Document ofThe World Bank

FOR OFFICIAL USE ONLY

Report No: PAD684

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED GRANT

IN THE AMOUNT OF EUR 67.62 MILLION(US$93.32 MILLION EQUIVALENT)

TO THE

GOVERNMENT OF EGYPT

FOR AN

EMERGENCY EMPLOYMENT INVESTMENT PROJECT

May 25, 2014

Social Protection, Human Development Middle East and North Africa Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

CURRENCY EQUIVALENTS

(Exchange Rate Effective March 31, 2014)

Currency Unit = EUREUR1 = US$1.38US$1US$1

==

EUR0.72EGP6.97

FISCAL YEARJanuary 1 – December 31

ABBREVIATIONS AND ACRONYMS

BD Bidding Document IA Implementing AgencyCDA Community Development Association IFR Interim Financial ReportDA Designated Account IVE Independent Verification ExpertEEIP Emergency Employment Investment

ProjectM&E Monitoring and Evaluation

EGP Egyptian Pounds MIS Management Information SystemELIIP Emergency Labor Intensive Investment

ProjectNCB National Competitive Bidding

EMP Environmental Management Plan NGO Non-Governmental OrganizationESIA Environmental and Social Impact

AssessmentPDO Project Development Objectives

ESSAF Environmental and Social Screening and Assessment Framework

PIU Project Implementation Unit

EU European Union PWP Public Works ProjectFM Financial Management RFP Request for ProposalGDP Gross Domestic Product RO Regional OfficerGoE Government of Egypt SA Sponsoring AgencyHCD Human and Community Development

Central SectorSFD Social Fund for Development

HIECS Household Income and Expenditure and Consumption Survey

Regional Vice President: Inger AndersenCountry Director: Hartwig Schafer

Acting Sector Director: Enis BarisSector Manager: Yasser El Gammal

Task Team Leader: Afrah Al-Ahmadi

EGYPT, ARAB REPUBLIC OFEmergency Employment Investment Project

TABLE OF CONTENTS

Page

I. STRATEGIC CONTEXT.................................................................................................1

A. Introduction....................................................................................................................1

B. Country Context.............................................................................................................1

C. Sectoral and Institutional Context.................................................................................2

D. Higher Level Objectives to which the Project Contributes...........................................3

II. PROJECT DEVELOPMENT OBJECTIVES (PDO)....................................................4

Project Beneficiaries............................................................................................................4

PDO Level Results Indicators.............................................................................................5

III. PROJECT DESCRIPTION..............................................................................................5

A. Project Components.......................................................................................................5

B. Project Financing...........................................................................................................6

Project Cost and Financing..................................................................................................7

C. Lessons Learned and Reflected in the Project Design...................................................7

IV. IMPLEMENTATION.......................................................................................................9

A. Institutional and Implementation Arrangements...........................................................9

B. Results Monitoring and Evaluation...............................................................................9

C. Sustainability...............................................................................................................10

V. KEY RISKS AND MITIGATION MEASURES..........................................................10

A. Risk Ratings Summary Table......................................................................................10

B. Overall Risk Rating Explanation.................................................................................10

VI. APPRAISAL SUMMARY..............................................................................................11

A. Economic and Financial Analysis..............................................................................11

B. Technical......................................................................................................................13

C. Financial Management.................................................................................................14

D. Procurement.................................................................................................................15

E. Social (including Safeguards)......................................................................................15

F. Environment (including Safeguards)...........................................................................16

Annex 1: Results Framework and Monitoring.........................................................................17

Annex 2: Detailed Project Description.......................................................................................22

Annex 3: Implementation Arrangements..................................................................................26

Annex 4: Operational Risk Assessment Framework (ORAF).................................................41

PAD DATA SHEETEgypt, Arab Republic of

Emergency Employment Investment Project (P146143)PROJECT APPRAISAL DOCUMENT

.

MIDDLE EAST AND NORTH AFRICAMNSSP

Report No.: PAD684.

Basic InformationProject ID EA Category Team Leader

P146143 B - Partial Assessment Afrah Al-Ahmadi

Lending Instrument Fragile and/or Capacity Constraints [X]

Investment Project Financing Financial Intermediaries [ ]

Series of Projects [ ]

Expected Effectiveness Date Expected Closing Date

31-July-2014 02-January-2018

Joint IFC: No

Sector Manager Sector Director Country Director Regional Vice President

Yasser El-Gammal Enis Baris Hartwig Schafer Inger Andersen.

Recipient: Government of Egypt, Ministry of International Cooperation

Responsible Agency: SOCIAL FUND FOR DEVELOPMENT

Contact: Ms. Hanaa El Hilaly Title: Acting Managing Director

Telephone No.: 202-376-222-55 Email: hanaa_elhilaly@sfdegypt.net.

Approval AuthorityApproval Authority: RVP Decision

Please explain: As per the Large RETF Grant Procedures, the project is subject to RVP approval

.

Project Financing Data(in USD Million)[ ] Loan [X] Grant [ ] Guarantee

[ ] Credit [ ] IDA Grant [ ] Other

Total Project Cost: 93,323,880 Total Bank Financing: 0.00

Financing Gap: 0.00.

Financing Source Amount

Recipient 0.00

MNA VPU Free-standing Trust Funds 93.32

Total 93.32.

Expected Disbursements (in USD Million)

Fiscal Year 2015 2016 2017 2018

Annual 28.98 26.22 26.22 11.90

Cumulative 28.98 55.20 81.42 93.32.

Proposed Development Objective(s)

The project development objective is to: i) create short-term employment opportunities for the unemployed, unskilled and semi-skilled workers in selected locations in Egypt; ii) contribute to the creation and/or maintenance of community infrastructure and services; iii) improve access to basic infrastructure and community services among the target population; and iv) improve the employability of young men and women through short-term training or other support services to facilitate transitions to wage and self-employment..

Components

Component Name Cost (USD Millions)

Component 1: Employment-intensive Small-scale Infrastructure Sub-projects

1.35

Component 2: Intensive Community Service Sub-projects and Youth Employment Activities

78.47

Component 3: Improving Workers’ Employability 8.12

Component 4: Project Implementation1 and Capacity Building 4.73

Contingency 0.65.

Institutional DataSector Board

Social Protection

1 Including EU visibility activities.

.

Sectors / Climate Change

Sector (Maximum 5 and total % must equal 100)

Major Sector Sector % Adaptation Co-benefits %

Mitigation Co-benefits %

Health and other social services Other social services 99

Public Administration, Law, and Justice Public administration- Other social services

1

Total 100

I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project..

Themes

Theme (Maximum 5 and total % must equal 100)

Major theme Theme %

Social protection and risk management Social safety nets 60

Social protection and risk management Improving labor markets 25

Social protection and risk management Other social protection and risk management

15

Total 100.

CompliancePolicy

Does the project depart from the CAS in content or in other significant respects? Yes [ ] No [X].

Does the project require any waivers of Bank policies? Yes [ ] No [X]

Have these been approved by Bank management? Yes [X] No [ ]

Is approval for any policy waiver sought from the Board? Yes [ ] No [X]

Does the project meet the Regional criteria for readiness for implementation? Yes [X] No [ ].

Safeguard Policies Triggered by the Project Yes No

Environmental Assessment OP/BP 4.01 X

Natural Habitats OP/BP 4.04 X

Forests OP/BP 4.36 X

Pest Management OP 4.09 X

Physical Cultural Resources OP/BP 4.11 X

Indigenous Peoples OP/BP 4.10 X

Involuntary Resettlement OP/BP 4.12 X

Safety of Dams OP/BP 4.37 X

Projects on International Waterways OP/BP 7.50 X

Projects in Disputed Areas OP/BP 7.60 X

.

Conditions and Legal Covenants

Name Recurrent Due Date Frequency

(Project Agreement) ScheduleSection I.C

For the purposes of proper implementation of the Project, the Project Implementing Entity shall, not later than six months after the Effective Date, appoint for the duration of Project implementation, and on terms and conditions mutually agreed upon between the World Bank and the Project Implementing Agency, an Independent Verification Expert (IVE) to assess and verify that: (i) Project outcomes have been met; and (ii) Sub-projects are implemented and maintained in accordance with the requirements of the Maintenance Manuals, the ESSAF and the Operations Manual.

Not later than 6 months after Effectiveness Date

Assessments to be undertaken at least twice a year.

(EU Grant Agreement) Schedule II, Section IV. B

In the event that the ESSAF requires preparation of additional sector specific EIA/EMP and/ or Environmental Safeguard Guidelines, these documents should be furnished to the World Bank for no objection.

In the event new sectors are introduced to the Infrastructure Component.

In the event new sectors are introduced to the Infrastructure Component.

Team CompositionBank Staff

Name Title Specialization Unit

Afrah Alawi Al-Ahmadi Senior Social Protection Specialist

Team Lead MNSHD

Haneen Ismail Sayed Lead Operations Officer Team Lead (at Concept Stage) MNSSP

Syed I. Ahmed Lead Counsel Lead Counsel LEGAM

Mazhar Farid Legal Analyst Legal Analyst LEGAM

Amy Champion Operations Analyst Operations Analyst MNSHH

Mira Hong Senior Operations Officer

Senior Operations Officer MNSSP

David A. Robalino Lead Economist Lead Economist HDNSP

Chaogang Wang Senior Social Development Specialist

Senior Social Development Specialist MNSSU

Maiada Mahmoud Kassem Finance Officer Finance Officer CTRLA

Elena Gagieva-Petrova Operations Analyst Operations and Portfolio Analyst MNSHD

Alaa Ahmed Sarhan Senior Environmental Economist

Senior Environmental Economist MNSEE

Jamal Abdulla Abdulaziz Senior Procurement Specialist

Senior Procurement Specialist MNAPC

Kevin Marcus Hempel Consultant Youth Employment Specialist MNSSP

Sanjay Agarwal Senior Social Development Specialist

Senior Social Development Specialist MNSSD

Wael Ahmed Elshabrawy Financial Management Analyst

Financial Management Analyst MNAFM

Amr S. Moubarak E T Consultant Social Protection Economist MNSSP

Moustafa Abdalla Operations Officer Operations Officer MNSSP

Fareeba Mahmoud Sr. Operations Officer Sr. Operations Officer MNADE.

Locations

Country First Administrative Division

Location Planned Actual Comments

Arab Republic of Egypt

Districts The poorest districts

Districts will be identified based on poverty mapping using national data

Districts will be identified based on poverty mapping using national data

I. STRATEGIC CONTEXT

A. Introduction

1. The proposed Emergency Employment Investment Project (EEIP) is a grant in the amount of EUR 67.62 million (US$93.32million equivalent) to be financed by the European Union (EU), as stand-alone complementary financing to the World Bank-funded Emergency Labor Intensive Investment Project (ELIIP; Ln. 8173 in the amount of US$200 million). The need for this complementary support stems from the ongoing political and economic situation that has exacerbated existing unemployment, particularly among women and youth who have been disproportionately affected, and heightened the risk of causing further deep divisions to develop throughout society. The operation, while self-standing, is directly built on by the approach adopted in the World Bank’s ongoing intervention under ELIIP, and is intended to coordinate donor assistance effectively. The proposed project will generate short-term employment, particularly for the population in poor regions and targeted youth.

B. Country Context

2. Since the revolution, Egypt’s political instability has contributed to economic turmoil where prospects remain uncertain. Since the removal of President Morsi in July 2013, a new political roadmap has been set in motion with an ambitious timeline of twelve months that includes amendments to the suspended 2012 constitution, holding a referendum to approve the amended constitution, and conducting parliamentary and presidential elections. The referendum on the amended constitution was carried out on January 14-15, 2014, while more recently some changes have been introduced in the political roadmap sequence, with presidential elections preceding parliamentary elections. The amended constitution leaves the decision to the interim president on when to hold elections, yet it states that both elections must take place within six months (by mid-July 2014). The uncertain outcomes of these political developments are affecting the economic outlook.

3. Although financial market uncertainty has been partly mitigated by a package of financial assistance pledged by Arab Gulf states, expected economic growth remains weak. An unprecedented series of aid packages totaling US$16 billion have been earmarked in support of Egypt. These include cash grants of US$4 billion, interest-free deposits of US$6 billion with the Central Bank of Egypt, and project financing of US$3 billion. The impact of such packages can be seen in the short-term fiscal planning where a stimulus approach has been signaled by the current government.

4. Economic performance continues to underperform in the short-term, while prospects remain uncertain. Output growth remained subdued during fiscal year 2013 at 2.1 percent, similar to the year before (approximately 2.2 percent). This has pushed up the unemployment rate, which reached over 13.3 percent in June 2013. Sizeable stimulus packages totaling about three percent of GDP are being implemented or have been announced, mainly through a sharp increase in public investment and a near doubling of the minimum wage for public sector workers. These commitments would entail substantial additional fiscal costs, and any spill-over could negatively impact private sector growth.

