The World Bank Ethiopia Competitiveness and Job Creation Project (P143302) REPORT NO.: RES45946 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF ETHIOPIA COMPETITIVENESS AND JOB CREATION PROJECT APPROVED ON MAY 13, 2014 TO FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA Finance, Competitiveness, and Innovation Global Practice Eastern and Southern Africa Region Regional Vice President: Hafez M. H. Ghanem Country Director: Ousmane Dione Regional Director: Asad Alam Practice Manager/Manager: Niraj Verma Task Team Leader(s): Senidu Fanuel, Karen Grigorian The World Bank Ethiopia Competitiveness and Job Creation Project (P143302) ABBREVIATIONS AND ACRONYMS BL Bole Lemi Industrial Park CJCP Competitive and Job Creation Project EIC Ethiopian Investment Commission FM Financial Management GOE Government of Ethiopia IDA International Development Assistance IP Industrial Parks IPDC Industrial Parks Development Corporation MoF Ministry of Finance PIU Project Implementation Unit QIP Kilinto Industrial Park RF Results Framework TF Trust Fund WBG World Bank Group The World Bank Ethiopia Competitiveness and Job Creation Project (P143302) BASIC DATA Product Information Project ID Financing Instrument P143302 Investment Project Financing Original EA Category Current EA Category Full Assessment (A) Full Assessment (A) Approval Date Current Closing Date 13-May-2014 07-Jul-2021 Organizations Borrower Responsible Agency Ministry of Finance and Economic Development, Federal Industrial Parks Development Corporation Democratic Republic of Ethiopia Project Development Objective (PDO) Original PDO The Project Development Objective (PDO) is to contribute to job creation by attracting investments and improving competitivenessofenterprises in the targeted industrial zones and their linked domestic enterprises. Current PDO The Project Development Objective (PDO) is to contribute to job creation by attracting investments and improving competitiveness ofenterprises in the targeted industrial parks and their linked domestic enterprises. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-62630 25-Jun-2018 29-Jun-2018 11-Dec-2018 07-Jul-2021 175.00 123.31 46.91 IDA-54510 13-May-2014 20-May-2014 04-Aug-2014 07-Jul-2021 250.00 227.20 0 The World Bank Ethiopia Competitiveness and Job Creation Project (P143302) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. The CJC project is on track showing good results that have significantly contributed to the Government of Ethiopia’s (GoE’s) industrialization agenda. The development of the institutional and legal framework has been a key outcome of the project jumpstarting the Government’s industrial parks (IP) program. The infrastructure development of Bole Lemi Phase II (BL II IP) and Kilinto IP (QIP) is nearing its completion stage with some investors already operating within the IPs while others are in the pipeline. The project also facilitates economic spillovers to the domestic economy through implementation of the linkages and skills development program which had picked up momentum and is achieving notable results. Table 1: Key Project Data Project Data USD (millions) Original Project Amount US $250 million Additional Financing (AF) US $175 million Total Disbursement (as of March 31, 2021) US $345.8 million (87%) Commitment rate (as of March 31, 2021) 98% Current closing Date July 7, 2021 The World Bank Ethiopia Competitiveness and Job Creation Project (P143302) Table 2: Project Ratings Project Ratings: Previous Current PDO: To contribute to job creation by attracting investments and improving competitiveness of enterprises in the targeted industrial MS MS parks and their linked domestic enterprises Implementation Progress MS MS Component 1: Institutional and Regulatory Framework and Capacity MS MS Building Component 2: Support for Industrial Infrastructure MS MS Component 3: Enhancing IP linkages to the local economy MS MS Component 4: Project Management and Monitoring and Evaluation S S Financial Management MS MS Procurement MS MS Overall safeguards rating MS MS Counterpart Funding S S Note: S – Satisfactory; MS - Moderately Satisfactory 2. Most of the planned major interventions under the Project have been implemented. The Project has supported legal and institutional development for the IP program, including establishment of a robust legal framework and of key institutions involved in the implementation of the IP program, particularly Industrial Parks Development Corporation (IPDC) and Ethiopian Investment Commission (EIC). The infrastructure development of Bole lemi II (BL II) and Kilinto (QIP) Industrial parks is at the final stage; and the first pilot programs to facilitate economic spillovers to the domestic economy through business- to-business linkages and a skills development program. In addition, the Project has implemented significant community development initiatives for the communities and the surrounding areas affected by it, including building basic infrastructure, establishment of a kindergarten, and livelihood restoration interventions. Project audit reports and recent IFRs were submitted on time. The audit opinion on the project financial statements were clean (unqualified) and the recent Management Letter did not identify any reportable internal control weaknesses. 