Document of The World Bank Report No: 19044-EGT PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT OF SDR 36.9 MILLION TO THE ARAB REPUBLIC OF EGYPT FOR A THIRD SOCIAL FUND FOR DEVELOPMENT PROJECT May 5, 1999 Human Development Sector Middle East and North Africa Region ii CURRENCY EQUIVALENTS Currency Unit = Egyptian Pound US$1.00 =EGP 3.4 EGP 1.00 = US$0.29 FISCAL YEAR July 1 - June 30 ABBREVIATIONS AND ACRONYMS BOD Board of Directors CAS Country Assistance Strategy CBID Community Based Infrastructure Development CDP Community Development Program of the Social Fund EAP Environmental Action Plan EDP Enterprise Development Program EDU Environmental Development Unit EEAA Egyptian Environmental Affairs Agency EIA Egyptian Impact Assessment EMU Environmental Management Unit EMP Environmental Management Plan ERSAP Economic Reform and Structural Adjustment Program FI Financial Intermediary GDP Gross Domestic Product GOE Government of Egypt HRDP Human Resources Development Program HRI Human Resources Index ICR Implementation Completion Report IDA International Development Association IDP Institutional Development Program of the Social Fund lIP Implementation Progress KFW Kreditanstalt Fur Wiederaufbau LACI Loan Administration ... Initiative M&E Monitoring and Evaluation MIS Management Information System MOSA Ministry of Social Affairs NGO Non-Governmental Organization O&M Operations and Maintenance PIU Project Implementation Unit PID Project Information Document PMR Project Management Report PPD Program Planning Department PRA Participatory Rapid Appraisal PWP Public Work Programs of the Social Fund SA Sponsoring Agency SEAM Environmental Assessment and Management Program SEDO Small Enterprise Development Organization SFD Social Fund for Development SIL Sector Investment Loan UNDP United Nations Development Program VTE Vocational and Technical Education Vice President: Kemal Dervis Country Director: Khalid Ikram Sector Director: Jacques Baudouy Team Leader: David Steel iv Arab Republic of Egypt Third Social Fund for Development Project TABLE OF CONTENTS A. Project Development Objective ...............................................................2 Project development objective and key performance indicators .............................................................2 B. Strategic Context ...............................................................2 1. Sector-related CAS goal supported by the project ..............................................................2 2. Main sector issues and Government strategy ..............................................................2 3. Sector issues to be addressed by the project and strategic choices .........................................3 C. Project Description Summary ..............................................................3 1. Project components ..........................................................3 2. Key policy and institutional reforms supported by the project ................................................3 3. Benefits and target population ..........................................................3 4. Institutional and implementation arrangements ..........................................................4 D. Project Rationale ..............................................................4 1. Project alternatives considered and reasons for rejection .......................................................4 2. Major related projects financed by the Bank and/or other development agencies .............4........4 3. Lessons learned and reflected in proposed project design .......................................................6 4. Indications of borrower commitment and ownership .......................................................... 6 5. Value added of Bank support in this project ......................................................... 6 E. Summary Project Analyses ..............................................................6 1. Economic .........................................................6 2. Financial .........................................................8 3. Technical .........................................................8 4. Institutional .........................................................8 5. Social ........................................................ 10 6. Environmental assessment ........................................................ 10 7. Participatory approach ........................................................ 12 F. Sustainability and Risks ............................................................. . 12 1. Sustainability ............................................................. 13 2. Critical risks ............................................................. 13 3. Possible controversial aspects ............................................................. 13 iv G. Main Credit Conditions ....................... 14 1. Effiectiveness conditions ....................... 14 2. Other ....................... 14 H. Readiness for Implementation ....................... 14 I. Compliance with Bank Policies ....................... 14 Annexes Annex 1. Project Design Summary Annex 2. Project Description Annex 3. Estimated Project Costs Annex 4. Economic Analysis and Cost-Effectiveness Analysis Annex 5. Financial Summary Annex 6. Environmental Management Plan (under preparation-to be added) Annex 7. Social Assessment Summary Annex 8. Operating Procedures and Eligibility Criteria for Subprojects Annex 9. Procurement and Disbursement Arrangements Annex 9a Financial Management Assessment Table A. Project Costs by Procurement Arrangements Table Al. Consultant Selection Arrangements Table B. Thresholds for Procurement Methods and Prior Review Table C. Allocation of Credit Proceeds Annex 10. Project Processing Budget and Schedule Annex i 1. Documents in Project File Annex 12. Statement of Loans and Credits Annex 13. Country at a Glance Map no. IBRD 27759 Arab Republic of Egypt Third Social Fund for Development Project Project Appraisal Document Middle East and North Africa Region Human Development Group Date: 05/05/99 Task Tean Leader: David Steel Country Director: Khalid lkram Sector Director: Jacques Baudouy Project ID: 52705 Sector: Social Protection Program Objective Category: Poverty Reduction Lending Instrument: Specific Investment Loan (SIL) Program of Targeted Intervention: [X] Yes [ I No Project Financing Data 0 Loan [X ] Credit [H Guarantee [ Other [Specify] Amount (US$m/SDRm): IDA Credit US$50.0 Million; SDR 36.9 Million For Loans/Credits/Others: Amount (US$m/SDRm): IDA Credit US$50.0 million; SDR 36.9 Million Proposed terms: [ I Multicurrency [] Single currency, specify Grace period (years): 10 [XI Standard Variable [ Fixed [ ] LIBOR-based Years to maturity: 35 Commitment fee: Standard Service charge: 0.75% Financing plan (US$m): Source Local Foreign Total Government 8.0 2.0 10.0 Beneficiaries and NGOs 5.0 0.0 5.0 IDA 40.0 10.0 50.0 Total 53.0 12.0 65.0 Borrower: Government of Egypt Guarantor: Responsible agency: The Social Fund for Development (SFD) Estimated disbursements (Bank FYIUS$M): 2000 2001 2002 Annual 10.0 18.0 22.0 Cumulative 10.0 28.0 50.0 Project implementation period: 2000-2002 Expected effectiveness date: 12/31/99 Expected Completion Date: 06/30/02 Expected closing date: 12/31/02 Page 2 A: Project Development Objective 1. Project development objective and key performance indicators (see Annex 1): The project's objective is to help create jobs and provide community infrastructure and services through labor intensive works. The proposed project provides additional funds to the SFD's community infrastructure programs for an extension (2000-2002) of the second phase (1997-2000) of the Social Fund for Development (SFD). The World Bank has been the lead agency in developing and supporting the SFD. B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (see Annex 1): CAS document number: 16533-EGT Date of latest CAS discussion: May 25, 1997 The proposed Third Social Fund for Development project supports two of the four CAS priorities, private sector led growth and human resources development, designed to support Egypt's goal of reducing unemployment and raising living standards. 2. Main sector issues and Government strategy: Egypt has successfully completed its economic stabilization program and has started the more difficult economic restructuring phase. Economic growth has resumed but the country needs to spread the benefits of growth through job- creation and poverty reduction. The Social Fund for Development (SFD), created in 1991, is essentially an instrument to finance programs and services targeted to the unemployed and the poor. Its programs are consistent with and complementary to the Government's sectoral priorities across a range of sectors. The principal sector issues are: Unemployment: Despite improvements in economic growth, unemployment remains high (estimates vary from 10- 13 percent for open unemployment). In addition there is substantial underemployment as traditional opportunities have dried up while new ones are yet to be created. The age structure of unemployment is also a cause for concern with 70 percent of the unemployed being 35 years old or under, but not necessarily poor. About 560,000 new jobs must be created each year. The Government considers employment generation through jobs created by the private sector as its top priority. Poverty: Even though the situation in rural Egypt appears to have improved as a result of the resumption of growth over the last few years, the incidence of poverty is still in the order of 22-30 percent of all households and the number of poor continues to rise as a result of population growth. Poverty remains an important phenomenon and needs to be addressed. Egypt's poverty is relatively shallow and much of it can be eliminated by moderate growth. However, there is a special problem of how to help the poorest of the poor, where women and children feature disproportionately. These groups may benefit less from growth and need direct targeting. Community Based Development: While the Government offers a broad range of services in Egypt, it has tended to be centralized in approach, and inefficient and ineffective in delivery. As a result its services have not always reached socially excluded communities and groups. More decentralization and diversification of social service delivery systems are needed. Labor Redundancies: In the last year, the Government has accelerated the restructuring and/or privatization of the public enterprises albeit from a low base. This results in the need to provide support to redundant workers through labor adjustment programs. SFD's Human Resources Development Program (HRDP) is providing redundant workers with a range of services to assist them in the transition to other jobs or with the provision of severance payments. It also provides market-based training for the unemployed. A key strategic issue is how much should it expand training for the unemployed in the context of a planned overhaul of the VTE sector. This is under discussion within the Government. The Bank is supporting HRDP through the proposed Skills Development Project (FY00). Page 3 Government Strategy: The Government is committed to a broad-based reform effort including closer integration with the global economy, an enhanced role for the private sector, and greater efficiency in economic management. Accordingly, it has placed the highest priority on accelerating private sector led, labor intensive economic growth and employment creation, while maintaining political and social stability. The SFD is an important instrument in helping to realize this strategy. 3. Sector issues to be addressed by the project and strategic choices: Poverty Reduction and Unemployment - Several SFD programs such as small scale community infrastructure works and the provision of services are designed to support employment generation and reduce poverty. The SFD created about 20,000 temporary and 50,000 pernanent jobs in 1997, approximately the same as in prior years'. The SFD's community development program has had some success in reaching the poorest of the poor, with about 35 percent of its beneficiaries being women. SFD is taking several steps to improve targeting during Phase II using the results of the recently completed participative poverty assessment, and several impact assessments carried out during preparation of the proposed project. As the SFD is probably the only agency, which has had any large scale success in reaching the poor, its continued role is essential, but it will need to continually fine-tune and revisit its targeting methods. Community Based Development: The SFD is the major source of financing for community-based development in Egypt. The SFD is a partner of and works closely with communities, local organizations and NGOs to provide services, and plays a particularly important role in providing social and community services to the socially excluded. C: Project Description Summary 1. Project components (see Annex 2for a detailed description and Annex 3for a detailed cost breakdown): Component Category Cost Incl. % of Total IDA % of IDA Contingencies Financing financing _ (US$M) __ (US$M) Public Works Program (PWP) (Labor Physical 45.9 71% 33.0 Intensive Works): Small scale public Policy works programs in partnership with communities & local government. Community Development Program Policy, 19.1 29% 17.0 (CDP): Community based programs in Physical, partnership with NGOs and conununities to Institutional reduce poverty and improve quality of life I Total 65.0 100% 50.0 77% 2. Key policy and institutional reforms supported by the project: Because this is a 'bridge credit' (see Section Dl), the project will not support any new policy or institutional reforms. But the Bank will use the project to work with the SFD to move forward on the relevant reforms under the Second Social Fund Project (Cr. 2865). These are: a) ensure sustainability of physical assets created through, inter alia, improved maintenance arrangements; and b) improve targeting of programs on the poorest of the poor. In addition it will help the SFD to define its long-term role as it moves from funding emergency programs towards a more permanent development role, and to make the necessary policy and institutional changes. 3. Benefits and target population: Beneficiary profiles ofjob-creation during Phase I show that the SFD beneficiaries are poorer than the average population. Furthermore, SFD will help create services and infrastructure which will benefit many more people. Under Phase 1 (1992- 96) there were an estimated 16 million indirect beneficiaries. In addition SFD helps NGOs and communities directly by helping build their capacity and that of the intermediary organizations to carry out development activities, as well as to l All enumerations of beneficiaries are Social Fund estimates. The methodology is described in Annex 4, and is being improved under the new Monitoring and Evaluation system, which the Social Fund is introducing in 1999. Page 4 professionalize their management. The project is expected to continue this pattern and is expected to help create about 2,500 permanent -and 20,000 temporary jobs. 4. Institutional and implementation arrangements: The SFD has proven itself to be a fairly successful and efficient organization to reach poor and under-served populations and to create employment opportunities. It is a semi-autonomous agency which is exempt from public sector procurement and compensation regulations. Its staff works under performance-based contracts. SFD operates through procedures which are established and detailed in operational manuals. Donors play an important role in financing and with the provision of technical assistance. A Cairo-based donors group provides coordination and support. SFD works through partnerships with communities, NGOs, restructuring enterprises and individual entrepreneurs. D: Project Rationale 1. Project alternatives considered and reasons for rejection: The project essentially provides 'bridge' financing to fill financing gaps resulting from: a) the faster than projected disbursement of IDA's Credit 2865 for the Second Social Fund project; and b) the growth of the pipeline of small community infrastructure and service provision projects. The main alternatives to the SFD for continued support for these activities are to work either directly through Government agencies or to support NGOs. Government agencies do not yet have the capacity to deliver the kinds of programs carried out by the SFD whereas the SFD does (see ICR (Report 17248) for Credit 2276), which recommended future support on the basis of performance to date). To support NGOs through another interrnediary would duplicate the work of the SFD, which as mentioned is an effective instrument. 2. Major relatedprojectsfinanced by the Bank and/or other development agencies (completed, ongoing andplanned): Sector issue Project Latest Supervision (Form 590) Ratings (Bank-financed projects only) Implementation Development Objective Progress (IP) (DO) Bank-financed 1. Poverty Reduction/ Employment Emergency Social Fund Closed (S) Closed (S) Creation /Community based development Second Social Fund S S Sohag Area Development Not Effective Not Effective 2. Health/Population Schistosomiasis S S Population S S Health Sector Reform S S 3. Education Basic Education S S Education Enhancement S S Secondary Education Not effective Not effective Skills Development Under prep. Under prep. Other development agencies Parallel and joint Above Sectors cofinancing for Social Fund, Education Sector and Health Sector projects with about 15 donors lP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: The proposed project reflects lessons learned from the first Emergency Social Fund project (Cr. 2276 - ICR Report No. 17248), lessons from the ongoing Phase II, as well as lessons from the World Bank's global experience with social funds in general. The project also incorporates lessons from in-depth impact assessment of two programs carried out in 1997. The assessment of two more programs (Enterprise Development Program (EDP) and Human Resources Development Program (HRDP)) is close to completion. One of the findings was that these two programs do not need additional funding in the Page 5 immediate future. In addition a Social Assessment and an Environmental Management review done for the preparation of this project have yielded lessons. The main lessons are: Public Works Program (PWP) Sustainability of Physical Assets: During Phase I the SFD faced a problem with adequate operations and maintenance (O&M) of sub-projects. The situation is being rectified under Phase II through four initiatives. First, SFD now uses a community partnership approach with local organizations to help maintain projects. At the time of project approval, SFD establishes a maintenance fund in advance for each project with contributions equivalent to 10 percent of the project cost from the sponsoring agencies and/or beneficiaries and an additional 10 percent from itself. The income will be used to support O&M. An ongoing KfW funded study, Sustainability of Public Infrastructure, will determine the management and operational procedures for using these funds. The study will be completed in March, 2000. Second, the SFD is also conducting small contractor training over a two-year period, funded by Denmark. This will increase the number of contractors capable of doing maintenance work. Third, SFD has introduced a program under which it finances the mnanagement costs of projects, and arranges to contract project management and O&M know-how for communities, which have been able to raise some but not all funds needed to finance a project, and which also lack management know-how. The fourth initiative is to better identify community needs using a new Community Based Infrastructure Development (CBID) approach. This relies on close cooperation with the Community Development Program (CDP) of SFD. Finally Participative Rapid Appraisal (PRA) techniques are being introduced across the SFD and all staff will be fully trained by March, 2000. Quality: The SFD has operated efficiently (rapid execution and disbursement) but until recently paid less attention to sub- project effectiveness (especially in terms of increased community participation, sustainability of benefits and social impact). The relevant impact assessments found that the PWP involved communities less while the CDP has involved communities more. In response, the SFD has or is introducing the changes to address sustainability, improved participation, targeting and a better evaluation system detailed elsewhere in this section. In addition it is implementing a major management decentralization change program, which will be fully implemented by June 30, 2000. This will give the 20 regional and 6 satellite offices more authority and, in particular, they will be responsible for all project preparation. A new monitoring and evaluation system is being introduced in parallel to support decentralization and to provide an integrated platform for all SFD MIS systems. Improved targeting of programs on the poorest of the poor: Although quite effective in reaching the poor, the SFD has had mixed outcomes in reaching the poorest of the poor for several reasons. There has been a strong emphasis on quick results, and a centralized management system, which does not seem to use its targeting and resource allocation systems proactively. The SFD targeting methodology has also been questioned in subsequent evaluation. There is a lack of institutional capacity in the public, private and NGO sectors at the local level in poorer Govemorates; and the national level agencies and NGOs, which it uses as wholesalers or 'sponsors' tend to prefer ready made projects and a standard approach to project design and implementation. Certain donors also affect targeting by specifying eligible districts and types of projects. In response, SFD is moving to decentralized management, launching a wide range of capacity building programs, and its Livelihood and Impact Assessment Unit will conduct a Retargeting of Programs study between May and October, 1999. This will update the targeting methodology and integrate the results of the Priority II, Integrated II and Community Needs II surveys into the SFD targeting system. Need for Regular Impact Assessments: A final lesson from the ICR of the SFD I has been the need to carry out impact assessments of selections of projects by sector or sub-sectors in addition to regular monitoring. SFD's Livelihood and Impact Assessment Unit has been charged with doing more comprehensive impact assessments on a regular basis, as well as providing staff training. The first two studies of this type, on the small enterprise and human resource development programs, are close to completion. A business-economic study has been completed on the Enterprise Development Program. In addition the PWP completed in December, 1998 an impact assessment on US$30.0 million of completed infrastructure sub-projects, and is now conducting assessments of PWP programs in nine Governorates. It is also including impact assessments in all consultant feasibility study terms of reference. Page 6 4. Indications ofborrower commitment and ownership: Borrower commitment has been amply demonstrated by the strong public support given by the Government to the SFD. In addition, Egypt's 26 Govemorates, and particularly the poorer Govemorates, have emerged as champions of the SFD. It is also supported by many national and local organizations and NGOs with which it has been a partner, on the basis of their generally favorable experience with SFD. Central Government, counterpart agencies as well as beneficiaries have provided additional or contributory funding for SFD programs. However, under Phase II of the SFD, Central Government has yet to transfer the agreed upon contribution which has been budgeted; but discussions are underway, and it is expected that the contribution will be made forthwith. 5. Value added of Bank support in this project: * Bank's global knowledge and experience of Social Funds, including Egypt * Bank acts as a catalyst for donor cofinancing and plays leadership role in donor coordination * Bank's sector work on NGOs * Targets the CAS objectives of reducing unemployment and raising living standards * Bank's expertise on evaluation methodology E: Summary Project Analysis (Detailed assessments are in the project file, see Annex 11) 1. Economic (supported by Annex 4): Issues: a) In the context of Egypt's improving macroeconomic outlook, the Government and the Social Fund need to sharpen the focus of the Social Fund on those groups excluded from the benefits of resumed economic growth, and to redefine its overall role based on its strategic comparative advantages. This is because poverty in Egypt is fairly shallow, and sustained economic growth will lift a sizeable number of poor above the poverty line. The Social Fund has just started a long-term institutional development 'visioning' exercise, which IDA among other donors is supporting. This is an appropriate instrument to address this issue. The Social.Fund was quite successful in addressing the three Government economic strategy priorities of employment creation, poverty alleviation and private sector development during the economic stabilization phase of the economic reform program (1992-97). And since the resumption of growth in 1997, the Social Fund has remained a comerstone of the Government's employment and social strategies. b) The Social Fund's programs provide strong public good externalities, target poorer communities unlikely to be reached by the private sector, and support private sector intervention where possible. This justifies public intervention in this project. c) The fiscal impact of the Social Fund is modest (between 0.2-0.3 percent of GDP in recent years and about 15 percent of Govermment social protection expenditures over the same period). But as a consequence, its impact on poverty and unemployment is also correspondingly limited. The imputed average annual per capita transfers per poor person reached less than 4 percent of poverty line income. The impact on unemployment is larger. Jobs, permanent and temporary, created by SFD programs absorbed up to 12 percent of the estimated unemployed (assuming all were net new jobs). d) Cost effectiveness is not an issue now (see Cost Effectiveness analysis below), except in certain Community Development sub-programs such as health, literacy and training where cost effectiveness indicators are not yet well developed. Part of the problem is to find adequate information on comparator programs. The CDP is working to improve cost effectiveness analysis in these sub-program areas. Cost effectiveness may become a larger issue in the future as the Social Fund shifts towards a strategy focussed more on the socially excluded, which may require higher program and unit costs. Page 7 e) Recurrent costs remain an issue for the Public Works Program (PWP) and are discussed elsewhere (see Sections D3 and E2). Recurrent costs 3or the Community Development Program (CDP) are relatively high but are mostly borne by the benedciaries. Nevertheless, under the new Community Based Infrastructure Program (CBIP) initiative, which will combine the two programs, the PWP O&M strategy will be introduced to CDP programs as well. This will help keep recurrent costs under close review. f) Monitoring and Evaluation has improved in the last two years, but requires further improvements. Process and output data and information are adequate, and the existing MIS supports this kind of data production fairly well. But beneficiary enumeration needs to be improved. Outcome data and information are less adequate. The Social Fund has completed a series of Impact Assessment studies since 1995 covering all of its programs. It also established an Impact Assessment Unit in 1998. Donors have conducted several other evaluations, one of which (Denmark on community development) was negative. While the methodology and quality of the analytical work have improved, work done to date suffers from an absence of baseline data, weak analysis, and conclusions that are not managerially or operationally very useful. In addition, no evaluation has yet been done using control group methodology. In response, the Social Fund is revamping its MIS, and has contracted out its first study to a qualified firm with good result. It is also designing a new targeting system (see Section E5), which will force the collection of baseline data during project preparation. It also plans to provide training to its own staff as well as select Sponsoring Agencies, which act on its behalf as umbrella organizations to support implementing agencies. During the period of the proposed project, the Social Fund will conduct the first evaluation using a control group methodology (see Annex 4 for further details). [XI Cost-Benefit Analysis: ERR= 21 percent It is difficult to calculate an ERR for the overall project given the problems with quantifying the benefits of some of the activities, such as upgrading public health and the environment, and providing job-training. But an ERR has been calculated for sub-projects accounting for approximately 75 percent of total project costs. Health, literacy and institutional and technical assistance to intennediary projects were excluded. On this basis the project's ERR is estimated to be 21 percent. A sensitivity analysis was conducted and yielded an ERR of about 15 percent when benefits are reduced by 20 percent. The project would also have additional non quantifiable social and environmental benefits. In evaluating sub-projects, the Social Fund quantifies benefits wherever possible using measures of willingness to pay for comrnunity services; estimates of travel cost savings (roads); rental values (community buildings); and enhanced prospects for earnings (technical training and enterprise development). A minimum threshold rate of 12 percent is normally required. The average ERR on public works projects has been 20.4 percent with an average cost benefit ratio of 2.5. [X] Cost Effectiveness Analysis: The Social Fund's small scale community infrastructure and social service programs are cost effective. Average annual job creation costs declined between Phase I (1992-97) and Phase 11 (1997-date) from about US$2,400 to US$1,300. This includes small and microenterprise programs data. Disaggregated data show Phase II costs of about US$4,150 for public works job creation, US$2,537 for the Community Development program, and about US$1,050 for the small and microenterprise programs. Public works, and small and microenterprise job creation costs declined by more than 50 percent each between Phase I and II, while community development costs rose to about 165 percent. Although it is difficult to make useful cross country comparisons because of data and definitional problems, a 1997 World Bank Direction and Development Series titled "Safety Net Programs and Poverty Reduction: Lessons from Cross Country Experience" found that the Egypt Social Fund's job creation costs compared favorably with those in five comparator countries. The Social Fund's unit construction cost performance compares favorably against comparator programs in Egypt, with costs varying from 8 percent more for roads and wells, to 6 percent less for other types of infrastructure depending on the type of sub- project. The higher costs for roads and wells are explained by adherence to high engineering standards and enforcement through rigorous inspection and supervision procedures. Contractors under the Social Fund's programs pay local market wages. Page 8 2. Financial (see Annex 5): NPV=US$ million; FRR= percent Operations and niaintenance (O&M) for PWP and CDP sub-projects are the key financial issue for this project. As noted in Section D3, O&M problems have been particularly acute for PWP sub-projects. These have not been able to be funded from user charges even for projects such as water-supply and sanitation where benefits reach individuals and where they have expressed willingness to pay. This is because of an interpretation of the public finance law which states that all compulsory payments go to the Ministry of Finance. The PWP's new maintenance fund approach described in Section D3 is designed to improve the situation. This is not an ideal solution but seems to be the only one feasible under current laws. It may also be the only feasible approach for essentially "public goods" such as roads between two villages where no one is willing to pay. However, for water supply and sanitation, a more direct resort to user charges is preferable. This policy issue is being addressed through the relevant ongoing sectoral dialogue with Egypt. It is important to note that NGOs implementing CDP projects have always been free to charge user fees and are doing so with the exception of the literacy program (where there is a social justification for exemption because of "externalities"). 3. Technical: SFD is among the most efficient agencies in Egypt in delivering goods, works and services. Technical quality assurance standards and procedures are built into each of its programs and are in accordance with national standards and norms as established by the relevant public authority or agency. 