The World Bank Micro, Small and Medium Enterprises Business Development Services Project (P176690) Appraisal Environmental and Social Review Summary Appraisal Stage (ESRS Appraisal Stage) Public Disclosure Date Prepared/Updated: 03/06/2023 | Report No: ESRSA02387 Mar 06, 2023 Page 1 of 9 The World Bank Micro, Small and Medium Enterprises Business Development Services Project (P176690) BASIC INFORMATION A. Basic Project Data Country Region Project ID Parent Project ID (if any) Djibouti MIDDLE EAST AND NORTH P176690 AFRICA Project Name Micro, Small and Medium Enterprises Business Development Services Project Practice Area (Lead) Financing Instrument Estimated Appraisal Date Estimated Board Date Finance, Competitiveness Investment Project 3/31/2023 and Innovation Financing Borrower(s) Implementing Agency(ies) Republic of Djibouti - Center for Leadership and Ministry of Economy and Entrepreneurship (under the Finance, in Charge of Ministry of Digital Economy Industry, Ministere and Innovation) delegue de l'Economie Public Disclosure Numerique et de l'Innovation Proposed Development Objective The project's development objective is to enhance access to Business Development Services for Micro, Small and Medium Enterprises (MSMEs) in Djibouti City in order to foster innovation, improved productivity, and job creation. Financing (in USD Million) Amount Total Project Cost 4.73 B. Is the project being prepared in a Situation of Urgent Need of Assistance or Capacity Constraints, as per Bank IPF Policy, para. 12? No C. Summary Description of Proposed Project [including overview of Country, Sectoral & Institutional Contexts and Relationship to CPF] The Djibouti Micro, Small, and Medium Enterprises (MSMEs) Business Development Services (BDS) aims to complement the activities of the Djibouti Support for Women and Youth Entrepreneurship project (P165558) by Mar 06, 2023 Page 2 of 9 The World Bank Micro, Small and Medium Enterprises Business Development Services Project (P176690) expanding the capacity of the Center for Leadership and Entrepreneurship (CLE) to offer business development development services to MSMEs in response to the evolving entrepreneurship ecosystem in Djibouti City. Using funding from the European Union, the proposed project will support the reduction of operating costs for businesses through digitalization and build entrepreneurial capacity to respond to market demand. Under the first component, the project will provide financial support to the CLE to provide BDS and government-to business services (G2B) to new and existing MSMEs such as training, capacity building, skills development, financial planning, accounting, certification services, etc. The prepared feasibility study indicated that no sector will be excluded from project activities; however special attention will be given to promising sectors as identified through various studies, namely construction, energy, IT, fishery. The project will provide sector-specific support including technical studies and adoption of improved production technologies. For all project beneficiaries, digital technology adoption will be supported through activities such as website/social media page creation or revamping, digital marketing, digital payment set-up and usage etc. The project will also foster better integration in relevant value chains. Most of the services will be sold to MSMEs beneficiaires. The payment scheme will act as a filter in the selection of businesses and ensure their commitment. The prices of the services will be defined based on the maturity of the business, and the type of service. Support packages will be proposed at competitive prices cheaper than current prices applied by the private sector but ensuring the self-sufficiency of the CLE. Moreover, a physical kiosk hosting a virtual (online) One-Stop Shop for several G2B services will be established and opened to all MSMEs. This One-Stop Shop is expected to bring together several government agencies in charge of business regulation and MSMEs support in the same location. Public Disclosure D. Environmental and Social Overview D.1. Detailed project location(s) and salient physical characteristics relevant to the E&S assessment [geographic, environmental, social] The project potential environmental and social footprint will be limited in the urbanized area of Djibouti-City. The project activities will take place within the premises of the CLE. Djibouti is home to a growing young population with a steady inflow of refugees especially in urban areas. The population barely exceeding 1 million in 2021, lives mainly in urban areas (78.2 percent). In 2020, around 17 percent of the population lived below the international poverty line (US$ 1.90 PPP per day). An estimated 47 percent of the labor force is unemployed with predictable gender inequalities: employment to population ratio is 14 