Language: English

Original: English

AFRICAN DEVELOPMENT BANK

Grant Proposal for Financing under the MENA TRANSITION FUND: Support for Holistic Social Business Movement in Tunisia

COUNTRY: The Republic of Tunisia

Questions on this document are to be addressed to

Ms. Xin Long, Task Manager, Senior Financial Economist, OSHD.1Mr. Justin Murara, Chief Poverty Alleviation Officer, OSHD.1Mr. Fourat Dridi, Consultant, OSHD.1Mr. Baba Abdulai, Principal Procurement Officer, ORNGMr. Mohamed Youssouf, Manager, OSHD.1Ms. Agnes Soucat, Director, OSHDMr. Jacob Kolster, Director ORNA

Date: April 2014

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Table of ContentsAcronyms and Abbreviations 2

1. Introduction3

1.1 Background Information 3

1.2 Project Objectives 9

1.3 Proposal Preparation 10

1.4 Justifications and Rationale for the Use of Resources 10

2. Project Description 13

2.1 Component 1: Capacity building for key stakeholders in participating in social business development 13

2.2 Component 2: Support for social businesses incubation and investment 15

2.3 Component 3: Program management 17

3. Program Cost Estimates 18

4. Procurement 20

5. Implementation 21

5.1 Implementation Schedule 21

5.2 Implementation Arrangement 21

6. Monitoring and Reporting 23

7. Financing and Disbursement Arrangements 24

8. Conclusions and Recommendations for Bank’s Consideration 24

Box 1: PES Project 4

Box 2: Souk At-Tanmia Partnership 6

Box 3: Experiences and Lessons Learned from the Pilot HSBM Program 10

Box 4: Alignment with the Mandate of MENA Transition Fund 11

Table 1: Budget Summary 18

Table 2: Budget Planning by Components 19

Table 3: Key Milestones and Timeliness 21

Annex 1: Results-based Logical Framework 25

Annex 2: Procurement Arrangements 29

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Acronyms and Abbreviations

AfDB African Development BankBFPME The Bank of Financing Small and Medium Enterprises (Tunisia)BNA National Bank of Agriculture (Tunisia)BTS Tunisian Solidarity BankCSO Civil Society OrganizationCSP Country Strategy PaperCGDR General Commission of Regional DevelopmentDP Development partnerEBRD European Bank for Reconstruction and DevelopmentEIB European Investment BankENIS The Engineering School of SfaxERP Enterprise Resource PlanningEUR EuroGDP Gross Domestic ProductGoT Government of TunisiaHSBM Holistic Social Business MovementIDP Integrated Development Program (Programme de Développement Intégré)ILO International Labour OrganizationIRIS Impact Reporting and Investment StandardsISA Implementing Support Agency (under MENA Transition Fund)FAPA Fund for African Private Sector AssistanceFSVC Financial Services Volunteer CorpsJYEI Joint Youth Employment InitiativeLoC Line of CreditM&E Monitoring and EvaluationMDCI Ministry of Development and International CooperationMENA Middle East and North AfricaMFPE Ministry of Vocational Training and EmploymentMSB The Mediterranean School of BusinessMSME Micro, Small and Medium EnterpriseNFE National Fund for EmploymentNGO Non-Governmental OrganizationOECD The Organisation for Economic Co-operation and DevelopmentOSHD Human Development Department (AfDB)PES Solidarity Enterprises Project (Projet de Promotion des Entreprises Solidaires)PIU Project Implementing UnitQCBS Quality and Cost Based SelectionRMC Regional Member CountrySBDC Small business development centerSBIF Social Business Investment FundSME Small and Medium EnterprisesTAEF Tunisia-America Enterprise FundTFT Multi-donor Trust Fund for Countries in TransitionTND Tunisian dinarTIFA U.S.-Tunisia Trade and Investment Framework AgreementTORs Terms of ReferenceUNECA United Nations Economic Commission for AfricaUSD United States of America DollarWEF World Economic Forum

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1. Introduction Following the onset of the Arab Spring in early 2011, the G8 launched the Deauville Partnership to support the countries of the Middle East and North Africa (MENA) as they transition towards democracy. Within the framework of Deauville, the MENA Transition Fund was established as a broad-based technical assistance program to finance country-owned projects that aim at introducing reforms at the governance, social and economic levels. As an eligible recipient, the Government of Tunisia (GoT) has requested the collaboration of the African Development Bank (AfDB), as an Implementation Support Agency (ISA), to assist in the preparation and implementation of a program to support the Holistic Social Business Movement (HSBM) in Tunisia, so as to enhance entrepreneurship development and job creation by fulfilling pressing social and environmental objectives. This proposal, with an amount of USD 2,560,000 to be sought from the MENA Transition Fund, has been prepared for that purpose. The GoT will contribute a co-financing of TND 24 million (or equivalent to about USD 15 million) to roll out the planned outputs.

