Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN: Third Export Development Project (P132381) Report Number: ICRR0023724 1. Project Data Project ID Project Name P132381 TN: Third Export Development Project Country Practice Area(Lead) Tunisia Finance, Competitiveness and Innovation L/C/TF Number(s) Closing Date (Original) Total Project Cost (USD) IBRD-83980 31-Dec-2020 21,788,377.33 Bank Approval Date Closing Date (Actual) 16-Jun-2014 31-Dec-2022 IBRD/IDA (USD) Grants (USD) Original Commitment 50,000,000.00 0.00 Revised Commitment 27,699,519.28 0.00 Actual 21,788,377.33 0.00 Prepared by Reviewed by ICR Review Coordinator Group Burcin Pamuksuz Ihsan Kaler Hurcan Avjeet Singh IEGSD (Unit 4) 2. Project Objectives and Components DEVOBJ_TBL a. Objectives According to the Loan Agreement (p.5) and the Project Appraisal Document (PAD, p. 9), the project development objective (PDO) was “to help increase and diversify exports by supported enterprises.” For assessing the project’s performance, the PDO is parsed as follows: Objective 1: To help increase exports by supported enterprises, Page 1 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN: Third Export Development Project (P132381) Objective 2: To help diversify exports by supported enterprises. b. Were the project objectives/key associated outcome targets revised during implementation? Yes Did the Board approve the revised objectives/key associated outcome targets? Yes Date of Board Approval 13-Nov-2017 c. Will a split evaluation be undertaken? No d. Components Third Export Development Project (EDP III) was to be implemented under the supervision of a high- level Steering Committee. This committee consisted of the representatives of the Ministry of Finance, the Ministry of Industry and Technology, the Ministry of Transport (MT), and the Association of Exporters from the Tunisian Union for Industry, Trade and Handicrafts. The project consisted of three components: 1. Support to improve the business climate for export competitiveness and diffusion of technology and innovation (Estimated Cost at Appraisal: US$ 10.1 million; Estimated Cost at Third Restructuring: US$ 13.35 million; Estimated Cost at Fourth Restructuring: US$ 4.96 million; Actual Cost at Closing: US$ 5.57million) This component included three sub-components: 1.1. Support for the restructuring and modernization of customs: This sub-component was to cover activities of upgrading the Customs Information System, introduction of a comprehensive computerized post review risk management system for customs, development of the authorized economic operator approach, support for the improvement of customs procedures manuals and guidelines and developing operating procedures and related computerizing system for logistic zones. The project was to finance technical assistance (TA), consultancy services, purchase of equipment, software, and licenses for the realization of these activities. 1.2. Improvement of trade logistics: This sub-component was to support the government improve trade logistics to lower costs of exports for Tunisian enterprises. To achieve this, the following activities were to be implemented: Support for the MT to better define the needs for improvements in the Port of Radès (the main port of entry/exit in the country), development of a container’s management and tracking system for the Tunisian Company for Stevedoring and Handling (STAM), and support for the MT in implementing its Logistics Zones Development Strategy. For the implementation of these activities the project was to purchase hardware, software, cameras, and training activities for the MT, and consultancy services. 1.3. Support innovation and dissemination: This sub-component was to support the National Standardization and Industrial Property Institute (INNORPI) to develop and disseminate activities on Intellectual Property to exporting firms, improve and expand quality assessments on industry and export Page 2 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN: Third Export Development Project (P132381) compliance and ensure international recognition of Tunisian national labels and brands. In addition, the project was to help the government to create new systems of management for traceability, certification, and accreditation of goods and services destined for export. 2. Provision of financial and non-financial services to export enterprises (Estimated Cost at Appraisal: US$ 35.8 million; Estimated Cost at Third Restructuring: US$ 32.55 million; Estimated Cost at Fourth Restructuring: US$ 14.27 million; Actual Cost at Closing: US$ 14.85 million) This component included three sub-components: 2.1. Competitiveness Support and Export Development Fund (CEDF-Tasdir+): A total of US$ 23.50 million of funds were allocated to a matching grant fund, which was to provide non-financial services in the form of partial subsidies to enterprises/groups/associations involved in the industries/sectors identified and supported by the EDP III. It was to provide non-reimbursable co-financing between 50 to 70 percent for individuals and professional associations on a demand-driven basis. The program, which was called Tasdir+, was to be an extension of the Export Market Access Funds (FAMEX I and II) established through the two previous export development programs (EDP I approved in 1999 and EDP II in 2004). In addition, this sub-component was to support the Tunisian Export Promotion Agency (CEPEX) to implement and manage the Matching Grant scheme along with technical advisory services for monitoring and evaluation. 2.2. Pre-Shipment Export Finance Guarantee Facility (PEFGF-Dhamen Finance): This sub-component was to scale up the Pre-Shipment Export Guarantee Facility, which was established under the EDP I and called Dhamen Finance, by US$ 8 million. This was to raise the guarantee ceiling from Tunisian Dinar (TND) 750,000 for goods and TND 200,000 for services to TND 1 million (goods and services) per operation The facility was to be managed by the Tunisian Company for the Insurance of Export Credit (COTUNACE) and supported by technical assistance to improve its governance and simplify the guarantee mechanism and procedures. In addition, the project was to finance the creation of a Foreign Establishment Guarantee product that would extend guarantee to exporting enterprises for securing eligible bonds from commercial banks. Also, setting up regional representatives and marketing the Dhamen Finance in two regions outside the country (covering costs for staffing operation and marketing campaigns) were to be implemented under this sub-component. 2.3. Strengthening of the Tunisian Export Promotion Agency (CEPEX) to become a sustainable export development services provider: The project was to develop and implement an institutional audit of CEPEX to come up with an action plan and options for reforms for CEPEX and a Public Private Dialog. The project was also to provide technical assistance to improve CEPEX functions, particularly market studies and information systems. 