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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT Report No: KE IN THE AMOUNT OF SDR 38.7 MILLION (US$ 60 MILLION EQUIVALENT), INCLUDING SDR MILLION (US$ 30 MILLION EQUIVALENT) IN PILOT CRISIS RESPONSE WINDOW (CRW) RESOURCES Human Development Social Protection Africa Region TO THE REPUBLIC OF KENYA FOR A KENYA YOUTH EMPOWERMENT PROJECT March 3, 2010 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS Exchange Rate Effective February 2, 2010 Currency Unit = Kenya Shilling 76 K.Shs. = US$ US$ = SDR 1 FISCAL YEAR July 1 June 30 ABBREVIATIONS AND ACRONYMS AGI Actionable Governance Indicators MGCSD Ministry of Gender, Children and Social Development AWSB Athi Water Sector Board MoF Office of the Deputy Prime Minister and Ministry of Finance CAS Country Assistance Strategy MoFW Ministry of Forestry and Wildlife CBK Central Bank of Kenya MoLG Ministry of Local Government CBO Community-Based Organization MoP Ministry of Planning CGAC Country Governance and Accountability MoWI Ministry of Water and Irrigation CPIA Country Policy and Institutional Assessment MoR Ministry of Roads CPO Chief Procurement Officer MoRDA Ministry of Regional Development Authorities CPS Country Partnership Strategy MoYAS Ministry of Youth Affairs and Sports CQS Consultant Qualifications Selection MTP Medium-Term Plan CRW Crisis Response Window MTR Mid-Term Review DA Designated Account NCB National Competitive Bidding DfID UK Department for International Development NYC National Youth Council DIT Directorate of Industrial Training NYP National Youth Policy DP Development Partner NGO Non-Governmental Organization DPL Development Policy Loan NSPS National Social Protection Strategy ERD External Resources Department OM Operations Manual ESMF Environmental and Social Management Framework OPM Office of the Prime Minister FBS Fixed Budget Selection OVC Orphans and Vulnerable Children FM Financial Management PA Project Account GAC Governance and Accountability PAD Project Appraisal Document GDP Gross Domestic Product PEFA Public Expenditure and Financial Accountability GOK Government of Kenya PER Public Expenditure Review HSNP Hunger Safety Net Program PFM Public Financial Management IAD Internal Audit Department PCU Project Coordination Unit IC International Consultant PDO Project Development Objective ICB International Competitive Bidding PO Procurement Officer IRCBP Institutional Reform and Capacity Building Project PP Procurement Plan IDA International Development Association (The Association) PPO Principal Procurement Officer IDF Institutional Development Fund PPOA Public Procurement Oversight Authority IFMIS Integrated Financial Management Information System PPR Post-Procurement Review IFRS International Financial Reporting Standards PRGF Poverty Reduction and Growth Facility ILO International Labor Organization PSC Project Steering Committee IMF International Monetary Fund PWP Public Works Program IPPF Indigenous People s Policy Framework QCBS Quality and Cost Based Selection IPSAS International Public Sector Accounting Standards RDA Regional Development Authorities IRMPF Institutional Risk Management Policy Framework RFP Request for Proposal IYF International Youth Foundation SA Special Account KACC Kenya Anti-Corruption Commission SAI Supreme Audit Institution KCDF Kenya Community Development Foundation SSN Social Safety Net KEPSA Kenya Private Sector Alliance SSS Single Source Selection KENSUP Kenya Slum-upgrading Project SIL Specific Investment Loan KFS Kenya Forestry Service SP Social Protection KIHBS Kenya Integrated Household Budget Survey SWKIP South West Kano Irrigation Project KKV Kazi Kwa Vijana TNA Training Needs Assessment KPIA Kenya Poverty and Inequality Assessment TOR Terms of Reference K.Shs. Kenyan Shillings WB World Bank LBDA Lake Basin Development Authority WBI World Bank Institute LCS Least Cost Selection WSP Water Service Provider M&E Monitoring & Evaluation YEDF Youth Enterprise Development Fund MEMR Ministry of Environment and Mineral Resources YEN Youth Employment Network Vice President: Country Director: Sector Director/Manager: Task Team Leader: Obiageli Katryn Ezekwesili Johannes Zutt Yaw Ansu/Lynne Sherburne-Benz Yasser El-Gammal

3 KENYA Kenya Youth Empowerment Project CONTENTS Page I. STRATEGIC CONTEXT AND RATIONALE... 1 A. Country and Sector Issues... 1 B. Rationale for Bank Involvement... 4 C. Higher Level Objectives to which the Project Contributes... 6 II. PROJECT DESCRIPTION... 6 A. Lending Instrument... 6 B. Project Development Objective and Key Indicators... 7 C. Project Components... 7 III. IMPLEMENTATION A. Partnership Arrangements B. Institutional and Implementation Arrangements C. Monitoring and Evaluation of Outcomes/Results D. Sustainability E. Critical Risks and Possible Controversial Aspects F. Loan/Credit Conditions and Covenants IV. APPRAISAL SUMMARY A. Economic and Financial Analyses B. Technical C. Fiduciary D. Social E. Environment F. Safeguard Policies G. Policy Exceptions and Readiness... 25

4 Annexes: Annex 1A: Country and Sector or Program Background Annex 1B - Governance and Accountability Matrix Annex 1C - An overview of the Kazi Kwa Vijana (KKV) program Annex 2: Major Related Projects Financed by the Bank and/or Other Agencies Annex 3: Results Framework and Monitoring Annex 4: Detailed Project Description Annex 5: Project Costs Annex 6: Implementation Arrangements Annex 7: Financial Management and Disbursement Arrangements Annex 8: Procurement Arrangements Annex 9: Economic and Financial Analysis Annex 10: Safeguard Policy Issues Annex 11: Project Preparation and Supervision Annex 12: Documents in the Project File Annex 13: Statement of Loans and Credits Annex 14: Country at a Glance Annex 15: Maps

5 KENYA KENYA YOUTH EMPOWERMENT PROJECT PROJECT APPRAISAL DOCUMENT AFRICA AFTSP Date: March 3, 2010 Team Leader: Yasser El-Gammal Country Director: Johannes C.M. Zutt Sector Manager/Director: Lynne D. Sherburne-Benz / Yaw Ansu Sectors: Other social services (100%) Themes: Social safety nets (70%); Other social protection and risk management (30%) Project ID: P Environmental category: Partial Assessment Lending Instrument: Specific Investment Loan Joint IFC: Joint Level: Project Financing Data [ ] Loan [X] Credit [ ] Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Total Bank financing (US$ m.): Proposed terms: Financing Plan (US$ m) Source Local Foreign Total BORROWER/RECIPIENT International Development Association (IDA) 1 Total: Borrower: Government of Kenya Office of the Deputy Prime Minister and Ministry of Finance P.O. Box Nairobi, Kenya Kenya Tel: Fax: Responsible Agency: Office of the Prime Minister Kenya Tel: US$ 30 million equivalent of the IDA funds will be financed through the pilot Crisis Response Window (CRW) resources. i

6 Estimated disbursements (Bank FY/US$ m) FY Annual Cumulative Project implementation period: Start August 2, 2010 End: August 4, 2014 Expected Credit Effectiveness date: July 5, 2010 Expected closing date: February 28, 2015 Does the project depart from the CAS in content or other significant respects? Ref. PAD I.C. Does the project require any exceptions from Bank policies? Ref. PAD IV.G. Have these been approved by Bank management? Is approval for any policy exception sought from the Board? Does the project include any critical risks rated substantial or high? Ref. PAD III.E. Does the project meet the Regional criteria for readiness for implementation? Ref. PAD IV.G. [ ]Yes [X] No [ ]Yes [X] No [ ]Yes [ ] No [ ]Yes [X] No [X]Yes [ ] No [X ]Yes [ ] No Project development objective Ref. PAD II.C., Technical Annex 3 The proposed Project Development Objective (PDO) is to support the Government of Kenya (GoK) efforts to increase access to youth-targeted temporary employment programs and to improve youth employability. Project description Ref. PAD II.D., Technical Annex 4 Component 1: Labor-intensive works and social services (US$ 43 million equivalent). This component is to support the GoK in reducing the vulnerability of unemployed young women and men by expanding and enhancing the effectiveness of the Kazi Kwa Vijana (KKV) program. The component finances labor-intensive projects that provide income opportunities to participating youth, and at the same time, enhance the communities access to social and economic infrastructure. The target group of the component is unemployed youth in the age bracket, which is the same bracket of the ongoing KKV. Component 2: Private Sector Internships and Training (US$ 15.5 million equivalent). This component is to improve youth employability, by providing youth with work experience and skills through the creation of internships and relevant training in the formal and informal sector (with priority given to the five growth sectors defined by the Vision 2030). This component is a pilot that addresses the lack of skills and work experience for unemployed young women and men. It will provide youth in the age bracket who have at least eight years of schooling, have been out of school for at least a year and are not working with an opportunity to acquire relevant work experience and skills through a private sector internship and training program. Component 3: Capacity Building and Policy Development (US$ 1.5 million equivalent). The main objective of this component is to enhance the capacity of the Ministry of Youth Affairs and Sports (MoYAS) to implement the national youth policy and increase the institutional capacity for youth policy planning. This will be done through activities under the following main areas: (i) training of MoYAS staff, particularly the district youth officers; (ii) social audits, focusing on the implementation of the Project s other two components; (iii) communication activities to increase awareness of the Project; and (iv) policy development, through the provision of technical assistance to the National Youth Council and youth policy development. Which safeguard policies are triggered, if any? Ref. PAD IV.F., Technical Annex 10 ii

7 In accordance with the World Bank s Safeguard Policy on Environmental Assessment, the Kenya Youth Empowerment Project has been classified as a Category B project. The Project is expected to have limited and reversible adverse impacts on human populations or environmentally important areas which are site-specific, and which in most cases can be relatively easily mitigated. The assessment of Category B projects requires examination of the Project's potential negative and positive environmental and social impacts and identification of measures needed to prevent, minimize, mitigate or compensate for adverse impacts and improve environmental performance. This Project triggers two safeguards: Op 4.01 (Environmental Assessment) and OP 4.10 (Indigenous People). Significant, non-standard conditions, if any, for: Ref. PAD III.F. Board presentation: None. Loan/Credit Effectiveness: The following are Conditions of Credit Effectiveness: a. KEPSA has set up a Kenya Youth Empowerment Project Department (KYEP Department), hired and installed for the Project, a procurement officer, an accountant, a Project director, and a monitoring and evaluation specialist with experience and terms of reference satisfactory to the Association; b. The OPM, the MoYAS and each of the Implementing Line Ministries have each designated and installed a Project accountant on the basis of terms of reference satisfactory to the Association; c. The Subsidiary Agreement has been executed on behalf of the Recipient and the Project Implementing Entity (KEPSA). Condition of Disbursement for Component 1: Receipt by the Association of an audit report of the Kazi Kwa Vijana program, and incorporation of audit s finding, if relevant, into the project s KKV Operations Manual to address any shortcomings identified in the audit report. The following are dated covenants applicable to project implementation: The Recipient shall no later than December 15, 2010 or any other date agreed with the Association ensure that the Project Implementing Entity has: (a) acquired and installed an integrated accounting software to manage the payments and operational data; and (b) recruited and installed an internal auditor and accounts assistant, all under conditions and terms satisfactory to the Association. iii

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9 I. STRATEGIC CONTEXT AND RATIONALE A. Country and Sector Issues 1. Kenya has recently experienced a turnaround in its economy, showing strong economic growth, but this growth began to slow in 2008, mainly due to the post-election violence and the global financial, food and fuel crisis. Kenyan economic growth increased from 2.9 percent in 2003 to 7.1 percent in 2007, after a long period of stagnation. In 2008 the economic growth dropped to 1.7 percent, but reached approximately 2.5 percent in For 2010, IDA projects a growth rate at 3.5 percent. 2 The economic contraction in 2008 was due to a series of events. In 2008 the country suffered from an outbreak of violence after the disputed presidential elections in December Over 1,000 people were killed and more than 350,000 were internally displaced. In addition to the post-election violence, the recent global financial, food and fuel crises, in combination with the worst drought in a decade, have also had a negative impact on the economy. The drought and high input prices in the agriculture sector led to a contraction and an increase in maize imports. 2. Kenya still has many poor people (increasingly young people), and even though the economy has been growing for the last few years inequality continues to be a serious concern. According to 2006 data, about 46 percent of Kenya s estimated 35.5 million people lived below the national poverty line, while 19 percent lived in extreme poverty. In addition to the economic slowdown in 2008, the crisis has had a direct impact on several dimensions that are relevant to poverty and well-being. The economic slowdown and the series of different crises have negatively affected the population, and poverty levels are expected to start to increase again. 3. Poverty has a predominantly young face in Kenya. The incidence of poverty rises from 46 percent among all households to 55 percent for households with at least one unemployed youth. Youth represent almost one third of the Kenyan population, reaching around 11 million in 2006 (compared to 8.5 million in 1999). This age cohort is now at a historical high (in absolute and relative terms). Inequality in household consumption is also high with the consumption decile ratios of the top 10 percent to the bottom 10 percent standing at 20:1 in urban areas and 12:1 in rural areas Unemployment has become a huge challenge for the country and the magnitude of the problem is especially large for youth. Youth in Kenya face serious challenges, including high rates of unemployment and underemployment. The overall unemployment rate for youth is double the adult average, at about 21 percent. Statistics on joblessness suggest that the magnitude of the unemployment problem is larger for youth, with 38 percent of youth neither in school nor work (aggregating the rates of reported unemployment and inactivity). The share of youth among the unemployed rose significantly from 60 to 72 percent (15-29 years of age). It is expected that the slowdown of the economy, as a result of these several crises, has impacted youth more. New entrants to the labor market are the ones least likely to find employment in contracting economic conditions. 2 Kenya Economic Update, World Bank, December This compares to a national average of 5:1 in Tanzania and only 3.3:1 in Ethiopia. 1

10 5. The high unemployment rate could be attributed to many factors, some of which are not directly linked to youth themselves (like the lack of job creation in the economy and the investment climate). Other explanations could be differentiated across skills groups. For the low educated, lack of skills (both technical and soft) and information could hamper their effort to find work. For the higher educated, besides skills mismatches and lack of information, a high reservation wage and possible discrimination are likely explanations. Finally, the lack of networks and knowledge of market suppliers and needs combined with difficulty accessing credit (despite recent initiatives that include the establishment of the Youth Enterprise Development Fund), and lack of entrepreneurship skills limit the ability of youth to start and grow successfully their own work. 6. The social and economic costs of the failure to include the youth in Kenya s development are vast. These costs are borne directly by young people themselves, in the guise of diminished health, well-being and income. However, they also profoundly affect the wellbeing of society as a whole. Left idle, this population represents a near-term risk to social stability and a long-term risk to development of the nation s economy and the welfare of Kenyan households. Ensuring that youth are successfully integrated into the economy and employment with skills will open the pathway to a demographic dividend for development that will improve Kenya s competitiveness, raise household incomes, reduce poverty and create a virtuous circle of investment and growth. The failure to achieve this integration raises the possibility of further social disruption and an economy unable to attract industries that are globally competitive in their use of modern technology. Evidence from recent analytical work 4 shows that lack of action on the challenges that affect youth will escalate both the social and economic costs of development in Kenya. Further, youth unemployment is a major contributor to frustration and tension in the country, especially in urban areas. 5 The situation has become even worse, due to the crisis that erupted after the disputed December 2007 elections, where the youth were substantially involved in the unrest and violence and they were recognized by both the Government of Kenya (GoK) and Development Partners (DP) as a high-priority target group for addressing some of the major challenges of the country. 7. The recent financial and economic crisis has prompted the GoK to renew its commitment to addressing youth issues and youth unemployment has emerged as a top priority. The GoK developed a Marshal Plan for youth unemployment in 2007, emphasizing the importance of a coordinated and multi-sectoral approach to addressing the problem of youth unemployment and youth idleness. In April 2009, and as part of Kenya s stimulus package addressing the impacts of the crisis, the Kazi Kwa Vijana (KKV) 6 program was launched, aiming to employ youth in rural and urban areas in labor-intensive public works projects implemented by different line ministries. The KKV is a Social Safety Net (SSN) program being implemented under the overall supervision and guidance of a National Steering Committee, chaired by the Prime Minister and comprising Ministers and Permanent Secretaries of Ministries with KKV sub-projects. The Office of the Prime Minister (OPM) is in charge of the overall coordination and monitoring. Priority is given to sub-projects that can be implemented rapidly using labor- 4 Youth and Development in Kenya (World Bank 2005); Inside Informality: Poverty, Jobs, Housing and Services in Nairobi Slums (World Bank 2006); Cross-Sectoral Assessment for At-Risk Youth in Kenya, November Kenya Country Social Assessment (World Bank 2007). 6 Kazi kwa Vijana means Work for Youth in Kiswahili. 2

11 intensive techniques, such as road maintenance, small-scale water supply and sanitation, water harvesting, forestation and waste collection. In addition to the KKV, the GoK continues to support the YEDF, established in 2006, providing youth with access to finance for selfemployment activities and entrepreneurial skills development. 8. The Ministry of Youth Affairs and Sports (MoYAS) is a relatively newly established ministry with an important need of capacity strengthening. The MoYAS was established in 2005 to better address youth concerns in Kenya. The main mandates of the MoYAS are to; (i) promote youth development by designing policies and programs that build young people s capacity to resist risk factors and enhance protective factors; (ii) develop a National Youth Policy (NYP) to ensure Kenyan youth participation in the development of the country; (iii) facilitate the establishment of a National Youth Council (NYC) to popularize the youth agenda; and (iv) coordinate youth organizations in the country to ensure youth development through structured organizations, collaborations and networking. In 2006 the NYP was developed to guide and mainstream youth-related interventions in the country and an act to create the NYC was approved in December The GoK has thus recognized the importance of youth in the economic development of the country, and has introduced several important youth-related programs (such as vocational training through Youth Polytechnics), as well as the Youth Enterprise Development Fund (YEDF). In addition, last year the GoK, supported by the UK Department for International Development (DfID), initiated the development of a national strategy and policy framework for social protection, through the Ministry of Gender, Children and Social Development (MGCSD). Youth and jobs are probably the most clearly recurring themes in every plan drawn by the government. The MoYAS is however facing capacity constraints to ensure effective implementation and monitoring of youth-related policies and interventions and the staff often lack relevant experience to efficiently operate on the ground. 9. Programs directly targeting youth in Kenya are generally fragmented with low coverage, but there is increasing interest from DPs to support youth programs. There is general consensus among DPs that youth unemployment is a major concern in Kenya, and there is an increasing interest to support youth-related programs. The USAID recently undertook an assessment of youth in Kenya and is now embarking on a the project Yes, Youth Can, a US$ 45 million project, aiming to provide support over three years for Kenya s young people to participate more actively to promote reforms, to generate employment and to empower themselves through a new youth managed empowerment fund. The DfID is preparing a project to support a new market development program in Kenya to improve the performance of market systems that are important for poor people in the country, including unemployed youth. The UNDP and the Italian Cooperation are providing capacity building support to the MoYAS. A Japanese Social Development Fund (JSDF) grant has been provided to the Kenya Community Development Foundation (KCDF), aiming to strengthen inclusion, participation and empowerment of young people in development processes. The International Youth Foundation (IYF) and the Youth Employment Network (YEN) are also supporting non-governmental organizations (NGOs) that are implementing youth programs. The design of the KYEP has been supported by the UNDP and the ILO, and agreements were reached with the IYF and the YEN on collaborating with their activities on the ground. 10. Kenya faces a number of challenges in its governance record which impact on investments. However, in comparison to its lower-income peers, it scores well in areas such as 3