1.1 Background Information 1.1.1 In the aftermath of the Arab Spring, the GoT continues to face substantial socio-economic challenges that are hampering its ability to respond to the social demands of the people, particularly those related to employment generation. 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. 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. 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. The distribution of unemployment remains an important indicator of regional disparities, social and gender. A 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.

1.1.2 The GoT has been undertaking measures in reforms of policies, strategies and implementing projects and programs to target employment, especially youth employment 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

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support creation of businesses, etc. The GoT also welcomes support from donors and international development partners in these fields.

Government’s support for job creation through investment in Tunisia1.1.3 The GoT, through its Ministry of Development and International Cooperation (MDCI), has been implementing the Integrated Development Program (Programme de Développement Intégré, IDP) in addition to the Program of Building Regional Development (Programme des Chantiers 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 Solidarity Bank (BTS), the Bank of Financing Small and Medium Enterprises (BFPME) and 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. 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 service and technical assistance provided to the establishment of MSMEs that have high potential of business sustainability and labour absorptive capacity.

Box 1: PES Project

The MFPE started structuring the PES Project in 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 enterprises1, 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.

Donors’ support for job creation through SME development in Tunisia1.1.4 Donors have been involved in supporting the GoT under its initiatives through either direct financing or budget support. 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

1 Delegations are sub-division of the Tunisian governorate. There are about 11 delegations in each of the 24 governorates.

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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 of 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 January 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.

Bank’s support for job creation through SME financing and entrepreneurship development in Tunisia1.1.5 Through the private sector window, the Bank, together with the World Bank, approved a Line of Credit (LoC) in 2011 at an amount of USD 100 million (or USD 50 million each) to support SME financing in Tunisia to help mitigate the funding challenges facing the country under difficult economic circumstances. The Bank 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 SME investment appraisal and portfolio management.

Box 2: Souk At-Tanmia Partnership

Souk At-Tanmia Partnership, launched in 2012 by the AfDB in coordination with 19 partners2, aims to support MSMEs development by providing grants (at TND 10,000 – 30,000 per project) as down-payment capital that can be leveraged to access market financing. The first edition of Souk At-Tanmia has 2 The 19 partners are mainly from the donors’ community and the public and private sector.

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financed 61 projects, 62% in disadvantaged areas, 53% held by youth, 32% by women and 54% by the previously unemployed. To date, beneficiaries are satisfied with the support they have received.

Souk At-Tanmia has been an excellent practice of promotion of entrepreneurship and creation of jobs in Tunisia. The success of the first edition of Souk At-Tanmia has raised an unprecedented demand to establish more projects and scale up existing ones. It underscores the need for additional support for sustainable job creation and entrepreneurship development in Tunisia to contribute to inclusive growth. More specifically, building and localizing technical capacities as well as allowing an evolving funding modality are key aspects for consideration in future interventions.

1.1.6 Despite all the efforts that the GoT, in joint with international development partners, 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, limits their access to economic opportunities and prevents them from participating 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.

1.1.7 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 up the 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 development partners (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 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’s participation and strengthening private sector’s capacity in jointly performing these tasks.

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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, 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.

1.1.8 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, 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.

1.1.9 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 with 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 non-governmental organization (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.