percent for women against 38 percent for men. Youth unemployment is also very high with an estimated 86 percent of 15-24 years old, and 47 percent of 25 to 39 years old unemployed (IFC Djibouti Private Sector Diagnostic). Moreover, gender inequality in the labor market remains significant, with only 29 percent of women aged 15 to 64 are active in the labor market. Moreover, only 54 percent of women with at least three years of university education are in the labor market (compared to 76 percent of men). Challenges that are encountered by women entrepreneurs include access to financing, difficulty in finding customers, household responsibilities towards family and children, high competition from existing businesses. Moreover, there are legal restrictions on the employment of women in certain professions. The main challenges faced by MSMEs include 1) the electricity rate that remains high for businesses, at US$0.26 per kilowatt-hour (kWh) in 2020, more than seven times the cost of electricity in neighboring Ethiopia and far more than in African regions Sub-Saharan and MENA. Similarly, fixed and mobile telecommunications services provided by the state monopoly (Djibouti Telecom) are marked by high prices, low coverage and poor services, despite Djibouti's unique international connectivity. 2) The high cost of real estate that limits the availability of office space for Mar 06, 2023 Page 3 of 9 The World Bank Micro, Small and Medium Enterprises Business Development Services Project (P176690) entrepreneurs in Djibouti-City, resulting in high operating costs and low productivity. 3) Private sector activity remains limited by restricted access to credit and its high cost (interest rate of 10%), and the many procedures required to obtain building permits, register goods and to cross-border trade. Much has been done to improve the overall business climate including the introduction of a 3-year exemption from business licensing fees for new companies in specific sectors, the reduction of the procedures to start a business thanks to a one-stop shop established in 2017, and the reduction of licensing fees for investors to 40 percent in 2019 from 200 percent in 2012. The Support for Women and Youth Entrepreneurship Project (P165558) has so far succeeded in providing support to business creation for 559 beneficiaries and funded 2574 entrepreneurs. Moreover, the Djibouti Governance for Private Sector Development and Finance Project (P146250), closed in June 2021, has supported the creation of a One- Stop Shop for Business Registration which has led to the registration of more than 2,000 new businesses, bringing the national baseline of around 3,000 enterprises before the project, to more than 5,000 businesses created. A feasibility study has been conducted, which confirmed that Djiboutian MSMEs need professional support in four key areas: accounting, marketing, legal, and digitalization. Because of the poor management of their business accounts, they are often unable to prepare rigorous credit application and fundraising proposals. Moreover, many aspiring entrepreneurs require support to find resources and complete their registration. Existing businesses on the other hand are often unaware of changes in regulations applicable to their activities. D. 2. Borrower’s Institutional Capacity The project will be implemented by the Center for Leadership and Entrepreneurship (CLE), a semi-public non-profit institution with a Board of Directors composed of representatives of the public and private sectors, dedicated to the Public Disclosure development of entrepreneurship and innovation in various economic and industrial sectors, under the oversight of the "Ministère Délégué chargé de l'Economie Numérique et de l'Innovation" (MENI, Delegate Ministry in charge of digital economy and Innovation). The center aims to support and accelerate the growth of businesses in Djibouti. The CLE offers several services and tools allowing entrepreneurs to start a business in an equipped and serviced facility. More specifically, the CLE was created in 2018 to strengthen the quality of government services provided to the private sector and to serve as an incubator for youth and women led small enterprises by providing young entrepreneurs with space, training and business development. More precisely, the CLE 1) Ensures the coordination of actors involved in the promotion of support activities for entrepreneurship and business development; 2) Offers a space for exchange and development allowing companies to find opportunities; 3) Provides hands-on experience, entrepreneurial training, and guidance for business creation, management, and development; 4) Identifies growth poles and opportunities for local businesses and start-ups. Target beneficiaries of the CLE are all actors working for the economic development of the country, with particular