Page 1 1 PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB1002 Project Name Knowledge Economy and Innovation Project (KEIP) Region EUROPE AND CENTRAL ASIA Sector General industry and trade sector (45%); general education sector (20%); general information and communications sector (20%);telecommunications (10%); general public administration sector (5%) Project ID P083985 Borrower(s) GOVT. OF TURKEY Implementing Agency State Planning Organization (SPO), Turkish Technology Development Foundation (TTGV), State Institute of Statistics (SIS), Turkish Confederation of Employer Associations (TISK) Environment Category [ ] A [X ] B [] C [ ] FI [ ] TBD (to be determined) Date PID Prepared June 29, 2004 Estimated Date of Appraisal Authorization September 1, 2004 Estimated Date of Board Approval December 23, 2004 1. Country and Sector Background 1. Turkey’s capacity to acquire, develop, share and apply knowledge has become a key factor in determining the country’s ability to compete regionally and globally and to secure high- wage, high-value-adding jobs for a rapidly growing young population. Turkey’s development towards a competitive, knowledge-based economy critically depends on the ability of enterprises, both large holdings as well as the small and medium enterprises (SMEs), to innovate by bringing together researchers and entrepreneurs. Innovation-based growth also depends on the availability of a well educated labor force supported by modern education systems which also provide for lifelong learning opportunities. The ability to acquire and share knowledge and to network across the economy also requires access and the skills to use information and communications technologies (ICT). 2. Yet on all four accounts - competitiveness, innovation, education and ICT - Turkey still has far to go, as was pointed out by a recent Knowledge Economy Assessment undertaken by the World Bank as well as by studies carried out by other institutions such as the World Economy Forum (WEF), the European Union (EU) or the OECD. For instance, with regard to competitiveness (according to the WEF) Turkey ranks 69 th , behind all of the new members of the EU and candidate countries. Patenting (as an indicator of innovation output) remains low compared to the new EU members as well as to other OECD members. With regard to human capital, one of the greatest constraints to the expansion of a knowledge-based economy in Turkey is the widely recognized scarcity of individuals with competencies related to advanced ICT, management, technology, and innovation skills, etc. With respect to ICT and the e- readiness Turkey ranks 50 th , again behind all of the new EU and other OECD members (WEF Page 2 2 and infoDev (2003)). These less than satisfying results are compounded by large regional discrepancies within Turkey. 3. Nevertheless some significant progress on individual policy areas, in part supported by the World Bank, has been achieved over the past decade in Turkey. Basic and secondary education have been strengthened. Innovation has been supported through the introduction of a core institutional framework (metrology, basic public funding mechanisms, etc). Turkey has also developed a vibrant private ICT sector able to compete internationally. Yet policy makers in Turkey recognize that the progress to date is not enough to keep up with a rapidly evolving and dynamic external environment. The EU itself is striving to become the “most competitive, knowledge-based economy” by 2010. Many of Turkey’s competitors (amongst which many are members of the EU and the OECD) are rapidly gearing up to meet the competitive challenges of globalization. Cost advantages provided by low wage labor are likely to be eroded over time by other competitors, such as China. Turkey is (in part) responding to these challenges by preparing an ambitious e-development program entitled “Turkey e-Transformation Program” aiming to bring the information society to its citizens over the coming decade. 4. In moving ahead with such programs, Turkey, however, faces two important obstacles. Firstly, Government is grappling with the difficulties of integrating innovation, education and ICT into a single coherent and practical approach to policy and public investments that fosters the use and application of knowledge on the ground. Secondly, the economy at large is challenged in bringing together private entrepreneurs, public institutions, and civil society into a broad, purposeful partnership able to join forces to strengthen Turkey’s competitiveness. 2. Objectives 5. Moving towards a competitive, knowledge-based economy (that is also more conducive to integration with the EU) is a long term endeavor that will require considerable institutional adjustment and change amongst the partners within society in Turkey. Building on achievements made to date in specific policy areas in Turkey and striving to broaden the foundations for the future development towards a knowledge-based economy, the proposed project would contribute to the improvement of the competitiveness of Turkey’s economy by (a) connecting enterprises with sources of information, knowledge and technology within Turkey and abroad; (b) facilitating an information society, (c) enhancing human capital to meet the requirements of a knowledge economy; and (d) supporting an environment in which knowledge-based initiatives can develop. Some of the activities proposed under this project are likely to be implemented at the regional or provincial level, where two regions would be selected on the basis of agreed criteria. 