1.1.10 In fact, the Bank is leading the Holistic Social Business Movement (HSBM) in Africa, with Tunisia as one of the beneficiary countries. Initiated in December 2012, the Bank is implementing the pilot HSBM Program in three countries, namely Tunisia, Uganda and Togo with the grant from Japanese Trust Fund at USD 944,2003. During the implementation of the

3 Tunisia and Uganda are beneficiary countries for both the component of capacity building and the component of piloting social business projects, while Togo is only for the component of capacity building, given the limited

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pilot 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. In September 2013, co-financing from TFT Fund with a grant of EUR 265,000 was successfully mobilized for the Tunisian part of the HSBM Program. The pilot HSBM Program aims to raise awareness among stakeholders (including government, private sector, civil societies, NGOs, academia, youth and women, etc.) on social business, build capacity of incubators in social business incubation and networking with key stakeholders, create social businesses to benefit at least 25 social business entrepreneurs and key employees (in Tunisia and Uganda), and to provide training and coaching to enable the growth and sustainability of social business projects. Locally-based Social Business Incubators have been established in Tunisia and Uganda, who are endeavoured in identifying pipeline social business projects, assisting the potential entrepreneurs in preparing bankable business plans, and appraising the proposals to submit for review and selection by Investment Committee. Steering Committees on Social Business have also been set up in Tunisia and Uganda with members representing the government, private sector, service providers and civil society organizations (CSOs). The implementation of the Tunisian part of the HSBM Program is progressing faster. 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 prepared 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.

1.1.11 More actions have to be taken to pool up all kinds of efforts, including financial and technical resources, in supporting Tunisia to improve job creation and its sustainability. It is thus proposed to strengthen and scale up the HSBM Program in Tunisia by requesting for grant from the MENA Transition Fund. The GoT has committed its strong support for the Social Business initiative. During the AfDB’s Annual Meetings held in Marrakesh, Morocco, May 2013, the GoT’s delegate, Minister of Development and International Cooperation, indicated that the GoT considered highly important of the Social Business initiative and welcomed the Bank’s implementation of the HSBM Program in Tunisia. The GoT will also contribute to the success of the Program by promoting and providing an enabling environment for Social Business and through its directives in development-oriented policy and strategies. During the implementation of a number of programmes relevant to the promotion of job creation and business development, the GoT has encountered considerable constraints in providing technical services to the potential entrepreneurs. Based on the Bank’s technical assistance for the MFPE to structure its implementation of PES Project in 2013/2014, strong synergies have been identified that the HSBM Program, through its localized business incubator, streamlined operational procedures, structured modality of linking entrepreneurs to technical services and funding resources, and the use of local steering committee to encourage cross-sector buy-in, will directly contribute to efficiently shaping up the GoT’s capacities in leading and coordinating the various initiatives. The HSBM Program is also considered as an innovative model to improve private sector’s capacity and participation in providing technical and financial services for the MSME development to enhance growth inclusiveness. It is thus important to bring the GoT to jointly implement the ramp-up phase of the HSBM Program, based on the continuity of activities that have been implemented by the AfDB.

resources.

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1.2 Project Objectives1.2.1 The HSBM Program is aimed at creating a supportive environment within which Social Businesses can thrive. The 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.

1.2.2 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”, 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, population including youth, women, the vulnerable and rural poor, especially those in disadvantaged regions, will be targeted with priority.

1.2.3 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 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 from 2013 to July 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 has 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.

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Box 3: Experiences and Lessons Learned from the Pilot HSBM Program

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 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.

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 the government to mainstream social business in policy/strategy, coordinate the social business initiative, and steer and oversee the implementation of the HSBM Program; 2) incubation of and investment in social businesses to cater to the high demand on creating and growing social businesses; and 3) catalyzing an friendly eco-system by building partnerships for the thrift of social businesses in the country.

1.3 Proposal Preparation1.3.1 This proposal was prepared through a collaborative effort by the Ministry of Vocational Training and Employment (MFPE) and the AfDB Human Development Department (OSHD). This is in line with the MENA Transition Fund’s requirements, whereby the AfDB will act as the Implementing Support Agency (ISA) for this proposal providing the MFPE, as the executing agency through its arm of the Department of Employment Promotion, with the necessary oversight, guidance and assistance required. In addition, the AfDB rules and procedures will be used throughout the implementation of this Program, as per the ISA criteria.

1.4 Justifications and Rationale for the Use of Resources1.4.1 The Program fits in the MENA Transition Fund’s objectives and scope, especially in terms of fostering sustainable economic growth by enhancing job creation and inclusive development. The main resources 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

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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 core 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.

Box 4: Alignment with the Mandate of MENA Transition Fund

The Program aligns with the overall objective of the MENA Transition Fund , namely, “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”.

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.

The Program is aimed at setting up an SBIF in Tunisia to support the most promising social businesses. The SBIF will be structured to be able to invest in equity and/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 creation of the business 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 SBIF and

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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 Social Business Incubator, SBIF and the Program management team.