3. However, the concluding phase of the Project has been significantly affected by the global COVID-19 pandemic as the achievement of the Project Development Objective (PDO) depends on mobilization of investment and global demand, which as a result of the pandemic, has slowed down. As a result, the achievement of the PDO-level result indicators to mobilize private investment and create jobs has lagged behind, even though the two IPs are projected to create more than 46,000 jobs once the pipeline investors are able to fully mobilize and become operational. Currently, there are 30 investors in the pipeline that have signed lease agreements and/or MOUs with the Government to operate within the two IPs. Most of the intermediate result indicators are on track, with some already exceeding the set target. The World Bank Ethiopia Competitiveness and Job Creation Project (P143302) 4. Restructuring is being requested to give more time for the project to recover from the impact of COVID 19 on the project and make up for the lost time, to mobilize investment and generate jobs. Additional time to fully operationalize the IPs including demonstrating the full results from the pilot linkages and skills development programs would have significant impact in terms of job creation, technological and skills spillover and the export competitiveness of Ethiopian products. In parallel, the WBG is providing technical advisory support to IPDC and EIC on investment generation for the two IPs and technical support in the formulation of a national linkages policy to facilitate economic spillover, to facilitate the achievement of project objectives and the sustainability of interventions. 5. The restructuring also provides an opportunity to align and calibrate the results framework to capture all the results achieved under the project and adjust targets based on the emerging achievements. Re- allocation of financial resources among disbursement categories is also proposed to align resources with project needs for the remainder of the project lifetime. II. DESCRIPTION OF PROPOSED CHANGES 6. The Proposed changes are: (i) extension of the closing date of the project to May 31, 2022; (ii) reallocation of resources among disbursement categories; and (iii) revision and updating of the results framework. 7. The Project is currently scheduled to close on July 7, 2021. To give more time for the project to recover from the significant negative impact of COVID 19, the Government has requested an extension of the closing date to May 31, 2022 to intensify investment generation efforts with potential foreign and domestic investors, and to successfully complete ongoing interventions. The WBG has also mobilized a Trust Fund (TF) to support EIC and IPDC to attract new investors and convert the pipeline investment to investment decisions for the two IPs. This will help to create new and sustainable jobs in line with the PDO. 8. Reallocation of Resources is also proposed among disbursement categories to align resources with project needs for the remainder of the pipeline and planned interventions under the project, as proposed in the table below. The World Bank Ethiopia Competitiveness and Job Creation Project (P143302) Table 3 -Reallocation Table Percentages of Expenditures to Revised be financed Current allocation Reallocation (inclusive of IDA 5451 (XDR) (XDR) Taxes) Category 1- Goods, Works, Non-Consulting 156,996,906.00 158,945,533.00 100% Services, Consulting Services, Training, Workshop, Operating Cost-PIE Category 2 -Matching Grants 2,585,650.00 1,506,000.00 100% of the Matching Grant amount disbursed Category 3 – PPA 401,831.00 401,831.00 Amount payable pursuant to Section 2.07 of the General Conditions Category 4 – Goods, Non-Consulting 1,615,613.00 746,636.00 100% Services, Consulting Services, Training, workshop and Operating Costs-EIC Total 161,600,000.00 161,600,000.00 Percentages of Expenditures to Revised be financed Current allocation Reallocation (inclusive of IDA 6263 (XDR) (XDR) Taxes) Category 1- Goods, Works, Non-Consulting 121,490,000.00 121,600,000.00 0% until original Services, Consulting Services, Training, Financing Workshop, Operating Cost-PIE category (1) fully disbursed, thereafter 100% Category 2 - Goods, Non-Consulting 210,000.00 100,000.00 0% until original Services, Consulting Services, Training, Financing workshop and Operating Costs-EIC category (4) fully disbursed, thereafter 100% Total 121,700,000.00 121,700,000.00 9. Revision of the Results Framework is proposed to capture the results from the major interventions in addition to the originally envisaged result areas. The project has implemented extensive support for social and community development, the achievements of which is being proposed to be included in the results framework. In addition, definitions of some of the results have been clarified and expanded The World Bank Ethiopia Competitiveness and Job Creation Project (P143302) where necessary and some of the targets are revised to reflect the emerging realities during project implementation. Key changes proposed in the RF are introduction of social development indicators, revision of an intermediate indicator to a PDO indicator on total sales from the IPs, disaggregated sub indicators especially on women beneficiaries, revision of targets based on ongoing project achievements and clarification of definitions for the indicators. 