3. Rationale for Bank Involvement 6. The proposed project is consistent with the new FY01-03 Country Assistance Strategy (CAS) for the Republic of Turkey (Report No. 26756TU). As stated in the new CAS, Turkey’s development agenda is centered in part around the following major themes of: (a) sound macroeconomics and governance; (b) equitable human and social development; and (c) attractive business climate and knowledge. Support for enterprise innovation under the KEIP contributes to Page 3 3 fostering an attractive business climate and knowledge environment. The development priorities mentioned in the CAS also include improvement of public service delivery, which Turkey is promoting through the so called e-Transformation Turkey Project , a program aiming to foster the coordination of e-Government activities with the support (amongst others) of the KEIP. The project also contributes to the broader network area of education by developing skills for the knowledge economy, which in turn promotes human and social development. 4. Description Component I: Support to Enterprise Innovation (Implementing agency: Turkish Technology Development Foundation (TTGV) , Total financing: US$52 million) 7. The activities envisaged under this component will seek to broaden and deepen the system of technology support for enterprises in Turkey. These activities will help to move the enterprise technology support system to a position where (i) any enterprise with the potential to use technology in developing its business competitiveness will be able to access appropriate support at a level commensurate with its needs, and (ii) that enterprises will be able and are encouraged to progress up to more advanced technological solutions as their understanding and need for technology evolves. 8. The aim of this approach to innovation is to create a coherent, integrated and, ultimately, self-sustaining technology support system designed to encourage and support larger numbers of enterprises to increase productivity and competitiveness through adoption and development of technology. The development of such an integrated system will be a critical element in stimulating more competitive enterprises. This component aims to make a contribution to establishing such a system towards innovation. 9. The component will support (a) the continued development of two important programs commenced under previous World Bank funded projects and, additionally, it will support (b) the development of new programs as well as (c) pilot regional delivery arrangements to complement and build on the existing programs. 10. The project will complement the existing programs by assisting in the establishment of decentralized delivery arrangements on a pilot basis in two selected provinces of Turkey to offer a coordinated package of technology support at the provincial level through Innovation Coordination Centers (ICC). The aim here is to extend the reach of technology support in each of the two pilot locations and, in particular, to test decentralized approaches to increasing the number of enterprises recruited to technology programs. These Centers will also assist companies to access other forms of public support services provided by a range of institutions such as Turkish Technology Development Foundation (TTGV), Small and Medium Industry Development Organization (KOSGEB), Technology Forecasting and Assessment Directorate (TIDEB) and others (sign posting). As part of the provincial pilots the component will also support the initial roll-out of a new Small Technical Development Program that will provide assistance for small technology projects, a service currently not available in Turkey. Page 4 4 11. The second set of activities envisaged will ensure that appropriate support mechanisms are available to address all the critical barriers faced by enterprises in terms of innovation and technology adoption. TTGV will develop a number of new programs in critical areas where enterprises currently find it difficult to obtain appropriate support, namely in Finance to Support Technology Start Ups 1 , Support for the Commercialization of Technology Projects 2 and support for enterprises in the area of intellectual property rights 3 . TTGV will develop a new technology web portal 4 as a source of advice, guidance and materials to assist enterprise in the area of technology development. The new Small Technology Development Fund mentioned above will also fill a gap in current provision by making support available to SMEs wishing to undertake technology projects at a smaller scale than the existing programs can currently address. 