1.4.2 The 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 the 2013 Guidelines, the GoT plans to further issue a development plan in 2014. In the 2013 Guidelines, a set of structural reforms and investment in the medium and long term are proposed to 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” regarding its priority to target disadvantaged regions, 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. Moreover, the HSBM Program aligns with the GoT’s National Employment Strategy, National Vocational Training Strategy and Green Growth Agenda as for its direct contribution to job creation, entrepreneurship capacity building, and environmental benefits, respectively.

1.4.3 The Program is in line with the AfDB’s Strategy for 2013-20225, which establishes social business as an innovative model of private sector development, in the areas of job creation, MSME and entrepreneurship development, inclusive finance and social inclusion. The Program also aligns with the Interim Country Strategy Paper (CSP) for Tunisia 2014-2015. The CSP is anchored to the fundamental need to promote the creation of high value jobs for youth and promote the economic attractiveness across regions. It focuses on supporting inclusive private sector development. The HSBM Program will contribute to this by developing skills and

4 After 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.5 The AfDB’s Strategy for 2013-2022 has conceptualized social business as the following: “Social business refers to a business that is driven by social objectives but operates as a profit-making business. The profits are used to expand the company’s reach and improve its products and services. Social businesses have a good track record of reaching disadvantaged communities, including women and youth.”

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entrepreneurship that are needed for sustainable business development and job creation, economic growth, and socio-economic inclusion. Moreover, the CSP’s first pillar of governance accommodates the interventions by the HSBM Program, which also aims to enhance capacities of the government and other key stakeholders in social business development. The Program is further anchored to the Bank’s upcoming Human Capital Development Strategy (2014-2018), particularly in focus area 1: skills for competitiveness and employment and focus area 3: building inclusive financial and social systems. It also fits in the Bank’s Private Sector Development Strategy (2013-2017) under the pillar of “promoting enterprise development”, and the Gender Strategy (2014-2018) under the pillar of “economic empowerment for women”. Meanwhile, as required by the African Union member countries, a Joint Youth Employment Initiative (JYEI) was established in 2011 and supported by the AfDB together with the African Union Committee, UNECA and ILO. In this context, the HSBM Program will constitute a powerful and innovative instrument to be exploited by the RMCs, including Tunisia, to facilitate the implementation of the JYEI.

2. Project Description

The Program consists of the following three components:

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

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

2.1.1 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 of the social business initiative in the country.

2.1.2 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.

2.1.3 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

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enable active dialogues and serve as a platform for participatory decision making. In addition, facing the challenges as analyzed in paragraph 1.1.6 and 1.1.7, 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.

2.1.4 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.

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

2.1.5 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 universities6 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 access market-based finance such as from commercial banks.7 The different actors of the ecosystem will themselves take center stage in the future of this concept.

2.1.6 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

6 The first National Conference on Social Business in Tunisia was held at the IHEC Carthage University in March 2013, as the University was working on developing Social Business curriculum and courses.7 An international best practice of directing capital market to financing social enterprises is in Mauritius, where the Stock Exchange of Mauritius has made great progress towards setting up the Impact Exchange (iX) board. This will enable businesses that have social impact to list debt and equity securities, as allow impact investment funds to list in the Stock Exchange.

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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.

2.1.7 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.

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

Sub-component 2.1: Support for social businesses incubation

2.2.1 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.

2.2.2 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.8 2.2.3 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. 2.2.4 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 pomoting private

8 For example, following the completion of the call for proposals under the “iBDA – Social Business Accelerator”, proposals will be assessed with the most promising ones picked, the entrepreneurs of which will be provided with a two-month intensive and tailored training and coaching programme towards setting up their social businesses.

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sector-led inclusive growth, will co-finance the HSBM Program by investing in a target of 300 solidarity enterprises who aim to establish social businesses.

2.2.5 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 service providers and technical expertise network.

Sub-component 2.2: Support for social businesses investment

2.2.6 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.

2.2.7 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.

2.2.8 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.

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2.2.9 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.

2.2.10 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.

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

2.3 Component 3: Program management (implemented by the Government)

2.3.1 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.

2.3.2 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.

2.3.3 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

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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).

2.3.4 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.

2.3.5 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.

