direct Contracting Direct Contracting would be used when the small size, remoteness, or difficulty of access would not attract otherwise available contractors, or when there are clear, transparent advantages to using single-source suppliers. Under such circumstances subproject implementation could take place under contracts directly negotiated between the SFD and a contractor, supplier, or NGO. Unit costs in the SFD database would be used to establish an appropriate contract price. Self-Help Procedures In certain circumstances, it may be feasible to contract subproject implementation to the Sponsoring Agency, where it would provide community labor and procure goods and services under the appropriate procurement rules. The SFD's Database The SFD maintains a database containing information on: (i) unit costs for the goods, work items, and services most commonly used; (ii) market wages for skilled and unskilled labor; (iii) the average cost of different types of subprojects; (iv) contractors for civil works, both at the national and regional level; and (v) consultants. The database is used to provide guidance in appraising proposed costs for subprojects. It is also used to determine appropriate prices when procurement is done through direct contracting and to check that prices are reasonable when goods, works, or services are procured by National Competitive Bidding. The SFD updates the database as necessary. Information on Annex 3 Page 7 of 10 unit costs is updated on a quarterly basis, or more often if contract prices are substantially different from those contained in the database. Appointment of Consultants Consultants (individuals and firmns) can be employed by the SFD or Sponsoring Agency to assist in identifying and preparing subprojects and in supervising implementation. Consultants could also be retained to assist in the management, operation, and maintenance of completed subprojects. In each case, detailed terms of reference should be prepared in order to clearly define the objectives, scope, and timing of the assignment. Because of the small size of subprojects, those located in the same area will be grouped to make working on them attractive to local consultants and to keep design and supervision costs to an acceptable share of total subproject cost. Because a sufficient number of qualified local consulting firms are not presently operating (and are not expected to be operating when the project starts), contracts will be negotiated with individual consultants. Costs will be computed by using unit costs for qualified staff established by the SFD, time spent for design and supervision, transport costs, and administrative costs as benchmarks. The principal factors in choosing consultants will be their competencies and experience and the quality of their proposals. For the selection of consultants, the Sponsoring Agency would draw on its own knowledge of individuals and firms and on information contained in the SFD's database. This information would include: name of the consultant, qualifications and experience (of the individual consultant, or of the firm and its personnel), past volume of work, references, and geographical area in which the consultant is interested in working. Annex 3 Page 8 of 10 Annex Table 3.1: ORGANIZATIONAL STRUCTURE OF THE SFD ( ~~~~~~~~~~~~~~~~~I ) MAAING DIRECTOR / TheLnumbergofaregionalAofficesvisinotoexclusi 2/ Mainpro ANAGEMENT UNIT Auditor] 4 ~~~~~~~~~~~~~~~~~Monitoring and Information Unit AFnance and Admin. Infrastructure ICommunity | |MSE i Programnming, Institution \ Unit M~~~~anagement Unit |Development | |Unit | Building & Evaluatie ~~~~~~~~~~ ~~~~~~~~~Unit Note: I/ The number of regional offices is not exclusive 2/ Main project units are designated usitng:l l Annex 3 Page 9 of 10 Annex Table 3.2 Public Works and Community Subprojects: Distribution of Roles and Responsibilities Among Stakeholders A.on 1 take pai employment * e paia employment * benetit from services provided benefit from improved infrastructure * benefit from improved infrastructure * participate in training * certain projects, contribute in cash to * contribute in cash or in kind to project ._________ project Con.ireilils j * attend hearing about project | decide on priorities * decide on priorities i . . * form project committee a take part in administration of social I * inmplement themselves or delegate contract services . . management to SF * participate in evaluation * own and maintain completed infrastructure .. * participate in evaluation .NC(', * conduct PRA in communities * assist SF in reaching poorest part of . a * help in community organization population * help in project definition * provide training assist in project implementation, operation * carry out social work and maintenance * monitor progress . _ _ .._ _ _ _ _ * provide training Cnwsms te carry out technical and economical * assist in evaluation of new project proposals *> It ; ! feasibility studies * design, prepare tender documentation and j design, prepare tender documentation supervise the works . and supervise the works * monitor progress monitor progress S.nalt r* execute small scale public works * execute complete or part of the community coantuctun projects or take on labor Sub-contracts works ' from larger contractors * organize local laborers * undergo training in project management and the use of certain construction techniques .M3aJiuLn-%i?ad *e take on larger contracts * no role * issue Sub-contracts to small local labor- based contractors as found necessary l __ * indicate potential projects * indicate potential project areas * indicate potential project areas Annex 3 Page 10 of 10 %ciuhr finairli * provide coordination with local * provide coordination with local departments * provide coordination with local * - :- - -- .departmnents of sector ministries of sector ministries concerned and other departmnents of sector ministries concerned . . .:.:. concerned and other actors actors and other actors . .... * accept handing-over of completed * provide additional contributions as required *provide additional contributions as projects and budget for post- required construction maintenance Xl: Ri&u..... * liaise with administration of governorates and other actors active in the area OflW :: target poor rural areas and poor urban neighborhoods :; - .....*appraise project proposals invite tenderers to submit bids for consultancies and project implementation :... :.-: .. - *establish contracts with NGOs, consultants and contractors i. . . "h - organize training in procurement supervise NGOs and consultants monitor progress (physical and social indicators) process payments . :::: . -- * hand-over completed projects to community or sector ministries * keep records and amalgamate data . ....::.:::. * organize project evaluations .iF M.nalniinizvu * formulate Public Works and Community Development program objectives Ua'nii * :.* * * appraise and approve project proposals forwarded by regional offices * approve contracts established by regional offices * channel funds to regional offices * monitor progress of projects implemented in the different regional offices organize training of NGO, consultants and small contractors * overall control if procedures specified in Operating Manual are respected * organize technical and socio-economic evaluations and financial audits * report to Board of Directors and donors Note: In several areas, NGOs will not be available to support communities in project identification and formulation. In this case, the Community Development Specialist of the SFD will seek the assistance of local consultants to carry out these tasks. Annex 4 Estimated Project Costs (in US$ million) Percentage of Foreign Base Project Component Local Foreign Total Exchange Costs' Community Development 38.3 - 38.3 - 49 Small and Microenterprise Development 27.4 - 27.4 - 35 Capacity Building and Social Fund Structure 2.Q 12 12-9 32 16 Total Baseline Costs 74.7 3.9 78.6 5 100 Physical Contingencies 0.3 0.1 0.4 25 1 Price Contingencies Q2 1. 2Q I Total Project Costs'1 75.8 4.2 80.0 5 102 1/ Amounts may not add due to rounding error. Annex 5 Page I of 3 Annex 5 Economic Analysis Abstract: Despite the Government's ineffectiveness in involving communities in development projects, Yemen does have a strong tradition of community involvement and management of development projects. The SFD addresses this paradox by using a private sector management approach to work directly with community groups and beneficiaries. This is expected to result in significant savings compared to the cost of carrying out programs with the same amount of investment through Government Ministries. The SFD will use cost effectiveness analysis for subprojects, using a system of discounted maximum unit cost per beneficiary for each type of subproject with a discount rate of 10 percent. Subprojects with higher unit costs would be excluded. Community development subprojects will also have to demonstrate community participation and ownership before approval. Small and micro-enterprise subproject proposals would be evaluated according to standard criteria applied to bank loans. To receive funding, they will thus need to be financially viable. Links to CAS and ESW: By implementing a mechanism for poverty reduction and promoting human resource development the proposed project is consistent with and supports the objectives identified in the CAS. It is specifically listed in the CAS as a complement to the structural adjustment program and will provide an alternative mechanism to the Government for providing social services and assistance to the poor. Presently, the Government does not have the capacity to reach a large share of the population, especially with physical or social infrastructure related activities such as health services and sanitation. A poverty assessment completed in June 1996 proposed a poverty reduction strategy with the following three components: (i) giving priority to policies which encourage broad-based economic growth; (ii) increased provision of social services; and (iii) development of the nongovernmental sector. The project is consistent with the poverty assessment recommendations and draws on lessons from previous sector work and project experience. Adequacy of Policy Environment: The macroeconomic policy environment has irnproved with support from the World Bank and the IMF for a stabilization and adjustment program. Declining inflation should lead to a decrease in nominal interest rates, thus spurring more businesses to be interested in loans. A financial sector adjustment program will begin this year. This project proposes to work with communities and NGOs to develop new approaches in various sectors. If successful these approaches could form the basis for broad-based sectoral reforms, particularly in health and education. The legal framework for