4. Institutional: a. Executing agencies: The Project will be implemented by the SFD in accordance with its established procedures. These are stated in its Operational Manual, which was developed in consultation with the Government and donors, and which is updated regularly. The SFD executes projects in partnership with implementing agencies who are at the same time development partners - Govemorates, NGOs, local community organizations, commercial banks and ministries. The main office is in Cairo, and sets the overall strategy, prepares technical plans and budgets for sub-projects, handles financial transactions, and provides operational support and guidance to the 20 regional and 6 satellite offices outside Cairo. These offices are the main point of contact between requesting agencies and the SFD. They provide advice to commnunities, NGOs and regional governments on SFD procedures, process applications, conduct appraisals, and support implementation. As previously noted, SFD is in the middle of a significant decentralization of management responsibilities to its local offices. b. Project management: SFD is exempt from public sector compensation, personnel recruiting, budgeting, procurement, and disbursement laws and regulations. Its targeting system and allocation of resources procedures reduce political risks, and help ensure that high social return subprojects are directed to the poor. Its standardized approach to sub-projects promotes efficiency and results on the ground. Oversight by external donors has provided political support to SFD, and has helped to foster management practices with an emphasis on monitoring and evaluation. The Government will on-lend the proceeds of the IDA credit to the Social Fund on the same terms and conditions as for the IDA credit, including bearing the foreign exchange risk. The Government has a policy, introduced in the last two years, of passing on the costs of foreign borrowing to autonomous implementing agencies. It is designed to encourage fiscally prudent behaviour as well as cost-sharing to the extent feasible and equitable. Although the sub-projects to be financed by the IDA credit will not generate any revenue stream for the Social Fund to be used to repay service and interest charges on the IDA credit, IDA agreed to this arrangement on an exceptional basis, because the proposed IDA credit is a relatively small proportion (about 7 percent) of the total resources available to the Social Fund. However to help ensure the long-term financial sustainability of the Social Fund, IDA will jointly, with the Government and the Social Fund, undertake an assessment of the Social Fund's overall financial position and expected future financial performance with the objective of reaching an agreement with the Government on a secure funding base for the Social Fund in future. This study will be conducted as part of the long-term strategic planning exercise on the future role of the Social Fund, that IDA has already agreed to assist the Social Fund with (see Section C2). Page 9 A financial management review was undertaken during project preparation (see Annex 9(a)) in addition to the financial and procurement assessmeint report (project file). It covered: (i) the organization structure of SFD; (ii) accounting practices; (iii) internal controls; (iv) external and internal audit arrangements; (v) reporting; (vi) staffing of the financial management function; and (vii) special account arrangements. Although the current financial management system is quite sophisticated at the central level, it is considered unsatisfactory to IDA because it lacks: '. adequate internal controls at the sub-project implementation level; (ii) a good budgetary control process; (iii) a satisfactory internal and external audit coverage; and (iv) project management reports (PMR) generation capability as specified in the LACI handbook to allow PMR-based disbursements. IDA and SFD agreed at negotiations on a combined financial and procurement Action Plan with an implementation timetable. This will allow SFD to comply with IDA's OP 10.02 and LACI requirements, and will improve procurement processes and monitoring. It includes improvements to the internal controls system and expanded coverage of external and internal audits at the sub-project level, as well as a technical procurement audit to be undertaken by November, 1999 for further evaluation of field level activities and to make recommendations for improvement. Completion in a manner acceptable to IDA of the Action Plan (with the exception of Part E (see below)) to allow SFD to comply with OP10.02 would be a condition of IDA credit effectiveness. This part of the Action Plan, which includes the procurement audit, is expected to be completed by November 30, 1999, which would be prior to the expected date of effectiveness. The second part of the Action Plan (see Part E of Financial Management and Procurement Systems Action Plan in Annex 9 (a)), which is to produce a draft PMR acceptable to IDA, will be completed by May 31, 2000. Once completed, the project is expected to be LACI compliant. Disbursements will then be based on the quarterly PMR submission. The PMR will be according to the LACI handbook format. SFD will be responsible for project financial management and reporting, using systems and procedures acceptable to IDA. Project accounts will be kept according to Generally Accepted Accounting Principles. They will be audited annually, following International Auditing Standards, by qualified independent external auditors acceptable to IDA. The audit report will be submitted to IDA within six months of the end of each fiscal year. The new structure of the SFD's finance department is not final yet, as there will be some restmcturing after the spin off of the Small Enterprise Development Organization (SEDO) of SFD. The SFD is also currently revamping its MIS system which is expected to improve planning and reporting, and will require further modifications to enable the system to produce PMR-based reports. The SFD's financial accounts are audited annually by private independent auditors. However, given the increasing volume of SFD's portfolio, it was agreed that the scope of the auditors work would be expanded to undertake in-depth reviews of SFD program projects and sub-projects. SFD's monitoring and evaluation system is also being upgraded to support the new decentralized management system and to integrate a previously rather disintegrated system, which was adequate when management was centralized. It has also established three new central units to support decentralization; the Livelihood/Impact Assessment Unit discussed in Section D3, an Environment Development unit, which is responsible for central environmental guidance as well as for launching new initiatives in such fields as cultural heritage, and a Technology and Development Center to provide technical support to small industries. These are in addition to its Institutional Planning unit, now responsible for planning and budgeting. A previously separate Gender Unit is being mainstreamed. It reviews all sub-projects for gender focus. The SFD's success in the past has been due to its ability to adapt to changing circumstances and learning from field experience. The new units will help reinforce that, although their mandates will have to be carefully defined. 5. Social: a) SFD tries to reduce social risk and to reach out to low-income groups in a variety of ways. These include poverty mapping, large scale promotion and outreach efforts, and use of local NGOs and conumunity groups. SFD has just completed a participative poverty assessment designed to better understand the problems of the poor and understand the best ways of reaching out to the poorest of the poor and the socially excluded. It is in the process of introducing a new targeting system and is piloting the use of various beneficiary assessment techniques as well as the training of 24 NGOs to become trainers, as tools to better determine beneficiary needs. The new targeting system to be introduced by PWP and CDP will Page 10 use the UNDP Human Resource Index (HRI). This targeting system maps multiple HRI indicators down to the Govemorate and some district levels currently. This work will be continued until all districts are covered. The SFD is designing a matrix which matches clusters of HRI indicators with a specific project intervention or set of interventions to help improve those indicators. This is a quick reference check system on the more formal system it has been using and helps alleviate the shortcomings of that system. DWP managers and staff will use the targeting system in a more explicit way. This will involve training for staff including those in the 20 regional and 6 satellite offices. Improved community participation in project selection and design will be achieved through the initiatives being undertaken in the contexts of the introduction of decentralized management into SFD and of the Community Based hifrastructure Program (CBIP) approach already described above. In addition the SFD Livelihood/Impact Assessment Unit is just beginning a major revision to SFD targeting systems overall. The Impact Assessment Unit will conduct a Retargeting of Programs study between May and October, 1999. This will update the targeting methodology and integrate the results of the Priority II, Integrated II and Community Needs II studies into the SFD targeting system. Finally, the SFD has a satisfactory track record in reaching women, who overall represent about 35 percent of all beneficiaries. b) These are all good social risk mitigation tools. However as the SFD moves away from the emergency phase of its operations, there are several areas which the Social Assessment identifies as ripe for reexamination. These include more geographically focused interventions as opposed to broad interventions with limited impact in any one place; a more concerted effort to bring community infrastructure and services to the very poor (e.g. provision of individual house water connections in a poor village, and not just the trunk and secondary pipelines); introduction/expansion of improved needs assessment methods and training of more SFD staff to allow for greater participation of the poor in needs determination as opposed to having their needs determined for them by Govemorate or local steering committees, which are insufficiently representative; how to balance demands for sustainability with the need to support communities which are unable to mobilize their own funds; the need to focus on institutional as well as financial sustainability to prevent projects from being one shot events; and the need to engage with/support emerging types of NGOs such as street vendors' associations. The SFD also needs to examine the characteristics of temporary employment (e.g. who is being employed, possible gender pay gaps), and how more permanent jobs can be created in rural areas. Finally, there are programmatic limitations on reaching the socially excluded or poorest of the poor, who are unable to work or pay fees for services. c) The SFD's visioning exercise, to be supported by IDA in parallel with the proposed project, provides the right frame within which to examine these issues. In addition SFD has sufficient surveys and studies and is now putting in place its new specialized units, which together will provide the necessary technical underpinnings for the visioning exercise. The Social Assessment does not prejudge the outcome of this work, but suggests several new directions, areas of focus and building of new relationships which the SFD could consider. These include: defining overall role and strategic comparative advantages; more experimentation with design and piloting of services outside the current set of packages to provide models to be mainstreamed by national agencies, including greater collaboration with and encouragement of the private sector; the establishment of long-term mutual learning partnerships with the NGO establishment; a possible advocacy role for the socially excluded; social intermediation interventions; the recruitment of more participation experts and the training of more existing regional staff in such techniques; and a more concentrated effort to disseminate SFD experience and study findings both inside and outside SFD. 6. Environmental assessment: Environmental Category [] A [X] B []C a) Justification/Rationale for category rating: The proposed project would have no significant environmental risks. However, as the SFD finances repair and rehabilitation of water and sewage sub-projects that may have adverse environmental impacts, the project is rated 'B'. Within the two main programs (PWP and CDP) to be financed under the project, there are projects that will require environmental assessments to identify adverse environmental impacts and mitigation measures. The SFD will implement an environmental screening process for both programs that will be based on the environmental screening system already used by PWP, that uses classifications similar to the classification system in OP 4.01, and consistent with the screening categories mandated by the Egyptian Environmental Affairs Agency (EEAA), according to project type and size. This process will divide projects into two groups: (i) those that will have no significant adverse environmental consequences; and Page 1 1 (ii) those that will have significant impacts. This review process will include a desk review and at times a site-specific review to be undertaker, in the field by qualified SFD staff, beneficiaries or consultants. Unde1 the proposed project, the SFD will build on its past experience to develop a better environmental review process. In general, two concerns need to be addressed with SFD projects - project design and environmentally sustainable operations. An Environment Development Unit (EDU), established in 1998, will provide guidance for PWP and CDP on minimum engineering design criteria that would incorporate the mitigating measures resulting from the environmental assessments of sub-projects. All project proposals submitted to the SFD's PWP and CDP will need to have a clear process of environmental screening for potential environmental impact. The checklists that have been used in the past by PWP will be reviewed and if necessary revised in accordance with the World Bank's Environmental Assessment Sourcebook. The current guidelines of EEAA should also be consulted to develop the revised SFD environmental review procedures. These environmental reviews would be prepared by the project sponsor/beneficiary with technical assistance from the SFD and include, at a minimum the following: overview of the current environmental conditions at the site: assessment of potential adverse environmental and human health impacts associated with design, construction and operation of the project; mitigation measures to reduce the above impacts; and identification of responsible parties for ensuring implementation of mitigation measures and public consultation with sub-project beneficiaries. This will be applied to the following project schemes: (a) solid waste collection; (b) landfills; (c) waste water treatment; (d) potable water supply and distribution; (e) rehabilitation and pavement of rural roads; and (f) canal coverings. The new EDU will act as a centralized environmental unit to oversee SFD's environmental efforts. The role of the unit is to screen sub-projects, review the environmental assessments prepared by the beneficiaries, consult with EEAA and seek further concurrence from the concerned authorities, make recommendations on sub-project approvals, and supervise the mitigating and monitoring plans as appropriate. The Social Fund will provide a detailed mission statement with the functions of the EDU and a description of staff roles and responsibilities. Each unit will present an annual work plan that identifies its environmental responsibilities and outputs. The work plan will identify all costs for undertaking these functions. The Social Fund will expand environmental training to improve the understanding of environmental issues associated with SFD projects. Target audiences include personnel from SFD, implementing agencies, contractors and selected NGOs. Past SFD sponsored environmental training, often using Egyptian environmental specialists, has been well received and considered beneficial. Environmental training related to the SFD projects will also be provided to local Government personnel, NGOs, and other local authorities from communities. Environmental reporting is not supported by the Social Fund's current MIS. In the new MIS, now under development, capacity to support an environmental performance monitoring plan is required to ensure that mitigation measures are adequately implemented and effective in reducing impacts according to design. The monitoring program will clearly indicate the linkages between impacts, indicators for measurement, methods to be used, frequency of measurements, detection limits (when appropriate), and threshold values. This plan should include a description of how regular field site reviews of selected schemes will be undertaken. The Social Fund will also develop environmental strategies for its PWP and CDP programs, will undertake a pilot partnership with two of the EEAA's new Enviromnental Management Units in poor Govemorates in which the Social Fund is active to help strengthen their capabilities, and will expand environmental components of its overall public awareness campaigns. Solid waste removal projects in Egypt are caught in a thicket of legal, institutional and financial issues that have stymied progress for many years and created a particularly serious problem as a result. Several studies have been conducted on solid waste in Egypt by various bodies (EEAA, the Ministry of Scientific Research and Technology, etc.) without result. Yet the demand for these projects is high throughout the country, including demands on the SFD, especially under the CDP. The SFD through the CDP wants to have the technical capability to deliver environmentally sound solid waste collection and management schemes. The SFD will lead a study to develop a practical guide for the design, construction and operation of rural based waste collection and management systems. The Environment Management Plan (EMP) is attached (see Annex 6) and the resulting proposed Action Plan summarized at the end of that annex, was agreed at negotiations. The Netherlands will provide up to US$250,000 from Trust Funds it Page 12 provides to the Social Fund, and the Social Fund will finance the balance of the Action Plan total costs of US$400,000. b) Status of Category A assessment: EA start-up date: NA Date of first EA dmft: Current status: Proposed actions: N/A c) Status of any other environmental studies: NA d) Local groups and NGOs consulted: Egyptian Enviromnental Affairs Agency (EEAA), major NGOs and environmental organizations in Egypt were consulted during preparation of the Environment Management Plan (EMP). Training seminars on the EMP will be arranged in accordance with the Action Plan. e) Resettlement [XI None f) Borrower permission to release EA: [I Yes [I No [XI N/A 7: Participatory approach [key stakeholders, how involved, and what they have influenced; ifparticipatory approach not used, describe why not applicable]: a. Primary beneficiaries and other affected groups: Social Funds by definition are demand-driven and participatory. The SFD works directly with many beneficiary organizations beginning with its promotional outreach programs through supervision and impact assessment studies. But an internal evaluation concluded that participation levels in the SFD can be improved especially with respect to the PWP. The other programs are more participatory. For its Community Based Infrastructure Program, the SFD is in the process of introducing a new targeting system, which places greater emphasis on reaching primary beneficiaries. It is piloting the use of Participatory Rapid Appraisal (PRA) techniques as well as the training of 24 NGOs to become trainers in two Governorates as tools to better determine beneficiary needs. This program will be expanded nationally by March, 2000. The SFD has completed a participatory poverty assessment to draw lessons from which it can improve its outreach to the socially excluded. The Social Assessment has a number of recommendations on how to expand participation and on how to reach the socially excluded (Section ES). b. Other key stakeholders: The SFD works with and interacts with a wide range of NGOs, community associations, local government organizations, business organizations and academic institutions throughout Egypt as well as with many central government ministries and agencies, all of which are responsible for delivering SFD funded programs and services. F: Sustainability and Risks 1. Sustainability and risk analysis: Three aspects of the project need to be considered with regard to sustainability: the SFD as an institution, its programs, and individual sub-projects. Sustainability of the SFD as an institution over the medium-term is assured, as donor interest and support remain high. As yet, the Government of Egypt has not provided its agreed contribution to Phase II. This is under discussion between IDA management and the Government. Once the contribution has been made, it will reduce the sustainability risk. The SFD has proved to be an important vehicle to help the central authorities work with regional authorities. SFD has shown good results on the ground and in helping build capacity at the local and regional level. While many SFD activities can be transferred to local authorities, global experience indicates that this will happen very slowly and the need for the SFD will continue for a fairly long time. In this case SFD needs to clearly define and rationalize its relationship with the relevant line ministries as well as with local government and the non-governmental sector. The SFD has asked IDA to assist it with a 'visioning' exercise to help determine its long-term role. This will be done in parallel with the proposed project. Page 13 Sustainability of the individual programs and sub-projects of the SFD will need continued careful attention to design and implementation and the steady introduction of changes suggested by the SFD's increasingly sophisticated monitoring and evaluation machinery. Two major change programs, O&M for community infrastructure projects, and improvements to SFD's targeting system, are progressing well. The third, the transformation of its small enterprise program into a financially viable business development organization, the SmaDl Enterprise Development Organization (SEDO), is subject to some risk and will require continued attention, as a major failure would affect negatively the SFD as a whole. The SEDO transition process is being supported under the Social Fund II project (Cr. 2865) and is to be completed by that project's completion date (December 31, 2000). While financial viability and the quality of the existing portfolio are being addressed, there remain two principal problems with the SEDO transition. First, there is a gap between the transition plan, which is based on private sector banking principles, and implementation, which continues to adhere to a slower, less client- oriented type of behavior. Second, SFD has established a guarantee fund for small enterprises, which, as set up, is likely to exacerbate the moral hazard problem for participating banks, while not helping meet its stated objective - the disbursement of more funds to participating banks. A revised action plan for SEDO transition in 1999 and 2000 was agreed with SFD in December, 1998 and is being tracked carefully. The Bank has made five proposals to adapt the guarantee fund so that it is more workable. The SFD is in the process of incorporating these. If there is insufficient progress by December, 1999, the SEDO component of the Second Social Fund project should be restructured. 2. Critical Risks (reflecting assumptions in the fourth column of Annex 1): Risk Risk Rating Risk Minimization Measure Annex 1, cell 'from Outputs to Objective" 1. Continued close cooperation with other public M Continuous consultation with partners and clear agencies direction from top levels of Government. 2. SFD's mnanagement capacity. M Recruitment of good staff on performance based contracts with competitive salaries. 3. SFD's independence. M Maintain support at top levels of Government, and continue strong donor monitoring. Annex 1, cell 'from Components to Outputs" 4. Continued or improved competence of partner N Continuous capacity building and training for NGOs, etc. partners and provision of funding for this activity. 5. Maintain support from central and local M Continuous demonstration of results on the ground; Governments. continue to alocate resources in an objective and transparent way. Overall Risk Rating M Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk) 3. Possible Controversial Aspects: NA Page 14 G: Main Credit Conditions 1. Effectiveness Conditions: (a) ratification of the Project Agreement; (b) ratification of Subsidiary Grant Agreement; (c) the SFD would complete the strengthening of its financial management system in a manner satisfactory to IDA (see Section E, para. 4(b)). 2. Other [classify according to covenant types used in the Legal Agreements.]: (a) the SFD's Statutes, Bye-laws, and Statement of Policy would remain acceptable to IDA throughout the life of the project; (b) the SFD's Operational Manual would remain acceptable to IDA at all times and would be reviewed periodically with IDA; (c) the SFD would further strengthen its financial management system by May 31, 2000 to enable it to prepare quarterly Project management reports acceptable to IDA; (d) the SFD would conduct its operations in accordance with the agreed Environmental Management Plan; (e) the Borrower would submit to IDA the following audit reports: (i) annual financial audit reports within six months of the end of the fiscal year; and (ii) annual management audit reports within six months of the end of each fiscal year; (f) the Borrower would carry out jointly with IDA a mid-term review not later than June 30, 2001, and implement the recommendations of the review; (g) the Borrower would carry out jointly with IDA an annual review of project implementation on the basis of documentation to be provided by SFD, which will include the work program and budget for the following year. This review will be done not later than November 30 each year; H. Readiness for Implementation [ I The engineering design documents for the first year's activities are complete and ready for the start of project implementation. Not applicable. [I] The procurement documents for the first year's activities are complete and ready for the start of project implementation. Not applicable. [X] The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. [XI The following items are lacking and are discussed under Credit conditions (Section G): Financial management system does not fully comply with OP 10.02 and LACI requirements to enable PMR-based disbursements. I. Compliance with Bank Policies [X I This project complies with all applicable Bank policies. Task TaL David Steel, MNSHD ecoLd: Zafiris Tzannatos, MNSHD Sector retoJacques Baudouy, MNSHD irector Khalid Ikram, MNCEG Annex 1 Page I of 2 Arab Republic of Egypt Third Social Fund for Development Project Project Design Summary Narrative Summary Key Performance Indicators Monitoring and Critical Assumptions Evaluation Sector-related CAS Goal: (Goal to Bank Mission) i) To reduce unemployment. i) Increase employment opportunities. i) Government i) Continued Govemrnment and donor ii) To raise living standards of the poor. ii) Improve access to services for the employment and support. poor. unemployment data. ii) Continued progress towards ii) Living Standards greater financial sustainability of _____________________________ hMeasurement Surveys. SFD programs. Project Development Objective: i) Number ofjobs created - 20,000 Reports from SFD MIS (Objective to Goal) The project objectives are to help create temporary and 2,500 permanent. system. i) Continued strong Government jobs and provide community ii) Additional community Other published reports. support. infrastructure and services through labor infrastructure and/or services Supervision missions. ii) Lack of Government interference intensive works. provided to communities in a in SFD's day to day operations. sustainable manner (see Annex 4 iii) SFD's capacity and staff quality for targets). remain the same or improved; iii) Overall labor intensity ratio of 30 percent maintained. Outputs: (Outputs to Objective) i) Community services such as health, Each category of projects has Reports from SFD MIS i) SFD's capacity to target, manage, literacy, provided. extensive quantitative indicators system. disburse, and monitor and evaluate ii) Environmental infrastructure (canal ranging from numbers of certified Other published reports. remains strong. covering & lining, water supply, illiteracy program graduates to Control group ii) Capabilities of intermediary sewage) projects completed. kilometers of water pipes as well as methodology evaluation organizations remain adequate. iii) Other infrastructure improvements eg. labor intensity and unit cost data (see Supervision mission. iii) Beneficiary population roads, building repair. Annex 4 for further details). participation will be assured by adoption SFD wide of Participatory Rapid Appraisal (PRA) and similar techniques by January 2000. Annex I Page 2 of 2 Narrative Summary Key Performance Indicators Monitoring and Critical Assumptions Evaluation Project Components/Sub-components: i) Inputs: (resource allocation for each i) SFD MIS and project (Components to Outputs) i) Labor Intensive Works (PWP) component in US$ million- IDA document reporting i) availability of adequate resources. ii) Community Dev. Program (CDP) contribution in parentheses) system. ii) continued or improved SFD PWP: 45.9 (33.0) ii) supervision reports and administration, competence of SFD CDP: 19.1 (17.0) MIS system. staff, intermediary organizations, and ii) adequate staffing in SFD and iii) progress reports. sub-contractors. intermediary organizations iii) adherence to appropriate SFD assessed by administrative cost to operational manuals and procedures. project cost ratio norms of SFD iv) availability of beneficiary (6-8 percent). contributions. iii) adequate promotion activities assessed by program category norms (SFD has specific norms for each program category). iv) regular project supervision in accordance with SFD standards and norms. This will include financial as well as physical supervision under the FMS Action Plan Improvements. Annex 2 Page 1 of 3 Arab Republic of Egypt Third Social Fund for Development Project Project Description The project would consist of two components: 1) a Public Works Program consisting of labor intensive public works; and 2) a Community Development Program consisting of community support infrastructure and services. The main objective of the project is to help create employment opportunities and provide community infrastructure and services. It would create about 20,000 temporary and 2,500 permanent jobs. 1) Component 1 - Public Works Program (PWP) US$45.9 million (total cost of component). This component would be a continuation of the ongoing Public Works Program (PWP) of the Social Fund for Development. The PWP funds small-scale public works programs in partnership with communities and local government, which are executed by small local private contractors. Projects funded in order of magnitude include construction, rehabilitation and repair of irrigation and drainage canals, water supply and sewerage systems, rural roads and streets, and public buildings, and maintenance including canal cleaning, public buildings, solid waste collection, and disposal. The US$46 million component would fund about 14 percent of the US$355.0 million pipeline of identified but unfunded projects in the PWP. This compares with a funded program of US$95.0 million under the ongoing Second Project (1997-2000) supported partly by IDA credit (Cr. 2865). Targeting and Resource Allocation. The PWP targeting and resource allocation system has been based on a social and economic study carried out in 1991. The allocation of funds was based on population and size and ranking of rural areas using a combined poverty and unemployment index. This targeting system, which has had methodological and data shortcomings, and has been amended from time to time, was also found to be not very practical as a management tool. As a result PWP programs have tended to be overconcentrated both in poor (Aswan) and wealthier (Suez) Governorates, although focused on poorer communities within all Governorates. The targeting system is now being revised in two ways. At the overall level, the Social Fund is conducting a Retargeting of Programs study between March and September, 1999. This will update the combined poverty and unemployment index by incorporating the results of the Priority Il, Integrated II and Community Needs II surveys, conducted over the last three years, into the SFD targeting system. At the program level PWP (and CDP) are piloting a new targeting system which uses the UNDP Human Resource Index (HRI). This targeting system maps multiple HRI indicators down to the Governorate and some district levels currently. This work will be continued until all districts are covered. The SFD is designing a matrix which matches clusters of HRI indicators with a specific project intervention or set of interventions to help improve those indicators. This is an operationally-based system, which will provide a quick reference check on the combined index system and helps sharpen that system. PWP (and CDP) managers and staff, including those in the 20 regional and 6 satellite offices, will be trained in the use of the new system over the next year, as it is expanded from pilot to general use. Phase I and 1I Results and Issues. Detailed job creation and physical achievement results are provided and reviewed in Annex 4. In general PWP programs have been fairly successful in meeting their primary objective: employment generation in poor rural communities. PWP has also focused on the type of infrastructure created, and has placed greater emphasis on repair and rehabilitation than maintenance as this was often the most effective way of meeting community needs. This has affected the labor intensity of its programs, which can be characterized as Annex 2 Page 2 of 3 medium intensity, with labor costs averaging about 30 percent and varying from less than 20 percent for water supply and sewage networks to 50 percent for canal covering. This average compares favorably with PWP's labor cost target of 25 percent for its programs. The average man-month cost has been about US$220 (US$230 in Upper Egypt, US$210 in Lower Egypt and US$255 in the Border Governorates). With an average cost of labor of approximately 30 percent, monthly salaries paid under PWP programs have been in the range of US$65-72. This compares favorably with the average monthly salary of unskilled and semi-skilled labor (US$60-74) in Egypt. PWP contractors pay prevailing local market wage rates. PWP has also achieved an average voluntary community contribution of 10 percent to project costs, has stimulated the local small scale private contracting industry, and has been a leader in incorporating environmental review into its appraisals. Its administrative costs have been 2-4 percent of construction costs, which are a little below the typically accepted national average of 5 percent. The principal issues affecting PWP are operations and maintenance (O&M), targeting, and extent of community participation in project selection and design. These issues have been highlighted in several evaluations of the PWP. Originally PWP tried to ensure that O&M was carried out by including it as a covenant in the Framework Agreement with the 'Sponsoring Agency' and beneficiaries. Often these would be the Governorate level department of the relevant line ministry. This did not work. Various other approaches such as voluntary contributions from beneficiary communities for O&M and efforts to introduce cost-recovery mechanisms also ran inta practical and legal problems. It also became clear that the O&M problem was due in part to weak beneficiary involvement. The situation is being rectified under Phase II through four initiatives (see Section D3 of the main report for details). In addition it has introduced a program under which it finances the management costs of projects, and contracts qualified managers, for communities which are willing to provide most of the project funds themselves, but which lack contract management and O&M know-how as well as full financing. PWP (and CDP) operating procedures are described in Annex 8. 