3. Program Cost Estimates 3.1 The program costs are primarily for capacity building and technical assistance services for government, social business entrepreneurs and other key stakeholders, Social Business Incubator and SBIF overhead and operational expenses, and the capitalization of seed fund. The total cost of the Program is budgeted at USD 2,560,000, to be provided through resources of the MENA Transition Fund. The GoT will co-finance the Program by funding for establishing 300 solidarity enterprises who aim to build social businesses. This co-finance will amount to about TND 24 million (or equivalent to about USD 15 million). The GoT’s cost-sharing portion, as in the PIU, is related to in-kind cost, such as staffing (except for the particular expertise required). 3.2 In line with the MENA Transition Fund Agreement, the AfDB acting as the ISA, is eligible to charge the project expenses related to the implementation of the component designated to the ISA, and the provision of guidance and support to the GoT’s executing agency, such as staff time, travel requirements and staff expertise. In this regard, the Program has allocated an amount of USD 100,000 for expenses incurred by the ISA over 2 years.

Table 1: Budget SummaryAmount (USD) Local

ComponentForeign Component

GoT implemented part (USD)

ISA implemented part (USD)

Project Direct Costs (by MENA Trust Fund) 2,460,000 0% 100% 743,125 1,716,875

Project Indirect Costs (by MENA Trust Fund) 100,000 0% 100% / 100,000

Sum of Costs (by MENA Trust Fund) 2,560,000 0% 100% 743,125 1,816,875

GoT co-finance 15,000,000 100% 0% 15,000,000 /Total Costs 17,560,000 85.4% 14.6% 15,743,125 1,816,875

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Table 2: Budget Planning by ComponentsCosts by Item (USD) MENA Trust Fund Country

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

businesses20,000

Workshops 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

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

40,000

Training / coaching expenses (training workshops, on-site guidance,

engaging specific technical expertise, etc.)

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 1,000,000Component 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 200,000External auditing 30,000Program completion report 10,000Staffing the PIU in kind

Sum of direct costs 2,400,000

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Miscellaneous costs (2.5%) 60,000Total direct costs 2,460,000ISA indirect costs (staff time, travel for AfDB staff) 100,000Budget to be requested from the MENA Trust Fund 2,560,000GoT co-financing 15,000,000Total program budget 17,560,000

4. Procurement 4.1 For the procurement activities executed by the Government to be financed by the MENA TF Grant, African Development Bank’s Rules and Procedures for the Use of Consultants, and procurement of Goods and Works (dated May 2008 and revised July 2012 or as updated from time to time), as applicable shall be used for the planned procurements as detailed in Annex 2. The procurement activities under the project consist of: (1) consultancy services; (2) training and workshops; and (3) goods. Prior review will be conducted for all procurement activities to ensure compliance with Bank rules and procedures.

4.2 Mode of Procurement Procurement of Services

4.2.1 The bulk of activities envisaged will be procured under consultancy services, either through individual consultants or firms. The total planned procurement costs are USD 1,400,000, in which a total amount of USD 1,225,000 has been allocated to procurement of consulting services (with the remaining USD 130,000 to procurement of training activities, and USD 45,000 to procurement of goods). A miscellaneous cost at 2.5% of the total planned budget will allow an additional sum of USD 35,000 to stand by.

4.2.2 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).

Procurement of Goods4.2.3 Procurement of computers and office equipment will be through shopping.

Procurement of Training Activities4.2.4 The assignments under component 1 are mainly capacity building activities, which require trainings and workshops to be organized. These activities are facing government, private sector companies, investors, financial institutions, service providers and other key stakeholders. Training and coaching activities in component 2 target social business entrepreneurs, which will be implemented largely through on-site services. 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 under both component 1 and 2, the remaining costs are physical expenses, which will be procured through shopping.

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4.2.4 It is envisaged that these capacity building activities will contribute to the following: (i) raising awareness and improving capacity of key stakeholders on social business development in Tunisia; (ii) identifying constraints with the present policy/strategy and proposing solutions at policy or strategic level; (iii) training social business entrepreneurs towards establishing social businesses and timely communication on the implementation progress of the social businesses for problem solving and for capturing common needs in directing skills development for them; and (iv) encouraging local community participation.

5. Implementation 5.1 Implementation Schedule5.1.1 The Program will be implemented over a period of 2 years. Physical implementation is expected to start immediately upon approval of the proposal, expected by August 2014, and continue till August 2016. Annual work plans and procurement plans will be provided by the implementing agency upon the launching of the Program.