the project itself has been established by a special law. Yemen's proposed decentralization law, which has been approved by the Cabinet and is now in Parliament, will further facilitate implementation of the types of activities supported by the proposed project. The Social Fund Law provides for NGO and private sector representation on the Board of Directors of a government financed operation, a first for Yemen. Public/Private Sector Role: The proposed project supports a program of public-private partnerships using NGOs, the private sector, and community groups. Public intervention is justified because the project: (a) supports activities rightfully undertaken by the government because of their positive, public good, externalities; (b) targets benefits to poor communities unlikely to be reached by the private sector; and (c) provides an impetus for new approaches to poverty reduction which could be adopted by the private sector once sufficient experience and familiarity with them has been gained. Cost Effectiveness Analysis of the Social Fund Approach: The cost-effectiveness of the proposed SFD approach was tested against the alternative of delivering the services through government Ministries. The Government units primarily responsible for development projects were examined and the average cost of overhead per dollar of investment in these Ministries was estimated and compared to the SFD's average. This cost-effectiveness comparison shows that the SFD is more efficient by a factor of three. The SFD approach would result in an overhead cost savings of $10.9 million, compared to the estimated cost of conducting these activities through the Ministries. This comparison excludes the question of whether government ministries are capable of implementing this type of community and beneficiary based project. The results of the comparison are shown in Annex Table 5.1. Annex 5 Page 2 of 3 Annex Table 5.1: Cost Comparison Between the SFD and Alternative Apiproaches _______________________________ SFD Alternative Savings Investment Costs (S million) 71.5 71.5 Staff Costs (S million) 3.2 13.4 10.2 Other Recurrent Costs (S million) 2.3 3.0 0.7 Total Recurrent Costs (S million) 5.5 16.4 10.9 Recurrent Costs as % Investment Costs 8 23 Efficiency Factorfor SFD Approach 2.98 Cost Effectiveness and Cost Benefit Analysis for Subprojects: The SFD will support a variety of subprojects, ranging from community development to institutional development to small enterprise development. The approach to economic analysis differs from subproject to subproject. It is difficult to calculate an economic rate of return for the overall project, given the difficulty of quantifying benefits of some of the activities supported, such as health services and non-formal education. The approach for community development subprojects will use a maximum unit cost per beneficiary criteria. Subprojects with costs exceeding this maximum unit cost will not be financed. Annex Table 5.2 shows the maximum unit costs per beneficiary for various types of community development activity. It also shows the expected labor content for civil works and the expected level of community contribution. These expectations will be reviewed annually to incorporate experience gained in field operations. The small and microenterprise subprojects will follow prudent banking practices to assure fnancial viability. Analysis of micro- enterprise subprojects would use financial sustainability criteria, with a baseline expectation of financial viability for each micro-enterprise apex NGO within three years of inception. Small enterprise development will also be subject to financial analysis. Maximum loan size per permanent job created, as well as expected entrepreneur contributions and maximum default by type of entrepreneurial activity, are also given in Annex Table 5.2. Annex Table 5.2: Economic and Financial Criteria for Different Types of SFD Activities Communit Deveiopment & =S i Maximum Minimnum Expected Cost Labor Community per beneficiary (USS) Content (%) Contribution (%) Health (investmnent cost per beneficiary) 25 30 5 - 10 Health (longterm recurrent cost per 2 N/A 25 - 75 beneficiary/year) Education (investment cost per student) 300 30 5 - 10 Education (longterm recurrent cost per 40 N/A 25 - 75 student/year) Solid Waste Management 25 40 10 - 20 Rural Water Supply 5 N/A 10 - 20 Street Paving 10 50 5 - 10 Markets 25 30 10 - 20 Small Entrrise "h=kad Max. Loan Size per Job Contribution of Maximum Loan Created (USS) Entrepreneur (%) Default Rate (%) Commerce and Trade 2,000 25 10 Agro-related processing 3,000 30 10 Workshops (Electrical/ Mechanical! Other) 4,000 25 15 Services 2,000 20 10 Textile/ Apparel 2,000 20 10 Note: These estimates are preliminary and will be updated with information from pilot projects currently underway. Annex 5 Page 3 of 3 Risk Analysis: The external key risks include (a) the legal environment for the SFD and for NGOs; (b) weak NGO capacity; (c) difficulty in reaching the absolute poor; and (d) weakness in the financial sector which reduces incentives for commercial banks to engage in small business lending. The risk to the SFD's operations has been minimized by the law establishing it; the risk to the operating environment for NGOs is likewise being addressed through new legislation. Weak NGO capacity will be addressed through a system of training and twinning. EDI is organizing a grassroots development