3. Support to the selected ministries for the coordination and management of the project (Estimated Cost at Appraisal: US$ 4.1 million; Estimated Cost at Fourth Restructuring: US$ 1.58 million; Actual Cost at Closing: US$ 1.37 million) This component was to finance activities to strengthen the capacity of the Project Coordination and Monitoring Unit (PCMU) and focal points. It was also to provide support to the government, particularly the ministries of trade and industry, in the implementation of export development studies and strategies through the following activities: (i) Procurement of equipment to connect the Directorate of Quality and Consumer Protection to Tunisia Trade Net; (ii) expert services for the Directorate General of Foreign Trade (DGCE) for the drafting of texts governing e-trade in Tunisia; and (iii) technical assistance and software to the DGCE to Page 3 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN: Third Export Development Project (P132381) update its database on trade facilitation legislations and the preparation of a trade procedures manual/guide. Revised Components: At the first restructuring in November 2017, three activities under sub-components 1.1, 1.2, and 1.3 were dropped because of the long delay between the project approval and effectiveness of about 15 months. These activities were no longer needed or had already been implemented by the government:  Support for the improvement of customs procedures manuals and guidelines and developing operating procedures and related computerizing system for logistic zones (Sub-component 1.1),  Support to the MT in implementing its logistics zones development strategy and its pilot logistic zone project in Radès (Sub-component 1.2),  Improving and expanding quality assessments on industry and export compliance and ensuring recognition of Tunisia national labels and brands (Sub-component 1.3). At the fourth restructuring in June 2022, EUR 16.19 million was cancelled. Loan proceeds were reallocated among the categories and components in accordance with the implementation progress of the project and the needs of the government. More specifically, the contracts of two critical activities (development of a new Customs IT system and supporting digitization of the National Business Registry) which could not be completed during the implementation period (combined value of about EUR 7.5 million) were transferred to the World Bank-financed Digital Transformation for User- Centric Public Services Project (GovTech Project- P168425). Please see section on restructurings for details. e. Comments on Project Cost, Financing, Borrower Contribution, and Dates Project Cost: The project cost estimated at appraisal was US$ 74.50 million. The actual project cost of US$ 30.99 million at project closing was lower than the estimate at appraisal because the project could not complete a significant portion of the project activities due to complex project design, high staff turnover in involved agencies, capacity issues, the onset of COVID-19, and adverse geopolitical developments. Financing: The IBRD loan amount estimated at appraisal was US$ 50 million (EUR 36.3 million equivalent). By the project closing, the project had disbursed US$ 21.79 million. Borrower Contribution: At appraisal, US$ 2.5 million of borrower contribution was foreseen to cover the operating costs of the PCMU, but the ICR does not report the actual borrower contribution at project closing. The local beneficiary contribution at closing was US$ 9.21 million against the estimated amount of US$ 22 million at appraisal. Dates: The project was approved on 16 June 2014, and became effective on 1 September 2015. The effectiveness of the loan agreement delayed because the Tunisian parliament could not ratify the loan agreement following the formation of the new parliament in January 2015. The effectiveness deadline of the loan agreement was extended four times to allow time for the Tunisian parliament to ratify the loan agreement. The parliament approved the loan agreement on 10 June 2015, and other legal procedures were completed accordingly. The loan became effective on 1 September 2015 (Implementation Status and Result Report, 15 September 2015). The project’s original closing date was 31 December 2020. However, Page 4 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN: Third Export Development Project (P132381) the implementation period was extended for two years at the third restructuring, and the project closed on 31 December 2022. Restructurings: The project had four level 2 restructurings: Restructuring No.1 (13 November 2017): One of the PDO indicators (Total incremental exports by the beneficiary firms and associations in dollar amount) was dropped and replaced by a new one (“% of additional annual export growth of beneficiary firms compared to Tunisia’s total export growth for the same year) because of the uncertainty in economic growth in Tunisia. The target of the indicator in the US dollar was not relevant, either, since Tunisia’s main export market was the European Union. The two market diversification indicators (one for service companies and the other for manufacturing firms) were merged. A new PDO indicator to assess the impact of the export guarantee fund was introduced (Total value of exports that benefited from the export guarantee Dhamen Finance). The PDO indicator of “Direct project beneficiaries (number) of which female” was dropped as female beneficiaries were not considered to be direct targets for this project on export growth and diversification. In addition, changes in the intermediate results indicators were introduced in line with changes in the PDO indicators. Revisions were made in the category of expenditures, some of the loan proceeds were reallocated, and some sub-activities were cancelled (see Revised Components). Restructuring No.2 (29 January 2019): Funds were reallocated among the budget sub-categories of Dhamen Finance, and the budget was revised in line with needs. The amount of funds allocated to the budget for the Management of Tasdir+ was increased. Funds were reallocated to an additional budget for training, communication, and impact evaluation under Tasdir+. Restructuring No.3 (17 December 2020): The project closing date was extended by two years from 31 December 2020 to 31 December 2022. The extension was to enable the completion of critical elements of the unfinished agenda, including the modernization of the Customs IT system, fostering high value-added exports through the government Task Force for the Development of Clusters and Value Chains and supporting the restructuring of CEPEX. The loan proceeds were reallocated to retain key activities and discontinue delayed ones. It was also agreed that no further disbursements were to be made under Dhamen Finance. In line with these changes, the results framework was revised. The National Business Registry (RNE), as beneficiary of the project, replaced INNORPI in charge of the central business registry. The targets for two PDO indicators (“% of additional annual export growth of beneficiary firms compared to Tunisia’s total export growth for the same year and total value of exports that benefited from the export guarantee Dhamen Finance) were decreased. The intermediate indicators related to the activities of CEDF and Dhamen Finance, which were no longer supported, were dropped. Restructuring No. 4 (27 June 2022): The project was restructured to focus on the activities that could be implemented and feasibly be completed by the project’s closing date of 31 December 2022 and free up unused loan proceeds for urgent alternative programs in Tunisia. The changes included the cancellation of EUR 16.19 million, reallocation of loan proceeds between categories, and revision of component costs. The results framework was revised to reflect the reduced scope of the project components. The intermediate indicators related to the cancelled Page 5 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN: Third Export Development Project (P132381) activities were dropped. The contracts for the development of a new Customs IT system and supporting digitization of the National Business Registry were transferred to GovTech Project-P168425. Reasons not to undertake a split assessment of the project outcome: Although the PDO indicators were revised at the first restructuring, the revisions aimed at improving the monitoring and evaluation (M&E) framework rather than introducing changes in the scope of the project. On the other hand, the revisions in the third project restructuring would require a split assessment of the project outcome, but these revisions did not have any impact on the project’s efficacy in achieving the project’s objectives because the project did not disburse any funds after the restructuring. Therefore, this review will not undertake a split assessment of the project outcome. 