5.1.2 The key milestones of the Program are defined as follows:

Table 3: Key Milestones and TimelinessMilestones Timeliness since the launching of the Program

Establishment of a PIU 2nd monthContracting the Social Business Incubator 2nd monthSelection of a Fund management team 4th monthEstablishment of a SBIF 6th monthCompletion of training and workshops in component 1

8th month

Receipt of social business proposals 4th month, 10th month, 16th monthInvestment decision making 7th month, 13th month, 19th monthSelection of IT development service team 7th monthEstablishment and installation of the IT-based project management system

18th month

Completion of policy issues paper and guidelines in component 1

22nd month

Program completion 24th month

5.2 Implementation Arrangement

5.2.1 The MFPE will be the Executing Agency representing the GoT. A Project Implementation Unit (PIU) will be set up within the MFPE, especially through its Department of Employment Promotion, which will perform majorly from the government side in coordination and oversight of the implementation of the HSBM Program. The PIU will be technically assisted through contracting consultants for implementing the planned activities. Technical assistance will be solicited from a MSME development specialist who also performs as team leader, a procurement specialist, a financial management specialist, and a monitoring and evaluation (M&E) specialist.

5.2.2 The AfDB, as the ISA, will support the GoT to establish the PIU in assisting in the procurement of the consultants, including developing Terms and References, identifying quality

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candidates, and issuing criteria for technical and financial evaluation. The GoT, by staffing the PIU, will nominate a Program Coordinator, who is familiar with other relevant government-led initiatives/programmes (such as the PES Project) and responsible for coordination among them. The staffing will also include secretary and/or assistants.

5.2.3 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. AfDB will carry out prior review of the procurement requests, supervision of disbursements and utilization of funds, supervision on program implementation progress by fielding missions, guiding the M&E to ensure alignment with social and environmental principles, and assisting in dialogue with private sector players, other potential investors and donors.

5.2.4 A Steering Committee comprised of representatives from government, local oversight authorities and private sector, CSOs and local communities will provide general oversight for the social business projects. 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.

5.2.5 The SBIF 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. An Investment Committee will be nominated for the SBIF, upon the clearance of the PIU with no-objection from the AfDB.

5.2.6 A community based approach to implementation of the Program will be adopted for measuring the direct and indirect social and environmental benefits. This will involve raising awareness of local communities on social business, consulting them on their demands and constraints, structuring social business in meeting their demands and following up with M&E.

5.2.7 The Social Business Incubator will be responsible for: a) identifying social business projects, b) conducting due diligence and proposing to the SBIF, c) supporting the social businesses with technical assistance (training and coaching) in business development services, and d) leading the core technical assistance team and developing technical partnerships.

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5.2.8 The social business fund beneficiaries are expected to pay back the funds according to the terms set in the agreement with the SBIF. It will serve as a revolving funding for social business.

6. Monitoring and Reporting 6.1 Ensuring a diligent and solid monitoring and evaluation (M&E) is pivotal to the long-term impact of the Program in Tunisia. It is a guarantee of social impact and a requirement for the reporting to investors and partners. There are two levels of M&E of the implementation progress of the Program:

First level: The Social Business Incubator will be responsible for monitoring the social business pipeline and the operational status of the on-going projects on a routine basis. The SBIF will conduct portfolio management on the financial aspects. Monthly report on operational monitoring and on portfolio monitoring will be conducted by the Social Business Incubator and the SBIF, respectively. The monthly reports will inform the preparation of the quarterly report, which will be required to be submitted to the PIU.

Second level: The PIU will coordinate the above M&E tasks by the Social Business Incubator and the SBIF. Based on the quarterly reports submitted, the PIU will prepare quarterly M&E report on the technical and financial progress of the Program, and submit it to the AfDB task team.

6.2 Fielding supervision missions will be in line with the AfDB rules. The AfDB’s task team, led by the Task Manager, will provide overall guidance for the PIU and conduct close supervision of the Social Business Incubator and the SBIF in terms of pipeline development, appraisal report preparation, evaluation for Investment Committee, and procurement activities. Investment decision will need clearance by the PIU and approved by the AfDB.

6.3 As part of their financing agreement with the SBIF, 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 Social Business Incubator is asked to periodically monitor the SBs in the operational aspects, while the SBIF is required to carry out fiduciary tasks to monitor financial performance of the SBs. To facilitate routine project and portfolio management and overall M&E, an IT-based project management system will be developed and installed in the Social Business Incubator, the SBIF, and the PIU.