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5. Against a back-drop of shrinking investments and growth in real terms, the employment and poverty situation is expected to deteriorate, and human capital indicators are at risk of worsening. As has traditionally been the case, the working poor make up the majority of the poor in Egypt. Those who are vulnerable (about 17 percent) are dependent on unreliable sources of income and seasonal work. This is especially evident during crises. During the fuel and food crisis in 2008/2009, as many as 5.1 million Egyptians were severely food deprived. Furthermore, 31 million (around 40 percent of the population) were poor or near poor. 6. The Government of Egypt (GoE) aims to smooth consumption for the poor and vulnerable, increase the skills and employability of low-skilled labor, and to promote social inclusion. The Government aims to raise human capital formation through training programs and by increasing labor productivity. The GoE has initiated a program for short-term employment creation in poor areas to increase access to income opportunities and maintain social stability during the transition period. This programmatic approach has already begun through the ongoing ELIIP. The ELIIP supports the implementation of a public works and community service program which adopts labor-intensive methods to address Egypt’s short-term employment needs. The proposed EEIP will similarly support the creation of short-term employment opportunities for unemployed workers in selected locations in Egypt, as well as lay the foundation for the creation of more sustainable jobs. This will be carried out through the creation and/or maintenance of community services and infrastructure using labor-intensive techniques and through employability programs for youth in urban and rural areas.

C. Situations of Urgent Need of Assistance or Capacity Constraints

7. The proposed operation is being processed under emergency procedures based on the “Fragility within a non-fragile country” policy (as defined in paragraph 11 of World Bank Guidelines for OP. 10.00: Situations of Urgent Need of Assistance or Capacity Constraints). This recognizes the fragility of the situation in Egypt which is experiencing instability and rapidly changing conditions. The nature of these conditions in Egypt has deepened the ongoing economic crisis and amplified overall fragility, leading to high unemployment and heightening the risk of deep divisions developing further throughout society. The proposed project is highly relevant and planned activities to generate short-term employment, particularly for the targeted youth, are urgently needed.

D. Sectoral and Institutional Context

8. Egypt’s social protection system, broadly defined, accounts for a substantial share of public spending, but does not have a commensurate impact on poverty reduction or human capital development. Energy subsidies, although not strictly considered as social protection measures, are available for all consumers and producers, and account for the largest share of spending at around six percent of GDP, followed by food subsidies at around two percent of GDP. Spending on ration card subsidies comprised about 0.5 percent of GDP, while expenditures on cash transfers to the poor were about 0.1 percent of GDP in 2010. Despite these expenditures, Egypt’s human development indicators remain poor and close to half of the population (49 percent) remains poor or vulnerable, with a large number of people clustered just above the poverty line.

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9. Even before the food, fuel and financial crises hit, the Government had taken measures to expand its cash transfer programs; however, policies aimed at helping households withstand the effects of the crisis were not sufficient to prevent an increase in poverty. The Government increased both the number of beneficiary households in the social solidarity program (the unconditional cash transfer program) and the value of their monthly cash payment. It also extended additional cash assistance to beneficiary families with children enrolled in school (EGP 20 per child for a maximum of four children). However, the number of beneficiaries remained far below the estimated poverty headcount, and the amount of cash benefits well below what was needed to lift many of the recipients out of poverty. Furthermore, the targeting approach (which is largely a mixture of self-targeting, income and categorical targeting) does not address errors around inclusion of the non-poor and exclusion of the poor.

10. Egypt’s labor market continues to face many difficulties. Official unemployment figures in Egypt reached 13.3 percent in June 2013—more than four percentage points higher than its level in the second quarter of 2010. Out of the 3.6 million unemployed persons in Egypt, around 74 percent are youth aged 18-29 years. By June 2013, male and female unemployment rates had increased to 9.8 percent and 25 percent, respectively. Furthermore, the informal sector is estimated at 58 percent of total private sector employment, having risen sharply between 1998 and 2006. Although it can be assumed that the impact is larger on the informal sector given that it is private, less information is available on the extent to which the sector and the informally self-employed are impacted.

11. The current objectives of the interim government, following the July 2013 events, signal a commitment to generate jobs for low-income families. A statement by the deputy Prime Minister for Economic Affairs and the Minister of International Cooperation highlighted the need to create jobs for low income families as one of six main priorities, while a labor-intensive Job Creation Program through the Social Fund for Development (SFD) was part of the Package of Urgent Benefits for Citizens, one of the five pillars of the Government’s Program for Economic Development and Social Justice during the transitional period.

12. The proposed EEIP supports the scaling-up of Egypt’s public works and community services programs, and the implementation of programs that would complement the cash-for-work activities by facilitating transitions into wage- and self-employment. Even though the majority of the project activities are aimed at meeting the needs of the emergency situation, the project will also pilot programs to support the employability of unemployed rural and urban youth. In addition, the project will help build the institutional capacity for public works and community services programs in Egypt, a tool that is likely to be used frequently in the medium term. The GoE is discussing and exploring options for the inclusion of public works programs as an essential part of Egypt’s safety net system, to be scaled up or down quickly to respond to shocks based on the country’s situation, and which continues to be a tool for smoothing consumption, providing temporary income to the working poor, and an opportunity for skills development.

E. Higher Level Objectives to which the Project Contributes

13. While the project is expected to achieve immediate results in terms of the provision of short-term employment opportunities and safety nets to the targeted group, it also supports instituting and building national capacity in the design and delivery of labor-intensive works as a key tool

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for a targeted safety net. This will assist Egypt to move away from an inefficient and untargeted social protection system to a more cost-effective and targeted one, which would potentially have a higher impact on poverty reduction and protect against falling into extreme poverty. By targeting the poorest districts, the project would make higher investment in Upper Egypt, contributing to the inclusion agenda and to the World Bank’s twin goals of reducing extreme poverty and promoting shared prosperity.

14. This intervention establishes a clear line of sight to the World Bank’s twin goals. Activities target poor and most vulnerable Egyptians and aim to provide short-term employment for the growing ranks of unemployed, unskilled and semi-skilled workers. The project also aims to provide the young people and women, who comprise a disproportionate share of the unemployed, with the skills and training needed to help them to secure longer-term employment. Finally, the project aims to help boost the income of the poorest in society by supporting the development and maintenance of community assets that increase physical capacity and that encourage local economic development.

15. The expansion of labor-intensive public works projects and community service projects would also enhance the social and economic infrastructure base. In partnership with non-governmental organizations (NGOs) and the private sector, the youth employability program supported by the project would be tested and evaluated for its impact and scalability to address the challenging issue of youth unemployment and idleness, a significant problem in Egypt and several other countries in the region. The project is consistent with the existing Egypt ISN (Report no. 66443-EG, May 31, 2012), MNA Regional Strategy Update (Report no. 59364, January 22, 2013), and contributes to objective 3.4 “develop targeted and sustainable safety nets” of the third Strategic Objective – Inclusion – in the proposed Country Partnership Strategy (2015-18).

16. Project activities will be conducted in selected poor urban and rural areas nationwide. The locations will draw on Egypt’s poverty map and other poverty targeting tools, as well as locations with the highest rates of unemployment.

II. PROJECT DEVELOPMENT OBJECTIVES (PDO)

17. The project objectives are to: i) create short-term employment opportunities for the unemployed, unskilled and semi-skilled workers in selected locations in Egypt; ii) contribute to the creation and/or maintenance of community infrastructure and services; iii) improve access to basic infrastructure and community services among target population; and iv) improve the employability of young men and women through short-term training or other support services to facilitate transitions to wage and self-employment.

Project Beneficiaries

18. The main project beneficiaries will be the unemployed, unskilled and semi-skilled, poor and vulnerable, including youth and women.

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PDO Level Results Indicators

19. The outcome indicators are:

a. Number of direct beneficiaries of the workfare2 programs3 (disaggregated by gender and age group)

b. Number of person-days of work created through workfare sub-projects (disaggregated by gender and age group)

c. Job placement rate (wage or self-employment) of those enrolled in the youth employability programs (gender and age disaggregated)

III. PROJECT DESCRIPTION

A. Project Components

20. The project consists of four components:

Component 1: Employment-intensive Small-scale Infrastructure Sub-projects (EUR 0.980 million or US$1.35 million equivalent)

21. This component will finance employment-intensive small infrastructure. Specifically, the project will support labor-intensive small scale local public works sub-projects which could include, but are not limited to: canal weed reduction; Nile River bank protection; pavement of rural roads; and school rehabilitation. These sub-projects could be demand-driven, requested by the local government at the governorate level, or supply driven, requested by a central ministry based on needs, depending on the proactivity of local governments. Priority will be given to sub-projects with higher levels of labor intensity. Implementation of the sub-projects will be contracted out to private contractors. Beyond the geographical targeting, the operations adopt self-targeting methodologies via wage monitoring to ensure that they do not attract the non-poor. Infrastructure operations and maintenance procedures will be defined and agreed upon with beneficiaries and other stakeholders during the sub-project design phase (e.g., between SFD, ministries and governorates).

Component 2: Intensive Community Service Sub-projects and Youth Employment Activities (EUR 56.863 million or US$78.47 million equivalent)

22. This component will support labor-intensive community service sub-projects through the provision of grants to local communities (NGOs and Community Development Associations (CDAs)) for sub-projects addressing areas including, but not limited to: (a) cleanliness and environmental awareness campaigns in villages and local areas; (b) early childhood education; (c) mother and child health support, e.g., facilitating access to health services, awareness and home visit programs; (d) illiteracy eradication activities; and (e) youth engagement in community initiatives (e.g., community mobilization and citizen engagement activities) in rural and urban areas. A high share of female beneficiaries can be expected, given that social service

2 Workfare is defined as the labor-intensive infrastructure and community service sub-projects.3 Same as World Bank core indicator “Beneficiaries of Social Safety Nets programs”.

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sub-projects tend to employ unemployed women. Priority will be given to sub-projects with higher levels of labor intensity.

Component 3: Improving Workers’ Employability (EUR 5.882 million or US$8.12 million equivalent)

23. This component will finance the piloting of two types of youth employment support activities, one aimed primarily at youth in urban areas and the second for youth in rural areas, to facilitate transitions into wage- or self-employment. A comprehensive package of training (basic, technical, life skills, and on-the-job), job-search assistance, and wage or training subsidies to facilitate the transition into wage-employment will be piloted for urban youth, in close collaboration with employers. For rural youth, the component will finance an integrated set of services (training, financing, advisory, and access to markets and value chains) to facilitate the transition into self-employment. These services will be developed based on market research or feasibility studies already available or to be carried out during the preparation of the respective sub-projects.

24. Sub-projects will be implemented by NGOs in urban and rural areas. Beneficiaries will be primarily young men and women in the project’s targeted districts who are out of school and out of (full time) work. Young women will be specifically targeted by making female participation an evaluation criterion during the request for proposals, and assessing proposed design features to attract female participants (e.g., female-only classes, child care, and parent outreach). Further details are available in Annexes 2 and 3.

Component 4: Project Implementation and Capacity Building (EUR 3.43 million or US$4.73 million equivalent)

25. The implementation support program for the project includes: (a) training and consultancies to support project management, monitoring and evaluation, financial management and procurement; (b) financing of public information activities, EU visibility, communication and social mobilization strategy development and implementation; (c) technical verification for project outputs, and compliance of services provided for the above three project components; and (d) capacity building as needed for SFD and governorate staff, as well as for the implementing NGOs. Training may be provided nationally through consultants or training institutions or internationally for specialized topics. The component may finance: consultancy, training cost (tuition, travel, accommodation, per diem, etc.), non-consultancy services, material, office supplies, etc.

Project Financing

26. The proposed EEIP will be financed by an EU grant in the amount of EUR 67.626 million as stand-alone complementary financing to the World Bank-funded ELIIP (US$200 million).

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Project Cost and Financing

27. The table below provides the distribution of project funds between components:

Project ComponentsProject cost (EUR ’000) Financing

(EUR ’000)

Project Cost (US$

‘000)

% Financing

1.Employment-intensive Small-scale Infrastructure Sub-projects

2. Intensive Community Service Sub-projects and Youth Employment Activities

3. Improving Workers’ Employability

4. Project Implementation and Capacity Building

- EU Visibility

Contingency*

980

56,863

5,882

2,941

490

470

980

56,863

5,882

2,941

490

470

1,352

78,471

8,117

4,059

676

649

100

100

100

100

100

100

Total Financing Required 67,626 67,626 93,324 100

*The utilization of the contingency budget is subject to the EU Delegation written prior approval.