2) Component 2 - Community Development Program (CDP) US$19.1 million (total cost of component). The main objective of this component is to support the development of community support infrastructure and services, in partnership with local groups, to reduce poverty and improve the quality of life, and to promote community and NGO participation. The most important of these are education and training (about 25 percent), microenterprise (30 percent) and health (45 percent) programs and projects. The proposed project would not finance the microenterprise program as that has adequate funding from other donors for the time being. The US$19.1 million component would fund about 15 percent of the US$132 million pipeline of identified but unfunded projects in the CDP. These numbers exclude microenterprise. This compares with a funded program of US$180.0 million under the ongoing Second Project (1997-2000). Targeting and Resource Allocation. The CDP targeting and resource allocation system with its previously noted shortcomings has been the same as that used for the PWP. As a result there is some evidence that CDP programs have tended to underspend in the poorer Governorates, although they have been well targeted on poorer communities within all Governorates. A 1996 study of 5,124 beneficiaries in 62 projects covering both PWP and CDP showed that beneficiaries were largely rural with characteristics such as low education levels, large family size, and high average dependency ratio per household, which are indicative of poverty status. There was no Annex 2 Page 3 of 3 data collected on consumption and findings were not compared with national indicators, so it was not possible to determine the overall incidence of SFD interventions. Phase I and II Results and Issues. Detailed job creation and physical achievement results are provided and reviewed in Annex 4. In general it is interesting to note that while employment generation has not been an explicit objective of CDP programs, it has in fact generated more employment with approximately half the funding than has PWP. This is because its microenterprise program has generated about two-thirds of the employment created. Absent this program, the CDP and PWP are quite comparable. Thirty-seven percent of CDP beneficiaries have been women, versus a target of 50 percent. Under the microenterprise program, 38 percent have been women. Overall, administrative costs of CDP run at about 8-10 percent of costs. Although this is higher than PWP, reflecting the differences in the management intensity of the two programs, it compares favorably with international experience. CDP is taking the following actions to improve participation of primary beneficiaries and other affected groups. It is introducing Participatory Rapid Appraisal (PRA) techniques into two Upper Egypt Govemorates (Qena and Aswan) through a training program for its own staff and NGOs as well as a 'train the trainer' program for NGOs. The staff of 24 NGOs will be trained in PRA in the first year and a further 32 will be reached in the second year. Four large regional NGOs are being provided with 'train the trainer' training over the same period. PRA will be expanded nationwide by March, 2000. CDP has also introduced as a standard practice consultations with Village Popular Councils in the project area of each project proposed and will rely on SFD regional office staff for advice and guidance on project packaging that achieves a better balance between economy and efficiency. CDP is addressing links with ministries by encouraging consultation between NGOs and the district offices of the Ministry of Social Affairs (MOSA) during project preparation as well as the inclusion of a local MOSA representative on project steering committees. However the decisive element in good coordination between SFD, its implementing partners and ministries at the local level is sound leadership by Governors. The SFD receives strong support from Egypt's 26 Governors for its programs. CDP local capacity building programs have been limited by resources. However CDP includes funds for training of all doctors and nurses operating rural health clinics in project areas. Likewise it funds training of all teachers in its illiteracy programs, more than 10,000 to date. CDP (and PWP) operating procedures and eligibility criteria for subprojects are described in Annex 8. Annex 3 Page 1 of I Arab Republic of Egypt Third Social Fund for Development Project Estimated Project Costs Project Component Local Foreisn Total -US S million-- Labor Intensive Works Program (PWP) 32.8 8.1 40.9 Community Development Program (CDP) 14.7 2.5 17.2 Total 47.5 10.6 58.1 Total Baseline Cost Physical Contingencies 2.1 0.5 2.6 Price Contingencies 3.4 0.9 4.2 Total Project Cost 53.0 12.0 65.0 Figures have been rounded and may not add up. Annex 4 Page 1 of 14 Arab Republic of Egypt Third Social Fund for Development Project Economic Analysis and Cost-Effectiveness Analysis A. Economic Justification and Achievements to Date 1. Links to the CAS. During Phases I and II, the SFD addressed three main objectives of the CAS: a) poverty alleviation; b) employment creation; and c) private sector development. The SFD's targeted groups include low-income fimilies in rural and impoverished areas, new graduates, unemployed youth, displaced public enterprise workers and female headed households. The fund was designed to increase access by these groups to basic services, to improve their productivity and enhance their opportunities for gainful employment. The SFD is a central pillar in supporting the Egyptian Government's Agricultural Strategy for the 1990s (it was prepared with the support of the World Bank and other donors in 1993). This strategy identified the need to implement measures for the agricultural sector within the context of an overall rural development strategy, to diversify rural activities and provide key services, in particular, sustainable intensification of agricultural production and essential programs for health and education. 2. Policy Environment. The Egyptian economy has dramatically improved in several critical aspects since the inception of its structural adjustment program in 1991. Restoration of macroeconomic stability in the 1990s has not been achieved at the expense of growth. GDP grew, in real terms, at an average rate of 2.1 percent over the period 1991-1997 and it has picked up at an average rate of 5 percent over the last two years. Despite its constrained finances, the GOE has kept its long-standing commitment to provide its citizens with basic needs through an array of social welfare programs. Expenditures on safety nets grew on average by 3.4 percent in real terms per annum whereas total Government spending fell by 1.9 percent during 1991-1997. The SFD was specifically created in 1991 to protect and improve the status of vulnerable people during the period of economic adjustment. The GOE is firmly committed to provide a policy environment to allow for a rapid sustainable growth to bring a solution to the pressing social and employment problems that are the key challenges for the imnediate future. With this regard, the SFD is one of the main tools through which the Government has initiated decentralization of decision making and fostered community participation. 3. Fiscal Impact. Thanks to sound and careful economic policies, the Egyptian fiscal deficit has moved from the 1991 peak of 7 percent of GDP to less than 1 percent of GDP in 1998. In fiscal year 1997, the GOE spent a total amount of US$1.4 billion (or 1.9 percent of GDP) in social protection programs. The SFD accounted for 13 percent of this total, equivalent to 0.3 percent of GDP or 0.95 percent of total Government expenditures, while 85 percent of total social protection expenditures was allocated through the consumer food subsidy program. Fiscal projections do not change these proportions. In front of this small fiscal impact, the SFD has been able to raise funds from 17 different donors mobilizing US$734 million in Phase I and US$704 million in Phase II. Over the years, SFD has reached about 25 million beneficiaries and created about 200,000 temporary jobs and 350,000 permanent jobs'. 4. Public/Private sector Role. The SFD helps support decentralization of decision making, and promoting of private sector and NGOs' participation in the implementation of sub-projects and in their operation and maintenance through contractual agreements with local communities. Public intervention in collaboration with the private sector is warranted to: a) support a wide range of activities which are selected and undertaken on the basis of their positive, public good externalities; b) target benefits to poor I These figures are updated as January 1999. Annex 4 Page 2 of 14 communities unlikely to be reached by the private sector; and c) provide an impetus for new approaches for poverty reduction to improve the infrastructure and the productivity of poor areas and enhance the profitability for the private sector to develop there. 5. Achievements to Date. After a slow start due to the need to find proper staff and put in place proper procedures, the SFD has made considerable progress and has achieved significant results. Tables 1 and 2 show fund allocations and employment generation achieved by the SFD during Phases I and II. The slow-down in the productive families program after 1993 was due to the need to properly assimilate the large number of Gulf returnees coming back to Egypt in 1993. More modest and steady annual targets have been established for Phase II. 6. Temporary job figures are generally calculated by the SFD on a man/project basis while permanent jobs data represent job opportunities created after the implementation of the project for the purpose of operation and maintenance, hence regarded definitely as permanent2. The large number of permanent job opportunities reported by CDP is mainly due to the productive family and the microcredit component. There, each loan provided is, in fact, accounted as a permanent job opportunity created. Table 1: Egypt Social Fund for Development Funds Allocation and Targets Achieved Through December 31, 1998 *Total Funding Phase I *Total Funding Phase II "Employment Opportunities Program EGP Million USS Million EGP Million US$ Million Temporary Permanent Beneficiaries Public Works 642.36 188.92 315.15 92.69 33,084 4,704 27,042,789 Community Development 346.91 102.02 491.53 144.56 44,003 107,621 1,464,679 Enterprise Development 1,189.61 349.88 1,216.72 357.85 121,460 240,935 1,204,684 Human Resources DeveL 182.56 53.69 232.31 68.32 4,211 3,759 20,120 Institutional 134.29 39.49 136.34 40.10 n.a. n.a. n.a. Development __ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Total l 2,495.72 734.03 l 2,392.05 703.54 202,758 357,019 29,732,272 Source: SFD and Word Bank * Total Funds allocated to programs ** Figures are cumulative of Phases I and ]I; temporary job opportunities are normally calculated by programs on a man/project basis and as such are reported in the table;' for more details see note 1. 7. Calculations based on table 1 and taking into account forecasts and estimations, show that the SFD has created jobs (temporary and permanent) at an average cost which ranges from a peak of EGP 24,926 (US$7,331) in PWP (because of higher investment cost in equipment and materials) to EGP 3,270 (US$962) in CDP. The average total cost per job created in the SFD as whole is of approximately EGP 6,172 (US$1,815). However, if the man/subproject classification is used to measure PWP temporary job creation costs, the program amount drops to EGP 6,779 (US$1,994) and total cost for job created by the 2 opportunities are reported by the SFD in man/project figures. Though differences might be small, projects have a different average duration in the different programs, i.e. 24 months for PWP and 18 months for CDP. Generally speaking, job opportunities are calculated on site by means of daily logs that register laborers' names and wages. They are then calculated on a man/day basis, which is a direct translation of the site daily logs. In order to aggregate man/day job opportunities into more manageable numbers, such figures are divided by 25 working days per month to transform them into man/month job opportunities. The man job opportunities are typically used by the project implementation units in the field and in-house within the various programs, to gauge the employment generation output and compare it to man/month job opportunities agreed upon in every project framework agreement In order to compare job opportunities among the various SFD programs man/month figures are normally aggregate in man/project ones. As for PWP two types of temporary job classifications are used: man project and man subproject The man/project terminology denotes a job opportunity which lasted for the entire duration of the project which is typically, in PWP, 24 months and is obtained dividing the project man/month opportunities by 24. Nevertheless, considering that a job opportunity which lasts for 24 months is viewed by some as a permanent job, measuring the cost of temporary job creation in terms of man/project figures was regarded by many as inappropriate. Since any project is typically divided into several subprojects, PWP considered that, with regard to job creation cost measuring methods, a temporary job opportunity is acually an individual who works on a subproject (which lasts on average 6 months) from beginning to end. Thus, man/month job opportunities aggregated on site are divided by six, to calculate the real temporary job opportunities. As for CDP man/month figures are simply translated into man/project figures accordingto the average duration of a CDP project which is 18 months and no subproject calculation is considered. Annex 4 Page 3 of 14 SFD decreases to EGP 5,185 (US$1,525).3 These costs for job creation compare favorably with international standards regardless of which method is used to estimate PWP costs and shows that the SFD efficiently meets its employment generation target. The comparison between Phases I and II suggests that, as for PWP, substantial gains in competitiveness and efficiency might have occurred in managing the program. CDP differences can be explained through adjustments in the composition of the program's portfolios. Table 2: Cost per Job Created Phase I (1993-1997) Programs Funds (US$ mil.) 1/ Total Jobs 2/ Total Jobs3/ Cost per Job 2/ Cost per Job 3/ PWP 256.5 34,986 128,637 7,331 1,994 CDP 138.5 144,038 144,038 962 962 EDP 475.0 212,664 212,664 _ 2,234 2,234 Total 870.0 391,688 485,339 2,221 1,793 Phase II (1997-2000) Programs Funds (US$ mil.j I/ Total Jobs 2/ Total Jobs3/ Cost per Job 2/ Cost Per Job 3/ PWP 92.7 1 22,370 82,370 4,144 1,125 CDP 144.6 56,973 56,973 2,537 2,537 EDP 357.9 336,014 336,014 1,065 1,065 Total 595.1 J 415,357 475,357 1,433 j 1,252 Phase I and 11 (1993-2000) Programs Funds (US$ mil.) 1/ Total Jobs 2/ Total Jobs3/ Cost per Job 2/ Cost Per Job 3/ PWP 349.2 J 57,356 211,007 6,088 1,655 CDP 283.1 | 201,011 201,011 1,408 1,408 EDP 832.9 548,678 548,678 1,518 1,518 Total 1465.1 807,045 960,696 1,815 1,525 Source: SFD and World Bank estimates 1/ Values are in 1997 US$ 2/ Figures are cumulative of permanent and temporary jobs on a man/project basis 3/ Temporary jobs in PWP have been calculated on a man/sub-project basis. 3Hluman Resources and Institutional Development Programs are not included in these calculations. Annex 4 Page 4 of 14 Table 3: Targets Achieved During SFD Phase I and Phase II Item Average 1993 1994 1995 1996 a 1997 1998 Total Unit Cost _ __JEGP [ A Public Works Program 1. Enviromnental Infastructure _ 7 = = a. Wastewater networks in kn. 450,000 - 6 12 16 42 42 118 b. Wastewater treatment plants (# of subproj.) 1,000,000 _- - 2 2 1 5- c.Wastewater pur stations (# of subproj.) 900,000 - 1 1 2 - 1 5 d. Canal covering in km. 740,000 4 14 16 26 43 13 116 e. Canal protection in km. 480,000 27 55 92 60 40 10 284 f. Channel maintenance in km. 5,000 - - 600 2,832 408 - 3,840 g. Other project (# of subproj.) 1/ 20,000 38 98 11 _ - - 20 167 2. Potable Water a Networks in kn 48,000 84 557 833 1,296 757 352 3,879 b. Elevated and ground tanks (units) 335,000 - 8 44 98 44 25 219 c. Artesian wells (units) 30,000 2 48 64 72 60 27 273 d. Other projects (# of subproj.) 2/ 20,000 2 21 95 - 13 20 151 3. Rural Roads _ a. Road construction in km 200,000 15 136 266 587 165 85 1,254 b. Road improvement in km 40,000 5 20 - 55 - - 80 4. Building Refurbishment _ _ a. Clinics (units 70,000 12 38 74 147 68 6 345 b. Youth centers (units) 60,000 1 76 91 116 41 50 375 c. Schools (units) 80,000 27 200 146 57 16 10 456 d. Social centers (units) 80,000 11 6 14 8 3 2 44 e. Other projects (# of subprojects) 3/ 60,000 1 26 32 68 4 131 R Community Development Pra Item Average 1993 1994 1995 1996 1997 1998 Total Unit Cost EGP _. a. Number of health clinics equipped 4/ 400,000 17 11 18 17 186 124 373 b. Number of awareness campaigns 5/ 2,000 127 209 233 127 210 90 996 c. Number of health personnel trained 6/ 2,000 28 28 764 28 28 2,600 3,476 2. Education & Training _ a. Number of classrooms established 7/ - 7 180 - - - 187 b. Number of illiteracy classes established 1,600 8,740 10,488 8,041 1,450 4,924 1,604 35,247 c. Number of individuals trained to teach illiteracy classes 100 8,740 10,488 8,041 1,619 4,180 1,604 34,672 d. Number of beneficiaries receiving vocational training 2,500 329 2,013 6,027 329 2,013 268 10,979 e. Number of training workshops equipped 100,000 12 9 7 12 5 3 48 3. Productive Families Loan Program _ _ a. Number of Loan Recipients n.a. 24,626 1,472 2,153 8,711 5,944 4,000 46,906 b. Number of loans 8/ n.a. 24,594 1,488 2,124 8,705 5,900 4,000 46,811 4. NGOs Capacity Building a. Upgrading technical & admin. Capacity n.a. - - - 57 - 41 98 5. Support to Youth and Community Centers 9/ _ _ a. Community centers equipped 8 6 2 - - - 16 b. Youth centers equipped 20 40 31 - - - 91 6. Environment I = _ a. Number of environmental projects 10/ | 472,000 14 49 0 2 3 7 75 Annex 4 Page 5 of 14 Table 3 (Continued) C Enlerpnse D pm a- 1. Contracted amount (EGP Million) not 488 257 401 238 404 225 2,013 lapplicable 2. Disbursemcnt to beneficiaries (EGP. Million) 92 395 226 227 278 321 1,539 3. Number of enterprises not 8,694 19,717 11,939 12,919 17,123 14,118 84,510 ase IH Tagets 40,000) ap le - 4. Number of entrepreneurs not 8,694 22,389 13,950 14,117 18,411 15,400 92,961 applicable _ 5. Average Loan Size 16,882 10.639 20,390 18,929 17,571 16,235 22,73 6. Employment opportunities a. Number of permanent empI. Opp. I11/ 22,604 58,211 36,270 36,429 48,141 40,043 241,691 b. Number of temporary empl OP. 1 8,694 22,385 13,950 14,11 18,411 15,400 92,961 7. Total permanent equivalent 12/ 25,5026 40,9141.058 54,354 _ 45,17 272,658 8. Average cost perjob 1 3,627 6,016 5,49 1 4,849 7,105 - D Human Raseoucn Devd ew A a 7 m 1. No. of workers receivg early retirement I n.a. -| 4 - 1,6471 9,316 1,98451 30,808 2. No. of trainers n.a. - - -| 501 100 90 240 3. No. oftrainees na. 518 1,2301 6351 2,3921 2,9001 15,3501 23,025 Notes: * 1997 achievements are cumulative of 1997 phase I and II 1/ Filing ponds, irrigation structure maintenance. 2/ Pump room, water station fence, water intake upgrading and tank renovation. 3/ Vetrinary units, nursery and public sevice buildings. 4/ Number of health clinics includes clinics totally or partially equipped. 5/ Number of awareness campaigns includes health, social and environmental awareness. 6/ Number of health personnel trained includes physicians, nurses, and extension workers in health. 71 Number of classrooms established: for some classes CDP provides furniture and refurbishment and for other classes. CDP only furnishes. 8/ lhe maximum loan size allowed to CDP loans is EGP7,000 and the averge is EGPI,200. 9/ These represent activities for which projects are still under contracting. 1O/ Environmental projects include latrines, garbage collection, drainage, backfilling, pest spraying and tree planting. 11/ Permanent jobs at 2.6xnumber of eareprenu. 12/ 3 temporary jobs are equivalent to I permanent job. 8. The data in Table 3 show that SFD has made considerable progress. The unit costs data show also that the SFD is quite efficient in performing its tasks and achieving substantial outputs. Annex 4 Page 6 of 14 B. Economic Analysis 9. Formal targeting indicators developed for Phases II and III are given in the following Table 4. Table 4: SFD Phases II and m Monitoring Targets Item [ Planned 1997-2000 1997 19981 1999 2000 2001 2002 A Public Works Program 1. Environmental Infrastructure a. Wastewater Networks in Kilometers 60 42 42 18 12 15 15 b. Wastewater Treatment Plants (# of sub-projects) 8 1 - 3 2 2.5 2.5 c. Wastewater Purnp Stations (# of sub-projects) 8 - 1 2 2 2 2 d. Canal Covering inKilometers 50 43 13 25 17 21 21 e. Canal Protection in Kilometers 60 40 10 25 16 20.5 20.5 2. Potable Water a. Networks in Kilometers 1,200 757 352 600 437 518.5 518.5 b. Elevated and Ground Tanks 60 44 25 28 20 24 24 c. Artesian Wells 60 60 27 30 29 29.5 29.5 3. Rural Roads a. Road Construction in Kilometers 500 165 85 240 180 210 210 b. Road Improvement in Kilometers 40 - 4 5 4.5 4.5 4. Building Refurbishment a. Clinics (umts) 40 68 6 12 9 10.5 10.5 b. Youth Centers (wiits) 60 41 50 23 16 19.5 19.5 c. Schools (units) 20 16 105 2 3.5 3.5 d. Social Centers (Units) 40 3 2 15 9 12 12 R Community Development Program 1. Health Services a. No. of Health Clinics rehab./estab/ equipped 750 186 124 130 130 130 130 b. No. of Health Awareness Campaigns 1,500 210 90 300 300 300 300 c. No. of Health Personnel Trained 7,100 28 2,600 2,200 2,200 2,200 2,200 2. Education and Training a. No. of Illiteracy Classes established 17,528 4,924 1,604 5,500 5,500 5,500 5,500 b. No. of Individuals Trained to Teach Illiteracy Classes 18,400 4,180 1,604 5,500 5,500 5,500 5,500 c. No. of Beneficiaries Receiving Vocational Training 4,800 2,013 268 700 700 700 700 d. No. of Training Workshops Equipped 30 5 3 4 4 4 4 3. Productive Families (Micro-enterprises) Loan Program I I a. Number of Loan Recipients 15,9001 5,900 4,000 3,000 3,000 3,000 3,000 b. Average Loan Size 1,200| _ _ C Enterprise Development Programn 1. Contracted amount (EGP. Million) n.a. 404 225 1,200 1,3801 1,290 1,290 2. Disbursement to beneficiaries (EGP Million) n.a. 278 321 800 920 860 860 3. Number of enterprises 40,000 17,123 14,118 27,000 31,050 29,025 29,025 4. Number of entrepreneurs 45,000 18,411 15,400 29,970 34,466 32,218 3,2218 5. Employment opportunities I l a. Number of permanent empl. Opp. 48,1411 40,043 76,572 88,058| 82,315 82,315 b. Number of temporary empl. Opp. 18,411 15,400 22,972 26,417 24,694.5 24,694.5 6. Total permanent equivalent 54,354 45,177 83,463 95,983 89,723 89,723 7. Average Loan size (EGP) |n.a 16,235 22,7351 29,630 34,074 31,,852 31852 Annex 4 Page 7 of 14 Table 4 (Continued) D. Human Resources Development Program 1. No. of workers receiving early retirement 39,161 9,316 19,845 9,000 1,000 5,000 5,000 2. No. of workers receiving training to start new jobs 8,842 500 2,242 4,100 2,000 3,050 3,050 3. No. of trainers - 500 100 90 260 50 155 155 4. No. of_trainees 31,750 2,900 15,350 8,000 5,500 6,750 6,750 E Overall Job Creation Targets 1. Public Works Program a. Number of Temporary Employment Opportunities 20,000 915 3,661 8,814 6,610 7,712 7,712 b. Number of Permanent Employment Opportunities 2,370 187 748 835 600 7,17.5 7,17.5 2. Community Development Program a. Number of Temporary Jobs in Man/Project 34,224 845 3,379 19,000 11,000 15,000 15,000 b. Number of Permanent Jobs Created 22,767 735 3,014 12,000 7,000 9,500 9,500 3. Enterprise Development Program a. Number of Temporary Employment Opportunities 18,411 15,400 22,972 26,417 2,4694.5 24,694.5 b. Number of Permanent Employment Opportunities 48,141 40,043 76,572 88,058 82,315 82,315 4. Human Resources Development Program a. Number of Temporary Employment Opportunities 11,964 317 1,270 7,157 3,220 5,188.5 5,188.5 b. Number of Permanent Employment Opportunities 22,054 2,478 9,912 5,369 4,295 4,832 4,832 TOTAL NUMBER OF JOBS 230,160 55,859 115,282 114,985 115,133 115,133 TOTAL POPULATION GETTING ADDITIONAL INCOME 202,894 45,075 96,564 98,878 97,721 97,721 Table 5: SFD Phase II Monitoring Indicators Item Indicative Targets Actual IDA Funded Actual Total 1997-2000 as of December 31, Phase II as of December 1998 31, 1998 A Public Works Program 1. Environmental Infrastructure l a. Wastewater Networks in Kilometers 60 13 20 b. Wastewater Treatment Plants (# of sub-projects) 8 1 _ c. Wastewater Pump Stations (# of sub-projects) 8 . 1 d. Canal Covering in Kilometers 50 2 11 e. Canal Protection in Kilometers 60 6 12 2. Potable Water a. Networks in Kilometers 1,200 231 350 b. Elevated and Ground Tanks 60 18 24 c. Artesian Wells 60 20 30 3. Rural Roads a. Road Construction in Kilometers 500 210 170 b. Road Improvement in Kilometers 40 C _ 4. Building Refurbishment a. Clinics (units) 40 2 6 b. Youth Centers (units) 60 50 51 c. Schools (units) 20 2 10 d. Social Centers (units) 40 2 2 Annex 4 Page 8 of 14 Table 5 (Continued) - Commuity Development Prox, am 1. Health Services a. No. of Health Clinics rehab./estab/ equipped 750 98 310 b. No. of Health Awareness Campaigns 1,500 215 300 c. No. of Health Personnel Trained 7,100 598 2,628 2. Education and Training __ of illiteracy Classes established 17,528 655 6,528 b. No. of Individuals Trained to Teach flhiteracy Classes 18,400 403 5,784 c. No. of Beneficiaries Receiving Vocational Training 4,800 775 2,281 d. No. of Training Workshops Equipped 30 4 8 3. Productive Families (Micro-enterprises) Loan Program a. Number of Loan Recipients | n.a.l l2,095 9,900 b. Average Loan Size 1,2001 C Enterprise Development Pro,a __ 1. Contracted amount (EGP Million) 98 629 2. Disbursement to beneficiaries (EGP Million) 92 599 3. Number of Enterprises 40,000 6,489 31,241 4. Number of Enterpreneurs 45,000 6,489 33,811 5. % of Female among Small Entrepreneurs 25-30% 30%1 33% D. Human Resources Development Program 1. No. of workers getting early retirement 39,1611 8,3581 29,161 2. No. of workers receiving training to start new jobs 8,842] 1,797 ________ ,4 E Overall Job Creation Targets 1. Public Works Program l a. Number of Permanent Employment Opportunities 558 935 b. Number of Temporary Employment Opportunities 2,732 4,576 2. Community Development Program l a. Number of Permanent Employment Opportunities 871 3,767 b. Number of Temporary Employment Opportunities 977 4,224 3. Enterprise Development Program l a. Number of Permanent Employment Opportunities 16,871 88,184 b. Number of Temporary Employment Opportunities 6,489 33,811 TOTAL NUMBER OF PERMANENT JOBS 18,300 92,886 TOTAL NUMBER OF TEMPORARYJOBS 10,198 42,611 TOTAL NUMBER OF JOBS 21,699 107,089 TOTAL POPULATION GETTING ADDITIONAL INCOME 18,300 92,886 10. Economic Evaluation: Economic analysis is carried out to trace the real contribution of a project to the welfare of society and assess its economic viability. Evaluation consists in calculating ERR and cost effectiveness ratios, which detennine unit costs per output to compare them with sector standards or with costs in similar projects. Investment in social programs is justified on the assumption that all social programs have a positive return for the society and the country as a whole. However rate of returns and outputs of such investments are notoriously difficult to measure. Monetary terms and therefore mere financial analysis is not a solid ground for decision making in the field. As for the SFD, it is difficult to calculate an ERR for the overall program, given the variety of projects and the difficulty of quantifying benefits of some of its activities such as upgrading public health, environment, job-training, etc. Nevertheless, the SFD attempts to quantify benefits wherever possible using willingness to pay (for community services); estimates of travel costs savings (roads); rental values (community buildings); and enhanced prospects for earnings (technical training and enterprise development). A minimum threshold rate of return of 12 percent is normally required. Annex 4 Page 9 of 14 11. Table 5 shows the phasing of the different costs and benefits for every thousand Egytian Pounds of investment. The Economic Rate of Return (ERR) analysis excludes health and literacy projects as well as institutional development projects. It also excludes micro-enterprises even though they are subjected to financial sustainability tests. The ERR analysis therefore covers almost 75 percent of project funds and can be considered a good representation of the project. 