emphasis on young people, women, self-employed workers, MSMEs, public institutions and NGOs serving the development of entrepreneurship and business services in Djibouti. While the CLE has some experience and capacity in managing World Bank projects, the current team is comprised of newly hired dynamic members. Moreover, this project will be the first project managing Environmental and Social (ES) risks and impacts and applying the environmental and social framework (ESF). An ES focal point will be appointed by CLE for the project to manage ES risks/issues, to monitor implementation of the ES mitigation measures during operations. The ES focal point will benefit from capacity building training and support to be provided by the World Bank Team. In addition, part-time stakeholder engagement agents will be hired or appointed to support implementation of the stakeholder engagement plan (SEP). Mar 06, 2023 Page 4 of 9 The World Bank Micro, Small and Medium Enterprises Business Development Services Project (P176690) II. SUMMARY OF ENVIRONMENTAL AND SOCIAL (ES) RISKS AND IMPACTS A. Environmental and Social Risk Classification (ESRC) Moderate Environmental Risk Rating Low The environmental risk rating of the project is low. Although the proposed project will not support large scale any civil work activities, the procurement of equipment and material is expected to include some ergonomic furniture, hardware IT infrastructure and network infrastructure. The impacts associated with the installation of these equipment include solid waste management, management of e-waste at end-of-life. Disposal of e-waste and any other office waste, computer consumables (ink cartridges, laser cartridges, toners, printer ribbons, etc.) can impact to the environment given that currently in Djibouti, no system of collection, evacuation and elimination of these e-waste is in place. The project is not anticipating the generation of a huge amount of e-wastes. There is the risk of exposure to COVID-19, fire and safety in public buildings, for project beneficiaries particularly during training, capacity building support, technical assistance and advisory services to MSMEs. The potential impacts associated with the project activities are expected to be localized, limited and reversible, therefore manageable. Social Risk Rating Moderate Potential social risks and impacts related to project investments are rated as moderate and may include during operations: i) The risk of a non-inclusive and discriminatory selection of MSMEs benefitting from the project, including exclusion of marginalized groups, especially those economically and/or socially vulnerable (such as women, persons with disabilities, internally displaced persons (IDPs), refugees from neighboring communities and local slum Public Disclosure communities), and/or elite capture by MSMEs; and ii) the risk of limited dissemination of eligibility criteria for MSMEs to benefit from component 1. Thus, the project will ensure that project benefits will be shared in an inclusive and non-discriminatory manner, with all groups of people, including women, persons with disabilities, IDPs and local communities (e.g., by ensuring that the design is gender-sensitive and universally accessible, selection criteria for MSMEs are made available to the public in transparent manner, etc.). B. Environment and Social Standards (ESSs) that Apply to the Activities Being Considered B.1. General Assessment ESS1 Assessment and Management of Environmental and Social Risks and Impacts Overview of the relevance of the Standard for the Project: The project may have an environmental and resource use footprint (increase in e-waste and other related non- recyclable office waste). There are also risks of propagation and exposure to COVID-19 of beneficiaries particularly during training, capacity building support, technical assistance and advisory services to MSMEs, as well as risks of a non-inclusive and discriminatory approach to MSMEs benefitting from the project, including exclusion of marginalized groups, which are economically and/or socially vulnerable (such as women, persons with disabilities, IDPs and local slum communities), and/or elite capture by MSMEs. Thus, the ESCP proposes provisions to include mitigation measures for project risks in the project implementation manual (PIM), including for labor risks, occupational health and safety (OHS), pollution, SEA/SH, as well as measures Mar 06, 2023 Page 5 of 9 The World Bank Micro, Small and Medium Enterprises Business Development Services Project (P176690) to reduce COVID contagion risk. Moreover, the SEP indicates that selection criteria for MSMEs to benefit from project will be available to the public in transparent manner. The project component 2 aims to finance the acquisition of equipment and business service development services (training, etc.). The