6.4 Reporting requirements6.4.1 The first level reporting is related to the M&E of the progress of Social Businesses. It 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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6.4.2 The first level reporting serves as the basis of the Social Business Incubator’s and the Social Business Investment Fund’s reporting to the PIU. The second level reporting will include the quarterly M&E report on technical and financial progress of the Program, which is required to be prepared and submitted by the PIU to the AfDB. In addition, annual external audit reports will be required as per the AfDB rules. By the completion of the Program, a program completion report (PCR) will be prepared to summarize the achievements of the Program, assess the outcomes and draw experience and lessons learned.

7. Financing and Disbursement Arrangements 7.1 Resources for the Program will be channeled to the AfDB in accordance with the MENA Transition Fund agreements with ISAs. Funds from the AfDB to the Executing Agency will be in accordance to the AfDB rules as follows:

A Special Account, in USD, will be opened in a bank in Tunisia in the holder’s name of the Executing Agency, and will be used to disburse the grant proceeds.

The GoT is required to officially notify the AfDB with the Special Account number and provide the AfDB with (3) original copies of the authorized signatories of the account.

Upon fulfillment of the above, the Executing Agency will be eligible to request a first disbursement of up to 20% of the total grant amount that is dedicated to the GoT implemented parts, to start implementation of the agreed upon activities. Further disbursement requests will follow the Bank rules on disbursement.

Last disbursement is planned in April 2016.

8. Conclusions and Recommendations for Bank’s Consideration 8.1 In conclusion, the Bank is requested to approve being an ISA for this Program, for which resources will be forthcoming from the MENA Transition Fund.

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Annex 1: Results-based Logical Framework

Country and project name:

Grant Proposal for Financing under the MENA TRANSITION FUND: Support for Holistic Social Business Movement in Tunisia

Purpose of the project:

Development of social businesses and the relevant capacities of key stakeholders in Tunisia

RESULTS CHAINPERFORMANCE INDICATORS

MEANS OF VERIFICATION

RISKS / MITIGATIO

N MEASURES

Indicator Baseline (2014)

Target(2016)

IMPA

CT

Impact Regulation and strategy adopted by government related to enabling social business development in the country

No regulation or strategy

exist

Policy / strategic options developed

Project Completion Report

OU

TC

OM

ES

Outcome 1Employment opportunities(disaggregated by gender and youth)

Rate of unemployment 17.1% (2012)

Female: 19%Youth: 31%

16.5% Project Completion Report

Political instability of Tunisia increases unemployment / the Bank, and other Development Partners have confirmed their support to finance the budget deficit.

The increasing budget deficit dampens the government’s transfer to the less developed regions and private investment decreases in less developed regions / the Bank, and other Development Partners have

Outcome 2Reduced poverty rate in less-developed region

Poverty rate in the least developed region 12% 11%

OU

TPU

TS

Component 1: Capacity building for key stakeholders in participating in social business development

Sub-component1.1 Capacity building for governmentOutput 1.1.1

Output 1.1.2

Output 1.1.3

No. of government policy-making staff and steering committee members trained

Policy Issues Paper developed

Guidelines on Social Business Development developed and adopted

2

N/A

N/A

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A paper developed

Guidelines developed and

adopted

Project Reports

Policy Issues Paper

Guidelines on Social Business Development

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confirmed their support to finance the budget deficit, under which reducing regional disparity is a key component.

Sub-component1.2 Capacity building for other key stakeholdersOutput 1.2.1

No. of private sector companies, service providers, technical expertise groups, investor representatives, financial institutions trained in workshops

20 60 Project Reports

Component 2: Support for social business incubation and investment

Sub-component2.1 Support for social business incubationOutput 2.1.1

Output 2.1.2

Output 2.1.3

Output 2.1.4

Output 2.1.5

No. of Social Business proposals received

No. of Social Businesses incubated (MENA Fund | GoT co-financing)

No. of social business entrepreneurs trained and coached (MENA Fund | GoT co-financing)

