The World Bank Turkey Rapid Support for Micro and Small Enterprises during the COVID-19 crisis (P174144) REPORT NO.: RES49823 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF TURKEY RAPID SUPPORT FOR MICRO AND SMALL ENTERPRISES DURING THE COVID-19 CRISIS Approved on DECEMBER 18, 2020 TO SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ORGANIZATION OF TURKEY/KÜÇÜK VE ORTA ÖLÇEKLI İŞLET November 24, 2021 FINANCE, COMPETITIVENESS AND INNOVATION EUROPE AND CENTRAL ASIA Regional Vice President: Anna M. Bjerde Country Director: Auguste Tano Kouame Regional Director: Lalita M. Moorty Practice Manager/Manager: Mario Guadamillas Task Team Leader(s): Stefka Slavova, Javier Eduardo Baez Ramirez The World Bank Turkey Rapid Support for Micro and Small Enterprises during the COVID-19 crisis (P174144) ABBREVIATIONS AND ACRONYMS ESS Environmental and Social Standards ISR Implementation Supervision Report KOSGEB Small and Medium Enterprises Development Organization of Turkey/Küçük ve Orta Ölçekli İşlet MoIT Ministry of Industry and Technology MSE Micro and Small Enterprise M&E Monitoring and Evaluation PDO Project Development Objective PIU Project Implementation Unit RSF Reimbursable Support Financing TRY Turkish Lira USD United States Dollars The World Bank Turkey Rapid Support for Micro and Small Enterprises during the COVID-19 crisis (P174144) BASIC DATA Product Information Project ID Financing Instrument P174144 Investment Project Financing Environmental and Social Risk Classification (ESRC) Moderate Approval Date Current Closing Date 18-Dec-2020 30-Jun-2023 Organizations Borrower Responsible Agency Small and Medium Enterprises Development Organization Small and Medium Enterprises Development of Turkey/Küçük ve Orta Ölçekli İşlet Organization of Turkey/Küçük ve Orta Ölçekli İşlet Project Development Objective (PDO) Original PDO The Project Development Objective (PDO) is to avert the closure of viable micro and small enterprises (MSEs) affected by the COVID-19 crisis and maintain their employment levels during the crisis. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-91950 18-Dec-2020 08-Mar-2021 23-Apr-2021 30-Jun-2023 300.00 45.77 254.23 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No 1 The World Bank Turkey Rapid Support for Micro and Small Enterprises during the COVID-19 crisis (P174144) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Introduction 1. This restructuring paper follows the recently approved and signed restructuring paper RES48714. The original text of RES48714 is not repeated here; only the changes that pertain to the present restructuring are described. Changes are introduced to eliminate all references to the base month of March 2020 that appeared in the original Project Appraisal Document and Loan Agreement and to introduce the concept of increased employment in micro and small enterprises (MSEs) relative to the average employment level of an MSE for the 12-month period preceding the date on which the relevant Reimbursable Support Financing call-for-application is issued and to which the MSE is applying. The Loan Agreement and Results Framework are also modified to delete all references to the base month of March 2020. B. Background 2. The Turkey MSE project was prepared in 2020 during the height of the COVID-19 pandemic, under circumstances of economic and social uncertainty in Turkey and around the world, with the Project Development Objective (PDO) being to avert the closure of viable MSEs affected by the COVID-19 crisis and maintain their employment levels during the crisis. The project consists of three components: (a) Component 1: Performance-based reimbursable support financing for eligible MSEs in the manufacturing sector (b) Component 2: Performance-based reimbursable support financing for eligible innovative young firms (c) Component 3: Technical support to the PIU under the Small and Medium Enterprise Organization of Turkey (KOSGEB) 3. The project was one of the World Bank’s COVID-response lending operations in support of the private sector and, together with the Emergency Firm Support Project (P17412), provided a lifeline to viable MSMEs in Turkey at the height of the Covid-19 crisis. The project was prepared and delivered on a fast-track schedule and involved intense deliberations at concept stage and appraisal about the design and timeline for delivery. KOSGEB (the Borrower), the Ministry of Industry and Technology (MoIT) and the Ministry of Treasury and Finance (MoTF) were actively involved in all stages of preparation and have demonstrated high levels of commitment to implement the project properly, once it became effective. C. Status of implementation 4. The project was approved on December 18, 2020 and became effective on April 23, 2021. The current closing date is June 30, 2023, thanks to the recent extension of closing date and amendment to the original Loan Agreement. Current implementation status remains the same as recorded in the previous restructuring paper and KOSGEB is anticipating the conclusion of the restructuring process to launch a third call for applications. Implementation progress continues to be satisfactory. D. Rationale for restructuring 5. The project was restructured on December 16, 2021 with the purpose of expanding the sectors that can benefit from reimbursable support financing and provide support to MSEs that hire additional employees. The current restructuring builds on the former, further specifying that the concept of the base month of March 2020, against which MSE employment levels were to be compared, is no longer relevant under the new design. The base month of March 2020 was used as a reference point during the design of this project at the beginning and height of the COVID-19 pandemic. 