B. Lessons Learned and Reflected in the Project Design

28. The project builds on lessons learned from previous World Bank projects around the world, as well as from the early lessons of ELIIP and SFD’s historical experience in implementing public works projects. In the last decade, public works programs have become one of the preferred instruments to address temporary work shortages brought after a shock. The public works programs launched in response to the macroeconomic crisis in East Asia in 1997 and in Latin America in 2002, and those established after the 2005 tsunami that affected many Asian countries, are examples of programs set up to mitigate the negative effects of a shock among the most vulnerable populations. Evidence from evaluations of these projects points to the ability of public works and employment training programs to mitigate covariate shocks, idiosyncratic shocks, and smooth consumption.

29. Though it is argued in the literature that the wage rate is a critical design feature in public works programs, conclusions from international experience related to setting the wage rate as a means to improve targeting are mixed and context specific. In principle, self-selection of the most in need can be encouraged if the wage paid by the public works program is set at slightly below the market wage for unskilled labor. In large scale programs in Chile, South Africa, or India, governments vary widely in their ability to set a wage rate that is consistent with self-selection. Egyptian experience to date (including ELIIP) shows that dependence on “self-selection” or self-targeting alone as the key method of targeting is not feasible because contractors may not have the capacity to target and because of the high rate of unemployment and poverty. A combined targeting mechanism will be used in EEIP to target project

7

interventions, including geographic targeting, selection of small sub-projects of the type that creates employment that is less attractive to the less in need, as well as wage setting below the local market rate (where credible information is available and can be monitored by SFD). Additionally, experience from many similar programs, including ELIIP, is showing that it is difficult to achieve more than a 25-30 percent labor share in certain types of infrastructure sub-projects (e.g., housing, school construction). The project has therefore set a labor share of 40 percent in the case of infrastructure and 70 percent in the case of social services as determining criteria in the selection of sub-projects.

30. The implementation arrangements build on SFD’s historic experience in implementing public works projects, whereby partnership with local implementing agencies (NGOs, CDAs and local governments) has been a major strength of the program. Over the years and through ELIIP, SFD partnership with these agencies has contributed to building capacity and outreach to local communities. This has also enabled Egypt to respond faster to the recent crisis (ELIIP) and expand coverage under EEIP. This is consistent with international experience following the global food crisis in 2008 when it was found that countries with established safety net institutions were more capable of responding to the crisis than those who did not have such institutions.

31. Investments in monitoring and evaluation systems facilitate the sub-project evaluation process, provide feedback, and are an essential management and planning tool. In order to address the weaknesses in monitoring and evaluation (M&E) experienced under previous projects, SFD’s management information system (MIS) has been upgraded and continues to improve as experience from ELIIP is being accumulated. For example, expanding the MIS to monitor individual beneficiary data (rather than just aggregate data) in EEIP will support monitoring, improve beneficiary targeting, and inform evaluation design. Continuous improvement of the monitoring tools, including MIS, enables users to receive real-time information through the entire sub-project cycle.

32. With regard to promoting wage-employment interventions as planned in this project, evaluations from Latin America’s Jovenes en Accion program targeted to vulnerable youth suggest that vocational and life skills training combined with internships in private firms have the potential to improve employment and earnings. For instance, the Jovenes en Accion program in Colombia reached over 20,000 youth per year, and increased earnings by 10-20 percent. Similarly, comprehensive entrepreneurship support programs are showing promising results in many countries. For example, the Girls Empowered by Microfranchise program targeted at girls aged 17-19 in Kenya and elsewhere provides business and life skills training, mentoring, access to financial services, and start-up grants, and links beneficiaries directly to markets. This evidence is in line with SFD’s recent on-the-ground assessments of its skills training programs, which suggest that life skills and other support services need to be part of youth employment programs to meet employer needs and increase youth retention.

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IV. IMPLEMENTATION

A. Institutional and Implementation Arrangements

33. The implementation arrangements for this project will be similar to those of ELIIP, with the SFD as the main implementing agency for the proposed project. The SFD was established as a legally autonomous development organization and has over 20 years track record of providing support to needy and under-deserved communities. Established in 1991, the initial key objective of SFD was to help mitigate the negative effects of Egypt structural adjustment programs. In 1999, the SFD obtained a permanent mandate to focus on job creation.

34. The SFD will be responsible for the overall project, using its own fiduciary management systems that are in compliance with World Bank regulations and procedures. The SFD will rely on its Human and Community Development Central Sector (HCD) and the capacities of the Financial Management Department, the Internal Audit Department, the Environmental Department, and the Planning, Monitoring, and Evaluation Department in implementing this project. The SFD will be responsible for implementing and coordinating the activities of the project with the support of its 27 regional offices which will monitor and report on project progress.

35. As with the ELIIP, the SFD will be responsible for financial management and reporting, using systems and procedures acceptable to the World Bank. For the procurement of infrastructure activities, SFD will be co-responsible with the sponsoring agencies (ministries and governorates), whereas works contracts will be co-signed. As for the procurement under Components 2 and 3, similar to ELIIP, SFD will provide grants and/or procures contractual services of NGOs and CDAs.

B. Results Monitoring and Evaluation

36. Monitoring will be carried out by the SFD’s internal monitoring system using the SFD MIS. The Project will finance support to conduct mid-term and end-of-project evaluations. Evaluations will cover: a) targeting, processes and beneficiary satisfaction evaluation of Components 1 and 2; and b) impact and cost effectiveness evaluation of the pilot youth employability programs (Component 3), to assess the effectiveness of different approaches in securing employment and increasing incomes of the beneficiaries. These evaluations will serve the purposes of correcting processes as needed (in the case of Components 1 and 2), and assist the GoE in assessing the potential for scaling up the workfare activities as an essential part of Egypt’s social safety net program.

37. Periodic technical verification will be carried out on a semi-annual basis during the life of the Project, using an Independent Verification Expert (IVE) and NGOs. The IVE will verify: (i) the intermediate sectoral outcomes; and (ii) the output indicators. Additionally, the project will undertake a client satisfaction and process evaluation, which will assess the processes of implementing the program, as well as client satisfaction rates for community social services sub-projects. Social accountability measures, as described in section E, will also provide tools for monitoring performance from the beneficiary perspective so that corrective measures can be introduced as appropriate.

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C. Sustainability

38. The GoE is committed to extending services to all poor citizens, using the SFD as a major instrument. The sustainability of SFD investments are ensured by features like community engagement, partnership with local governments and ensuring that relevant sectoral authorities agree to and provide recurrent cost and maintenance of services supported by SFD. Furthermore, the GoE is committed to expanding pro-poor safety nets programs and addressing the short-term as well as the longer-term challenges of unemployment, especially among the poor youth. The project provides the opportunity to put in place and build national capacity to design and implement best practice programs’ approaches. These programs will be evaluated to inform policy on the most effective and efficient approaches to address the poverty and unemployment challenges of the poor.

V. KEY RISKS AND MITIGATION MEASURES

A. Risk Ratings Summary Table

Risk Category Rating

Stakeholder Risk Substantial

Implementing Agency Risk

- Capacity Moderate

- Governance Substantial

Project Risk

- Design Substantial

- Social and Environmental Low

- Program and Donor Moderate

- Delivery Monitoring and Sustainability Moderate

Overall Implementation Risk Substantial

B. Overall Risk Rating Explanation

39. The overall risk rating for this Project is expected to be Substantial. The Project will be implemented in a country where the political environment is still in transition. Mitigating measures to address these risks include inter-alia: (i) a project design that focuses on poor areas where the risk of major disruptions to project activities is lower; and (ii) selection of the SFD as implementing agency—the SFD has considerable prior experience with implementing Bank-financed projects, and is familiar with Bank policies and procedures; and (iii) fiduciary safeguards are in place for the project to ensure effective oversight of the flow of funds and procurement procedures. The procurement risk rating is ‘Moderate’ since capacity to carry out procurement has been built within the SFD under the ongoing ELIIP. Moreover, an experienced procurement advisor was hired under the ELIIP to help build procurement capacity and monitor conformity with procedures used for selection of consulting services; and the SFD procurement manual was updated to ensure clear definitions of roles and responsibilities and consistent application of procedures.

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VI. APPRAISAL SUMMARY

A. Economic and Financial Analysis

40. The EEIP aims to create short-term employment opportunities for vulnerable groups including women and youth, improve access to community infrastructure and services and to provide short-term training and employment services to facilitate the transition to wage and self-employment. The project provides substantial resources that will directly complement the ongoing World Bank-financed Emergency Labor Intensive Investment Project (ELIIP) and which will, in the interests of sustaining an efficient and rapid response, adopt the approach and proven implementation mechanisms developed under ELIIP.

41. Labor-intensive public works programs have been used in diverse country contexts worldwide. There is increasing evidence that such counter-cyclical safety net instruments can make an important contribution in mitigating a range of economic shocks that disproportionately affect the poorest and most vulnerable. These programs can play an important role in reducing vulnerability and provide immediate income support to poor families where there are large numbers of unemployed or underemployed workers. An important complementary benefit of public works projects is the generation of public goods and community assets for poor and deprived communities. As in this case, public works and community service projects can complement short-term employment opportunities with training and skills development to help workers make the transition to longer-term or self-employment. Finally, international experience indicates that public works programs can provide pathways that promote voice and participation, improve social inclusion and equality particularly for women and youth, and smooth social tensions.

42. There is a powerful rationale for public intervention to insure social risk, including the risk of poverty, through the public provision of safety nets such as this program. The operation addresses a market failure that stems from three interrelated factors: information asymmetries; coordination failure; and, inability to achieve returns to scale. Information asymmetries exist because an individual will always know more than a private insurer regarding their risk of poverty and actions that might increase that risk. Without access to this information, a private insurer would attempt to insure only the best risks (i.e. those at lowest risk of poverty) and exclude those at the highest risk of poverty. This would result in a socially inefficient outcome. Coordination failure in this instance is characterized by a situation where risk pooling would result in a more socially beneficial outcome than individually insured risks. Failure to achieve returns to scale results since the cost of risk-bearing cannot easily be reduced by sharing the risk burden across a large population.

43. The World Bank has long been engaged in providing assistance the development and strengthening of national social safety net programs worldwide. The impetus for both the ongoing ELIIP project and this intervention stems from government requests for the Bank’s technical and financial support in the design of social safety net mechanisms able to address the country’s urgent need for short-term employment opportunities. In addition, the successful implementation of ELIIP has helped to catalyze the grant support provided under this project, enabling the expansion of ELIIP/EEIP activities in both scale and scope and in a coordinated manner. While the SFD has a tradition of implementing public works programs, Bank expertise

11

will ensure the improvement of critical design features, such as labor intensity and targeting accuracy.

44. Based on an analysis of wages for unskilled labor in rural and urban areas, the gross wage to workers under EEIP is estimated at EGP 300, as this wage or below is unlikely to be attractive to currently employed poor workers (i.e., below market wage). Assuming that targeted beneficiaries cannot find work outside of EEIP and a wage ratio of 50 percent, it would take EGP 2 of government funds to transfer EGP 1 to beneficiaries, i.e., a benefit-to-cost ratio of 50 percent. This ratio is about double the country’s current poverty rate of 26 percent (2012/2013); that is, the EEIP would provide more immediate benefit to the poor than a uniform, untargeted allocation of the same budget across the population. This ratio further improves if accounting for indirect benefits to the poor through the assets created. Adopting the same calculations carried out for ELIIP, it would take EGP 1.04 in rural areas and EGP 1.4 in urban areas to increase income of the poor by EGP 1. This ratio compares favorably with similar workfare programs such as Argentina’s Trabajar, where it cost EGP 2.5 to improve incomes by EGP 1. Moreover, since poverty rates have further increased since the preparation of ELIIP, the poor people would benefit relatively more from the indirect benefits from assets created, thus further improving the estimated benefit-cost ratio for EEIP.

45. With regards to Component 3, a comprehensive ex-ante analysis of beneficiaries who will be supported is not possible. However, benefits from project investments are expected through increases in employment rates, productivity, and income. While the evidence of active labor market programs for youth is heterogeneous, similar interventions targeting low-income youth have been able to achieve significant impacts. To measure project benefits, an impact evaluation will be carried out for the youth employability component. The evaluation will quantify changes in income and other economic benefits among participating youth compared to non-participants, as well as potential effects on non-labor market outcomes (e.g., human capital investments, mental health, etc.). The results from the impact evaluation will also feed into an ex-post cost-benefit analysis of the supported subprojects to assess whether social benefits outweigh the costs in order to inform potential scale-up. Overall, it is expected that average unit costs will range between US$500 and US$1,500 for different subprojects. These costs are fully in line with similar interventions to promote wage- and self-employment for vulnerable youth in other countries4.