No. of technical partnership established

Quarterly progress and supervision report

68

5 | 0

20 | 0

2

Quarterly produced

500

30 | 330

50 | 350

5

Quarterly produced

Project Reports

Project Reports

Project Reports

Project Reports

Project Reports

Sub-component2.2 Support for social Business InvestmentOutput 2.2.1

Output 2.2.2

Output 2.2.3

Output 2.2.4

Output 2.2.5

Output 2.2.6

Output 2.2.7

Social Business Investment Fund established

No. of Social Businesses invested (MENA Fund | GoT co-financing)

No. of direct jobs created / livelihood improved (MENA Fund | GoT co-financing)

No. of special financial products designed and applied for social business9

No. of financial partnership developed

Quarterly portfolio management report

Annual performance report

Seed-fund resource available

4 | 0

25 | 0

1

N/A

N/A

N/A

The Fund formally established and operational

20 | 300

300 | 7750

5

2

Quarterly produced

Annually produced

Project Reports

Project Reports

Project Reports

Project Reports

Project Reports

Project Reports

Project Reports

Component 3: Program management

9 Interest rate based product(s), equity based product(s) or credit risk based product(s) designed and applied.

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Output 3.1

Output 3.2

Output 3.3

Output 3.4

IT-based project management system established and put in use

Quarterly M&E report

Annual auditing report

Program completion report (PCR)

N/A

N/A

Annually

by completion of the program

IT system established and put in use

Quarterly produced

Annually produced

by completion of the program

Project Reports

Project Reports (by using both Social

Business Incubator’s quarterly supervision

and progress report, and the SBIF’s quarterly

portfolio management report)

Project Reports

Project Reports

KE

Y A

CT

IVIT

IES

COMPONENTSComponent 1Capacity building for key stakeholders

Component 2Support for social business incubation and investment

Component 3Program management

INPUTSComponent 1: Training, workshops (USD 50,000)

Component 2: Technical and financial resources, consultancy, missions, computers and equipment (USD 1,675,000 plus GoT co-financing at TND 24 million)

Component 3: Consultancy, computers and equipment (USD 675,000)

Miscellaneous: USD 60,000

AfDB staff time and missions: USD 100,000

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Annex 2: Procurement ArrangementsActivity Procurement Method Estimated

Budget (USD)Component 1: Capacity building for key stakeholders (USD 50,000) – GoT implemented1. Workshops on policy orientation, institutional

coordination and private sector engagementShopping 30,0002. Thematic trainings for steering committee on

oversight of social business3. Preparation of Policy Issues Note, and Guidelines on

Social Business DevelopmentIndividual (IC) 20,000

Component 2: Support for social business incubation and investment (USD 675,000) – AfDB implementedSub-component 2.1: Support for social business incubation (USD 430,000)4. Recruitment of an Incubator team Firm (Quality and Cost Based

Selection - QCBS)200,000

5. Hiring accounting service (part-time) Individual (IC) 10,0006. Hiring legal service (part-time) Firm (LCS) 40,0007. Hiring fiscal/taxation service (part-time) Individual (IC) 10,0008. Travel expenses and other operational costs Shopping 55,0009. Training and coaching for social business

entrepreneurs and supervision of social business projects

Shopping10 100,000

10. Hardware (computers, data storages and servers) and equipment

Shopping 15,000

Sub-component 2.2: Support for social business investment (USD 245,000)11. Recruitment of a Fund management team Firm (QCBS)11 200,00012. Computers and equipment Shopping 15,00013. Operational expenses for Fund management Shopping 30,000Component 3: Program management (USD 675,000) – GoT implemented14. Recruitment of MSME development specialist in the

PIUIndividual (IC) 120,000

15. Recruitment of M&E specialist Individual (IC) 120,00016. Recruitment of financial management specialist Individual (IC) 100,00017. Recruitment of procurement specialist Individual (IC) 80,00018. Establishment of an IT based project management

systemFirm (QCBS) 200,000

19. Computers and equipment Shopping 15,00020. External audit Firm (QCBS) 30,00021. Program completion report Individual (IC) 10,000Planned procurement costs 1,400,000Contingency (2.5%) 35,000Sum of procurement costs 1,435,000

- Procurement of goods and work 179,375- Procurement of consulting services 1,255,625

ISA indirect costs for travel, and staff time 100,000

10 Training and coaching for social business entrepreneurs and supervision of social business projects will be done by Incubator and the technical fee is included in item 4. Other expenses will be procured in shopping mode.11 This Fund will be located in the country. The Fund management team will be selected from an existing Tunisia-based fund management company or other financial institutions which have fund management functions.

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