2 The World Bank Turkey Rapid Support for Micro and Small Enterprises during the COVID-19 crisis (P174144) Since then, the firms targeted by this project have adapted to the pandemic and the ensuing economic crisis, possibly decreasing employment temporarily. Now that Turkey has entered the current late-pandemic recovery period, it is more relevant to measure their baseline employment as an average of the 12 months preceding their application for RSF, while also encouraging them to increase employment with the RSF. The new concept of Benchmark Level of employment is introduced to replace the base month and any reference to a specific time. This restructuring is also required to eliminate any references to manufacturing, computer programming and scientific research and development (R&D) sectors, which were the focus of the original operation. Instead, the current restructuring fine-tunes the concept of Target Sector that was introduced with the previous restructuring and allows for the collective use of the term Target Sectors when describing all target sectors. This restructuring is required to also amend PDO Indicator #2, which specifically referred to MSE employment levels of March 2020, by making the indicator consistent with the new benchmark levels of employment and the new requirement that MSEs increase employment. Finally, this restructuring will also amend one of the reimbursable support financing criteria by excluding MSEs with more than 50% female employees. This change was introduced in the previous restructuring but would be difficult to implement and, is therefore, required to facilitate future project implementation. 7. The changes proposed in this paper will require a Level-2 restructuring. Consultations with WB operational specialists and the project legal team concluded that the PDO does not need to be changed. II. DESCRIPTION OF PROPOSED CHANGES E. Changes that apply to both Components 1 and 2 8. The concept of maintaining employment relative to a ‘base month’ (previously March 2020) is eliminated. It is substituted by the requirement for MSEs to increase employment relative to the average employment level of the MSE over the 12-month period preceding the date on which the relevant Reimbursable Support Financing call-for-application is issued and to which the MSE is applying. This 12-month period is now referred to as the benchmark level of employment. This would allow for a more recent and more accurate measure of employment to be used as a benchmark against which beneficiary MSEs would be expected to increase their employment following receipt of RSF. In addition, this restructuring introduces the collective concept of target sectors, as all the sectors that satisfied the definition of a target sector under the previous restructuring. Since the original loan focused only on manufacturing and innovative young firms in manufacturing, computer programming and scientific research and development (R&D) sectors, a change in the titles of components 1 and 2 is required to delete references to manufacturing (component 1) and manufacturing, computer programming and scientific R&D sectors (component 2) and replace these with the broader term of “Targeted Sectors”. This was omitted in the previous restructuring and this change remedies that omission. The new titles of components 1 and 2 will be: Component 1. Performance-based Reimbursable Support Financing for eligible MSEs in Targeted Sectors. Component 2. Performance-based Reimbursable Support Financing for eligible Innovative Young Firms in Targeted Sectors 3 The World Bank Turkey Rapid Support for Micro and Small Enterprises during the COVID-19 crisis (P174144) Finally, the condition for reimbursable support financing with respect to MSEs with more than 50% female employment is removed, so that the condition only refers to MSEs that are owned by females. This change was introduced in the previous restructuring, but is modified to facilitate implementation at the request of the Borrower. F. Other changes 9. PDO indicators: PDO indicator # 2, which states “Share of beneficiary surviving MSEs that maintain employment at the level recorded in March 2020, for at least 6 months after receiving performance-based reimbursable support financing (Percentage)” is modified to eliminate the reference to March 2020 and capture the requirement for MSEs to increase employment for at least 12 months after receiving RSF. That is, the indicator is changed to: “Share of beneficiary surviving MSEs that increase employment relative to the average employment level of the MSE for the 12-month period preceding the date on which the relevant Reimbursable Support Financing call-for-application is issued and to which the MSE is applying, for at least 12 months after receiving reimbursable support financing.” Note that the full name of the revised indicator does not fit in the basic datasheet below, but is spelled out fully in the description of indicators. 