4 Latin America’s Jovenes programs had a unit cost between $600 and $2000. WB funded youth employment and entrepreneurship projects in Morocco and Lebanon have estimated unit cost of approximately $800 and $1300 respectively. Liberia’s Empowerment of Adolescent Girls Programs has a unit cost of $1221 per girl for business skill training and $1678 per girl for job skills training.

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B. Technical

46. Global experience indicates that labor-intensive works programs can be an important component of a safety net in response to a rapidly deteriorating employment and poverty situation. Both ELIIP and EEIP are the main targeted safety net projects, and ELIIP experience is demonstrating high demand that could not be met with ELIIP resources, thus, EEIP will provide additional funds to the program. Experience has shown that, for the same level of investment in local infrastructure and community services, the use of labor-based methods can create between two and four times more employment (mostly unskilled), drop foreign exchange requirements by 50 to 60 percent, decrease overall costs by 10 to 30 percent, and reduce environmental impacts.5 The employment multiplier effect of such projects is at least 1.5 because of the injection of money into the local economy (use of local materials and other inputs, salaries mainly spent on basic needs). Many public works projects (PWPs) are now being established with a long-term vision of being an integral part of the country’s social safety net (scalable PWPs that can be extended during crises).

47. The project aims to accomplish other goals that go beyond the traditional role of PWPs. This includes the delivery of community and social services, like mother and child health, illiteracy, youth engagement, and skills training and employability services that will support the transition of their participants into longer-term wage and self-employment opportunities. Therefore, the program is not only a vehicle for short-term employment and infrastructure development, but also offers its participants skills and experience which could enable them access future labor market opportunities. For such linkages to be useful, it is important to undertake careful assessment of the demand for skills, gender differentiated, so that the trained workers are absorbed. The project aims to ensure this by involving the private sector as well as the NGO sector in the identification of the demand and the delivery of services.

48. Targeting and Allocation of Funds. To increase the chances that the sub-projects will improve living conditions for those least able to protect themselves against the economic shocks, the locations for the sub-projects will be selected using Egypt’s poverty map taking into consideration the readiness for implementation and the intensity of labor of the proposed sub-projects. Geographic targeting is guided by the Egypt Poverty Map, which uses data from the poverty survey and census. These have been used to generate SFD’s Poverty Targeting Toolkit, which is being updated using the latest data of the 2010/11 Household Income and Expenditure and Consumption Survey (HIECS) and the population projections of 2011 (from 2006 census). Districts (Markaz) are ranked accordingly and a cut off line is determined by an index that is weighted to the national poverty level. The ranking includes both rural and urban areas. Within the selected districts, individual beneficiary targeting will be done by a combination of pre-defined eligibility criteria and self-selection. The careful setting of the wage rate and identification of sub-projects should ensure that project benefits favor poorer areas and activities/sectors and are less attractive to non-target populations..

49. Private Contracting. In Egypt, it is common practice to use contractors to execute PWPs. The Project will introduce one or more new methods for using contractors, including: (i) defining the share of labor in each specific contract during the tendering process, and enforcing it;

5 Employment Intensive Investment Program, ILO, April 2005.

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(ii) providing a list of laborers in each locality whom contractors could hire for any specific activity; and (iii) asking contractors to specify percent of labor cost in each sub-project that they plan to execute. Alternative ways to allow the Government to fix the wage level for contractors to abide by will be explored. Contractors will be asked to ensure that the majority of their labor is from within the area. Only if local labor is unavailable (as verified by SFD branch offices) will contractors be permitted to use labor from nearby communities/areas, but not to exceed 50 percent. These arrangements are provisioned in the contracts, and regularly monitored by SFD branch offices and, as well as by the IVE.

50. Flexibility and Quick Scale-Up. The team examined the suggested design features that would enable flexibility and quick scaling up of workfare programs during periods of economic hardship. The most important opportunity that the proposed project provides is the potential to move toward greater efficiency, targeting accuracy, and labor intensity. This will then be evaluated, in the case of a need to scale-up so that the SFD, as a potential organization to implement this safety net approach, would be in a position to respond quickly. Given its implementation track record, existing regional offices and name recognition, scaling up would not be a challenge.

51. Technical viability of SFD. Technical viability has been demonstrated by over 20 years of successful public works, community and local development activity in Egypt. Investment cost estimates, physical contingencies, prices and estimates of inputs and outputs are based on actual historical data under the three previous IDA-financed projects, as well as other donor financed projects. For public works, the SFD uses standardized designs which have been approved by the relevant line ministries. These standardized designs include engineering, technical, financial, and economic feasibility aspects, operations and maintenance, simple environmental guidelines and cost parameters. Field evidence demonstrates that these simple, practical standards have enhanced sub-project quality, sustainability and cost-effectiveness. All sub-projects will be screened by SFD staff and intermediary agencies. The sponsoring agency will be able to contract technical assistance to help in the design and implementation of sub-projects, as needed. Training programs are also being offered to develop the capacity of the implementing partners to prepare, implement, operate, and maintain sub-projects as well as to acquaint them with the Egypt Environmental Affairs Agency’s environmental regulations.

C. Financial Management

52. SFD will be responsible for financial management and reporting, using systems and procedures acceptable to IBRD. Complete accounting records will be maintained for daily management and for periodic audits and reviews. Financial statements will be audited annually, following international standards on auditing, by qualified independent external auditors acceptable to the Bank. The Bank expects the SFD to submit terms of reference for the project external audit for the World Bank’s prior review within three months of effectiveness. Audit reports will be submitted to the World Bank within six months from the end of each fiscal year (January 1 to December 31). There were no outstanding audit reports under World Bank-financed projects implemented by the SFD at the time of EEIP’s preparation.

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D. Procurement

53. Procurement will be the responsibility of the Sponsoring Agencies, which will be the ministries, governorates, or NGOs; and the Intermediary Agencies, which will be the technical directorates of the governorates and NGOs/CDAs. For labor intensive sub-projects, procurement is a co-responsibility of the Sponsoring Agencies (SA), which are ministries, governorates, or NGOs, and their technical directorates (Intermediary Agencies); and the SFD. The SFD will use the same procedures and modalities in procurement, awarding and contracting as used in the ELIIP, the only difference being that the SFD will co-sign the works contracts (local contractors) together with the sponsoring agencies in the case of the sub-component on small-scale infrastructure works.

54. An updated assessment of the methodology and the applied procurement procedures of SFD to implement and monitor procurement actions for the project were carried out by the World Bank during the preparation of the ELIIP in 2011and remain relevant to EEIP. The assessment reviewed the organizational structure, the applied procedures and the matrix of responsibility for implementing the Project. The key issues and risks concerning procurement for implementation of the Project have been identified and included in Annex 3. The main mitigation measures are maintaining qualified procurement staff, extending the contract of the procurement adviser, and updating of the procurement manual to reflect the new procurement arrangement as explained above to avoid any confusion with the ongoing project ELIIP.

55. The majority of the funds would be used for procurement activities under the Consultant Qualification Selection (CQS) for consulting services, with a threshold of US$500,000 for the selection of NGOs. The Procurement Department of the SFD and its officers in the regional offices will ensure that procurement is carried out according to the updated Procurement Manual regulations and procedures agreed upon with the World Bank. For that purpose, the SFD will continue conducting ex-post reviews, assess the capacity of the intermediary agencies, and conduct capacity building activities using as a basis the updated SFD Procurement Manual for the Labor Intensive Sub-projects.

E. Social (including Safeguards)

56. From a social perspective, the Project’s impact is likely to be positive. With the emphasis on rural areas and the targeting of districts in the lowest 35 percent of the poverty map, the poorest and most vulnerable groups are likely to see an increase in employment, social and economic opportunities. The youth are likely to be the primary beneficiaries of employment opportunities, as they have higher unemployment rates. Females also will be targeted through supporting community services sub-projects. The impact on women will be positive, especially from the social services sub-projects, where women would be more likely to be among beneficiaries of the services, as well as more likely to be employed to deliver the services. The gender differentiated impacts will be monitored by the monitoring and evaluation framework and will be a special focus of the social accountability measures to allow for adjustment during implementation to improve the impact on women. 57. Social Accountability. This will be taken into consideration through different mechanisms as follows: (i) a grievance and transparency mechanism that allow citizens to provide feedback to

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the SFD about project implementation and to allow potential beneficiaries who were not included in the program to seek redress; (ii) public information on the availability of employment opportunities created by the project at relevant levels of implementation; (iii) client satisfaction surveys especially for community social services sub-projects; and (iv) independent verification of results of project implementation using NGOs.

F. Environment (including Safeguards)

58. The proposed environmental category is “B.” OP 4.01 is triggered. The EEIP provides substantial resources that will directly complement the ongoing ELIIP and which will, in the interest of sustaining an efficient and rapid response, adopt the approach and proven implementation mechanisms developed under ELIIP, including environmental and social safeguards.

59. The EEIP project will use the same Environmental and Social Screening and Assessment Framework (ESSAF), as well as sectoral Environmental Management Plans (EMPs) that have been developed and cleared by the World Bank to ensure environmental due diligence for similar sub-projects funded under the ELIIP.

60. The ESSAF addresses, in a sound environmental manner and in line with the World Bank’s safeguard policies, any likely negative environmental impacts potentially resulting from the sub-project activities. It includes a screening tool to ensure that the sub-projects will not entail the triggering of any World Bank safeguards policies except for OP 4.01 Environmental Assessment. Also, the project, through the utilization of the screening tool included in the ESSAF, will exclude any category "A" sub-projects from being funded through this project. Category "B" projects will be subject to the national laws and regulations with regard to the preparation of an Environmental and Social Impact Assessment (ESIA)/EMP to mitigate any negative environmental impacts. The World Bank team, however, through supervision as well as regular monitoring and follow-up activities, will conduct post-reviews for a selected sample of the Environmental Assessment documents of the sub-projects. The ESSAF also includes examples of the typical environmental impacts and the relevant mitigation measures of some of the sub-projects that could be potentially funded by the project.

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Annex 1: Results Framework and Monitoring

ARAB REPUBLIC OF EGYPT

Emergency Employment Investment Project

.

Project Development Objectives

The proposed Project Development Objectives are to i) to create short-term employment opportunities for the unemployed, unskilled and semi-skilled workers in selected locations in Egypt; ii) to contribute to the creation and/ or maintenance of community infrastructure and services; iii) to improve access to basic infrastructure and community services among target population; and iv) to improve the employability of the young men and women through short-term training or other support services to facilitate transitions to wage and self-employment.

These results are at Project Level

Project Development Objective Indicators

Cumulative Target Values Data Source/

Responsibility for

Indicator Name Core Unit of Measure Baseline YR1

(2014)YR2

(2015)YR3

(2016)YR4

(2017) End Target Frequency Methodology Data Collection

Direct project beneficiaries of workfare6

(core indicator: Beneficiaries of Social Safety Nets programs)

of which are female (%)

Number

Percentage

0.00

0.00

12,000

25%

24,000

30%

34,000

35%

40,000

40%

40,000

40%

Every six months

SFD MIS SFD

6 Workfare is defined as the labor intensive infrastructure and community service sub-projects

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of which are youth (18-29 year old) Percentage 40% 50% 60% 60% 60%

Person days of work opportunities created through workfare program

proportion of which for females

proportion of which are youth (18-29 year old)

Number of person days

Percentage

Percentage

0.00

0.00

0.00

2,500,000

25%

40%

7,500,000

30%

50%

12,500,000

35%

60%

13,580,000

40%

60%

13,580,000

40%

60%

Every six months SFD MIS SFD

Job placement rate (wage or self-employment) of those enrolled in the employability program

of which female

of which youth (18-29 year old)

Percentage

Percentage

Percentage

0.00

0.00

0.00

0.00

0.00%

0.00

0.00

25%

50%

0.00

35%

60%

0.00

35%

60%

40%

35%

60%

One time at the end of implementation

Impact evaluation

Consulting firm

Intermediate Results Indicators

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Cumulative Target ValuesFrequency