10. There will be no change in fiduciary arrangements (FM, Procurement and safeguards) and the implementation arrangement for the project. 11. Financial Management (FM)  FM arrangement – The financial arrangement of the project will remain unchanged. The project FM arrangements will continue to be coordinated and managed by IPDC through the existing PIU. The project will continue to prepare and submit quarterly unaudited Interim Financial Reports (IFRs) within 45 days of the end of each fiscal quarter. The fund flow arrangements will also remain the same. IPDC will continue to get the project financial statements audited by an auditor acceptable to IDA and submit the reports including the management letter within six months of the close of each fiscal year.  FM performance – The project overall FM summary rating remains Moderately Satisfactory with FM risk rating of Moderate. Project audit reports and recent IFRs were submitted on time. The audit opinion on the project financial statements were clean (unqualified) and the recent Management Letter did not identify any reportable internal control weaknesses. Key FM issues include: (i) Existence of long outstanding project travel advance; (ii) Delays in addressing IPDC’s accounting system issues - Implementation of ERP system has started and requires management close follow up; (iii) Existence of entity audit backlogs for the year ended July 7, 2019 and July 7, 2020 mainly as a result of delays in consolidation of accounts of the Information Technology Park Corporation and Industrial Projects Services that were merged to IPDC in July 2018 and January 2020 respectively; and (iv) Weak internal audit unit in terms of staffing and capacity. Implementation support and close follow up on agreed action plan will continue to be provided by the Bank. 12. Procurement: The procurement activities under the project shall remain to be implemented using the World Bank’s Procurement Guidelines. Procurement implementation arrangement shall also remain the same and the PIU at the Industrial Projects Development Corporation (IPDC) shall carry out the implementation of the procurement activities under the project centrally. There are few procurement activities which need to be finalized as well as completion of the power connection to the two IPs. Hence an extension of the closing date of the project is very important. 13. Social Safeguards: The social safeguards management remain unchanged. The Social and Gender Specialists under PIU will continue supporting the project in managing social safeguards including gender. The specialists will continue monitoring the social risk management and gender and GBV related works. There are ongoing social risk management issues that the client needs to address and hence, the The World Bank Ethiopia Competitiveness and Job Creation Project (P143302) extension of the project is very important. The project is also piloting gender focused interventions such as provision of childcare services at Bole Lemi IP which will benefit from longer implementation time. III. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Loan Closing Date(s) ✔ Reallocation between Disbursement Categories ✔ Other Change(s) ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ PBCs ✔ Components and Cost ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ The World Bank Ethiopia Competitiveness and Job Creation Project (P143302) IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IDA-54510 Effective 30-Jun-2020 07-Jul-2021 31-May-2022 30-Sep-2022 IDA-62630 Effective 07-Jul-2021 31-May-2022 30-Sep-2022 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IDA-54510-001 | Currency: XDR iLap Category Sequence No: 1 Current Expenditure Category: Gds,Wks,NCS,CS,Trng,Wkshp,OC-PIE 156,996,906.00 156,996,975.60 158,945,533.00 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: Matching Grants 2,585,650.00 1,274,731.12 1,506,000.00 100.00 51 iLap Category Sequence No: 3 Current Expenditure Category: Refund of preparation Advance 401,831.00 401,830.08 401,831.00 iLap Category Sequence No: 4 Current Expenditure Category: Gds, NCS, CS, Trng, Wshp & OC-EIC 1,615,613.00 746,635.56 746,636.00 100.00 100.00 Total 161,600,000.00 159,420,172.36 161,600,000.00 IDA-62630-001 | Currency: XDR The World Bank Ethiopia Competitiveness and Job Creation Project (P143302) iLap Category Sequence No: 1 Current Expenditure Category: Gds,Wks,NCS,CS,Trng,Wkshp,OC-PIE 121,490,000.00 81,418,867.74 121,600,000.00 0.00 0.00 iLap Category Sequence No: 2 Current Expenditure Category: Gds,Wks,NCS,CS,Trng,Wkshp,OC-EIC 210,000.00 0.00 100,000.00 0.00 0.00 Total 121,700,000.00 81,418,867.74 121,700,000.00 . The World Bank Ethiopia Competitiveness and Job Creation Project (P143302) . Results framework COUNTRY: Ethiopia Ethiopia Competitiveness and Job Creation Project Project Development Objectives(s) The Project Development Objective (PDO) is to contribute to job creation by attracting investments and improving competitiveness ofen targeted industrial parks and their linked domestic enterprises. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name PBC Baseline Intermediate Targets 1 2 3 4 5 6 7 Job creation and private investment in project supported IPs. Indicator One: Number of jobs created by activities linked to the 0.00 0.00 0.00 0.00 0.00 0.00 15,500.00 46,000.00 supported IPs (Number) Rationale: Action: This indicator Result is updated and defintion of the indcator is expanded to capture the various interventions that are contributing to job creation under has been Revised Of which are women (%) 0.00 0.00 0.00 0.00 0.00 0.00 64.00 64.00 (Percentage) Action: This Rationale: indicator has been The latest result is updated. Revised Of which jobs created in the firms operating in the 0.00 0.00 0.00 0.00 0.00 0.00 5,000.00 15,000.00 supported IPs (Number) Action: This Rationale: indicator has been Result is updated with the latest achieved. Revised Of which are women (%) 0.00 0.00 0.00 0.00 0.00 0.00 64.00 64.00 (Percentage) The World Bank Ethiopia Competitiveness and Job Creation Project (P143302) RESULT_FRAME_TBL_PDO Indicator Name PBC Baseline Intermediate Targets 1 2 3 4 5 6 7 Action: This Rationale: indicator has been Result is updated for the lastest achieved numbers. Revised Of which jobs created by local suppliers supported 0.00 0.00 0.00 0.00 0.00 0.00 200.00 250.00 by the linkage program (Number) Rationale: Action: This Definition is updated to expand from the linakges fund and include the TA provieded to SMEs to create linkages under the project, and targ indicator has been reflect realistic targets based on MTR assessment. Result is also updated to the latest achievements. Revised of which are women 0.00 0.00 0.00 0.00 0.00 0.00 40.00 53.00 (%) (Percentage) Action: This Rationale: indicator has been Result is updated for latest achievements Revised Of which temporary jobs created by investors during 0.00 construction (Number) Rationale: Action: This To capture temporary jobs created during the construction of production facilities/factories by investors indicator is New Of which jobs created to the PAPs in the construction 0.00 of Bole Lemi II and Kilinto IPs (Number) Rationale: Action: This To capture the number of jobs created for the Project Affected People in the construction of BL II and Kilinto IPs. indicator is New Private investment by firms located within 0.00 0.00 0.00 0.00 0.00 10,000,000.00 30,000,000.00 50,000,000 the supported The World Bank Ethiopia Competitiveness and Job Creation Project (P143302) RESULT_FRAME_TBL_PDO Indicator Name PBC Baseline Intermediate Targets 1 2 3 4 5 6 7 industrial parks (Amount(USD)) Rationale: Action: This indicator To adjust the target result based on the current trend on investment by investors within the two supported IPs, and update for the latest res has been Revised of which is foreign direct investment 0.00 0.00 0.00 0.00 0.00 70.00 70.00 70.00 (Percentage) Action: This Rationale: indicator has been To update for latest results Revised Total sales value of goods and services of IP tenant firms in the supported IPs; and local suppliers to 0.00 exporting firms in all IPs and to firms within the two supported IPs (Amount(USD)) Rationale: Action: This indicator is This indicator is moved from intermediate result indicator to a PDO outcome indicator as it directly reflects the competitiveness of the IPs to New revenue that contribute to the PDO of enhancing competitiveness. PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets 1 2 3 4 5 6 7 Component 1: Institutional and Regulatory Framework and Capacity Building Indicator 1: Adoption of a IP Law by the No Yes Yes Yes Yes Yes Yes Yes Cabinet (Yes/No) Establishment of the IP Regulatory function No No Yes Yes Yes Yes Yes Yes (Yes/No) The World Bank Ethiopia Competitiveness and Job Creation Project (P143302) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets 1 2 3 4 5 6 7 Percentage of IP tenant firms satisfied with the IPDC operations and 0.00 services in the supported IPs (Percentage) Rationale: Action: This indicator is To capture to effectiveness of IPDC's operations and services to investors within the supported IPs, as a proxy measure of institutional capac New of the tenants will be measured based on the service provided. Component 2: Support for Industrial Infrastructure Serviced land in the supported Industrial 0.00 0.00 0.00 