12. This component will also seek to help create a more integrated system of support for technology driven enterprises which will make it easier for such enterprises to progress up the technology ladder as their understanding and need for technology evolves. In practice, this will be addressed by ensuring that the design of the supported programs and the new provincial Innovation Coordination Centers includes arrangements to make it easier for enterprises to graduate form one level of support to the next. TTGV intents developing a client management system to ensure that enterprises enrolled in TTGV programs receive longer-term guidance as part of their program, including advice on the next stages of technology development. Similarly the component will help TTGV to widen its relevance to enterprises and by developing appropriate financial models for the various programs it will contribute to developing TTGV’s own long term financial sustainability. Component II: Information Society Development (Implementing agency: State Planning Organization (SPO) , Total financing: US$52 million) 13. The objective of this component is to support the application of information and communication technologies (ICT) to (1) improve the delivery of public services to enterprise and citizens; and (2) to provide strategic ICT training to senior Government officials. 14. The following activities are envisaged to be carried out under this component: (a) a two- phased approach to improve the public service delivery to citizens and businesses through a common electronic Government Portal, or Gateway. The first phase will design and develop the framework for online public service delivery, government intranet, and selection of initial government e-services. The second phase will establish and operate the Gateway. And (b) the development of training curricula, training of Turkish trainers, and the provision of training courses to senior civil servants in line with Turkey’s e-Transformation Strategy. 15. The two major activities proposed under this component support directly the implementation of “Turkey e-Transformation Project” in key areas of this program recently launched by the Government. The development of the Government Gateway is integral to the Government’s aim to deliver improved public services. The Gateway will provide a common 1 Providing limited equity finance for technology start-ups with high growth potential. 2 Support for the commercialization of technologies which have reached prototype stage. 3 Advisory services and technical assistance for enterprises to protect their intellectual property rights. 4 Development of an internet portal to provide a wide range of technology advice and information to enterprises. Page 5 5 access point for a number of public services and delivery channels to specific governmental services. The project will fund the design of the Gateway and a few priority ranked Government e-services to businesses and citizens. The training activity for senior and mid-level managers will comprise curriculum development designed to fit Turkey’s E-Transformation Strategy, training of Turkish trainers and the provision of training courses. Component III: Developing Skills for the Knowledge Economy (Implementing agency: Turkish Confederation of Employer Associations (TISK) , US$19.5 million) 16. The goal of the component is to introduce approaches aiming at increasing the level of knowledge economy skills (KES) 5 in the workforce in order to increase the productivity and competitiveness of enterprises. The proposed component has three distinct objectives, namely to: (a) identify and promote demand for KES services, (b) deliver KES to workers and the unemployed including first time job entrants, and (c) to monitor and evaluate the impact of KES. Supporting demand and supply of knowledge economy skills in the private SME sector is based on several factors, including (a) international comparator data indicating that in general Turkish enterprises are not investing sufficiently in skills development, (b) the average educational level of Turkish workers (5.6 years) is low and will impact Turkey’s competitive edge in the global knowledge economy, (c) a recent European Training Foundation survey of SMEs in Turkey indicate an increasing awareness of the need to upgrade management and worker skills, (d) signals from key stakeholders (i.e. TISK, TESK 6 , NPC 7 , TOBB 8 , KOSGEB 9 ) that the demand and supply of KES needs stimulating; and (e) evidence from ongoing projects that training service provision to SMEs is weak. In summary, this component responds to evidence of market failures in the KES sector, in a manner similar to that initiated in other countries (i.e., France, Malaysia, Chile). Finally, the emphasis is being placed on “in-service” training for workers, as opposed to initial training of youth, because of the major ongoing and potential future investments in the initial education system by Ministry of National Education (MONE) and the Council of Higher Education (YOK). 