12 voice and accountability, regulatory quality, revenue mobilization, public administration, macroeconomic and budgetary management, but poorly in areas such as rule of law and governance. 7 For almost all indicators where trend lines can be discerned, they are positive, and the challenge for Kenya is to build on recent developments to improve performance even more. On the positive side, the National Dialogue and Reconciliation Agreement (NDRA), and particularly Agenda Item 4 8, has created opportunity as well as some momentum for needed governance reforms both in terms of political governance and economic governance. Many entities have been established to address key issues and have begun, or are about to begin, their technical work Since governance issues have constrained the achievement of better results in many programs across the sectors in Kenya, the design of the KYEP assures strong governance features, focusing on four principal areas: (i) results orientation; (ii) accountability; (iii) transparency; and (iv) participation. The results orientation activities ensures that solid arrangements are put in place for areas such as targeting and monitoring and evaluation. For accountability, the Project includes an institutional risk assessment where risks are identified and mitigated against, capacity building activities are supported, financial management is strengthened, and procurement monitoring and performance audits are carried out. For transparency, the Project addresses information dissemination and communication about program targeting and objectives, documentation, such as developing three comprehensive Operational Manuals (OMs) to guide the work of the project s three components, complaint mechanisms, and supervision and quality control of public works. For participation, it supports the consultation processes with the communities, decision-making processes, and social accountability (see Annex 1b for more details). The project also supports social audits to be conducted to its main activities. B. Rationale for Bank Involvement 12. Addressing idleness of unemployed youth and building their human capital is at the top of the GoK s priorities and is consistent with: (i) the 2007 World Development Report that focuses on development and the next generation; (ii) IDA s Kenya Country Assistance Strategy (CAS) for , giving important attention to equity and investing in people, as well as the new Country Partnership Strategy (CPS) that is scheduled to be presented IDA s Board of Directors in April, Under this new CPS social protection concerns, including unemployed youth, will be of increased priority; (iii) the inclusion of young people in mainstream society is further specified as a priority in the Social Development Strategy of the Africa Region of the Bank, and the Bank-wide Social Development Strategy highlights youth development as an important part of its thematic portfolio 10 ; (iv) Kenya s Vision 2030 strives to reduce the number of people living in poverty and guarantee equality of opportunities; increase 7 See Kenya s Actionable Governance Indicators (AGIs), which draw on the Bank s CPIA ratings, the Worldwide Governance Indicators, Doing Business, PEFA indicators and other sources. 8 Agenda Item 4 involves the resolution of long-standing issues, including land reform; constitutional reform; poverty, inequality, and youth unemployment; transparency and accountability; and national unity and cohesion. 9 These include the Committee of Experts on the Constitution, the Truth Justice and Reconciliation Commission, the Independent Interim Electoral Commission, the Independent Interim Boundaries Review Commission, and the National Cohesion and Integration Commission. 10 World Bank 2003a. 4

13 the opportunities for youth, women and disadvantaged groups; and improve the delivery of social services (including, water and education) among others; and (v) the NYP. 13. This project complements other governmental programs that aim to help offset the risks and shocks faced by vulnerable groups in the population, and support the build-up of a comprehensive social protection strategy. For example, in response to the risk of drought, there is a national drought contingency fund and a pilot cash transfer program for the chronically food insecure in the arid and semi-arid regions (Hunger Safety Net Program). About 2 million Kenyans (6 percent of the population) permanently rely on food relief, with higher numbers in drought years (e.g., 3.5 million in 2006). There are also some new policy instruments to directly tackle poverty and vulnerability, including in particular a cash transfer program for Orphans and Vulnerable Children (OVC). Community-driven initiatives are also recognized and encouraged by GoK policies. They are implemented fairly widely and increasingly (the Constituency Development Fund, part of the road maintenance funds, and the HIV/AIDS program). This project comes to support a different group of the population, the vulnerable and unemployed youth. The KKV, successfully launched in April 2009, is now in its phase two, and there is need to improve its effectiveness and efficiency. 14. The IDA is well positioned to help the GoK improve the effectiveness and impact of the KKV. IDA has worldwide experience of best practice operational features of public works programs (PWPs) and has been, together with the ILO, providing important technical assistance to improve the efficiency of the KKV. The support assists the GoK in establishing a robust and comprehensive SSN project, by strengthening its institutional arrangements and further developing some key operational features. This includes improved targeting mechanisms, optimization of employment content of sub-projects, inclusion of social services to the list of activities supported, and effective monitoring and evaluation. Given that employment programs, particularly labor-intensive public works programs for youth, are likely to be needed in the medium term, there is a need for the GoK to master the management of these programs and to develop a design that allows for flexibility based on demand, with possible scaling-up and down as necessary. The Association s support will ensure increased community participation in the sub-project selection, which will lead to greater ownership and stronger sustainability. The GoK allocated K.Shs. 6.6 billion to the KKV for FY10 (around US$ 87 million equivalent). The Association is well placed to respond quickly and seize the momentum given its long involvement in supporting Kenya tackling poverty issues. Given the nature of this project as a response to the recent crisis, US$ 30 million equivalent out of its total finance of US$ 60 million equivalent is financed through part of Kenya s allocation from the Crisis Response Window (CRW) approved by the IDA s Board of Directors in December, Kenya has a long history in implementing PWPs and country-specific lessons learned have guided the design of this project. Kenya has a long and successful experience in implementing PWPs, going back to the late seventies with the Rural Roads Program and continuing with the ongoing Roads 2000 Program. Local contractors, labor and local institutions are familiar with such an approach and a pool of trained personnel is available to support these programs. This includes international institutions like the ILO and UN-HABITAT who have been active on this front in Kenya for years and whose inputs have been consistently taken on board in the design of this project. 5

14 16. The Kenyan government faces a challenge from the large number of youth who are out of school and out of work. The Project through its work experience and training intervention offers an opportunity to learn about effective strategies for integrating youths into private sector employment and improving employability. The Association brings substantial experience to the design and evaluation of these programs and will mobilize additional financial support and technical assistance to capturing the lessons from the Project. 17. The employment prospects of young people are highly sensitive to the current recession. Hence, IDA Crisis Response Window (CRW) resources are used for this project. Young people as new job seekers with little or no work experience are the least likely to be offered jobs. Even young people in good jobs fear they may lose them, if the common practice of first in, first out is followed. Young people in general are suffering more than adults from the drying up of new job openings. The youth unemployment rate is not only much higher than the adult unemployment rate, a long-established feature of most, if not all, labor markets. It is also projected to grow at a faster rate than the adult unemployment rate. C. Higher Level Objectives to which the Project Contributes 18. The Project directly contributes to two of the key focus areas of the GoK s overall strategy and themes in the CAS, reducing vulnerability and investing in people. The Project directly targets one of the most vulnerable groups in the population, unemployed youth. As evident from the Kenya Poverty and Inequality Assessment (KPIA), unemployed youths are one of Kenya s main disadvantaged groups with unemployment rates that are double the average of adult unemployment. The post-election crisis came to indicate how this group can cause instability and social unrest if its problems are not addressed both on a short- and long-term basis. Investing in this group of the population also ensures building one of Kenya s main elements of sustained economic growth, its young population. 19. The higher level objectives the Project addresses are: Decreasing the vulnerability of young people by providing some of the most disadvantaged of the unemployed youth with income opportunities in the short term, as well as market-oriented skills and work experience that increase their employability in the medium and long term; and Enhancing the access of vulnerable groups to social infrastructure and services, by upgrading services in selected rural and urban areas in Kenya. II. PROJECT DESCRIPTION A. Lending Instrument 20. The Project will be financed with a Specific Investment Loan (SIL). The SIL is the most appropriate instrument to use to support the GoK since the multiple SSN interventions are still being integrated and a programmatic approach would only be suitable when those interventions are coherently included in one SSN under one SP strategy. The project is using 6

15 US$ 30million of Crisis Response Window (CRW) resources. The use of a SIL is suitable in the framework of the CRW. B. Project Development Objective and Key Indicators 21. The proposed Project Development Objective (PDO) is to support GoK efforts to increase access to youth-targeted temporary employment programs and to improve youth employability. 22. The PDO will be achieved through three components: (i) (ii) (iii) Labor-intensive works and social services (US$ 43 million equivalent); Private Sector Internships and Training (US$ 15.5 million equivalent); and Capacity Building and Policy Development (US$ 1.5 million equivalent). Key Performance Indicators to Assess the Progress towards the PDO Key Indicator Baseline Target Number of additional KKV beneficiaries. 0 Number of additional person days provided in KKV public works. Percentage of interns who complete the internship and are immediately employed by their internship employer or who have found employment with a new employer or are starting a business (disaggregated by gender). Percentage of interns employed or self-employed six months after internship completion (disaggregated by gender). 0 at least 190,000 at least 10,000, % 0 50% 23. More details on the results framework and monitoring indicators are presented in Annex 3. C. Project Components 24. Component 1: Labor-intensive works and social services (US$ 43 million equivalent). The main objective of this component is to support the GoK in reducing the vulnerability of unemployed young women and men by expanding and enhancing the effectiveness of the KKV program. The component finances labor-intensive projects that provide income opportunities to participating youth, and at the same time, enhance the communities access to social and economic infrastructure. The target group of the component is unemployed youth in the age bracket, which is the same bracket of the ongoing KKV. This will be achieved by: Creating employment opportunities for youth in labor intensive and social service projects as well as enhancing community access to social and economic infrastructure through training, provision of technical assistance, and other resources; 7

16 Testing innovative methods on selected KKV sub-projects and mainstreaming the viable ones into the KKV program; Developing and implementing the Monitoring and Evaluation Framework and the Management Information System; and Improving the management and coordination capacity of the OPM, through provision of technical assistance and goods required for that purpose. 25. The proposed targeting mechanism to reach unemployed youth is a combination of: (a) Categorical targeting, focusing on unemployed youth between 18-35; (b) Level of Compensation, which will be set low to ensure that the program attracts unemployed youths; (c) Labor-intensity/high potential impact, giving priority to sectors having projects with a high labor-intensity (e.g., water and soil conservation activities, forestation, road maintenance and garbage collection) to maximize the number of job opportunities created. Sectors with lower labor-intensity but high impact on the welfare/income of poor people (e.g., rural water supplies and small-scale irrigation projects) should also be targeted; and (d) Geographical targeting, by prioritizing a number of districts (i.e., those with high unemployment numbers based on the most recent labor market data) will be selected in each province (see more details in Annex 4). 26. Component 2: Private Sector Internships and Training (US$ 15.5 million equivalent). The main objective of this component is to improve youth employability, by providing youth with work experience and skills through the creation of internships and relevant training in the formal and informal sector (with priority given to the five growth sectors defined by the Vision 2030). This component is a pilot that addresses the lack of skills and work experience for unemployed young women and men. It will provide youth in the age bracket who have at least eight years of schooling, have been out of school for at least a year and are not working with an opportunity to acquire relevant work experience and skills through a private sector internship and training program. The component will start implementation in Nairobi and Mombasa, and will expand to one rural area in Year 2 of the Project. 27. The component will support four activities: (i) developing and implementing a youth internship program; (ii) providing training and technical assistance to unemployed youth to obtain skills in potential growth sub-sectors identified in the Vision 2030; (iii) training and upgrading the skills of selected master craftsmen in areas aligned with or relevant to youth employment; and (iv) monitoring and evaluating lessons learnt from the pilot for integration into existing and future youth employment programs. All interns are expected to receive training related to their work during the course of the internship. Targets will be set to ensure that both young men and women will benefit from the activities. 28. Training will be entirely employer-driven. Employers will identify their skill needs and propose a training program for the selected youth, and the Project will pay the intern a stipend for up to six months. Thus, the youth will acquire work experience and skills through the private sector and gain an opportunity to find a regular job or start their own enterprise. In addition to technical skills, youths will be provided with life skills training. Training providers will develop modular, competency-based skill training for trainees; employers may also provide on-the-job 8

17 training in the enterprise. The program will provide internships in the formal and informal sectors. 29. Component 3: Capacity Building and Policy Development (US$ 1.5 million equivalent). The main objective of this component is to enhance the capacity of the MoYAS to implement the national youth policy and increase the institutional capacity for youth policy planning. This will be done through activities under the following main areas: (i) developing and implementing a training program for MoYAS staff (particularly district youth officers); (ii) developing and implementing social audits to improve the transparency and accountability in the implementation of component 1 and 2 of the Project; (iii) implementing communication activities to increase awareness of the Project amongst the youth; and (iv) supporting policy development on youth, through provision of technical assistance to the National Youth Council and carrying out of analytical work. 30. A Training Needs Assessment (TNA) will be undertaken prior to project effectiveness and training will be provided based on the findings of the TNA, mainly focusing on district youth officers, but also including some national level staff. The MoYAS is expected to recruit external support to undertake the TNA, which will be retroactively financed by the Project. 31. The social audits will be piloted in a few selected districts where the KKV and component 1 and 2 are being implemented. An organization will be selected on a competitive basis to develop relevant material and train community members to undertake the social audits. All key stakeholders will be required to cooperate with these social audits and make relevant information easily accessible for the groups who will undertake the social audits. Areas for support to relevant studies to inform policy development will be further explored and developed (see detailed Project description in Annex 4). D. Lessons Learned and Reflected in the Project Design 32. There is a long list of lessons learned both in implementing similar projects in other parts of the world and in implementing projects in Kenya. The following are the key lessons learned and reflected in the design of the Project (see lessons learned from the KKV in annex 1C): (a) Targeting in countries with high poverty rates is challenging, but can be done. This project targets a specific group of the population that is unemployed and within this group uses a combination of factors like the wage rate and geographical targeting as a targeting mechanism. (b) Using clear and transparent criteria for the selection of social and economic infrastructure provides coverage against possible political interventions. The Project, in particular the OM for component 1, lays out a clear allocation system and sub-project criteria that make it difficult to apply pressure on decision-makers on where activities are financed. (c) Engaging employers and the private sector in defining skill competencies is key to success in training activities. Employers are best positioned to define and anticipate the skills needed by workers and are therefore consulted by training providers in determining 9

18 the skills to be offered and the development of competency standards for guiding the design of curricula and instructional materials. (d) Recognition of diverse training provider sources and the use of competition to promote flexible, market-driven skills are essential. Skills are provided by a diverse mix of public and private institutions, including schools, training centers and the workplace. (e) Introducing life skills alongside vocational and technical skills in key. Life skills, sometimes viewed as soft skills, provide youth with skills in communication, knowledge of how to resolve conflicts peacefully, awareness of health risks, understanding of acceptable workplace norms and behavior, and knowledge of how to search for employment. (f) In Kenya, experience shows the importance of incorporating solid governance elements to ensure a transparent and corruption-free operation. The Project adopts a thorough governance strategy that is mainstreamed in its design, operational procedures and stakeholders involved. E. Alternatives Considered and Reasons for Rejection 33. Including the Project in a more comprehensive Social Protection (SP) Development Policy Loan (DPL) was considered to provide an incentive to the GoK to finalize the consolidation of the SP programs into an overall SP strategy. The team decided against this to allow for a more rapid response and to build on the momentum generated under the KKV program. 34. An alternative of preparing a traditional public works project providing works, employment and income support to population in general was considered and rejected. It is clear that youth represent a priority for the GoK. This priority is well justified by the higher than average unemployment rates for youth and the risk they pose to the peace and order of the country. KYEP is one of the first public works program to directly target youth. The GoK and the Association team also decided to pilot other interventions that increase the skills of youths to better prepare them to compete in the job market. 35. Developing a project that focuses primarily on urban slum areas was considered and rejected. Although urban slums have high levels of unemployment among youth, issues like land tenure makes public works interventions more difficult to support in urban slums. Such a project would also have had a smaller impact than the proposed project. 36. Use of micro-credit and small business development. An alternative considered was to have a much stronger focus on micro-credit and small business development. After the postelection crisis and due to the GoK s pressing need to address youth unemployment, it was decided to have a much stronger focus on temporary employment creation. In addition, the GoK is already supporting small businesses through a large initiative providing micro-credit to small enterprises, the YEDF. The allocation to the YEDF increased considerably in the 2010 fiscal year and access to credit is not the most pressing need for young entrepreneurs. An extra component on micro-credit and business development would also have created complexity to the 10

19 Project. The strong focus on short-term employment creation and skills are expected to open future opportunities for wage and self-employment. The Project will instead open pathways to micro-credit for self-employment through counseling, the use of mentors, and linking with the YEDF. 37. Support to supply-side training. A consideration was given to enhance the relevance to the supply side of training but was rejected. This would better fit under an overall technical education operation. It would also consume large funding with only medium-term potential impact. 38. Allow training providers to develop internships with private employers. This approach would tighten the link between the provider and employer improving the relevance of the training offered. The approach was rejected, however, due to the difficulty of having large numbers of training providers contacting individual employers. Instead, individual employers will be approached by an employer organization to create internships and then training, defined by the employer, will be procured for the intern, retaining the link between the employer and training provider. 39. Developing the internship program in the Ministry of Labor s Department of Industrial Training (DIT). The DIT already offers an internship program for in-school youths and building its capacity to offer an internship program for out-of-school youths would promote the program s sustainability. This option is rejected, however, in favor of using private sector leadership to enhance the willingness of employers to participate in a program for a vulnerable group of youths. The program would test the impact of an employer-led work experience and training program on youth employability. Developing close ties with the DIT is however important during the implementation of the Project. III. IMPLEMENTATION A. Partnership Arrangements 40. The Project was prepared in close collaboration with a number of development partners active in Kenya, some of whom are contributing to the preparation activities. The UNDP supported Project preparation, by financing a consultant to conduct a quick assessment of the existing training providers in Nairobi. The ILO is contributing by providing technical assistance to PW activities. They financed international and local consultants to support the design of component 1 and conducted a review for the KKV in its first phase. The USAID has just finalized a review of youth issues that covers policy and program issues in Kenya. The report confirms the importance of the areas that this project is tackling and supports its design. To date, no parallel financing for the Project is agreed but efforts are being made to mobilize other DP funds. B. Institutional and Implementation Arrangements 11