equipment and material are expected to include office furniture and amenities, hardware, software, server room, storage systems, (cloud and onsite), etc. The environmental impacts associated with the installation of equipment include aspects of solid waste management, management of e-waste at end of life. ESS10 Stakeholder Engagement and Information Disclosure This standard is relevant as the project will involve various stakeholders: project affected parties, other interested parties, and disadvantaged and vulnerable groups, which are described in the SEP. The main project affected parties include Djiboutian MSMEs, especially those located in Djibouti City. More specifically, those will be comprised of a) beneficiaries of the Support to Women and Youth Entrepreneurship project in need of additional support, b) owners of new or existing MSMEs with high growth potential, c) aspiring entrepreneurs including those who have informal sources of livelihoods, d) household members of entrepreneurs who are primary bread winners, and e) individuals living from the informal economy in the project's area of influence. Other interested parties will include entrepreneurship ecosystem players such as financial institutions, the Project Steering Committee, public institutions, representation of enterprises and employees, programs supporting MSMEs, the Association of Bankers and the Club of Young Entrepreneurs of Djibouti, etc. Main disadvantaged and vulnerable groups include poor MSMEs or entrepreneurs, informal entrepreneurs, women groups, cultural, ethnic or religious minorities, migrants and Public Disclosure refugees, persons with disability. The PMU has prepared a SEP prior to Appraisal consistent with the requirements of ESS10. The SEP includes procedures to ensure that services provided to MSMEs by the project will be shared in an inclusive and non- discriminatory manner, with MSMEs, women, youth, persons with disabilities, IDPs, refugees from neighboring countries and local communities and that selection criteria for MSMEs to benefit from project are made available to the public in a transparent manner, etc. The SEP also includes procedures for external communications on ES matters proportionate to the risks and impacts of project activities consistent with the requirements of ESS10 and will be updated as needed in due time. The draft SEP was subject to public consultations and inputs from 25 stakeholders on May 11, 2022. Discussions revolved around ensuring continuity of other projects already established, working closely with private partners, with the already existing one stop shop and with persons with disabilities and ensuring universal access of the services as well as including capacity building of youth and creating a research department. Details on the outcomes from consultations and the list of groups consulted are found in the SEP. However, changes in the project components have taken place since this public consultation, where the component on renting a private location which will host training centers and office spaces has been removed from the project. Thus, a second public consultation to inform stakeholders of these changes will take place. Stakeholder engagement activities will be inclusive of all groups of stakeholders stated above, including vulnerable groups. The SEP also includes mechanisms for receiving feedback from stakeholders and close the feedback loop. It also includes details and arrangements for a project-level grievance mechanism to respond to public enquiries and concerns, including a grievance mechanism to respond to any SEA/SH related complaints. Given the context of the Mar 06, 2023 Page 6 of 9 The World Bank Micro, Small and Medium Enterprises Business Development Services Project (P176690) COVID-19 pandemic, the SEP will follow a precautionary approach and favor digital forms of engagement and social media channels. B.2. Specific Risks and Impacts A brief description of the potential environmental and social risks and impacts relevant to the Project. ESS2 Labor and Working Conditions This standard is relevant for the project. The project will include direct workers for the PMU (PMU civil servants and consultants) and contracted workers. The project may expose project beneficiaries to adverse labor and working conditions. To manage workers in accordance with the requirements of ESS2, the ESCP includes provisions to include Labor Management Procedures section proportionate to the risks and impacts and focusing on the following groups in the PIM: (i) direct workers; (ii) contracted workers employed or engaged through third parties. Key risks associated with this standard include (i) exposure of project workers to COVID-19 and (ii) compliance with labor and working conditions, including Sexual Exploitation and Abuse/Sexual Harassment (SEA/SH), discrimination, child labor