3. Relevance of Objectives Rationale The World Bank Strategy: The project objectives were highly aligned with the World Bank strategy defined in the Country Partnership Framework (CPF) for the Republic of Tunisia FY23–27. The PDO supports the CPF’s first High-Level Outcome (reframing the role of the state in the economy to foster private sector led growth) and addresses the country’s immediate needs to support post-pandemic reforms and create the right environment for inclusive and job-creating growth (ICR, p. 14). To reach its economic growth and development potential, Tunisia needed to promote exports and foster private investment. However, lack of market and product diversification, low value added and little innovation in its sectors impeded the country to achieve expected competitiveness and growth levels. In addition, access to finance, low logistics competence, and supply chain issues posed challenges to the achievement of a competitive exporting sector in Tunisia. The project was to improve logistics competence through the modernization of customs and the improvement of technical infrastructure at the country’s main port. The project, through the matching grants and export guarantee schemes, was to address business development capacities and access to finance and address constraints to the diversification of exports. Country Context: The ICR (p.18) reports that at the time of EDP III preparation, the new government had not yet articulated its vision for development. However, the 2016-2020 Development Plan was subsequently adopted and confirmed the relevance of the objectives and issues addressed by the project by highlighting the lack of diversification and integration into global value chains and low value added as structural weaknesses of Tunisian exports. The government’s medium-term socio-economic development strategy outlined an ambitious program of economic and social reforms focusing on good governance and improvements in the business environment, deepening economic integration and partnerships. The strategy also focused on modernizing infrastructure to increase productivity and deepen integration into the global economy. More specifically, the government developed a Logistics Zone Strategy and an action plan to improve the Port of Radès. Lastly, the strategy promoted regional competitiveness. At project closing, the project objectives remained relevant to the country context. The priorities of the next development plan for 2023-2025 aim to structurally direct the economy toward higher value-added sectors. The PDO is particularly relevant for two of the three strategic axes of the development plan: Strategic Axis 2: Knowledge and innovation driven growth and Strategic Axis 3: Competitiveness and private sector support. These axes concentrate on strengthening the country’s human and institutional capacities, supporting private initiatives, exports, and market diversification, improving logistics infrastructure and procedures, as Page 6 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN: Third Export Development Project (P132381) well as increasing access to finance for MSMEs. In this regard, the objective was outcome oriented and rightly pitched for development status and capacity in the country as described in the CPF. Previous Sector Experience: The World Bank provided a series of development policy loans that laid the ground for strengthening governance and introducing measures to improve competitiveness, promote exports, and create employment. The World Bank support in FY14 included this project to complement the budget support operation, the Second Governance, Opportunities and Jobs Development Policy Loan (Report No. 87849-TN) approved by the Board on April 29, 2014. The EDP III project was built upon the experience gained through the two previous export development projects implemented in Tunisia (EDP I and EDPII). Both programs aimed to simplify the export procedures and implemented matching grant mechanism known as FAMEX I and FAMEX II, pre-shipment export finance guarantee facilities and activities for improvement of trade logistics and modernization of customs. The EDP III, involved objective of diversification of exports and integration into global value chains along with targets set with previous programs. To achieve this, as mentioned in the ICR (p. 17) the matching grant component introduced innovative approaches (e.g., financing of implementation of offices abroad for a more sustainable impact on exports), rigorous impact evaluation methodologies (e.g., random selection, randomized control trial) and procedures (e.g., on-line applications). In addition, relying on the results of the impact evaluation of the matching grant scheme (FAMEX) under EDP II, implementation of the matching grant scheme was embedded in CEPEX in EDP III. As the implementation had relied exclusively on external consultants with little connection with any Government entity, the project did not build the long term sustainability of the export development services provision (PAD, p. 76). The EDP III concentrated more on sustainability and targeted a better balance between operational efficiency and long-term sustainability. The project objective was highly relevant to the bank strategy and was appropriately pitched for country context. Also, the objective was relatively more challenging compared to the previous export development programs implemented in the country. Based on these assessments, the relevance of objectives is rated High. Rating Relevance TBL Rating High 4. Achievement of Objectives (Efficacy) EFFICACY_TBL OBJECTIVE 1 Objective Objective 1: To help increase exports by supported enterprises. Rationale Theory of Change for Objective 1: Access to finance together with supply chain issues which involved import and export control procedures, low logistics competence and matching new requirement of export markets such as traceability, are the main Page 7 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN: Third Export Development Project (P132381) challenges for increasing exports in Tunisia. The theory of change suggests that if export business environment is improved, capacities of public entities involved in export development are increased and if these are complemented by an export finance guarantee scheme (PEFGF-Dhamen Finance), the exports by the supported entities would increase. Also, if logistics weaknesses are addressed, Tunisia’s overall exports would increase. These were to be achieved