20 41. The OPM will be the host of the Project and take responsibility of its overall coordination, oversight and M&E. A small Project Coordination Unit (PCU) of dedicated staff has been established in the OPM to coordinate the Project. This PCU involves existing staff in the OPM (who are assigned full-time to the Project), staff seconded from other ministries and new staff will be recruited to the unit as needed. The PCU will also coordinate component 1 (the KKV, which is already currently being coordinated by the OPM). The present KKV Operations Manual (OM) has been updated and finalized, taking into consideration lessons learned from phase 1 and international experience on similar public works programs. 42. Authority for implementation of component 2 will be delegated by the OPM (and its PCU) to the Kenya Private Sector Alliance (KEPSA), a private sector-led apex organization. Funds for the component will flow through the MoYAS to KEPSA and KEPSA will provide financial and progress reports to the MoYAS. The KEPSA Secretariat, serving the Board of Governors, currently has five departments. It will create a sixth department for the KYEP, with a Project Manager and staff (see organogram in Annex 6). An OM for this component was drafted and finalized to detail the roles and responsibilities of the different stakeholders in project implementation, lay down criteria for the recruitment and selection of interns and training providers, establish sector priorities for internships, and set rules for the incentives to be provided for private sector enterprises providing internship opportunities for youth. 43. Component 3 will be hosted in and implemented by the MoYAS, which in turn will involve a number of other stakeholders. A project unit (PU) has been established within the MoYAS, consisting of a project coordinator, who will be fully assigned to the unit and be responsible for the oversight and implementation of the KYEP activities under component 3. In addition, a financial management officer, a procurement officer and an internal auditor have been assigned to the PU to assist the project coordinator as necessary, but not be fully assigned to the PU. A project accountant will be fully assigned to the PU, prior to Credit Effectiveness. 44. For the overall project coordination and oversight, the Project will seek to expand the existing KKV Project Steering Committee (PSC) to include private sector participants. The PSC will ensure intersectoral coordination and collaboration among the different parties involved, take policy-level decisions and follow up overall project development. C. Monitoring and Evaluation of Outcomes/Results 45. A strong gender-sensitive M&E system is crucial for the success of the Project: It will ensure that problems can be identified and solved as they emerge and that lessons learned can be incorporated into project design and ultimately that project outcomes can be assessed. A good M&E system also provides management with a timely decision-making tool. As mentioned, the OPM will be responsible for the overall coordination and supervision of the Project. In addition to the different monitoring approaches for each component, it is proposed that two separate impact evaluations are undertaken for component 1 and 2 respectively. The proposed M&E plan for component 1 will focus on the following main activities: (i) develop a new MIS system, collecting consistent data at the project level that would include applicants basic characteristics (such as, name, age, gender) for youth who show up and register, job opportunities created, number of days worked, assets/infrastructure created/ rehabilitated or maintained and social services delivered, project budget, wages paid, administrative, tools, materials and equipment 12

21 costs, number of participants trained and level of labor intensity. The monitoring data for the KKV will be collected at the project level and then compiled and summarized at the district, province and national level. Across the M&E arrangements for the Project, disaggregated female and male participant data will be collected to allow further analysis and impact on female versus male youth; (ii) conduct a beneficiary assessment in selected communities in Year 2 and 4 in order to collect information on the level of satisfaction with the Project, delays experienced in payments, jobs duration, participation selection criteria, preferences on the types of social services to be developed among direct KKV participants and information on satisfaction with assets created including also indirect beneficiaries (youth and non-youth living in the community); (iii) social and technical audits; (iv) carry out an impact evaluation to identify the impact of the KKV on youth earnings and use of KKV wages, consumption smoothing behaviors and food security, and whether or not the training provided was useful in terms of employment placement after the KKV. Particular attention will be paid to heterogeneous impacts across males and females. 46. The impact evaluation study will focus on a few selected communities within three to four districts (to be determined) representative of either urban or rural areas. It is planned to undertake a baseline survey at the end of Year 2 and a follow up survey after two months from the baseline given the actual average duration of jobs offers (one month). A second impact evaluation (including baseline and follow-up survey two months later) is planned on Year 4 conditional on feasibility and costs. 47. If more youth apply for work than the project can offer, the required number of youth will be selected randomly from all of those who applied, taking into account that at least 30%, but preferably 50% of the selected youth should be women. Priority should be given to women from women headed households. It is the experience to date that there are generally more youth willing to work on the KKV than the program can accommodate at any one time. The impact evaluation identification strategy will then be, based on oversubscription. Since the treatment and control groups will be chosen randomly through the lottery, there is no systematic reason why their consumption smoothing behavior and other outcomes should differ. The assessment can therefore attribute any well-being gains to the KKV program and credibly estimate the project impacts on many different individual outcomes. 48. The M&E plan for component 2 will consist of four main elements: (i) an MIS to be developed in KEPSA; (ii) a detailed beneficiary assessment to be conducted at the end of each cycle for a random sample of interns and employers; (iii) spot checks for service delivery; and (iv) an impact evaluation (more details in annex 3). 49. The impact evaluation of the pilot internship and training program will follow the cohort of youth applying to the second cycle of the program and will estimate the short-term causal impacts of the program on labor market outcomes (e.g., type of employment and wage), postprogram educational attainment and approach to risky behaviors. In addition, the evaluation will identify the impact in the formal and informal sectors and assess in which sector the program is more effective in terms of outcomes of interest. 50. Given the nature of the activities to be undertaken under component 3, the MoYAS will be responsible for the preparation and submission of quarterly progress reports to the OPM, 13

22 including the number of youth officers trained, progress made on piloting social audits, communication activities and technical support provided to policy development. 51. The Results Framework in Annex 3 details the expected outcomes to be achieved through this project, and the agreed key performance indicators. D. Sustainability 52. There are two types of sustainability concerns that the project design has tried to address: sustainability of the services and infrastructures supported under the Project, and sustainability of the provision of similar services to young people. 53. In terms of sustainability of the infrastructure built and services provided, the Project uses a participative approach that ensures the communities ownership of the assets created. It also involves the different relevant governmental and non-governmental agencies in the development, execution and operation of these sub-projects. Complementary training in operation and maintenance for newly created or rehabilitated assets will be conducted wherever necessary. To ensure the sustainability of providing such services to more youth groups in the future, the main host and responsible agency in the Project is the OPM and the implementing agencies for the public works program are all mainstreamed agencies that can carry activities beyond the life of the Project. 54. The private sector-led internship program is a pilot testing new approaches to promote youth employability increasing the chances of employment and higher earnings for youths. Its lessons will guide future policy development and possible scaling up of this program by government and private sector agencies. The lessons derived from the pilot will contribute to Kenya s development of a national internship strategy. The Project includes activities that ensure the building of the institutional capacity and knowledge of the MoYAS, which is the ministry mandated with coordinating youth activities. 55. The government s commitment and ownership of the Project is clear from the high level of involvement during the preparation stage and the full participation in all details of the Project. The GoK s commitment to enhancing and expanding the social safety net in Kenya is also clear from the increasing resources allocated to this area and the number of programs that have been introduced in the last few years. 56. The following table presents the overall country level and project specific risks of the project, the mitigation measures that have been or will be taken, and the residual risk ratings after the implementation of these measures. 14

23 E. Critical Risks and Possible Controversial Aspects Country Level Risks Macroeconomic framework - Global financial pressures could impact the macroeconomic program. Kenya s pre-crisis public finances were sound and there had been a significant decline in government indebtedness. Kenya s fiscal policy continues to be consistent with macroeconomic stability and debt sustainability, but expenditure pressures have mounted due to the global financial crisis and the food and fuel crises. The biggest downside risk to growth is the emergence of political disagreements within the grand coalition and slowness of the government in implementing a budget that addresses the challenges Kenya faces. This may dampen tourism receipts and hurt investor sentiment, and strain relations with the donor community, posing risks to Kenya s foreign trade and inflows of capital. Country Policy and Institutional Assessment (CPIA) average rating for macroeconomic management, fiscal policy and debt policy: 4.0 Country Engagement with World Bank - The challenges of managing within a Coalition environment will likely continue to slow down project preparation and implementation. The aftermath of the presidential elections and the forming of the Coalition Government resulted in: (i) delay of project implementation and preparation of new projects due to the post-election violence; (ii) lack of clarity about the responsibilities and ownership of new line ministries with respect to specific IDA projects as well as the broader policy dialogue with the Coalition Government (e.g. the role of the new Prime Minister's office). In addition, there has been a delay in the preparation of a new Country Partnership Strategy (CPS). Risk Mitigation Activities The Association has been advising the government on macro-fiscal controls, exchange rate and monetary policy management, and public investment program management issues. Ongoing work includes analytic work on budget notes, the Public Expenditure and Financial Accountability (PEFA) Review, a Public Expenditure Review (PER), and a project on institutional reforms to improve efficiency of public expenditures. The Government has accessed $200 million from the IMF's Exogenous Shocks Facility and has signaled an interest in embarking on an IMF Poverty Reduction and Growth Facility (PRGF)..The Bank is working on improving project implementation and strengthening portfolio management through its ongoing sector dialogue. A CPPR and a CAS completion report have been finalized, with a focus on how recent events affected project implementation. The Association is continuing to work closely with counterparts and is strengthening its decentralized dialogue with sector ministries. The Country Team has launched preparation of a new CPS, slated for Board presentation by mid-2010, which will fully incorporate the experience of the ongoing activities, align the program with the Governance and Anti Corruption (GAC) implementation strategy, and provide a resultsbased framework. The new CPS has been developed and will be presented to the Board of Directors on April 20, Risk Rating with Mitigation* M M 15

24 Country Level Risks Country Governance - The governance situation in Kenya is fragile. There are four country governance risks which the Association faces in Kenya: (i) an unfinished constitutional reform agenda which still needs to address long-standing grievances on land and inter-ethnic inequalities in incomes and opportunities; (ii) a parliament that has difficulty addressing issues of economic governance and oversight; (iii) important cross-sectoral issues that must be tackled to ensure a culture of integrity and performance across sectors; and finally (iv) sector-specific measures that may be needed to improve the performance of those discrete sectors. CPIA average rating of Property Rights & Rule-based Governance and Quality of Public Administration: 3.3 Project Level Risks To Project Development Objective Lack of adequate implementation capacity OPM has successfully implemented KKV to date, but they have no previous experience of implementing a IDA-supported project. Weak social accountability and governance environment in Kenya may lead to a risk of the implementation of KYEP. Failure to target the intended beneficiary group may affect the main objective of the Project. Risk Mitigation Activities The Association will continue to improve its understanding of Kenya's political economy through active engagement with the Government, donors and its counterparts and on the ground. Related ongoing analytic work and technical assistance on land reform will help inform the Association about the political economy and direction of the land reform program. Donors are involved in the broader constitutional reform issues. Kenya has been identified as one of the priority CGAC countries in the first phase of implementation, and this work is anchored in three pillars: (i) transparency and accountability; (ii) core public financial management; and (iii) strengthening governance in the sectors particularly, health, education, agriculture, and roads. A study on Parliament's oversight role and capacity needs has also been finalized Risk Mitigation Activities Project design includes support to strengthen OPM, KEPSA and MoYAS. The selection of members to support the Project Coordinating Unit was carefully assessed to assure that competent and adequate skills and experience is represented. There is specific support to build capacity on governance and accountability within OPM, KEPSA and MoYAS. Transparent, participatory and social accountability arrangements will be utilized and a communications strategy will be developed. In addition, social audits and a new payments mechanism will be included in the KKV. There will also be a close collaboration with key development partners and key national stakeholders, with public dissemination of the work being done and disclosure and transparency is enhanced, including through the Project website. Operation Manuals for each component establish clear rules for project operation and promote transparency. Clear targeting criteria are developed for all Project components and efforts will be made at the intake stage to ensure youth participants meet these criteria. Risk Rating with Mitigation* S Risk Rating with Mitigation Limited Financial Management capacity in KEPSA- KEPSA Mitigation measures include enhancing accounting capacity in KEPSA M M M L 16

25 has limited FM capacity in terms of staff numbers as they have never managed funds of this size. Lack of Procurement capacity - A procurement assessment has been undertaken for the OPM, KEPSA and the MoYAS. The assessment confirmed that the overall oversight mechanism and procurement capacity for the OPM and the MoYAS is relatively weak, while KEPSA does not have the capacity at all to carry out procurement activities. To Component Results Component 1: Insufficient coordination between line ministries - given the cross-cutting nature of the design of KKV. Component 1: Inadequate level of labor intensity failure of including high labor intensity will decrease the number of supported youth. Component 1: Lack of counterpart funding may become a risk if a proposed adjustment to the funding arrangements for the KKV is adopted. Component 1: Social and environmental safeguards - KKV projects will involve unskilled and semi-skilled manual labor on road works and water and sanitation projects. Given the relatively simple and mostly manual nature of most KKV work (with the exception of some drilling in the case of the sewage pipeline laying), environmental issues are limited. and recruiting Project Accountant and Internal auditor. An OM, including an FM section has been developed. For the procurement of the KKV, most of the activities are currently being procured by each line Ministry, and the KYEP will strengthen the procurement capacity through adequate staffing of the PCU that has been set up within the OPM. For the third component the procurement anticipated for the MoYAS mainly consists of procurement of social audit organization and consultants. The procurement capacity of the KEPSA has been identified as very weak and they are requested to employ a procurement specialist to the unit that will work on the KYEP. Draft ToRs for such technical assistance will be provided to KEPSA and the recruitment is anticipated to be finalized prior to Board presentation. Given that the current institutional structure of KKV is working well, the KYEP adopts the same structure. The existing National Steering Committee and National Management Committee with representatives of the different line ministries will be extended with representatives of the private sector. Coordination mechanisms at provincial and district level (i.e., Provincial and District Management Committees) is also be reinforced. A minimum level of labor intensity for the public works programs has been included in the OM for the KKV to ensure high labor intensity of sub-projects. There is high social pressure on the GoK to secure funds for the continuation of KKV. KYEP is also being processed on a fast time schedule in order to profit from the existing momentum that has been created by the current KKV. In keeping with the IDA s Safeguard Policies, an Environmental and Social Management framework (ESMF) was developed. This ESMF will serve as the basis to provide an environmental and social screening process for implementation of KYEP sub-projects. As these activities are sector- and site-specific, ESMF is intended to be used as a practical tool during sub-project formulation, design, implementation and monitoring. S M L S L The Project will also provide for training for appropriate line ministry staff in environmental and social screening processes for the subprojects. Component 2: Insufficient private employer participation The Project s credibility is enhanced by engaging private employers in M 17

26 Component 2: Insufficient supply of training providers able to deliver customized, short-term competency-based training. Component 3: Lack of capacity of the MoYAS to coordinate and monitor KYEP activities. its design and implementation. A private sector apex organization, KEPSA, whose members represent private employers and employer organizations in the formal and informal sectors will implement the Project. Incentives are used to encourage employer participation. Training organizations have been engaged in designing the program and TA for pre-qualified training organizations will be provided. Funds have been set aside in the KYEP to build the capacity of the Project Unit responsible for the coordination and monitoring of the activities under component 3. The MoYAS has also received an IDF grant to build capacity on the M&E system. Training will also be given to district youth officers and some national level MoYAS staff. A competitive tender for the coordination of the social audits will be Component 3: Inadequate capacity of the organization to coordinate and implement the social audits. undertaken to ensure adequate implementation capacity. M Overall Risk Rating S * H=High, S=Substantial, M=Moderate, L=Low S M 18

27 F. Loan/Credit Conditions and Covenants 57. The following are Conditions of Credit Effectiveness: a) KEPSA has set up a Kenya Youth Empowerment Project Department (KYEP Department), hired and installed for the Project, a procurement officer, an accountant, a Project director, and a monitoring and evaluation specialist with experience and terms of reference satisfactory to the Association; b) The OPM, the MoYAS and each of the Implementing Line Ministries have each designated and installed a Project accountant on the basis of terms of reference satisfactory to the Association; c) The Subsidiary Agreement has been executed on behalf of the Recipient and the Project Implementing Entity (KEPSA). 58. The following is a Condition of Disbursement for component 1: a) Receipt by the Association of an audit report of the Kazi Kwa Vijana program, and incorporation of audit s findings, if relevant, into the project s KKV Operations Manual to address any shortcomings identified in the audit report. 59. The following are dated covenants applicable to project implementation: a) The Recipient shall no later than December 15, 2010 or any other date agreed with the Association ensure that the Project Implementing Entity has: (a) acquired and installed an integrated accounting software to manage the payments and operational data; and (b) recruited and installed an internal auditor and accounts assistant, all under conditions and terms satisfactory to the Association. IV. APPRAISAL SUMMARY A. Economic and Financial Analyses 60. The economic rationale for investing in the proposed project is strong, since youths have important potential to accelerate productivity growth and left idle, this population represents a risk to social stability and in the long-term a risk to development of the nation s economy and the welfare of Kenyan households. Ensuring that youths are successfully integrated into the economy and employment (with adequate skills) is expected to open the pathway to a demographic dividend for development that will improve Kenya s competitiveness, raise household incomes, reduce poverty, and create a virtuous circle of investment and growth. Investment in the project can also be justified on grounds of social equity. Youths in Kenya are poorer and more often unemployed than other active age groups and they represent an increasing number of the total population and the labor force. To invest in the creation of a solid safety nets system and promote access to work experience and skills would allow the GoK to smooth consumption of poor households if/as necessary in the future, expanding and decreasing the program as a result of major shocks, such as for example the recent financial crisis. Also, the financial analysis of the KYEP shows that the program is affordable, representing 0.22 percent of GDP in FY2011, assuming a continued commitment from the GoK with US$ 85 million equivalent, in addition to the IDA credit (see further details in annex 9). 19

28 B. Technical 61. The Project design conforms to best practices in all of its three components. Component 1 focuses on targeting issues and uses a number of approaches to ensure public works opportunities are provided to the most needy youth groups. It expands the menu of public works by adding social services, training opportunities and introduces community participation as a key element in the Projects' identification. The component s design focus on M&E also ensures a process is built-in to ensure a continuous improvement of the operation as it goes on. 62. Component 2 adopts a best practice approach by engaging the private sector in the design of the skills training with provision of work experience. The program is demand driven. It ensures the private sector is taking a leading role in the implementation of the component and employers have a say in the selection of the interns. The component also uses open competition to select training providers and does not distinguish between public and private ones. The second component also, given its pilot nature, includes a strong M&E design to make sure that lessons learned are well captured and feed into the operation and future policy development. 63. Component 3 supports the overall synergy of the two other components, ensures that not only are operational areas covered but that policy matters are also addressed and that results of these operational areas are well integrated into the overall youth policy in Kenya. C. Fiduciary 64. Procurement: Procurement would be carried out in accordance with the World Bank s "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004, revised October 2006; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, revised October Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants", dated October 15, 2006 shall apply to the project. Assessments of the procurement capacity of the three implementing agencies to undertake procurement activities have been carried out by the Association during October and November, The assessments reviewed the organizational structure and functions, past experience, staff skills, quality and adequacy of supporting and control systems, and legal and regulatory framework. Kenya has a Procurement Law and has established the necessary Oversight institutions and committees. These laws are generally consistent with the IDA procurement guidelines with the exceptions of some provisions specified in Annex 8. The main risk to public procurement in the country is the limited compliance with the procurement laws. The overall risk for procurement (prior to proposed mitigation measures) is considered as High because the implementing agencies and their procurement units have inadequate procurement capacity and limited or no experience with procurement under IDAfinanced projects. Capacity of the OPM and MOYAS is being enhanced under other IDA financed projects. To further enhance the procurement capacity at OPM, MOYAS and KEPSA, the Bank review team has recommended a number of actions to the Borrower, as detailed in Annex 8. The recommended actions include conducting procurement training e.g. a tailor-made procurement training course, to be conducted by Bank procurement staff prior to Credit Effectiveness and through Regional training Institutions during project implementation. The agreed procurement action plan seeks to mitigate the procurement risk to Substantial. 65. Financial Management: The FM assessment revealed that the three agencies had adequate FM arrangements to undertake the Project. The OPM and MoYAS will rely primarily on existing government accounting systems. The MoYAS has already designated a project accountant on full time basis and a finance officer to support the project. KEPSA has a Board of Directors and has developed an institutional FM Procedures Manual. The budget procedures for 20