and forced labor. Although the risk of sexual exploitation and abuse is deemed to be low, the risk of sexual harassment in the workplace cannot be entirely eliminated. The PIM will include provisions on working conditions and terms of employment; non-discrimination and equal opportunity; worker’s organizations; child labor and minimum age; forced labor; documentation and reporting of occupational accidents; accident prevention and remedies for injuries, disability and disease as well as details and Public Disclosure arrangements for a workers grievance mechanism to respond to enquiries and complaints. These provisions (including OHS clauses) will be included in the procurement contract of contracted workers. ESS3 Resource Efficiency and Pollution Prevention and Management This standard is relevant for this project. The project may present risks/impacts linked to the quality requirements for office and IT equipment (spare parts, the possibility of maintenance, intrinsic quality); the pollution management of e-wastes and office waste generated, during the operational phase of building. GHG emissions from the project are expected to be minimal given that the project mainly will finance TA and advisory services activities. Given the scale of project activities, the project does not require to calculate GHG emissions. However, impacts related to resources use efficiency and GHG emission mitigation will be taken in account in the in the Project Implementation Manual. The PMU will also promote the resource efficiency tools during the capacity building and financing services to MSMEs. The PIM will include all the necessary procedures to ensure considerations related to resource efficiency, pollution prevention and management. ESS4 Community Health and Safety Mar 06, 2023 Page 7 of 9 The World Bank Micro, Small and Medium Enterprises Business Development Services Project (P176690) This ESS is relevant for this project. Community health and safety risks associated with this project are expected to be relatively low for this project. The relevance of this ESS comes mainly from risks of exposure to COVID-19 for counterparts and MSMEs, during the training, capacity-building support, technical assistance, and advisory services activities to MSMEs. Moreover, as some project activities will take place in a multitude of training and job settings, targeting vulnerable youth and women businesses-owners who may be exposed to sexual harassment SEA/SH risks. Moreover, the transport of equipment to the building may create temporary negative impact and disturbance to the surrounding neighbors. ESS5 Land Acquisition, Restrictions on Land Use and Involuntary Resettlement This ESS is considered not relevant for the project at this stage, although the current information available is limited ESS6 Biodiversity Conservation and Sustainable Management of Living Natural Resources This ESS is not expected to be relevant to this project. The project implementation site will be in a modified landscape i.e. already used as offices. ESS7 Indigenous Peoples/Sub-Saharan African Historically Underserved Traditional Local Communities The ESS is not relevant as there are no communities in Djibouti that fulfill ESS definition of indigenous people. Public Disclosure ESS8 Cultural Heritage This standard is not relevant because it is not anticipated that the Project will not affect built heritage, intangible heritage, or natural heritage ESS9 Financial Intermediaries This ESS is not expected to be relevant to this project. The project is unlikely to procure the services of financial intermediaries. C. Legal Operational Policies that Apply OP 7.50 Projects on International Waterways No OP 7.60 Projects in Disputed Areas No B.3. Reliance on Borrower’s policy, legal and institutional framework, relevant to the Project risks and impacts Mar 06, 2023 Page 8 of 9 The World Bank Micro, Small and Medium Enterprises Business Development Services Project (P176690) Is this project being prepared for use of Borrower Framework? No Areas where “Use of Borrower Framework” is being considered: Use of borrower framework is not being considered IV. CONTACT POINTS World Bank Contact: Marie Christine Apedo Amah Title: Economist Telephone No: +1-202-820-0157 Email: dapedoamah@worldbank.org Borrower/Client/Recipient Borrower: Republic of Djibouti - Ministry of Economy and Finance, in Charge of Industry Borrower: Ministere delegue de l'Economie Numerique et de l'Innovation Implementing Agency(ies) Center for Leadership and Entrepreneurship (under the Ministry of Digital Economy and Implementing Agency: Innovation) Public Disclosure V. FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects VI. APPROVAL Task Team Leader(s): Marie Christine Apedo Amah Practice Manager (ENR/Social) Senait Nigiru Assefa Cleared on 28-Oct-2022 at 15:29:3 EDT Mar 06, 2023 Page 9 of 9