17. To identify and promote the demand for knowledge economy skills the following activities would be undertaken: (a) defining and identifying relevant and emerging KE skills eligible for support through a review of the international experience and the national market; (b) developing guidelines for types of services to be financed (including identification of costs eligible for reimbursement, eligible clients and service providers, criteria for evaluating proposals from service providers, contracting procedures and related performance criteria); (c) undertaking a public information campaign to promote demand (i.e. from civil servants, workers in enterprises, entrepreneurs, and recent secondary and higher education graduates) and stimulate supply (i.e. public and private training service providers); and (d) creating a management information system to manage contracting and payment of service providers; and to train the 5 KES skills include basic and advanced ICT skills, entrepreneurship and management skills, technology skills, innovation and creative skills. 6 Confederation of Turkish Tradesman and Craftsman 7 National Productivity Center 8 Union of Chambers of Commerce, Industry, Maritime, Trade and Commodity Exchanges of Turkey 9 Small and Medium Industry Development Organization Page 6 6 selected provincial contracting agencies in how to publicize, contract, administer, and monitor supply of KE services at the local level. 18. To deliver knowledge economy skills to workers in enterprises, to entrepreneurs, and to recent graduates of secondary and higher education institutions, the following specific activities would be implemented under this component: (i) advertising the availability of KE skill development funds to both potential KES training participants and service providers (including holding briefing meetings to inform the demand side of what is available, and the supply side about how to submit proposals); (ii) having service providers identify and respond to demand and submit proposals on an ongoing basis to the contracting agency, which would evaluate and execute contracts with service providers for proposals that meet clearly specified minimum criteria as defined in a Field Implementation Manual agreed with the World Bank; and (iii) disbursing funds to contracted service providers at an agreed unit cost based on actual delivery of services and according to agreed performance criteria. 19. To carry out quality assurance, monitoring, evaluation, and scale-up design the following activities would be undertaken: (a) service providers will be required to include agreed performance criteria in contracts and to provide entry and exit information on program participants; (b) on site-supervision of all service delivery sites will take place at least once during each contract; (c) an independent third party follow-up study and/or tracer studies of samples of clients will be implemented to assess the impact of the provided skills with respect to enterprise productivity and competitiveness, entrepreneurial behavior, innovation uptake, worker productivity and earnings; and (d) cost- effective and sustainable models for “scale-up” of the above activities to the national level will be developed (based on service provider reporting, tracer studies, and tracer studies completed by the independent third party evaluation). Component IV: Strengthening the Knowledge Economy Environment (Implementing agencies: State Planning Organization (SPO) , State Institute of Statistics (SIS) , Total financing: US$6.5 million) 20. This component consists of four types of activities: 1) undertake monitoring and evaluation (M&E) activities for the overall project; 2) collect KE and Innovation indicators compatible with EU standards and provide quantitative information for an annual white paper; 3) publish an annual KE and Innovation white paper; and 4) raise awareness of KE issues and opportunities for Turkey. 21. M&E indicators for the project will be collected through one of the following mechanisms: a) utilizing existing SIS data; b) administrative processes (within the project activities or more broadly within the existing Turkish government - line ministry - activities); c) special surveys to collect regional level data (e.g. to collect ICT indicators that are not yet available from the SIS at the regional level); or d) independent impact evaluation surveys. 22. Preparation of the annual KE white paper involves the following activities a) determine the framework of the white paper; b) gather quantitative and qualitative information; and c) draft, publish, and disseminate the white paper. The SPO will be the lead agency in determining the content of the white paper, in consultation with other stakeholders. The SIS, with cooperation from other stakeholders, will be the lead agency to provide quantitative information for the Page 7 7 paper. The actual drafting of the white paper will either be done within the SPO or by outsourcing it to other Turkish institutions such as the Scientific and Technical Research Council of Turkey (TUBITAK) or universities. 