18 Legal covenants: Changes are made to the Loan Agreement in Schedule 1 (Project Description), Schedule 2 (Implementation Arrangements), and the Appendix (Definitions) to replace the reference to “Base Month” with “Benchmark Level,” specifying Benchmark Level of employment means the average employment level of an MSE for the 12-month period preceding the date on which the relevant Reimbursable Support Financing call-for-application is issued and to which the MSE is applying. Changes are also made to the Loan Agreement, Schedule 1, to specify that eligible firms in Component 1 and Component 2 are those in Targeted Sectors, defined as all such sectors (approved by the World Bank for the purposes of this Project and incorporated in the Project Operations Manual following such approval) that has been (a) verified by the Borrower as having 55 percent or more of its enterprises experience income loss in calendar year 2020 relative to calendar year 2019, or (b) assessed and listed by the Organisation for Economic Co-operation and Development (OECD) as one of the economic sectors most directly affected by (COVID-19) lockdown measures (see https://www.oecd.org/sdd/business-stats/statistical-insights-small-medium-and-vulnerable.htm), but excluding the construction sector. Schedule 2, on the criteria to determine the amount of RSF, has been revised to recognize the amounts applicable to Micro Enterprises and Small Enterprises that are owned by women only. NOTE TABLE III. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Components and Cost ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ PBCs ✔ 4 The World Bank Turkey Rapid Support for Micro and Small Enterprises during the COVID-19 crisis (P174144) Loan Closing Date(s) ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ Overall Risk Rating ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Component 1: Performance- Component 1: Performance- based reimbursable support based Reimbursable Support 259.00 Revised 259.00 financing for eligible MSEs in the Financing for eligible MSEs in manufacturing sector Targeted Sectors Component 2: Performance- Component 2: Performance- based Reimbursable Support based reimbursable support 40.00 Revised Financing for eligible 40.00 financing for eligible innovative Innovative Young Firms in young firms Targeted Sectors Component 3: Technical Component 3: Technical support 1.00 No Change support to the PIU under 1.00 to the PIU under KOSGEB KOSGEB 5 The World Bank Turkey Rapid Support for Micro and Small Enterprises during the COVID-19 crisis (P174144) TOTAL 300.00 300.00 . 6 The World Bank Turkey Rapid Support for Micro and Small Enterprises during the COVID-19 crisis (P174144) . Results framework COUNTRY: Turkey Turkey Rapid Support for Micro and Small Enterprises during the COVID-19 crisis Project Development Objectives(s) The Project Development Objective (PDO) is to avert the closure of viable micro and small enterprises (MSEs) affected by the COVID-19 crisis and maintain their employment levels during the crisis. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name PBC Baseline Intermediate Targets End Target 1 Project Development Objective Indicators Share of beneficiary MSEs that survive the COVID- 19 crisis for at least six months after receiving 0.00 25.00 65.00 performance-based reimbursable support financing (Percentage) Share of beneficiary surviving MSEs that increase employment relative to the average employment level of the MSE for the 12-month period 0.00 25.00 70.00 preceding on which the app [see description for full name] (Percentage) Action: This indicator has been Revised Share of beneficiary innovative young firms that survive the COVID-19 crisis for at least six months 0.00 20.00 50.00 after receiving performance-based reimbursable support financing (Percentage) PDO Table SPACE 7 The World Bank Turkey Rapid Support for Micro and Small Enterprises during the COVID-19 crisis (P174144) Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets End Target 1 Performance-based reimbursable support financing for eligible MSEs Of applicants that are female-led or -owned MSEs or with female majority workforce, share that 0.00 20.00 50.00 meet the eligibility criteria and receive reimbursable support financing (Percentage) KOSGEB Firm Engagement: Beneficiary firms reporting that the provided reimbursable support 0.00 30.00 70.00 financing reflected their needs (Percentage) Performance-based reimbursable support financing for innovative young firms (est. in 2017 or later) Of applicants that are female-led or -owned young innovative MSEs or with female majority workforce, share that meet the eligibility criteria 0.00 20.00 50.00 and receive reimbursable support financing (Percentage) KOSGEB Firm Engagement: Beneficiary young firms reporting that the provided reimbursable 0.00 30.00 70.00 support financing reflected their needs (Percentage) IO Table SPACE 8 The World Bank Turkey Rapid Support for Micro and Small Enterprises during the COVID-19 crisis (P174144) ANNEX 1- PROPOSED TARGET SECTORS LIST *: Only the sub sectors which are in KOSGEB’s legal target audience will be covered. Sub sectors in WB exclusion list will be excluded. Current Sectors NACE NACE Section NACE NACE Division Name OECD Total The ratio of target proposed Section Name Division most number the number of MSEs sectors of to be Code Code affected of that lost revenue in 2020 project* added to sectors MSEs compared to 2019 project’s list in the to target sector the total number of audience* MSEs in the sector X C Manufacturing 10 Manufacture of food products 28665 47,3% X C Manufacturing 11 Manufacture of beverages 441 44,7% X C Manufacturing 13 Manufacture of textiles 12517 48,7% X C Manufacturing 14 Manufacture of wearing apparel 21188 56,9% X C Manufacturing 15 Manufacture of leather and related products 4879 63,1% X C Manufacturing 16 Manufacture of wood and of products of wood 7872 50,6% and cork, except furniture; manufacture of articles of straw and plaiting materials X C Manufacturing 17 Manufacture of paper and paper products 2969 34,8% X C Manufacturing 18 Printing and reproduction of recorded media 7273 57,3% X C Manufacturing 20 Manufacture of chemicals and chemical products 4989 33,4% X C Manufacturing 21 Manufacture of basic pharmaceutical products and 480 30,6% pharmaceutical preparations X C Manufacturing 22 Manufacture of rubber and plastic products 12060 42,7% X C Manufacturing 23 Manufacture of other non-metallic mineral 4882 48,3% products X C Manufacturing 24 Manufacture of basic metals 5318 39,9% X C Manufacturing 25 Manufacture of fabricated metal products, except 29976 42,2% machinery and equipment X C Manufacturing 26 Manufacture of computer, electronic and optical 1837 39,5% products X C Manufacturing 27 Manufacture of electrical equipment 6636 40,3% 9 The World Bank Turkey Rapid Support for Micro and Small Enterprises during the COVID-19 crisis (P174144) Current Sectors NACE NACE Section NACE NACE Division Name OECD Total The ratio of target proposed Section Name Division most number the number of MSEs sectors of to be Code Code affected of that lost revenue in 2020 project* added to sectors MSEs compared to 2019 project’s list in the to target sector the total number of audience* MSEs in the sector X C Manufacturing 28 Manufacture of machinery and equipment n.e.c. 14067 35,9% X C Manufacturing 29 Manufacture of motor vehicles, trailers and semi- X 3776 32,0% trailers X C Manufacturing 30 Manufacture of other transport equipment X 1056 45,7% X C Manufacturing 31 Manufacture of furniture 18351 53,8% X C Manufacturing 32 Other manufacturing 3441 55,8% X C Manufacturing 33 Repair and installation of machinery and 14122 40,0% equipment X G Wholesale and 45 Wholesale and retail trade and repair of motor X 70616 34,0% Retail Trade; vehicles and motorcycles Repair Of Motor Vehicles and Motorcycles X G Wholesale and 46 Wholesale trade, except of motor vehicles and X 172285 46,9% Retail Trade; motorcycles Repair Of Motor Vehicles and Motorcycles X G Wholesale and 47 Retail trade, except of motor vehicles and X 349129 44,8% Retail Trade; motorcycles Repair Of Motor Vehicles and Motorcycles X I Accommodation 55 Accommodation X 13521 77,8% and Food 10 The World Bank Turkey Rapid Support for Micro and Small Enterprises during the COVID-19 crisis (P174144) Current Sectors NACE NACE Section NACE NACE Division Name OECD Total The ratio of target proposed Section Name Division most number the number of MSEs sectors of to be Code Code affected of that lost revenue in 2020 project* added to sectors MSEs compared to 2019 project’s list in the to target sector the total number of audience* MSEs in the sector Service Activities X I Accommodation 56 Food and beverage service activities X 82026 64,2% and Food Service Activities X J Information 58 Publishing activities 2647 55,9% and Communication X J Information 59 Motion picture, video and television program 1991 62,6% and production, sound recording and music publishing Communication activities X J Information 60 Programming and broadcasting activities 653 59,1% and Communication X J Information 62 Computer programming, consultancy and related 11391 39,7% and activities Communication X M Professional, 70 Activities of head offices; management X 7587 51,9% Scientific and consultancy activities Technical Activities X M Professional, 71 Architectural and engineering activities; technical X 21348 52,3% Scientific and testing and analysis Technical Activities X M Professional, 72 Scientific research and development X 768 47,1% Scientific and Technical Activities 11 The World Bank Turkey Rapid Support for Micro and Small Enterprises during the COVID-19 crisis (P174144) Current Sectors NACE NACE Section NACE NACE Division Name OECD Total The ratio of target proposed Section Name Division most number the number of MSEs sectors of to be Code Code affected of that lost revenue in 2020 project* added to sectors MSEs compared to 2019 project’s list in the to target sector the total number of audience* MSEs in the sector X M Professional, 73 Advertising and market research X 8117 59,2% Scientific and Technical Activities X M Professional, 74 Other professional, scientific and technical X 7447 56,7% Scientific and activities Technical Activities X N Administrative 79 Travel agency, tour operator reservation service 7833 83,4% and Support and related activities Service Activities X N Administrative 82 Office administrative, office support and other 6980 65,6% and Support business support activities Service Activities X P Education 85 Education (only the sports courses will be 13802 62,7% covered) X R Arts, 91 Libraries, archives, museums and other cultural X 68 61,8% Entertainment activities and Recreation X R Arts, 93 Sports activities and amusement and recreation X 4353 81,7% Entertainment activities (Only the sports facilities, fitness and and Recreation body building halls, sports support services, other sports services are covered) X S Other Service 95 Repair of computers and personal and household X 8166 40,9% Activities goods X S Other Service 96 Other personal service activities X 13217 75,2% Activities 12 The World Bank Turkey Rapid Support for Micro and Small Enterprises during the COVID-19 crisis (P174144) 13