through the provision of technical assistance and consultancy services for the public institutions involved in export development, purchase of equipment, hardware, software, and certifications and granting finance for export guarantee program. The outputs expected from these activities were upgraded and improved customs procedures and manuals, digitalized and modernized customs systems, improved technical infrastructure of the port of Radès, improved technical capacities on quality assessment and export compliance, and management of traceability, accreditation, and certification of goods and services. The risk mitigation guarantees provided for pre-shipment loans through the up-scaled facility of PEFGF-Dhamen Finance would increase the availability of finance to export companies. These outputs would have been expected to lead to improved supply chain conditions and access to finance and thus lead to increasing exports by the supported enterprises. Overall, the casual pathways from project inputs and outputs to expected outcomes were valid and direct. The achievement of the project outcomes and objectives could be attributed to the project’s intervention. The critical assumptions were the following: (i) Improving the efficiency of customs procedures and firm level logistics and policy support for SMEs help reduce transaction cost and create the favorable business environment; (ii) direct firm assistance in the form of grants and improved access to finance though the guarantee mechanism help firms access new export markets where the initial risks are perceived high; and (iii) the sector institutional set-up for government of SME policies help improve coordination and streamlined procedures. The PDO indicator on annual export growth was relevant. The project team improved the original indicator at the first restructuring. On the other hand, the PDO indicator on the export guarantee program was at the output level. The indicator “Total value of exports that benefited from the export guarantee Dhamen Finance” measured the level of the utilization of the export-guarantee mechanisms by the beneficiary firms, rather than the impact of the guarantee-export mechanisms. Also, the results framework did not capture the outcomes related to customs modernization or capacity building activities implemented within the scope of the project. Outputs Achievements as reported in the Results Framework:  Terminal Operating System (TOS) and Smart Gate: The ICR (p.30) reports that these systems were not fully operational by project closing due to pending operational and maintenance contract, change of STAM organizational arrangements and capacity building for its staff.  Number of firms that have become OEA (Opérateur Economique Agrée): This indicator was achieved with 122 Authorized Economic Operators compared to a target of 75.  Total value of exports that benefited from the export guarantee Dhamen Finance (million US$): Target of US$ 745,000 could not be achieved. By project closing, the total guaranteed exports were US$100 million for 78 beneficiary firms. The achievement rate was 17%. The ICR (p.16) reports that Dhamen Finance guarantees were hampered by legal and operational constraints. The necessary changes in the legal and institutional framework (adoption of a new law and the detailed specifications of the new product towards banks and beneficiaries, changes in government arrangements) required for rolling Page 8 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN: Third Export Development Project (P132381) out of the pre-export financing guarantee scheme could not be completed timely. Therefore, these legal and operational constraints negatively affected Dhamen Finance. In 2022, there was no certificate granted due to the suspension of the activity pending the entry into force of new agreements with banks. Additional outputs reported in the ICR:  The modernization and digitization of Customs IT system: The project supported the acquisition of software modules and the provision of advisory services and training to customs officials for upgrading customs IT. Although, a contract for the purchase, installation, and deployment of a Customs IT system was signed on February 26, 2021, this activity could not be implemented before project closing. The ICR (p.16) reports that this activity will be implemented under the IBRD-funded GovTech Project - P168425. According to the ICR (p.21), the preparatory work to get this activity ready for implementation was not completed prior to appraisal. As a result of internal discussions, initial approach for modernization of existing IT system was reviewed leading to a change in the budget, requiring comprehensive additional work for preparation of the relevant Terms of Reference while delaying implementation significantly.  Modernization of the CEPEX (this activity also supports the project’s second objective): The project provided technical assistance and IT capacity building to CEPEX to become a sustainable provider of export development services to Tunisian firms. CEPEX adopted a new organizational structure and a transition action plan in 2020. In addition, CEPEX Board adopted a new vision for CEPEX in the same year. However, due to the high turnover of staff and lack of political ownership of this reform, the implementation of the action plan was significantly delayed (ICR, p.17), and the target could not be achieved. Outcomes:  The modernization of logistics at the Port of Radès (the main merchandise port in Tunisia): o Average time to process and release containers in the Port of Radès (Time Release Study) (for domestic consumption customs regime (Nb. Of days): While the average time to process and release containers improved from a baseline of 5.10 hours to 3.78 hours, achievement fell short of the target of 2.5 hours. o Average waiting time per container to enter or exit the Port of Radès: Average waiting time declined from 4 hours to one hour showing significant progress but without meeting the target of twenty minutes. o Number of Containers Handled at the Port of Radès (TOS): At project closing the number of containers handled were 239,000. The ICR (p. 32) reports that the target of 435,000 containers handled per year at the Port of Radès corresponded to 2010 performance. The ICR (p.32) also mentions that while this indicator measures volume handled at the Port of Radès, it also depends on economic activity and volume of Tunisian imports and exports that suffered from Covid-19 pandemic and macro-situation in Tunisia.  Spreading trade related technology and innovation improving business environment: The following achievements were expected to increase exports but also help Tunisian industries climb the value chain and penetrate new foreign markets (Project’s second objective) as well. o Average time to process export certification requests (saving from digitalization of export certification procedures, excluding test and audit delays): This indicator exceeded its target Page 9 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN: Third Export Development Project (P132381) with a decrease on average processing time for export conformity certification request from 72 hours to 19.31 hours compared to a target of 24 hours. o Time required to register at the RNE: Target of two hours required to register at the RNE was achieved. The baseline was 48 hours.  