Data Source/Responsibility

for

Indicator Name Core Unit of Measure Baseline YR1 YR2 YR3 YR4 End

TargetMethodology Data

Collection

Component 1

Labor intensity of subprojects: wage share of total sub-project costs

Percentage 0.00 40% 40% 40% 40% 40% Every six months SFD MIS SFD

Small-scale infrastructure sub-projects implemented

Number 0.00 0 2 4 6 6 Every six months SFD MIS SFD

Direct sub-project beneficiaries satisfied

Percentage 0.00 65%One time during the project

Process evaluation

Evaluation consultant

Beneficiaries who receive their wages on time7

Percentage 0.00 80%One time during the project

Process evaluation

Evaluation consultant

River Nile banks protected Kilometers 0.00 0 2 4 5 5 km Every six

months SFD MIS SFD

Number of classrooms rehabilitated

Number 0.00

TBD once the full pipeline is defined

Every six months SFD MIS SFD

Rural roads paved Kilometers 0.00 TBC Every six months SFD MIS SFD

Component 2

Labor intensity of Wage share 0.00 60% 60% 70% 70% 70% Every six SFD MIS SFD

7 As specified in the Operations Manual.

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subprojectsof total sub-project costs (percentage)

months

Community services sub-projects completed

Number 0.00 0 100 300 500 500 Every six months SFD MIS SFD

Direct sub-project beneficiaries satisfied

Percentage 0.00 65%One time during the project

Process evaluation SFD

Beneficiaries who receive their wages on time8

Percentage 0.00 80% Every six months

Beneficiary survey

Evaluation consultant

Villages that received cleanliness and environmental awareness campaigns

Number 0.00 0.00 40 80 120 120 Every six months SFD MIS SFD

Families that received Maternal and Child Healthcare visits/support

Number 0.00 0.00 200,000 400,000 600,000 600,000 Every six months NGOs reports SFD

People participating in literacy classes

Number 0.00 TBC Every six months NGOs reports SFD

Component 3

Individuals who Number 0.00 300 1,000 2,000 3,125 3,125 Every six SFD MIS SFD

8 As specified in the Operations Manual.

20

participated (enrolled) in the workers’ employability programs ( core indicators: Beneficiaries of Labor market programs)

Of which are female

Of which are youth (18-29 year old)

Percentage

Percentage

25%

50%

25%

50%

30%

60%

35%

60%

35%

60%

months

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Annex 2: Detailed Project Description

ARAB REPUBLIC OF EGYPT

Emergency Employment Investment Project

Component 1: Employment-intensive Small-scale Infrastructure Subprojects (EUR 0.980 million or US$1.35 million equivalent)

1. This component will finance labor-intensive small infrastructure employment creation programs. Specifically, the project will support labor-intensive small scale local public works sub-projects which could include, but are not limited to Nile River bank protection, pavement of rural roads, and school rehabilitation. These sub-projects could be demand-driven, requested by the local government at the governorate level, or supply driven, requested by a central ministry based on needs. Implementation of the sub-projects will be contracted out to private contractors. Infrastructure operations and maintenance procedures will be defined and agreed upon with beneficiaries and other stakeholders during the sub-project design phase (e.g. between SFD, Ministries and Governorate).

2. Selection of labor-intensive sub-projects proposals for funding under the project will be based on assessment criteria which include: labor intensity, activities that are less attractive to those who have other options of access the labor market, wage rate that does not compete with the prevailing rate in the labor market and the concentration of beneficiaries from the sub-project location.

Component 2: Intensive Community Service Subprojects and Youth Employment Activities (EUR 56.863 million or US$78.47 million equivalent)

3. This component will support labor-intensive community service sub-projects through the provision of grants to local communities (NGOs and CBOs) for services like, but not limited to, environmental awareness and cleaning campaigns in villages and local areas, early childhood education, mother and child health support - including facilitating access to facilities, awareness, home visits programs, illiteracy eradication activities, and youth engagement in community initiatives in rural and urban areas (e.g. community mobilization and citizen engagement activities). A high share of women beneficiaries can be expected, given that social services tend to particularly attract females. Priority will be given to sub-projects with higher levels of labor share.

4. Targeting for the workfare subprojects to be supported under Components 1 and 2 will follow the same criteria and procedures as in the on-going World Bank-financed ELIIP. Targeting will combine geographic targeting and self-targeting, building on the standard mechanisms and lessons learned from the early implementation of ELIIP. Overall, eligible districts will be determined on the basis of geographic targeting as guided by the Egypt Poverty Map, which was updated using the latest data of the HIECS of 2010-2011, and the SFD Poverty Targeting Toolkit. Pro-poor self-targeting is ensured by pre-identified eligibility criteria, selecting subprojects which generate jobs that are not attractive to the non-poor, and setting wage

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rate slightly below the prevailing market rate to discourage those who have other job options. It is estimated that young people (18 to 29 years of age) will account for at least 60 percent of the direct beneficiaries, given the high share of youth among the unemployed. In addition, some sub-projects will be explicitly targeted to youth in rural and urban settings.

Component 3: Improving Workers Employability (EUR 5.882 million or US$8.12 million equivalent)

5. This component will finance the piloting of two types of youth employment sub-projects aimed at facilitating young people’s transition into wage- and self-employment. The pilot programs will be demand-driven by NGOs based on a core set of interventions that are adapted to the specific needs of youth and employers in the local context.

6. Beneficiary targeting: Subprojects to support beneficiaries in their transition to wage-employment are more likely to be relevant in urban areas, while it is expected that interventions to promote self-employment will primarily take place in rural areas. Beneficiaries will be young men and women between the ages of 18-29 in the project’s target provinces who are out of school and out of (full time) work. Program participants should not have participated in a formal economic (full-time) activity for a period of more than six consecutive months since graduating (or dropping out) from high-school, university, or another education institution. Disadvantaged youth, including young women, will be specifically targeted. Implementing NGOs will be required to openly advertise their activities in the local community according to the specific eligibility criteria defined for the sub-projects (incl. age, gender, education and employment status, etc.).

Component 3 will include two broad types of programs:

7. Programs to facilitate transitions into wage-employment. Pilot programs to facilitate transitions into wage-employment can combine all or some of the following core interventions:

a) Training: The pilot programs can support different types of training conditional on the existence of demand for the skills that will be provided. Implementation agencies are expected to have agreements with particular employers or employer associations in terms of available vacancies, skills to be acquired, curricula, and delivery mechanisms. Training can include (i) technical training for job-specific skills in different occupations and trades covering manual labor as well as administrative and office jobs; (ii) socio-emotional and life skills; (iii) basic literacy and numeracy training; and (iv) on-the-job training (internships or apprenticeships).

b) Intermediation and job-search assistance: Services under this category can include (i) prospection, screening, job searching and matching of job-seekers and vacancies; and (ii) job counselling and job-search assistance.

c) Wage and training subsidies: Where deemed necessary, implementing agencies can make use of wage subsidies to encourage employers to hire youth and/or provide training subsidies/stipends to encourage youth to take part in on-the-job training.

d) Social support services: As needed, implementing agencies can complement the above activities with other support services appropriate for the respective target group, such as child care, transportation allowances, referral services, psychosocial support, etc.

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8. Integrated entrepreneurship programs. Pilot programs to facilitate transitions into self-employment can combine all or some of the following core interventions:

a) Identifying business opportunities: NGOs should carry out local/regional market assessments or feasibility studies to identify the key sectors offering promising livelihood opportunities (as well as saturated markets), constraints of existing businesses and trades, and possibilities for creating new and upgrading existing micro-enterprises.

b) Entrepreneurship training: In addition to the types of training that can be provided to foster wage employment (see above), entrepreneurship training can also include skills development in the area of business management and basic financial literacy, such as participatory market research, determining financial risks and goals, business planning, basic budgeting, bookkeeping, and sales and marketing. The business training can also be used to develop some form of mini business plan that can subsequently be used to access funding sources.

c) Financial services: Implementing agencies under this sub-component would be expected to link beneficiaries to financial service providers or directly provide start-up financing as needed. This might include: (i) facilitating beneficiaries’ access to individual or group savings (formal or informal); (ii) providing start-up financing in the form of in-kind grants; or (iii) facilitating access to credit and insurance by connecting beneficiaries with financial institutions (e.g. Microfinance institutions).

d) Advisory services: In order to help youth sustain and grow their business, implementing agencies are encouraged to offer business support services during the start-up and post-creation stage. Advisory services could include: (i) facilitating group mobilization to jointly exploit business opportunities; (ii) coaching and mentoring; (iii) administrative assistance with regard to licensing and registration requirements; (iv) assistance with improving production and service techniques; and (v) incubation and cluster support (i.e. access to physical space).

e) Access to markets and value chains: In order to overcome the business limitations resulting from a limited local market, implementing agencies are encouraged to help beneficiaries access regional, national, and international markets. This can include addressing issues of transportation and distribution, identifying buyers and intermediaries, and creating brands and labels to support the marketing process. Similarly, implementing agencies are encouraged to focus on businesses that have the potential for integration into value chains.

Component 4: Project Implementation Support and Capacity Building (EUR 3.43 million or US$4.73 million equivalent)

9. The implementation support program for the project includes: (i) training and consultancies to support project management, monitoring and evaluation, financial management and procurement; (ii) financing of public information activities, EU (donor) visibility, communication and social mobilization strategy development and implementation; (iii) technical verification for project outputs; and (iv) capacity building for SFD and governorate staff as needed, as well as for the implementing NGOs.

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10. Public Information, Communication, and Social Accountability. The component will further support the design and implementation of the existing (under ELLIP) communication and social mobilization strategy and detailed action plan. The objectives of the communication strategy are: (i) promote the benefits of labor-intensive projects; (ii) raise public awareness about the availability of the potential employment opportunities that would be created by the Project; (iii) address areas of concern raised as the project is implemented; and (iv) create channels for feedback from the beneficiaries and civil society that would improve implementation. The communication strategy will propose key messages to be disseminated through communication/media channels. The component will also finance the contingencies for the project, as specified by the Trust Fund arrangement. Additionally, funding will be allocated for EU visibility and branding activities for the project’s activities, as specified in the financing agreement. In addition, the component will support the design and implementation of a grievance and transparency mechanism that would allow citizens to provide feedback to the SFD about project implementation and allow potential beneficiaries who have not been included in the program to seek redress.

11. Technical Verification. Periodic technical verification will be carried out on a semi-annual basis during the life of the Project, using an Independent Verification Expert (IVE) and NGOs. The IVE will verify: (i) the intermediate sectoral outcomes; and (ii) compliance with the Operations Manual.

12. Project Monitoring & Evaluation. Monitoring will be carried out by the SFD’s internal monitoring system using the SFD management information system (MIS). The Project will finance support to conduct a) targeting, process and beneficiary satisfaction evaluation; and b) impact evaluation and cost effectiveness of the pilot youth employability programs (Component 3), to assess the effectiveness of different approaches in securing employment and increasing incomes of the beneficiaries. These evaluations are expected to assist the Government of Egypt in improving implementation and assessing the potential for scaling up the workfare activities as an essential part of Egypt’s social safety net program. Evaluations will be carried out through independent consulting firms.

13. Capacity Building – for SFD and Governorate staff, as well as for the implementing NGOs -- will be procured as needed. SFD staff will be exposed to experiences of other countries in the design, delivery and scalability of similar programs. National and international training will be provided as deemed to be relevant to the implementation of the project.

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Annex 3: Implementation Arrangements

ARAB REPUBLIC OF EGYPT

Emergency Employment Investment Project

PROJECT INSTITUTIONAL ARRANGEMENTS

1. Project Implementing Agency. The implementation arrangements for this project will be similar to those of the ELIIP, with the SFD as the main implementing agency. The SFD will be responsible for the overall program, using its own fiduciary management systems that are in compliance with World Bank regulations and procedures. The SFD is a legally autonomous, permanent and well established development organization with a long track record of providing support to needy and underserved communities. The SFD has been implementing the public works program for the last 20 years to provide immediate short-term employment opportunities.

2. The SFD has significant experience in interventions that provide services and employment to the poor, with an increasing focus on community participation, cooperation with NGOs, and decentralization. Since 1992, about EGP 1.8 billion worth of projects have been implemented by SFD in infrastructure development and EGP 0.9 billion worth of projects in community services. Over the years, the most common sub-projects implemented were water supply and sanitation projects, pavement of roads, cleaning of canals, public buildings, and riverbank protection.

3. Project Oversight. The Board of Directors of the SFD, which is chaired by the Prime Minister and includes the Ministers of Finance, Planning and International Cooperation, Social Solidarity, Trade, Industry and Investment, Local Development and Administrative Development, Social Solidarity, Deputy Governor of the Central Bank of Egypt, in addition to 4 members representing the private sector and civil society, is responsible for project oversight. SFD’s Managing Director will be responsible for general project coordination and implementation.

4. Project Management. The SFD will rely on its Human and Community Development Central Sector (HCD) and the capacities of the Financial Management Department, the Internal Audit Department, the Environmental Safeguards Department, and the Planning, Monitoring, and Evaluation Department in implementing this project. There will be no separate project implementation unit (PIU) established within the SFD Headquarters. The SFD will work in close partnership with the governorates, sectoral ministries at the governorate level, local authorities, NGOs, and CDAs. The SFD will be responsible for implementing and coordinating the activities of the project with the support of its 27 regional offices which will monitor and report on project progress.