29 the three agencies are deemed adequate. The GoK accounting systems are computerized but the integration is not fully completed as some modules have not been activated in IFMIS. KEPSA s accounting system is manual. The accounting systems in the three agencies are deemed adequate. All the 3 agencies have developed FM sections in their Operations Manuals (OM) for their respective components, which have been reviewed by the Bank and found satisfactory. 66. Treasury will open 3 Designated Accounts (DA) denominated in US dollars for each of the 3 components into which the IDA proceeds will be deposited. Treasury will also open respective Project Accounts (PA) denominated in Kshs, which will receive funds from DA s and from which local payments for the Project will be made. For component 1, the PA s will be opened in each implementing ministry. OPM will also have a PA through which it will receive funds for activities to be implemented in OPM. Under component 1, funds for each implementing ministry will be budgeted in the ministry s respective budget and the funds will flow directly to the ministry s PA. However, the flow of funds will be triggered by OPM. For component 2, the funds will flow to KEPSA through MOYAS in a PA opened specifically for this purpose. MOYAS will have its own PA for component 3. The DA s and PA s will be opened in local commercial banks acceptable to IDA, identified, approved and selected by the Central Bank of Kenya (CBK). 67. The OPM and MOYAS will access funds from their respective DA s through the existing GoK regulations and procedures. The KEPSA will open a PA in a local commercial bank acceptable to IDA, identified and approved by the CBK, into which funds from the MOYAS for component 2 will be transferred. The KEPSA s annual budget and application for withdrawal of funds (WA) will be reviewed and cleared by the MOYAS before being processed and submitted to the Bank through the External Resources Department (ERD). The KEPSA will also prepare and submit copies of its quarterly IFR s to the MOYAS for review before these are submitted to the Bank through ERD within the stipulated 45 days. The oversight role of the Government of the Project activities implemented by the KEPSA will be contained in a subsidiary agreement signed between the MOF and KEPSA. 68. The audit arrangements are deemed adequate. The OPM and MOYAS will be audited by the Kenya National Audit Office (KENAO) under the Controller and Auditor General. The KEPSA will be audited by an independent private auditor acceptable to IDA, who will be approved by KENAO. The audit reports and management letters will be submitted to the Bank within 6 months after the end of the financial year to which they relate. The financial year end for OPM and MOYAS is June 30 while that for KEPSA is December The OPM and the MoYAS will be subjected to annual risk-based Fiduciary Reviews by the IAD Treasury, and copies of these reports will be submitted to the World Bank promptly, including comments from the respective Accounting Officers/CEO as to how the weaknesses identified will be addressed. KEPSA s external auditor will perform annual risk based fiduciary reviews. The Bank s fiduciary team will conduct appropriate capacity building of the three implementing agencies in FM, procurement and disbursements throughout Project implementation. 70. The Project will adopt the report-based IFR method of disbursement to access funds. Each implementing agency will make payments against its expenditures. Three sets of IFR s will be prepared, each accompanied with the relevant withdrawal application, and submitted to the Bank through ERD Treasury, for capturing of expenditures and replenishment of funds to the respective Designated Accounts. D. Social 21

30 71. The range, scale, locations and number of the sub-projects to be funded under the KKV will emerge from an ongoing participatory process. A screening process will be undertaken to ensure that none of the sub-projects involve involuntary resettlement as defined by OP 4.12 (Involuntary Resettlement). 72. There are no known archaeological sites or sites of cultural significance in the project areas. The relevant GoK departments will be consulted in the event that any archaeologically or culturally significant sites are identified in the project area, and relevant procedures as mandated under GoK law will be followed. Community participation in the construction and maintenance of sub-projects will be incorporated wherever feasible. 73. During project preparation, it became clear that the Project might generate potential benefits to young indigenous people (considered a special and vulnerable group in the country). In response, the Project team, including a social development specialist held extensive discussions with the OPM to ensure that the role of the Borrower in addressing this issue was clearly understood and that an Indigenous People's Plan (OP 4.10) is triggered when indigenous peoples are present in, or have collective attachment to, project lands. During the discussions it was agreed that the Borrower prepares an indigenous people's policy framework (IPPF) to guide interventions in this area. 74. The IPPF has been prepared to ensure that the development process fully respects the dignity, rights, economies and cultures of these communities and that the Project is able to gain the broad community support of affected indigenous peoples and other vulnerable marginalized groups. Included in the IPPF is a Screening process and a Social Assessment (prior to the Action Plan) and the required implementation budget. These documents have been finalized by the borrower, cleared by the World Bank Safeguards unit for disclosure and the IPPF was disclosed in Kenya on December 11, These steps ensure that the World Bank disclosure requirements have been carefully implemented. E. Environment 75. In accordance with the World Bank s Safeguard Policy on Environmental Assessment, the Project has been classified as a Category B project. It is expected to have limited and reversible adverse impacts on human populations or environmentally important areas which are site-specific, and which in most cases can be relatively easily mitigated. There will be numerous sector- and site-specific activities for this project necessitating an Environmental and Social Management framework (ESMF). A draft ESMF has been prepared by a consultant under the guidance of the KYEP Secretariat in the OPM, and will serve as the basis to provide an environmental and social screening process for implementation of sub-projects. This ESMF is currently being refined and finalized. 76. As project activities are sector- and site-specific under component 1, the ESMF is intended to be used as a practical tool during sub-project formulation, design, implementation and monitoring. It describes the steps involved in identifying and mitigating the potential environmental and social impacts of future sub-project activities. It also provides guidance in cases where the screening results indicate that a separate Environmental Management Plan (EMP) is required. A summary of the ESMF was incorporated into the KKV Manual. The ESMF should be part of the Project Operational Manual. While still to be determined, it is likely that KKV projects supported by the Bank will involve unskilled and semi-skilled manual labor on road works and water and sanitation projects. Given the relatively simple and mostly manual nature of most KKV work (with the exception of some drilling in the case of the sewage pipeline laying), environmental issues are limited. 22

31 77. Although the potential environmental and social impacts of KKV projects are likely to be minimal, and in most cases positive, potentially significant and localized negative impacts may occur, thus requiring appropriate mitigation. Potential adverse effects on the environment as a result of the KKV sub-projects may include increased noise, vibration and dust pollution levels due to construction and to a lesser extent, slope erosion, water flow obstruction, impairment of non-critical natural habitat, and minimal and temporary water pollution due to construction-related activities. No major contamination of soil or surface water is envisaged. Tree planting on degraded habitat will not trigger either OP 4.04 (Natural Habitats) or OP 4.36 (Forests). Construction waste management and occupational health and safety requirements (provision of safety gear and access to first aid) have been addressed in the ESMF. In most instances a separate EMP will not be required, as long as the screening checklists are completed before Project start and are subsequently monitored. In cases where an EMP will be required, it will be a simple one or two page document detailing impacts and mitigation of those impacts. 78. Environmental and Social Checklists, Appraisal and Report Forms and accompanying guidelines are included in the ESMF to assist in the environmental and social evaluation of planned sub-projects under the Project. The forms are designed to place information in the hands of line ministries and reviewers so that impacts and their mitigation measures, if any, can be identified. 79. The implementing Line Ministries; Ministry of Water and Irrigation (MoWI), Ministry of Regional Development Authorities (MoRDA), Ministry of Roads (MoR), Ministry of Forestry and Wildlife (MoFW), Ministry of Environment and Mineral Resources (MEMR), and Ministry of Local Government (MoLG), will be responsible for working with the local community chiefs and/or community supervisors in preparing the initial screening checklists, preparing Environmental Management Plans where necessary, and compiling Annual Reports of subprojects under their mandate. A checklist for documenting consultations with communities, NGOs, civil society, etc will be added to the final ESMF. For the ESMF it is envisioned that the National Environmental Management Agency will be the "umbrella" agency overseeing the screening process, the preparation of Environmental Management Plans (EMPs) for sub-projects where necessary, and participation in general supervision through monitoring of Annual Reports for Line Ministries in each region. F. Safeguard Policies Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [X ] [ ] Natural Habitats (OP/BP 4.04) [ ] [ X] Pest Management (OP 4.09) [ ] [X ] Physical Cultural Resources (OP/BP 4.11) [ ] [X ] Involuntary Resettlement (OP/BP 4.12) [ ] [ X] Indigenous Peoples (OP/BP 4.10) [ X] [ ] Forests (OP/BP 4.36) [ ] [ X] Safety of Dams (OP/BP 4.37) [ ] [ X] Projects in Disputed Areas (OP/BP 7.60) * [ ] [X ] Projects on International Waterways (OP/BP 7.50) [ ] [X ] 80. In accordance with the World Bank s Safeguard Policy on Environmental Assessment, the Project has been classified as a Category B project. It is expected to have limited and * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas. 23

32 reversible adverse impacts on human populations or environmentally important areas which are site-specific, and which in most cases can be relatively easily mitigated. The assessment of Category B projects requires examination of the project's potential negative and positive environmental and social impacts and identification of measures needed to prevent, minimize, mitigate or compensate for adverse impacts and improve environmental performance. This project triggers two safeguards: Op 4.01 (Environmental Assessment) and OP 4.10 (Indigenous People). If the sub-projects trigger additional OPs, then additional safeguards documents, as appropriate, will be prepared by the Borrower and reviewed by the Bank. 81. OP 4.01 Environmental Assessment: This OP is triggered when indigenous peoples are present in, or have collective attachment to, project lands. The objective of OP 4.01 is to ensure that projects financed by the World Bank are environmentally and socially sustainable, and that the decision-making process is improved through an appropriate analysis of the actions including their potential environmental impacts. The Environmental Assessment (EA) is a process whose breadth, depth and type of analysis depend on the nature, scale and potential environmental impact of the proposed project. The EA takes into account the natural environment (e.g., air, water and land); human health and safety; social aspects (e.g., involuntary resettlement, indigenous peoples and cultural property); and trans-boundary and global environmental aspects. The EA considers natural and social aspects in an integrated way. OP 4.01 is triggered if a project is likely to present some risks and potential adverse environmental impacts in its area of influence. 82. OP 4.10 Indigenous People: The objective of the policy is to: (i) ensure that the development process encourages full respect of dignity, human rights and cultural features of indigenous people; (ii) ensure they do not suffer from the detrimental effects during the development process; and (iii) ensure indigenous people reap economic and social advantages compatible with their culture. 83. The Government of Kenya s institutional capacity to implement and monitor environmental and social safeguards is reasonably high. According to Kenyan Environmental laws, specific investment activities require EIAs. However, there are no clear EIA requirements for those activities of a smaller scale, which might have negative localized impacts that would require appropriate mitigation, and capacity to monitor low-impact projects is limited. This is the reason why this project will use the environmental and social screening process outlined in the ESMF.In order to ensure proper implementation of environmental and social screening, and mitigation measures, as well as effective project management, the KYEP will undertake an intensive program of environmental training and institutional capacity building. The objective of the training under the ESMF is to: Support representatives and leaders of community groups and associations to prioritize their needs, and to identify, prepare, implement and manage the environmental and social aspects of their sub-projects; Support local NGOs and other service providers to act as extension teams to provide technical support; and Ensure that local government officials have the capacity to assist communities in preparing their sub-project proposals, and to appraise, approve and supervise implementation of sub-projects. 84. Consultation on the Environmental and Social Management Framework. A consultation on the draft ESMF was held prior to Project appraisal with implementing agencies. 24

33 85. Date of disclosure in InfoShop and cooperating country. The draft ESMF was disclosed in the InfoShop and in publicly accessible locations in Kenya on January 13, G. Policy Exceptions and Readiness 86. The Project does not require any exceptions from IDA s policies. The Project meets the Africa regional criteria for readiness. The PCU in the OPM has already been established and the key members already identified. The MoYAS Coordinator has been assigned. The KYEP Department in KEPSA will be on board before Credit Effectiveness. Key procurement packages are under preparations and the implementation plans for all components are ready. 25

34

35 Annex 1A: Country and Sector or Program Background KENYA: Kenya Youth Empowerment Project I. ECONOMIC DEVELOPMENT, POVERTY AND FOOD INSECURITY 1. Economic growth has picked up since 2003, but slowed down in 2008, mainly due to the economic crisis and political upheaval. Kenya experienced modest growth since its independence in the 1960s (averaging over 2 percent per capita) and the 1970s (averaging 3 percent). During the 1980s the average growth slowed to 0.4 percent and the economy shrank in the 1990s. 11 In the early 2000 growth started to increase and real GDP rose from 2.9 percent in 2003 to 7.1 in However, as a result of global economic shocks and domestic political upheaval, economic growth fell to 1.7 percent in 2008 and reached approximately 2.5 percent in The level of headline inflation reached 26 percent in 2008 largely as a result of high food prices, and remains a key issue of concern (see Table 1). According to a recent study (KPIA 2009) together with rapid population growth, income per capita by 2000 (in purchasing power parity terms) had fallen to levels registered at the end of the 1970s. Table 1: Selected Economic Indicators, Real GDP growth % CPI (Inflation) % Revenue and grants as % of GDP Expenditure as % of GDP Budget deficit as % of GDP Total public debt as % of GDP Source: Government of Kenya, 09/10 Budget Speech Annex. 2. Poverty in Kenya is widespread and varies by region. Despite the resumption of economic growth in the early 2000s, the recent household survey (KIHBS 2005/06) shows that 46 percent of the population lives in poverty. This indicates a decline in poverty rates from 50.8 in However, looking at the overall trend since 1982, there appears to have been very little improvement in poverty incidence over the past 25 years (see Figure 1). In addition, any improvements in poverty rates have been affected by the violence after the December 2007 elections, together with the recent fuel, financial and food crisis. Poverty also varies between rural and urban areas and by region. Almost half of the population in rural areas lives in poverty, compared to less than 34 percent in urban areas. Also, poverty levels vary widely by region (see Figure 2) and district; from 93 percent in Turkana to 12 percent in Kajiado. 11 Kenya Poverty and Inequality Assessment (KPIA) and World Bank (2009). 26

36 Figure 1: Trend in Official Estimates of Poverty Incidence, National Rural Urban Poverty Incidence (in per adult equivalent terms) Source: KNBS (2007), Mukui (1994) and Mistiaen (2008). Figure 2: Population and Poverty by Province, Headcount rate (percent) N. Eastern 4.9 Western 13.9 Eastern 17.7 Coast 11.7 Central 8.1 Nyanza 14.2 Nairobi 3.7 Rift Valley Distribution of population (percent) Source: Staff estimates based on KIHBS. Note: Size of bubble represents province s share of total poverty. 3. Despite registered growth, average welfare gains have been very concentrated and inequality remains high, especially in rural areas. Kenya remains a highly unequal society and recent data indicates a growing inequality. Kenya s Gini coefficient (for adult expenditure per household equivalent) is 45.2, higher than Ethiopia (30) and Malawi (39). In addition, average expenditure of the bottom rural decile is 8 percent of the top rural decile, compared to 5 percent in urban areas. Figure 3 also indicates the unequal gains per capita consumption between 12 Comparisons of these official estimates are beset by a number of underlying household survey data and measurement issues (Mistiaen 2009). 27

37 1997 and 2005/6. The poorest quintile actually lost out in absolute terms, while gains for the second and third bottom quintile were only about 10 percent. Figure 3: Unequal Gains in Per Capita Consumption, /6 Source: World Bank (2009). 4. High food prices result in increasing challenges, especially facing the country s poor and the importance of supporting vulnerable groups is a growing concern. According to a recent report, 13 high food prices persist throughout the country with an average price of maize at percent above normal. Given that over 70 percent of the population in Kenya is net buyers of maize, this price rise has resulted in an increasing number of food insecure households. Due to the increased food insecurity, the number of vulnerable people in Kenya has risen significantly and the GoK has recognized the importance of providing support to these groups. II. YOUTH AS A VULNERABLE GROUP 5. Poverty has a predominantly young face in Kenya and youth represent a growing share of the total population. Half the population is aged less than 20 years, and they account for two thirds of the poor in Kenya. Young people (15-29) represent almost one third of the Kenyan population, reaching around 11 million in 2006 (compared to 8.5 million in 1999). Recent analysis shows that unemployment among youth is correlated with household poverty. The incidence of poverty rises from 46 percent among all households to 55 percent for households with at least one unemployed youth Unemployment among youth is double the adult average and varies significantly by region. Unemployment rates among youth are double the adult average at about 21 percent (see Figure 4). Compared to adults, youth fare the worst in Western and Nyanza Provinces, where the youth unemployment rates are about triple the adult rate respectively. Unemployment among young females is a serious concern, with three quarters of unemployed women being youth. 13 The 2009 Long Rain Season Assessment Report, Kenya Food Security Steering Group (KFSSG), KPIA (2009). 28

38 percent of active in cohort Figure 4: Unemployment Rates by Province (Youth vs. Adult) North Eastern Source: KPIA (2009). Nairobi Coastal Rift Valley Western Central Eastern Nyanza Youth province Adult Youth National Average Adult National Average 7. The roadblocks facing youth in their transition to work can be summarized in three areas: Leaving school and starting to work very early. Despite the impressive gains in primary school enrolment over the last 10 years, in 2005 about 561,000 children between the ages of 10 and 14 years were not in school while an additional 370,000 were already working. The incidence of out-of-school and early work is higher in rural areas, among girls and in slum communities. The share of youth (15-29 years old) in schools in the slums is estimated to be around 25 percent, compared to an aggregate 31 percent in Kenya. 15 Poverty and cost of schooling explain in part these patterns, but low perceived quality and returns to education are also important determinants of early school dropout in Kenya. Difficulty in entering the labor market or starting own work. The unemployment incidence among youth is very high, two to three times the adult unemployment rate. Among males in Nairobi, this ratio is estimated around For all education groups, the unemployment rate among youth is higher than that among adults, while for youth having more education is not always equivalent to a smooth transition to employment. The unemployment rate is high for those with higher educational attainment as they enter the labor market; however, this unemployment rate falls sharply with age (see Figure 5). 15 The estimates from the slum communities is based on the Nairobi Informal Settlement Survey (2004) conducted by APHRC in Viwandani and Korgocho. 29

39 Figure 5: Unemployment Rate and Educational Attainment in Kenya Secondary Primary University Unemployment Rate Age Source: KIHBS (2005). Limited mobility and upward progression in the job market. Most young males and females in Kenya cannot afford to be unemployed or jobless. They have to work to earn their living and support their families. However, starting in low paying low productivity work does not provide young people in Kenya with the experience and the skills needed to progress. Only a third of employed youth (age years) are found in paid employment and the majority is either involved in unpaid family work or selfemployment. Important market segmentation is evident in the labor market. There is very limited job flow, and young people from the slum communities are unlikely to be found working outside their neighborhoods. Young females are subject to further constraints, as only 20 percent of young women working are found in paid employment, while the estimated gender wage gap is about 40 percent. 8. The social and economic costs of the failure to include young people in Kenya s development are vast. These costs are borne directly by young people themselves, in the guise of diminished health, well-being and income. However, they also profoundly affect the wellbeing of society as a whole. The economic and social exclusion of young people precludes them from contributing productively to society. Evidence from recent analytical work 16 shows that lack of action on the challenges that affect youth will escalate both the social and economic costs of development in Kenya. Further, youth unemployment is a major contributor to frustration and tension in the country, especially in urban areas. 17 The situation has become even worse due to the crisis that erupted after the disputed December 2007 elections, where the youth were substantially involved in the unrest and violence. Youth is being recognized by both the GoK and Development Partners as a high priority target group for addressing some of the major challenges of the country. In summary, while the demographic transition and changes in patterns of growth underline the long-term need for a strategy to invest in young people, political and security development following the latest elections in Kenya have put the issue of youth unemployment and idleness at the center of immediate policy concern. III. GOVERNMENT STRATEGY 9. The Government of Kenya (GoK) has embarked on various programs supporting vulnerable groups, and the development of a comprehensive social protection strategy is underway. In response to the risk of drought, there is a national drought contingency fund and a 16 Youth and Development in Kenya (World Bank 2005). 17 Kenya Country Social Analysis (World Bank 2007). 30

40 pilot cash transfer program for the chronically food insecure in the arid and semi-arid regions (Hunger Safety Net Program). The GoK is also expanding initiatives to directly support households caring for orphans, vulnerable children and the elderly, through the provision of cash transfers. A pilot cash transfer program for food insecure households in urban areas is also being developed. A social protection secretariat has been created in the Ministry of Gender, Children and Social Development (MGCSD). This Ministry has led the process of developing a social protection policy that is now awaiting cabinet approval. 10. The importance of youth-focused initiatives has been recognized and a youth policy has been developed. In 2005 the Ministry of Youth Affairs and Sports (MoYAS) was created to be the overall agency responsible for coordinating youth issues, developing policies that enhance youth affairs, and coordinating operational interventions targeting youth. The subsequent year MoYAS (in collaboration with a wide array of stakeholders) developed the National Youth Policy (NYP). The policy spells out the strategic areas that must be addressed in order for Kenya's young people to effectively play their role in nation building. These areas, as stated in the policy, are: employment creation; health; education and training; sports and recreation; the environment; the arts and culture; the media and participation; and empowerment. Comprehensive and multi-sectoral programs aimed at supporting youth initiatives are, therefore, seen as essential for national development. 11. Comprehensive and multi-sectoral programs aimed at supporting youth initiatives are, therefore, seen as essential for national development. The policy is consistent with the country s national laws and development priorities. The key principles that underlie the policy are: (i) respect of cultural belief systems and ethical values; (ii) equity and accessibility; (iii) gender inclusiveness; (iv) good governance; and (v) mainstreaming youth issues. 12. The overall goal of the policy is to promote youth participation in the democratic processes as well as in community and civic affairs, and to ensure that youth programs involve them and are youth-centered. 13. The objectives of the policy are: (a) Sensitize national policy-makers on the need to identify and mainstream youth issues in national development; (b) Emphasize, support and partner with positive and effective initiatives and programs set up by associations and non-profits groups that help the youth to fulfill their expectations and meet their needs; (c) Create proper conditions for the youth to empower themselves and exploit their potential; (d) Identify ways of empowering the youth; (e) Promote a culture of volunteerism among the youth; (f) Explore and suggest ways of engaging the youth in the process of economic development; (g) Identify constraints that hinder the Kenyan youth from realizing their potential; (h) Propose ways of mentoring the youth to be just and morally upright citizens; and (i) Promote honest hard work and productivity among the youth. 14. The Kenya Youth Empowerment Project, as evident from the above presentation, comes to support the core of the objectives of the National Youth Policy. It helps develop a major tool to empower youth by tackling their number one strategic area, employment. 31

41 Annex 1B - Governance and Accountability Matrix KENYA: Kenya Youth Empowerment Project 1. Similar to other projects in Kenya, the Project will face challenges related to governance and accountability issues. The following matrix is an attempt to summarize/highlight some of these issues in a structured and transparent format and provide a platform for systematic and strategic work on these issues. Principle: Key Mechanism: Methods/Activities: 1.1 Targeting Clearly defined targeting criteria will be developed for KYEP using the following: (i) Categorical targeting: (a) only youth aged between 18 and 35 will be recruited for participation in KKV projects; and (b) only out-of-school and unemployed youth between 15 and 29 with at least 8 years of schooling will be eligible for the component on training and internships. (ii) Self-targeting: the policy of paying a low compensation level will remain in force on all KKV projects and clearly specified in the Operations Manual (OM). Similarly the compensation for participants in the internship/training component will be relatively low and clearly defined in the OM for KEPSA. (iii) Geographical targeting: clearly defined criteria for targeting of districts with high youth unemployment numbers, based on the KIHBS. (iv) Selection of projects: projects will be screened and selected using clear eligibility criteria specified in the OM. 1. Results/ Efficiency 1.2 Monitoring & Evaluation (i) Quarterly Project Management Reports that include M&E compliance will be prepared by the Project Coordination Unit (PCU) in the Office of the Prime Minster (OPM). (ii) M&E tools will be developed to ensure that progress is regularly measured against stated objectives, outputs, and outcomes to inform Project Management decision-making during implementation. The M&E coordinator in the PCU is responsible for the effective implementation of the M&E system. (iii) Management Information Systems (MIS) will be developed in OPM and KEPSA. (iv) An impact evaluation will be carried out both for component 1 and 2 of KYEP to assess its impact on employment. As a management tool, component 2 will include beneficiary assessments for each internship cycle highlighting implementation issues and assessing employer and intern satisfaction with project outcomes. 2. Accountability 1.3 Communication 2.1 Institutional Assessment and Human Resources 2.2 Financial Management (FM) (i) The KKV web-site ( and the website of MoYAS ( ) and KEPSA ( will be updated on a regular basis and other media will be used to transmit project objectives and results to stakeholders. (ii) The PCU will inform implementing line ministries and agencies on project performance and measures for enhancement. (iii) Projects will be asked to post signs at the project locations indicating total funding, number of jobs to be created, benefit level, etc. (iv) Communication activities will be supported through component 3, including distribution of project flyers for both component 1 and 2. (i) A capacity assessment will be undertaken and training foreseen at the PCU level and at the focal points of implementing ministries and agencies. Support will also be provided to KEPSA and MoYAS. (ii) Mechanisms will be put in place to handle complaints and appeals in a timely manner. (i) A financial management (FM) action plan was developed, including risk rating and measures put in place to reduce these risks. Additional FM support will be provided through the Project. (ii) Annual internal and external audits will be carried out. Audits will be required for each fiscal year. Audit reports will be issued within 6 months of the end of the fiscal year for which the reports have been audited and include a management letter outlining matters that have arisen during the audit. 32

42 Principle: Key Mechanism: Methods/Activities: 2.3 Procurement (i) Clear procurement rules will be used for the Project and procurement procedures are specified in the OM (for KKV and KEPSA). Most of the KKV works will be carried out using either force account, labor contracts or community contracts of a limited amount. (ii) Yearly technical audits including verification of procurement rules will be carried out. (iii) Procurement rules will be presented on the KKV, MoYAS and KEPSA websites. 2.4 Reporting, Format and Procedures (i) The PCU will produce a consolidated quarterly status report related to progress on governance issues. This will be part of the Quarterly Project Management Reports and will summarize status of compliance with this matrix. (ii) MoYAS and KEPSA will also prepare quarterly progress reports for KYEP activities. 3. Transparency 4. Participation 3.1 Documentation 3.2 Information Dissemination & Communications 3.3 Complaints Mechanisms 4.1 Consultation Process 4.2 Decision- Making 4.3 Social Accountability Funds Allocation for component 1 (i) A detailed updated KKV OM has been prepared and will be updated every year (or every two years) based on lessons learned. (ii) A detailed OM was also prepared for component 2. (ii) Flyers will be developed and distributed, including project information, objectives and rules, for component 1 and 2. (i) Awareness sessions on KKV to promote understanding of the Project have been conducted at the provincial level and selected districts. This activity will continue under KYEP. They are carried out in conjunction with implementing ministries/agencies. (ii) KKV web-site, MoYAS and KEPSA will use other media channels to disseminate Project information. (i) A clear processes for how to handle complaints for both component 1 and 2 will be developed and included in respective OM. (i) Communities will be involved in all stages of KKV projects. This consultation already started during Project preparation. (i) Youth groups participating in KKV projects will be consulted on a regular basis. Social audits conducted with youth participation will provide beneficiary input to decision-making for component 2. (i) Social audits will be introduced on a sample of KKV and KEPSA activities. If shown efficient and effective, such audits could be expanded further. 2. To create clear transparency of the funds allocation to the different line ministries, as well as allocation per district, an agreement has been agreed with the OPM on the funds allocation for component one s sub-projects for the first year of implementation. The project will finance subprojects in one cluster of districts in each province. This cluster of districts was reached using the highest number of unemployed youth across districts (using the old district boundary system and the 2005 household survey data). The funds will be equally allocated to these districts. During the course of the year, the Association team will discuss and agree with the GoK on policies for funds allocations for the following years. Table 1 below includes the list of districts where sub-projects will be financed during the first year. 3. The list of participating ministries in the first year of the KYEP was developed and confirmed during appraisal. Criteria used for the selection were: a) capacity to implement laborintensive works based on phase I experience; b) the priority and impact of their projects on the economic and social development of the benefiting communities; and c) capacity to create jobs in promising areas (green jobs). Table 2 below presents the allocations for each of the six line ministries to participate in the implementation of the component in year one of the project. The estimated average KKV funding per sub-project is K.Shs. 2.5 million (around US$ 33,000 equivalent). These numbers represent the minimum number of projects to be implemented in the first year. 33

43 Table 1 KKV Districts to be supported Year 1 Province Nairobi Coast Rift Valley Eastern Central North Eastern Nyanza Western District Nairobi Mombasa Nakuru Machakos Kiambu Wajir Migori Kakamega Implementing Ministry Table 2 - Fund allocation Component 1 Year 1 % of budget of 1 st Year In K.Shs In US$ (approx.) Sub-projects MoWI 25.0% 150,000,000 2,000, MoRDA 12.5% 75,000,000 1,000, MoR 25.0% 150,000,000 2,000, MoFW 12.5% 75,000,000 1,000, MEMR 12.5% 75,000,000 1,000, MoLG 12.5% 75,000,000 1,000, Average number of projects per year 240 Total number of benefiting districts per year 8 Average number of projects per year per district 30 MoWI = Ministry of Water and Irrigation, MoRDA = Ministry of Regional Development Authorities, MoR = Ministry of Roads, MoFW = Ministry of Forestry and Wildlife, MEMR = Ministry of Environment and Mineral Resources, MoLG = Ministry of Local Government. 34

44 Annex 1C - An overview of the Kazi Kwa Vijana (KKV) program KENYA: Kenya Youth Empowerment Project 1. The KKV program was launched in April 2009 and important lessons have been learned from the experience of the KKV to date. This annex intends to provide an overview of the KKV program and lessons learned to date. The findings are based on an ILO supported study (Assessment of a sample of representative KKV projects, Eng. W.N Omari, December, 2009) undertaken last year. Objective of the KKV 2. The KKV program intended to help meet twin critical needs, namely: (a) providing relief to the people at risk through gainful employment; and (b) contributing to increasing food production, particularly through better utilization of our water resources. The KKV also aimed to employ 200, ,000 Kenyans, primarily youths, who are at risk of hunger and starvation to enable them to earn income, to buy food and other basic items and to support their families. Implementation Period 3. The KKV projects were intended to be implemented in three phases from April through September, Phase I was principally supposed to cover water, irrigation, and forestry projects, to be executed by the Ministries of Water and Irrigation, and Forestry. These projects were to create about 60,000 jobs over the course of 6 months. Rehabilitation and construction of water pans, dams, water kiosks, irrigation canals and tree nurseries and forestation programs were to be amongst the projects under this phase. 4. Phase II was principally supposed to cover projects by the Ministries of Roads, Local Governments and Regional Development. In addition to new projects, ongoing projects were to be modified to increase their labor intensity, and, in addition, expanded to include new small scale projects. These projects were to be rolled out on 1 st of April Rehabilitation and management of public toilets and water kiosks in the urban centers; construction of foot paths and small bridges; repair of pavement and pathways were amongst the projects to be implemented. 5. Phase III projects were supposed to target employment of female youth. Such femaleoriented projects included care givers for HIV/AIDS victims and orphans. The projects for Phase III were to be rolled out on 1 st May However, due to delays in disbursing funds from Treasury to the implementing ministries and to the local implementing units, coupled with budgetary constraints, only some of the projects in Phase I and Phase II were carried out. None of the Phase III projects have commenced. Program Budget 7. The projected overall budget for the KKV projects was K.Shs. 15 billion (around US$ 197 million equivalent) over the six month period. K.Shs. 10 billion (around US$ 132 million equivalent) was to be funded directly from the GoK s own resources while the balance of K.Shs. 5 billion (around US$ 66 million equivalent) was to be sourced from Development Partners. However due to budgetary constraints these targets were not met and in FY 08/09 the GoK 35

45 contributed K.Shs. 2.8 Billion (around US$ 37 million equivalent) to the KKV Program and in FY 2009/10, already K.Shs. 3.3 Billion (around US$ 43 million equivalent) have been released. KKV Funds Allocation 8. In the initial stages of the KKV, line Ministries selected projects which were then presented to the National Management Committee for prioritization and approval. The first batch of approved projects is presented in KKV Implementation Work Plan for Phase 1, March- August 2009 (Annex I of the KKV Manual). The KKV funds were then to be allocated accordingly to respective line Ministries based on the approved work plan. After completion of the first batch of projects line ministries were to access exchequer funds for additional KKV projects on a first come first served basis subject to approval by the National Management Committee. However, due to budgetary constraints and delayed startups this system of funds allocation was not followed and as a result funds to individual projects were allocated based on the following criteria: a) Number of jobs to be created; and b) Impact on enhanced agricultural food production KKV Management Structure 9. Two national committees, two management committees at the provincial and district levels and individual project committees constitute the management structure for the KKV Program. National Steering Committee 10. The KKV program is implemented under the overall supervision and guidance of the National Steering Committee chaired by the Prime Minister and comprising Ministers and Permanent Secretaries of Ministries with KKV projects. The National Steering Committee provides all policy direction on the KKV Program. National Management Committee (Committee of Deputies) 11. Reporting to National Steering Committee, the National Management Committee coordinates the KKV activities at the national level and makes appropriate recommendations to the steering committee for consideration and approval. The National Steering Committee is chaired by the Office of the Prime Minister s Strategy and Delivery Unit and comprises senior officers nominated by Ministries with KKV projects. The National Management Committee ensures cross-sectoral coordination of KKV Projects so as to reduce and eliminate potential conflicts and duplication. Provincial Management Committee 12. Reporting to the National Management Committee, the Provincial Management Committees is chaired by Provincial Commissioners and comprises of the Provincial Heads of the Ministries with KKV projects. The Provincial Management Committee coordinates the KKV projects at the provincial level. 36

46 District Management Committee 13. Reporting to the Provincial Management Committee, the District Management Committee is chaired by the District Commissioner and members comprise the District Heads of the Ministries with KKV projects and Members of Parliament. They coordinate KKV activities at the District levels. Project Management Committee 14. Reporting to the District Management Committee, the Project Management Committee is chaired by the Project Coordinator appointed by the line Ministry responsible for the particular project and comprises technicians from, and representatives of other concerned Line Ministries, community and local youth leaders. Eligibility Criteria for KKV Projects 15. For a project being proposed by a Line Ministry to qualify for funding under the KKV Program, it must meet the criteria set below. Engagement of youths in KKV projects must also comply with the conditions set out below. 16. The identified Projects, which are to be based at the community level, should at least be able to generate a minimum of 50 jobs. For engagement, the prospective employees should: a) Fall within the age bracket of years. b) Live within a radius of 5 km radius from where the project is being undertaken. Note: (i) Gender equity must be taken into consideration during recruitment (ii) Where possible, orphans and persons with disabilities should be given priority. 37

47 Achievements of the KKV Program (by mid Sep 2009) GoK Funds Disbursements 17. The GoK contribution to the KKV Program as at September 2009 was K.Shs. 2.8 Billion (around US$ 37 million equivalent). The funds were distributed to the implementing ministries on a first come first served basis. The funds were allocated to the implementing agencies as shown in the chart below. KKV Funds Distribution and Expenditure By Ministry 900,000, ,000, ,000, ,000,000 Amount (KES) 500,000, ,000, ,000, ,000, ,000,000 0 OPM MOF OOP MPND&V2030 ME&MR MW&I MoR MF&W MoLG MoYAS MoRDA Implementing Ministry Allocation by Treasury Amount Received by Exchequer Expenditure to Date 38

48 Employment Creation 18. The GoK made good progress in employment creation with the actual employment achieving 112% of the planned target. Initial plan targeted a total of 232,911 youths but by mid-september, 2009 a total of 296,080 youths had been employed under the KKV Program. KKV YOUTH EMPLOYMENT SUMMARY BY MINISTRY 180, , ,000 Number of Youth Employment 120, ,000 80,000 60,000 40,000 20,000 - OPM MOF OOP MPND&V2030 ME&MR MW&I MoR MF&W MoLG MoYAS MoRDA Implementing Ministry Project No. Employed Actual No. Employed 39