seminar to train NGO and community leaders. This will be complemented by hands on training delivered by an international NGO specialist and by twinning arrangements in which weaker NGOs would be matched with the stronger national NGOs or with international NGOs, or with both. The major internal risks are the capacity of the SFD and the possibility of financing the wrong kind of subproject. These risks have been reduced by (i) recruiting very high caliber staff; (ii) establish efficiency based internal guidelines; and, (iii) establish specific criteria for subproject approval. The SFD expects to publicize its project selection criteria to assure full transparency. Fiscal Impact and Cost Recovery: Because communities will provide contributions aimed at covering recurrent costs (O&M) the long-term fiscal impact is expected to be quite minimal. Since the current law requires that all revenues be remitted to the center, it does not allow this kind of cost recovery and cost sharing. Modifications to the decentralization law approved by the Cabinet and now before Parliament will resolve this situation, as they allow retention of revenue. This will lead to greater project sustainability. Subprojects are more likely to support marginal physical additions to existing facilities in health and education - such as adding a girls' bathroom in a school or improving existing health facilities - rather than construction of entirely new facilities. Additional recurrent cost burdens will thus be low. Beneficiary cost sharing is expected to cover all such additional recurrent costs. Furthermore, any project of significant size will be coordinated with the Governorate in order to obtain assistance for local communities in covering recurrent costs. Institutional Capacity: The SFD was designed using best practice experience. A national Managing Director with a strong track record in banking and development projects has been recruited on a performance linked contract, and the SFD has attracted top quality Yemeni personnel for its staff. A staff member from the highly successful Egypt Social Fund has been working full time with SFD staff to help them with start-up activities. Additional support from the Egypt Social Fund is being made available under an overall agreement. Technical assistance for the microenterprises component is provided through EU and Dutch Government financing. Poverty Analysis: The proposed project is a key element in addressing poverty reduction in Yemen. It will target poor communities through community development and will attempt to provide services to particularly vulnerable parts of the population. The micro-enterprise program is designed to help poor households increase their income. During project execution, beneficiary profiles will be assessed through surveys to improve targeting to the poor. Environmental Analysis: The Operating Manual specifically includes criteria designed to reject projects with negative environmental consequences. Some subprojects, such as solid waste management and reforestation, will have positive environmental consequences. The SFD will work in partnership with communities. Performance Indicators: Performance indicators have been developed and are included in Annex 1. They will be used to track annual progress and will be a major input to the mid-term review. Annex 6 Financial Summary Project Costs Implementation Period Operational Period (in USS million) 1998 1922 200 2001 202 2003 2004 200 2006 200 Investrnent Costs 1.3 10.5 17.6 25.1 15.2 0.0 0.0 0.0 0.0 0.0 Recurrent & Operating Costs 0.3 1.4 3.9 7.4 11.3 14.7 14.7 14.7 14.7 14.7 Told 1_6 12 0 21_4 3.1 2k5 14 7 14:7 14: 141 14.1 Financing Source (as % of total cost) Implementation Period Operational Period 1998 1222 2000 2012 2 = 2 = 2006 2007 (1) IDA 65 53 40 36 29 0 0 0 0 0 (2) Co-financiers 31 39 43 41 30 0 0 0 0 0 European Union 21 25 27 25 19 0 0 0 0 0 Netherlands 4 6 6 6 5 0 0 0 0 0 Arab Fund 6 9 10 9 7 0 0 0 0 0 Other2 (3) Govermment 0 1 2 2 4 10 8 6 4 4 (4) Beneficiaries 3 8 15 20 37 90 92 94 96 96 Tota 0 00 00 10 10IQQ 1 100 100 10Q Note: I/ Figures may not add up due to rounding errors. 2/ ODA has expressed a strong interest in co-financing the project. Annex 7 Page 1 of 5 Annex 7 Procurement and Disbursement Arrangements Procurement Procurement methods applicable to the various expenditure categories are summarized in Annex Table 7.1. Annex Table 7.1: Project Costs by Procurement Arrangements (in US$ million equivalent) Procurement Method National Community Not Total Cost Competitive Contracting/ IDA (including Expenditure Category Bidding Other Methods * Financed contingencies) A. Works Civil Works 5.3 5.3 10.7 21.3 (1.3) (3.8) a! (0) (5.1) B. Goods Equipment - 3.6 6.8 10.4 (3.6) b/ (0) (3.6) Vehicles - 0.4 0 0.4 (0.4) c/ (0) (0.4) C. Services Credit Fund d/ - 4.5 9.2 13.7 (4.5) (0) (4.5) TA and Training - 12.8 17.8 30.6 (12.8) (0) (12.8) PPF e/ - 1.3 0 1.3 (1.3) (°) (1.3) D. Miscellaneous Incremental Operating Cost f/ - 2.3 0 2.3 (2.3) (0) (2.3) 5.3 30.2 44.5 80.0 (1.3) (28.7) (0) (30.0) Note: Figures in parentheses are the respective amounts financed by IDA. Community participation (US$3.8 million) b International shopping (USS3.6 million) 'National shopping (US$0.4 million) dPrudent shopping to Commercial practices. Project Preparation Facility. Incremental recurrent cost includes charges incurred for office space, supplies and equipment, furniture, salaries for