12. Based on a sample of projects financed during Phase I and extrapolating rates of return across the entire program, the rate of return for the activities with quantifiable benefits which account for some 75 percent of project cost, is estimated to be 21 percent. Sensitivity analysis shows these expected rates of return are relatively robust. A sensitivity test was carried out by reducing benefits by 20 percent, while constant cost showed the ERR to be about 15 percent. Table 6: Costs and Benefits per 1000 EGP of Investment and its Phasing INVESTMENT COSTS RlECURRENT COSTS Item Year 1 Year 2 Year 3 Year 4+ Year 1 Year 2 Year 3 Year 4+ A. Public Works Program _ 1. Environmental Infrastructure 500 500 0 0 15 30 2. Potable Water 500 500 15 30 3. Rural Roads 500 500 0 0 50 100 4. Building Refurbishment 500 500 0 0 15 30 B. Community Development Program II 1. Health Services 1,000 loo 200 300 2. Education & Training 1,000 100 200 300 3. Productive Families Loan Program 1,000 - 100 1,200 1,500 C. Enterprise Development Program 1,000 300 400 400 D. Human Resources Program l,o loo 5 2001 100 E. Institutional Development 1,000o - 100 200 300 BENEFITS NET BENEFITS YearI Year2 Year3 Year4+ YearI Year2 Year3 Year4+ A. Public Works Program I 1. Environmental Infrastructure N/A N/A N/A N/A N/A N/A 2. Potable Water 110 220 -500 -500 95 190 3. Rural Roads 150 300 -500 -500C 100 200 4. Building Refurbishment 100 200 -500 -500 85 170 B. Community Development Program 1. Health Services N/A N/A N/A N/A N/A N/A N/A N/A 2. Education & Training N/A N/A N/A N/A N/A N/A N/A N/A 3. Productive Families Loan Program N/A N/A N/A N/A N/A N/A N/A C. Enterprise Development Program 250 500 800 -1,000 -150 400 D. Human Resources Program 200 300 300 -1,000 100 100 200 E. Institutional Development N/A N/A N/A N/A N/A N/A N/A N/A The following sections focus on the economic analysis of the PWP and CDP. While in the public infrastructure investments some economic conclusions are achievable with CDP programs, given the nature of projects implemented, only some additional general evaluations are possible. Annex 4 Page 10 of 14 13. Economic Analysis for the Public Works Program. The PWP is the social fund's largest program which specifically targets the poor. Its expenditures were about 26 percent of total funds allocated in Phase I whereas, in Phase II, they have dropped to about 7.5 percent of total funds. One of PWP's goal is to provide employment in areas with high poverty and unemployment. Special attention is given to the creation of seasonal employment - particularly in rural areas. This is especially relevant due to the many rural working poor who suffer from large fluctuations in income and periods of unemployment during the agricultural year. The PWP has created about 12,000 man-years in temporary positions over the last two years and, under favorable assumptions on disbursement and completion of Phase II, it is possible to estimate that by year 2000 PWP will have provided an average amount of 133,000 persons per year with jobs (temporary and permanent) over the period 1993-2000. 14. Labor costs of PWP projects range from 25 percent for potable water projects up to even 50 percent for canal covering. This is comparable to international norms where the wage bill is 30 to 60 percent of total program expenditures, and indicates that projects are definitely labor based. Total number of jobs created and funds allocated over Phases I and II suggest that the average wage transfer per man-year was about US$1,107 (assuming an average wage component of 35 percent and 1997 prices) which is in line with the GDP per capita estimations over the same period (US$1,200) and shows that PWP transfers income to the poor in quite an efficient manner. 15. ERR and Benefit Cost Ratio analysis are carried out on a regular basis within PWP and by private consultants who evaluate the feasibility and the impact of proposed and implemented projects. A sample of these analyses has been selected and ERR have been calculated. On average, projects funded by PWP alone and implemented through private contractors have an average ERR of 20.4 percent and an average Cost Benefit Ratio of 2.5. Table 7 shows average ERR and Cost Benefit ratios by some investment sectors: Table 7: Economic Rate of Return and Benefit Cost Ratio in PWP Public Building Environment and Health Canal Roads Municipal Water ERR 17 24 17 21 23 C/B Ratio 2.03 3.01 2.79 1.53 2.92 Impact assessments completed by same private consultants largely confirm these calculations and the incremental welfare achieved in the areas where projects are implemented. A new impact assessment study which covers nine Governorates is being finalized by PWP. Notwithstanding the difficulty to evaluate benefits, it is clear that PWP substantially added value for the country as whole by the social and economic viewpoint. 16. Cost effectiveness analysis. Table 3 above includes the average unit cost sustained by the PWP to achieve a determinant level of output. These cost estimations are based on a detailed analysis of unit cost productions carried out by the same PWP. Data compare well with standard benchmark and with similar programs managed by either entities. In an attempt to evaluate cost of infrastructure projects implemented through labor based methods, PWP r..omponent unit prices of labor based projects have been compared against current market prices. Information has been collected from selected Governorates where similar projects are being implemented. The data requested included unit prices of roads, potable water, public buildings, irrigation, waste water, etc., in projects recently constructed under typical market conditions, i.e. achieving the highest quality possible while simultaneously maximizing contractor profits through the utilization of equipment and offering market labor wages. The unit prices compiled indicated that the average unit price of 1 km. of roads, under similar site and construction conditions, is almost 8 percent higher when implemented under SFD funding than projects typically funded by sponsoring agencies. Similarly, potable water projects prices are 5 percent higher than the ones funded by the sponsoring Annex 4 Page 11 of 14 agencies, while public buildings projects funded by the SFD are 6 percent less than average market prices. Other project components showed minor price discrepancies that do not warrant comparative studies. It is possible to explain and justify these differences on the following elements: a) cost of roads and potable water projects are higher because of the following factors: i) more stringent quality control measures applied by well trained project management staff and intermediary agencies personnel and higher labor wages; ii) adherence to tight pre-planned implementation and disbursement schedules; iii) variably, projects funded through other sources and bid at the same time affect the awarding prices of SFD projects. b) Public Building costs are lower due to the fact that such types of projects do not require specialized experienced contractors like roads and potable water, hence, qualified contractors are abundant resulting in fierce competition and therefore, reducing awarded prices. In addition, construction of simple buildings is a second trade to some villagers, as most of them built their own houses and usually help others renovate their own. Needless to say, SFD projects have helped launch the businesses of many a small entrepreneur (as a contractor) over rural Egypt. PWP public buildings subprojects were their first projects and they were willing to win a contract at below market price. Table 8: Unit Costs Comparison (EGP) Under SFD-PWP Competitors % difference Road (Km) 200,000 185,000 8 Potable Water (1 m pipeline PVC) 8" 85 81 5 6" 60 58 4 4" 43 42 3 Artesian Wells (8" by 50 m) 26,000 24,000 8 Water Tanks (100 Cu m) 200,000 190,000 5 Irrigation (Canal Covering wI pipes)___________________ 50 cm 200 200 0 55-80 cm 275 275 0 85-100 cm 450 450 0 105 - 120 cm 615 600 2 Public Building (m) 255 270 -6 Source: SFD and WB staff estimates 17. The Community Development Program. CDP was specifically designed to finance improvements in: a) productive activities focusing on income and employment generation; and b) social development activities to improve the delivery of essential services to poor communities. These objectives have been achieved to a large extent, with CDP evolving to respond to community needs, and, in some instances, by using innovative approaches. CDP focuses on the provision of health, education and training services to poor population groups. Benefits from these programs have not been quantified and therefore calculation of ERR and Cost-Benefit Ratios is particularly difficult. However, what is clear is that CDP projects have been able to distribute resources to communities previously under-served by government agencies or private-sector organizations. Monitoring indicators show that CDP achieved substantial results in rehabilitation and equipment of clinics and classrooms, conducting health awareness campaigns and establishing literacy classes, and in training health personnel and teachers for literacy classes. Unit costs are reported in Table 3 above according to the different programs, but unfortunately no real cost effectiveness analysis has been possible because of the lack of information on alternatives and comparable programs in the country. Such an analysis is highly recommended to be included among CDP supervision and monitoring activities. While emphasis was put on quick disbursement, supervision and monitoring during Phase I, impact evaluation and beneficiary assessment were also crucial achievements for CDP under Phase II. Annex 4 Page 12 of 14 18. Monitoring and Evaluations under the proposed project. Selected project monitoring indicators are provided in Table 9. Because of the SFD's demand-driven nature, actual outputs are always subject to change and might differ from estimations based on previous experiences. In addition to the indicators reported im Tables 4 and 9, the SFD's monitoring system generates a wide range of information which provides SFD's management and donors with information necessary to measure progress, targeting and efficiency. Impact monitoring will be done through surveys, beneficiary assessments, and complementary studies to provide continuous feedback on SFD's impact on beneficiaries. To ensure impartiality, these surveys will be done by independent consulting firms. Environmental reporting is not supported by the Social Fund's MIS. In the new MIS, now under development, capacity to support an environmental performance monitoring plan is required to ensure that mitigation measures are adequately implemented and effective in reducing impacts according to design. The monitoring program will clearly indicate the linkages between impacts, indicators for measurement, methods to be used, frequency of measurements, detection limits (when appropriate), and threshold values. This plan should include a description of how regular field site reviews of selected schemes will be undertaken. The new EDU will act as a centralized environmental unit to oversee SFD's environmental efforts. The role of the unit is still under design and a draft inception report for the unit has been completed. The Social Fund will provide a detailed mission statement with the functions of the TDC and description of staff roles and responsibilities. Each unit (PWP, CDP, SEDO, EDU, TDC) will present an annual work plan that identifies its environmental responsibilities and outputs. The work plan will identify all costs for undertaking these functions. Table 9: Selected Monitoring Indicators Item 1997 1998 1999 2000 2001 2002 Networks in Kilometers 757 352 600 437 400 400 Road Tmprovemcnt in Kilometers 4 5 5 5 No. of Health Awareness Campaigns 210 90 300 300 300 300 No. of People in adult literacy Classes 4,924 1,604 4,000 4,000 4,000 4,000 Number of Loan Recipients 5,944 4,000 10,000 10,000 10,000 10,000 Number of Small Entrepreneurs helped 3,000 7,000 5,000 5,000 5,000 5,000 % of Female among Small Entrepreneurs 26 28 30 30 30 30 Temporary Jobs in person years 1 Number of Permanent Jobs l l 19. Current developments. Given its nature and mandate, the SFD focused on indicators like numbers of projects executed, cumulative disbursements, numbers of beneficiaries reached, number of loans given, and quantity of infrastructure and services delivered. However, as the institution is moving through the initial emerging phase/start-up period, closer scrutiny of benefits and impacts is required. There is a need for better accuracy and reliability enumerating on beneficiaries within the current information system and to better identify the expected benefits of project within the ex-ante appraisal system. To measure impact, solid evaluation methodology is needed and some of it can be built into a more complete management information system. Impact evaluations should be carried out independently with appropriate sampling frameworks, random selection, blending of quantitative and qualitative information and so forth. Finally, such an enhancement will also imply maximizing the spill-over effects of SFD's investments. 20. Current responsibility for monitoring and evaluation is with the Projects and Planning Department (PPD). It performs this task through a computer based Management Information System (MIS) designed to monitor the physical and financial progress of sub-project implementation and evaluate SFD's overall performance. It aims at providing transparency and accountability of SFD activities, maintaining data on targeting, and facilitating contracting and payment. MIS-generated performance reports are an integral part of the monthly report submitted by SFD management to the Board of Directors (BOD) for their review, and the quarterly reports and annual reports submitted to donors. Annex 4 Page 13 of 14 21. The MIS is currently being revamped through a sophisticated software technology program which will improve its capacity to track SFD activities through the sub-project cycle, including sub-project data, and to identify cost overruns and potential bottlenecks. Modifications will be aimed at enhancing monitoring and allowing for a widespread desaggregation of information. Specifically, improvements are aimed at: (a) enhancing information dissemination on approval and disbursements at the SFD Secretariat level; and (b) introducing a more participatory approach in sub-project monitoring, by actively involving sponsoring agencies (SAs) in the process. This will allow for minimal gaps in data reporting and recording requirements, which may lead to delays and discrepancies, which undermine the usefulness of the system. 22. In order to address the first issue, the Program Planning Department (PPD) will be responsible for collecting information from the various operational departments (i.e., Finance, Community Development, Public Works, Enterprise Development) and generating detailed infornation on approval and disbursement rates. This will facilitate and enhance SFD's tracking system and thus allow for a more transparent and accountable assessment of financial flows required for day-to-day management decision-making. 23. The revision is important as it provides the baseline information for beneficiary and impact assessments, and provides the bulk of the input for MIS project portfolio tracking. Currently, gaps exist in data reporting and recording requirements, which have led to an ineffective and inaccurate application of the monitoring system. On one hand, output indicators covering the number of beneficiaries and jobs created represent quite crude data and provide limited information about the quality or value of an individual project. On the other hand, impact assessments take place but on limited quantitative criteria. 24. In order to resolve this shortcoming, and to be consistent with SFD's participatory nature, SAs will receive proper training which will enable them to become actively involved in monitoring progress on sub- projects output delivered indicators. Information pertaining to outcome indicators and beneficiary assessments will be contracted out to independent consulting firms. Information generated from the various indicators will be forwarded to the PPD at SFD on a quarterly basis, which will allow for the generation of a quarterly report following SFD spot checks. This approach ensures consistency with the intended use of resource allocation and will safeguard SFD's role of poverty and unemployment reduction. 25. In the case where SAs lack the technical or financial skills required for monitoring output delivered indicators, SFD regional staff will provide training and/or assistance to fill the managerial and financial gaps, and work in collaboration with SAs to fulfill their mandate. This approach will serve as a springboard for systematizing the delivery of training to address common constraints encountered in monitoring, and enhance information dissemination, as well as prioritization and identification of community needs. More importantly, this approach will assist in developing local capacity. 26. A strengthening of ex-post evaluation, to be carried out by private firms and NGOs including beneficiary assessment is being proposed and will provide critical information relating to inputs required to improve intervention with the target population and determine the relationship between currently utilized methods in sub-project cycle as well as beneficiary satisfaction. Improving client relations and enhancing communications between SFD and its partners is actively being pursued by a separate unit "the Intemational Cooperation Affairs and Information for Public Relations unit". Staff from this unit will be assigned to all regional and satellite offices and would report directly to the Managing Director. The unit would address problems arising from poor communication and recommend corrective actions, as well as organize information dissemination campaigns. 27. It is worth emphasizing that to implement the monitoring activity at all three levels (implementation progress, outcome achievement, and target effectiveness), there is a clear need for the baseline surveys which have to date not taken place. Without such surveys, the measurement of progress throughout the Annex 4 Page 14 of 14 project's cycle is extremely difficult. It is important to clearly specify and detail project objectives to ensure that evaluations can assess project performance. Additionally, there is a need to assess the quality of different approaches to delivering a similar product such as medical equipment supplies, eradication of illiteracy programs and training programs. This would be complemented by the introduction of basic average financial ratio indicators (such as cost per beneficiary/service delivered, etc.) which will highlight differences in actual expenditures from the average trend line and point out the need for explanations. 28. Ex-ante control component evaluation under proposed project. To help strengthen monitoring and evaluation and further project design, SFD will do a comprehensive impact evaluation study of Public Works and Community Development Programs. During negotiations the process and timetable to complete a terms of reference for M&E under the project were agreed. IDA also agreed to assist in drafting the TOR. The SFD agreed to commit the needed funding (up to US$1.0 million) from other donors sources. During negotiations the Government of the Netherlands indicated an interest in supporting M&E. The evaluation will be completed by end of year 2002. Annex 5 Page 1 of I Arab Republic of Egypt Third Social Fund for Development Project Financial Summary Years Ending 2000-2002 (Indicate currency, units and base year) Implementation Period Operational period 2000 2001 2002 2003 2004 2005 2006 2007 Project Costs Investment Costs 20.1 22.3 22.6 Recurrent Costs 0.0 0.5 2.0 2.6 2.6 2.6 2.6 2.6 Total 24.1 26.8 27.1 Financing Sources (% of total project costs) IDA 77% 77% 80% 0% 0% 0% 0% 0% Government 13% 13% 10% Central Local User Fees/Beneficiaries 10% 10% 10% 100% 100% 100% 100% 100% Total Main assumptions: The investment costs are based on average unit cost provided by the Social Fund for Development (SFD) based on the Phases I and II figures: Average Unit Costs: EGP 200,000/kilometer for road construction EGP 40,000/kilometer for road improvement EGP 48,000/kilometer for potable water networks EGP 30,000/unit for artesian wells EGP 335,000/unit for elevated and ground tanks EGP 740,000/kilometer for canal covering EGP 480,000/kdlometer for canal protection EGP 1,500/illiteracy projects EGP 1,500/ reproductive health projects EGP 1,000/community infrastructure projects The recurrent cost per project amounts to 10 percent which is allocated to operations and maintenance. However, at present, a study is being carried out on the sustainability of Operations and Maintenance (O&M) costs, and guidelines will be issued following the completion of this study. All Phase II projects will be complemented with an additional 10 percent provided by the SFD, which will increase the O&M budget to 20 percent per project. Beneficiaries provide a total of about 20 percent in the costs of the project, of which 10 percent is for the investment costs, and 8-10 percent for O&M. The operational period consists of 10 percent of total project cost (US$65.0 million) with SFD providing an additional 10 percent contribution to the Maintenance Fund for the lI five years following the end of the contractor's guarantee. Annex 6 Page 1 of 13 Arab Republic of Egypt Third Social Fund for Development Project ENVIRONMENTAL MANAGEMENT PLAN Overview Introduction. The Government of Egypt Social Fund for Development (SFD) is fairly advanced in management support and awareness for environmental sustainability and its programming to identify environmental issues and to take action to reduce negative impacts. The SFD has demonstrated a strong commitment to developing measures to eliminate, offset or reduce environmental impacts to acceptable levels during project design, implementation and operation. A review of the current SFD management and technical procedures related to environmental issues was undertaken as part of the overall Bank appraisal process. To its credit, SFD management has recognized the need to focus more attention on environmental issues and has recently created the Environmental Development Unit (EDU) which will serve to coordinate throughout all SFD components environmental assessment, enviromnental training and other environmental issues. Another positive management matter is the existence of the Technology and Development Center (TDC) which provides several training and environmental awareness activities for the SFD. Environmental Issues. The SFD project consists of a large number of diverse schemes under several components. In most instances, the schemes have no negative environmental impacts and contribute to an overall positive environmental impact by improving environmental and human health conditions. Furthermore, this project is not anticipated to require any involuntary resettlement or to damage archaeological and/or historical sites. The project has been assigned Environmental Category B in accordance with World Bank Operational Policy 4.01, "Environmental Assessment due to the potential adverse environmental impacts associated with certain types of infrastructure, community development, and small enterprise schemes and activities". National Environmental Regulations. The Egyptian Environmental Affairs Agency (EEAA), which is the national environmental regulatory agency, has prepared "Guidelines for Egyptian Impact Assessment" (EIA Guidelines) in Arabic and English. These EIA Guidelines were developed to assist authorities and licensing agencies implement Articles of Law 4 of 1994 concerned with EIA requirements of new projects. Law 4 states that the environmental impact of certain establishments or projects must be evaluated before any construction works are initiated or a license is issued by a competent administrative authority or licensing authority. Establishments or projects are subject to EIA based upon four main principles: (1) type of activity performed by the establishment; (2) extent of natural resources exploited; (3) location of the establishment; and (4) type of energy used to operate the establishment. Projects are classified into three groups according to severity of environmental impacts: * White list projects for establishment/projects with minor environmental impact * Grey list projects for establishments/projects which may result in substantial environmental impact * Black list projects for establishments/projects which may require complete EIA due to their potential impact The White and Grey establishments/projects must submit Environmental Screening Form "A" and Environmental Screening Form "B" respectively. Many of the SFD schemes fall into the lists of Annex 6 Page 2 of 13 white and grey projects. Special mention needs to be made for sanitary landfills and municipal waste treatment facilities - schemes within the SFD portfolio under PWP and CDP that are considered grey projects. Environmental Guidelines for Environmental Screening Form B have been issued by the Environmental Management Sector of EEAA. EEAA and the SFD have recently signed a Memorandum of Understanding to build bridges between the two agencies. Governorate Environmental Action Plans. EEAA through its Support for Environmental Assessment and Management Program (SEAM) is generating Environmental Action Plans (EAP) for each governorate. These identify priority issues, the actions needed to reach these goals and institutional strengthening and capacity building initiatives. There are Governorate Environmental Management Units (EMUs) and the EEAA is in the process of establishing regional branch offices that would have environmental assessment responsibilities including project review and approval. One goal of the EAP is to establish effective monitoring and enforcement of environmental laws and the development of environmental performance measures and incentives at the governorate level. SFD regularly consults with governorate representatives and corresponding authorities for PWP, CDP and SEDO projects as part of the SFD project cycle. The Ongoing EA Process for Phase II SFD Components The SFD has developed a set of environmental screening guidelines that are used to varying degrees in certain components. The environmental screening system developed by PWP, uses three classifications, similar to the EEAA, according to project type, size, severity and magnitude. In addition, environmental audits are mentioned but no specifications are provided concerning the circumstances requiring such actions. Category A projects require a full environmental impact assessment study. These projects require an intensive examination of the potential environmental impact undertaken by a team of multidisciplinary environmental specialists. Category B projects undergo a more limited environmental analysis to determine what impact and mitigation measures are required and may require studies. Category A or B projects may require an audit for projects that finance expansion or rehabilitation of existing facilities. Projects that do not require an assessment or an audit are classified as Category C. According to SFD written guidelines, the environmental assessment reports and audits are to be reviewed by SFD as part of project preparation before a project is submitted for approval. However, there is no central coordinating unit to undertake this function in the SFD. Furthermore, specifications for supervision and evaluation are not well defined. In the PWP sponsored consultants' reports reviewed, general comments are provided concerning evaluation of completed projects. These comments do not constitute a standardized evaluation process. It is also important to consider each of the two major SFD components to understand the environmental assessment process. The SEDO component is not being financed under the proposed project but is listed for future reference under "Aspects related to SEDO" at the end of this section. PWP. The PWP projects are designed and implemented at the Governorate level, combining a portfolio of schemes into one "project". A consulting firm is hired (the SFD currently uses 9 firms from a prequalified short list), for each set of projects within the Governorate, to undertake an appraisal that includes technical, social, environmental and economic studies. These schemes consist of a variety of projects (e.g., potable water, road improvement, canal covering, wastewater collection, building refurbishment). Environmental assessment summaries are included in these reports, per requirements of the SFD. The EA includes summary information about potential negative impacts and some insight into mitigating measures. Often these analyses are very generic and not project specific. When checklists are used, they are not necessarily standardized. The evaluation process is Annex 6 Page 3 of 13 also not well standardized, and there is no indication that recommendations become incorporated into future project design, construction and operation. CDP CDP officers are very interested in and knowledgeable about environmental issues. They indicated that although there is a high level of environmental awareness and interest amongst the officers of CDP, no formal environmental guidelines or procedures currently exist and, subsequently, CDP consultants are not asked to consider environmental issues. In several instances, PWP staff are consulted to assist CDP with environmental issues. The CDP has an interest in developing an environmental training program for its own offices, regional office staff, and collaborating NGOs. CDP senior officers have proposed that environmental guidelines be developed on two levels: strategic, for SFD management; and operational, for program and regional office staff. The operational guidelines should be detailed and should contain forms and checklists, which can be easily understood and applied. The guidelines should be oriented toward field work rather than office work. The Technology and Development Center of the SFD has a mandate to provide technical support to small industries. The center has prepared several project profiles, each outlining a type of small industrial project that a potential beneficiary could be interested in pursuing. The profiles each contain a full description of the project in both technical (engineering) and financial terms (feasibility study). One of the center's duties is to assist small enterprises funded by the SFD to comply with environmental regulations. As an effort in this direction, the center has commissioned a study to perform inspections of small enterprises to identify common environmental issues in three governorates: Cairo, Alexandria, and Ismailia. On average, 70 projects are visited in each governorate. The TDC also conducts environmental training through a small- enterprise-oriented training program in four govemorates. The one-day program covered such issues as pollution prevention, waste recycling and reuse, and environmental legislation. Elements of the Environmental Management Plan Some of the SFD projects may have adverse human health and/or environmental impacts if not properly designed or operated. For this reason the borrower will: (i) develop an environmental screening process applicable to all components to identify potential impacts and undertake mitigation measures to reduce such impacts; (ii) implement a practical monitoring program to determine the effectiveness and timeliness of these interventions; and (iii) engage in capacity building and training activities to improve environmental awareness and sensitivity among the project staff, counterpart agencies and beneficiaries Environmental Screening In the current SFD project cycle, for the most part, there is no systematic environmental review process. Although the PWP has introduced environmental assessments in their work as part of the consultants' feasibility studies and evaluations, these actions are not part of a standardized process. Apart from this, no environmental issues are formally considered in the other SFD components project cycle. A review of the operations manuals of CDP and EDP confirmed this view. In the Social Fund Support Project, the SFD needs to capitalize on its past experience with understanding environmental issues in its portfolio and begin to develop a better environmental review process. This process divides subproject into two groups: (i) those that will have no significant adverse environmental consequences; and (ii) those that potentially may have some significant impacts and are summarized in Box 1. It is sometimes possible that following a desk review a site-specific environmental review will be undertaken by appropriate SFD staff, beneficiaries or consultants. Annex 6 Page 4 of 13 .