Modernization of CEPEX was not complete by the project closing. If completed, the modernized CEPEX would help exporting SMEs in addressing their weaknesses through provision of services including the development of profitable export plans, diversification of export markets to reduce vulnerability and thus would contribute to increasing and diversification of exports as outcome.  Additional annual export growth of beneficiary firms compared to Tunisia’s total export growth for the same year (percentage): Tasdir+ companies’ exports grew 39.3% more than the national export growth rate over the entire 2017-2021 period and almost reached the target of 50%. The ICR (p.16) reports that at the annual level the results were mixed, and the beneficiary companies performed above the targets in 2018 and 2019 (+32 percent then +30.5 percent better than the national level, respectively) and were less successful in 2020 and 2021 during the COVID-19 pandemic (+33.6 percent and -48.6 percent, respectively). The project’s beneficiaries achieved a better export growth rate compared to Tunisia’s total export growth rate. In addition, some achievements were also reported regarding logistics competences (improvement of conditions and modernization of the Port of Radès), and improvement of export procedures such as average time to process export certification requests. However, some key activities like the modernization and digitization of customs IT system could not be completed which would address low logistics competence, and the implementation of Dharma Finance guarantee scheme, which was to address the constraint of access to finance, remained significantly below the targeted level resulting in the under achievement of the expected project outcomes. Overall, the project’s efficacy in achieving the first objective is rated Modest due to underachievement. Rating Modest OBJECTIVE 2 Objective Objective 2: To help diversify exports by supported enterprises. Rationale Theory of Change for Objective 2: As identified at the Project Appraisal Document (PAD, p.2), Tunisia’s competitiveness was hampered by (among other factors) the absence of market and products diversification. Its exports were concentrated on the European market (70% of Tunisia’s exports), and France, Italy and Germany alone accounted for 56 percent of all exports in 2010 (PAD, p.2). The theory of change suggests that if financial and non-financial services were provided through a matching grant scheme under the CEDF-Tasdir+ and value chain development support provided exports of supported enterprises could be diversified. Different from previous programs, the EPD III implemented the market diversification objective in the matching-grant mechanism through selection criteria and enhanced support for companies committed in this direction. The activities for Page 10 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN: Third Export Development Project (P132381) achieving diversification of exports were financing of CEDF- Tasdir+, support establishment of a task force to coordinate the identification and promotion of promising value chains for export, organization of public-private dialogue meetings to administer and promote exports. These activities were expected to result in identification of high value chains, development of white papers on selected sectors, development of investment plans, establishment of foreign offices (staffing and operating costs covered by CEDF-Tasdir+), development of export plans, marketing plans and business plans for supported enterprises, In addition, provision of technical assistance for the creation of new systems of management for traceability, certification, and accreditation of goods, improving and expanding quality assessments were to lead to outputs of improved business environment, export production, meeting new/existing requirements of potential/current markets. As a result, these outputs were expected to result in increased and diversified exports as well as realization of investments in selected value chains. Therefore, the causal chains from project activities and outputs to expected outcomes were direct, and the achievement of the objective could be attributable to the project’s intervention. The results framework included one PDO indicator for diversification of exports; however, it was broad and did not make a distinction between market and product diversification. There was also no additional intermediate results indicator which could help assess achievements related to diversification of markets or products. Outputs: Achievements as reported in the Results Framework:  Value Chain Investment Plans developed (cumulative number): The project supported the setup of a Value Chain and Clusters Development Task Force (TFDCVC) within CEPEX to coordinate the identification and promotion of promising value chains for export in 2019. The TFDCVC developed three value chain investment plans for seafood, fashion, and medical tourism sectors. The public private dialogue meetings were held as planned. Additional outputs reported in the ICR:  The number of businesses benefiting from the financial support provided by the matching grant component (CEDF) reached 500 compared to 600 initially targeted (83 percent). The project facilitated the implementation of profitable export plans to help SMEs develop products, diversify their export markets to reduce vulnerability through the provision of marketing, and enterprise development services enabling them to capitalize on opportunities and respond to market needs under the Matching Grant scheme.  One of the key objectives of the CEDF was to facilitate access to foreign markets for Tunisian companies, particularly through commercial establishment abroad for a more sustainable impact on exports. In this context, the CEDF supported 51 enterprises to open 63 representations abroad against an initial target of 75. Outcomes:  Percentage of beneficiary firms that expanded their markets (new countries) – existing and new products/Services: The project intended to realize the market diversification objective in the matching- grant mechanism through selection criteria and enhanced support for companies committed in this Page 11 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN: Third Export Development Project (P132381) direction (ICR, p.8). As a result, 71 percent of the beneficiary firms were able to expand their exports to new countries, against the target of 50 percent. The share of the European Union and the Maghreb countries in the exports of the supported companies decreased by nearly 8 points from 71 percent to 63 percent. The data represents exports of 292 firms (241 industrial firms and 51 service firms) that constitute nearly 60 percent of the total number of Tasdir+ beneficiaries. About 45 percent of the diversification was in the new countries in Sub-Saharan Africa, North America, and Asia.  