0.00 150.00 250.00 273.00 273.00 Parks (Hectare(Ha)) Rationale: Action: This indicator To adjust the total land size (target) available for development at the two IPs has been Revised At least one private sector participation arrangement made for IP management, No No No No No No No Yes development, operations and/or sub operation (Yes/No) Rationale: Action: This indicator Indicator language clarified to expand its coverage of private sector participation has been Revised Total sale value of goods and services linked to the supported 0.00 0.00 0.00 0.00 0.00 0.00 0.00 100,000,00 industrial parks (annual) (Amount(USD)) Action: This indicator Rationale: has been Marked for This indicator is moved to a PDO indicator as it captures an outcome level result. Deletion Number of tenant firms 0.00 that signed MoU or The World Bank Ethiopia Competitiveness and Job Creation Project (P143302) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets 1 2 3 4 5 6 7 lease agreement in the targeted IPs (Number) Rationale: Action: This indicator is Indicator is introduced to capture the intermediate output that needs to be achieved before investors mobilize private investment (PDO outc New Of which number of lease agreement 0.00 signed (Number) Rationale: Action: This To capture the actual lease agreements signed versus MoUs. indicator is New Proportion of leased land to the total available serviced land 0.00 in the targeted IPs (Percentage) Rationale: Action: This indicator is To capture the commitment of investors as an intermediate output for private investment (PDO indicator) New Component 3: Enhancing IP linkages to the local economy Number of local SMEs supported by the linkage program and working with firms 0.00 0.00 0.00 0.00 0.00 5.00 20.00 40.00 located within Industrial Parks (Number) Rationale: Action: This indicator To capture all the interventions and support provided by the project under the linkages program has been Revised Of which percentage of women owned/led 0.00 SME firms (cumulative) (Percentage) The World Bank Ethiopia Competitiveness and Job Creation Project (P143302) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets 1 2 3 4 5 6 7 Action: This Rationale: indicator has been To specifically capture support provided for female owned/ led SMEs Revised Number of trained 0.00 0.00 0.00 0.00 20.00 30.00 70.00 100.00 trainers (Number) Rationale: Action: This indicator To update the results achieved and clarify the definition for the indicator has been Revised Number of trained 0.00 0.00 0.00 0.00 1,000.00 3,000.00 5,000.00 7,500.00 trainees (Number) Rationale: Action: This indicator To update for the latest results achieved and clarify the definition for the indicator has been Revised Of which women 0.00 0.00 0.00 0.00 70.00 70.00 70.00 70.00 (%) (Percentage) Number of women- owned/led firms obtaining certification 0.00 0.00 0.00 0.00 0.00 0.00 5.00 15.00 to supply to international firms (cumulative) (Number) Rationale: Action: This indicator The TA planned for SMEs covers a wide range of technical assistance areas as reuested by the SMEs, beyond compliance support. Therefore, has been Marked for incorporated in the other indicators for component three to cover all TA areas of intervention and to focus on the end result of linking with t Deletion Component 4: Project Management and Monitoring and Evaluation Total number of SMEs consulted to get their feedback on project 0.00 0.00 0.00 0.00 5.00 10.00 20.00 30.00 implementation of the linkages program (cumulative) (Number) Rationale: Action: This indicator Target revised to account for TA beneficieries under the linkages program and target result adjusted accordingly. has been Revised Percentage of 80.00 80.00 80.00 80.00 80.00 80.00 80.00 80.00 grievances The World Bank Ethiopia Competitiveness and Job Creation Project (P143302) RESULT_FRAME_TBL_IO Indicator Name PBC Baseline Intermediate Targets 1 2 3 4 5 6 7 satisfactorily resolved within the stipulated timeframe (Percentage) Rationale: Action: This indicator To update for the latest results achieved has been Revised Number of livelihood restoration activities completed for PAPs of 0.00 the two IPs (Kilinto and Bole Lemi) (Number) Rationale: Action: This indicator is Indicator introduced to capture the social development initiatives and support provided by the project for PAPs New Number of Project Affected People (individuals) from Bole Lemi (I &II) and Kilinto IP sites benefitted from 0.00 livelihood restoration activities, disaggregated by gender (Number) Rationale: Action: This indicator is To capture livelihood restoration interventions supported by the project New Number of infrastructure and community development initiatives 0.00 provided for PAPs in both resettlement sites (Bole Lemi and Kilinto) (Number) Rationale: Action: This indicator is To capture the extensive community development initiatives for PAPs that are supported under the project New The World Bank Ethiopia Competitiveness and Job Creation Project (P143302) IO Table SPACE