~~~~~~~~~~~~~~~~~~~~~~_ ... ..... * Subproj.N.ect esk Review Site Speciric Envi .....e.tal. Review. Objective: Objective: Ensure that environmental issues are Ensure that environmental impacts are considered as part of design. reduced or minimized at site. Actions: Actions: * Screen proposals for details concerning design & Review the current environmental that meet criteria. condition at the site. * Provide technical assistance directly or enlist * Assess the potential environmental support of specialists to help project impact associated with the proposed formulator or contractors. scheme. * Recommend Site Specific Review when * Identify mitigation measures in significance or magnitude of scheme impacts construction and operation. is high. Responsible Party Responsible Party SFD PWP/CDP/SEDO staff. Environmental Consultants. SFD EDU/TDC staff. EDU/TDC staff. SFD Regional Offices Sponsoring/Implementing Agencies In general, two concerns need to be addressed with SFD projects - project design anid environmentally sustainable operation. The SFD will provide guidance for PWP and CDP on engineering design criteria that would incorporate the mitigating measures resulting from the Environmental Assessment (EA) illustrated in Table 1. All proposals submitted to the SFD's PWP and CDP will need to have a clear process of environmental screening for potential environmental impact. The checklists that have been used in the past by PWP need to be reviewed and if necessary revised as indicated in Table 3 below. The guidelines currently prepared by EEAA should be consulted to develop the revised SFD environmental review procedures. These environmental reviews would be prepared by the project sponsor/beneficiary with technical assistance from the SFD and contain, at minimum, the following standardized information: * Overview of the current environmental conditions at the site with development of baseline data. * Assessment of potential adverse environmental and human health impacts associated with design, construction and operation of the project. * Mitigation measures to reduce the above impacts. * Identification of responsible parties for ensuring implementation of mitigation and monitoring measures. * Consultation with beneficiaries and stakeholders during the scoping and after preparation of the EA. In general the following project schemes would be subject to these environmental reviews: (a) Solid waste collection (b) Landfills (c) Wastewater treatment Annex 6 Page 5 ofl3 (d) Potable water supply and distribution (e) Rehabilitation and pavement of rural roads (f) Canal coverings Additional types of project schemes may be added during the course of project implementation and their inclusion to this list would be by agreement between representatives of the implementing agency, EEAA and the Bank. Few of the sub-borrowers in Egypt have environmental capabilities, or are concerned with environmental aspects of the projects and investments they finance. It is unrealistic to expect these sub-borrowers to regulate and enforce environmental laws. It is the responsibility of the SFD to develop practical EA procedures, checklists and guidelines for the sub-borrowers and assist them in implementing these measures over the duration of the next funding cycle. Examples of important considerations for this sub-borrower EA process include: Industrial Safety. The SFD introduces new borrowers to industrial safety issues during the initial training programs. Most clients visited were aware of industrial safety rules and regulations which are part of the government requirements for issuing an operational permit. However, for the most part, these rules and regulations are not fully applied. The SFD would ask the Industrial Safety Authority to ensure that industrial safety measures are properly addresses. Recycling. Recycling of manufacturing waste was found to be a common practice. This was primarily motivated by economic rather than environmental concerns. Nevertheless, this is a positive phenomenon that should be encouraged by the SFD. Environmental Pollution. Several of the SFD beneficiaries emit air and water pollutants, affecting both the workplace and the environment at large. This issue will be addressed during the EA or audit preparation. Air emissions and water discharges should be in accordance with the Executive Regulations of Law #4 of 1994. Some SFD officers interviewed claimed that pollution related issues were mainly the concern of the Government and not the SFD. While this is technically correct, the SFD could play an important role in this regard. Child Labor. The issue of using child labor that does not conform to World Bank and Egyptian Law is another concern. A closer examination of this issue is required. The borrower will develop this environmental review guidance for this component and solicit agreement from EEAA and submit the final procedures to IDA for approval. Training and Institutional Considerations Environmental Training for SFD Management and Staff. Management and Staff of the SFD do not go through any standardized SFD-wide training programs when they join the SFD. The officers receive on the job training. There are various SFD-sponsored environmental training programs, which have been provided to SFD staff members. CDP and PWP do not currently provide their beneficiaries with environment-related training A series of environmental awareness and training initiatives will improve the understanding of environmental issues associated with SFD projects. Target audiences include personnel from SFD, beneficiaries, contractors and selected NGOs. Past SFD sponsored environmental training, often using Egyptian environmental specialists, has been well received and considered beneficial. Such activities should be expanded. Annex 6 Page 6 of 13 In addition, PWP, EDU, and the Technology Support Center are currently planning several such initiatives. The PWP is planning a one or two-day workshop on environment to be offered to SFD central office staff, NGOs and regional office staff members. The workshop is to be held in Cairo and taught by SFD contractors and EEAA officials. The Technology Development Center of the SFD also offers a series of one-day environmental courses to SFD staff members. The EDU also intends to offer such courses. These plans should be better coordinated and based on the customized needs of each SFD operation. Topics covered should include: Legal requirements of Law 4 and applications of the Executive Regulations EIA techniques Screening projects for environmental review Use of practical checklists Best environmental practices in design and implementation of projects Effective implementation of mitigation measures Project supervision Monitoring and evaluation Training for SFD Clients (Governorate, NGOs and local authorities). Training would be provided through 2 day workshops for local government personnel, NGOs, and other local authorities from communities. The contents will be similar to the training for SFD staff but will be customized to serve participants in regions of the country. It is expected that these workshops will be provided in at least 4 locations per year outside of Cairo. Develop best practices for solid waste. Several studies have been conducted on solid waste (SW) in Egypt by various bodies (EEAA, The Ministry of Scientific Research, etc.) Although many technical options are discussed in the studies, the SW problem persists. This is due to a host of financial, institutional and legal issues. The demand for these services is high throughout the country and the SFD, especially via the CDP. The SFD through the CDP wants to have the technical capability of delivering enviromnentally sound solid waste collection and management schemes with emphasis on Operation and Maintenance including cost recovery strategies. Indications are that technical solutions exist in the country, and these can be made available as standard models for future implementation. The SFD will undertake a consultancy to develop a practical guide for the design, construction and operation of rural based waste collection and management systems of the project. These guidelines will also include provisions for public consultation and stakeholder participation during project design and implementation. Institutional Arrangements The SFD has recently established an Environmental Development Unit (EDU) to act as a centralized environmental unit to oversee SFD environmental efforts. The unit will be responsible for: screening subproject; reviewing EAs; consulting with EEAA and seek further concurrence from concerned authorities; recommending project approval; and supervising the monitoring process as appropriate for environmental issues. This unit will implement better environmental assessment tools, undertake special environmental studies, and introduce standard environmental evaluation measures throughout the SFD. In accordance with the agreed Action Plan, SFD will provide a detailed mission statement and description of staff roles and responsibilities. The functions of the TDC will be provided as well as descriptions of staff roles and responsibilities. Each unit (PWP, CDP, SEDO, EDU, TDC) will present an annual work plan that identifies its responsibilities and outputs for the EMP. The Action Plan identifies all costs for undertaking these functions. Annex 6 Page 7 of 13 Monitoring and Supervision The SFD is currently undergoing a major overhaul of its M & E system. This is in recognition of the current difficulties of applying the existing M & E system. The new system will streamline and standardize the M & E operations. As it currently stands, no environmental issues are directly addressed within the system. The department manager in charge of developing the M & E system expressed interest in adding a set of environmental indicators that will be developed by EDU, in consultation with the Bank. They will need to be carefully selected so as to be easy to use and simple. The SFD will incorporate environmental indicators into the new M & E system in accordance with the Action Plan. An environmental performance monitoring plan is needed to ensure that mitigation measures are adequately implemented and effective in reducing impacts according to design. The monitoring program will clearly indicate the linkages between impacts, indicators for measurement, methods to be used, frequency of measurements, detection limits (when appropriate), and threshold values. This plan will include a description of how regular field site reviews of selected schemes will be undertaken. A preliminary Monitoring Plan is provided in Table 2. A project supervision plan will include the participation of an environmental specialist during the project launching workshop and regularly during the first year supervision missions, during the Mid- Term Review and in the Implementation Completion Report. This specialist will review progress in implementation of the EMP as well as environmental reviews/EAs for selected subproject schemes. These supervision missions will include review of the performance and institutional development of the EDU, TDC, implementation of the environmental review process, extent of the effectiveness of mitigatory and monitoring measures, and progress in increasing awareness and environmental concern throughout the SFD and with its sub-borrowers and beneficiaries. Environment Management Plan (EMP) Implementation and Cost Estimates The EMP implementation would be integrated into the overall schedule for the proposed Project and a timetable for key activities is provided in Table 3. It is currently estimated that EMP implementation would cost US$406,000 for staff, consultants, training activities and the required studies as presented in Table 4. The budget and implementation schedule for the EMP were discussed and agreed upon during the appraisal mission. They were finalized and formally agreed upon at negotiations. Aspects related to SEDO As noted earlier in this annex (p.2), the Small Enterprise Development Organization (SEDO) program of the SFD is not being financed under the proposed project. However this Environment Management Plan includes a review of SEDO and makes recommendations to improve environmental assessment practices. This is for two reasons. First, SFD requested inclusion of SEDO in the EMP. Second, the SEDO component is the largest SFD program and is currently subject to some risk and will require continued and sustained attention. The failure of this program, including environmental problems, would negatively affect the SFD as a whole, and hence is classified as a "moderate" risk to the implementation of the proposed project (see PAD, Section Fl). Currently, there is no formal, standardized environmental screening process for the projects approved under SEDO. Nonetheless, there is awareness within the SFD that environmental screening needs to be incorporated. New enterprise applicants to the SFD are required to attend an orientation training during which the beneficiaries are given an overview of the SFD loan process and requirements. The Annex 6 Page 8 of 13 materials are quite comprehensive and address many of the issues commonly encountered by a small business owner. Even though a chapter entitled "the environment" is included in the manual, it deals with general legal requirements and licenses. This chapter should be renamed to better reflect its actual contents - industrial safety. There is ample opportunity to introduce more environmental issues during this training to address the key environmental concerns of industrial safety, waste management, and environmental pollution. In practice, SEDO can be considered as a Financial Intermediary (FI) that uses project sponsors (the lending institution financing a project with FI loans). The lending institutions include commercial and development banks and institutions (e.g., Alexandria Bank, Banque du Caire, Bank of Alexandria, Misr Bank, National Bank of Egypt, Nasser Bank, PBDAC, etc.). World Bank policy requires that FIs verify that subprojects they invest in meet the environmental requirements of the country and are consistent with IDA's environmental policies. OP 4.01 stipulates that FIs must ensure that the project sponsors (or "sub-borrowers") carry out an appropriate EA. This means that FIs must screen projects and ensure they conform to EA requirements before approving the loans. Aggregating the diverse collection of SEDO projects into general classes for environmental screening will be a large challenge. A checklist of environmental issues will need to be developed for each general "type" of project, so that either the lending institution or regional SFD authority can screen these projects. A set of recommended mitigation measures will also need to be developed for those projects having adverse environmental impacts. A mechanism for tracking such environmental screening will have to be implemented based on the SEDO database. Currently, monthly reports primarily focus on financial indicators (e.g. loans disbursed, repayments by beneficiaries, loans in arrears, etc.) Data is generated when a beneficiary first approaches the SFD for funding. As the beneficiary goes through the successive steps of receiving and using SFD funds, more data is generated. The field office reports the data monthly to the central SEDO SFD office based on the baseline data generated from standardized beneficiary data sheets. This data focuses mostly on financial indicators, although other data is also included, such as the name of beneficiaries and type of business. Nine general sector codes are used. The data is reported so that the main classifications are by sector, not by activity. However, the data can be manipulated using a database program (Access) to produce any number of report formats that could track specific project activity types that would have corresponding screening checklists of environmental concerns. The key point is that the future ability to screen these diverse activities for environmental concerns will have to be done by establishing a better activity classification and coding system that becomes uniform throughout all regions. Training for Financial Intermediaries. SEDO FIs and beneficiaries do not receive sufficient environmental training. Discussions with SEDO officials and regional staff has revealed that the SEDO training course offered to new beneficiaries includes a module on industrial safety, but not environment. The modular design of the training program facilitates the addition of environment as a topic to be covered in the program. The TDC and EDU would develop this training material as part of the agreed Action Plan. The SFD will need to take the lead and develop an environmental training program for its sub- borrowers. The topics covered shall include: Overview of environmental assessment, environmental audit, and compliance evaluation. Use of dangerous and hazardous substances. Occupational health and safety. Pollution prevention, waste minimization and pollution control Solid and hazardous waste management. Annex 6 Page 9 of 13 Pilot Partnership with EEAA Environmental Management Units. As a part of its collaboration with the EEAA, the SFD will support the strengthening of two of EEAA's Govemorate level Environmental Management Units (EMU) in two poor Governorates in which the SFD is active. This has been agreed in principle and is included in the Action Plan. The exact modalities will be worked out as part of the detailed agreement between EEAA and the SFD, which will give substance to the EEAA-SFD Protocol Agreement. Public Awareness Program. The SFD will develop new materials to expand its environmental public awareness campaigns. The EDU will develop these and a dissemination program in collaboration with the SFD's Public Relations Department, which has strong capabilities in the production and dissemination of public relations materials and programs. Table 1 Checklist of Potential Adverse Environmental Impacts and Proposed Mitigation Measures Seepage of contaminants into Adequate landfill siting study. EDU/ Solid Waste aquifers. Ensure adequate drainage and Construction Collection and Particulate contamination from leachate control. contractors Landfills burning. Prohibit burning. Increase in haze and smog. Consider waste stream separation Unpleasant odors. activities. Marred landscape near landfill. Prohibit medical and toxic Garbage littered about in wastes. community. Spread and cover garbage at Methane and other toxic landfill. chemicals emitted. Ensure safety procedures for Disease transmission from workers. animal and insect vectors. Train local workers for landfill Safety and health hazard from functions. medical and industrial wastes. Education and awareness program Traditional garbage sorters and on solid waste for community. scavengers uncontrolled. Annex 6 Page 10 of 13 Cross contamination (sewage Proper disposal of construction EDU/ Wastewater and water lines due to pressure wastes. Construction Treatment differential and leakage). Proper siting of pumping stations contractors Improper disposal of and treatment facility. construction debris. Proper design capacity and Worker accidents during treatment works, disposal and construction, especially in reuse systems. trenching operations. Incorporate safety provisions in Introduction of hazardous design, construction, operating substances into system. procedure and training. Health hazard from sewer Routine sewer inspection for overflow and backups. illegal connections and Degradation of receiving water obstructions. quality. Sewer cleaning maintenance Odors and noise from treatment program. process. Alternative power supply at pump stations. Public education campaign to prevent disposal of solid waste into sewers. Increased water consumption Delivery service and distribution EDU/ Potable Water leads to overloading of septic network integrated with health Private Labs Supply and tanks and water table rise. awareness. Distribution Health impacts from Monitor water quality (pTl, TSS, contamination to water system. fecal coliforms, BOD). Contamination from hazardous Proper collection and disposal of EDU/ Rehabilitation substances, spills. lubricants, road material and Construction and Pavement Construction impacts streams waste. contractors of Rural Roads and aquatic ecosystems. Avoid disturbance to streams. Damage to sparse vegetation. Divert water during construction. Damage to historical/cultural Maintain or restore vegetation. sites. Identify critical habitat sites and Increased sedimentation avoid disturbance. Degradation of soil cover. If necessary, reroute sections. Maintain drainage ditches/channels. Disturbance to residents during Minimize heavy construction use EDU/ Canal construction. to periods of day. Construction Coverings Use of canals for disposal of Establish health and sanitation contractors waste transferred to another awareness program with local location. residents including solid waste collection. Annex 6 Page 11 of 13 Table 2: Subprojects Monitoring Plan Garbage is collected on regular EDU Semi-annual Solid Waste basis. assessment Collection and Proper collection containers in Landfills place and functional. Sanitation and health awareness program functioning. Landfill operational and facility able to handle waste loads. Separation of waste stream occurs. Workers use masks and gloves. No indication of seepage and leaching. Lines are clear and operating. PWP Semi-annual Wastewater Pumping stations clean and adjacent assessment Treatment area not degraded. Treatment facility not distributing adjacent neighbors. Water quality monitoring of treated water (p, fecal coliforms, BOD) Distribution network without leaks. PWP Semi-annual Potable Water Communal water stands have no assessment Supply and standing water and proper drainage. Distribution Water quality monitoring records available (pH, fecal coliforms, BOD). FWk Semi-annual Rehabilitation Operating drainage works. assessment and Pavement Works cleaned and maintained. of Rural Roads No visible degradation to critical habitats, streams, vegetation. PWP Semi-annual Canal Alternative waste disposal available assessment Coverings to residents. Health and sanitation awareness campaign in place. Annex 6 Page 12 of 13 Table 3 - EMP Implementation Schedule Environmental l l_ Screening __ Revise checklists_ Develop procedures PWP CDP Training Development of training material Conduct training a) SFD mgmt/staff b) Financial intermediaries c) SFD clients Solid Waste Technical Study, including high level follow up Monitoring Plan and Supervision a) Develop indicators, auditing and tracking systems b) Conduct evaluations Develop SFD Program (CDP, PWP, SEDO) environmental strategies Complete - establishment of Environmental Development Unit Pilot partnership with EEAA Env. Mgmt. Units in 2 poor Governorates Public Awareness - Program _ - _ _ _ Annex 6 Page 13 of 13 Table 4 - EMP Cost Estimates Total Foreign Local Environmental Expert hired 48 MM US$1500 MM 72 0.0 72 for 4 years Revise checklists Develop procedures Develop training material Coordinate training Coordinate monitoring plan Participate in evaluation Consultants for conducting training: a) Design training US$2,000 MM programs 15 0 15 b)SFD mgmt./staff US$10,000 per/yr training 40 20 20 (2 workshops/yr.) c) Financial US$10,000 40 20 20 intermediaries per/yr (2 workshops/yr.) 40 20 20 d) SFD Clients (2 workshops/yr.) US$10,000 per/yr Solid Waste Technical US$2,000 MM 24 12 12 Study, Consultant to develop US$2,000 MM 40 10 30 monitoring indicators, auditing and tracking system SFD Program (CDP, PWP, 55 0 55 SEDO) environmental strategies . Complete establishment of 50 50 Environmental Development Unit Pilot partnership with 20 0 20 EEAA Env. Mgmt. Units in 2 poor Governorates _ Public Awareness Program 10 0 10 TOTAL _______ ____________ 406 82 324 Annex 7 Page 1 of 5 Arab Republic of Egypt Third Social Fund for Development Project SOCIAL ASSESSMENT Executive Summary 1. Existing Literature on the SFD (CDP and PWP Components) Assessments on the Egyptian SFD have been limited in number and scope, especially in the first phase. They mainly focused on implementation progress and standard estimated output such as number of beneficiaries and jobs created. This was consistent with the initial nature of the SFD as an emergency project. Within these parameters, the SFD has been judged successful in rapidly channeling resources to deprived areas, local administrations and NGOs. The SFD is in the process of redefining its mandate, from emergency to long-term institution for sustainable development and poverty reduction. Consequently, recent assessments have focused more systematically on impact and sustainability. Emerging problematic issues include: (i) targeting at Governorate level and within Governorates; (ii) limited community input in project identification and design; (iii) limited project sustainability; and (iv) overlapping between SFD and Government roles. Several innovative activities are already underway to address these problems, such as the testing of cost-recovery systems for local projects, the training of NGOs and local contractors, the assistance to the Government in the design of new systems for health delivery and vocational training, the strengthening of regional offices, and the finalization of a Participatory Poverty Study to improve strategies and targeting tools. Although the quality of assessments has markedly improved, there is still limited information on beneficiaries' profiles, how projects affect their lives, and the process by which projects are selected and implemented. Projects are mostly analyzed in isolation. The Social Assessment (SA) aims to address two programmatic questions: (i) the relevance of CDP-PWP projects given social and economic needs of deprived communities; and (ii) the roles played by the SFD, local communities, and GOE in projects, and how this affects participation and sustainability. SFD's efforts to improve its monitoring system should focus on establishing baseline data and parameters to assess the social impact of projects. There is also need for more information on beneficiaries' profile, and qualitative data on local participatory mechanisms and social and economic problems of target communities. 2. Emerging Socio-Economic Problems and the Relevance of SFD Projects Egypt has achieved macro-economic stabilization and resumed growth. This should allow more investment in human development and poverty reduction. In the transition, disadvantaged groups are suffering from growing unemployment, less resources for public services, agriculture privatization, price increases and exclusion from the formal market. * Slow down and setbacks in some human development indicators. The SFD is tackling this area by providing disadvantaged communities with basic services and infrastructures. Assessments Annex 7 Page 2 of 5 are needed on the impact of SFD projects on "at risk" areas such as low school attendance and children malnutrition. Increased coordination with GOE and donors is essential to cover the needs of growing communities. a Persisting unemployment and under employment. The PWP mainly created temporary jobs for males in rural areas. CDP micro-credit was successful in creating permanent jobs in urban areas, while, in rural areas, it helped maintain existing jobs. In both programs, it is not clear whether beneficiaries are the poorest in their communities. The SFD should define whether job creation is the main objective of micro-credit, and explore other ways to create permanent income generation opportunities through PWP and CDP. * Emerging income poverty in metropolitan areas. An increasing number of the poor can be found in the economic informal sector and squatter areas of large cities. CDP and PWP are presently more active in rural Governorates. Urban areas should receive a higher priority in selection criteria * Deterioration of livelihood for poor farmers. PWP-CDP affect farmers lives through Nile banks protection, rural roads, irrigation schemes, and temporary income generation. There is a need to expand SFD portfolio to improve the livelihood of small and landless farmers, for instance by providing insurance schemes, transportation and market outlets. * Exclusion of the most vulnerable groups. Many SFD projects do not reach those who cannot work or afford service fees. Ultra-poor groups need cash transfers and other safety nets. The SFD should define how to address their demands, either directly (ex: helping people to pay for water connections) or through advocacy. * Poor quality of services. The SFD has been active in up-grading health services and assisting health reform programs. It is strengthening the environmental soundness of projects. However, the limited number of staff to carry out supervision, and the mandate to create short-term, low skill jobs can undermine the quality of infrastructures and services. SFD activities to improve the quality of public education are limited. The SFD should continue its efforts to train and monitor local contractors and other implementing agencies. It should strengthen the cooperation with MOE to improve the quality of education. In literacy activities, the focus should be on teaching quality rather than temporary job creation. * Lack of capabilities and limited access to markets. Disadvantaged groups lack the knowledge, skills, infornation to benefit from existing services and opportunities. These areas are not addressed by the SFD, but represent relevant needs. The SFD should engage in social intermediation activities including, for instance, employment agencies, legal aid and information, assistance in bureaucratic procedures, vocational training and re-training. * SFD and social justice. Causes of poverty include unequal access to resources, for instance, to land. The poor value social justice as much as material achievements. It was not in the original SFD mandate to address structural causes of poverty, but the institution aims to strengthen its advocacy role. The SFD should use the Participatory Poverty Study, the SA, and other tools to recommend anti-poverty policies to Government and donors. 3. Participation and Social Inclusion in SFD Projects 3.1 Egyptian poverty correlates to perceptions of powerlessness, and the demand for dignity and social inclusion. The SFD aims to increase social cohesion through the participation of citizens, Annex 7 Page 3 of 5 NGOs and local administrations in the project cycle. However, many existing non-governmental organizations are not adequate to mobilize the poor. Their vocation is charity rather than self-help. The existing law limits NGOs activities in advocacy. Finally, rural NGOs have limited financial means. 3.2 There are multiple and contradictory expectations on NGOs. The SFD also expects NGOs to play an increasing role in service provision, and is training and supporting them to increase their financial and implementation capacities. The question is whether NGOs should be grassroots organizations, service providers, or both, and if NGOs in poor areas can be expected to become self- sustaining. Poor groups need NGOs which can mobilize and represent them, while SFD training has been technical and project-oriented. Sometimes poor NGOs are excluded from SFD funding for their lack of connections. The SFD should better define NGO selection criteria and content of training, focusing on NGOs' capacities to organize poor people, and on reaching NGOs in marginal areas. Recent SFD training programs are going in this direction. 3.3 There is limited participation in SFD project identification and design. Central and local Governments play an important role in project identification. Villages short of influential leaders or NGOs, and "invisible" social groups can be under-represented in the decision process. Women's umnet demand for sanitation and local markets is an example. The emphasis on rapid disbursement leads to a preference for project packages which are repetitive in nature, however this is with limited community input in the design process. The top down design can lead to the failure of highly needed projects. Behind many of these problems is the limited number and qualification of local staff. The SFD is planning to expand and train its personnel, and to combine PWP and CDP into Community Based Infrastructure Development. Trained SFD staff should become a focal point for local communities to express needs and proposals, also outside the necessarily rapid project appraisal cycle. The SFD could ask the assistance of NGOs and local universities to launch parficipatory studies for need identification. However, the staff must be able to assess the quality and relevance of their work. 4. Partnership Between SFD, GOE and Communities 4.1 There are high Government demands on the SFD. For local administrators, the SFD is an essential source of funding in order for them to realize their development plans. With its limited resources, the SFD has spread itself too thin in many sectors and areas. There are little opportunities for cumulative development process in specific communities. 4.2 There is a trade off between rapidity of service delivery and project quality and degree of innovation. Many SFD projects are typically governmental ones. Their value added is the light structure and low administrative costs. However, this implicates limited number of local staff for outreach, monitoring and supervision activities. There is a need to concentrate on innovation and participation - what the Government cannot do - besides supplementing governmental projects. The SFD should adopt a more intensive approach, by increasing time and resources infield activities. 4.3 SFD and Government coordination is essential to: (i) cover local needs in basic services. The planning capacity of local administrators plays a crucial role here. There are also many cases of overlapping or conflict, such as the relationship between the SFD and the national Rural Development Program (Shrouk); and (ii) projects sustainability. By definition, CDP projects have a limited timeframe and need some integration with the public sector to expand their scale and impact. Current project agreements are not enough to ensure Government contribution to the O&M of PWP and CDP projects. The SFD should: (i) continue to build the capacity of local administrations in planning and cost-recovery; (ii) increase sustainability of CDP projects, by ensuring Government Annex 7 Page 4 of 5 involvement; and (iii) continue assistance to the Central Government in the design of service delivery mechanisms and sector reforms. 