higher level professional and support staff, telephone, facsimile, photocopying, printing, and office supplies. Procurement of works and goods will be carried out in accordance with the Guidelines: Procurement under IBRD Loans and IDA Credits (Washington, D.C.; World Bank, January 1995 and revised as of January and August 1996). Civil works undertaken by the SFD will include: small rural and urban infrastructure (e.g., rural water supplies, classroom construction, small-scale irrigation projects, and garbage disposal). Due to the nature of the works and the difficulty of packaging, it is not expected that any work will reach a size large enough to justify ICB. Civil works estimated to cost more than US$50,000 equivalent per contract, up to an Annex 7 Page 2 of 5 aggregate amount not to exceed US$1,300,000 equivalent, will be awarded through National Competitive Bidding (NCB) using standard bidding documents (SBD) based on Bank SBD (smaller works). Foreign contractors will not be precluded from bidding for such contracts. Civil works under US$50,000 will be procured through community participation in accordance with para. 3.15 of the Guidelines, up to an aggregate of US$3,800,000. All contracts for equipment and vehicles for the SFD are estimated to cost less than US$150,000 equivalent per contract. These will be awarded on the basis of international shopping (IS) procedures in accordance with the provisions of paragraphs 3.5 and 3.6 of the Guidelines, up to an aggregate amount of US$3,600,000. Goods estimated to cost less than US$50,000 equivalent per contract, up to an aggregate amount not to exceed US$400,000 equivalent, may be procured under contracts awarded on the basis of National shopping (NS) procedures in accordance with the provision of paragraphs 3.5 and 3.6 of the Guidelines. Technical Assistance and Training will cover services to help small entrepreneurs and provide support for community social services and feasibility studies for subprojects. The consultants will be selected on the basis of the World Bank's: Guidelines: Use of Consultants by World Bank Borrowers and by The World Bank as Executing Agency (Washington, D.C., January 1997). Consultants and training will be procured using Quality and Cost-Based Selection (QCBS) procedures, with the exception of technical assistance which will be obtained from the Egypt Social Fund, and for small contracts with NGOs. The Egypt Social Fund is the only Social Fund with Arabic language capacity. This contract will consist mainly of technical assistance to the social fund structure and will also support community based development groups. Local NGOs will be selected on the basis of their knowledge of the region. The threshold for prior review of consultant services would be US$100,000 for contracts with consulting firms, and US$50,000 for individuals. The SFD will be responsible for monitoring procedures and maintaining proper records for easy review by IDA. Annex Table 7.2: Prior Review Thresholds (in US$ equivalent) Methods Categories ICB NCB Other Prior Review by IDA A. Works Civil Works NA +50,000 under 50,000 +150,000 B. Goods Equipment & NA NA Int'l Shopping +150,000 Vehicles NA NA Nat'l NA Shopping under $50,000 C. Services Credit Funds NA NA ALL NA TA & Training NA NA QCBS Firms +100,000; Indiv. +50,000; Single-Source ALL PPF NA NA NA NA D. Miscellaneous Incremental NA NA NA * NA Operating Cost _ * Disbursed on the basis of official salary scales, and service contracts. Annex 7 Page 3 of 5 Disbursements The proposed credit would be disbursed over a period of about five years and would be completed by December 31, 2002. The closing date of the IDA Credit is scheduled for June 30, 2003, six months following the project completion date. Although there are disbursement profiles for Yemen, because the project differs from those executed by sector ministries, these are not directly applicable. The disbursement schedule is found on page I of the Project Appraisal Document. The scheduling should be considered as tentative, as project execution will be subject to the capacity of the SFD team to prepare and implement subprojects. To facilitate disbursements, a Special Account to be operated by the SFD under conditions satisfactory to IDA will be opened at a commercial bank. An initial deposit of US$1.0 million would be made to the Special Account and replenished until US$10.0 million of disbursements have been made, after which it would increase the deposit to US$5.0 million, corresponding to about 4 months' expenditures. The SFD and Government team would submit replenishment applications for the Special Account on a monthly basis, or when about half of the deposit has been utilized, whichever comes first. The minimum amount for applications for direct payment and for special commitment would be 20 percent of the authorized allocation of the Special Account. Disbursements would be made against Statements of Expenditures (SOEs) for goods, works and service contracts with firms of less than US$100,000, and US$50,000 with individuals. Disbursement categories and the percentage financed by IDA are shown in Annex Table 7.3 below. Accounts, Audits, Reporting and Supervision An accounting system is being developed and established with assistance from international consultants selected on the basis of terms of reference developed in consultation with IDA. The accounting system being developed will be linked to the