49 Assessment of KKV projects 19. The following broad findings were derived from an independent assessment carried out by the ILO on a sample of KKV representative projects: a) KKV made commendable progress in youth employment creation by achieving 112% of the planned target. The initial work plan targeted an employment of a total of 232,911 youths but by mid-september, 2009 a total of 296,080 youths had been directly employed under the program. b) KKV appears to be a viable method of completing stalled projects or rehabilitating existing ones which require only small inputs of construction materials and labor. It is a good vehicle for contributing to the attainment of MDGs and Vision c) While the OPM made country wide efforts to sensitize stakeholders, it is apparent that in some regions some stakeholders were not properly sensitized on the objective of KKV thus resulting in wrong perceptions and unreasonably high expectations among the youth. d) The KKV Initiative, in keeping with its primary objective, provided funding targeting employment creation. The first phase of KKV which was a rapid response to a crisis situation largely targeted unskilled labor thus leaving out a substantial number of youth who have completed tertiary level education and therefore possess some vocational skills. e) While HIV/AIDS awareness creation was not included as a project objective in the first phase of the KKV Program, some implementing agencies such as the Lake Basin Development Authority (LBDA) innovatively incorporated HIV/AIDS awareness campaigns in their projects. f) Delayed requisitions for KKV funds by Implementing Agencies resulted in erratic disbursement of funds to implementing agencies. This coupled with the low funds absorption capacity in some implementing agencies and the anxiety created in the large population of unemployed youth, in some cases resulted in situations where funds were not put to the best use and implementing agency staff were hassled into paying for work that was not prioritized and could not be validated. g) The roads sector already receives a substantial budget allocation but with water and food security issues being critical particularly in the light of the prevailing climatic changes in the region the focus now should be to the water sector and agriculture related interventions to enhance food production. h) Due to varying conditions (traffic volumes, terrain, soils/geologic types, rainfall patterns and land use patterns) particular attention is needed to address specific needs including choice of technology, work methods and work scheduling in order to achieve quality products and maximize benefits to the stakeholders. i) The majority of the rural communities are more receptive to water projects than roads because access to clean water impacts immediately and positively contributes to improved health and agricultural productivity while the benefits from minor road improvements take time to trickle down to the community. j) The cost of creating one person-day tends to equal the actual wage rate when the Labor Intensity of a project is 70%. k) In some cases KKV funds were used to finance routine maintenance operations on projects that are not on regular maintenance programs. 40

50 20. On the basis of the findings, the following recommendations were made and taken into consideration of component 1 of the KYEP: a) All projects must be subjected to prior technical appraisal to determine viability and assess sustainability. The Lake Basin Development Authority (LBDA) and Kenya Forestry Service (KFS) both developed Integrated KKV Project Proposals that outline clearly the proposed projects, implementation cost estimates, expected outcomes and timelines. Priority should be given to sustainable projects with positive and verifiable community wide impacts. b) Capacity building efforts targeting Water Service Providers (WSPs) and Regional Development Authorities (RDAs). These agencies are directly involved in water resources management for drinking and irrigation purposes and are largely understaffed due to low operating budgets. The Agencies should establish dedicated in-house units to manage KKV projects. Where the WSPs and RDAs have insufficient technical capacity, outsourcing of design and construction supervision assignments to local consultants with a skills transfer/vocational training component for the local youths is recommended. c) Allow a budget provision for appropriate hand tools, equipment, construction materials and supervision facilities. d) Set up a permanent secretariat with qualified technocrats and project managers. The secretariat could be made up of a lean team of multi-sectoral experts to efficiently coordinate the program implementation. The LBDA and Athi Water Sector Board (AWSB) set up dedicated KKV Coordination Units and their performance has been good. e) Conduct HIV/AIDS awareness campaigns among the youth who also happen to be the most sexually active group in society. KKV presents a perfect entry point to address HIV/AIDS related issues. f) Target funding to rehabilitation of existing and/or completion of stalled or neglected, community water supply and irrigation schemes. A majority of these projects have the potential to create positive impacts on access to clean drinking water for the rural poor as well as improved food security and increased incomes through irrigation based food production. g) The beneficiary communities should be involved in all stages of project identification, prioritization, planning, implementation and maintenance. Active participation of the beneficiaries in project planning, implementation and operation enhances the sense of ownership and ensures sustainability. The South West Kano Irrigation Project (SWKIP) undertaken by LBDA is a good example. h) Develop supportive Policy Documents to encourage the use of labor intensive methods across all sectors, wherever feasible and to set minimum labor intensity standards for infrastructure development projects. There should be clear directions to guide practitioners on the choice of technology and minimum labor intensities for each sector/sub-sector. For example to use the Force-Account approach for projects with large materials component ( 35%) and to use Labor Contracts for projects with a large labor component ( 50%). i) The KKV Projects should incorporate relevant training and skills transfer components to engage the large number of youths that have graduated from middle level and tertiary colleges in order to improve their skills and enhance their potential for self-employment. j) The KKV Program Manual should be revised to include clear reporting procedures complete with standard formats for each sub-sector based on the selected tools for Monitoring and Evaluation. 41

51 k) All KKV project planning should be based on an integrated development approach with firm cross linkages with all interrelated sub-sectors to avoid duplication. All funding to integrated projects should be closely monitored to avoid wastage. The KFS which has the expertise in large scale tree planting and forestation activities should provide leadership in all tree planting projects such as the Trees For Jobs project under MOYAS to ensure long-term sustainability. l) KKV funding for routine maintenance operations should target only those projects that are on regular annual maintenance programs. 42

52 Annex 2: Major Related Projects Financed by the Bank and/or Other Agencies KENYA: Kenya Youth Empowerment Project Financier Under Preparation IDA IDA DfID ILO (YEN) Project Slum Upgrading Project. The overall program development objective is to improve living conditions in slums in selected cities in Kenya, by improving security of tenure and investing in infrastructure based on plans developed in consultation with the community. Solid Waste Management Project. The Project Development Objective is to improve solid waste management practices in Kenya for maximum environmental and economic benefits while minimizing the potential increases in the cost of managing solid waste. Market for the Poor (M4P). This project will support a new market development program in Kenya. The goal of the program is to reduce poverty in Kenya. Its purpose is to improve the performance of market systems that are important for poor people in the country. In doing so, the program will expand the economic opportunities of disadvantaged target groups and their capacity to respond to those opportunities. Youth Entrepreneurship Facility Unleashing African Entrepreneurship The Facility will develop local partnerships to deliver support directly to young entrepreneurs, while also capitalizing on existing and planned entrepreneurship and business development programs to ensure youth are central parts of these. At the level of the enterprise, individual and group based, employment opportunities will be created by exploiting business opportunities in high growth sectors such as energy, tourism and environment, and credit will be provided to young entrepreneurs, and grants to youth-led organizations, as to help them turn their ideas into reality. Special efforts will be made to enable young women to access growth sectors. Implementation Progress* N/A N/A N/A N/A Development Objective* N/A N/A N/A N/A 43

53 Financier Under Preparation USAID Ongoing Projects IDA IDA Project The USAID will be starting a youth focused intervention; Yes, Youth Can in The total budget is US$45 million over three years; The program will operate nationally in six of the eight provinces and will focus on districts that witnessed post election violence in late Seventy percent of the program resources will focus on areas related to youth livelihood, while the rest will support democracy and governance aspects as well as a small support to policy level areas. Under the former, the project will support training, micro finance institutions, and a youth innovation for change fund. Under the democracy and governance part, the project will support activities aimed towards increasing civic participation and conflict mitigation. The project is expected to be implemented through a number of NGOs and/or private firms. Micro, Small, and Medium Enterprise Competitiveness Project. The Project aims to increase productivity and employment in participating MSMEs. This objective will be achieved by strengthening financial and nonfinancial markets to meet the demand of MSMEs, strengthening institutional support for employable skills and business management, and reducing critical investment climate constraints on MSMEs. Water and Sanitation Service Improvement Project. The Development Objectives of the Project are to: (a) increase access to reliable, affordable and sustainable water supply and sanitation services; and (b) to improve the water and wastewater services. Implementation Progress* N/A Implementation Progress MS S Development Objective* N/A Development Objective MS S 44

54 Financier Under Preparation IDA GoK, UN- HABITAT and others ILO Italian Cooperation UNDP GoK and others Project A JSDF grant was given to the Kenya Community Development Foundation (KCDF). The objectives of the grant are: (1) to scale-up and replicate innovative programs for and by young people that focus on livelihood and well-being; (2) to facilitate government-civil society interface for improved development outcomes that stem from bottom-up accountability; and (3) to build the capacity of youth-serving organizations and institutions to deliver services to young people based on their own priorities. Kenya Slum Upgrading Program (KENSUP). The Project aims to provide physical, social, economic, organizational and environmental improvements as a means of enhancing the living conditions of slum dwellers. YES-JUMP: Youth Employment Support- Jobs for the Unemployed and Marginalized young People in Kenya. This will be done through skills training, updating and enhancing apprenticeship programs, technical and financial support to local job creation schemes and sustainable livelihoods and strengthening small enterprises and cooperatives. The project was launched at the end of 2009 and the target is to create 1,000 jobs. Kenya-Italy Debt for Development Program (KIDDP). The Project seeks to assist Kenya in achieving sustainable economic growth, increase employment creation and poverty alleviation, through a bottom-up, community demand-driven approach. Kenya National Youth Development and Training Program. The overall objective of the Program is to enhance the capacity of Kenya s MSEs and the youth to unlock their potential, transform selves from job seekers to job creators and make them relevant to the development of the MSE sector which promises to be an engine for economic growth. Roads 2000 Project. The Project aims to contribute towards reduction of poverty and strengthen sustainable livelihoods of the rural Implementation Progress* N/A N/A N/A N/A N/A N/A Development Objective* N/A N/A N/A N/A N/A N/A 45

55 population through improved road access. * These ratings refer to ongoing IDA projects only and are therefore N/A for IDA projects under preparation, as well as non-ida projects. The ratings used are as follows; HS=Highly Satisfactory, S=Satisfactory, MS=Moderately Satisfactory, MU=Moderately Unsatisfactory, and U=Unsatisfactory. 46

56 To support GoK efforts to increase access to youth targeted temporary employment programs and to improve youth employability. Annex 3: Results Framework and Monitoring KENYA: Kenya Youth Empowerment Project Results Framework PDO Project Outcome Indicators Use of Project Outcome Information Number of additional KKV Inform ex-post decision on KKV beneficiaries. 18. program geographical coverage and Number of additional person days geographical budget allocation. provided in KKV public works. Percentage of interns who complete the internship and are immediately employed by their internship employer or who have found employment with a new employer or are starting a business (disaggregated by gender). Percentage of interns employed or self-employed six months after internship completion (disaggregated by gender). Report to citizens on Government performance to reach the objective of improving youth employment opportunities. Assess the effectiveness of internship and training program in facilitating youth entry in labor markets. Develop rigorous evidence for youth programs Intermediate Outcomes Intermediate Outcome Indicators Use of Intermediate Outcome Monitoring Component 1: Support the GoK to reduce vulnerability of unemployed Share of female participation (as a share of total KKV participants) Assess adequacy of KKV program coverage and improve its targeting youth (18-35) by expanding the KKV coverage, enhancing innovations (female participation, training, community Percentage of total costs going to wage bills (in all KKV projects) and implementation. Monitor the scale of income involvement, payment delivery methods) and strengthening its M&E and management capacity. transfers to youth (KKV labor intensity). Percentage of participants receiving skill training 19 (as a share of additional participants only). Number of assets to be created/rehabilitated or maintained Percentage of beneficiaries 20 reporting satisfaction with newly created or rehabilitated infrastructure. Percentage of participants 21 reporting satisfaction with, or benefiting from, employment experience and training. Number of quarterly reports produced by the KKV MIS Monitor adequate progress in the implementation of innovative program enhancements Monitor quality of small infrastructure works implemented using laborintensive techniques Assess overall program operations and performance. Improve capacity to supervise and monitor public works and social services as part of the social protection strategy. 18 This indicator will be reported on in the ISR as the Core indicator Direct Project Beneficiaries (number), (% female). Information on the share of female participation is included in the first intermediate indicator. 19 All types of training including technical and life skills provided either on the job or formally provided by a training institutions. 20 Focusing on either direct or indirect beneficiaries: namely, people living in the community where the public works have been implemented. 21 Refers to KKV participants supported by component 1, not to overall KKV participants. 47

57 according to the agreed reporting standards. Intermediate Outcomes Intermediate Outcome Indicators Use of Intermediate Outcome Monitoring Component 2: Provide youth with work experience and skills through the creation of internship and relevant training in the formal and informal sector with priority given to growing industries. Number of youth participating to the internship and training program. Total number of internship weeks provided. Total number training weeks provided by third party providers. Check access and attendance of participants to internship and training provided and propose adjustment to the program if necessary. Increase training and job placement opportunities for youth Component 3: Create institutional capacity for evidence-based youth policy planning. Total number of youth completing life skills training Completion rate of internship. Number of regular monitoring reports, produced by KEPSA MIS according to the agreed reporting standards. Percentage of participants satisfied with internship and training program. Percentage of employers satisfied with internship and training program. Number of district officers in the MoYAS trained through KYEP Number of pilot on social audits finalized Number of districts covered with communication activities Action plan for the establishment of the youth council developed Assess the effectiveness of MIS systems; monitor program implementation and coverage. Assess overall program performance; use this qualitative indicator as a complement to qualitative data produced by MIS to identify potential operational problems and correct them. Track and analyze a potential entry effect to the program through changes in the composition of the pool of applicants over time (in terms of youth difference across education background, gender, sector preferences). Increase officers capacity to better fulfill their roles and responsibilities in serving the youth. Arrangements for Results Monitoring and Evaluation 1. A strong M&E system is crucial for the success of the Project as it will ensure that problems can be identified and solved as they emerge and that lessons learnt can be incorporated into project design and ultimately that project outcomes can be assessed. A good M&E system also provides management with a timely decision making tool. Two M&E systems (including two separate impact evaluations) will be developed for component 1 and 2 respectively, having the PCU in OPM responsible for the M&E activities related to the KKV program and the KYEP Department in KEPSA responsible for M&E activities related to the internship and training program. In addition, the OPM will be responsible for the overall coordination and supervision of the KYEP. The information collected will provide directions for future adjustment to the programs and components as well as promotion and presentation of the established results. 48

58 49

59 Component 1: 2. The current operations manual has a reporting template to be used for reporting by all KKV projects. It has been generally used so far, although there are projects that use a different format and have included additional indicators. The Office of the Prime Minister (OPM) currently monitors overall government programs, including the KKV progress and reports to the public on progress through the KKV website. Two sets of reports are received by OPM: (1) Sector based reports; and (2) Geographically based reports. OPM receives sector based reports from all the sector ministries. The sector ministries in turn receive these reports from their provincial, regional and/or district offices on a weekly basis. The geographically based reports are received through the Ministry of Planning (MoP): projects provide weekly reports to District Coordinators of the MoP, who then submit these reports to the National Ministry. The National Ministry consolidates these reports and provides them to OPM. While in theory the two sets of reports should be aligned when consolidated, it has been indicated by OPM that they generally do not and OPM generally uses the sector based, not the geographically based reports for its progress reporting. All reports received by OPM are aggregated/ summary reports. They are at most disaggregated on a provincial basis, or report on different activities. 3. The proposed M&E plan for component 1 will focus on the following main activities: (i) develop a new MIS system, collecting consistent data also at the project level that would include applicants basic characteristics (such as name, age, gender) for youth who show up and register, job opportunities created, number of days worked, output created/rehabilitated or maintained and social services delivered, project budget, wages paid, administrative, tools, materials and equipment costs, number of participants trained, level of labor intensity. The monitoring data for the KKV will be collected at the project level and then compiled and summarized at the district, province, and national level. Across the M&E arrangements for the project, disaggregate female and male participant data will be collected to allow further analysis and impact on female versus male youth; (ii) conduct a beneficiary assessment in selected communities in year 2 and 4 in order to collect information on the level of satisfaction with the Project, delays experienced in payments, jobs duration, participation selection criteria, preferences on the types of social services to be developed among direct KKV participants and information on satisfaction with assets created including also indirect beneficiaries (youth and non youth living in the community); (iii) social and technical audits; and (iv) an impact evaluation will be carried out to identify the impact of the KKV on youth earnings and use of KKV wages, consumption smoothing behaviors and food security and whether or not the training provided was useful in terms of employment placement after the KKV. Particular attention will be paid to heterogeneous impacts across males and females. 4. The impact evaluation study will focus on a few selected communities within 3-4 districts (to be determined) representative of either urban or rural areas. It is planned to undertake a baseline survey at the end of year 2 and a follow up survey after two months from the baseline given the actual average duration of jobs offers (1 month). A second impact evaluation (including baseline and follow-up survey 2 months later) is planned on year 4 conditional on funding. 50

60 5. If more youth apply for work than the project can offer, the required number of youth will be selected randomly from all of those who applied, taking into account that at least 30%, but preferably 50% of the selected youth should be women. Priority should be given to women from women headed households. It is the experience to date that there are generally more youth willing to work on the KKV than the program can accommodate at any one time. The impact evaluation identification strategy will then be based on oversubscription. Since the treatment and control groups will be chosen randomly through the lottery, there is no systematic reason why their consumption smoothing behavior and other outcomes should differ. We can therefore attribute any well-being gains to the KKV program and credibly estimate the project impacts on many different individual outcomes. 6. The MoP is currently responsible for the M&E of all government interventions including the KKV, while the KKV Program Coordination Unit (PCU) in the OPM is responsible for the overall coordination and supervision of the KKV program and will manage KKV MIS and regular progress reports. The PCU will work closely with all implementing and supporting sector ministries to ensure effective monitoring and evaluation and all implementing government departments or agencies have an obligation to provide reports to the PCU within the timeframes and in the format specified. Furthermore implementing departments will be expected to cooperate with the PCU and its researches when project level impact studies and evaluations are being conducted. In addition, KYEP support will be provided to PCU to retain and train staff in the OPM to manage the MIS and a field coordinator will be hired to supervise impact evaluation survey. Component 2: 7. The M&E plan for component 2 will consist of four main elements: (i) an MIS to be developed in KEPSA; (ii) a detailed beneficiary assessment to be conducted at the end of each cycle for a random sample of interns and employers; (iii) spot checks for service delivery; and (iv) an impact evaluation (more details in annex 3). 8. The MIS to be developed in KEPSA will collect data at different levels (from employers, training providers and interns) on number of internships created, number of employers offering internships, weeks of training provided, weeks of work experience provided, completion certificates etc. KEPSA will identify an M&E officer responsible for monitoring and regular quarterly reporting activities, including mid-term and final review reports. 9. The detailed beneficiary assessment conducted at the end of each internship cycle will be done for a random sample of interns and employers to collect feedback on interns satisfaction with the program and collate data on what they learnt, along with an assessment of employers satisfaction with the program and with the performance of the youth in order to improve design features accordingly. The beneficiary assessment will also serve as the source of data on future employment expectations at the time of exiting the internship program. On their last week of internship, interns will be asked whether they remain employed with current employer or they have found (and expect to find) a job with another employer or are starting a new business. Although interns knowledge of their employment prospect may be incomplete at this point, the measure will allow program managers to estimate the impact on employment immediately after program completion. 51

61 10. The M&E plans will also include spot checks by the Internal Auditor on whether training is actually taking place in training institutions and the workplace. The impact evaluation of the pilot internship and training program will follow the cohort of youth and begin with the second cycle of the program and will estimate the short term causal impacts of the program on labor market outcomes (type of employment, wage), educational attainment, risky behaviors and enrollment in governmental and non-governmental organizations providing seed grants for selfemployment (such as the Youth Enterprise Development Fund). In addition, the evaluation will identify the impact in the formal and informal sectors and assess in which sector the program is more effective in terms of outcomes of interest. 11. Given the expected over-subscription to the internship program and the selection bias that employers introduce being part of the internship assignment process, the experimental evaluation design will depart from perfect randomization. Specifically, a randomized selection procedure will be used to choose a treatment group among the pool of eligible applicants. This group will receive 2 weeks of life skills training and will be considered for internships. A second group will be randomly selected from the eligible applicants to serve as control group for the impact evaluation analysis. Employers will be involved in assigning available internships to randomly selected applicants based on interviews, applicants sector preferences, and education and work experience background. To ensure that employers are given a choice among intern candidates and to promote incentives for good performance among intern candidates, the number of candidates randomly selected for the life skills training (treatment group) will exceed the number of internship positions by 50%. 12. Since not all eligible applicants who are randomly selected to participate in the life skills training will ultimately participate in the internship program, but only those selected by employers (partial compliance), this will introduce bias into the random experimental design. As such, the identification strategy of the evaluation will rely on an instrumental variable approach for measuring program impacts on employment. For instance, the randomized selection procedure will be used as an instrument to estimate the average treatment effects on the treated (those applicants who are randomly selected to receive life skills and endogenously selected by employers to participate to the internships program). 13. Specifically, a stratified random sample will be used (when selecting applicants to participate to the life-skills training) in order to adjust the evaluation design to program design features and in order to prevent imbalances between treatment and control groups. To meet the cap on tertiary educated youth mentioned in the description above, accommodate youth years of age who cannot work legally in the formal sector, and ensure a balanced gender representation, stratification will be done by age, gender and education (variables for which subgroup analysis is desired/required but also strongly related to outcomes of interest), with a total of 6 strata. 14. Due to the desire expressed by employers to be involved in the intern selection and the selection bias they are going to introduce, the impact evaluation will not be able to identify which type of training (on the job versus third party provider) or combination of training offers the highest returns. However, the analysis will analyze variations in program impacts according 52

62 to initial characteristics. In particular, several heterogeneity effects will be analyzed according to applicants initial characteristics with a focus on education level, gender, sub-sector preferences and according to initial characteristics in employers training plans. For instance, heterogeneity analysis will be done to compare results under different combinations of training (on-the-job, third party providers either in the workplace or in a school or workshop settings). 15. The baseline survey will be conducted at the time youth apply to the second cycle of the program. An additional module will be added to the application form including personal and demographic characteristics. One follow-up survey is planned 6 months from internship completion. A survey firm will be engaged to develop a database structure for data entry, and input surveys (both baseline and follow-up). The application/baseline questionnaire will include information on gender, age, educational background, contact information for tracking purposes (cell phone and address), and internship sector preferences. Additional modules will be added to the application form including personal and demographic characteristics: marital status, whether or not they have already participated to other training or internship programs, whether they applied to previous program cycles - if yes, whether or not they were randomly selected into the interview process - household composition and education background, health status and risky behaviors in terms of drug and alcohol consumption, unintended pregnancies, aggressive behaviors etc. Component 3: 16. Given the nature of the activities to be undertaken under this component it is proposed that the PU coordinator in MoYAS is responsible for the preparation and submission of quarterly progress reports to the OPM, including the number of youth officers trained, progress made on piloting social audits, communication activities undertaken and technical support provided to the National Youth Council and relevant policy areas. The MoYAS will also use their website to publish relevant data on progress made on component 3. 53

63 Arrangements for results monitoring Target Values Data Collection and Reporting Project Outcome Indicators Baseline YR1 YR2 YR3 YR4 Frequency of reporting Data Collection Instruments Number of additional KKV 0 38, , ,000 at least Quarterly MIS beneficiaries (cumulative) (Direct 190,000 Project Beneficiaries (number). Number of additional person days provided in KKV public works (cumulative). Percentage of interns who complete the internship and are immediately employed by their internship employer or who have found employment with a new employer or are starting a business (disaggregated by gender). Percentage of interns employed or self-employed six months after internship completion (disaggregated by gender) Intermediate Outcome Indicators Component 1: Share of female participation (as a share of total KKV participants) (Direct Beneficiaries (% female). Percentage of total costs going to wage bills (in all KKV projects). Percentage of participants receiving skill training 22 (as a share of additional participants only). Percentage of beneficiaries 23 reporting satisfaction with newly created or rehabilitated infrastructure. Number of assets to be created/rehabilitated or maintained % 50% (Sept ) na na 0 1,950,000 30% 50% 25% 55% 5% 200 6,000,000 30% 50% 30% 60% 5% 80% 600 8,000,000 35% 35% 65% 10% 800 at least 10,000,000 35% 40% 70% 10% 80% At least 1,000 Quarterly Every 6 months Year 1 and Year 2 Quarterly Quarterly Quarterly Year 2 and Year 4 Quarterly MIS Beneficiary Assessment Impact Evaluation Survey MIS MIS MIS Impact Evaluation Survey MIS Responsibility for Data Collection OPM OPM KEPSA / Consultants KEPSA / Consultants OPM OPM OPM OPM/Consultants OPM 22 All types of training including technical and life skills provided either on the job or formally provided by a training institutions. 23 Focusing on either direct or indirect beneficiaries: namely, people living in the community where the public works have been implemented. 54

64 Percentage of participants 24 reporting satisfaction with, or benefiting from, employment experience and training. Number of reports produced by the MIS according to the agreed reporting standards (cumulative). Component 2: Number of youth participating to the internship and training program (cumulative). na ,500 80% ,000 7,500 80% 16 10,000 Year 2 and Year 4 Quarterly Every 6 months Beneficiary assessment survey MIS MIS OPM/Consultants OPM KEPSA Total number of internships weeks provided (cumulative). 0 50, , , ,000 Every 6 months MIS KEPSA Total number training weeks provided by third party providers (cumulative). 0 25,000 50,000 75, ,000 Every 6 months MIS KEPSA Total number of youth completing life skills training (cumulative) 0 3,750 7,500 11,250 15,000 Every 6 months MIS KEPSA Completion rate of internship Every 6 months MIS KEPSA Number of regular monitoring reports, produced by KEPSA MIS according to the agreed reporting standards (cumulative) Every 6 months MIS KEPSA Percentage of participants satisfied with internship and training program. na 90% 95% 95% 95% Every 6 months MIS KEPSA Percentage of employers satisfied with internship and training program. na 90% 95% 95% 95% Every 6 months MIS KEPSA 24 Refers to KKV participants supported by component 1, not to overall KKV participants. 55

65 Component 3: Number of officers in MoYAS trained through the KYEP (cumulative) Quarterly Quarterly progress report MoYAS Number of pilot on social audits finalized (cumulative) Quarterly Quarterly progress report MoYAS Number of districts covered with communication activities (cumulative) Quarterly Quarterly progress report MoYAS Action plan for the establishment of the youth council developed. No action plan in place Action plan developed Quarterly Quarterly progress report MoYAS 25 Using the old district boundaries. 56

66 Annex 4: Detailed Project Description KENYA: Kenya Youth Empowerment Project 1. Youth employment is an investment priority for the Kenyan Coalition Government. The recently completed Kenya Poverty and Inequality Assessment highlights the lack of job creation and youth vulnerability as fundamental issues needing to be addressed urgently. The youth in rural and slum urban communities range from those with little education to others who are secondary school and university graduates, but who are largely unemployed or underemployed. A lot of youth lack sufficient work experience relevant to the employment prospects, and also lack appropriate technical and life skills related to workplace and social behavior. On the other hand, there are many services and amenities in poor communities that need to be provided or improved. 2. Youth represent the future for Kenya. The cost of not investing in their skills development is already proving to be very high. Constraints to investing in skills for youth include information asymmetries, lack of capital, and the unwillingness of employers to invest in youth from poor backgrounds and limited life skills. Persistent market failures lead to problems for the youth in entering the labor market, and it is critical to determine what skills are needed by them, what employers expect and the gaps that need to be filled. Further, it is important to address the choices in how to acquire the skills (through schools, workshops, enterprises, on-thejob training), to review the strengths and weaknesses of the options, and consider best practices in training (especially through engaging employers, using modular and competency-based approaches, integrating work experience and training, adding life skills, promoting competition in provision, and building on basic education). 3. The recent financial and economic crisis has prompted the Government of Kenya (GoK) to renew its commitment to addressing youth issues and youth unemployment has emerged as a top priority. The GoK developed a Marshal Plan for youth unemployment in 2007, emphasizing the importance of a coordinated and multi-sectoral approach to addressing the problem of youth unemployment and youth idleness. In April 2009 the Kazi Kwa Vijana (KKV) program was launched, aiming to employ youth in rural and urban areas in labor-intensive public works projects implemented by different line ministries. The KKV program is implemented under the overall supervision and guidance of a National Steering Committee chaired by the Prime Minister and comprising Ministers and Permanent Secretaries of ministries with KKV sub-projects. The Office of the Prime Minister (OPM) is in charge of the overall coordination and monitoring. Priority is given to sub-projects that can be implemented rapidly using laborintensive techniques such as, road maintenance, small-scale water supply and sanitation, water harvesting, forestation and waste collection. In addition to the KKV, the GoK continues to support the Youth Enterprise Development Fund (YEDF), established in 2006, providing youth with access to finance for self-employment activities and entrepreneurial skills development. 4. The Project addresses youth vulnerability and employability through a mix of interventions oriented toward the short and long term, as well as by supporting policy-level research and discussion related to youth issues. 57

67 Component 1: Labor-Intensive Works and Social Services (US$ 43 million equivalent) Objectives and Outputs 5. The main objective of the first component is to support the GoK to reduce the vulnerability of unemployed male and female youth, by expanding and enhancing the effectiveness of the KKV program. This will be achieved through: Increasing the scale of KKV, by providing additional funding and enabling the program to reach more male and female youth (there are clear indications that the current demand for KKV if much higher than the supply); Enhancing KKV by providing resources to test innovations on KKV projects which can then be mainstreamed into the program as whole; Improving and supporting the monitoring and evaluation of KKV, by further-developing the M&E framework, the Management Information System (MIS) and monitoring and evaluation activities; and Providing technical assistance to the OPM to improve their management and coordination capacity. 6. Expected outputs are: Increased access to job opportunities and income support to unemployed male and female youth; Improved access to basic infrastructure correctly built or maintained and services well delivered; and Enhanced capacity of selected unemployed male and female youth. Design issues 7. Targeting: The proposed targeting mechanism to reach unemployed youth is a combination of: (a) Categorical coverage. As applied during phase I of the KKV, youth aged between 18 and 35, and ensuring that women represent at least 30 percent of those recruited. (b) Compensation level. Whenever possible, appropriate task rates will be used to increase productivity on Project sites. This is a more appropriate method of remuneration for labor-intensive works than daily paid wages. (c) Labor-intensity/priority areas with high impact potential. Sectors having projects with a high labor-intensity (e.g., water and soil conservation activities, forestation, road maintenance and garbage collection) should be given a priority to maximize the number of job opportunities created. Sectors with lower labor-intensity but high impact on the welfare/income of poor people (e.g., rural water supplies and small-scale irrigation projects) should also be targeted. These projects have a second round of benefits. 58

68 (d) Geographical coverage. With the proposed funding by the Association, all districts cannot be covered. It was therefore decided that during the first four-year period a number of districts (i.e., those with a high unemployment numbers based on the most recent labor market data) will be selected in each province. The old administrative division of districts, which includes around 70 districts, will be used. The first year s districts were agree on as presented in annex one above. 8. Innovative approaches. One of the aims of KYEP is to assist the GoK in introducing innovative program enhancements. These enhancements would be piloted, using KYEP funds under component 1, and if deemed effective the Project would support their mainstreaming into GoK-funded KKV projects. Possible areas of enhancement and innovation identified are: a) Contracting arrangements. Community contracting instead of force account or private sector (labor or SME) contracting will be introduced on selected projects as this will reduce the administrative burden for implementing departments and increase community buy-in. b) Introduction of new types of projects and activities. Some new activities will be introduced to broaden the scope of KKV. In addition some activities could be introduced with the specific objective of increasing the participation of female youth. Possible new areas could include social services such as care for children, the elderly, terminally ill and orphans as mentioned earlier. c) Community involvement selection/identification of activities. Mechanisms that will enable stronger community participation in project selection will be introduced. d) Work planning and structuring of employment. There are significant advantages for some target groups to have more flexible work arrangements thereby allowing people to continue other household duties or livelihood activities. This will also be introduced on selected projects. This may also involve work to be structured to stretch the period over which income is provided and bring some regularity and predictability even if it might be over a limited period of time. Options include providing work for a few weeks a month, a few days a week, a few hours a day etc. This also depends on the nature of the work recognizing that for some activities this approach is very suitable or even preferable (e.g., watering seedlings, nursing and counseling). e) Payment systems. All payments to beneficiaries are currently in cash. Possible enhancements of payments via banks, cell phones and post offices will be tested. This would also enable participants to build up savings and creditworthiness. Women also testify that in this way, they find it easier to control their own income. It was agreed that at the beginning of implementation, two areas, one urban and one rural will be piloted to use non-cash payment system. It was agreed that the project will use the operator selected by the Ministry of Gender, Children and Social Development for its on-going procurement process to select an intermediary for their cash transfer payments. f) Training of beneficiaries. The introduction of a life skills component will be tested for a selected number of workers who are employed for a minimum of one month. The 59

69 initial focus of the training would be on HIV/AIDS and gender-based violence, given the risk profile of the KKV target group. g) Social Audits. Social Audits, audit processes led by the local communities, were in some areas found to be effective instruments to improve the transparency and accountability on public works projects. While they do not replace the need for conventional project audits, they can reduce the risk of leakages as well as unfair recruitment practices. MoYAS, under the third component, will lead this process. h) Linkages to skills training. In the regions where the second component will be implemented, youth who have worked on KKV projects and who meet the entry requirements for the training will be encouraged to apply for the second component training and internships. Initiation, validation, screening and validation of sub-projects 9. Initiation of proposals. The proposals for sub-projects to be supported by KKV will come either a) from communities/youth groups to local governments who in turn submit them to the KKV district management committee, or b) come from the local government or district line ministries to the committee. Proposals can be submitted any time during the year, but will be evaluated on a quarterly basis. The communication strategy will include activities that will ensure that communities/youth groups are aware of the project. The Operations Manual (OM), section 4.4., spells out the type of projects that are eligible for the KKV per sector, including specific eligibility criteria. 10. Validation of proposals. Every proposal that is submitted by the district management committee to the national level of the line ministries has to have been validated by the community prior to submission. It will be the responsibility of the youth officers of MoYAS together with the district social development officers to ensure that this community validation is done. To achieve this, youth officers and district social development officers will work closely together at divisional level. The district management committee will ensure that KKV projects are fairly distributed within the district, taking into consideration other development projects. 11. Screening of projects. It s the task of the central line ministries to first verify if the proposals forwarded by the regions/districts comply with the eligibility criteria specified in chapter 5 the OM. Secondly, as part of its functions, the PCU will screen program proposals forwarded by implementing line ministries if they respond to these eligibility criteria and that they are distributed fairly over and within the selected districts. 12. Final approval of sub-projects. The KKV national management committee has the responsibility of making the final selection of sub-projects to be supported by the KKV. Once the selection has been finalized the national management committee will inform the line ministries who will inform the district management committees. The district youth and social development officers will then inform the communities/youth groups. 60

70 Resource allocation 13. It was agreed with the GoK that not all districts will be supported with the IDA funds. For the first year of the project, one cluster of districts, one in each province, was selected (based on a ranking of the highest number of unemployment/inactivity, using the most recent household survey data). Allocations will be made each year to respective line ministries, based on the list of sub-projects approved by the national KKV management committee. The approval process will take place quarterly, but proposals can be submitted on a continuous basis. The OPM will trigger the funds to be disbursed to the line ministries at the national level. The funds will then flow down to the regional or district level of the Ministry where sub-contractors and beneficiaries will be paid through the district treasury. 14. The list of participating ministries in the first year of the KYEP has been developed and confirmed during appraisal. Criteria used for the selection were: a) there capacity to implement labor-intensive works, b) the priority and impact of their projects on the economic and social development of the benefiting communities and c) their capacity to create jobs in promising areas (green jobs). 61

71 Implementation Plan Component 1: First 18 Months, January 2010-June 2011 TENTATIVE IMPLEMENTATION SCHEDULE COMPONENT 1 Main Sub components/activities Preparatory phase Year 1 Q1 Q2 Q 1 Q2 Q3 Q4 Responsible/remarks 1. Establishment PCU 1.1 Secondment staff to PCU OPM 1.2 Prepare technical specifications and tender documents for vehicles, computers and other supplies OPM using NCB, retroactive financing 1.3 Prepare technical specifications and tender documents for software OPM using NCB, retroactive financing 2. Preliminary activities 2.1 Approval Operations Manual (OM) National Steering Committee 2.2 Training staff PCU and focal points on use of updated OM WB/ILO 2.3 IEC campaign in selected districts OPM/MOYAS Workshop for DMC OPM/MOYAS Preparation of flyers on KKV OPM 2.4 Preparation of first batch of KKV projects Identification of LI works Government units at district level in consultation with local communities/youth groups Development of project ideas Government units at district level in consultation with local communities/youth groups Preparation of list of projects validated by DMC KKV District Management Committee First screening of projects Focal point line ministries Preparation of full project proposal Government units at district level Second screening by PCU Technical experts of PCU Approval of projects National Steering Committee Barazas for youth at district level OPM/MOYAS district youth officers 2.5 Innovations Establishment new MIS Establishment list of training providers in selected districts PCU Innovation specialist with help of local consultants Preparation of training programme year 1 Innovation specialist PCU Investigate alternative payment systems Innovation specialist PCU 3. Implementation WB funded KKV projects Year Implementation LI works Implementing line ministries 3.2 Life skills training and related skills training Training providers 3.3 Introduction innovations for selected projects Innovation specialist PCU 3.4 Preparation of second batch of KKV projects Identification of LI works Government units at district level in consultation with local communities/youth groups Development of project ideas Government units at district level in consultation with local communities/youth groups First screening of projects Focal point line ministries Preparation of full project proposal Government units at district level Second screening by PCU Technical experts of PCU Approval of projects National Steering Committee 3.5 Innovations Training and testing of social auditing PCU/MOYAS/external specialist Development social services sub component PCU Innovation specialist with help of local consultants 4. Quarterly reports PCU 5. Supervision and backstopping missions WB/ILO PCU 6. Audits Financial audits KENAO Technical audit KKV projects WB/Technical auditor Component 2 - Private Sector Internships and Training (US$ 15.5 million equivalent) Context and Sector Issues 15. The main objective of the second component is to improve youth employability, as reflected in improved prospects for employment and higher earnings, by providing youth with work experience and skills through the creation of internships and relevant training in the formal and informal sector (with priority given to the five key growth sector defined in the Vision 2030). This component will pilot approaches for developing private sector internships that provide work experience and employer-designed training for out-of-school youths years of age who are not working, have at least eight years of schooling and have been out of school for 62