4.4 The feasibility of local cost-recovery differs among Governorates. Aswan administrators are satisfied with the new system introduced by the SFD. Dakahleya administrators are already collecting taxes for local development, and believe that the Central Government should cover the rest. The SFD is aware of regional specificity, and is assessing the feasibility of various aternatives for cost-recovery. 4.5 Additional community contribution is controversial. So far, local contributions to SFD projects have come from Govemorate budgets, with little involvement from community members. Rural residents pay more taxes and fees for services than people in the cities, and resist the idea of additional ones. The ongoing KfW study is assessing the feasibility of different forms of local cost- recovery. 4.6 Administrators tend to consider participation as taxes, fees and donations to projects, while residents demand more control on how money is spent, and involvement in decision making. Material contributionper se does not create a sense of ownership of local projects. 4.7 Some SFD projects are unsuitable to local conditions because of limited local input in design, and already show maintenance problems. The SFD should promote local consultations on technical andfinancial aspects of projects, and encourage trust between local administrations and citizens by information campaigns, public meetings, etc. 5. The SFD and Government Social Policies 5.1 GOE commitment to social development is a condition for the SFD to play a more prominent role in the future. Under ERSAP, the GOE has preserved or increased expenditures in health and education (figures). Health, education and vocational training reforms are underway. The national Rural Development Program ("Shrouk") established a fund for local development projects. The SFD is but one element in the Government's social protection strategy, which also includes subsidies and cash transfers. 5.2 However, it will be some time before GOE reforms/programs will positively affect poverty reduction. The future net impact of GOE's social agenda and ERSAP on poverty is a matter of debate, and it is likely that the Government will still need SFD support to face emergency problems. Currently, the SFD constitutes a significant part of GOE's overall expenditures in safety nets. At the same time, its size is small in comparison to the magnitude of the needs. 5.3 The Government's success in resuming GDP growth will hopefully allow increased efforts in: (a) mobilizing public resources to cover growing needs in quality services and infrastructures, and their O&M costs; (b) investing in labor intensive, private agricultural and industrial sectors; and (c) strengthening the national safety net (ex: MOSA cash transfers) for ultra poor groups which cannot be reached by SFD projects. 5.4 Finally, the SFD performance is also affected by the national legislative framework, especially concerning cost-recovery and the role of NGOs. Discussions are underway on the feasibility of cost-recovery, in the context of the GOE decentralization program. The Egyptian parliamnent is currently discussing a new law regulating NGOs' activities, which generated a lively debate among stakeholders. There is a high demand for a legislative framework which promotes decentralization and the growth of civil society organizations. Annex 7 Page 5 of 5 6. Conclusion 6.1 Under pressure from Government and donors, the SFD has to reconcile multiple and sometimes contradictory objectives: rapid disbursement and innovation, financial sustainability and reaching the very poor, mobilizing communities and providing political consensus to the Government, project quality and temporary job creation. Gaps in existing assessments also reflect the lack of a clear goals and development vision. 6.2 CDP and PWP are addressing relevant areas for the social development of poor communities, by providing basic services and infrastructure and temporary income generating opportunities. In the future, priority areas are urban informal workers and squatter areas, permanent job creation and livelihood improvement in rural areas, quality of water and education, capacity building, social inclusion, and advocacy. 6.3 Projects have still a limited effect on community empowerment and social change. SFD beneficiaries are more service recipients than active actors. Staff training and expansion and better tools to select and train NGOs are crucial to increase participation in project identification and design. 6.4 High Government demands put a constraint on SFD investments in innovation and quality. The capacity of local administrations is crucial for coordination and project sustainability, but more involvement of Central Government is also needed. Community involvement in project design and decision making are important tools for sustainability, while the feasibility of more fees and taxes has to be carefully analyzed. 6.5 The GOE commitment on human development is a pre-condition for greater SFD impact in the future. Priority areas for the GOE are employment, rural development, social safety nets, budget allocation for O&M, and support to decentralization and civil society. 6.6 In the future, the SFD is advised to continue and strengthen its efforts in: (a) defining programs as first priority (particularly temporary employment creation vs. poverty reduction) and parameters for evaluation; (b) improving the monitoring system, including baseline data; (c) focusing on the urban informal sector, livelihood improvement and productive activities in rural areas, quality of water/sanitation and education, capacity building of poor groups, social inclusion, and advocacy; (d) concentrating on innovation and participation besides typically governmental projects, by increasing time and resources in field activities; and (e) focusing on capacity building of local and central Government, and promoting coordination and integration. Claudine Kader P:\EGYPT\HD\52705\NEG\postnego\annex 7.doc 05/06/99 8:35 AM Annex 8 Page 1 of 11 Arab Republic of Egypt Third Social Fund for Development Project Operating Procedures and Eligibility Criteria for Subprojects Background The Social Fund for Development (SFD) was set up in 1991, by a Presidential decree No 40 and is governed by the Board of Directors (BOD); headed by the Prime Minister'. The BOD defines the overall policies and strategies of the SFD. The Executive Committee sets the general framework for the execution of projects agreed upon by the Board of Directors, and evaluates projects submitted to the SFD prior to presenting them to the Board. Authority over the SFD's daily operations rests with the Managing Director (MD), who is responsible for the SFD's personnel, administrative, financial, and operational activities and issues. (see Table I for the Organization Chart). The SFD 2 was established as an autonomous entity outside the regular Government structure. The Fund is comprised of five programs: Enterprise Development Program, Community Development Program, Public Works Program, Human Resources Development Program, and Institutional Program. This enables it to: (a) have the flexibility necessary to respond quickly and efficiently to requests for sub-project support; and (b) 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 SFD implements projects according to established procedures. Each program has its own operation manual that is continuously being revised and reviewed in the light of lessons learned and changing conditions on the ground. The head office of the programs reside in Cairo; however the regional offices play a crucial role as a contact point between the fund and the grassroots requests. Examples of Regional Office tasks are3: providing advice to communities and NGOs, coordinate together with the respective programs the sub-project pre-appraisal, facilitate supervision and monitoring, and perform records maintenance and project evaluation. During negotiations the borrower and SFD gave assurances that the statutes, by-laws and operating procedures of SFD will remain acceptable to the World Bank Group at all times. At the present time, the Minister of Finance has been delegated to chair the Board 2 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 community participation, (ii) appraise and approve project proposals; (iii) administer disbursement of funds for project implementation; (iv) monitor project implementation. 3 The regional offices are staffed with trained university students. Annex 8 Page 2 of II SFD's Organization Chart Chairman of the Board of Directors Envirownment Managing Director Internal Audit Dev. Consultants Planning and Livelihood Office Studies Legal Advisors Fund and BOD _ _ Management Affairs PR and Gender Unit International Cooperation Affairs IDP CDP PWP BD Finance and SEDO Admin. Design & Social Dev. Municipal Capacity Finance Tech. Dev. Services Building Skills Micro-finance Infrastruct. Standards Admin Dev. of Training Regional Population Integrated & Capabilities Personnel & Offices - Env. Projects Training HR Restruct. Labor Mkt MIS Annex 8 Page 3 of 11 Sub-project Cycle The SFD's respective Program' initiates and accepts sub-project proposals submitted by a sponsoring agency (SA) 5 to any of the regional or satellite offices (Twenty Regional offices and six satellite offices) or central to the program. The selection of SA proposals for loans or grants6 are based on specific guidelines established in the Operational Manual. SFD accepts sub-project proposals submitted by SAs to the national, regional and satellite offices, based on clearly articulated guidelines established in the Operational Manual. SAs provide assistance in proposal preparation when needed. A preliminary screening is conducted by the regional and satellite offices which is then forwarded to the central or program office for a detailed desk and field appraisal, guided by SFD selection criteria. This consists of: social and institutional analyses; a simplified economic analysis; an environmental analysis as described in Annex 6; as well as an impact assessment in the case of PWP-funded sub-projects. Each Program is allocated a certain level of funds drawn from SFD's financial resources at the beginning of the phase according to the operational plan; according to donors' specified directives of funds in agreement with the Fund's mandate. More and more, the dynamic nature of matching the required funding to proposed/appraised sub-projects is being accommodated in the funds management. Sub-project Eligibility Criteria Proposals funded under the SFD fall within a typology of subprojects (SPs) encompassing public works, enterprise development, community development programs, and human resources development. These components were designed with a view to: (a) a reduction in the levels of poverty through supporting employment generation and community development efforts; (b) mitigating the negative impact of the Economic Reform and Structural Adjustment Program; and (c) creating employment opportunities for the unemployed youth. Selection and evaluation of SPs as well as Sponsoring Agencies (SAs) are guided by transparent evaluation and selection criteria delineated in the Operating Manual of the SFD. The principal elements of SP selection procedures emphasize: (a) general criteria; (b) social criteria; (c) technical feasibility; and (d) sustainability, including financial and institutional analysis. These selection criteria apply to all components within the SFD program. General Selection Criteria The General selection criteria include the following: (a) the objectives of the sub-project should comply and attempt to achieve the overall goals of the Egypt Social Fund, and the programs should encourage the participation of the private sector, NGOs and voluntary institutions; (b) the sub-project (SP) should be identified on the basis of direct contacts with the target groups in the target geographical areas, so that project components represent community priorities; (c) the participation of women should be an integral component, especially in the CDP and EDP SPs; (d) the proposed SPs must not be included in any Government action program in order to avoid duplication of activities; (e) an acceptable level of community participation should be demonstrated either directly or through an SA; (f) the SP should generate employment 4 Although each program has its own operational manual; sub-projects follow a typical cycle. 5 SAs include ministnes, the public or private sector, non-governmental organizations (NGOs), banks, Govermorates and communities. 6 Grants are targeted towards infrastructure projects in rural communities as well as poor urban neighborhoods, and loans towards income generating activities. Annex 8 Page 4 of 11 opportunities at a suitable cost and finance labor based technology when deemed appropriate; (g) a plan for sustainability and maintenance should be prepared as an essential part of the proposal; (h) the SP should conform with national norms and standards; (i) written authorization of permits from local and regional governments should be obtained, and coordination of public and private institutions in SP implementation should be ensured; (j) the project should demonstrate an acceptable cost per beneficiary; (k) technical feasibility of SPs should be demonstrated; (1) administrative costs of an SP should not exceed 10 percent of total costs. The SAs are allowed to charge a sponsorship fee not to exceed 5 percent of the total project cost; (m) target Groups: (i) lower income communities, particularly in rural Governorates; (ii) communities lacking complete or partial access to the basic and essential public services; (iii) redundant workers in the public sector enterprises; (iv) unemployed youth; and (v) women; and (n) the SP design should adhere to environmental design guidelines as described in Annex 6. For the detailed criteria under the other headings, they are as follows: Social Criteria: (a) the proposed SP should cover a target theme; (b) the population in the area to be covered; (c) available social indicators for the area; (d) the request must originate with the community; (e) the SP responds to the priorities of the majority of beneficiary households; and (f) the Community will play an active role in implementation and monitoring of implementation. Technical Criteria: (a) conformity with and complementary to national planning; (b) norms and standards, if any, established by a concerned Ministry are adhered to; (c) description of the general state of the infrastructure, access to water and sanitation; (d) works to be undertaken, equipment and materials to be procured, schedule of works; (e) total area of infrastructure; (f) for expansion, suitability of area for expansion; and (g) local availability of essential materials needed for a SP. Economic and Financial Criteria: (a) the financing plan, should include contributions from SAs/beneficiaries either in cash and/or kind for public work SPs. For projects over US$0.5 million, the economic rate of return should exceed 12 percent; (b) cost benefit analysis, and or/cost per beneficiary; (c) 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 or local Government and/or beneficiaries (including SAs) should offer some form of operations and maintenance assurances; and adequate training for operations and maintenance should be included in SFD's training budget. Institutional and Management Criteria: (a) sufficient institutional arrangements to ensure rigor in SP implementation and subsequent operations and management, while at the same time taking into account ease and speed of implementation; (b) communities should have guidance and receive technical assistance from SAs (i.e. the existence of a supporting agency when the implementing agency is weak in SP execution); (c) current personnel availability of the beneficiary representatives (communities, SAs, etc.), skill levels, attendance frequency; (d) for SPs requiring expansion, the availability of additional personnel, skill level and attendance frequency; (e) necessary equipment and materials to adequately deliver services at the estimated levels. Annex 8 Page 5 of 11 Project Cycle | ~Project Proposal IdS SF_eina ; e EluoPreliminary Evaluation S g | ~Final Proposal J A /BReinl6 7 .J .ISFDSFD Legal Department Framewort Agreementatio |Funding Agencies]SA/Pd O 6 Donors O & I~~~~~~~~~~~~~~~~~ _. |Monitoring & DI ,. Evaluation PIU/SFD SA/IA/EA. Handing Over Operation & Maintenance 4 , , ~~~~~SA/IA/EA L- Project Sustainability l Annex 8 Page 6 of 11 Public Works Program Background The Public Works Program (PWP) component of the Egypt Social Fund was designed to: (a) establish labor based infrastructure and (b) create temporary jobs in the local communities of project implementation. In order to meet its mandate, the PWP undertook construction, rehabilitation and maintenance of essential municipal services in areas facing budgetary contraction, high incidence of poverty and unemployment. PWP sub-projects were carried out by local private contractors using local labor, and included construction and rehabilitation of water supply and sewerage systems, streets and rural roads, irrigation and drainage canals, etc., and maintenance such as cleaning canals, and public buildings. PWP Procedures for Sub-ProjectManagement The submission of the PWP sub-project proposal 7 by a sponsoring agency marks the first stage of the sub-project cycle. Governorates develop a list of projects based on requests received from communities through district offices. The SFD screens the list of projects and identifies eligible sub-projects based upon the established selection criteria. The screening process involves an evaluation by a PWP pre-appraisal Committee in the PWP department. Following clearance, the proposal is presented to the SFD Appraisal and then Executive Committee (SFD/EC) for final approval. The SFD/EC approval is followed by a framework agreement signed by both parties, the SFD and the Sponsoring Agency. Prior to sub-project implementation, the SFD appoints a project manager who assumes full responsibility for project supervision (monitoring progress and making payments to Intermediary Agencies). Generally more than one Intermediary Agency is involved at the Governorate level (e.g., water supply department, roads department, irrigation department, etc.) and agreements are established between each Intermediary Agency and the project manager. The Intermediary Agency becomes the party responsible for contracting out the works to Executing Agencies (local private contractors, NGOs, beneficiaries). The SFD disburses payments in tranches which are forwarded directly to an account controlled by the project manager, who in turn authorizes payments to Intermediary Agencies' accounts for payments to Executing Agencies (contractors). Contractors are paid by Intermediary Agencies based on disbursement applications for works completed according to the contractual agreements. Fund transfers are not made through the Sponsoring Agency (Governorate). To ensure community participation and ownership of the sub-project, a 10 percent cost-share (in cash) is conditional to the disbursement of the first tranche from the SFD. On the other hand and in order to ensure sustainability of the sub-project, another 10 percent sourced from the community and 10 percent from the SFD is placed in a savings account to provide for the projected costs of operations and maintenance either partially or fully8. The SFD Regional Offices also monitor implementation and key sub-project implementation parameters are recorded at SFD Headquarters by the Planning and Statistics Department. Sponsoring and Intermediary Agencies will play a key role in self-generating such data at sub- project design and during implementation. 7 Sub-projects concept papers are submitted to either the regional office, the PWP office or the head-quarters. 8 Currently a KfW funded study is examining various possible methodologies of utilizing the O&M funds effectively. Annex 8 Page 7 of 11 Community Development Program Background The Community Development Program (CDP), an integral part of SFD, was designed to finance improvements in: (a) productive activities focusing on income and employment generation; and (b) social development activities to improve the delivery of essential services to poor communities. Through its integrated project activities, CDP has infused communities with an enhanced level of social awareness and self-esteem, especially for women. CDP represents an important vehicle for mobilizing the energies and resources of community groups, local governments, NGOs, and the private sector by using a participatory approach, thus leading to more sustainable projects. The promotion of self-help activities can be seen as the cornerstone of CDP projects and an effective mechanism for addressing poverty alleviation. CDP's flexibility and decentralized approach allows it to exploit the diverse strengths of different stakeholders, to benefit from the geographical coverage that multiple organizations might be able to provide, and to finance projects simultaneously in multiple sectors. CDP Procedures for Sub-Project Management The CDP's project proposals are prepared by the beneficiaries or the sponsoring agency/supporting institution9, and submitted to the SFD's regional offices'°. An initial review of proposed concepts of projects is done by the regional offices in coordination with the program's staff41. Once the proposal has been formulated, it is reviewed by the pre-appraisal committee at the CDP level; if approved it is passed on to the SFD's appraisal committee to go through the project cycle (as sketched in Table 2). That is followed by legal contracting procedures should the proposal be accepted. Regular monitoring of the sub-project is carried on to ensure the implementation status is adequate. Packaging ofProjects The design and implementation of standardized projects have facilitated quick and efficient project implementation and has proven to be extremely effective in reaching the maximum number of beneficiaries. The programs are well designed, and respond to community needs in a manner that currently is not provided by the public sector. This is an instance where the Ministry of Education can attempt to draw lessons in designing small and technically simple projects. Other packages to be implemented by CDP include, upgrading primary health care through the use of extension officers, development of health emergency services, dental hygiene, and farnily programs. Sustainability and Cost Recovery Soliciting agencies are requested to incorporate mechanisms to be used for cost-recovery, operations and maintenance in project proposals. The CDP evaluates the institutional capacity of the soliciting agency and feasibility of the proposed mechanism to ensure proper operation and maintenance. Operations and maintenance costs are allocated within each line ministries' budget, therefore, projects implemented by the public sector would be ensured a budget for such activities. Projects involving direct community implementation institute mechanisms to recover sufficient funds through modest fees and contribution in kind to cover costs of operations and maintenance. CDP projects also include technical assistance for operations and maintenance. This approach is 9 CDP implements projects via an intermediary, which can be a private organization, NGOs, local administrative bodies, govemorates or ministries. Effectively, NGOs have been a significant stake-holder in CDP' s activities. 10 Project proposals may be submitted to SFD programs. 11 The beneficiary or the institution may refer to the CDP staff for technical support in developing a project concept document. Annex 8 Page 8 of 11 successfully being implemented in certain villages in upper Egypt. Certain projects such as adult illiteracy eradication do not require financial assistance beyond the life of the project. Generally, CDP has had less of an issue with O&M than the PWP. Targeting Funding of community development activities has been targeted based on the original poverty map developed by SFD in 1992. Efforts are underway for SFD to update its poverty map and targeting mechanism in order to reflect the evolving nature of SFD, and the current patterns of living standards in Egypt. Decentralization The SFD is reviewing a delineation of responsibilities between the Headquarters and the regional offices. A task force has been formed to carefully design and monitor various possibilities in that regard. The on-going DANIDA funded project in Qena and Aswan may act as a model; which if successful could be replicated/modified and applied in the rest of the 26 offices. A pilot scheme is being developed to relocate the pre-appraisal stage to the regional office rather than the program level. Such initiatives cater for the expanding nature of the SFD as well as the dynamic nature of the demand on the part of the local communities. The presently promising efforts in the fund's monitoring and evaluation scheme ties in closely with the decentralization pilot study. A more decentralized approach in the area of project approval will allow for further flexibility in CDP operations given the increasing demand being generated from communities. Community Based Infrastructure Development Both the PWP and CDP fall under community infrastructure category of activities, working closely with the community-level needs and demand; collaborating with various stakeholders of the society at the grassroots level. Drawn from the maturing nature of the fund as regard its responsiveness to a more comprehensive package of human development, a set of serious steps are currently being developed to formalize the integrated nature of relating CDP and PWP into Community Based Infrastructure Development; whereby the Human Development Indicators will be utilized in the various stages of sub-project design and implementation. Annex 8 Page 9 of 11 Estimated disbursements and output for the CDP IDA-funded projects for the extended third phase (2000 2002) Sectoral Budget Breakdown Sectoral 2001 2002 2003 Budget Health 17000000 6120000 7480000 3400000 Education and 3750000 1350000 1650000 750000 training Environment 2250000 810000 990000 450000 NGO capacity 2000000 720000 720000 400000 building *Total 25000000 9000000 11000000 5000000 Budget Output of Health Sector Renovation of health units 200 Upgrading of central hospital 6 Human Resources Development 2,700 individuals Number of beneficiaries 2,000,000 Output for the Education Sector Single classrooms established 1,600 Number of Beneficiaries 18,000 Productive Families Loans Number of beneficiaries 6,400 Output for Environmental Sector Environmental projects 5 projects Output for the NGO capacity building Upgrading technical and administrative capacity 900 NGO's plus administrative costs for NGOs working as sponsoring agencies The estimated total number of permanent job opportunities created by the PWP and the CDP projects is: 2,500 The estimated total number of temporary job opportunities created by the PWP and the CDP projects is: 20,000 *Total Budget: the total CDP budget includes the $2,430,100 community component in the PWP integrated projects Annex 8 Page 10 of 11 Estimated disbursements and output for the PWP IDA- funded projects for the extended third phase (2000-2002) Sectoral Budget Breakdown Sectoral 2001 2002 2003 Budget Environmental Infrastructure 7500328 2700000 3300144.32 1500065.6 Potable 7500328 2700000 3300144.32 1500065.6 Water Rural Roads 8253334 2971200.24 3631466.96 1650666.8 Building 900510 324420 396224.4 180102 Refulrbishment Institutional 845500 304380 372020 169100 ~support 2430100 874836 1069244 486020 *Community Total 274301001 9874836.24 12069244 5486020 Budget Environmental Infrastructure Output: Rural Roads Output: Waste Water Networks 8.5 km Road construction 150 km Canal Covering 27 km Canal Protection 3 km Potable Water Output: Building Refurbishment Output: Networks 440 km Clinics 7 Elevated & Ground Tanks 11 Youth Centres 20 Artesian Wells 18 Schools 18 Pump Houses 12 Social Centres 10 *Community: it is the community component in the integrated PWP projects and is funded from the CDP budget Annex 8 Page 11 of 11 List of Documents Related to the Project Implementation Plan Presidential Decree No 40/1991 Monitoring and Evaluation Framework Operations Manuil: Public Works Program Operations Manual: Community Development Program Registration Form for Consultancy Firms Sub-Project Documents Project Appraisal Request for Proposal Bidding Documents Bids Evaluation and Comparison Table Consultancy Agreement Financial and Administrative by-laws Purchase or External Service Request Implementation Report Project Evaluation Report World Bank User P:\EGYPT\HD\52705\NEG\postnego\Annex B.doc 05/06/99 8:39 AM Annex 9 Page 1 of 8 Arab Republic of Egypt Third Social Fund for Development Project Procurement and Disbursement Arrangements Procurement The Credit would finance sub-projects involving civil works, goods, technical assistance and training. Procurement under the Credit would be carried out in accordance with the Bank's Guidelines for "Procurement under IBRD Loans and Credits" - January 1995, revised January and revisions up to January 1999 and for "Selection and Employment of Consultants by World Bank Borrowers" - January 1997 and revisions up to January 1999. Project components not financed by the Bank would be procured in accordance with national regulations or the guidelines of co-financing institutions. The Bank's standard bidding documents would be used for all procurement where applicable, and would be modified in the case of National Competitive Bidding (NCB), and in the Arabic language. Simplified documents would be prepared for use under the project and would apply to National/International Shopping (NS/IS). Following the financial and procurement assessment conducted in the field in February, 1999, it was agreed that an external technical procurement audit would take place by October, 1999 for the Social Fund for Development Phase II to review processes and contracts undertaken for civil works, goods, and consultant services. The review would focus on a random sample (about 1/3) of the contracts under execution. WORKS. Civil works undertaken by the SFD would comprise construction, rehabilitation and repair of irrigation and drainage canals, water supply and sewerage systems, rural roads and streets, public buildings, maintenance of canals and public buildings, solid waste collection, and disposal. Civil works contract would include small works in dispersed communities, estimated to not exceed US$150,000. Large contracts would not arise due to the nature of the works involved, and therefore, ICB is not foreseen. Civil works with an estimated contract value above US$50,000 would be awarded through National Competitive Bidding (NCB) with advertisement in two national newspapers. Civil works below US$50,000 up to an aggregate amount of US$20.0 million would be procured through National Competitive Bidding (NCB) using simplified bidding documents and announcements through posting in public areas. Civil works under US$20,000 would be procured through Community Contracting through solicitation of competitive quotations from at least three capable local contractors. Prior Review for Works: All procurement of works subject to NCB, with estimated contract values above US$200,000 equivalent, as well as the first three works contracts, irrespective of contract value, would be subject to prior review. Post-review would be conducted during supervision missions and procurement audits. GOODS. Goods and equipment would primarily include materials and equipment for facilities, social services (e.g. tools, medicines, education materials, etc.), and contracts would not be expected to exceed US$300,000. Goods with estimated contract values above US$100,000 would be procured through National Competitive Bidding (NCB) procedures with advertisements in at least two national newspapers or UN Procurement procedures would be applied in the procurement of medicines and education materials which are readily available from specialized UN Agencies. Goods with estimated contract value under US$100,000 up Annex 9 Page 2 of 8 to an aggregate amount of US$2.0 million would be procured through National Shopping (NS) by soliciting at least three competitive quotations from capable national suppliers. Prior Review for Goods: All procurement of goods with estimated contract values above US$100,000 equivalent would be subject to prior review. Post-review would be conducted during supervision missions and procurement audits. SERVICES. Technical assistance and training would cover services to help small entrepreneurs, support for community social services and feasibility studies for sub-projects. Under technical assistance, an invitation for expressions of interest in these consultancies would be advertised in at least two national newspapers. Using transparent criteria, responses would be evaluated by an evaluation committee and qualified consultants would be short-listed for selections as opportunities materialize. Given the nature of the studies which would be undertaken under the project, and their size and scope which would be small in nature, these studies would be carried out in the majority of cases by individual consultants. Therefore, Quality-Based Selection (QBS) would be the method used, with a percentage also falling under Single-Source Selection (SS). Training would be contracted in accordance with TOR, budget and implementation schedule during annual reviews of the project. Prior Review for Services: Terms of Reference (TOR) and cost estimates for services contracts above US$50,000 would be subject to IDA's prior review, in addition to the first three contracts irrespective of contract value. Procurement Management The SFD has its main headquarters in Cairo, and is supported by 20 regional and 6 satellite offices. The regional and satellite offices are the main point of contact between requesting agencies and the SFD: they provide advice to communities, NGOs, and regional government on SFD procedures; receive completed application forms; coordinate sub-project appraisal committees and conduct field appraisals and launch workshops through the SFD's Programs. The regional and satellite offices are linked to the national offices through telephones and facsimiles. A decentralization proposal to enlarge the role of the regional and satellite offices is presently being piloted. This will allow for improved synergy between different programs, speed up the approval process, and help improve the impact of SFD activities on the intended beneficiaries. The organizational and operational methodologies were reviewed during appraisal with a view to improve decentralization. The SFD is supported by the following units: (a) Management Information Systems (MIS); (b) Credit responsible for determining the credit worthiness of projects involving intermediary agencies and/or beneficiaries for both the Community Development and Enterprise Development Programs; (c) Projects and Planning office, (includes a monitoring targeting evaluation and studies unit), with requisite skills to plan and review SFD activities, as well as appraise and evaluate projects; (d) Legal mandated to prepare framework agreements and handle related legal matters; (e) International Cooperation Affairs and Information for Public Relations Department charged with managing and organizing marketing campaigns involving information dissemination on the role of SFD as well as handling problems arising from poor communication; and (f) Internal Auditing which reports directly to the Managing Director and the Board of Directors. The SFD would have primary responsibility for monitoring physical and financial progress of the works undertaken by the Sponsoring Agencies (SA)/NGO. The Governorate beneficiaries submit a proposal outlining the works to be undertaken and to be considered for financing by the SFD. The SFD reviews and Annex 9 Page 3 of 8 approves the proposal for which a Project Appraisal document is prepared (detailing the scope of work, feasibility, sustainability, timetable, disbursement schedule, etc.). Through the SFD's Programs, a Framework Agreement is signed with the SAINGO which describes the guidelines to be followed and each party's role in the implementation of the project. The SA/NGO then sub-contracts the work with a contractor and/or supplier. The SFD would oversee and guide the SA/NGO based on the processes outlined in the SFD's Program Operations Manuals (OM) (the OMs are presently being revised to take into account the decentralization plan, as part of the change process, scheduled for completion on June 30, 1999). The OM would form the cornerstone of the Project Launch Workshop and subsequent activities. Among other guidance, this Manual would provide consistent procurement procedures for all project beneficiaries, and would be disseminated to all project entities. Table A: Project Costs by Procurement Arrangements' (in US$ million equivalent) Expenditure ProcurementMethod Total Cost (including Category contingencies) NCB Other a/ Consulting Services CDP Sub-Projects 2.8 6.6 6.7 16.1 (2.5) (6.0) (6.0) (14.5) *Civil Works _ 3.0 3.0 (-) (2.7) (2.7) *Goods 2.8 3.6 6.4 (2.5) (3.3) (5.8) * Services 6.7 6.7 (--) (--) (6.0) (6.0) PWP Sub-Projects 9.3 39.5 48.8 (6.9) (28.5) (35.4) * Civil Works 9.3 39.5 -- 48.8 (6.9) (28.5) (35.4) TOTAL 12.1 46.1 6.7 65.0 ______==________ (9.4 (34.5) (6.0) (50.0) Figures may not add up due to rounding. Note: N.B.F. = Not Bank-financed (includes elements procured under parallel co-financing procedures, consultancies under trust funds, any reserved procurement, and any other miscellaneous items). The procurement arrangement for the items listed under "Other" and details of the items listed as "N.B.F." need to be explained in footnotes to the table or in the text. a/ Contracted through local shopping or through communities; Figures in parenthesis are the amounts to be financed by the Bank IDA credit. Figures may not add up due to rounding. Details on Consultant Services can be shown more easily in the Table Al format (additional to Table A, where applicable). Annex 9 Page 4 of 8 Table Al: Consultant Selection Arrangements (in US$ million equivalent) Consultant Senvces Expenditures Total Cost Category QBS SS (including contingencies) A. Finms 4.9 0.5 5.4 B. Individual 0.5 0.1 0.6 TOTAL 5.4 0.6 6.0 Note: QBS = Quality-Based Selection SS = Sole Source Procurement Planning. The Programs of the SFD (Community Development Program (CDP) and Public Works Program (PWP)) being financed under the proposed project, have no procurement unit. The Programs are responsible for preparing a Project Appraisal Document, which is based on requests received from the Governorates/NGOs, and which outlines the scope of works (the project and its sub-projects), feasibility, sustainability, terms and conditions (criteria), project cost, disbursement schedule, and schedule of completion. Procuring of civil works/goods/consultant services is undertaken at the Sponsoring Agency (SA)/NGO level who are familiar with processes under Egyptian Law. Under the PWP, standard contracts and methodology for project management are used by the implementing agencies. CDP does not use standard contracts or purchase orders, and the implementing agencies do not have an operations manual to guide them on proper procurement methodologies. Reporting and monitoring are submitted by the Implementing Agency/contractor on a monthly basis to the SA/NGO, who compiles the information and submits it to the SFD's regional office who in turns sends the information to the General Secretariat of the SFD. The monthly reports vary in detail from level to level, with in-depth detail on contract management emanating from the contractor/implementing agency level, to disbursement information and completion date per each sub-project (see Procurement Assessment as part of the Financial Management Assessment Report for more details). These reports provide information on physical/financial and indicator achievements. Annex 9 Page 5 of 8 Table B: Thresholds for Procurement Methods and Prior Review Expenditure Contract Value (Treshold) Procurement Contracts subject to Prior Review! Category Method Estimated total value subject to ._____________________ Prior Review Sub-Project > US$500,000 First 3 contracts regardless of contract value. A. Works = or > US$50,000 NCB Advertisement in 2 national newspapers. First 3 contracts regardless of contract value. Prior review for all contracts > US$200,000 US$50,000-US$20,000 Simplified Advertisement in public areas. NCB First 3 contracts regardless of ______________________ contract value. < US$20,000 Community Solicitation of 3 quotes. Contracting First 3 contracts regardless of contract value. B. Goods = or > US$100,000 NCB or UN Advertisement in 2 national Procurement newspapers. All contracts > US$100,000 US$100,000 (firms) QBS First 3 contracts regardless of value/method. All contracts above US$100,000 All TORs and cost estimates All SS methods. Advertisement in national papers and Development Business for _ _ __ _ contracts above >US$200,000 US$50,000 >x< QBS First 3 contracts regardless of US$100,000 value/method. Qualification, experience and TOR for individual consultants. All SS methods. < US$50,000 QBS/SS First 3 contracts regardless of value/method. All SS methods Financial Manafement System A financial -management review undertaken during the appraisal mission is to be found as part of the Financial Management Report in the project files. The review covers the following aspects: (i) organization structure of SFD, (ii) accounting practices, (iii) internal control, (iv) external and internal audit arrangements, (v) reporting, (vi) staffing of the financial management function, (vii) special account anrangements, and finally, (viii) an action plan to improve the financial management system and allow it to comply with IDA's OP 10.02 and LACI requirements. Annex 9 Page 6 of 8 An Action Plan with timetable of implementation was agreed upon between IDA and the SFD management during the appraisal mission is attached at the end of this annex. Once the Action Plan is fully implemented, the system is expected to meet all IDA's financial management requirements as per OP 10.02 and LACI handbook. Disbursement and Reporting The proposed Credit, would be disbursed over a period of three years beginning in FY00. The completion date is scheduled for June 30, 2002, and the closing date December 31, 2002. This is shorter than the country disbursement profile of eight years. This period is deemed feasible due to the following reasons: (a) this is the third of a continuing series of projects with SFD; (b) SFD has proved to be effective in disbursing 75 percent of the second IDA Credit in two years; and (c) SFD has a large pipeline of appraised sub-projects awaiting financing. Table C: Allocation of Credit Proceeds Expenditure Category Amount in US$ Financing Percentage million Sub-Project 50.0 100% Total 50.0 100% PMR-based Reporting System: The SFD will develop via a multi-disciplinary task force comprised of financial and program staff, and in agreement with IDA, a Project Management Report (PMR)-based reporting system. The task force will define inputs and outputs to the PMR based on the model in the LACI Implementation Handbook. The draft PMR report will be submitted to IDA by May 31, 2000. A test PMR system will then be operated for about four months. Disbursements will be made on the basis of the first PMR (6-month plan). Subsequently, once approved, replenishment will be made upon submission of quarterly PMRs. The PMRs will be prepared and submitted to IDA by the SFD with copies of such applications provided to the Ministry of Planning and International Cooperation for information. Replenishment of the SA by IDA will be based upon receipt and approval of the PMRs. Applications for direct payment or Special Commitment, if any, will be subject to a minimum value of 20 percent of the authorized allocation to the Special Account. In the interim, the standard disbursement procedures will apply. Use of Statements of Expenditures (SOEs): disbursements over US$500,000 for sub-projects will be supported by full documentation. Disbursements exceeding US$200,000 for works, US$100,000 for goods, and US$50,000 for consultant firms/individuals, will be fully documented. For all expenditures below the thresholds, disbursement will be made against Statements of Expenditures (SOEs). Supporting documents for SOEs will not be submitted to the Bank, but will be retained by the SFD and made available for review by IDA supervision missions. The SFD will record the contracts as agreed with IDA, so that monitoring for ex-post review can be carried out as needed. IDA supervision missions will review all sub-grant requests above US$250,000. The Special Account (SA) will be established by the Government at the Central Bank under SFD responsibility and Credit proceeds will be disbursed in US Dollars into the SA. The SA will be operated by the SFD under terms and conditions satisfactory to IDA, and the SFD Director along with another senior SFD representative will be designated by the Ministry of Planning and International Annex 9 Page 7 of 8 Cooperation as authorized signatories of the SA. Prior to implementation of the PMR-based system, the .FD will follow the traditional method wherein an authorized allocation will be established in the amount of US$10.0 million, with an initial deposit of US$5.0 million, unless the Bank shall otherwise agree, and an aggregate amount of withdrawals from the Credit account shall equal or exceed the equivalent of US$20.0 million. Disbursement applications will be prepared and submitted to IDA by the SFD with copies of such applications provided to the Ministry of Planning & International Cooperation for information. Replenishment of the SA by IDA will require the submission of full documentation or certified SOEs showing that payments were made exclusively for eligible expenditures against contracts that are below the prior review threshold. The SA will be replenished monthly, or after one-third of the initial deposit amount has been disbursed, whichever is sooner. Accounts and Audits: The SFD is not in compliance with IDA audit reporting covenants (see section below on "Financial Assessment"). The SFD will be responsible for carrying out the activities listed in the Action Plan (Sections A-D) to ensure that the accounts are maintained in accordance with internationally sound and recognized accounting practices and in an accounting system acceptable to IDA. Reporting The SFD will maintain continuity in project management, and will ensure that all project documentation is well prepared and on schedule and that procedural problems are reduced to the minimum. Prior to the completion of all activities under the Action Plan and subsequent PMR submissions, the SFD will prepare semi-annual progress reports against identified indicators. These reports would discuss problems encountered, solutions adopted, and adjustments to be made. The SFD will maintain a uniform (standard) reporting system for the evaluation by all concerned donors. All reports will be submitted concurrently to the Minister of Planning and International Cooperation, IDA and the concerned donors. The SFD will prepare a detailed mid-term report for December, 2000 and submit it to all participating donors to serve as the basis for the mid-term review, which donors and the GOE will conduct by June 30, 2001. The SFD will also prepare an Implementation Completion Report (ICR) for review by IDA and other concerned donors within six-months of the closing date of the Credit. Monitoring and Evaluation (M&E): The SFD will be responsible for monitoring progress against agreed performance indicators (specified in Annex I and 4), and undertaking an extensive (independent) evaluation of the overall projects and the sub-project interventions. SFD's main M&E functions include: (a) developing process and performance indicators for the two objectives and their respective activities; (b) monitoring implementation progress and performance of the various activities; (c) developing and maintaining a database of program status for the generation of annual progress reports for the government and participating donors; (d) conducting continuous evaluation on the impact of the initiatives/interventions and provide feedback for modification or improvement as necessary; and (e) preparing summary reports for the Government and donors highlighting problems, issues, and recommended actions. The regional offices will provide the SFD with quarterly progress reports summarizing: (a) the current status of project implementation and reasons for deviation from agreed implementation plans; (b) financial records; (c) constraints faced and corrective actions to be taken; (d) a work plan for the subsequent six months; and (e) an update on agreed upon monitoring indicators. These reports will be consolidated by the SFD and forwarded to the Minister of Planning and International Cooperation, IDA and the other donors semi-annually. The SFD has a computer-based management information system (MIS) designed to monitor the physical and financial progress of sub-project implementation and evaluate SFD's overall performance. The MIS is presently being revised and piloted and will provide better transparency and accountability of SFD activities, maintain data on targeting, and facilitate contracting and payment. The MIS will also better track SFD activities through the sub- Annex 9 Page 8 of 8 project cycle, including sub-project data, supervision, and identify cost overruns and potential bottlenecks. The MIS system pilot (Phase I) will be completed by September, 1999, with completion of Phase II (implementation in 5 regional offices) by December, 1999. Program Launch Workshop: Program activities will be launched at a workshop shortly after Credit effectiveness. The workshop will introduce the prograrn activities to all designated counterparts and discuss major technical and operational details. Annex 9a Page 1 of 14 Arab Republic of Egypt Third Social Fund for Development Project Financial Management Assessment A Bank mission appraised the Egypt Social IH project for an IDA credit of US$50.0 million to finance community infiastructure and related projects through the Public Works and Community Development Programs of the Social Fund for Development (SFD). The project financial management arrangements have been reviewed to assess the project's compliance with Bank financial policies and in particular with regard to LACI and possible PMR-based disbursements. A. The implementation Unit The credit will be administered by the SFD, an organization created specially for the management of the SFD programs. The entity has been in existence since 1991 and has been implementing Phases I and II with financing from two IDA credits (Cr. 2276 (closed) and Cr. 2865) and other donor funding. Organization Structure of the SFD. The SFD is an autonomous not-for-profit entity chaired by the prime Minister. It has a separate Board of Directors and a Managing Director along with a staff structure. The fund receives funding from various international donors and creditors (including IDA), as well as from the Government of Egypt. The Fund's organization is structured by program. Three major programs, as explained above, constitute the core operations of the Fund. These are: the Community Development Program (CDP), the Public Works Program (PWP), and the Enterprise Development Program (EDP). In addition to a smaller program: the Human Resources Development Program (IRDP). The EDP is currently being spun off to an autonomous entity owned by the SFD. The programs are implemented through a large number of sponsoring agencies (SAs) and intermediary agencies. These are Government entities, i.e. Govemorates, specialized authorities for: water, sanitation, health, etc; and a large number of NGOs. Each of these units manages one or more sub-projects at the Governorate level. An estimated average number of 700 sub-projects is currently being implemented through this structure The total number of staff working at SFD is about 180 employees, at headquarters (127) and the 26 regional offices (53). Projects are supervised through regional offices staff and through the temporary recruitment of field officers and short-term consultants. B. The Current Financial Management Function at SFD The financial management function is performed by two main departments: The Finance department, located at the SFD main office, and the Fund management department located in the EDP offices, with a total of eleven employees working in the two departments. In addition the social fund has an internal audit section with two employees reporting directly to the Managing Director of the SFD. I -Accounting practices The Fund maintains accounting books and records on a cash basis. The SFD disburses funds to implementing agencies, also referred to as Sponsoring Agencies (SA), based on a contractual agreement and a pre-established disbursement schedule with each of these SAs (see Annex 8 for further details by Program). Funds are recorded when disbursed and then accounted for according to project categories based on monthly reports received from the SAs. Except for operating expenditures, supporting Annex 9a Page 2 of 14 documentation is kept at the lowest level of implementation of the project: at the authorities, Govemorates, and NGO levels. Supporting documentation for operating expenditures is kept at the headquarters for both the regional offices and headquarters expenditures. The mission reviewed accounting records at the following levels: SFD headquarters, selected SAs, selected implementing institutions: one. NGO. The books of accounts reviewed and the supporting documents kept at two Governorate management units seem to be adequate and in compliance with generally accepted accounting principles. Selected intemal and extemal auditors reports reveal, however, a lack of intemal control and accounting records in some sub-projects (refer to Attachment 1). Except for the main office, accounting records and books are kept manually at the various other levels. The head office has developed and operates an in-house computer application to keep the accounting records and reports to the different stakeholders. 2 - Internal Control 2.1. Fnancial policies and procedures: The SFD has a set of written financial policies and procedures that govern its financial transactions and accounting records. These are used mainly at headquarters and referred to in the contractual agreement between SFD and its SAs. Nonetheless, in general the SFD does not communicate those written policies and procedures on procurement and financial management referred to in the agreements to the SAs. During programs' implementation, at the levels of Governorates, authorities, and NGOs, most of these SAs use their own regulations and not those of the SFD. Attachments 1, 2, and 3, summarize the review of a set of internal and external audits, and a set of financial regulations used at one of the sponsoring agencies visited. 2.2 Budgetary control process: The budgetary process is conducted in a sub-optimal manner. It is diffused at different levels of the organization and, there is insufficient linkages between physical and financial reporting. Consequently, it is not used optimally for decision making and feedback into the budgeting process. The SFD receives monthly reports from the various SAs on the status of the implementation of the programs both financial and physical progress. In most instances, however, these are received separately, and are addressed to different departments at the SFD. The financial section is sent to the Finance Department for review while the physical progress is channeled to the Planning, Monitoring, and Evaluation division for review and advice on clearance of the next installment. While there is review of physical progress and advice on whether to transfer the next installment, the separation between the two reports, does not allow a proper budgetary control. In addition, the financial reports are not used at the regional level, where the supervision of the projects' progress takes place, nor at the implementation level. Furthermore, the analysis of the achievements against budget represent no more than the calculation of the variances as opposed to an examination of the reasons for the variances. Such practices do not constitute an optimal use of the budgetary process to improve the effectiveness and efficiency of SFD's work. The partial cost-recovery income of the projects is not treated explicitly neither as an approved amount nor as an actual. Instead, it is referred to in a footnote. Treating it in such a manner makes its control difficult. It should therefore be an integral part of the report, both as approved/budgeted amount and as actual. The variances of all budget components for both income and expenditures should be analyzed and fed back to the budgeting process. Currently, there is no costing of the various activities on a per unit basis. 3 -Audit Arrangements 3.1. Internal Audit. The intenal audit capacity at the SFD is insufficient for the volume of work expected. The SFD's regulations stipulate that at least two intemal audits take place for each project being implemented by an SA. One at the beginning of the project and one prior to the last disbursement. However, only less than 10 percent of the projects receive one audit, usually after the completion of the project. While the purpose of the regulation to conduct an audit prior to a project's implementation is to Annex 9a Page 3 of 14 reduce the risk of lack of internal control and is supposed to give SFD management the opportunity to ensure quality at entry, this regulation is rarely applied. It should be implemented consistently and enforced by management. This control at entry should be complemented by the regular annual external audits. 3.2 Annual External Audit of SFD. The SFD is audited annually by an independent auditing firm, Mostapha Shawki & Co., affiliated with Deloitte & Touche international auditing firm. The World Bank financial policies require that annual audits be performed for the total project, which in this case is the Social Fund for Development. The annual audit submitted to IDA does not, however, include the audit on a test basis of the project's components implemented by the SAs and as such is considered incomplete and insufficient. In fact, the annual audit conducted by Mostapha Shawki & Co, represents an audit only of the SFD Secretariat's expenditures and receipts and the various disbursements made to the projects. The auditors do not visit the various implementation units (SAs) as part of their audit and thus their opinion on the financial statements and internal control does not represent their opinion on the total project. The projects implemented by SAs are an integral part of the SFD's expenditures. They represent the main activities of the SFD and its main uses of funds. Therefore, they should be audited annually on a sample basis and according to International Auditing Standards. 4 - LACIReporting and PMR disbursement The current reporting of SFD has been designed to meet the various donors' requirements including those of IDA. SFD management is considering, as a high priority, a new management information system that integrates all aspects of project management information. The system will include reporting and databases where physical progress, financial and procurement information, as well as impact results are grouped together for informed decision making and to be used as a management tool at all levels of the project implementation. This MIS is expected to undergo a pilot phase by September, 1999, and to be finalized and installed by December 1999. The system presented to the IDA mission by the Planning, Monitoring, and Evaluation division team of the SFD, seems to cover the Project Management Reports information needs. The generation of PMR will be automatic as all information is captured by the proposed system. However, there is the very important preliminary work of training and education of the various users of the system, which needs to take place to ensure its proper use. As explained earlier, the training is necessary to bring all users of the system to the same level of understanding in terms of the usefulness, interpretation, and importance of the information generated at each level for day-to-day management as well as for planning, budgeting, and control purposes. Meanwhile, in the next few months and while the proposed system is being piloted and installed, the SFD needs to generate a PMR using its current system. During discussions between the IDA mission and SFD management, the steps shown in the Action Plan were agreed on. These steps are: (a) form a multi-disciplinary task force from SFD, comprised of finance, procurement, and program staff, to work on developing the project PMR The Task force will define inputs and outputs to the PMR based on the model in the LACI Implementation Handbook; (b) the task force will propose forms and information to be generated by the MIS in place; (c) to produce a draft PMRto be submitted to IDA by May 31, 2000. 5 - Staffing of the Financial Management Function at SFD The current structure of the financial management departments (Fund management and Finance) is not geared toward the supervisory, training, and control role that SFD should play vis-a-vis its SAs. There is insufficient capacity and disposition to carry out this role. This is also the case at the regional offices, which lack the supervisory and monitoring staff trained in financial and procurement issues. At the same time, the spin-off of the EDP into an autonomous subsidiary (Small Enterprise Development Organization (SEDO)), is expected to reduce the financial management capacity even further, through the transfer of some of the current employees of SFD to SEDO. The IDA mission recommends that SFD undertakes a review of its staffing needs in the areas of finance and procurement, taking into consideration the requirements mentioned in the sections above, to ensure that enough supervision and control are in place Annex 9a Page 4 of 14 at all levels. SFD needs to communicate the new staffing structures, of both SEDO and SFD, and their effectiveness date, to IDA. 6 - Special account A special account will be opened at a central bank in Cairo and will be operated by the SFD for the IDA credit. Initially, disbursements will be made based on the traditional World Bank's disbursements procedures of Statement of Expenditures and replenishment of special account based on supporting documentation, see Annex 9. Upon full implementation of the Action Plan agreed upon as shown below, the IDA team will review the financial management arrangements to determine if the project is LACI compliant (see Section E of Action Plan). Once IDA provides formal certification, disbursements based on Quarterly Project Management Reports (PMRs) can begin. C. Financial Management Arrangements Action Plan The IDA mission's findings have been discussed with the Head of the Planning, Monitoring & Evaluation and the Internal Auditor at the SFD. An Action Plan to address the situation in order to improve the financial management, as shown below, was discussed and agreed upon during this meeting. The Action Plan was subsequently endorsed by the Managing Director (see Section A-D of Action Plan). The nature of the SFD's work is such that all activities are implemented through a large number of sponsoring agencies (SAs), i.e. Governorates, specialized authorities in water, sanitation, health, etc., and NGOs. SFD is a funding agency and a wholesaler of services which supervises the work of these SAs to achieve the objectives of the intervention. The role played by SFD dictates, thus, a particular structure and mode of operation in order to ensure a continuous supervision and adequate controls to monitor the work of SAs. The SFD therefore, should have the regulations, operational procedures, and management structure that ensure that SFD and its SAs have accounting and control systems capable of reliably recording and reporting all financial transactions. This is important for SFD to fulfill its fiduciary requirements towards its donors and to ensure that these systems provide the necessary financial and physical progress information to the project management at each level. To increase the efficiency of SFD in the pursuit of its objectives, IDA recommends that these systems be operational when the project begins, or as soon as possible thereafter upon completion of the Action Plan. To this end, the SFD should provide: (a) training in financial management to SAs, (b) ensure that adequate internal controls are in place and used properly, and (c) ensure a regular reporting mechanism from the SAs to the fund, which is aggregated at the SFD level. Specifically, this requires: * Frequent supervision from staff competent in both technical matters and financial and procurement matters, to ensure proper implementation, budgetary control, and efficient use of resources and application of the governing policies and procedures of the SFD. This means that in the medium-term the SFD structure should be geared more toward ensuring that there are adequate internal controls at the field level. * The strengthening of the internal audit function to allow more frequent evaluations. It was agreed with SFD that it will add temporary capacity to the internal audit department to ensure that at least one audit prior to the implementation of a program component at any SA takes place. * The design of appropriate procedures that ensure the internal control of all operations. The preparation of written financial and procurement regulations and procedures to be communicated to the levels of project implementation: (SAs including authorities and NGOs); * The provision of training to the existing and new project implementation units (SAs), before and during project implementation as needed; and finally * An expanded annual independent audit coverage to meet the test of adequacy. Annex 9a Page 5 of 14 Attachment 1 COMMENTS ON A SELECTED SAMPLE OF INTERNAL AUDIT REPORTS The Internal Audit Department (LAD) handed the mission a sample of their audit reports. A review of these reports revealed the following: 1. Reports issued by Internal Audit Department (IAD) are not unified in design and do not include detailed audit objectives, scope, or an overall opinion on the projects under review. The report itself is merely a cover letter with findings and recommendations attached as well as to background, payments schedule and in certain cases financial analysis for the project. Audit Reports issued do not include formal management response and agreed upon Action Plan to correct weaknesses detected. 2. LAD usually conducts Financial and Compliance audits. However it was not clear whether the review is made to ensure that projects adhered to the Bank's policies and procedures (e.g., procurement policies) as none of the findings in any of the reports were related to deviations from SFD's regulations and they focussed instead on the adherence to local regulations instead. 3. In most cases, audits were conducted almost a year after the end of the project with no periodic audits performed during the life of the project. This has led to serious problems not being discovered while payments were disbursed. For example, an audit for Homa El Wady Project (report ref. # 615/98) was conducted in March 1998 while the last and final installment was disbursed on June 1997. The audit revealed that: - The association manager resigned and took all purchasing and bidding documents with him (no copies were present for LAD review) - Financial records were incomplete - Weak internal controls on cash transactions - No supporting documents for released checks - Discrepancies existed between project's records and the contractor. These serious issues were detected well after the project's completion. 4. Audit findings raise serious doubts about the project appraisal and monitoring process, as in the audit report (performed two years after the project completion) for Abo Seer Society Development Project (report ref. # 195/98). IAD discovered that the association had no accounting unit, and that there were no accounting records, no bank statements, nor beneficiaries records. This association has defaulted on the last two loan installments. In general, Governorate inplemented projects are supposed to be audited by the Central Auditing Agency (CAA), as part of the Governorates annual audit requirements, while NGOs are audited by their external independent auditors. However, none of these audit reports is received by SFD. Annex Ya Page 6 of 14 Attachment 2 COMMENTS ON A SELECTED SAMPLE OF INTERNAL AUDIT REPORTS Mostafa Shawki & Co (Deloitte & Touche) is the SFD's external auditor, with offices in Cairo and Alexandria. They perform annual audits for the SFD, audit the projects after completion based on special assigmnents by SFD. 1. According to the SFD regulations all projects completed (i.e., closed) must be subjected to a special audit to ensure that financial and accounting aspects of the project are reasonably sound and accurate. However, due to the large number of projects (about 700) and the fact that they are dispersed throughout the country, only a small number of the projects are audited by extemal audit. It is reported that, over the past four years, on average only one special audit per year is performed. 2. Annual audited financial statements and the accompanying disclosures are quite basic and lack: - Adequate details for many of the financial statements accounts (e.g., during 1997 SFD purchased fixed assets amounting to L.E. 7.8 M compared to L.E. 1.8 M during 1996. No comments were given on that fluctuation, no schedules attached) - Financial analysis of the project's financial statements (e.g., financial ratios, key indicators, information per geographical area, etc.) - Assessment of the loans' quality given by the SFD 3. As part of the chartered accountants' annual audit process and according to GAAS the external auditors should assess, on a sample basis, SFD's internal controls on the general secretariat level and of the project level, on a sample basis, and issue a Management Letter for SFD's management indicating all reportable conditions (i.e., significant deficiencies in internal control noted, if any). Management letters are not special assignments that require additional fees. SFD did not receive a management letter after the completion of the 1997 audit. It did receive one finding report after the 1996 audit. 4. According to GAAS, external auditors are recommended to submit annually an engagement letter. This letter would clearly indicate the auditors responsibility and that of the management. Issuance of such a letter is essential, especially when there are changes in circumstances or management. Shawki & Co last sent an engagement letter to SFD in 1991, which is now very out-dated given all the changes (e.g. scope of audit, SFD needs, etc.) that occurred the last eight years. Annex 9a Page 7 of 14 Attachment 3 A REVIEW OF SELECTED PROJECT FINANCIAL REGULATIONS SFD funded projects should have a Financial Management Manual to document the operation of the project Financial Management System. The Financial Management Manual would be formally adopted by project management as the document which would govem all financial management aspects of the project. The Manual should cover the following aspects: - Flow of funds; - Accounting policies and procedures; - Accounting system and internal control mechanisms; - Chart of accounts; - Financial reporting (including fonnats of financial management reports); - Auditing arrangements; - Organization and staffing for fnancial management functions The Financial ManagermLent Manual should be periodically updated and improved based on implementation experience. The mission reviewed the Financial Regulations approved and adopted for one of the SFD projects, Al Mannoufia Project for the enhancement of standard of living. It is noted that they represent more a set of guidelines and are in nature that is not tied to the project operations. Accounting Procedures ensure transparency, provide clarity regarding financial aspects to the various stakeholders and finance staff, ensure uniformity and enforce accountability. These policies should cover the following aspects: - Methods of recording in the accounting books and records; - Books and records to be maintained; - Budgetary controls; - Inventory control; - Debt management; - Write-offs; - Form and timing of financial statements; - Expenditures which would be treated as project expenditures including their classification. Annex 9a Page 8 of 14 Arab Republic of Egypt Third Social Fund for Development PROCUREMENT ASSESSMENT A. Current Procurement Function at the SFD There is no procurement unit per se at the SFD. At the General Secretariat in Cairo, there is an Administrative Unit falling under the Financial Department. This unit is responsible for procuring non- project related items (furniture, vehicles, renovation of office space, office supplies, etc.). The personnel involved in this activity have no formal training in procurement. The Programs of the SFD (Community Development, Public Works, Human Resources, etc.) have no procurement unit. The Programs are responsible for preparing the Project Appraisal Document which describes the scope of works, timeframe, feasibility and sustainability, and monitoring project progress. Procurement of civil works, goods, and consultants are handled by the Sponsoring Agencies/NGOs. These units are staffed with personnel familiar with procurement processes under the Egyptian Law. B. Current Practices Once requests are received from the SA or NGO, the preparation of an Appraisal Document is undertaken. This document outlines the scope of works (the project and its sub-projects), feasibility, sustainability, terms and conditions (criteria), project cost, disbursement schedule, and schedule. The sub-projects are below the procurement threshold of LE 600,000 (equivalent to US$176,000) for CDP and LE 400,000 (equivalent to US$118,000) for PWP. This document is approved by the SFD, and implementation takes place, with the set-up of the project management unit (Sponsoring Agency (SA) or NGO), disbursement of the first tranche, and contracting of the suppliers/contractors by the SAs/NGOs. Procuring of civil works/goods/consultant services is undertaken at the SA/NGO level. Under the PWP, standard contracts and methodology for project management are used by the implementing agencies. CDP does not use standard contracts or purchase orders, and the implementing agencies do not have an operations manual to guide them on proper procurement methodologies. Reporting and monitoring are submitted by the implementing agency/contractor on a monthly basis to the SA/NGO, who compiles the information and submits it to the SFD's regional office who in turns sends the information to the General Secretariat of the SFD. The monthly reports vary in detail from level to level, with in-depth detail on contract management emanating from the contractor/implementing agency level. C. LACI Reporting and PMR Disbursement As stated in the Review of the Financial Management System, the management information system is being revamped to better monitor physical and financial progress. However, given the nature of the sub- projects being financed, planning is done on an ad hoc basis (as requests come in) and therefore, a more structured system would need to be adopted, especially for procurement planning&and monitoring. The new system being developed would be implemented in a phased approach, targeting five regional offices in the first phase. The five regional offices would need to be staffed each with at least one person who is familiar with procurement processes. This person would be trained in procurement planning and especially procurement monitoring (ensuring that the guidelines used are being followed, reviewing field level procurement documentation, etc.). This individual would in tum train the other project officers in proper procurement planning/monitoring. Dissemination of best practices would also need to take place Annex 9a Page 9 of 14 from the regional offices to the SA and NGOs. Though a detailed procurement planning exercise under the PMR system may not be readily available, a modified report could be established which would enhance SFD's monitoring and plnning tools and would be part of the draft PMR report to be submitted to the Bank following activities completed under the Action Plan. The procurement assessment found that though it is stated in the SFD's Operations Manual that World Bank Guidelines would apply, this is not generally the case as procurement activities are being undertaken at the field level (SAs/NGOs) and the Egyptian Law is the method being applied by those agencies. It is not clear whether the World Bank Guidelines have been properly disseminated and explained in relation to IDA funded activities. In addition, despite progress found in the new procurement Egyptian Law #89, there still exist contradictions such as the two-envelope system, negotiation under evaluation procedures, etc. Thse issues will have to be resolved, especially under IDA funded activities. Annex 9a Page 10 of 14 Egypt Third Social Fund Development Project Financial Management and Procurement Systems Action Plan PAD NO. 19044-EGT Issue/Problem Amount Renedial Action Responsible Due Date Remarks Task Team _ Member FINANCIAL MANAGEMENT A. A more conmprehensive audit coverage. A new audit contract considering the quality 04-20-1999 Done and coverage of audit required. TORs should be sent to the Bank for clearance. A. I External Audit: a) Auditors engagement letter needs to be Review the auditors engagement letter. 04-30-1999 issued annually to match SFD's needs as it evolves. b) Need to appoint auditors for the Third Auditors appointed for the Phase III of the 08-31-1999 Phase of the SFD. project. A.2 InternalAudit: Increase the capacity of the internal audit to Short-tern consultants appointed to increase 06-30-1999 ensure at least one evaluation of SA's the internal audit capacity. internal controls and capacity before project. implementation. B Ensuring closer monitoring and supervision ofproject components in the field B. I Monitoring & supervision a) Determine quarterly indicators of project Quarterly indicators are set for at least the 07-31-1999 progress with the appropriate levels of first year of the project, for each component management particularly those responsible of the SFD 111, and sub-component by SA. for their achievements. b) SA staff are insufficiently trained on Arrange for the design of training package to 07-31-1999 Annex 9a Page 11 of 14 financial management and procurement be conducted by a consultant to ensure that aspects of the project as spelled out in the the SA staff are well trained on financial SFD's revised operational procedures. management and procurement aspects of the project as spelled out in the SFD's revised operational procedures. Issue the training package in financial, procurement management and reporting requirements for use to conduct the training in B. 1 .c below. c) Increase the SFD supervision of financial Complete first training course for at least 25 11-30-1999 and procurement capacity at the regional regional and field staff in financial and level (through training) to monitor closely procurement management and new reporting and regularly the financial management at the requirements. field level. C. Internal control mechanisms Review existing regulations and procedures Issue a revised operational procedures 09-30-1999 to ensure that they are comprehensive manual including budgetary control, internal (including the new reporting requirements) control, and new reporting requirements. and are communicated to all levels of project management (including implementation agencies) along with the contractual agreements. D. Review of the staffing structure of the financial managementfunction at SFD a) The spinning off of the EDP program Decision regarding the split between SFD 10-15-1999 requires that a decision be made on the and SEDO financial management staff made effectiveness of the restructuring of both and communicated to IDA. SEDO and SFD financial departments, in particular in light of the transfer of some of the current employees from SFD to SEDO. b) Review the staffing needs of the financial Propose a structure of the financial 11-30-1999 Annex 9a Page 12 of 14 managementfuncton at SFD to ensure that management function taking into account the enough supervision and control are in place above proposals. at all levels. Implement the structure, including staffing, following agreement with IDA. 11-30-1999 E New reporting requiremnts a) MIS capability to generate PMR reports. 1. Review the new MIS for adequacy for Ongoing PMR generation. 07-31-1999 2. Implement any recommended changes 11-15-1999 arising from the review. b) Need to produce integrated Project A task force to be nominated (made up of 06-01-1999 Monitoring report. financial, procurement and program specialists) and held responsible for preparing the report and integrating it in the SFD MIS system. c) A draft report based on LACI A draft Project Management Report (PMR) 05-31-2000 requirements as discussed between the IDA as per discussions with the IDA mission mission and the Fund Management, Internal members and according to the sample report Audit personnel, and the Head of Planning & in the LACI Implementation Handbook of Evaluation Dept., should be issued for the World Bank, produced and tested on a discussion and feedback by IDA. pilot basis for two quarters (CY99 40 Qtr, and CY2000 1 _tr_ _ F. Fundingfor the additional reporting, Estimate costs of program; identify funding 04-22-1999 Done training and system development should be and confirm its existence to IDA. identified. Annex 9a Page 13 of 14 PROCUREMENT v 1. Weaknesses in monitoring a) Prepare and agree with IDA 04-22-1999 Done and supervision of procurement on a TOR for a Technical activities. Procurement Audit. b) Contract with an independent consulting firm to Technical carry out a Technical Procurement Audit Procurement Audit on ongoing to be completed by projects with submission of a 11-30-1999 report detailing specific recommendations for improvement. c) Implement recommendations on above 05-31-2000 report following agreement with IDA. 2. Reinforce evaluation NA Issue directive to all levels of SFD 07-31-1999 procedures at all levels the organization. according to guidelines. Annex 9a Page 14 of 14 3. Project staff require proper US$3,000 Provide training to key World Bank 07-31-1999 (Initial The World Bank training in procurement personnel. World Bank Resident Training) Resident Mission can monitoring methods (review of resident mission can provide Mission provide an agenda for the procurement documents, etc.) best practice methodology 09-30-1999 training, best practice through a three-day training (Follow-up guidelines, etc., in exercise (renewable on a need Training) addition to basing the basis). This would also apply training on the revised to the 5 key Regional Offices Operations Manual. This under the new framework who could be provide at the will become the trainer of time of project launch. trainers. 4. Inadequate or non existing NA CDP to develop standard CDP 07-31-1999 standard contract formats at formats for specification Community Development documents, contracts, and Program (CDP) level. purchase orders for their projects (example is using the World Bank guidelines on Community Based Development) until merger complete for CDP and PWP. 5. No standard vendor or price CDP to instill method of CDP 07-31-1999 list at CDP level. recording historical price lists and vendor list for evaluation purposes. Report on the Assessment of Project for PMR-Based Disbursements Inadequate Financial and/or Procurement Management System Part I - Financial Management System: I have reviewed the financial management system relating to this project. The objective of the review was to determine whether the project has in place an adequate financial management system as required by the Bank/IDA under OP/BP 10.02. My review, which included visits to the project implementing agency, was based on the Bank's guidelines for "Review of Financial Management System", and focused on the assessment of the project's accounting system, internal control, planning, budgeting and financial reporting system, selection of an auditor as well as the format and contents of the Project Management Report (PMR) to be submitted by the Borrower in support of Withdrawal Applications. In my opinion, the project does not satisfy the Bank's minimum financial management requirements. I have detailed in the attachment the inadequacies that I found in the system together with an agreed action plan to be undertaken by the Borrower to remedy the situation. Signed by: 4, C 6 / Financial Management Specialist (2 Th q I ;16 (FMS-OPR) v L Name, Dept./Div. Date Part II - Procurement/Contract Management System I have reviewed the procurement/contract management system relating to this project. The objective of the review was to determine whether the procurement/contract management system adopted by the project conforms to the Bank's guidelines for procurement in investment projects. My review was based on "Assessment of Agency's Capacity to Implement Project Procurement, Setting of Prior Review Thresholds and Procurement Supervision Plan" guidelines issued by the Bank. In my opinion, the project does not satisfy the Bank's minimum procurement management requirements. 1 I have detailed in the attachment the inadequacies that I found in the system together with an agreed action plan by the Borrower to remedy the situation. Signed by: Procurement Specialist _/______ _________ Name,'Dept./Div. Date Signed bjy - Task Manage David Steel, MNSHD Annexc 10 Page 1 of 1 Arab Republic of Egypt Third Social Fund for Development Project Project Processing Budget and Schedule A. Project Budget (USS000) Pann Aul (At final PCD stage) UJSS410.2 USS274.2 (to 3/29/99) B. Project Schedule P Aca (At final PCD stage) Time taken to prepare the project (months) First Bank mission (identification) 10/03/1998 10/03/1998 Appraisal mission departure 02/08/1999 02/08/1999 Negotiations 04/05/1999 04/17/1999 Planned Date of Effectiveness 12/31/1999 12/31/1999 Prepared by: Social Fund for Development Prepartion assistance: Bank staff who worked on the project included: Name Speialt David Steel Principal Operations Officer Judith Brandsma Private Sector Specialist Rafika Chaouali Financial Management Specialist Douglas Graham Senior Implementation Specialist Amira Kazem Economist Luca Frontini Economist Elena Volpi Social Scientist Sawsan El-Messiri Social Scientist Kenneth Green Environment Specialist Walid Gamaleldin Environment Specialist Eileen B. Sullivan Operations Analyst Badr Kamel Operations Officer Claudine Kader Language Team Assistant Julia Van Domelen Sr. Economist Bildi Randhawa Peer Reviewer David Berk Peer Reviewer Willem Struben Peer Reviewer Annex 11 Page 1 of 2 Arab Republic of Egypt Third Social Fund for Development Project Documents in the Project File* A. Project Implementation Plan (March, 1999) B. Bank Staff Assessments Egypt Participatory Poverty Assessment, draft document (August, 1998) Social Assessment Reports, Markaz Metareya, Dakahliya Govemorate, & Aswan Governorate, El Messeri (January, 1999) Egypt Fund Social Assessment (Full Document) Financial Management Assessment (includes Procurement Assessment) Environmental Evaluation of Previous Projects C. Other Organization Chart, Social Fund (December, 1998) Presidential Decree Number 40 for 1991 on Establishing the Social Fund for Development Social Fund for Development Annual Report 1998 SFD Financial Statement (January, 1999) SFD Phase I Status Report as of 12/31/98 Information Technology Mission Statement (MIS) (February, 1999) SFD Cash Flow Forecast, 1999-2003 (February 25, 1999) SFD Project Monitoring and Evaluation Framework (September, 1998) Project Knowledge Management System (PKMS) (February, 1999) Social Fund Beyond the Year 2000, Glovinsky, UNDP (January, 1999) The Social Fund for Development - A Future Outlook (February 4, 1999) Training Course Series on Project Life Cycle/Project Management Development (April, 1999) Human Resources Development Program Operational Manual (April, 1997) Human Resources Development Program, Actual Outputs for Projects Funded through IDA (October, 1998) Gender Unit Operational Manual (April, 1997) Upper Egypt Integrated Sustainable Development Program, SFD Project Proposal (December, 1998) Delta and Upper Egypt Environmental Infrastructure Project, draft document (Arabic) (January, 1999) Public Works Program Operational Manual (November, 1997) Public Works Program Project Appraisal document (February, 1999) Public Works Program, Outputs Achieved 1996-98 (February, 1998) PWP Infrastructure Projects Completed by Govtm. thru June, 1998 (November, 1998) PWP Project Pipeline (1997-2000) (October, 1998) A New Role to operations & maintenance etc., PWP, SFD (undated) Sustainable Operation and Maintenance of Public Infrastructure (Terms of Reference for Consulting Services) Annex 11 Page 2 of 2 PWP Small Scale Contractor Training, Final Plan, Chemonics Inc. (November, 1998) Community Development Program Operational Manual (November, 1997) CDP Phase II Projects Completed by Government through December, 1998 (February, 1999) CDP Project Pipeline (1997-2000) (February, 1999) Community Based Integrated Development, Approach Paper (February, 1999) Operations & Maintenance for Community Development (October, 1998) *Including electronic files. Annex 12 Page 1 of2 Status of Bank Group Operations in Egypt, Arab Republic of Operations Portfolio As of 29-Mar-99 Difference Between expected. and actul Orisinai Amount in USS Million disbuwscwnts a/ Fiscal Project ID Year Bonrower Purpose IBRD IDA Cancellations Undisbuned Oris Frm Rev'd Nwnber ofCloed Projects: 81 Active Pro'et EG-PEf40858 1999 SOHAG RURAL DfV. 0.00 25.00 0.00 25.33 0.00 0.00 EG-PE-41410 1999 GOVERNMENTOFEGYPT P.S. REHAB. III 120.00 0.00 0.00 120.00 0.00 0.00 EG-PE-45175 1998 GOVERNMENT OF EGYPT HEALTHSECTOR 0.00 90.00 0.00 *5.03 -2.63 0.00 EG-PE-49166 1998 EASTDELTAAG.SERV. 000 15.00 000 15.12 2.06 0.00 EG-PE.54958 1998 GOVERNMENT OFEGYPT POLLUTION ABATEMENT 20.00 15.00 0.00 34.85 1.04 000 EG-PE-57704 1998 GOVERNMENT PORT SECTOR REFORM 0.00 2.00 0.00 2.03 .81 0.00 EG-PE-5169 1997 GOE ED.ENHANCEMENT PROG. 0.00 75.00 0.00 66.24 22.40 6.02 EG-PE-43102 1996 GOVERNMENT SOCIAL FUND 11 0.00 120.00 000 26.63 .1.31 0.00 EG-PE-5163 1996 GOE POPULATION 0.00 17.20 0.00 15.04 7.25 -.91 EG-PE-5173 1995 MPWR EGYPT IRIGATION IMP 26.70 53.30 0.00 71.53 24.81 0.00 EG-PE-5157 1994 GOEtPBDAC AGRICULTURAL MODERNI 54.00 67.00 0.00 12.34 -33.84 0.00 EG-PE.5153 1993 GOVERNMENTOFEGYPT MATRUHRESOURCEMANA 0.00 22.00 0.00 12.69 7.95 *1.29 EG-PE-5161 1993 GOB EASIC EDUCATION PROJ 0.00 55.50 0.00 14.45 12.80 .11 EG-PE.5168 1993 GOVERNMENT PVTSECTOURISMINF&ENV 260.00 0.00 188.00 19.79 69.12 .32 EG-PE-5146 1992 GOVERNMENTOFEGYPT NATIONAL DRAINAGE 45.00 75.00 0.00 20.84 -.90 0.00 EG-PE-5152 1992 GOVERNMENT SCHISTOSOMIASISCONT 0.00 26.84 0.00 16.87 14.43 3.56 EG-PE-5111 1991 EGPC GASINVESTMENTPROJE 84.00 0.00 0.00 5.88 5.S8 0.00 Total 609.70 658.84 18.00 564.66 129.87 7.U1 Active rjef Closd a1 Toal Disbursed (IBRD and IDA): 504.69 3.621.14 4,125.83 of which hs been repaid: 11.68 2,070.49 2.082.17 Tota now eld by IRD and IDA: 1.06S6. 1,556.40 2625.26 Amount sold : 0.00 7.48 7.48 Of whieh repaid 0.00 7.48 7.48 Total Undisbursed 564.66 2.23 566.89 a. Intended disbursiesnts to date minus actual disbursements to date.as projeced at appraisal. Note: Disbursement data is updated at the end ofthe firt week ofthe nmonth and is currently as of 28-Feb-99. Generated by the Operations hiformation System (OIS) Annex 12 Page 2 of 2 Egypt, Arab Republic of STATEMENT OF IFC's Committed and Disbursed Portfolio As of 28-Feb-99 (In US Dollar Millions) Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 198288 Luxor Hotel 0.00 .46 0.00 0.00 0.00 .46 0.00 0.00 1983/91194/92V96198 ANSDK 74.29 22.74 0.00 50.00 14.29 17.10 0.00 0.00 1986t88/92 Meleiha Oil 0.00 30.82 0.00 0.00 0.00 .03 0.00 0.00 1992 Misr Compressor 9.70 3.77 0.00 0.00 9.70 3.77 0.00 0.00 1992/97/98 Carbon Black-EGT 16.00 2.96 0.00 0.00 8.50 2.96 0.00 0.00 1993 Cmrcl Intl Bank 0.00 15.59 0.00 0.00 0.00 15.59 0.00 0.00 1994 Club Ras Soma 4.79 2.40 0.00 0.00 4.79 2.37 0.00 0.00 1994/96/99 AbuSomaDevelop 0.00 1.49 0.00 0.00 0.00 1.12 0.00 0.00 1996 Apache Corp. 0.00 9.33 0.00 0.00 0.00 9.33 0.00 0.00 1996 Orix Leasing EGT 0.00 .89 0.00 0.00 0.00 .89 0.00 0.00 1997 Egypt Trust 0.00 5.00 0.00 0.00 0.00 5.00 0.00 0.00 1997 ECC 35.00 0.00 0.00 0.00 15.00 0.00 0.00 0.00 1997 MGDK 4.00 1.50 0.00 0.00 0.00 1.47 0.00 0.00 1997 UNI 5.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00 1997/99 Orascom 20.00 4.85 0.00 0.00 16.00 4.85 0.00 0.00 Total Portfolio: 168.78 101.80 0.00 50.00 73.28 64.94 0.00 0.00 Approvals Pending Commitment Loan Equitv Ouasi Partic 1999 CIB L&G LIFE 0.00 1.77 0.00 0.00 1999 HCSI 0.00 1.40 0.00 0.00 1996 ORIX LEASING EGT 5.00 0.00 0.00 0.00 1997 UNIPAK-NILE 0.00 0.00 0.00 5.00 Total Pending Commitment: 5.00 3.17 0.00 5.00 Generated by the Operations Information System (OIS) Arab Republic of Egypt 918t98 M. East Lower- POVERTY and SOCIAL & North middle- Egypt Africa Income Development diamond 1997 Population, mid-year (millions) 60.3 283 2,285 Life expectancy GNP per capita (Atlas methoa, US$) 1,180 2,060 1,230 GNP (Atlas method, US$ billions) 71.2 583 2,818 Average annual growth, 1991-97 Population (%) 2.0 2.3 1.2 Labor force (%) 2.8 3.2 1.3 GNP Gross per primary Most recent estimate (latest year available, 1991-97) capita enrollment Poverty (% of population below national poverty line) Urban population (% oftotalpopulation) 45 57 42 Life expectancy at birth (years) 66 67 69 Infant mortality (per 1,000 live births) 51 48 36 Child malnutrition (% of children under 5) 9 .. .. Access to safe water Access to safe water (% of population) 64 71 84 Illiteracy (% of population age 15+) 49 39 19 Gross primary enrollment (% ofschool-age population) 100 97 ill Egypt, ArabRep. Male 107 102 116 Lower-middle-Income group Female 93 91 113 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1976 1986 1996 1997 Economic ratiosV GDP (US$ billions) 13.4 35.9 67.6 75.5 Gross domestic investment/GDP 28.4 23.7 16.6 17.7 Exports of goods and services/GDP 22.3 15.7 20.2 20.2 Trade Gross domestic savings/GDP 16.7 13.8 10.8 13.0 Gross national savings/GDP .. .. 15.8 18.8 Current account balance/GDP -10.2 -9.4 1.6 0.6 Domestic Ivte Interest payments/GDP 0.5 2.4 1.5 1.0 Investment Total debt/GDP 47.6 84.8 46.3 39.7 Savings Total debt servicelexports 6.4 8.4 11.5 8.9 Present value of debt/GDP .. .. 30.9 Present value of debt/exports , .. 105.0 Indebtedness 1976-86 1987-97 1996 1997 1998-02 (average annual growth) GOP 7.1 4.0 5.0 5.5 5.2 -Egypt, Arab Rep. GNP per capita 3.7 2.3 3.6 3.1 4.0 Lower-middle-income group Exports of goods and services 2.7 5.9 1.6 2.4 10.4 STRUCTURE of the ECONOMY 1 976 1986 1996 1997 Growth rates of output and investment(%) (% of GOP) Agriculture 28.3 20.8 17.3 17.7 1 5 Industry 26.2 26.8 31.6 31.8 o Manufacturing 16.1 13.3 24.3 25.2 94 95 96 97 Services 45.5 52.4 51.1 50.5 -15 Private consumption 58.5 69.6 78.8 76.8 -30 General government consumption 24.8 16.5 10.4 10.2 GDI - -GDP Imports of goods and services 34.0 25.6 26.0 24.9 (average annual growth) 1976-86 1987-97 1996 1997 Growth rates of exports and imports (%) Agriculture 3.0 2.8 3.1 3.4 15 Industry 8.4 4.5 4.9 4.6 1C Manufacturing .. 4.9 6.9 8.3 s Services 9.7 3.8 5.6 6.4 Private consumption 6.2 4.7 3.6 3.9 General government consumption 5.0 0.5 2.4 4.8 Gross domestic investment 6.9 -0.4 9.7 10.4 -10 Imports of goods and services 3.2 2.4 1.6 1.9 Exports -* l mports Gross national product 6.4 4.4 5.5 6.1 .- Note: 1997 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 will be incomplete. Egypt, Arab Rep. PRICES and GOVERNMENT FINANCE 1976 1986 1996 1997 Inflation(%) Domeszie prices 2 (% change) 25 Consumer prices 8.3 4.6 20 Implicit GDP deflator 12.5 12.8 9.0 6.2 15r 10 Govemment finance s (% of GDP, includes current grants) o Current revenue 21.3 25.1 23.7 92 93 94 95 96 97 Current budget balance -14.2 2.5 2.9 - GDP deflator - CPI Overall surplus/deficit -23.1 -1.3 -0.9 TRADE (US$ millions) 1976 1986 1996 1997 Export and import levels (USS millions) Total exports (fob) 4,608 4,930 20.000 Cottom 110 107 Other Agriculture 230 164 10.000 Manufactures 1,314 1,304 Total imports (cif) 14,107 14,718 10,000 Food . .. 2,955 3,193 Fuel and energy Capital goods . .. 4,10-0 4,029 51 92 93 94 95 96 97 Export price index (1995=100) .. .. 127 128 Import price index (1995=100) .. .. 145 145 HExports *Imports Terms of trade (1995=100) . * 87 89 BALANCE of PAYMENTS (US$ mililons) 1976 1986 1996 1997 Current account balance to GDP ratio (%) Exports of goods and services 3,319 6,494 15,245 15,644 10- Imports of goods and services 5,182 11,825 17,541 20,342 Resource balance -1,863 -5,331 -2,296 -4,698 10. Net income -342 -1,021 539 253 5 Net current lransfers 842 2,995 2,842 4,146 Current account balance -1,363 -3,357 1,085 -299 92 3 4 95 96 97 Financing items (net) 1,049 3,533 -515 2,211 -s Changes in net reserves 314 -176 -570 -1,912 -10 Memo: Reserves including gold (USS millions) - 1,780 17,867 19,657 Conversion rate (DEC, localVUS$) 0.5 1.1 3.4 3.4 EXTERNAL DEBT and RESOURCE FLOWS 1976 1986 1996 1997 (US$ millions) 0 Composition of total debt, 1997 (USS millions) Total debt outstanding and disbursed 6,357 30,415 31,299 29,979 IBRD 50 1,228 1,075 869 A 869 IDA 126 827 1,090 1,206 G:2,991 B: 1,206 Total debt service 267 837 2,283 1,871 F 1,286 D, 01,36 IBRD 3 243 272 297 IDA 1 12 23 24 Composition of net resource flows Official grants 910 0 1,324 Official creditors 841 1,712 -17 19 _ Private creditors 122 534 -376 -157 Foreign direct investment 61 0 636 Portfolio equity 0 0 0 E 21,791 World Bank program Commitments 197 617 172 75 A - IBRD E - Bilateral Disbursements 78 369 108 260 B - IDA D - Other multilateral F - Prtvate Principal repayments 0 114 192 241 C-IMF G-Short-term Net flows 78 256 -84 19 1 1 Interest payments 4 141 102 80 Net transfers 74 115 -186 -61 Source: MNA CMU. 9118/98 BoP estimates for 1996 and 1997 are preliminary and subject to revision. ARAB REPUBLIC OF EGYPT IBRD 27759 <'A4e~~Werr~~ tfe~~n &ea.~~.. 32- Marsa Matrui YJORDAN ra SoISRAEL Car,~~,, Ro ~~Suez f i ARAB REPUBLIC nuef -I -280Ow ° F E G Y P T El Minya < X SAUDI 280 ARABIA 280_ Hurghad% 0 SELECTED CITIES This mwsrc t NATIONAL CAPITAL xor - ' RIVERS CULTIVATED AREAS 2|4 suhsudae,an/ o 50 100 150 MILES997 o 50 100 150 KILOMETERS olsmo aspauced Ilte Map Design Unit afTe Wrid Ba,,,nk Ithebounac,"'rri`es,lrs enmnetian anny othr in~ran shown an SUA tsmodantiply an the port of The Ward Bank Group, any judgment an the legal.ou tytriay or any em~snent or acceptance ot 2 6 such boundaries.3236 APRIL 1 997