Management Information System at the SFD. The SFD will maintain commercial, accrual-based accounting. Financial statements will include a Statement of sources and Applications of funds. Separate independent external auditors acceptable to IDA would conduct: (a) technical and functional audits to assess the quality of subprojects; and (b) annual financial audits of the SFD. Functional audits would examine a sample of subprojects, review individual contracts and compliance with contract terms, inspect the progress of civil works, reconcile the physical progress with the financial expenses incurred, and state whether procurement guidelines are being followed. The reports would be submitted to the SFD Board of Directors no later than three months after the end of each fiscal year. Annual audit reports would be submitted every year on April 30 to the SFD Board. The SFD will then transmit the audit report to IDA no later than June 30 of each year, following the end of the fiscal year. The first audit report will be due June 30, 1999. It would cover the SFD's balance sheets and income statements and include the auditor's assessment of the financial statements. It well also include separate opinions on: (a) project accounts; (b) SOEs; (c) the Special Account; (d) conformity of procurement contracts with established guidelines; (e) adequacy of the internal controls system; and (f) a sample of subprojects to demonstrate that SFD guidelines were followed. The SFD would provide IDA with copies of reports submitted to the Board of Directors, including Quarterly Progress Reports, the Annual Plan, Annual Budget, and an Annual Report. Annex 7 Page 4 of 5 Annex Table 7.3: Allocation of Credit Proceeds Amount of the Credit Allocated Amount of the (Expressed in US$ Credit Allocated Percent of Expenditures to Category Equivalent) (Expressed in SDR) be Financed 1. Works and Goods for 15,800,000 11,300,000 100% of foreign Subprojects under expenditures, 100% of local Part A of the Project expenditures (ex-factory cost) and 95% of local expenditures for other items procured locally for goods; 95% for works 2. Sub-loans under Part 4,100,000 3,000,000 100% of amounts disbursed B of the Project 3. Equipment and 700,000 500,000 100% of foreign Vehicles under Part C expenditures, 100% of local of the Project expenditures (ex-factory cost) and 95% of local expenditures for other items procured locally 4. Consultants' Services 4,700,000 3,400,000 100% and Training 5. Incremental 2,200,000 1,600,000 100% Operating Costs ' 6. Refunding of Project 1,300,000 900,000 Amounts due pursuant to Preparation Advance Section 2.02(c) of the Development Credit Agreement 7. Unallocated 1,600,000 1,000,000 Total Financed by 30,000,000 21,700,000 IDA Note: Figures may not add due to rounding. *Incremental recurrent cost includes charges incurred for office space, supplies and equipment, fumiture, salaries for higher level professional and support staff, telephone, facsimile, photocopying, printing, and office supplies. The IDA Task Manager for the project will be based at the Resident Mission in Sana'a and will undertake intensive supervision of the project with assistance from local consultants, as well as a social fund specialist. Supervision will include field visits to review a sample of subprojects. Staff involved in the project preparation would be directly involved in the project launch and initial supervision missions. An Implementation Completion Report will be produced upon project completion. Annex 7 Page 5 of 5 Performance Indicators The emphasis on effective management and institutional performance of the SFD reflects one of the fundamental lessons learned in the experience of other social funds. To this end, a series of institutional performance indicators have been developed for the SFD which set monitorable targets for capacity, efficiency, quality and impact. These are listed in Annex 1. Govemment agreement on performance indicators was obtained during negotiations and will be reviewed annually. Mid-Term Review The SFD, IDA, and other donors will carry out a joint mid-term review. This exercise will be scheduled for completion prior to December 31, 2000. The mid-term review will evaluate the experience of the SFD at the operational level as well as the project's place within the Government's overall social policy and related programs. The timing of the review will allow for assessment of a full two years of operational experience, including initial results of the beneficiary assessment and other monitoring and impact evaluation tools. Draft terms of reference for the review will be provided by IDA to the Government and will be finalized in consultation with the SFD and other donors. Annex 8 Page I of 3 Annex 8 Criteria for Subproject Selection A. General Eligibility Criteria Subprojects financed by the Social Fund for Development (SFD) would include the following: * Social Infrastructure * Education - rehabilitation, expansion or equipment of preschool, nurseries, primary and secondary schools as well as literacy classes * Health - rehabilitation, expansion of existing health centers, maternity clinics (selectively providing them with basic equipment), Information, Education, and Communication campaigns including, family planning initiatives * Water Supply and Sanitation - reconstruction, rehabilitation or construction of new water supply and sanitation services * Economic Infrastructure * New construction, rehabilitation, or extension of small-scale irrigation schemes, infrastructure provided for marketing, storage, and conservation of farm products (cash crops, livestock, poultry, and fish) - Labor-intensive Works * Soil and Water Conservation Projects - re-forestation, terracing, flood protection, and dune stabilization * Roads - feeder roads, small streets or footpaths, and foot bridges * Solid Waste Collection and Environmental Protection Projects - communal containers, sanitary landfills, garbage collection, and educational campaigns * Renovation of Ancient Buildings and Souks * Other Infrastructure Subprojects * Rural electrification schemes and rehabilitation or equipment of vocational training centers as defined in the operating manual * Appraisal Criteria - (the following general considerations are included in appraising subproject eligibility) * adequacy of coordination of public and private institutions in the implementation of the subproject * priority of the subproject for the community * impact of a subproject on living conditions of underprivileged community groups; * technical soundness of the subproject * adequacy of implementation arrangements * sustainability of the subproject Annex 8 Page 2 of 3 B. Detailed Criteria (a) Social Criteria * the proposed subproject covers a target theme * population in area to be covered is clearly defined * social indicators for area should be made available * the request originates with the community * the subproject responds to the priorities of the majority of beneficiary households * the community will play an active role in implementation and monitoring of implementation (b) Technical Criteria * conformity with and complementarity to national planning * adherence to norms and standards, if any, established by concerned Ministries (e.g., Ministries of Health and Education) - access to other facilities within reasonable distance - works to be undertaken, equipment and materials to be procured, schedule of works total area of infrastructure * local availability of essential materials needed for project (c) Economic and Financial Criteria - the financing plan, including contributions from beneficiaries * cost benefit analysis and/or cost per beneficiary (i.e., subproject cost acceptable when related to comparator costs) * minimum beneficiary contribution to the cost of the subproject as reflected in contributions in cash and/or kind (including land) by beneficiaries - sustainability, i.e., the capacity to provide for successful operations and maintenance beyond the investment period, including cost recovery in cash or kind, when appropriate - the central Government and/or beneficiaries are financing recurrent costs of operations and maintenance, and the beneficiaries are contributing to the management of the subproject - the operating costs have been budgeted and planned, the community is assuming responsibility for the upkeep of the subproject at the end of SFD involvement - adequate training is proposed as reflected in the cost of the training component Annex 8 Page 3 of 3 (d) Institutional and Management Criteria * sufficient institutional arrangements to ensure rigor in subproject implementation and subsequent operations and management, while at the same time taking into account ease and speed in implementation * technical assistance provided to beneficiaries from SFD staff, and/or NGOs (ie., the existence of a supporting agency when the implementing agency is weak in subproject execution) * current personnel availability, skill levels, attendance frequency; * for expansion, additional personnel needed, their availability, skill level, and attendance frequency * necessary equipment, materials, and medical supplies to adequately deliver services at estimated levels Annex 9 REPUBLIC OF YEMEN Statement of Loans/Credits As of March 31, 1997 (in Millions of US Dollars) Amount in US$ million (less cancellations) Loan/Credit Fiscal Year Borrower Purpose Bank IDA Undisbursed Closing Date Credits 86 Credit(s) closed 757.88 19830 1989 Yemen EASTERNREG. 12.68 3.10 12/31/97 20150 1989 Yemen INST. DEV. FOR PUB. 8.17 1.67 6/30/97 20450 1989 Yemen HADRAMUT AGR.III 6.84 2.88 6/30/97 19440 1989 Yemen AL MUKALLA WATER 12.00 7.43 12/31/97 21510 1990 Yemen HEALTH SECTOR DVLPMT 15.00 11.08 12/31/97 21600 1990 Yemen TAIZ FLOOD DISASTER 15.00 3.01 12/31/98 21700 1990 Yemen TARIM WATER SUPPLY 12.00 10.11 12/31/97 21640 1990 Yemen POWER III 15.50 13.07 6/30/97 21770 1991 Yemen MULTI-MODE TRANSPORT 30.00 0.24 6/30/97 22220 1991 Yemen SECONDARY TEACHER TR 19.40 9.07 12/31/98 22650 1991 Yemen FISHERIES IV 13.20 7.86 6/30/99 22990 1992 Yemen NAT.AGRIC.SECT.MGMT SUPPORT 9.07 6.51 12/31/99 23730 1992 Yemen LAND & WATER CONSERV. 27.76 15.21 6/30/99 25250 1993 Yemen FAMILY HEALTH 26.60 23.81 9/30/00 24120 1993 Yemen BASIC EDUCATION 19.70 14.43 12/31/98 25700 1994 Yemen EDUCATION SECTOR 33.00 31.92 9/30/01 28190 1996 Yemen TRANSPORT REHAB. 