PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Project Name Region Country Sector(s) Theme(s) Lending Instrument Project ID Borrower(s) Implementing Agency Environmental Category Date PID Prepared/ Updated Date PID Approved/ Disclosed Estimated Date of Appraisal Completion Estimated Date of Board Approval Concept Review Decision PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE ET Competitiveness and Job Creation Proj (P143302) AFRICA Ethiopia Report No.: PIDC888 General industry and trade sector (50%), Agro-industry, marketing, and trade (25%), Vocational training (25%) Micro, Small and Medium Enterprise support (50%), Other Private Sector Development (50%) Investment Project Financing P Federal Ministry of Finance and Economic Development, Federal Democratic Republic of Ethiopia Ministry of Industry A-Full Assessment 02-May May Dec Feb-2014 Track II - The review did authorize the preparation to continue I. Introduction and Context Country Context Ethiopia has experienced strong and broad-based real economic growth of around 10.6 percent a year on average from , with GDP per capita (at PPP) increasing from US$965 in 2007/08 to US$1,196 in 2010/11. Growth has come from a mix of Government-led investments, strong global commodity demand, and the development of new export sectors. Ethiopia has made good progress in growing and diversifying its economy, but it continues to be highly dependent on imports, especially primary products. In addition, agriculture remains the most important source of growth (accounting for 48 percent of GDP). The Growth and Transformation Plan (GTP 2009/ /15) lays out a vision for the country to reach middle-income status by with the industrial sector playing a leading role. This would Page 1 of 6

2 require doubling of industrial growth and acceleration of exports. The current development model relies heavily on high levels of largely government-led investments, in the face of low saving rates and limited availability of domestic resources. Nonetheless, public investments will not be sufficient to maintain high rates of economic growth. Private sector participation in industry and services will be crucial to achieving the Government s export-led job creation agenda while leveraging public sector financing and fostering technology and knowledge transfers. Realizing this potential will require enhancing the opportunities for domestic and foreign private sector participation. Sectoral and Institutional Context Ethiopia s potential in light manufacturing sector is immense, with regards to both exports and employment. To exploit this potential, the GTP defines a two-pronged approach, including (1) the establishment of industrial zones (IZ) to generate investment, accelerate growth, and create jobs by strengthening linkages with SMEs, and (2) a focus on labor-intensive manufacturing to capitalize on the country s endowment and comparative advantage. However, the formal private sector remains small because Ethiopia has been a difficult place to do business, ranking 127th out of 185 economies in the 2013 Doing Business Report. Recent work highlights that some of the key constraints are access to land and to finance, customs and trade regulations and logistics, and lack of skilled labor. In the medium term, the Government plans to address some of these issues by strengthening and expanding its industrial zone program. Currently, there are 6 industrial areas in Ethiopia, adopting varying approaches to zone development. Often, master planning and demand forecasting do not appear to be robust, resulting in poor quality of on-site utilities and limited provision of off-site infrastructure. Experienced zone developers and operators are rare, and Ethiopia lacks a sound framework for public-private partnerships, IZ regulations and institutions. These factors, combined with systematic shortcomings in investment promotion, and weak ecosystems related to skills and technology, has led to mixed outcomes. Lessons learnt from the existing zones in Ethiopia, along with global good practices, will be critical for the design and development of new zones. Relationship to CAS The proposed Competitiveness and Job Creation (CJC) Project is well anchored within the CPS and GTP objectives. The recent Ethiopia Country Partnership Strategy (CPS FY13-16, WBG, August 2012) broadly endorses the GTP s transformative economic agenda as appropriate. The CPS framework includes two pillars with governance as a foundation and two cross-cutting themes. Pillar One, Fostering competitiveness and employment, aims to support Ethiopia in achieving the following strategic objectives: (i) a stable macroeconomic environment; (ii) increased competitiveness and productivity; (iii) increased and improved delivery of infrastructure; and (iv) enhanced regional integration. The CPS is also well aligned with the World Bank Strategy for Africa that focuses on competitiveness and employment as one of its two themes. Relationship to CAS The proposed Competitiveness and Job Creation (CJC) Project is well anchored within the CPS and GTP objectives. The recent Ethiopia Country Partnership Strategy (CPS FY13-16, WBG, August 2012) broadly endorses the GTP s transformative economic agenda as appropriate. The CPS framework includes two pillars with governance as a foundation and two cross-cutting themes. Pillar One, Fostering competitiveness and employment, aims to support Ethiopia in achieving the following strategic objectives: (i) a stable macroeconomic environment; (ii) increased competitiveness and productivity; (iii) increased and improved delivery of infrastructure; and (iv) Page 2 of 6

3 II. enhanced regional integration. The CPS is also well aligned with the World Bank Strategy for Africa that focuses on competitiveness and employment as one of its two themes Proposed Development Objective(s) Key Results (From PCN) The success in achieving the PDO will be reflected by the following indicators: (i) number of new jobs created in the IZ of focus; (ii) number of direct beneficiaries of the project (of which women); (iii) new businesses (of which SMEs) registered in the IZs supported by the project; and (iv) increase in exports as a percentage of sales of businesses in the IZ. III. Preliminary Description Concept Description The CJC Project concept has been informed by the findings of the Light Manufacturing in Africa study (2012), Industrial Zone Strategy Report (2012), Study on Chinese FDI in Ethiopia (2012), the joint WB-DFID Ethiopia Competitiveness and Job-creation Technical Assistance program, and IFC s Investment Climate Advisory Project. As part of project preparation, the Bank has completed a pre-feasibility study (March 2013) that includes (a) a review of existing industrial areas in Ethiopia, and (b) site assessments and demand forecasts for the new proposed IZ sites of Kilinto and Dire Dawa. In addition, the Bole Lemi site was partially reviewed. The pre-feasibility study found development opportunities for each site albeit on a varying time horizon to transform them into viable options. Overall, the proposed Kilinto IZ ranked as the location with higher potential in the near term, offering quicker returns in terms of attracting investment and creating jobs. Bole Lemi IZ (Phase 2), has the added advantage of some infrastructure investments already underway. Dire Dawa IZ, which is close to Djibouti port, represents a medium-to-longer term opportunity. Based on the findings of the pre-feasibility study, the Project shall undertake a programmatic and phased approach for IZ development in Ethiopia. Subject to due diligence, the Project would begin support to Bole Lemi followed by Kilinto IZ. These sites would be used as pilots to apply good practices in design, regulation, development and operation of IZ. At a parallel level, technical assistance in the area of institutional strengthening, master planning and related building blocks will be provided to the proposed Dire Dawa site. The project will comprise of three mutually-reinforcing components: (i) strengthening institutional and regulatory framework, and capacity building; (ii) industrial infrastructure through development of IZs; and (iii) enhancing IZ linkages to SMEs through targeted interventions. These components will be underpinned by a well-designed and strengthened Public Private Dialogue (PPD) mechanism. COMPONENT 1: Institutional and Regulatory Framework and Capacity Building The objective of this component is to support GoE in strengthening the institutional and regulatory framework that underpins an effective industrial zones program. Currently a review of the legal framework of industrial zones - that was enacted in July is underway. The draft regulations that will lead to the establishment of the Ethiopian Industrial Zone Development Corporation (EIZDC) have been prepared and submitted to the Council of Ministers for approval. As part of the Page 3 of 6

4 new Project, technical assistance will be provided for operationalization of the EIZDC, and development of implementation regulations, systems and manuals for operating IZs. In line with international good practice, a regulatory authority will be set-up. In addition, the establishment of a one-stop shop to provide different business regulation services, will be an important component of the soft infrastructure within each zone, and in order to be effective it will require proper authority to operate on behalf of the relevant government agencies (Ministry of Trade, Revenue and Customs Authority, Tax Office, Ministry of Urban Development and Construction, Ministry of Labor etc). Other areas of assistance would include technical support for developing PPP framework to accommodate various models for IZ development and management, and assistance for investment generation support through marketing and promotion of the zones. Activities financed under this component may include technical assistance or consultancy assignments, capacity building, and equipment. COMPONENT 2: Support for Industrial Infrastructure Development The objective of this component is to support development of physical on-site and/or off-site infrastructure investment, based on a demand-based and phased master planning for Kilinto and Bole Lemi sites. In line with good practice, the new model of IZs in Ethiopia are expected to be equipped with high-quality infrastructure, and common services and amenities, which would be made available to local and foreign companies through a single, efficient, streamlined industrial park administration. Activities financed under this component may include goods,works, equipment, technical assistance and capacity building. To plan and inform infrastructure investments, a feasibility study would be undertaken for the industrial zone sites in Addis Ababa and Dire Dawa. These will include a master plan detailing the engineering design of the zone, economic and financial analysis detailing the costs and return on investments, and infrastructure assessments detailing the requirements for on and off-site infrastructure. A gaps analysis will be carried out for the Bole Lemi industrial site, which will provide information on the existing investments in the site and the associated support required to bring the site up to global standards. The feasibility analysis will help define the total investment needed to develop Addis Ababa IZs, and thus the financial contribution of the project to on-site versus off-site infrastructure. COMPONENT 3: Enhancing IZ linkages to SMEs This objective of this component is to support linkages between domestic SMEs and large firms in producing and processing (upstream) activities and marketing (downstream) activities. SMEs face difficulties accessing skills and finance that keep them from growing out of low-productivity, lowquality traps as they are unable to upgrade technology or expand production. Possible interventions aimed at alleviating these constraints may include matching grant programs; partnerships along the value chains of an individual company (for instance, as proposed in Mozambique to link MSMEs with mining companies; and IFC s supplier development program in Zambia). This component will also address the demand-supply mismatch of skills, and how the existing vocational and skills training institutes in and around Addis Ababa and Dire Dawa can be strengthened to respond to markets needs of the priority sectors within manufacturing in Ethiopia. Activities financed under this component may include technical assistance, capacity building, and equipment. Page 4 of 6

5 IV. Safeguard Policies that might apply Safeguard Policies Triggered by the Project Yes No TBD Environmental Assessment OP/BP 4.01 Natural Habitats OP/BP 4.04 Forests OP/BP 4.36 Pest Management OP 4.09 Physical Cultural Resources OP/BP 4.11 Indigenous Peoples OP/BP 4.10 Involuntary Resettlement OP/BP 4.12 Safety of Dams OP/BP 4.37 Projects on International Waterways OP/BP 7.50 Projects in Disputed Areas OP/BP 7.60 V. Financing (in USD Million) Total Project Cost: Total Bank Financing: Total Cofinancing: Financing Gap: 0.00 Financing Source Amount BORROWER/RECIPIENT 0.00 International Development Association (IDA) Total VI. Contact point World Bank Contact: Asya Akhlaque Title: Senior Economist Tel: Borrower/Client/Recipient Name: Federal Ministry of Finance and Economic Development, Federal Democratic Republic of Ethiopia Contact: Fisseha Aberra Title: Director, Multilateral Cooperation Directorate Tel: Implementing Agencies Name: Ministry of Industry Contact: Ato Milkias Teklegiorgis Title: Page 5 of 6

6 Tel: (251-11) VII. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) Web: Page 6 of 6