5. Implementation procedures. As in the ELIIP, the SFD will be responsible for financial management and reporting, using systems and procedures acceptable to the World Bank. Procurement will be the responsibility of the Sponsoring Agencies, which will be the ministries, governorates, or NGOs; and the Intermediary Agencies, which will be the technical directorates

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of the governorates and CDAs. The SFD will use the same procedures and modalities in procurement, awarding, and contracting as used in the ELIIP, the only difference being that the SFD will co-sign the works contracts (local contractors) together with the sponsoring agencies in the case of the sub-component on small-scale infrastructure works.

IMPLEMENTATION ARRANGEMENTS

FOR COMPONENTS 1 AND 2:

6. SFD’s Roles and Responsibilities. Key SFD duties will include: (a) preparing the sub-projects pipeline in accordance to the guidelines and eligibility criteria defined in the Operations Manual; (b) assessing the degree of labor intensity of the proposed sub-project, (c) assessing the degree of appropriateness of the proposed sub-projects to the local area need and community engagement in identifying and executing sub-projects and the quality of the skills upgrading activities proposed; (d) supervising the activities of the sponsoring agencies and the intermediary agencies; (e) overseeing the procurement arrangements to ensure that implementing partners are adhering to the agreed procedures; and in the case of small-scale sub-projects SFD has a co-responsibility of the procurement process and SFD co-signs with the Sponsoring Agencies (SA) the contracts; (f) ensuring that sponsoring agencies are actually carrying out the capacity building activities for the implementing partners (including training on sub-project implementation, contracting, operations and maintenance, and financial management); (g) monitoring performance through the MIS and reporting quarterly on progress; and (h) developing an impact evaluation process to provide information on project outcomes.

Main sub-project Partners

7. Line Ministries/Governorates and their technical directorates. Line Ministries are the sectoral ministries at the national level that identify the types of technical subsectors to be funded under this operation. Below the national level, the 27 governorates are the main focal points of government development efforts. Associated with line ministries/governorates are technical directorates (mudiriat) which represent line ministries within a particular governorate. Technical directorates are responsible for the technical aspects of their sectors throughout the governorate. Governorates and their technical directorates assume the technical responsibility for operation and maintenance of most infrastructure investments.

8. NGOs/ Community Development Associations (CDAs). NGOs are registered large experienced community development associations with a track record in implementing community driven development projects. NGOs support the formation, capacity development, and expansion of grass-roots CDAs at the village level. CDAs are groups of citizens from the community with a common interest, who organize into legally constituted civil associations. Both NGOs/CDAs will identify, prepare, implement, supervise, operate and maintain their sub-projects, assisted both by technical specialists whom they contract directly and by technical assistance and training made available through the Project.

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Priority setting for allocation of funds

9. The Egypt poverty map information will be used to prioritize allocation of funds for sub-projects geographical areas.

Sub-project implementation

10. Community Infrastructure Sub-projects:

Identification of sub-projectsThe sub-projects pipeline is identified by SFD regional offices in collaboration with sectoral line ministries, technical directorates at the governorate level, local authorities, and in consultation with the local community.

Approvals by SFDOnce a group of sub-projects under a single framework agreement has been identified, it is sent to the standing SFD appraisal committee at headquarters for appraisal. Upon approval, the funds are allocated.

Signing of framework agreements A framework agreement is signed between SFD and the governorate or line ministries (SA). Framework agreements define the scope of the sub-project, preliminary sub-project list, and reporting requirements, in addition to the roles and responsibilities of the technical directorates as Implementing Agencies (IA). The IA will represent line ministries within a particular governorate and will assume the technical responsibility for operations and maintenance of infrastructure investments.

Setting up a Project Implementation Unit (PIU) within the SABased on an assessment of the strengths of the SA, a PIU will be set up within the SA. Personnel will include a full time project manager, an accountant, and a procurement specialist.

Signing of sub-grant agreements between SA and IA (also known as Intermediary Grant Agreements)A sub-grant agreement is signed between the governorate/line ministries (SA) and their technical directorates at the governorate level (mudiriat) (IA). The sub-grant agreement defines the roles and responsibilities of the technical directorates, contracting conditions, and procurement procedures.

Setting up required bank accountsA bank account for the sub-project will be set up in the name of the sponsoring agency, with signatory delegated to the PIU and other details declared. Similarly, every intermediary agency (technical directorate) which is expected to execute sub-projects will also set up bank accounts.

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Preparing detailed designs and tender documents by IAThe IA is responsible for preparing the detailed designs, bills of quantities, tender documents, and technical daily supervision.

Physical execution of sub-projectsSub-projects will be implemented through contracting local private civil works contractors in accordance with SFD’s procurement manual and in compliance with SFD’s financial management manual.

Reporting on sub-project progressImplementation progress of sub-projects is reported by the SA as per reporting requirements defined in SFD’s Operations Manual.

11. Community Services Sub-projects:

Selection of NGOs/CDAs NGOs/CDAs will be selected based on the qualifications of the organization, past experience, and implementation and fund management capacity. A long list of NGOs/CDAs will be identified per sector for each governorate. The SFD has already a long list of qualified NGOs/CDA, which will be updated during project implementation.

Identification of sub-projectsQualified NGOs/CDAs per sector per geographic area will develop the sub-projects pipeline in partnership with SFD regional offices and in collaboration and consultation with the local authorities.

Approvals by SFDGrant agreements for sub-projects are identified and sent to the standing SFD appraisal committee at headquarters for appraisal. Upon approval, the funds are allocated to the NGO/CDA.

Signing of grant agreements for sub-project implementation (also known as Sponsoring Agencies Grant Agreements)An agreement is signed between SFD and the implementing NGO/CDA that will define the scope of the sub-project, the roles and responsibilities of NGO/CDA where applicable, reporting requirements, contracting conditions, and procurement procedures.

Setting up a Project Implementation Unit (PIU) within the NGO/CDABased on an assessment of the strengths of the NGO/CDA, a PIU will be set up within the SA. Personnel needed for the PIU will include a full time project manager, an accountant, and a procurement specialist.

Setting up required bank accounts for the grant agreementA bank account for the sub-project will be set up in the name of the NGO/CDA, with signatory delegated to the PIU and other details declared.

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Physical execution of sub-projectsSub-projects will be implemented by the NGO/CDA through contracting suppliers and consultants in accordance with SFD’s procurement manual and in compliance with SFD’s financial management manual.

Reporting on sub-project progressImplementation progress of the sub-projects is reported by the NGO/CDA as per reporting requirements defined in SFD’s Operations Manual.

FOR COMPONENT 3:

12. Activities to facilitate the transition of young people to wage- and self-employment will be managed by SFD’s Human and Community Development (HCD) Central Sector and implemented by competitively selected NGOs.

13. Selection process: Interested NGOs can respond to an expression of interest based on which SFD headquarters will carry out a first general capacity assessment of the respective organizations. NGOs meeting the minimum requirements will be shortlisted and receive a Request for proposal (RFP) that will specify in detail the required expertise of the NGO. Each candidate will then submit a combined technical and financial proposal. These will be analyzed and ranked according to a set of pre-identified criteria by a technical evaluation committee set up by the SFD. Criteria will include i) the NGO’s ability to serve a minimum number of beneficiaries; ii) track record of working with youth, including disadvantaged youth and young women; iii) demonstrated experience in the type of youth employment programming proposed; iv) technical quality of the proposal, including strong linkages with employers for wage-

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employment projects and strong capacity for local market assessments for self-employment projects; v) potential for sustainability and scaling-up; and vi) cost-effectiveness of the intervention.

14. Implementation modalities: Applicant NGOs can choose to implement activities under three different implementation structures.

a. Direct implementation: To the extent that NGOs meet the minimum eligibility and quality criteria, they can apply to implement project activities independently.

b. Mother NGO: Mother NGOs would collaborate with local NGOs and/or CDAs to implement specific services as needed. The Mother NGO would provide capacity building and quality control to the local organizations as needed. In the eyes of the SFD, the Mother NGO is the only legally responsible organization for the fulfillment of the SFD grant.

c. Consortium: NGOs may also choose to form a consortium and apply for separate grants related to the same project. In this scenario, several NGOs would agree upon a joint project proposal, and the distribution of responsibilities, including which NGO will be the lead NGO. Each NGO would then send a separate proposal to the SFD, indicating that their proposal is part of a joint initiative. All proposals related to the same initiative would then be evaluated jointly.

15. Implementing partners: As needed, the implementing NGOs are expected to enter into partnership agreements with other agencies or experts to deliver specific parts of the services. For example, this could include partnering with specialized training centers to deliver technical training, with other NGOs or specialized consultants to deliver life skills training, or with community-based organizations to enhance outreach to beneficiaries. Applicant NGOs will specify their planned partnerships as part of their proposals. In the case of projects targeting wage-employment, potential NGO providers will be required to partner with private sector firms and secure their commitment to offer an internship and/or job vacancies to a certain number of trainees graduating from the NGO’s program.

16. Performance-based contracts: Implementing NGOs will be reimbursed for the cost of services on the basis of outputs and results. Performance-based contracts will reward implementing NGOs for achieving the desired outcomes of the program to place a maximum number of beneficiaries in available jobs through wage- and self-employment. The contract mechanisms will therefore include a withheld payment that will be paid based on the achievement of placement targets. Placements of beneficiaries into jobs will be subject to independent verification by SFD.

MONITORING AND EVALUATION

17. Monitoring. The SFD will monitor the progress of implementation using its management information system (MIS) which has been adapted to ensure that it will be able to respond to the reporting requirements of the Bank and the Results Framework of the Project.

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18. Reporting. The SFD will submit to the Bank semi-annual progress reports that provide updates on the status of the project outcome, intermediate outcome, and output indicators. In addition, the SFD will submit to the Bank a Mid Term Review Report and a Project Completion Report.

19. Technical verification and quality assurance. Periodic technical verification will be carried out on a semi-annual basis during the life of the Project, using an Independent Verification Expert (IVE) and NGOs. The IVE will verify: (i) the intermediate sectoral outcomes; and (ii) the output indicators. In the case of the youth employability component, the IVE will verify the placement rates reported by the implementing NGOs. Quality assurance firms will assess: (i) the quality of the works; (ii) whether sub-projects are operated and maintained in accordance with SFD’s maintenance manuals; (iii) compliance with the Operations Manual; (iv) compliance with environmental and social safeguards for community infrastructure sub-projects; and (v) client satisfaction rates for workfare sub-projects

20. Evaluation. The Project will finance support to conduct mid-term, end-of-project, targeting and process evaluations that will assist the Government of Egypt in assessing the potential for scaling up the workfare activities as an essential part of Egypt’s social safety net program. An impact evaluation will be conducted of the pilot youth employment programs (Component 3), to assess the effectiveness of different approaches in securing employment and increasing incomes of the beneficiaries. Evaluations will be carried out through independent consulting firms.

21. The project will be managed in accordance with SFD’s Operations Manual which at all times will need to be acceptable to the World Bank.

FINANCIAL MANAGEMENT AND DISBURSEMENT

A. Executive Summary and Conclusions22. An assessment of the Financial Management arrangements (FM) for the EEIP was undertaken to assess the capacity of the implementing entity of the project and assist in determining the required FM arrangements for the implementation of the project. A detailed FM capacity assessment of SFD was conducted and its outcome is found to be satisfactory to the Bank.

23. The project arrangements were discussed at length with evaluation of FM options to be applied during implementation and their impact on the various stakeholders under the Project. The envisaged project stakeholders were identified as: (i) SFD and its affiliated Regional Offices (RO) (Tier 1); (ii) the SA which will be represented in the PIUs within the respective Ministry, Governorate or NGO (Tier 2); and (iii) the IA responsible for the respective project at the governorate level (Tier 3).

24. As it is the case with the different donor funded projects implemented by the SFD, the current automated accounting system (i.e., Oracle) includes a separate coding system for each project. Detailed disbursement, reporting and auditing arrangements were agreed with SFD as detailed in the following sections in this annex.

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B. FM Risk Assessment and Mitigating Measures

25. The diagnostic studies conducted by the Bank that covered financial management at the country level (ROSC, CFAA, PEFA) identified some weaknesses in the reporting and auditing environment in Egypt. The overall fiduciary risk associated with public financial management was assessed to be significant. This was taken into consideration in assessing the project risks and in designing the project FM arrangements.

Inherent Risks: Mitigating Measure (MM)

The diversified structure and the multiple layers of implementation may result in slow implementation and difficult monitoring.

Substantial

- The SFD has prior experience with similar Bank-financed projects.- The OM clarifies the relations/responsibilities of the different implementation layers.

Moderate

Project levelLack of coordination between the different parties involved with the project implementation (SFD, SAs, Intermediary Agencies, etc.) can negatively affect smooth project implementation.