37.00 34.16 6/30/02 28780 1996 Yemen PUBLIC WORKS 25.00 22.12 6/30/00 27930 1996 Yemen VOC. TRAINING 24.30 21.21 6/30/03 29130 1997 Yemen TAIZ W.S. PILOT PROJ 10.20 9.82 6/30/00 29320 1997 Yemen FLOOD EMERGENCY 30.00 28.77 7/31/00 Total Number of Credits = 21 402.42 277.47 Loans 0 Loans(s) closed 0.00 0.00 Total Number of Loans = 0 0.00 0.00 Total*** 0.00 1160.29 of which repaid 0.00 50.43 Total held by Bank & IDA 0.00 1109.86 Amount sold 0.00 of which repaid 0.00 Total Undisbursed 279.08 Generated: April 9, 1997 Republic of Yemen STATEMENTOF IFC's Committed and Disbursed Portfolio As of In Millions US Dollars Committed Disbursed ------------IFC -- ---------IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic Pending Commitments 1996 * TAJ SHEBA 5.60 0.00 0.00 0.00 HOTEL Generated by the Operations Information System (OIS) Annex 10 Republic of Yemen at a glance M. East POVERTY and SOCIAL & oirth Low- Yemnen 'Africa Income Development diamond' Population mid-1995 (minillions) 15.3 273 3,188 GNPper capita1995(USS) 260 1,780 460Lfe eptancy .GNP 1995 (billions US1$) 4.0 486 I 1,486 Averagqe annual growth, 1990496:1 Population (% 50 2.7 1.8 Labor force (%) 45 3.3 1.9 GNP Gross per primary Most recent estimate l#a6teeavalabdine 1989) capita enrolilment Poveit headoount indes (% ofpplain Lkban poputation $% a population) 34 i;56 29t 6 Lifee xpecancy at birh (saw t::53 86 83 Infanlmfrortality (perl,OOOielf 100 49 S8 Child malnutrition (% orchAklrnundr 5) 30 : .. 38 A~c;cssto safe w2ter (% ofpopuaibn): 52 2 7 Illiteracy (% ofpopulation age 15) 62 0 139 34 Gross primary enrollment % ofschoiapepoplatonu a76 ~ 97:: 105 - Ymn,Rp - G p sMalen r o U m e nt/ X d;b X /ly i : .'' f112 104 1: 12 - Low - inco m e group Female ~37: 90 98. KEY ECONOMIC RATIOS and LONGTERM TRENDS 19 SM88 1994 1995 GOP (billion US$) . .. 4.6 4.8 Eom ratlos Gross domestic investment/GDP .. .. 9.5 i1.. Exports of goods and non-factor servicesiGOP . . 43.0: 439 Openness of economy Gross domiestic savings/GDP . . 5.3 20.41X :Gross national savings/GDP: .. 10.4 291.3 Crrent accunt balance/GOP .. 6.1 3.0, Interest payments/GDP GP -0.7 0.630 Savings Investment Total debt/GOP ,. 130.3 15. Total debt service/expols . 4.7 3.8 :Presert value of debV/GOP . 104.3 Present value of debt/exports 15. nebens 1976-84W19864-96.: 1II994 1996 1996-04.. taverage annual gmwth) - Yemen, Rep. GOP .. .. 4.2 6.2 _____ ~~~~~~~~~~~~~~Low-incomiegru GN.P per capita *.* 10.0: 8.4 Exportsofgoods andnfs 44. ...." = 0 8.3 STRUCTURE of the ECONOMY 1975 1986 1984 1996 M Of1 GDP) Growth rates of output and Investment (%) Agriculture .. .. 18.0 14.7 20 Inustry . .. 26.1 38.8 1_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Manufacturing 10.6 7.1 0 Services .. .. 55.9 46.5 20 2/ Privale consumption .. .. 74.6 65.2 40 General govemment consumption .. .. 20.0 14.4 GD GDP Imports of goods and non-factor services .. .. 47.2 34.0 1976-84 1986-96 1994 1996 (average annual growth) Growth rtes of exports and impot ( Agricullure .. .. -2.5 4.5 ao Industry .. .. 20.3 14.1 Manufacturing .. .. -18.9 13.1 40 Services .. .. -1.8 7.5 I Private consumption .. .. -15.1 -7.2 a General government consumption ..-23.7 -23.8 90 Gross domestic investment .. .. -33.3 16.2 .40. Imports of goods and non-factor services .. .. -26.7 26.0 Exot mpors Gross national product .. .. 13.7 12.0 Note: 1995 data are preliminary estimates. The diamonds show four key indicators In the country (in bold) compared with its income-group average. If data are missing, the diamond vwill be incomplee. Republic of Yemen PRICES and GOVERNMENT FINANCE 1975 1966 1964 1966 Dom.ac p,ce kifato (V.) (% chan) so0 Consumer prk1e .. .. 71.8 65.5 eo Implicit GDP deflator .. .. 49.6 55.0 40. Govemnment RAnKc 20 - (X of GDP)o Current revenue .. . 14.0 21.7 go el 92 93 94 95 Cufrent budget belanre .. .. -15.1 -3.9 - GDP df. -4- CPI Owerall surplus/deficit .. .. -17.6 -7.4 TRADE 1975 1966 1964 1996 (mWilions US$) Export and Import levels (mill. USS) Total exports (fob) aJ .. .. 1.824 1,937 2.u00o Fu .. .. 1.613 1,624 Food 2. 1T 2000 ianufacdures .. .. .. .. 1oo oo0 l 0s Total imports (CHi) . .. 1,543 1,962 IlIlIrIl Food . .. 448 629 1111ii Fuet andnerwgy . .. 208 172 S Capital goods . . 173 114 __ _ _ _ _ _ _ _ _ _ _ _ _ Import price index (1987-100) .. .. .. .. 0 ExoMercl. Terms of trade (1987.100) .. Importsmorch BALANCE of PAYMENTS 1975 1986 1994 1996 (millions USS) Curran account balance to ODP ratio ( Exports of goods snd non-factor services .. .. 1,967 2,111 10 Impors of goods and non-factor services .. .. 1,920 2,395 Resource blarnce .. .. 47 -284 o_ + Nt factor income .. .. -810 -637 e oo 91 02 93 94 05 Net cuernt transers .. .. 1,044 1.067 -10 Current account balance. before ofifcial transers .. .. 281 146 2 -2 Financing ihems (net) .. .. -112 59 Changes in net reserves .. .. -169 -205 .30 Memo: _ Reserves including gold (mil/. USS) .. .. 238 324 Conversion rate (Iacel4SS) .. .. 58.0 90.8 EXTERNAL DEBT and RESOURCE FLOWS 1976 1986 1994 1996 (rillions USS) Compostion of total debt. 1995 (mIll. USS) Total debt outstanding and disbursed 440 3,339 5.959 6.038 IBRD 0 0 0 0 G B IDA 12 348 780 827 684 827 Total debt service 6 131 145 128 D IBRD 0 0 0 0 430 IDA 0 4 13 14 F Composition of net resource flws 1718 Ofricial grants 185 208 82 210 1 Official creditors 55 202 37 7 Private creditors 0 6 -5 -5 E Foreign direct investment 0 3 17 0 2381 Portfolio quity 0 0 0 0 World Bank program Commitments 47 44 33 0 A - IBRD E - Bateral Disbursements 8 45 37 42 B - IDA D - Ohr multblateral F - Private Principal repayments 0 1 7 8 C-IMF G - Short-trm Net flows 8 44 30 34 Interest payments 0 3 6 6 Net transfers 8 41 24 28 Intemational Economics Department 11/6v96 Note: Data before 1990 came from Yemen Arab Republic and the People's Democratic Republic of Yemen, which were unified in 1990. a. Foreign oil companies' shares are not included in exports. IMAGING Report No.: 16301 YEM Type: PAD