As mentioned in the outputs section, although some private public dialogue meetings were conducted and some White Papers were developed, the necessary investments for the value chains could not be realized (Meeting with the project team on 9 November 2023). The factors which negatively affected project implementation as deteriorating macro-economic conditions and COVID-19 also affected realization of these investments. The activities and the outputs addressed the main challenges of access to finance and export production and business development weaknesses by the exporting SMEs. Although the target of the outcome indicator measuring the diversification of exports under the matching grant scheme was achieved, the number of beneficiaries for CEDF and the number of representations abroad remained below the targets. In addition, the activity of the modernization of CEPEX which would provide business development services to Tunisian firms could not be completed. Lastly, although three investment plans were developed under the activity of fostering high value-added exports through TFDCVC, none of the investments could be implemented. As a result, the project’s efficacy in achieving the second objective is rated Modest due to underachievement. Rating Modest OVERALL EFF TBL OBJ_TBL OVERALL EFFICACY Rationale The project’s efficacy in increasing exports by supported enterprises is rated Modest. The project’s efficacy in diversifying exports by supported enterprises is also rated Modest due to underachievement. Therefore, the overall efficacy is rated Modest. Overall Efficacy Rating Primary Reason Modest Low achievement 5. Efficiency Economic Analysis: At appraisal, an economic analysis was conducted to estimate the economic benefits of CEDF (i.e., Tasdir+) and PEFGF (i.e., Dahmen Finance) based on the expected additional exports generated by participants. At appraisal, the CEDF targeted 2000 beneficiary firms, and the evaluation was based on a total of US$ 40 million Page 12 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN: Third Export Development Project (P132381) (PAD, p.80). It was estimated that the ratio of additional exports to one US dollar grant would be 6 for the first year, 4 for the second year and 2 for the last two years. The CEDF was expected to yield additional benefits through employment and workers’ income and taxes on additional exports. When these additional benefits are translated into increased exports also, in total, it was estimated that US$ 40 million would generate US$ 536 million of additional total exports and yield a Net Present Value (NPV) of US$ 407.55 million (with a discount rate of 8%). After managerial cost and grants and cost sharing disbursement, the expected NPV of CEDF flow of funds was estimated at US$ 370.21 million. PEFGF was to make an additional investment of US$ 9.3 million for six years (in addition to US$5 million of capital currently available from previous EDP), including US$ 1.3 million in TA and capacity building of COTUNACE for simplifying the guarantee procedures. The NPV of these benefits was estimated to be US$ 123.5 million for the first six years while the NPV of net social benefits was estimated at US$43 million over the same period (PAD, p. 23). For each US$1 of export the PEFGF was to cover US$ 0.31, which was 90 percent loan share times 90 percent maximum guarantee share. The NPV of the benefits amount expected to be US$ 123.5 million for the first six years, while the NPV of net social benefits represents US$ 43 million over the same period. At appraisal an Economic Rate of Return (ERR) for either of the programs was not calculated. The ICR repeated the calculations for CEDF and PEFGF at project closing. The estimated NPVs over six years at project closing for both programs were significantly lower than the ones estimated at appraisal. By project closing, a total of 500 companies benefitted from CEDF. According to the ICR (p.40), a US$ 21 million investment in CEDF (Grant and TA) generated US$ 26.22 million of additional total export over a six-year period and yield an NPV of additional exports of US$ 28.9 million. After reducing managerial and grants cost and considering incremental revenues (corporate and tax income, VAT, and social security benefits), economic NPV of CEDF increases to US$ 35.3 million. The ICR kept the assumptions for the CEDF essentially the same but changed the discount rate to 10%. A total of 78 enterprises benefited from PEFGF guarantee over the project period. The NPV of the net flows including additional exports discounted at 10 percent is estimated at US$ 18.3 million for the first six years of the project; while the economic NPV, which includes net social benefits, is estimated at US$ 23.3 million. The ICR kept the assumptions for PEFGF the same which originated from the previous EDPs and the experience and the forecasts of COTUNACE. The ERRs calculated at project closing were 55.75% for CDEF and 41.4% for PEFGF. The ICR (p.39) reports that making a comparison between NPVs could be misleading due to the drastic change in the underlying assumptions with the deterioration of the macro- economic situation during the implementation period and the systemic shock related to the Covid-19 pandemic. Administrative and Operational Efficiency: By project closing, only 43% of loan proceeds had been disbursed despite the project team’s efforts to extend the implementation period to facilitate further disbursements and completion of activities. There had been a long gap between the approval of the project and its effectiveness due to delayed ratification of the loan agreement by the parliament of Tunisia and completion of the legal procedures following the ratification. When the project became effective, some project activities were no longer needed or had already been implemented by the government and were dropped at the first restructuring. The modernization of the Customs IT system, the activity of fostering high value-added exports through the Task Force for the Development of Clusters and Value Chains and the restructuring of the CEPEX could not be completed because of high staff turnover in almost all involved entities, complex project design with high number of activities making monitoring and addressing problems difficult and low procurement capacities in the implementing institutions. Also, conditions imposed by COVID-19 pandemic, changes in the political context, and external political developments adversely affected the implementation of the project. As a result, project implementation was significantly delayed. At project closing, 30 activities (i.e., one third of the activities not cancelled) could not be launched (ICR, p.24). As a result of exceptionally high staff turnover, the Steering Committee which was established to address the major project Page 13 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN: Third Export Development Project (P132381) implementation issues and take measures needed to ensure effective project implementation could not assume this role but operated as an intermittent monitoring of project progress. Consequently, the ICR (p.21) reports that EDP III did not benefit from the same political support and follow-up as the previous programs. Efficiency Rating Modest a. If available, enter the Economic Rate of Return (ERR) and/or Financial Rate of Return (FRR) at appraisal and the re-estimated value at evaluation: Rate Available? Point value (%) *Coverage/Scope (%) 0 Appraisal 0  Not Applicable 0 ICR Estimate 0  Not Applicable * Refers to percent of total project cost for which ERR/FRR was calculated. 