High

- As per the framework agreements with the SAs the PIUs in the Ministries, Governorates or NGOs will be responsible for sending monthly Technical and Financial Reports to the SFD ROs in order to be entitled to request future tranches.

Substantial

General Risk Before MM High General Risk after MM Substantial

Control Risk

Internal ControlThe existing internal controls at the SFD should be updated to meet the new Project’s needs (Project’s disbursement procedures and reporting requirements).

Substantial - SFD procedures have been amended to capture the financial management arrangement and disbursement requirements of the Project.- The SFD Internal Audit Department (IA) established a risk based audit strategy which was reviewed, and found acceptable, by the Bank. The audit strategy covers the IA involvement in the evaluating the grant recipient and follow up on activities through project implementation. The SFD IA conducts capacity assessment of the PIU/CDA before signing the framework agreement.

Moderate

Funds FlowLengthy channels of funds from the Bank through SFD and SAs before arriving to ultimate beneficiaries.SFD’s requests for replenishment for unsettled advance payments can result in ineligible expenditures and inflated Bank exposure.

Substantial - The project design allows SFD to request advances to the Designated Account up to 6 months of its estimated disbursement plan as presented in the IFRs. Also the NGOs will be able to request funds, in advance, based on cash forecasts and expected commitments. Each NGO will have a bank account to be used solely for the project.

Moderate

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- The SFD will continuously keep track of the amounts actually disbursed, through the SFD Finance Department, and not only the amounts transferred to the NGO. The amounts actually disbursed should represent the basis for requesting replenishments.

Financial ReportingThe project reports need to reflect the project finances including SAs. The SFD financial management system will need to be configured to become able to compile the project financial data and issue on quarterly basis the project reports.

The consolidation of reporting may not be timely.

Substantial - As per the framework agreements with the SAs the PIUs in the Ministries, Governorates or NGO/CDAs will be responsible for sending monthly Technical and Financial Reports to the SFD ROs in order to be entitled to request future tranches.- The format and content of the project reports has been agreed upon with the SFD.- This system allows the generation of the overall project financial reports on a timely basis.- The IT department at the SFD creates separate accounting codes for each Project.

Moderate

Overall Control risk Substantial Moderate

Staffing:

26. The SFD Finance Sector structure is as per the following organizational chart. The SFD staff capacity in the Finance and Internal Audit were found to be adequate to absorb the additional workload of the Project. There are 27 employees in the Finance Sector and 40 employees in the IA department, with adequate prior experience with Bank-financed projects and satisfactory FM performance.

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Accounting:

27. The SFD will record all project-related transactions using cash basis. Original supporting documents will be kept at the SA level. The SFD Internal Audit and the project External Auditor will be granted access to examine the original supporting documentation. Meanwhile, the SA will send monthly reports to the SFD regional office. The Implementing Agency, in coordination with the SA, is responsible for the issuance of bidding documents, the selection process, supervision of implementation, the verification of technical acceptability of implemented activities, and the issuance of payments to beneficiaries.

28. The SFD bookkeeping is automated through the accounting system, Oracle, which is centralized in the SFD Head Office. The system was previously found to be acceptable by the Bank and accordingly, it was agreed with the IT representative to establish a separate module on the Oracle system for the sole purpose of recording the receipt of all project proceeds and corresponding disbursements. In addition, the system is capable of generating quarterly IFRs and annual Financial Statements as required under the Grant Agreement. In case of contracting with PIUs working under a SA, the SFD system automation is applied to the entire recording and reporting stream and the PIUs will be granted access to the SFD system to report on the project activities. When contracting with NGOs, the SFD RO will be responsible for the recording and reporting on the SFD system on behalf of the NGO. The format and content of the project reports has been agreed with the SFD Finance and IT Departments.

29. Grants are first accounted for when granted to finance sub-projects and recorded in the accounting system based on actual disbursement. Contracts will be kept at the SFD Headquarters while original documentation supporting actual disbursements will be kept at the PIU/NGO level which will also be required to scan supporting documents and send it to the ROs to request transfer of funds. The contract with the PIU will state that the SFD IA department and the independent external auditor will be granted access to examine the project original documents supporting actual disbursements.

30. The SFD will continuously keep track of the amounts actually disbursed and not only the amounts transferred to the SA. The amounts actually disbursed should represent the basis for requesting replenishments.

Flow of Funds and Internal Controls:

31. To facilitate the flow of funds, a Designated Account (DA) will be opened at the Central Bank to receive the grant funds that will be used for the sole purpose of executing the project activities. The project design allows SFD to request advances to the DA up to 6 months of estimated disbursement plan as presented in the Interim Financial Reports (IFRs) i.e., IFR based disbursement.

32. Before signing the framework agreement with the respective SA, the IA department will conduct a capacity assessment of the PIU/NGO. Upon the IA clearance, the framework agreement will be signed accordingly.

33. The framework agreement signed with the SA (Governorate, Ministry, Mother NGO or NGO) is given a unique code and entered in the SFD automated system against the financing

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donor. For Component 1, the SFD will be directly contracting and paying subprojects implemented under this component. For Component 2, NGO/CDA issues a disbursement request to the SFD RO requesting the advance payment (and later subsequent tranches) to be transferred to its bank account. The RO forwards the request to the responsible department (i.e., HCD). The HCD fills out a disbursement form with all project information (i.e., code , name, responsible department, sub-project start date, sub-project duration, sub-project developmental objective, financing source, project value, total number of tranches according to the contract, previous tranches and their respective amount, remaining amount, bank name, bank account number). The form is signed by the responsible sub-project officer, and approved by the HCD Head of the Department and HCD Sector Head. The form is then reviewed and signed by the Monitoring and Evaluation Department.

34. The form is forwarded to the Finance Sector where it is reviewed, approved and authorized for payment. The form is signed by the Head of Expenses and Transfers Department and the Financial Follow Up of Convention Department and Finance Sector Director.

35. The Expenses and Transfers Department issues a letter to the bank to transfer the requested and approved amount to the NGO/CDA from the DA to the respective bank account. The letter is signed by the Head of Expenses and Transfers Department and the Manager in the Expenses and Transfers Department.9 The same procedures apply for subsequent tranches. The following documents are attached with the disbursement request from the NGO to the RO:

- The cumulative disbursements.- Technical report on the project achievements.- Plan for future disbursements and work.

36. The Financial Follow Up of Convention Department will keep track of all project disbursements and will disburse from the grant as per the quarterly IFR which will include:

- DA balance- Amounts disbursed to the end beneficiaries (Contactors/Suppliers)- Upcoming six month disbursement forecast

The above is associated with a Withdrawal Application which will be signed by the project authorized signatories.

37. The project disbursement plan will be updated periodically and will be used to reflect the variances upon IFRs submission. It is necessary that variance analysis be prepared with each IFR submission explaining variances that exceed 15 percent between actual and planned figures of the reporting period.

38. The SFD has an internal audit department and adequate FM manual reflecting its operation which was found to be satisfactory. The current Internal Audit Department includes around 40 auditors at the HQ and governorate levels. The Internal Audit Department –with its current capacity- is responsible for conducting audit field work and related reporting for all SFD projects all over Egypt.

9 On the SFD automated system, the related Journal Voucher is prepared by finance officer, reviewed by the finance manager and approved by the Financial Control department Senior Manager and the Sector Director Finance and Operation.

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39. The SFD Internal Audit Department (IA) established a risk based audit strategy which was reviewed, and found acceptable, by the Bank. The audit strategy covers the IA and the independent external auditor involvement in evaluating the grant recipient and follow up on activities being implemented. A capacity assessment of the PIU/NGO would be carried out before signing the framework agreement. Upon the IA clearance, the framework agreement will be signed accordingly. The IA strategy also includes the internal procedures of the SFD in the process of appointing the external auditor for the Project, and refers to the fact that the external auditor TOR will be reviewed and given a ‘no objection’ by the Bank. The IA audit strategy stipulates that all projects are subject to at least two Internal Audit attestation visits, one at an early stage of project implementation and another visit before transferring the final grant tranche.

Reporting and Auditing:

40. The SFD is subject to an external audit and to the Central Accountancy Office regular audits as well as independent private audits. The SFD will ensure that an external auditor for the project is appointed within three months after project effectiveness. The external auditor will conduct quarterly reviews on the project IFRs before submission to the Bank.

41. The SFD will remit to the Bank not later than six months after the end of each year the audit report of the Project. The external audit report shall encompass all Project activities and shall be in accordance with International Standards on Auditing (ISA). In addition to the audit reports, the auditor will prepare a "management letter" identifying any observations, comments and deficiencies, in the system and controls, that the auditor considers pertinent and shall provide recommendations for their improvements. The TOR for the auditor will be prepared and submitted for the Bank's ‘no objection’.

42. The below table summarizes the financial reporting arrangements required under the project.

Report Due Date Responsibility Sent to

Scope

Interim financial Reports

45 days from end of quarter

External Auditor Bank Review

Annual financial statements

6 months from end of the fiscal year

External Auditor Bank Audit

Supervision Plan:

43. At least two implementation support missions will be carried out annually. Follow up visits will be conducted as deemed necessary. The review and audit reports of the interim and annual financial statements respectively, in addition to management letter, will be reviewed on a regular basis by the Bank FM Specialist and the results or any issues will be followed up during implementation support missions. Also, during the Bank's missions, the Project's financial management and disbursement arrangements will be reviewed to ensure compliance with the Bank's requirements and to develop the financial management rating for the Implementation Status Report (ISR).

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PROCUREMENT

44. Procurement for the proposed Project will be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated January 2011; “Guidelines: Selection and Employment of Consultants by World Bank Recipients” dated January 2011; the World Bank’s Anti-Corruption Guidelines (“Guidelines on Preventing and Combating Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants), and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Grant, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Recipient and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

45. Procurement of Works: Works procured under this Project will include: small value contracts estimated to not exceed US$350,000. Large contracts will not arise at the SA/NGO level due to the nature of the works involved and, therefore, International Competitive Bidding (ICB) is not foreseen. Civil works contracts will be implemented by local contractors and supervised by the SA, the beneficiary of SFD finance.

46. Civil works contracts will include canal weed reduction and protection of river bank, rehabilitation of rural housing, upgrading of rural roads, and school rehabilitation. Civil works with an estimated contract value below US$350,000 would be awarded through local shopping (small works procedures) as explained and agreed upon in the updated Operations Manual. The Operations Manual will also include standard evaluation forms related to the set types of procurements.

47. Civil works with an estimated contract value more than US$350,000 will be procured at the SFD central level through National Competitive Bidding (NCB) using the modified World Bank standard bidding document in Arabic language which is currently being used by other World Bank financed projects in the water sector in Egypt, with advertisement in two national newspapers. NCB procedures shall comply with the requirements stipulated in the Financing Agreement under the Provisions for NCB.

48. Procurement of Goods: Goods procured under this Project will include: small value contracts of less than US$100,000. The procurement will be done following the SFD updated procurement manual as agreed upon with the Bank; this manual Includes in its annexes simplified local shopping procedures for contracts estimated less than US$100,000 or equivalent. The manual also includes standard evaluation forms related to these types of procurements.

49. Procurement of non-consulting services: Procurement of non-consulting services under the project may include printing services, translation services, transportation service, catering services, hotel services, etc.

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50. Selection of Consultants: All consulting service contracts under this project would be procured at the SFD central level following the World Bank’s procurement procedures by using the Bank’s Standard Request for Proposal. Consulting services contracts would mainly comprise hiring of an Independent Verification Expert, Evaluation, Communication, Capacity Development, and Audits. Consulting service contracts above US$500,000 will use Quality and Cost based Selection QCBS and/or Quality Based selection QBS. Consulting service contracts below US$500,000 for selection of firms or NGOs may be procured using selection based on Consultants‟ Qualification CQS, Fixed Budget Selection FBS, and Least Cost Selection LCS.

51. Single Source Selection could be used in exceptional cases subject to approval by the Bank. The SFD updated procurement manual will include annexes of standard simplified Request for Proposals (RFP) and contract forms as well as standard evaluation forms. Short lists of consultants for services estimated to cost less than US$500,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. All individual consulting assignments will be selected on the basis of comparison of qualifications in accordance with Section V of the Guidelines for Selection of Individual Consultants.

52. Capacity building activities to be financed by the Grant include workshops to train beneficiaries on environmental and other aspects related to implementation of the LI subprojects. The procurement will be done in the form of a budget covering the expenses of the workshops. This will include trainees travel expenses, their accommodation if necessary, rental of space, consumables and remuneration for private facilitators.

Assessment of the Agency’s Capacity to Implement Procurement

53. An updated assessment of the methodology and the applied procurement procedures of Egypt SFD to implement and monitor procurement actions for the ongoing project were carried out by the Bank during the preparation stage of ELIIP in 2011 and these remain to be valid under EEIP. The assessment reviewed the organizational structure, the applied procedures and the matrix of responsibility for implementing the Project. The key issues and risks concerning procurement for implementation of the ongoing Project were identified and included:

Bidding Document (BD )inconsistent with World Bank Guidelines; Inconsistent application of rules and procedures by the different implementing agencies; Quality of selection process for NGOs yet to be improved. Lack of standard BD, RFP, contract forms and evaluation forms; Practice of pre/post award negotiations; Unjustified re-bidding which may result in unnecessary delays in implementation; Civil servants are paid out of the project proceeds. A general practice across the country of negotiating prices with bidders or accepting

discount after bids opening.

54. The corrective measures which had been agreed were: (i) hiring of an experienced procurement adviser for consulting services); (ii) updating of the procurement manual with complete annexes to ensure clear definitions of rules and responsibilities and enable consistent application of these rules (completed March 2012); (iii) reinforcement of the capacity of the

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regional offices by the procurement adviser to monitor conform compliance to the application of procurement procedures by the SAs and IAs ; and (v) carrying out of appropriate capacity building for the procurement manual and annexes (completed February 2013). Since all mitigation measures have been completed during the implementation of the ongoing project, the overall project risk for procurement is Moderate.

55. Prior Review: Consulting services contracts above US$500,000, civil works above US$350,000 and goods above US$100,000 would be subject to the Bank’s prior review or as indicated in table 1 below. Rejection of all bids for rebidding purposes is subject to the Bank’s prior review regardless of the value of the contract. All individual consultants’ contracts above US$50,000 would be subject to the Bank’s prior review. All other contracts would be subject to post review.

Table Summarizing Prior Review Thresholds: Prior Review Thresholds Proposed (USD million) Procurement Method Thresholds Proposed (US$ million)

ICB NCB Shopping QCBS QBS CQSLeast Cost

SSS

Goods The first two NCB contracts regardless of their values all ICB contracts

≥1.0 <1.0 <0.1

Works The first two NCB contracts regardless of their values and all ICB contracts

≥10 >0.35 <0.35

Consulting Services

0.5 Default TBD <0.5 TBD TBD

Rebidding All

56. Procurement Plan: The Recipient, at appraisal, developed a procurement plan for project implementation which provides the basis for the procurement methods. This plan was agreed upon between the Recipient and the Project Team before negotiation. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

57. Frequency of Procurement Supervision: In addition to the prior review, supervision to be carried out from the Bank office, the capacity assessment of the IA has recommended two supervision missions to visit the field to carry out post-review of procurement actions.

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Annex 4: Operational Risk Assessment Framework (ORAF)

ARAB REPUBLIC OF EGYPY

Emergency Employment Investment Project

Risks.

1. Project Stakeholder Risks

1.1 Stakeholder Risk Rating Substantial

Risk Description:a) SFD as an institution is supported by the government and the donor community, and is known as an effective employment creation and poverty reduction instrument. Job creation is the top priority. Local government is the focal point for identification of sub-projects, and there may be the possibility of bias in targeting.b) At the local level, there may be bias in the identification of sub-projects to be funded.c) Since the activities are expected to be implemented by NGOs, there is likely to be fiduciary and reputational risks to the Bank

Risk Management:

a) The project will follow agreed mechanisms for targeting, utilizing country poverty maps and combining geographic targeting, self-targeting, and community targeting.

Resp: Client Status: Ongoing

Stage: Preparation and implementation

Recurrent: Due Date:

Frequency: Continuous

Risk Management:

b) The sub-project types will be identified through a process of assessing all proposals against a set of selection criteria, e.g. labor intensity, activities that prioritizes the unskilled and semi-skilled and the capacity of the sponsoring agency.

Resp: Client Status: Ongoing

Stage: Preparation and implementation

Recurrent: Due Date:

Frequency: Continuous

Risk Management:c) To mitigate these risks, NGOs will be competitively selected by the SFD based on certain selection criteria including their experience and financial capacity. SFD will monitor NGO activities relying on its Internal Audit department as well as tailored terms of reference when hiring the project external auditor. In addition, SFD’s community participation approach, transparent information sharing and feedback mechanisms collectively help in reducing this risk.

Resp: Client Status: Ongoing

Stage: Preparation and implementation

Recurrent: Due Date:

Frequency: Continuous

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2. Implementing Agency (IA) Risks (including Fiduciary Risks)

2.1 Capacity Rating Moderate

Risk Description:a) Lack of sufficient capacity for project management, given that SFD has not been managing labor intensive sub-projects, although they have started now under the WB financed ELIIP. There was initially insufficient procurement and FM capacity, including a challenging public financial management environment. Lack of implementing capacity at the local levels. SFD did at one time have an active public works program, which the WB supported, but the program closed in the 1990s due to diminished demand. The staffing, procedures and other arrangements used during that period are gradually coming back into place over the past year through the implementation of the WB funded ELIIP. Capacity under the ongoing ELIIP indicates that project management and fiduciary capacity are adequate.b) Procurement risk is considered ‘Moderate’ because: (i) there are gaps in procurement capacity, especially at the local level; and (ii) all procurement for goods will be carried out using Shopping procedures and NGOs will be selected using CQS.c) Financial Management risk is considered “Substantial” because:

Risk Management:

a) Support from the EEIP, in the form of TA to build project management capacity, including in the areas of project management, procurement and financial management.

Resp: Both Status: Ongoing

Stage: Preparation and implementation

Recurrent: Due Date:

Frequency: Continuous

Risk Management:

b) Procurement: Mitigation measures include: (i) an experienced Procurement Advisor was hired under the ongoing Bank-financed ELIIP-; (ii) the Procurement Manual with complete annexes was updated to ensure clear definitions of roles and responsibilities, and consistent application of procedures; (iii) reinforce capacity of regional offices through Procurement Advisor to monitor conformity with procedures used by SAs and IAs; and (iv) provide capacity building on development of Procurement Manual and Annexes.

Resp: Both Status:Ongoing

Stage: Preparation and implementation

Recurrent: Due Date:

Frequency: Continuous

Risk Management:

c) Financial Management: Mitigation measures include: (i) the Operations Manual clarifies the roles/responsibilities of the different implementation layers; (ii) Intermediary implementing entities are required to send technical and financial reports to the SFD ROs in order to be entitled to request new payment tranches; (iii) the SFD Internal Audit Department has established a risk based audit strategy which is acceptable to the Bank.

Resp: Client Status:Ongoing

Stage: Implementation Recurrent: Due Date:

Frequency: Continuous

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(i) the project involves decentralized implementation arrangements with the SAs and NGOs at the governorate level managing significant funds; (ii) there is relatively weaker capacity and oversight at the decentralized level; and (iii) the PFM diagnostics for Egypt during the past years have indicated that the PFM risk in Egypt is Substantial, with no integrated PFM reform agenda.

3.2 Governance Rating Substantial

Risk Description: Risk Management:

Project implementation will involve multiple agencies at different levels, and this could complicate the implementation process.

Roles and responsibilities of the different agencies and levels (central, governorate, municipality) may not be sufficiently clear.

Lags in decision-making.

Too few qualified staff at local level to implement a large PWP.

TA support under the EEIP could be used to help build up the capacity at the local level. Also, the Project Operations Manual will detail the roles and responsibilities of all the players, as well as social accountability arrangements.

In the area of youth employment, 15-20 international and national NGOs have been pre-identified as potentially being able to implement the planned programs. A two-stage evaluation process (EoI and RfP) will identify the most qualified NGOs. Moreover, several arrangements are foreseen that would allow high-capacity NGOs to partner with smaller NGOs/CBOs, e.g. mother-NGO or consortium structures. These arrangements are expected to ensure sufficient capacity at the central level while facilitating knowledge transfer to lower capacity NGOs. The SFD with the support of the World Bank experts will conduct a workshop for interested NGOs to provide clarity on the program requirements, as well as governance structure, roles and responsibilities of various stakeholders.

Assessment of fiduciary risks (procurement and financial management) has been made during the project preparation including procurement and financial management capacity assessments of the PMT and action plans for mitigation were developed. The Bank will put in place adequate controls to ensure the project is appropriately monitored through procurement and financial management reviews.

SFD has a long and positive history of implementing similar projects including the ongoing ELIIP project.

Resp:

Both Status:Ongoi

Stage: Implementation Recurrent: Due Date: Frequency:Continuous

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ng

3. Project Risks

3.1 Design Rating Substantial

Risk Description: Risk Management:The project is complex in nature, with weak capacity of the implementing partners, including CDAs and NGOs. While envisaged PWP activities are straight forward, the project would provide support for the adoption of several targeting mechanisms. Inequitable or skewed targeting of the poor for participation in the public works sub-projects. Egypt does not have a scalable targeted social protection system to adequately protect the poor if a crisis emerges. Enhanced targeting measures are needed.

The project includes funding to build and strengthen capacity of the SFD and the implementing partners, including fiduciary functions. For example, all CDAs and NGOs will be required to have a Project Implementation Unit (PIU) which includes a full time project manager, an accountant and a procurement specialist.

The project includes funding to build capacity of the SFD to use available and tested targeting mechanisms, poverty maps and other tools.

Resp: Both Status: Ongoing

Stage: Preparation and implementation

Recurrent: Due Date:

Frequency: Continuous

3.2 Social and Environmental Rating Low

Risk Description: Risk Management:Social – Social risks are minimal or non-existent. This project would directly benefit

An Environmental and Social Screening and Assessment Framework (ESSAF), as well as sectoral Environmental Management Plans (EMPs) and Environmental Guidelines have been developed and cleared by the Bank to ensure environmental due diligence for similar sub-projects funded under the Bank-financed ELIIP. It is intended to ensure that,

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unskilled, impoverished and largely rural population.

Environmental - there may be some negative environmental impacts resulting from implementing some sub-projects though potentially minor and not significant. SFD has experience in implementing EMP as per World Bank policies and guidelines and has developed them for the ongoing WB financed ELIIP which were revised as needed and will be used for this project. It also has environmental focal points and qualified environmental consultants.

for all activities financed by the project, all efforts are made to avoid and minimize environmental and social impacts, and any sub-projects that could trigger any policies that are not envisaged by the ESSAF will be excluded as ineligible.

Resp: Client Status: Ongoing

Stage: Preparation and implementation

Recurrent: Due Date:

Frequency: Continuous

3.3 Program and Donor Rating Moderate

Risk Description: Risk Management:Donors may choose not to provide funding tranches if dissatisfied with the project.

The EU has committed to providing EUR 67.626 million to the project in full and eligibility of expenditures were discussed in detail as part of the Administrative Agreement between the EU and the World Bank, signed on December 19, 2013. The project will entail significant interaction and oversight by the EU including direct interaction with the PIU/ Recipient.

Resp: Bank Status: Ongoing

Stage: Preparation and implementation

Recurrent: Due Date:

Frequency: Continuous

3.4 Delivery Monitoring and Sustainability Rating Moderate

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Risk Description:a) The M&E system currently in place may not be adequate to effectively measure project results, including outputs and outcomes. This risk is considered Moderate as the SFD has developed M&E systems to monitor p 3evious WB-financed projects.b) There is a risk to sustainability if the Government will not provide sufficient funding for operations and maintenance (O&M) costs related to the public works activities after the project closes, even though covering these O&M costs is a requirement as part of the initial sub-project agreement with the local government authorities.

Risk Management:

a) The SFD MIS system has been upgraded (with EU support) and enables users to receive real time monitoring of the entire sub-project cycle. The MIS was also modified to enable it to collect and report on project specific outputs and outcomes in disaggregated manner. The proposed project will also include support to continue strengthening the SFD M&E function for project monitoring, especially in the area of monitoring outcomes, project development objective results and enhanced data collection.

Resp: Both Status: Ongoing

Stage: Preparation and implementation

Recurrent: Due Date:

Frequency: Continuous

Risk Management:

b) As the project is addressing country shocks, it is not meant to be financially sustainable. However, capacity development of the SFD as an institution that will be capable to implement this program in a scalable manner is an essential element of program sustainability and resources are devoted under the project towards that end.

Resp: Client Status: Ongoing

Stage: Preparation and implementation

Recurrent: Due Date:

Frequency: Continuous

4. Overall RiskOverall Implementation Risk: Substantial

Explanation: The Project will be implemented in a country where the political environment is still in transition. Mitigating measures to address these risks include inter-alia: (i) a project design that focuses on poor areas where the risk of major disruptions to project activities is lower; and (ii)  selection of the SFD as implementing agency—the SFD has considerable prior experience with implementing Bank-financed projects, and is familiar with Bank policies and procedures; and (iii) fiduciary safeguards are in place for the project to ensure effective oversight of the flow of funds and procurement procedures.

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