5. Financing Source: (Million USD) BORROWER 30 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT 100 Total 130 6. Implementation 23. A Steering Committee will provide coordination amongst the institutions and partners involved in the implementation of this project and also provide guidance and ensure continued relevance of this project within the broader economic policy framework of the Government. Senior level officials of all institutions directly involved in the implementation of this project would be represented on this Steering Committee chaired by the SPO. 24. Project Coordination and Implementation Unit (PCIU) will undertake implementation, and undertake project management and day-to-day administration across all four project components (including procurement, financial management, etc.). The PCIU would be formally under the responsibility of the SPO, however, actual execution of its functions would be outsourced to TTGV on the basis of a protocol (or the like) between SPO and TTGV. In addition, the PCIU will serve as secretariat to the Steering Committee. 7. Sustainability 25. General interest on Knowledge Economy (KE) and competitiveness issues as well as on how to convert KE concepts into public investment activities such as those envisaged under this project is strong on the part of the Government, private sector, academia and NGOs. There is also significant interest in ensuring complementarities between activities and approaches envisaged under this project and policies associated with the European Union in the KE field (e.g. European innovation policy, information society, life long learning, etc). 26. The World Bank’s past experience with technology operations in Turkey, the Industrial Technology Project being the most recent one, indicate that especially the private sector has significant technical and managerial potential to successfully complete technology related projects. The expansion of existing and new SME/technology operations that will be financed through KEIP have a high likelihood of sustainability because of the complementarities envisaged by supporting such enterprises both through improved technology and improved labor skills. Page 8 8 27. The e-Government activities supported under the KEIP are likely to be sustainable as they constit ute critical building blocks for the Government’s e-Transformation Turkey Project . They form an integral part of the Government’s short-term action plan for e-Government development and are likely to be scaled-up through various e-applications introduced over and above of the KEIP implementation. Finally, the selected implementing agencies, SPO, TTGV, TISK and the SIS are all established institutions who have been involved in Bank’s operations with success in the past. Therefore, the impacts of the KEIP are likely to grow to be more effective in future in planning and implementing more complex KE projects, to the benefit of the overall Turkish society and competitiveness of the country. 8. Lessons Learned from Past Operations in the Country/Sector 28. The recent Knowledge Economy Assessment Study of Turkey suggests that activities leading to the development of a knowledge-based economy should strive to improve the performance and to move towards increased integration of Turkey’s innovation support systems, human capital base, and the breadth and scope of its information society capacity. 29. Lessons learned from previous skill development projects . The World Bank has been involved in a number of education, training and employment projects over the past 15 years in Turkey. Several of these have worked directly with adult continuing education and training, including SME support and development (i.e. the Non-formal Education Industrial Training Project, Employment and Training Project, and current Privatization Social Support Project.) Evaluations of these projects point out the need for bringing supply and demand together, especially at the local level, and the use of performance-based contracts between these two stakeholders, as being a very important factor in assuring quality and relevance of the services to be delivered. The design of KEIP builds on this experience, where Components I and III will work synergistically, i.e. Component I will support raising the demand for skilled labor and Component III will contribute to supplying the required knowledge economy skills to the market. 9. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment ( OP / BP / GP 4.01) [X] [ ] Natural Habitats ( OP / BP 4.04) [ ] [X] Pest Management ( OP 4.09 ) [ ] [X] Cultural Property ( OPN 11.03 , being revised as OP 4.11) [ ] [X] Involuntary Resettlement ( OP / BP 4.12) [ ] [X] Indigenous Peoples ( OD 4.20 , being revised as OP 4.10) [ ] [X] Forests ( OP / BP 4.36) [ ] [X] Safety of Dams ( OP / BP 4.37) [ ] [X] Projects in Disputed Areas ( OP / BP / GP 7.60) * [ ] [X] Projects on International Waterways ( OP / BP / GP 7.50) [ ] [X] * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas Page 9 9 10. List of Factual Technical Documents 1) Turkey Knowledge Economy Assessment Study, May 2004, Private and Financial Sector Unit, Europe and Central Asia Region (ECSPF), World Bank 2) e-Transformation Turkey Project, Information Society Department, State Planning Organization, http://www.bilgitoplumu.gov.tr/eng/default.asp 11. Contact point Contact : Severin L. Kodderitzsch Title : Lead Operations Officer Tel : (202) 458-2164 Fax : (202) 522-3687 Email : Skodderitzsch@worldbank.org 12. For more information contact : The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop