Date of Submission to Coordination Unit:

A. GENERAL INFORMATION

1. Activity NameSupport for the Holistic Social Business Movement in Tunisia

2. Requestor Information

Name: Mr. Noureddine ZekriTitle: Secretary of State of Development and International Cooperation

Organization and Address: Ministry of Development and International Cooperation, 98 Avenue Mohamed V (Place Pasteur), Tunis-Belvédère, Tunisia

Telephone: +216-71 796 213 Email: s.etat@mdci.gov.tn

3. Recipient Entity Name: Mr. Imed Turki

Name: Ms. Mariem Lissari

Name: Ms. Faiza Kallel

Title: Chief of Staff

Title: Senior Advisor and Head of International Cooperation

Title: Director General of Employment Promotion (DGPE)

Organization and Address: Ministry of Vocational Training and Employment,10 Boulevard Ouled Haffouz, 1002 Tunis, Tunisia

Telephone: +216- 71791572, 71791331, 71798196 Email: imed.turki@mfpe.gov.tn; mariem.lissari@mfpe.gov.tn; faiza.kallel@mfpe.gov.tn

4. ISASC RepresentativeName: Jacob KOLSTER Title: Director

Organization and Address: North African Regional Department, the African Development Bank, 13 Avenue du Ghana, P.O. Box 323-1002, Tunis, Tunisia

Telephone: +216-71102165 Email: j.kolster@afdb.org

5. Type of Execution (check the applicable box)√ Type Endorsements Justification

Country-Execution

Attach written endorsement from designated ISA

√ Joint Country/ISA-Execution

Attach written endorsement from designated ISA

The African Development Bank (AfDB) launched the pilot Program of Holistic Social Business Movement (HSBM) in Africa in the end of 2012 with Tunisia as one of the three beneficiary countries. The HSBM Program has been moving on well, with the Tunisian part progressed faster with considerable demand identified from the field. It is time to upgrade the pilot HSBM Program in Tunisia by strengthening the government’s capacity in enabling the country’s social business environment and by mobilizing more financial and technical resources to back up the

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April 4th, 2014

social business investment and entrepreneurship development to meet the increasing demand.

The pilot HSBM Program, financed by the Japanese Trust Fund and Multi-donor Trust Fund for Countries in Transition, is currently under implementation by the Human Development Department (OSHD) of the AfDB. The present proposal, as a scale-up of the existing HSBM Program in Tunisia, is aimed to ramp up the HSBM for 2 more years that will contribute to establishing a mature eco-system of social business in the country, with key stakeholders capable of participating in the social business movement, including the government, private sector, service providers, youth, women and the vulnerable.

The ramp-up phase of the HSBM Program, as proposed in the present proposal, will thus be implemented jointly by the Government of Tunisia (GoT) and the AfDB given the need of necessary continuity of the on-going HSBM activities. This arrangement echoes and will form synergy with the GoT’s ongoing efforts in job creation and entrepreneurship development, which are also under the AfDB’s support through, for example, its technical assistance to the Ministry of Vocational Training and Employment in structuring the “Solidarity Enterprises” Project (PES), and through its coordination of 19 donors and development partners for the Souk At-Tanmia (or “Development Marketplace”) initiative. Based on the synergy and recognizing the potential significant impact, the GoT plans to co-finance the HSBM Program through its PES Project to enable about 300 Solidarity Enterprises to build social businesses.

The choice of the AfDB as the ISA for joint implementation in the MENA Fund financed activities will allow to ramp up smoothly the progress of the HSBM pilot program into a mature stage, on which AfDB has been developing an expertise to be transferred to the GoT, as envisioned through the present proposal. The joint implementation of the program will ensure the spillover of a demonstration effect from fast movers being supported by the AfDB and a smooth transfer of expertise and experiences from the AfDB to the GoT by enabling and institutionalizing the government’s capacity in managing private sector-led job creation and entrepreneurship development programmes and in engaging key stakeholders, especially private sector players to participate and contribute. The joint implementation will also facilitate shaping the GoT’s efforts in mainstreaming social inclusion and environmental dividends into relevant policies / strategies through practices and monitoring and evaluating the progress and results. By the completion of the program, the GoT will be full-fledged to carry it over to subsequent phases.

ISA-Execution for Country

Attach written endorsement from designated ISA

Not applicable.

ISA-Execution for Parliaments

Attach written endorsements from designated Ministry and ISA

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6. Geographic Focus√ Individual country (name of country): Republic of Tunisia

Regional or multiple countries (list countries):

7. Amount Requested (USD) Amount Requested for direct Project Activities:(of which Amount Requested for direct ISA-Executed Project Activities):

USD 2,460,000 including: GoT executed activities: 743,125 ISA (AfDB) executed activities: 1,716,875

Amount Requested for ISA Indirect Costs:1 USD 100,000Total Amount Requested from the MENA Trust Fund: USD 2,560,000Co-financing by the GoT (executed by the GoT): USD 15,000,000Total Program Amount: USD 17,560,000

8. Expected Project Start, Closing and Final Disbursement DatesStart Date: 04/08/2014 (for

ramp up phase)Closing Date: 03/08/2016 End Disbursement

Date:30/04/2016

9. Pillar(s) to which Activity RespondsPillar Primary

(One only)Secondary(All that apply)

Pillar Primary(One only)

Secondary(All that apply)

Investing in Sustainable Growth. This could include such topics as innovation and technology policy, enhancing the business environment (including for small and medium-sized enterprises as well as for local and foreign investment promotion), competition policy, private sector development strategies, access to finance, addressing urban congestion and energy intensity.

√ Enhancing Economic Governance. This could include areas such as transparency, anti-corruption and accountability policies, asset recovery, public financial management and oversight, public sector audit and evaluation, integrity, procurement reform, regulatory quality and administrative simplification, investor and consumer protection, access to economic data and information, management of environmental and social impacts, capacity building for local government and decentralization, support for the Open Government Partnership, creation of new and innovative government agencies related to new transitional reforms, reform of public service delivery in the social and infrastructure sectors, and sound banking systems.

√

Inclusive Development and Job Creation. This could include support of policies for integrating lagging regions, skills and labor market policies, increasing youth employability, enhancing female labor force participation, integrating people with disabilities, vocational training, pension reform, improving job conditions and regulations, financial inclusion, promoting equitable fiscal policies and social safety net reform.

√ Competitiveness and Integration. This could include such topics as logistics, behind-the-border regulatory convergence, trade strategy and negotiations, planning and facilitation of cross-border infrastructure, and promoting and facilitating infrastructure projects, particularly in the areas of urban infrastructure, transport, trade facilitation and private sector development.

1 ISA indirect costs are for grant preparation, administration, management (implementation support/supervision) including staff time, travel, consultant costs, etc.

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STRATEGIC CONTEXT

10. Country and Sector Issues

10.1 For many years, Tunisia has been considered as one of the highest performing economies in the African Continent. However the revolution of 2011, which started the Arab Spring, and the political, economic and social challenges indicate that in spite of economic success, growth did not reach out inclusively. The country is challenged with high levels of youth and women unemployment, regional disparities, challenging adaption to green economy and more generally a slower growth which does not always trickle down to the most vulnerable parts of the society.

10.2 In the aftermath of the Arab Spring, the macroeconomic performance has been weakened. The GDP growth rate is 2.6% in 2013 while the growth rate of real GDP per capital is 1.5%, both lower than the counterpart in 2012 (3.7% and 2.6% respectively). The macroeconomic situation is characterized by an increase in budget deficit (from 3.4% of GDP in 2011 to an estimate of 6.4% in 2014 against 4.8% in 2012 and 6.2% in 2013) largely due to the contraction of agricultural production and weakening Tunisian Dinar. It is in this context of deterioration of macroeconomic balances that since 2011, Standard & Poor’s has downgraded the sovereign rating of Tunisia from BBB to B (in August 2013). Current account deficit also widened from 7.4% of GDP in 2011 to an estimated 8.2% in 2013, but is projected to drop to 7.4% in 2014 following the depreciation of the exchange rate. The political risk largely deteriorates the country’s competitiveness – Tunisia lost 43 seats in the Report on the International Competitiveness of the World Economic Forum (WEF) to rank at the 83rd place in August 2013. In the Doing Business ranking in 2014, Tunisia was downgraded with 2 positions from the 49th to the 51st.

10.3 The inflation pressure has caused the Central Bank of Tunisia to slow down and revert from the expansive monetary policy. Within this context, it is increasingly difficult for the private sector, especially Micro, Small and Medium Enterprises (MSMEs) – the largest contributor to employment, to operate and flourish. The difficult access to finance is an obstacle to private sector development: the ratio of loans to SMEs in all loans is 15% in Tunisia, while this figure is 24% in Morocco. 2 A May 2012 survey conducted by GeoPoll in 24 governorates revealed that 66% of respondents consider that the two main obstacles to developing entrepreneurship were the inability to provide the personal contribution required (41%) and difficult access to bank loans (25%). Furthermore, many entrepreneurs lack the business skills to develop their own businesses, for which they could have been able to benefit from a number of business support and capacity building initiatives on-going in the country.

10.4 For the third quarter of 2013, the average unemployment rate decreased to 15.7% from 17% for the same period in 2012. However, the unemployment rate of graduates increases to 34% from 31.8% in 2012. In gender aspect, even though Tunisia is perceived as a leader in the area of women's rights in the Middle East and North Africa (MENA) region, women represent only 26% of the labor force and are more affected by unemployment than men. The distribution of unemployment remains an important indicator of regional disparities. Unemployment rate is higher in the Center, the West and the South: The unemployment rate is above 20% in Kasserine (21%), Gafsa (28%), and Tataouine (24%); and Gafsa (47%), SidiBouzid (41%), Kébili (43%), and Jendouba (40%) have the highest unemployment rates of graduates. 3Given the significant variation in average consumption and poverty from one region to another, with poverty index (national average) varying from 6.9% in Tunis district to 30.8% in the Mid-West, the regional imbalances prevent Tunisia from unleashing its full potential.

10.5 A sustainable growth also implies a special attention to companies’ social and environmental impacts. The transition towards a new green economy requires that the private sector adopts sound business models that respect both the environment and the society.

10.6 The Government of Tunisia (GoT) has been undertaking measures in reforms of policies, strategies and implementing projects and programs to target employment, regional disparity and green growth problems. The GoT has reformed the Decree of Employment, issued the National Employment Strategy and initialized several government-led programs to encourage job creation for youth and support creation of small business, etc. Through its Ministry of Development and International Cooperation (MDCI), the GoT has been implementing the Integrated Development Program (Programme de Développement Intégré, IDP) in addition to the Program of Building Regional Development (Programme des Chantiers

2 Union of Arab Banks and the World Bank, 2011, The Status of Lending in the Middle East and North Africa Region.3A study is currently underway for the government and the private sector with technical and financial support from certain development partners to identify new growth engines for sustainable and inclusive development.

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Régionaux de Développement), to promote a dynamic of sustainable local development, strengthening employment in the regions, and promote human development by improving the quality of life and protect the natural environment. In September 2013, the Commissioner General for Regional Development (CGDR) signed agreements with three public banks, namely the Tunisian Bank of Solidarity (BTS), the Bank of Financing Small and Medium Enterprises (BFPME) and the National Bank of Agriculture (BNA), to establish the terms of cooperation to achieve the objectives of the IDP in the creation of approximately 6,000 individual projects, nearly 25,000 jobs with 2,400 jobs for graduates. It is to be mentioned that the “Seed Funds” (fonds d'amorçage) agreement signed in 2012 between the MDCI and the BTS fits in this new initiative. Meanwhile, through its Ministry of Vocational Training and Employment (MFPE), the GoT has been implementing the National Employment Strategy and various programs to support job creation. Recently, by launching the Project of Promoting Solidarity Enterprises (Projet de Promotion des Entreprises Solidaires, the PES Project), the GoT aims to create an accommodative business environment with financial and non-financial services provided to the graduates for their establishment of ”solidarity enterprises” that have high potential of business sustainability and labor absorptive capacity. The pilot phase of the PES Project is to create 100 solidarity enterprises in 2014/2015, financed by the GoT sponsored TND 8 million. Upon the completion of the pilot phase, an action plan will be formulated to guide the roll-out in the follow-up phase. It is expected that by 2018/2020, at least 50,000 graduates seeking employment will work in the solidarity enterprises.

Box 1: Donors’ support for job creation through SME development in Tunisia

The GoT welcomes support from donors and international development partners (DPs) for the country’s initiatives to enhance private sector led job creation and sustainable and inclusive growth. Donors have been involved in supporting Tunisia through either direct financing or budget support or technical assistances.

In the field of SME development, USA has launched the new SME initiative as part of its renewed engagement with Tunisia under the U.S.-Tunisia Trade and Investment Framework Agreement (TIFA), which seeks to promote broad-based Tunisian growth by building the capacity of small business development centers (SBDCs) and providing technical assistance to small firms. A Tunisia-America Enterprise Fund (TAEF) was established in 2013, aiming to promote the development of Tunisian private sector with a particular focus on SMEs.

Within the framework of the OECD-MENA Initiative, Italy has supported for SMEs governance, the “Mediterranean Partnership Fund” to expand financing options for entrepreneurs, and the working group on SME policy, entrepreneurship and human capital development; France has provided direct financial services and non-financial supports through business development and commercial capacity building for SMEs; Germany has helped forge “employment compacts” through vocational training to boost job creation by linking companies, training colleges and chambers of commerce; and Japan has initiated Borj Cedria Science and Technology Park in Tunisia and implemented Quality/Productivity Improvement Projects (KAIZEN) for SMEs.

Moreover, the European Bank for Reconstruction and Development (EBRD) launched in 2012 the Program of Small Business Support in Tunisia, mainly aiming at increasing efficiency, productivity and governance of the small enterprises. It also started to support the development of private equity sector in Tunisia for the growth of equity funding for SMEs. In addition, Tunisia is a beneficiary in the EBRD’s “Local Enterprise Facility”, a fund dedicated to investments in SMEs.

The European Investment Bank (EIB) plans to grant EUR 90 million in 2014 to support sustainable development in Tunisia – special attention will be paid to promoting accessibility to public services in order to encourage social integration and to developing local SMEs in order to boost employment, particularly in the construction and services sectors.

The World Bank Group’s on-going support for Tunisia focuses on improved governance and accountability, opportunities for women and youth, private sector job creation and investments in interior regions. In 2013, its private arm - the International Finance Corporation - announced a USD 48 million investment to support the growth of Tunisian private entrepreneurs. In February 2014, the World Bank announced to grant Tunisia USD 100 million for funding SMEs.

To these aims, the African Development Bank Group (AfDB), through its private sector window approved a Line of

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Credit in 2011 at an amount of USD 50 million to support SME financing in Tunisia to help mitigate the funding challenges faced by the country under difficult economic circumstances. The AfDB is also implementing the Souk At-Tanmia (or “Marketplace for Development”) Partnership in Tunisia by collaborating with 19 partners, which now moves to the design of the second edition following the success of the first one. Financed by the Multi-donor Trust Fund for Countries in Transition (TFT Fund), the AfDB is providing technical assistance to the GoT (MFPE) for structuring the implementation of the PES Project. In February 2014, the AfDB granted USD 950,000 to the BFPME through its Fund for African Private Sector Assistance (FAPA). It is aimed at enhancing the capacity of BFPME in investment appraisal and portfolio management of SMEs.

10.7 Despite all the efforts that the GoT, in joint with international DPs, has been undertaking, the pressure of employment and inclusive growth still mounts. More detailed analysis found that there are areas where there is lack of either market services or government services thus the demands by certain population, communities and regions could not be served. It largely constrains the socio-economic activeness of these people, limit their access to economic opportunities and prevent them from participation in economic activities, including those on-going initiatives of job creation and entrepreneurship development that they could have benefited from. These areas are often found relevant to meeting the social and environmental needs, and faced by vulnerable people including youth, women and rural poor. For example, in certain underserved regions, there is lack of collective transport services that are needed to enable poor women to step out of home to go easily to market or other economically active places due to the high transaction cost of collecting passengers spottily dispersed in various villages. This case illustrates the importance of bridging the gap between the market-based supply and social and environmental demands under the framework of inclusive growth - entrepreneurship development to build this linkage will thus contribute to both job creation and service provision . However, in the current business environment, such projects with high social and environmental impacts often have difficulty to attract funding resources that can be flexible and adaptable to their needs. They also have to seek proper technical assistances for them to survive and thrive. Once funded, the growth of these vital projects may still be challenged by the under-developed ecosystem for this kind of businesses.

10.8 Furthermore, it is found that although there have been various initiatives which aim at promoting SMEs and developing entrepreneurship in Tunisia, there is lack of synergy in shaping and pooling of key stakeholders in the process.

The capacity of the GoT in business and entrepreneurship development for job creation is still constrained. This influences not only its capacity in coordinating the various initiatives within the government or with the DPs, but also its capacity in cooperating with private sector to move on with the interventions. The AfDB’s on-going technical assistance for the GoT in the MFPE’s “Solidarity Enterprises” Project (PES Project) will help improve the GoT’s capacity in coordinating relevant ministries to perform of the tasks of creating MSMEs and jobs for graduates. However, there is still lack of a mechanism to build up the GoT’s capacity in engaging private sector’ participation and strengthening private sector’s capacity in jointly performing the tasks.

In Tunisia, there is lack of a mature group of MSME incubators and service providers. Currently, the National Network of Business Incubators (Le Réseau National des Pépinières d’Entreprises) aims to gather incubator services across the country. However, their potential shall be amplified through engagement in performing tasks in national programs or DPs’ financed programs. Meanwhile, there is lack of a strong linkage between incubators and fund providers, which influences business development in two ways. On the one hand the incubators may have difficulty to link the entrepreneurs to financial services. On the other hand, the fund providers may have difficulty in identifying and following up with the potential MSME entrepreneurs. Realizing these challenges, the Financial Services Volunteer Corps (FSVC), who works in the area of venture capital for SMEs in Tunisia, has organized three consultations with some specialized incubators, including the Microsoft Innovation Center (MIC), the Engineering School of Sfax (ENIS), and the Mediterranean School of Business (MSB). However, the gap is still considerable and needs to be bridged up.

10.9 Based on these observed challenges, in joint with the on-going efforts by the GoT and the DPs, it is critical to assist in developing a business model to reach the fields where the usual businesses are lack of presence, strengthening the government capacity and harmonizing the environment for MSME and entrepreneurship development in these fields. Social Business modality, as initialized and operationalized in Tunisia under the AfDB’s support, is a consolidated intervention which includes developing locally-based incubators, structuring mandated fund, and building a friendly eco-system,

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especially in pursuit of targeting and benefitting people who have been marginalized in the economic empowerment process. This proposal is thus prepared in order to leverage social business modality for the GoT’s use to contribute to its objective of jobs creation and entrepreneurship development, and to improve the impact on growth inclusiveness.

11. Alignment with Transition Fund Objective11.1 Social Business modality caters to the need of meeting social and environmental objectives by sticking to business rules that can target specific population groups. Social Business addresses economic growth by satisfying social and environmental needs in business friendly and financially sustainable ways. They combine a focus on meeting social needs with entrepreneurial energy and market discipline. Like a traditional NGO, a social business has a social mission, and a social business’s financial surplus is largely reinvested for greater social impact rather than distributed only for private profit. However, like a business, a social business delivers products and services to its beneficiaries in a way which allows it to cover its costs, based on a clear revenue model and investment rather than on grants or donations. In this way, funding to a social business can be made as an investment, and the impact of each “social business dollar” is multiplied as it is recycled and re-invested again and again.

11.2 The Holistic Social Business Movement (HSBM) aims to promote inclusive growth, by proactively supporting Social Businesses which involve the most vulnerable segments of the Tunisian society, such as the youth, women, and the population in disadvantaged regions. Tunisia experiences an important phase of its development. The Social Business approach can contribute to the development of the country, by reinforcing the economic activities, tackling social and environmental issues, and inspiring a new generation of young social business entrepreneurs.

11.3 The objective of the MENA Transition Fund is “to support the reforms currently under way in transition countries and improve the lives of their citizens, including by supporting policies for improving skills and labour market policies, increasing youth employability and improving job conditions and regulations”.

11.4 The proposed Program of Holistic Social Business Movement in Tunisia is in line with the overall objective of the Transition Fund:

The Program aims at creating a supportive environment within which Social Businesses can thrive. The objective is to build a strong ecosystem of institutions, policies, networks, activities and resources to promote Social Business with the use of a locally based social business incubator and a social business investment fund to enable the access to financing and technical services of Social Businesses.

The Program targets direct beneficiaries including potential social business entrepreneurs and job seekers among the youth, women, and population in disadvantaged areas. The goal of each Social Business is to promote inclusion of the most vulnerable either by providing them affordable products or services, or by providing them employment or improved livelihoods. Examples of social businesses that have been identified for support during the pilot phase of the Program (granted by the Japanese Trust Fund in December 2012), are illustrated below with focuses on key issues including:

Youth, regional disparities and environment: Partnership with a plastic recycling company in order to open a new recycling site in Kairouan. The Social Business would focus on recycling, but also in supporting the work of street collectors, and improving health and safety conditions at the working sites.

Women: The women agricultural labourers in poor and remote regions, who currently have unstable jobs due to lack of reliable transport services to reach big farms, are to be provided with reliable, safe and fairly-priced transport services to be linked to the work sites. To facilitate their transformation to frequent workers, social services will be provided to help their housework and improve their socio-economic status in the households.

Green growth: Biological agriculture social businesses focus on environmentally friendly exploitation of unusual agricultural products, and commercialization of the outputs. Eco-tourism social businesses aim at opening rural lodgings, promoting local agricultural products and handicraft, and providing tourist guides for historical sites. It focuses on hiring rural women and unemployed youth.

The Program is aimed at setting up a Social Business Investment Fund (SBIF) in Tunisia to support the most

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promising social businesses. The SBIF will be structured as a mezzanine fund which can invest in either equity or credit. The loans to Social Businesses are at lower interest rates and with less stringent terms than what currently prevail as from commercial banks in Tunisia (e.g. concerning collateral requirements, the length of repayment, and action taken in case of repayment difficulties, etc.). Indeed, in most cases, these Social Business projects would not be financed at all by commercial banks since they would be considered too risky or otherwise unsuitable for most commercial finance providers. Meanwhile, equity intake can also be justified for the Social Businesses which can have significant social and environmental impact but are lack of the start-up capital. The SBIF will also serve to crowd in more funding from other investors interested in financing social businesses. In doing so, the Program will fill the gap of the financial market and improve financial accessibility of the Social Business entrepreneurs.

The Program will provide training and coaching to social business entrepreneurs through using the Social Business Incubator to help develop bankable proposals and enhance business growth and sustainability . The strong support that it will provide to the entrepreneurs through its team of professionals include hands-on support of the entrepreneur developing the business plan, maximizing the social impact and financial sustainability of the business, and then put the entrepreneur in contact with specific expertise and networks (national and/or international buyers/suppliers for instance) that he/she may need during the years for the growth of the business. The Incubator will hence contribute to supporting private sector development by building capacity and coaching of entrepreneurs and helping them access national and international markets.

The Program will aim more generally to enhance the business environment and ecosystem for SMEs which have a social objective and/or corporate social responsibilities (CSR). This will take place along with the functioning of the Steering Committee on Social Business, which was established in Tunisia with members from government, private sector, service providers and civil society organizations (CSOs). It will be enlarged to contain representatives of youth, women and local communities. It will oversee the functioning of the Social Business Incubator and the Social Business Investment Fund and coordinate actions across the stakeholders concerned.

The Program will also contribute to enhancing economic governance especially the management of environmental and social impacts. Ensuring a diligent and solid monitoring and evaluation (M&E) of both the social and financial Key Performance Indicators (KPIs) of the incubated Social Businesses is pivotal to the long-term positive impact of the Program in Tunisia. It is a guarantee of social impact and a requirement for the reporting to investors and partners. To this end, a special set of KPIs, including those measuring social and environmental impacts, are to be developed jointly between the target investee social businesses, Social Business Incubator, Social Business Investment Fund and the Program management team.

12. Alignment with Country’s National Strategy

12.1 Employment, especially private sector-led job creation, is a top priority in Tunisia. A large consensus has emerged around the necessity for Tunisia to transit to a new model of more inclusive growth that also acts as a catalyst for generating new jobs in productive business activities. The approval of the 2014 Constitution will lay down a foundation for the pursuit of continuous economic growth of the country.

12.2 The HSBM Program aligns with the GoT’s Guidelines4 presented in March 2013, which are footed on: (i) the Jasmine Plan in September 2011 and (ii) the Letter of Development Policy in October 2012; and five pillars for strategic priority: (i) economic reform, (ii) modernization of infrastructure, (iii) strengthening the social sectors, education and employment, (iv) the regional balance, and (v) promoting sustainable development. Based on the2013 Guidelines, the GoT plans to further issue a development plan in 2014.

12.3 In the 2013 Guidelines, a set of structural reforms and investment in the medium and long term are proposed to

4After the revolution, Tunisia has stopped the development of five-year development plans implemented since the sixties. In the context of transition, the authorities have opted for a flexible strategy focused on alleviating social and economic demands while preparing the necessary structural reforms.

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create the conditions for accelerated growth and job creation in order to balance regional and inclusive development. However, a more detailed map of its operationalization shall be put in place. The HSBM Program fits in the third pillar of “strengthening the social sectors, education and employment”, and can develop the modality for key stakeholders, including the government, private sector, social business incubator and investment fund, and social business entrepreneurs, under clear map of operationalization of the initiative of creating jobs and entrepreneurship through social business development. The Program also fits in the fourth pillar for “regional balance”, and in the fifth pillar for “promoting sustainable development” in relation to natural resources wherever the social businesses incubated are in the sectors such as waste management, environmental protection, bio agriculture/tourism and renewable energy for improving green growth. Thus the HSBM Program will contribute to filling in the gaps in terms of operationalization of the Guidelines.

12.4 The Program also aligns with other policies, strategies and conventions:

The proposed Program is in line with the objectives of the newly adopted Social Pact. The agreement, covering areas such as labour legislation and industrial relations, employment policies, vocational training and education, social protection, as well as balanced regional development, underlines the importance of social dialogue as a genuine pillar of a democratic transition towards greater social justice. The Program emphasizes participatory communication and a bottom-up method for stakeholder dialogue and social business development. It also emphasizes achieving positive social and environmental impact based on a solid M&E system.

This Program contributes to implementation of the Tunisia’s National Employment Strategy (NES, 2013-2017) : The MFPE organized in June 2012 a National Dialogue on Employment. This inclusive initiative reached out to all stakeholders - government, social partners, unemployed representatives, youth associations, political parties and international partners. It has helped form the NES, which aims to gradually reduce the unemployment rate from 18% in 2012 to 10% by 2017. The NES stresses the importance of better quality job creation, especially for young people, improved governance and transparency, and greater social dialogue in order to achieve a more socially and economically sustainable growth. The NES also emphasizes the critical task of promoting a culture of self-reliance and entrepreneurship among graduates. Henceforth, the Program will directly contribute to the implementation of the NES in all these aspects.

This Program responds to transitioning to inclusive and green growth, as contained in the Green Growth Agenda, on exploring emerging sectors such as green jobs, which represent an untapped source of jobs for youth, by anticipating needs for qualifications and encouraging entrepreneurship. In this aspect, the Program will form synergy with the Project of “Strengthening the Employability of Youth during Tunisia’s Transition to a Green Economy”, which is being implemented by the MFPE with technical support from the OECD and Islamic Development Bank (IsDB) and financial support from the MENA Trust Fund.

The Program is in line with the National Vocational Training Strategy, which aims at supporting the employment policies and increasing the work return. The main orientations of the strategy are; (i) stimulating the partnership between the system and the economic sectors; (ii) strengthening the quality of training at all levels; (iii) developing training in the new sectors (aeronautic, renewable energy, business process outsourcing) by creating, modernizing and/or updating the vocational training centres; (iv) increasing the capacities of the training centers; (v) promoting the apprenticeship and (vi) improving the management of the system. The Program, by stressing the importance of capacity building through technical assistance by training and coaching the social business entrepreneurs, building social business eco-system with colleges on curriculum development, and organizing workshops and experience sharing events, will directly contribute to the implementation of the National Vocational Training Strategy.

B. PROJECT DESCRIPTION

13. Project Objective

13.1 The HSBM Program is aimed at creating a supportive environment within which Social Businesses can thrive. The

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objective is to strengthen the capacity of key stakeholders, mobilize seed fund, and build a strong ecosystem of institutions, resources, networks and activities to promote Social Business. It will contribute directly to private-sector led job creation and skills and entrepreneurship development in Tunisia, and generate significant social and environmental impact.

13.2 The direct beneficiaries of this nationwide program will be youth, women and other vulnerable people who aim to develop their own social businesses, private companies who have social incentives thus can be categorized as “social enterprises”, small business owners and youth and women who want to launch their own businesses, and local communities whose habitants join the social business projects and benefit from direct employment and/or social services provision. The indirect beneficiaries will include the entire Tunisian population through the supply-chain effect and spill-over from the direct beneficiaries through consumption and other activities. Moreover specifically, population including youth, women, the vulnerable and rural poor, especially those in disadvantaged regions, will be targeted with priority.

13.3 The HSBM Program will be carried out through enhancing capacities of key stakeholders, strengthening the Social Business Incubator and establishing and operationalizing a Social Business Investment Fund (SBIF) in order to support the development of Social Business in Tunisia. It is structured with two (2) phases, of which the second or ramp-up phase will solicit support from the MENA Transition Fund:

A pilot phase of the HSBM in Tunisia, co-funded by the Japanese Trust Fund, the TFT Fund and the AfDB, is being implemented by the AfDB between 2013- 2014. During this time, the focus is on generating awareness and piloting social business projects. A National Conference on Social Business was held in Tunis in March 2013. Over 500 stakeholders including government officials, private sector, academia, NGOs, CSOs, and youth and women representatives, attended the conference. The local Social Business Incubator in Tunisia has been established and operationalized, for the incubation of social businesses in Tunisia. An SBIF is being structured with an aim to channel financial resources to social business investment. A pipeline of social business projects to target 25 direct beneficiaries (including entrepreneurs and core employees) have been identified and under preparation with technical assistance to reach bankable level, and further to operationalize the businesses. In addition, most recently, the “iBDA – Social Business Accelerator” has been launched to map and call for proposals from the potential social business entrepreneurs and has so far effectively reached out to the targeted clients.

Box 2: Brief of the Pilot Phase of the HSBM Program

The AfDB is leading the Holistic Social Business Movement (HSBM) in Africa, with Tunisia as one of the three beneficiary countries (the other two countries are Uganda and Togo). During the implementation of the Program, significant demand by the countries is brought up and more resources are needed to scale up the Program to enlarge its coverage and impact. The pilot HSBM Program has raised awareness among stakeholders (including government, private sector, civil societies, NGOs, academia, etc.) on social business, identified and trained 136 youth and women as potential social business entrepreneurs5, built localized capacity on social business incubation, and pipelined and appraised investment-ready pilot social businesses to benefit in total 50 social business entrepreneurs and key employees. Most recently, on March 25, 2014, the “iBDA – Social Business Accelerator” was launched in Tunisia to map country-wide potential social business entrepreneurs and call for proposals from them. Just within one week (by April 1, 2014) there were 1,237 candidates filling their applications and 48 business plans formulated and submitted. Given that by far the amount of seed fund is limited – about USD 200,000 for Tunisia, it is critical to mobilize more sources to enable the sufficiency of the seed fund to meet the significant demand in the country. The Japanese Trust Fund, donor of the pilot phase of the HSBM Program in Africa, has called the AfDB to consider a ramp-up phase of the Program, based on its satisfaction of the so-far achieved results with the foundation laid down for further progress. Its financing emphasis is expected to be put on other two beneficiary countries, namely Uganda and Togo, as it aims to balance the overall potential resources to be mobilized from other channels.

Some useful experience and lessons have been drawn from the implementation of the pilot HSBM Program as follows:

To differentiate the mandates of social business from other conventional businesses, it needs to specify

5 A training evaluation showed that the satisfaction rate of the trainees is on average 95%.

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social/environmental profit objectives clearly and early for the key stakeholders. Capacity of the local social business incubator in accounting, tax and legal advice, market access, and

portfolio management should be enhanced. Seed fund amount should be largely increased to meet people’s high expectation after awareness raised and

capacities built. Setting up collaborative partnership is a major step in building social business models. Thus finding

complementary partners and undertaken continuous experiments is important to this initiative.6

Achieving financial sustainability is critical not only to enable the long-last impact on job creation and business development, but also to attract and scale up resource mobilization from potential donors, investors, or development partners.

Public relationship, communication and advertising are critical for an innovative initiative to gain wider public awareness, and also important for newly created social businesses to reach market acknowledgement and acceptance.

The ramp-up phase of the HSBM Program will address these issues with concrete actions.

A ramp-up phase will then take place for 2 years from August 2014 to August 2016. The GoT is seeking support from MENA Transition Fund for this phase. The ramp-up phase will contribute to: 1) building capacity of key stakeholders to participate in social business development, including for relevant government institutions to coordinate the social business initiative, and steer and oversee the implementation of the HSBM Program; 2) incubation and investment in social businesses to cater to the high demand on creating and growing social businesses; and 3) catalyzing an friendly eco-system for the thrift of social businesses in the country.

13.4 The resources, requested from the MENA Transition Fund, will be used to implement this Program at the macro, meso and micro levels. At the macro level, it will contribute to mainstreaming social business development in relevant policy/strategy by publishing policy issues paper and issuing guidelines. At the meso level, activities will be institution-based, focusing on the needs of the key stakeholders, and will include capacity building, information sharing and dissemination, and the creation of linkages. As a key stakeholder, the government will be built capacity for its key institutional task forces in coordinating and implementing private sector-led job creation and business development initiatives as well as in ensuring social and environmental impact in the process. At the micro level, the Social Business Incubator and the SBIF are the two entities to support the creation and development of social businesses with the youth, women and MSME entrepreneurs in corporation with investors, financial institutions, service providers and technical expertise in private sector. Components under the Program will be implemented in parallel, and their outputs will build upon one another.

14. Project Components14.1 The HSBM Program consists of the following three components:

Component 1: Capacity building for key stakeholders in participating in social business development (implemented by the Government)

14.2 Sub-component 1.1: Capacity building for the Government in policy orientation and initiative management to accommodate, coordinate and oversee the social business movement

14.3 The first component is aimed at formalizing the social business environment in Tunisia through support for the Government in providing an enabling policy and strategic framework and in capacity building for coordination and oversight at governmental level of the social business initiative evolving in the country.

6 The latest practice in launching “iBDA – Social Business Accelerator” in Tunisia provides a good answer to this requirement. iBDA has solicited technical partnership from Yale University (Yale World Fellows), Marzars and JWT, who focus on providing training services, legal and business consulting services, and public relationship, communication and advertising services for the potential entrepreneurs.

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14.4 Policy orientation towards a smooth accommodation of the social business initiative is needed to enable the government’s firm endorsement of the rationale and activities of the HSBM Program. Social Business, as a recognized movement that promotes entrepreneurship and social innovation, will directly enrich the government’s engagement in supporting inclusive private sector development for sustainable job creation. It is critical to mainstream Social Business in the government’s strategic actions to crowd in more forces to contribute to inclusive growth.

14.5 Meanwhile, the GoT is still constrained in critical capacities such as structuring initiatives, developing programmes, and coordinately managing them. The HSBM Program will help build capacity for the GoT in initiative management with focus on the aspects which are commonly shared across the relevant initiatives. More specifically, the achievements during the pilot phase of the HSBM Program will be used to shape this capacity building. For example, the Operations Manual issued on social business identification, appraisal, investment and management can be adopted by the GoT in developing implementation guidelines for programmes relevant to entrepreneurship and business development. Furthermore, the Steering Committee established in Tunisia with representation from the GoT and other stakeholders will enable active dialogues and serve as a platform for participatory decision making. In addition, facing the challenges as analyzed in paragraph 10.7 and 10.8, the HSBM Program further aims to form strong synergy with the ongoing government programmes by establishing expertise in the GoT on engaging private sector participation.

14.6 Henceforth, capacity building for the GoT in policy orientation and initiative management will be carried out in the following aspects: (i) Integrate social business development into strategic action plans for relevant policy / strategy / initiative; (ii) Strengthen performance in the Steering Committee of the HSBM Program to oversee the implementation of the Program; and (iii) Enable the government to identify, mobilize and cooperate with private sector, especially through technical cooperation in the fields of incubation, training and coaching, and business advisory services. The existing government programmes, such as the PES Project, will then be benefited by crowding in private sector participation in contributing to fulfilling the goals of business development and job creation.

Box 3: PES Project

The MFPE started structuring the PES Project in late 2013, and will commence the pilot phase in 2014. It will then be followed with scaled-up phase for a total of five years. The PES project has the following key features:

It encourages the establishment of business by at least three shareholder-employees who shall perform the three core functions (production, management and marketing) in the enterprise;

It solicits support for technical assistance during all stages of business creation and the first years of operation of the business system;

It plans to create solidarity for the delegations enterprises , creating jobs with at least half of them for graduates from vocational training and higher education;

It is funded by the National Fund for Employment (NFE), directly managed by the MFPE through credit lines administered by the BTS – with loans at subsidized interest rate.

The PES Project is currently supported by the AfDB with technical assistance for the structuring period. The GoT aims to solicit additional technical assistance supports for the period of incubating, establishing and growing businesses. Innovative modalities are also pursued to enlarge the sectoral coverage.

14.7 Sub-component 1.2: Capacity building for other key stakeholders in supporting social businesses

14.8 The HSBM is greater than the operation of the single Social Business Incubator (as established in the pilot phase) and the single SBIF (as structured in the pilot phase). They will be at the core of a new social business ecosystem in Tunisia, comprising of enthusiastic local entrepreneurs, financial institutions, investors, service providers, technical expertise network, community leaders, NGOs and hubs such as universities and training institutions. Such actors will operate within the ecosystem, driven by the philosophy of social business as “business as usual”, and empowered with the tool of social business to solve social and environmental problems faced by their own communities. The Social Business Incubator and the SBIF will perform as catalyst of social business development especially at the start-up and early growth period, following which it is envisioned that with a more mature environment of social business cultivation, social businesses can more easily

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access market-based finance such as from commercial banks. The different actors of the ecosystem will themselves take center stage in the future of this concept.

14.9 Capacity building activities under this sub-component mainly include: For private sector companies: To fulfill the corporate social responsibilities (CSR) through supporting social

business development by establishing social business functions, and/or participating in value-chain of the grass-root social businesses.

For service providers and technical expertise network: To learn about social business and enable participation in social business development by streamlining their respective functions in facilitating social business incubation, business advisory services, access to market, and access to technical expertise, etc.

For financial institutions and investors: To transfer knowledge and experience to the financial institutions / investors who are willing to contribute to financing social businesses in Tunisia. These include the best practices in appraising, investing and supervising social businesses.

14.10 The Program aims to disseminate the expertise in social business development to other incubators and services providers in order to mobilize more technical resources and collaborate with sector technical expertise networks for the nourishment of social business in Tunisia. It also targets at leveraging more financial resources for the thrift of social business by building co-financing or cooperative relationship with other investors and financial institutions.

Component 2: Support for social businesses incubation and investment (implemented by the ISA)

14.11 Sub-component 2.1: Support for social businesses incubation

14.12 A Social Business Incubator is an essential component of the HSBM Program. It is an organization that provides social businesses with training and coaching to make them investment ready, and to provide post-investment business development assistance towards the business growth. An achievement of the pilot phase of the HSBM Program is the establishment and functioning of a country-based Social Business Incubator.

14.13 The incubation process is a vital part of the local Social Business Incubator’s operations. From the moment a preliminary business plan is received, analysis will be done to pick out the promising ones to join the investment “Pipeline”. The business proposal will be developed, and will move through different stages of the investment process given that the investment criteria set out at each stage can be satisfied. The Incubator works closely with the social business entrepreneurs throughout this process, helping them to improve and realize their business plans, offering technical and soft skill expertise. The incubation process normally takes 2 – 6 months for each social business project.

14.14 For the ramp-up phase of the HSBM Program, a more cooperative pipeline development method will be adopted to increase the quantity and improve the quality of projects at entry. A core technical assistance partnership will be established, led by the Social Business Incubator to engage other service providers. The core technical assistance partnership will pool up joint and consistent inputs from the Incubator and service providers to guide the social businesses from birth to growth. The services will include legal, accounting, financial analysis, marketing and business management, as well as sector expert consultations should a certain social business requests for sector-specific technical assistance.

14.15 Social Business Incubator services will thus benefit the on-going government programmes in the following aspects: (i) provide services to potential solidarity enterprises who hope to develop social businesses; and (ii) facilitate private sector participation and engagement by encouraging technical assistances from a locally based pool of service providers and experts / specialists. The GoT, recognizing the potential of social business for promoting private sector-led inclusive growth, will co-finance the HSBM Program through its PES Project by investing in a target of 300 solidarity enterprises who aim to establish social businesses.

14.16 Key activities under this sub-component include: (i) Support for the continuity of the Social Business Incubator’s operations; (ii) Identify pipeline and appraise the promising social business projects to submit to SBIF for investment decision making; (iii) Provide training and coaching to social business entrepreneurs in both prior- and post- start-up period; (iv) Conduct routine supervision of the pipeline and on-going projects; and (v) Establish technical partnerships with other

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service providers and technical expertise network.

14.17 Sub-component 2.2: Support for social businesses investment

14.18 The SBIF bridges the gap between social businesses and favorable investors / donors to deliver sustainable development results through financing and investing in local social businesses and entrepreneurs to help their own communities. Unlike many other impact investing organizations, the SBIF’s staffs shall be based in Tunisia. They have profound knowledge of fund investment, and extensive experience with the country, which allow them to perform sound fund investment and management, and get to the heart of regional social and environmental problems. The principle of establishing and running the SBIF is the adherence to market disciplines, by avoiding non-market oriented intervention, influence or pressure, which is critical for its success.

14.19 The SBIF is a fund that will be capitalized through the contributions of philanthropic partners such as international development agencies, foundations, companies or individuals who share an interest in creating sustainable economic and social impact in Tunisia. The Fund can also attract resources from the government, given that market disciplines and the principles of autonomic operation and management are conformed to. For example, if an entrepreneur who establishes a social business would also adopt the structure as a solidarity enterprise, funding from the PES Project, as implemented by the GoT and sponsored by the NFE, will be an add-on to top up the total financing. The HSBM Program will continue to raise additional resources to increase the investment capital of the Fund and will match the contribution from other co-financiers with the seed funding to be sought from the MENA Trust Fund.

14.20 The synergy of the HSBM Program with the government programmes, for example, the PES Project, is obvious: Firstly, the PES Project targets at businesses at the scale of around TND 80,000 (equivalent to about USD 50,000), while the SBIF allows the amount up to TND 600,000 (equivalent to about USD 350,000). The SBIF will thus help to scale up support for potential businesses. Secondly, the PES Project provides credit financing, whereas the SBIF is structured to accommodate both equity and credit financing. Henceforth, the SBIF can help improve financial accessibility, especially seed-fund accessibility for the MSMEs who are lack of start-up capital. It will further help reduce the financial leverage ratio of the MSMEs so as to mitigate the credit risk. Thirdly, the SBIF has the mandate to develop customized financial products / services for the social businesses. Instruments such as shareholder loan and lease financing will be considered for their appropriate utilization. As described in paragraph 14.15, the PES Project will directly benefit from the technical services from the Social Business Incubator for those potential solidarity enterprises which would develop social businesses. To contribute to this incentive, the PES Project will provide TND 24 million (or equivalent to about USD 15 million) as seed funding to finance these solidarity enterprises building up social businesses.

14.21 A proper due diligence process contributes to the quality of social businesses. This process, although time-intensive, ensure an optimally effective use of limited investment funds. Potential investees pass through three screenings and two committees (the Review Committee and the Investment Committee), with increasing attention to details concerning the business model, the social impact, the reliability of the management team and the financials. Most of the potential investees are not able to fulfill the conditions on their own – based on previous experience, very few have an investable, documented business plan with coherent financial statements – so close support by the incubation team throughout the process is of paramount importance.

14.22 Ultimately, all investment decisions are made by the Investment Committee at the end of the process and are based on five types of criteria that are used to select the social businesses to be included in the investment portfolio of the Fund. These five types of criteria are eligibility, social and environmental impact, financial sustainability, management and governance, and portfolio balance. To guide the investment decision making process, a comprehensive impact measurement and projection methodology has been developed based on internationally recognized Impact Reporting and Investment Standards (IRIS). Each potential social business undergoes an intensive investment review process in which financial, social and environmental impacts are assessed. Once the business is invested in, the Fund continues to track its impact through regular reporting process, which is supported by an Enterprise Resource Planning (ERP) system (to be developed) and presented to investors / donors in quarterly and annual reports.

14.23 Key activities under this sub-component include: (i) Formally establish and operationalize the SBIF by using a local

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financial institution which is familiar with MSME financing or investment; (ii) Provide seed fund to finance the start-up capital of social businesses; (iii) Conduct portfolio management; (iv) Establish partnerships or co-financing relationships with social-business friendly investors and financial institutions and (v) Develop suitable financial instruments / services for social businesses.

Component 3: Program management(implemented by the Government)

14.24 Under this component, all activities related to program management will be addressed. It aims to: (i) Put in place a Project Implementation Unit (PIU) at the executing agency of the GoT to coordinate and monitor the Program implementation; (ii) Enable the realization of synergies between the HSBM Program and other government-led initiatives/programmes; and (iii) Produce required reporting.

14.25 The activities under this component include mainly: (i) establishing a PIU by hiring consultants, (ii) supervising the Social Business Incubator and the to-be-established SBIF, and (iii) preparing quarterly monitoring and evaluation (M&E) report, annual external audits, and a program completion report (PCR) upon completion of the Program.

14.26 Procurement activities relevant to establishing the PIU will be done with assistance from the ISA in terms of: (i) development of TORs; (ii) identification of potential candidates; and (iii) guidance on setting the technical evaluation criteria. The Government, through the PIU, will ensure the coordination between the HSBM Program and other initiatives in the areas where the services of Social Business Incubator and SBIF will be engaged. The coordination is expected to improve value for money and enhance operational efficiency, such as sharing the pool of pipelined projects, and serving the potential entrepreneurs who share common interest in social business and in another initiative (such as solidarity enterprise).

14.27 A key aspect of project management is financial, social and environmental impact measurement and validation in the M&E process. Financial impact can be tracked through using the portfolio management report by SBIF. Social and environmental impact is tracked through the reporting of beneficiaries. Beneficiaries can include employees, students, micro-entrepreneurs, customers and business partners of the social business. Indirect beneficiaries can include family members of the direct beneficiaries. The objective is to quantify and compare the success of this social business against others in its portfolio, as well as other social enterprises, so as to draw experiences and share best practices.

14.28 By envisioning an enlarging social business pipeline and portfolio, an IT-based project management system is needed. It will be developed and installed in the PIU for the use of M&E, as well as in the Social Business Incubator for routine supervision of the pipeline and on-going projects, and in the SBIF for portfolio management. The users of the IT-based system will be trained.

15. Key Indicators Linked to Objectives The overall outputs of the whole Program to be expected will be the following:

Create, support and finance social business ideas from Tunisian social business entrepreneurs; Increase seed fund availability in the Social Business Investment Fund in Tunisia; Enable an amiable environment and eco-system for social business to thrive in Tunisia.

Component 1: Capacity building for key stakeholders in HSBM(implemented by the Government) Number of government policy-making staff and steering committee members (gender disaggregated) trained on

social business model for job creation and business development; 1 Policy Issues Paper issued on social business development in Tunisia; Issuance of Guidelines on Social Business Development as customized to the Tunisian context; Number of private sector companies, service providers, technical expertise groups, investor representatives,

financial institutions trained in workshops;

Component 2: Support for social business incubation and investment(implemented by the ISA) Number of received requests for support for social business projects (gender disaggregated);

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Number of approved and established social business projects (gender disaggregated); Number of trained and incubated social business entrepreneurs (gender disaggregated); Number of direct job created (gender disaggregated); Number of technical and financial partnerships developed; Social Business Investment Fund established and functional; Special financial instruments / services designed and applied for social business; Supervision on social business projects and portfolio management carried out;

Component 3: Program management(implemented by the Government) PIU established; Introduce IT-based project management system (installed for the PIU, the Social Business Incubator and the Social

Business Investment Fund); Quarterly M&E report; Annual auditing report; Program Completion report.

C. IMPLEMENTATION

16. Partnership Arrangements16.1 The HSBM in Tunisia has been co-funded by the Japanese Trust Fund, the Multi-donor Trust Fund for Countries in Transition and the African Development Bank. This co-funding has allowed to launch in 2013/2014 the pilot phase of the program. As described above, other donors / investors will be sought in order to provide additional seed capital to invest into the ramp-up phase of Social Businesses in Tunisia.

16.2 To ensure that the Holistic Social Business Movement has a cross-sectorial buy-in, a Steering Committee on Social Business in Tunisia has been established to ensure that the program addresses the unique economic and social needs of the Tunisia. It is currently composed of government representatives (from MFPE and MDCI), private sector (including SME financing institution, business consulting firm, ICT and engineering enterprises, and legal firm) and civil society organization. For the ramp-up phase of the HSBM Program, members of the Steering Committee can be enlarged to include representatives of the youth and women, MSMEs, business associations, chambers of commerce, and local government, etc. The Steering Committee will provide insights into long-term strategies to support the awareness and promotion of social business within their communities and will hold regular meetings to monitor and review program developments. Members will provide support and guidance to the important decision-making for steering the Program activities.

16.3 In addition, as described in paragraph 14.14, a core technical assistance partnership will be established, which will be led by the Social Business Incubator and engage other service providers and technical expertise network. This is a technical partnership aimed at branding the Tunisia-based technical forces in the field of MSME development by engaging them collaboratively in promotion of social businesses. Finally, partnership will be set up where necessary with other MSME incubators and investment funds or financial institutions specialized in MSME financing, as well as other locally implanted associations so as to be able to source potential Social Business entrepreneurs who need support and financing, seek additional technical and financial resources and services to meet the specific demand.

17. Coordination with Country-led Mechanism/Donor Implemented Activities 17.1 The HSBM Program will put a special emphasis on alignment with the country-led mechanism and on fostering synergy with donor implemented activities:

The Project of Promoting Solidarity Enterprises (Projet de Promotion des Entreprises Solidaires, le Projet PES): The GoT is carrying out the PES Project under the technical assistance provided by the AfDB with financial support from the Multi-donor Trust Fund for Countries in Transition. The proposed HSBM Program is open to the Solidarity

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Enterprises which have social and environmental objectives and thus are eligible for access to support for social businesses, where applicable. As mentioned in paragraph 14.15 and 14.20, the GoT plans to co-finance the HSBM Program by investing in 300 potential solidarity enterprises who aim to establish social businesses. This co-financing amounts to about TND 24 million (equivalent to USD 15 million) spanning 2 years.

The Integrated Development Program (Programme de Développement Intégré, PDI): The GoT is implementing the PDI to promote a dynamic of sustainable local development, strengthening employment in the regions, and promote human development by improving the quality of life and protect the natural environment. The proposed HSBM Program addresses the second and third issue, namely, strengthening employment in the regions and promoting human development by improving livelihood and environment.

The convention between the GoT and Tunisian financial institutions on supporting the PDI Program: On September 25, 2013, the Commissioner General for Regional Development (CGDR) signed agreements with three public banks, namely the Tunisian Solidarity Bank (BTS), the Bank of Financing Small and Medium Enterprises (BFPME) and National Agricultural Bank (BNA), to establish the terms of cooperation to achieve the objectives of the PDI Program in the creation of approximately 6,000 individual projects, nearly 25,000 jobs with 2,400 jobs for graduates. The proposed HSBM Program, with an aim of establishing Social Business Investment Fund and building an eco-system for social business, will emphasize on partnering with Tunisian financial institutions and other investors in progressing towards private sector-led job creation and inclusive growth.

Joint Youth Employment Initiative (JYEI) for Africa: The AfDB has been partnering with the African Union (AU) Commission, United Nations Economic Commission for Africa (UNECA) and International Labor Organization (ILO) since the end of 2011 on the JYEI for Africa. The JYEI aims to improve knowledge product on African countries’ labor market, policy advice to African governments, and strengthen institutional capacity building and increase investment operations in job creation. The proposed HSBM Program aligns with three pillars of the JYEI and contributes especially strongly on capacity building and investment operations in job creation.

Souk At-Tanmia Partnership: Since July 2012, the AfDB has been implementing the Souk At-Tanmia (or, “marketplace for development”) Partnership by coordinating other 19 partners. The success of the first edition of the Partnership and the hopes raised by the initiative since its inception has created an unprecedented request that it is imperative to sustain the growth of the 61 projects selected, 62% in disadvantaged areas, 54% held by youth, 32 % of women and 31% unemployed. Different from the Souk At-Tanmia Partnership which provided small grants (TND 10,000 – 30,000 per project), the HSBM Program avails financial instruments including equity and credit. The proposed HSBM Program, by the combination of financial and technical assistance it provides, will complement the Souk At-Tanmia Partnership to promote entrepreneurship and create sustainable jobs, especially for those with significant social and environmental benefits. The HSBM Program is open to the enterprises under the support by the Souk at-Tanmia Partnership based on its eligibility criteria, and can contribute to scaling up those promising projects.

FAPA grant to BFPME: In February 2014, the AfDB, through its Fund for African Private Sector Assistance (FAPA), provided a grant to BFPME to enhance its capacity in MSME appraisal and portfolio management. BFPME, currently serving in the Steering Committee for the pilot HSBM Program, is thus expected to strengthen its contribution to guiding the evolvement of social business development in Tunisia. The proposed HSBM Program will seek the involvement of BFPME in the core technical assistance team for the ramp-up phase, and explore the feasibility of engaging BFPME in serving the Social Business Investment Fund management.

17.2 In regard to all the above mentioned programs, the specificity of the HSBM Program is that it aims to develop businesses targeted at the most vulnerable, and that it supports these businesses through a very thorough incubation with multi-year accompanying of the businesses it incubates, as well as providing financing opportunities that are usually difficult to obtain for such businesses. The HSBM Program complements other donors supported programmes / projects (as summarized in box 1) in terms that it aims to build and pool localized technical and financial capacities and localize the seed fund operations to be directed to generating social inclusion and environmental dividends in business development. It also aims to shore up the government’s capacity in effectively implementing and managing private sector-led job creation

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and entrepreneurship development initiatives and programmes, by engaging key stakeholders, especially private sector players, in participating in and contributing to the fulfillment of these goals. It will be a firm step forward to explore a modality of public-private partnership (PPP) in these fields, which will be a pioneer in Tunisia during its operationalization of the PPP Law.

17.3 The spill-over effects from the Program will benefit other initiatives with complementary goals. Some initiatives have been identified during the preparation of the Program and could collaborate in the implementation of some project activities. This includes UNIDO’s initiative to undertake an operating study on opportunities to create green jobs for young promoters in four governorates. The Program will consider the results of studies on the topic of green jobs, such as the study on the development potential of green jobs in Tunisia, conducted by the Ministry of Environment and funded by the UNDP, and the impact assessment on economic and social development of renewable energy in Tunisia, conducted by National Agency for Energy Efficiency. In addition, the Program aims to work with NGOs (national and international) as well as development associations in Tunisia promoting and operating in the field of green jobs and employment.

18. Institutional and Implementation Arrangements Implementation Schedule

18.1 The project will be implemented over a period of 2 years. Physical implementation is expected to start immediately upon approval of the proposal and to span from August 4, 2014 to August 3, 2016. Annual work plans and procurement plans will be provided by the implementing agency upon the launching of the Program.

Institutional and Implementation Arrangements18.2 A Project Implementation Unit (PIU) will be set up within the Ministry of Vocational Training and Employment (MFPE), especially through its Department of Employment Promotion, which will perform majorly from the government side in coordination and oversight of the HSBM Program. The AfDB, as the Implementing Support Agency (ISA), will support the PIU through setting up a task team in implementing the Program, especially in procurement, monitoring disbursements and utilization of funds, policy advice, supervision, alignment with social and environmental principles, and coordination with private sector players, other potential investors and donors. The ramp-up phase of the HSBM Program, as proposed in the present proposal, will be implemented jointly by the GoT and the AfDB based on the need of necessary continuity of the on-going HSBM activities. Specifically, component 1 and 3 will be implemented by the GoT, while component 2 by the AfDB. Note that the GoT plans to co-finance the HSBM Program by establishing 300 solidary enterprises which aim to build social businesses. This GoT co-financed part will be implemented by the GoT with AfDB’s assistance under the joint framework of the PES Project and HSBM Program.

18.3 The Steering Committee on Social Business will provide general oversight for the HSBM Program. The Steering Committee will be led by the MFPE through the designated PIU to oversee the Program’s impact on poverty reduction and inclusive growth through job creation and entrepreneurship development. The steering committee members will hold quarterly meetings to brief the progress of the social business pipelines and projects and signal problems, if any, for the GoT and ISA’s attention and action. The existing pilot HSBM Program’s Steering Committee will be a natural continuity, while it is allowed with openness for renewal.

18.4 The Social Business Investment Fund will be established under the social business initiative coordinated between the GoT and the AfDB and under the custodian by an established Tunisia-based financial institution which is familiar with financing MSMEs in Tunisia. The Fund management team shall be selected along with the selection of custodian financial institution. Fiduciary safeguards and financial risk management are the major tasks for the Fund management team.

18.5 The Social Business Incubator will be responsible for identifying: a) social business projects, b) conduct due diligence and propose to the Social Business Investment Fund, c) support the social businesses with technical assistance (training and coaching) in business development services, d) routinely supervise the social business pipeline and on-going projects on the

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operational side, and e) build technical partnerships and lead the core technical assistance team.

18.6 The social business fund beneficiaries are expected to, in accordance with the agreed financial terms, pay back the funds which will serve as a revolving funding for social business.

Procurement18.8 In line with the MENA Transition Fund Agreement, all procurement activities under the Program will comply with the Rules and Procedures of the ISA (AfDB). The procurement activities under the project consist of: (1) consultancy services; (2) training and workshops; and (3) goods.

18.9 Procurement of Services: The bulk of activities envisaged will be procured under consultancy services, either through individual consultants or firms. In general, services will be procured through a competitive bidding process. For the services under the GoT implemented component (component 3), the procurement will be in line with the Bank’s Rules and Procedures for Use of Consultants, dated May 2008 and revised July 2012 or as updated from time to time. For those under the AfDB implemented component (component 2), the procurement will align to the Procedures for Acquisition of Consulting Services Funded by the Administrative or Capital Expenditure Budget of the Bank Group (2012 version).

18.11 Procurement of Goods for computers and office equipment will be through shopping.

18.12 Procurement for Training Activities: The assignments under component 1 are mainly capacity building activities, which require trainings and workshops to be organized. These activities are facing government, social entrepreneurs, financial institutions, service providers and other key stakeholders. As social business incubator, social business investment fund, and the MSME development specialist in the PIU will perform the technical service part to provide the trainings, the remaining costs are physical expenses, which will be procured through shopping.

19. Monitoring and Evaluation of Results: 19.1 Ensuring a diligent and solid monitoring and evaluation (M&E) of Social Businesses is pivotal to the long-term impact of the Incubator and investment fund’s footprint in Tunisia. It is a guarantee of social impact and a requirement for the reporting to investors and partners. The implementation progress of the Program will be monitored by the PIU on the Social Business Incubator, the SBIF and the social business entrepreneurs, in addition to fielding of supervision missions as per AfDB rules. The AfDB’s task team, led by the Task Leader, will provide overall guidance and close supervision of the Social Business Incubator and the SBIF. Social Business Incubator will perform day-to-day management of the pipeline and on-going social business projects, while the SBIF shall act on portfolio management. Monthly records of projects and portfolio performances are required for them to form the corresponding quarterly reports, which will be submitted by them to the PIU and the AfDB. To facilitate routine project management and overall M&E, an IT-based project management system will be developed and installed in the Social Business Incubator and the PIU. Quarterly Progress Reports will be required from the PIU, as well as annual external audit reports, as per the AfDB rules. By the completion of the Program, a program completion report will be prepared to summarize the achievements of the Program, assess the outcomes and draw experience and lessons learned.

19.2 As part of their loan agreement with the investment fund, the social business (SB) entrepreneurs are required to report regularly on financial and social key performance indicators. To ensure that the SBs’ self-reporting is being carried out diligently and honestly, the PIU, in joint with the social business incubator, are asked to periodically monitor the SBs. To enhance SBs portfolio management, it is planned in the Program to develop an IT based management system.

19.3 M&E of the progress of Social Businesses is done with different time-horizons, based on standard reporting tools: Monthly: Key Performance Indicators (KPI) and Cash Flows of the past month. These can be kept with the Social

Business Incubator and the Social Business Incubation Fund, respectively. Quarterly: KPIs, Milestones and Financials of past quarter. Annual: KPIs and Financials of past year, self-assessment of business and management performance. This Self-

assessment serves as input for the next year budget setting and financial planning for the next three years.

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19.4 This reporting serves as the basis of the Social Business Incubator and the Social Business Investment Fund’s reporting to the PIU, as submitted further to the AfDB.

D. PROJECT BUDGETING AND FINANCING

20. Project Financing (including ISA Direct Costs7)Costs by Item (USD) MENA

Trust FundCountry Co-Financing8

Total

Component 1: Capacity building for key stakeholders (implemented by the GoT)

50,000

1.1 Capacity building for government 30,000Issue policy issues paper and guidelines of developing social businesses 20,000Workshops on oversight of social business and coordination of initiatives 10,000

1.2 Capacity building for other key stakeholders 20,000Workshops with private sector, service providers, investors, etc. 20,000

Component 2: Support for social business incubation and investment (implemented by the AfDB)

1,675,000 15,000,000 16,675,000

2.1 Support for social business incubation 430,000Technical fees for contracting the Incubator team 200,000Accounting, legal, fiscal advice 60,000Provide training and coaching services to social business entrepreneurs

(including supervision and field visits)140,000

Transport / accommodation and other incidental costs for field visits 40,000Training / coaching expenses (training workshops, on-site guidance, and engaging specific technical expertise)

100,000

Computers and equipment 15,000Other operational expenses 15,000

2.2 Support for social business investment 1,245,000Fund management costs to be paid to fund management team 245,000

Technical fees 200,000Computers and equipment 15,000Operational expenses for monitoring the portfolio (fiduciary tasks,

field visits)30,000

Seed fund 1,000,000 15,000,000 16,000,000Component 3: Program management (implemented by the GoT) 675,000

Hire consultants for the PIU 420,000MSME development specialist 120,000Monitoring and evaluation specialist 120,000Financial management specialist 100,000Procurement specialist 80,000

Computer and equipment 15,000Develop IT-based project management system 200,000

7ISA direct costs are those costs related to the ISA’s direct provision of technical assistance within the project. Also see Paragraph 47 of the Operations Manual.8 Country co-financed activities are implemented by the GoT.

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External auditing 30,000Program completion report 10,000Staffing the PIU in kind

Sum of planned costs 2,400,000Miscellaneous costs (2.5%) 60,000 Miscellaneous costs for the GoT implemented components (1 and 3) 18,125 Miscellaneous costs for the AfDB implemented component (2) 41,875Total costs 2,460,000 15,000,000 17,460,000

21. Budget Breakdown of Indirect Costs Requested (USD)

Description Amount (USD)For grant preparation, administration and implementation support:

Staff time 80,000Staff travel 20,000

Total Indirect Costs 100,000

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E. Results Framework and Monitoring

Project Development Objective (PDO): Development of Social Business and the relevant capacities of key stakeholders in Tunisia

PDO Level Results Indicators* Unit of Measure BaselineCumulative Target Values**

FrequencyData Source/Methodology

Responsibility for Data

Collection

Description (indicator definition

etc.)YR1 YR2 YR3 YR4 YR5

Indicator One: # Social Business Invested

Number (by MENA Trust Fund)

4 14 24 Yearly Social Business Investment Fund investment report

Project Implementing Unit (PIU), using reports from the SBIF and the MFPE-NFE9

Number of businesses that have received investment from the Social Business Investment Fund and from the NFE.

Number (by GoT co-financing)

0 120 300

Indicator Two: # People (social business entrepreneurs, private sector, service providers, government officials, etc.) trained/coached or built capacity in HSBM

Number (by MENA Trust Fund)

40 100 170 Yearly Number of people that have been trained or coached

PIU, using reports from the Incubator and the SBIF

Number of people trained or coachedthrough technical assistance or capacity building by the HSBM.

Number (by GoT co-financing)

0 130 330

Indicator Three: # Direct jobs created / livelihoods improved

Number (by MENA Trust Fund)

25 175 325 Yearly Number of direct beneficiaries through SBs portfolio management.

PIU Number of direct job created and direct beneficiaries from the improvement of livelihood of the people employed by or having productive linkages with the SBs

Number (by GoT co-financing)

0 3000 7750

INTERMEDIATE RESULTS

Intermediate Result (Component One): Capacity building for key stakeholders in HSBM

Sub-component 1.1: Capacity building for government

9 NFE, National Fund for Employment, is the funder of the PES Project. It will be the resource of the GoT’s co-financing for the HSBM Program.

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Intermediate Result indicator One: Trained government policy-making staff and steering committee members

Number 2 12 22 Yearly Number of government officials trained

PIU Number of government officials trained on social business and relevant international best practices.

Intermediate Result indicator Two: Policy Issues Paper

Number 0 0 1 Yearly Preparation and issuance of the Policy Issues Paper

PIU, by coordinating other ministries / institutions in the GoT

Issuance of the Policy Issues Paper

Intermediate Result indicator Three: Guidelines on Social Business Development

Number 0 0 1 Yearly Preparation and issuance of the Guidelines on Social Business Development

PIU, by coordinating MFPE and AfDB

Issuance of the Guidelines on Social Business Development

Sub-component 1.2: Capacity building for other key stakeholders

Intermediate Result indicator One: # Private sector companies, service providers, technical expertise groups, investor representatives, and financial institutions trained in workshops on supporting social businesses

Number 20 50 80 Yearly Number of other key stakeholders trained

PIU, by coordinating the Incubator and the SBIF

Number of private sector companies, service providers, technical expertise groups, investor representatives, financial institutions trained in workshops

Intermediate Result (Component Two): Support for social business incubation and investment

Sub-component 2.1: Support for social business incubation

Intermediate Result indicator One: # Business plans received

Number 68 268 568 Yearly Number of business plans received by the Incubator.

PIU, by using Incubator’s report

Number of business plans received by the Social Business Incubator.

Intermediate Result indicator Two: # Social Businesses incubated

Number(by MENA Trust Fund)

5 20 35 Yearly Number of SBs that have entered IP1

PIU, by using Incubator’s report

Preliminary assessment completed by Social

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Business Investment Fund.

Number (by GoT co-financing)

0 130 330

Intermediate Result indicator Three: # Social Business entrepreneurs trained and/or coached

Number (by MENA Trust Fund)

20 40 70 Yearly Number of SB entrepreneurs, private sector, NGOs trained and coached

PIU, by using Incubator’s report

Number of key stakeholders trained and coached, including the SB entrepreneurs, private sector players (enterprises or investors), and NGOs dedicated to SB development.

Number (by GoT co-financing)

0 150 350

Intermediate Result indicator Four: # Technical partnership established

Number 2 4 7 Yearly Number of technical partnerships established

PIU, coordinating the Incubator

Number of technical partnerships established between the Incubator and service providers and technical expertise network

Intermediate Result indicator Four: # Quarterly progress and supervision report produced

Number NA 4 8 Yearly Quarterly progress and supervision report produced

the Incubator to submit to the PIU

Quarterly progress and supervision report produced

Sub-component 2.2: Support for social Business investment

Intermediate Result indicator One: Social Business Investment Fund established and operational

Fund established and operational

See-fund resource available

Fund structured with fund management sought

Fund established and operational

Yearly Social Business Fund structured, established and operational

PIU and AfDB Fund established and operational

Intermediate Result indicator Two: # Social Businesses invested

Number (by MENA Trust Fund)

4 14 24 Yearly Social Business Investment Fund report

PIU, by using SBIF’s report

Number of social businesses that have received

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investment from the Fund.

Number (by GoT co-financing)

0 120 300

Intermediate Result indicator Three: # Direct jobs created / livelihoods improved

Number (by MENA Trust Fund)

25 175 325 Yearly Number of direct beneficiaries through SBs portfolio management.

PIU Number of direct job created and direct beneficiaries from the improvement of livelihood of the people employed by or having productive linkages with the SBs

Number (by GoT co-financing)

0 3500 7750

Intermediate Result indicator Four: # Special financial products designed and applied for social business

Number 1 3 6 Yearly Number of different types of financial instruments designed and applied for social business

PIU, by using SBIF’s report

Number of different types of financial instruments designed and applied for social business (e.g., customized risk management, interest rate, equity/lending, etc.)

Intermediate Result indicator Five: # Financial partnership developed

Number NA 1 2 Yearly Number of financial partnership developed

PIU, by coordinating the SBIF

Number of financial partnership established between the SBIF and other investors and financial institutions

Intermediate Result indicator Six: Quarterly portfolio management report produced

Number NA 4 8 Yearly Quarterly portfolio management report produced

PIU, by coordinating the SBIF

Quarterly portfolio management report produced

Intermediate Result indicator Seven: Annual performance report produced

Number NA 1 2 Yearly Annual performance report produced

PIU, by coordinating the SBIF

Annual performance report produced

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Intermediate Result (Component Three):Program management

Intermediate Result indicator One: Introduce IT-based project management system

Number 0 0 1 Yearly Design, setup and utilization of IT-based project management system for the PIU and the Incubator

PIU The M&E report on the design,

installation and functioning of the IT-based project

management system.

Intermediate Result indicator Two: Quarterly M&E report produced

Number 4 8 12 Quarterly KPIs, Milestones and Financials of past quarter

PIU Produced for quarters ending March, June and

September.Intermediate Result indicator Three: Annual auditing report

Number 0 1 2 Yearly Financials audited by an external auditor.

PIU Produced yearly for activities to

December 31.

Intermediate Result indicator Four: Program Completion Report

Number 0 0 1 By the completion

of the Program

Project Completion Report

PIU Produced to summarize the

actual outputs of the Program and

compare the actual with the planned to

draw experience and lessons.

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