6. Outcome The PDO was highly relevant to the country context and aligned with the World Bank strategy. The project’s overall efficacy is rated Modest because of underachievement. The project’s efficiency is Modest due to operational and administrative inefficiencies and lower actual NPVs. Based on these ratings, the Outcome is rated Moderately Unsatisfactory. a. Outcome Rating Moderately Unsatisfactory 7. Risk to Development Outcome Government Ownership Risk: According to the ICR (p.17), the project implementation was delayed due to very high staff turnover in almost all beneficiary institutions. This resulted in weak ownership. The weak ownership poses a risk to the sustainability of achievements related to the activities of TFDCVC and public private dialogue meetings. Also, the EDP III integrated the matching grant component into the CEPEX to ensure long-term sustainability of the function of providing services to export companies coupled with capacity building for CEPEX. Incomplete modernization activities for CEPEX as well as potential high staff turnover pose a substantial risk to the sustainability and continuation of the matching grant scheme. Page 14 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN: Third Export Development Project (P132381) Financial Risk: To continue implementation of matching grant scheme and export finance guarantee program the government needs to secure financial resources. The ICR does not provide any information about the plans of the Government of Tunisia on how to continue these programs in the country. 8. Assessment of Bank Performance a. Quality-at-Entry The project had high strategic relevance as it supported the government of Tunisia’s medium-term social and economic development strategy. At appraisal, the implementation agency risk was rated High. During the implementation of EDP II, weaknesses in financial management and procurement capacities were experienced (PAD, p.21) and one of the major lessons learnt was that complexity of the program could make monitoring and identifying problems difficult. Despite these factors and lessons from previous programs, the project design was complex and involved a high number of activities and executing agencies. The mitigation measures (a high-level steering committee for supervision of the project, trainings on financial management and procurement) were insufficient. At the end of the project, 31 activities (i.e., one third of the activities not cancelled) could not be launched (ICR, p.24). The governance risk was underestimated. The exceptionally high staff turnover in almost all relevant agencies had a negative impact on the implementation and ownership of the project. In addition, the ICR (p.18) reports that the preparatory work to get certain project components ready for implementation was not completed prior to appraisal and their technical complexity was underestimated. In the case of modernization of customs, initial budget modernizing the existing IT system had to change and a comprehensive Terms of References had to be prepared delaying the implementation and eventually as the activity could not be completed by project closing it was transferred to GovTech project. The overhaul of the legal and institutional framework of the guarantee financing mechanism (Dhamen Finance), delayed the roll out of the pre-export financing guarantee scheme and funds could not be fully utilized. The M&E framework had significant weaknesses with respect to the outcome and intermediate results indicators. The Bank's performance at entry is rated as Moderately Unsatisfactory. Quality-at-Entry Rating Moderately Unsatisfactory b. Quality of supervision The World Bank project team provided TA and implementation support to the government of Tunisia to pursue its reform agenda and achieve progress and results under the EDP III (ICR, p.25). Through the Implementation Status Reports (ISRs), the Task Team addressed challenges and reported concerns on the implementation of the project to the authorities and the Bank management. The Task Team’s focus on development results was demonstrated by their effort to restructure the project to address the changing needs of the borrower and the changing economic context. The project was restructured to address Page 15 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN: Third Export Development Project (P132381) implementation and M&E shortcomings and extend the implementation period. Taking the complexity of the project activities into account, the Task Team mobilized important complementary technical assistance on areas such as impact evaluation of the CEDF matching grants, Dhamen Finance, and Customs IT reform (ICR, p.22). During the COVID-19 pandemic, the Task Team increased the frequency of implementation support and technical missions through regular calls with the Project Implementation Unit and relevant agencies. This included the introduction of the Grievance Redress Mechanism (GRM) to handle complaints from the Tasdir+ beneficiary firms. To ensure smooth project closing and enhance the quality of supervision in the challenging COVID-19 pandemic context, the Bank increased the frequency of implementation support and technical missions focusing on priority activities (e.g., Customs IT, CEPEX, Tasdir+). The Bank's performance at supervision is rated as Moderately Satisfactory. Based on the OPCS guidelines, the overall Bank performance is rated as Moderately Unsatisfactory in alignment with the outcome rating. Quality of Supervision Rating Moderately Satisfactory Overall Bank Performance Rating Moderately Unsatisfactory 9. M&E Design, Implementation, & Utilization a. M&E Design Overall, the theory of change was sound but there were some shortcomings in reflecting it in the results framework. The indicators were specific, measurable, relevant, and time bound. The indicators did not fully cover all project outcomes. The results framework did not capture the outcomes expected from the modernization and digitalization of customs IT, capacity building activities, or modernization of CEDEX. There was no indicator to capture the outcomes expected from the export guarantee program. The M&E design and arrangements were sufficiently embedded institutionally. Overall, the PCMU was responsible for consolidating and preparing all M&E reporting including impact and output indicators. The PCMU included an M&E Specialist who was responsible for coordination of monitoring of progress of outputs and outcomes with the technical focal points (Customs, Ministry of Transport, STAM and RNE) in each implementing entity. b. M&E Implementation The project team addressed some of the shortcomings in the M&E design at the first project restructuring. A new outcome indicator was introduced to capture the impact of the export guarantee program, but it was at the output level. The indicator “Total value of exports that benefited from the export guarantee Dhamen Finance” measured the level of utilization of the export-guarantee mechanisms by beneficiary firms, rather than the impact of the export-guarantee-mechanisms. On the other hand, the remaining two Page 16 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN: Third Export Development Project (P132381) outcome indicators (one on diversification and the other on export growth) were improved to meet the changing economic conditions. The mid-term review was conducted in the second quarter of 2018 to assess the project implementation progress. During project implementation, the PCMU regularly collected necessary monitoring data while coordinating with focal points and beneficiaries taking part in the project. In addition, the Bank mobilized complementary technical assistance on areas such as impact evaluation of the CEDF matching grants, Dhamen Finance, and Customs IT reform (ICR, p.22). c. M&E Utilization The project team and the implementing agencies used the M&E findings to make appropriate adjustments to the implementation plan, depending on the status of physical progress. In this regard, four restructurings were carried out based on issues identified in the progress reports and in line with the mid-term review. M&E Quality Rating Modest 10. Other Issues a. Safeguards The project was categorized as environmental and social assessment Category "C," and did not trigger any Bank environmental or social safeguard policy. A GRM was introduced during project implementation. Under the CEDF-Tasdir+ program managed by CEPEX, delays in beneficiary firms were experienced. The project received several complaints (about 20) related to these delayed payments. The GRM enabled the project to follow up on these complaints. All complaints were satisfactorily addressed (ICR, p. 23). b. Fiduciary Compliance Procurement: The project involved large number of activities and procurement packages associated with them. By project closing 31 activities could not be launched (only one third of the activities completed). Some of the key activities of the project namely Customs Information System and RNE were transferred to the GovTech project. The delays in procurement were as a result of weak coordination between the PCMU and the implementing agencies, administrative rigidity reflecting on decision making, low efficiency due to Bank’s and the government’s prior review of procurement activities and high turnover in project coordination and procurement specialist positions. Financial Management: The project experienced challenges in financial management through to project closing. The submission of financial reports and external audit reports were often delayed. Several qualified opinions on the audited financial statements with respect to the eligibility of certain resources allocated to the TASDIR+ component, due to non-compliance with the procedures for verifying eligibility Page 17 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN: Third Export Development Project (P132381) conditions were delivered. Also, the audit reports identified a number of questionable and non-eligible expenditures related to the matching grant component Tasdir+. The ICR reports that these difficulties could have been avoided if project implementation manual had been disseminated among the involved entities and effective internal audit function had been in place. In addition, scope of CGF audit could have covered CEPEX transactions and increased efficiency of the audits. Regarding the final audit, the Task Team commented that there were some open cases, and the examination of Controleur General de Finance (CGF) was ongoing. The CGF is expected to submit the final report to the government after the finalization of their examination (Meeting with the project team on 9 November 2023). According to the ICR (p.24), the overall FM performance of the project is deemed unsatisfactory. c. Unintended impacts (Positive or Negative) None. d. Other None. 11. Ratings Reason for Ratings ICR IEG Disagreements/Comment Moderately Moderately Outcome Unsatisfactory Unsatisfactory Moderately Moderately Bank Performance Unsatisfactory Unsatisfactory Quality of M&E Modest Modest Quality of ICR --- Substantial 12. Lessons The following are lessons learned from the ICR with some paraphrasing:  For complex projects with multi stakeholders, a performance-based finance model can help leverage beneficiaries’ commitment. The EDP III project involved high number of activities, many reform actions and many beneficiaries which created challenges to implement. To improve beneficiary commitment and achievement of project results, a performance-based financing mechanism with disbursement conditions (i.e., legal amendments related to Dhamen Finance; operationalization of the use of TOS and Smart Gate by STAM; implementation of developed investment plans by TFDCVC in the case of EDP III) can be included in the project design. Page 18 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN: Third Export Development Project (P132381)  Extensive consultation and external expertise support to beneficiary institutions can help increase ownership of innovative approaches and can ensure their sustainability. While EDPI and II relied on consultants for the management of the matching grant component, EDP III targeted a better balance between operational efficiency and long- term sustainability and was designed to be implemented by government entities (CEPEX). Although this contributed to sustainability it was partially effective as a result of important implementation challenges related to the lack of stability in CEPEX management, the COVID-19 pandemic, insufficient staffing within the Tasdir+ team. In this regard, adequate consultation for ownership, sufficient assessment of implementation constraints of beneficiary entities as well as identification of mitigation measures and mobilization of specific expertise to compensate for capacity constraints can support ownership of innovative approaches by the beneficiary institutions and their sustainability.  Alignment of export development support mechanism with the national export strategies and anchoring it in government institutions can produce additional benefits to existing and/or future national programs and mechanisms. Within the scope of EDP III, the matching grant program was integrated into CEPEX, and lessons learned from the implementation of this program can contribute to improvement of existing programs under CEPEX as well as development of new ones. For example, lessons of targeting beneficiaries in sector and market segments aligned with the country’s export development strategy; supporting medium-term development plans presented by companies; and improved reach of MSME firms to avoid capture by well-connected firms can feed Tunisia’s existing or new programs.  In the context of political, institutional change and in the presence of capacity constraints, keeping the number of activities and stakeholders limited and focusing on the activities with the highest priority can help full achievement of the project’s objective. The EDP III addressed a wide range of reform agenda involving high number of stakeholders. The political instabilities and high turnover experienced in many of the beneficiary institutions resulted in implementation delays and even cancellation of significant number of activities. The project with fewer selected activities and beneficiaries would have been more suited to the political and institutional context and achieve its planned objective. 13. Assessment Recommended? No 14. Comments on Quality of ICR The ICR provides a detailed overview of the project. It is candid in explaining the issues encountered at different phases of implementation. The report is concise and follows most of the guidelines. The report is mostly internally consistent. There is a logical linking of the various parts of the report. The ICR provides evidence based on the measurement of the indicators in the results framework. The quality of the ICR could be further improved by enriching efficacy section (particularly for Objective 2) by providing additional evidence outside the M&E framework. The discussion in the Lessons and Recommendations section are clear, useful, Page 19 of 20 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TN: Third Export Development Project (P132381) and mostly based on the evidence outlined in the ICR but they are more in the form of findings and recommendations rather than lessons. a. Quality of ICR Rating Substantial Page 20 of 20