72 at least a year. It will address the problem of youth who are not building skills at a critical stage of the lifecycle by giving them a chance to acquire skills on the job through work experience and training by other training institutions that is closely aligned with the work experience. The minimum of eight years of schooling is included as a means to ensure that this group will have a basic education and ability to benefit from further training. The component opens opportunities for further employment, skills development, and entrepreneurship. It responds to the issue raised by Kenyan employers who assert that many youths who come out of schools and training centers lack the relevant work experience and competencies needed for employment. The component will be employer-driven in design and implementation to ensure ownership and commitment. 16. The large number of youth in Kenya s population represents both a risk to and an opportunity for economic and social development. Youths years of age currently represent one third of Kenya s population. Half of this youth population lives in households whose family income falls below the poverty line and approximately 38 percent are out of school and not working. Left idle, this population represents a near-term risk to social stability and a long-term risk to development of the nation s economy and the welfare of Kenyan households. Ensuring that youth are successfully integrated into the economy and employment with skills will open the pathway to a demographic dividend for development that will improve Kenya s competitiveness, raise household incomes, reduce poverty, and create a virtuous circle of investment and growth. The failure to achieve this integration raises the possibility of further social disruption and an economy unable to attract industries that are globally competitive in their use of modern technology. 17. This component and its support for work experience and training will be aligned with the industrial structure of the national economy. It will focus on off-farm employment and provide work experience and training in the formal and informal sectors. The latter, characterized by micro and small enterprises and described as the Jua Kali, represents as much as 60 percent of non-farm employment and is an important source of employment and income for households. The component will also reach into the formal sector to create opportunities for work experience and income. Over the past two decades Kenya s formal sector has failed to generate the number of jobs needed to absorb the rapidly growing labor force with the result that many youth have elected to create their own employment in the informal sector. Raising the productivity of this sector is important to further development. This component will provide work experience and training in both sectors with priority given to firms in potential growth sub-sectors identified in Vision The Ministry of Labor and its Department of Industrial Training currently offers an industrial attachment to nearly 9,000 youths annually who are enrolled in education or training programs. This component in partnership with the private sector will extend this experience to out-of-school youths who are currently without employment. It follows lessons summarized by the World Bank for youth programs that point to the value of engaging employers in designing these programs and combining work experience and employer-driven training to improve the relevance and outcomes of these programs. The component in addition to support for internships and training will provide goods and services to strengthen the capacity of implementing bodies. It will also include incentives for employer and intern participation to ensure successful completion of the internship, participation in further skills development activities and employment creation. Through careful monitoring and independent evaluation of component 63

73 activities, lessons will be developed for guiding future youth employment and skills development policies. Objectives and Performance Indicators 19. The objective of this component is to pilot approaches to improve the integration of atrisk youth into wage and self-employment by providing work experience and training opportunities and assessing the impact of these interventions on subsequent employment and skills development. At-risk youth are those who are out-of-school, for at least a year, not working, years of age, and have at least eight years of schooling. These objectives will be achieved through (i) the creation of internships for youth in private formal and informal sector employment, and (ii) the provision of skills training closely aligned with the employment experience. All interns will in addition be provided life skills training developing positive workplace and social behaviors. 20. Key component outcome indicators will include: Continued employment in the sector for which the intern is trained; Entry of the intern into self-employment; Investment of the intern in further skills development; and Satisfaction of the intern and employer with the internship experience. 21. Output indicators for this component will include: Number of youth participating to the internship and training program; Number of internships weeks provided; Number of training weeks provided by third party providers; Number of youth completing the life skills training; Number of employers offering internships; Weeks of work experience provided; Number of completion certificates awarded; and Completion rate of internship. Principles of Design 22. The following principles guide the component design: Employer-driven: to ensure the commitment and ownership of the internship program and the relevance of the training provided, the private sector needs to play a key role in the program design and implementation. Flexibility: recognizing the desired education profile of interns may vary among different sectors along with the mix of skills and approach to skills development, the component will allow flexibility at the sector level in defining the internship education profile and development of the sector training plan consistent with the component s general guidelines. 64

74 Simplicity: wherever component design choices are made, priority will be given to simplicity over complexity to reduce demands on capacity for implementation and ensure effective implementation. Transparency: to provide for good governance and confidence in the manner in which the component is being implemented, there will be clear rules and procedures for implementation outlined in an Operations Manual together with annual audits of the program. Consistency: all features of the component design, including incentives for interns and employers, procurement of training services, handling of funds, are expected to be consistent with IDA and GOK policies. Description of Component This pilot component addresses issues of lack of work experience and skills for at-risk youth. It will support three activities: (i) creation of internships in the private sector, (ii) provision of training that is relevant to the work experience and (iii) monitoring and evaluation to capture lessons from the pilot. All interns are expected to receive training related to their work during the course of the internship. Overall implementation responsibility will rest with KEPSA. Two urban areas, Nairobi and Mombasa, have been selected to test these interventions and a rural area will be added to the pilot later. 24. Creation of internships: This activity provides internships in the private sector for youths meeting program eligibility criteria. It addresses the issues of lack of work experience and knowledge of the workplace as constraints to employment by providing the target population with work experience in the private sector. (a) Sector coverage: internships will be developed in the private, non-agricultural sector covering formal and informal sector employment. All sub-sectors within this category will be eligible for participation with first priority given to sub-sectors identified in Vision 2030 as potential growth areas. (b) Duration: internships will last a minimum of four months up to a maximum of six months to be determined by the KEPSA Sector Boards developing the internships. (c) Who is eligible: the target youth population will be years of age who are out-ofschool at least one year with a minimum of eight years of public schooling, and not currently working. Eligibility for a formal sector internship will be limited to those 18 years and older, since this is the legal minimum age for work in Kenya. Those years of age will be eligible for an internship in the informal sector if they meet the other eligibility criteria. The share of interns with tertiary education (i.e. university graduates) will be capped at 40 percent to avoid program capture by this education group and provide an opportunity to compare program results for different levels of education. 65

75 (d) How intern candidates will be chosen: KEPSA will advertise and develop a pool of eligible interns based on the criteria above. When the number of eligible intern applicants exceeds the number of internships available, a randomized selection procedure will be used to choose those who will be considered for internships. This procedure will be overseen by a youth committee formed by KEPSA s Youth Sector Board to ensure the procedure s fairness and transparency. From those in the pool not selected for internships by this method, a second group of equal size to the intern group will be chosen by the same randomized procedure to form a comparison group for the impact evaluation. All youths not selected for participation in the internship program will be eligible to apply again to future internship cycles so long as they continue to meet the target criteria above. (e) How employers will select interns: All intern candidates chosen by the method above will be given two weeks of orientation and life skills training in a residential setting. At the conclusion of the training, those who successfully complete the program will be given interviews with employers offering internships. During the earlier application process, applicants will be asked to express their first and second preferences for sectors in which to work. To the extent possible intern candidates will be given interviews with employers in their preferred sectors, but the ability to do this in all cases will depend on the balance of supply and demand for internships by sector. To ensure that employers are given a choice among intern candidates and to promote incentives for good performance among intern candidates, the number of candidates selected for the orientation and life skills training will exceed the number of internship positions by 50%. All candidates will be interviewed by employers offering internships. The life skills training will include job search techniques, including interviewing skills. Employers will select their intern(s) following the interviews. The youths not selected in this manner, representing one-third of those completing the orientation and life skills training, will be given a completion certificate and recognition of their participation in this training, but will not be eligible to apply to future internship cycles. (f) What employers are expected to do during the internship: employers are expected to offer work experience and training as part of the internship. Employers will participate beforehand in developing Sector Training Plans through KEPSA s Sector Boards which will determine the type of training offered in each sector. The internship will begin with approximately one-month of work experience before the intern moves into training by a third-party training provider. This training will follow the Sector Training Plan. In the informal sector, the training may come entirely from a master craftsman. The length of the internship will vary between 4 and 6 months with the time split roughly 50:50 between work experience and formal training. During the work experience, the employer is also expected to offer on-the-job training under the guidance of senior personnel. Employers are expected to assign a mentor to each intern who will interact with the intern during the internships and who will provide regular feedback to the intern on job performance. Throughout the internship the employer will provide monthly reports to KEPSA on each intern s attendance. During the third-party training, this reporting will be done by the training organization. At the conclusion of the internship, the employer will conduct an exit interview and assessment of job performance with the intern. 66

76 KEPSA will provide each intern completing the program a Completion Certificate in the employer s name.. (g) What the intern is expected to do: Interns are expected to be present during all working hours, complete all work assignments in timely fashion, and adhere to all workplace rules. Interns are in addition expected to attend all training events and complete all assignments during these events. (h) What financial incentives and compensation will be offered: Interns will be paid by KEPSA at the rate of 6,000 Ksh per month, matching the rate paid by the Department of Industrial Training of the Ministry of Labor. This nominal compensation is intended to cover the intern s daily expense of transportation and food during the internship. Employers, in turn, will be compensated at the rate of 3,000 Ksh per month during the internship to cover a portion of their expenses for the internship. KEPSA will oversee these payments and will adopt non-cash means of payment to each party using electronic bank transfers, cell-phone, or electronic postal transfers as determined best suited to each party. (i) The Completion Certificates: at the conclusion of the internship, those who have completed all program requirements will be provided a Completion Certificate by KEPSA in the name of their employer. The employer will furnish a Letter of Performance, which may be used as a reference for future employment. The interns who wish to enter self-employment on completion of the internship will be referred to the Youth Enterprise Development Fund or other non-governmental organizations providing training and seed capital for self-employment. 25. Provision of internship training: This activity provides interns with access to training closely related to the employment experience. All interns will receive training. It addresses the issue of youths who lack the competencies sought by employers. The sub-component will finance third-party training requested by employers through their KEPSA Sector Boards as part of a sector training plan prepared with KEPSA. This third-party training is distinguished from that offered on the job by employers. Employers through their Sector Boards are expected to contribute to development of a Sector Training Plan that will be used by KEPSA in procuring training services. The training that is part of this plan may combine the on-the-job training offered by employers and other training offered by third-party providers either in the workplace or in a school or workshop setting. (a) Eligible training organizations: Minimum eligibility criteria will include: the trainer will have at least three years of training experience; evidence of numbers successfully trained; fixed place(s) of operation with workshops, equipment and qualified instructors; and able to show the relevance of their training through placement records of graduates. Though not required for qualification, added credit will be given to organizations that show evidence of providing short-term competency-based training. Public and private training organizations may qualify. (b) Advertising for expressions of interest from training providers: KEPSA will advertise for expressions of interest from qualified training organizations, as defined above, to provide 67

77 services for individual Sector Training Plans. KEPSA will review and validate these expressions of interest and develop a roster of pre-qualified training organizations based on the criteria given above. (c) Pre-qualification of master craftsmen as trainers: For the informal sector, training plans may include apprenticeship training by master craftsmen alongside third-party training in such areas as entrepreneurship education and technical skills. Master craftsmen may prequalify for offering both internships and apprenticeship training by participation in skills upgrading, funded by this component, to be developed by the relevant sector organization for the informal sector under KEPSA. (d) Types of training to be procured: The competencies developed with training will be established by KEPSA Sector Boards in consultation with their employer members and expressed as part of the Sector Training Plan. It is expected that all Plans will include sector-determined combinations of technical training delivered on-the-job and by thirdparty training providers. For the informal sector, it is expected a module on entrepreneurship education will be included in the training plan. Training plans will include an assessment of sector training needs, the type of training and competencies to be delivered, and how the training will be delivered and its duration. (e) Delivery methods for training: training by third-party providers may be delivered in different ways and at different locations at the discretion of the Sector Training Plan. Training may be delivered using traditional classroom and workshop instruction, but also using simulators and computer-assisted instruction. A modular, competency-based method of instruction that offers interns the opportunity later to pursue advanced modules of training toward a recognized skill certification on completion of the internship is encouraged where available. By agreement with the KEPSA Sector Boards, the training may be offered in the provider s workshops or on-site with the employer. (f) How training services will be contracted: KEPSA will prepare requests for procurement of training services, based on individual Sector Training Plans, stating the quantity and type of training services to be procured, location of delivery and other conditions of service. Requests for services will be sent to pre-qualified training organizations by KEPSA and responses evaluated following IDA procurement rules. It is expected that pre-qualified training organizations may bid for and deliver training to more than one Sector Training Plan. The procurement of training services for a sector may be split by geographic location. (g) Contractual arrangements and payments for services: KEPSA will contract with training organizations by preparing uniform contract documents that contain standard terms of service. These documents will include space for services and conditions unique to the sector. KEPSA will follow IDA procurement rules on evaluating performance and clearing contract payments. KEPSA will handle all contract disbursements. 26. Monitoring and evaluation: Responsibility for the Project s overall monitoring and evaluation will rest with the KYEP coordination unit in the OPM, but KEPSA will maintain a 68

78 responsible M&E Officer in the Project Coordination Unit who will oversee monitoring and reporting activities for this component related to internships and training activities and assist in evaluation activities as part of implementing the Project Results Framework. The KEPSA M&E Officer will carry out these responsibilities in cooperation with a designated officer responsible for monitoring of internship and training activities at the Sector Board level. 27. A Mid-Term Review of progress will be carried out after two years of Project activity based on the Results Agreement with inputs from the KEPSA M&E Officer. An impact evaluation will be conducted at Project conclusion. Beneficiary assessments will be completed for each internship cycle. The Project will provide goods and services for development in KEPSA of a management information system for Project reporting. Additional services may be contracted for the impact evaluation to support tracing post-internship outcomes and comparing with an appropriate control group and for conducting beneficiary assessments. Implementation Plan Component 2: First 18 months, January June 2011 Activity 1.Establishment of PMU Terms of reference for PMU Officers Recruitment of Project Manager, Accountant, and M&E Officer Procurement of furnishings and equipment 2.Preliminary Activities Preparation of Operations Manual Development of MIS a. Design and preparation of hardware and software specifications b. Procurement of MIS hardware and software Prepare Program Information Brochure for Marketing Prepare template for sector board training plans Prepare MIS report formats for employers and training providers Prepare terms of reference for impact evaluation Issue RFP for impact evaluation and evaluate responses Award contract for impact Preparatory Year 1 Phase

79 Implementation Plan Component 2: First 18 months, January June 2011 Activity evaluation Recruitment of Internship and Training Officers Launch preparation of sector board training plans a. Training needs assessments b. Training plans Prepare contract template for trainers Prepare internship contract template for employers Prepare intern application form and baseline questionnaire Development of internships Advertise expression of interest for trainers Advertise expression of interest for master craftsmen Trainer pre qualification Preparation and issuance of RFP s for trainers Advertising for intern applicants Preparation of qualified intern pool Award of training provider contracts 3.Implementation Entry of intern baseline survey data in MIS Launch life skills training Conduct employer intern interviews Assign interns to employers Internship Training delivered based on sector training plan Monitoring of reporting by employers and training providers Monitoring of internship by KEPSA with spot checks Completion award ceremony Preparation of 1 st cycle progress report Preparation of TOR for beneficiary assessment Issue RFP for beneficiary assessment and evaluate Preparatory Year 1 Phase

80 Implementation Plan Component 2: First 18 months, January June 2011 Activity responses Aware beneficiary assessment contract Launch beneficiary assessment and prepare report Advertising for intern applicants 2 nd cycle Preparation of qualified intern pool Entry of intern baseline survey data in MIS Development of 2 nd cycle internships Launch of life skills training Conduct employer intern interviews Assign interns to employers Internships Training delivered based on sector training plan Assessment of training contractor performance Procurement of additional training capacity as needed Preparatory Year 1 Phase Component 3: Capacity Building and Policy Development (US$ 1.5 million equivalent) 28. The main objective of this component is to enhance the capacity of MoYAS to implement the national youth policy and increase the institutional capacity for youth policy planning. This will be done by focusing on the following areas; (1) training of staff within MoYAS, with particular focus on the district youth officers; (2) social audits, focusing on the implementation of the overall KKV, including components 1 and 2 of the KYEP project; (3) communication activities to increase awareness of the project; and (4) support to policy development, through the provision of technical assistance to the national youth council and analytical work. 29. A project unit (PU) has been established within the MoYAS, consisting of a project coordinator, who will be fully assigned to the unit and be responsible for the oversight and implementation of the project activities under this component. In addition, a project accountant will be assigned to fully support the PU and a finance officer, a procurement officer and an internal auditor will all assist the project coordinator whenever necessary, but it is not anticipated that they will need to fully assigned to the PU. The progress reporting of this component will be the responsibility of the PU coordinator, including the preparation of quarterly financial (IFR) reports and quarterly progress reports on component activities. 71

81 Training of MoYAS staff 30. The MoYAS was created in 2005 and over 500 district youth and sports officers were recruited to support the implementation of the national youth policy and oversee implementation of youth related programs in the field. These officers all have different backgrounds, with generally limited experience of project management, community mobilization, project monitoring etc. This training activity mainly aims to provide training to a total of 300 district youth officers across the country. 31. Prior to project effectiveness a Training Needs Assessment (TNA) will be undertaken to determine specific training needs of the staff in MoYAS, with particular focus on the youth officers. The assessment will be coordinated by the MoYAS, but to ensure efficiency and objectivity of the task, a consultant will be hired to support the team to undertake the TNA. Preparations for the TNA have already begun and the MoYAS will initiate the selection of a consultant to bring on board and finalize the TNA prior to Credit Effectiveness. 32. The selected consultant will be responsible for ensuring adequate methodology is developed for the TNA. The consultant will also be responsible for supporting the MoYAS in the identification of relevant and competent training institutions who can deliver a custom-made training for the district youth officers in Kenya. The TNA should include specific recommendations on competencies needed, and sources of relevant training, for example domestic versus international, and suggestions for specific courses. The content and the form of training will be guided by the outcome of the TNA which will be financed retroactively through the KYEP. Based on the outcome of the TNA the consultant will help develop a detailed curricula outline for the training of district youth officers. There are several relevant training institutions in Kenya who all have the capacity to provide relevant training and also offer the possibility to provide in-house-tailor-made trainings based on specific needs. The main focus of the training will be youth officers at the district level, but some training will also be provided to youth officers at the national level. In addition, the project unit will receive capacity building support for project coordination, financial management and procurement, with particular focus on IDA procedures. The planning for the training of program coordinator and the project accountant will start prior to Credit Effectiveness. The PU members will also be invited to attend any relevant training organized by the World Bank Kenya Country Office. Social Audits 33. This activity is a participatory audit process for the project. The main objective of this activity is to test the use of social audits as a tool for ensuring community participation in the project, and thereby increasing effectiveness and efficiency of the project implementation and increase transparency and accountability of government expenditure of the project funds at the local level. The activity aims to empower community members (with particular focus on youth) to undertake social audits and thereby hold government more accountable for the work they are doing. The social audits will be undertaken in 5-6 districts for the first 2 years. For year 3 and 4, another 5-6 districts will be chosen for the social audits. Half of the districts will be districts where component 1 and 2 are being implemented and half will be other KKV districts. 72

82 34. To ensure the independency of the social audit this function will be outsourced, through a competitive tender process. The function will be overseen by the MoYAS, but implemented in the field by a non-governmental or civil society organization. The selected organization will work closely with provincial officer and the district youth officers and be responsible for selecting adequate social auditors in consultation with the chief and other existing community groups on the ground. The social audit will be undertaken by identified social auditors (youth should be given priority) in a two-steps cycle, including an initial social audit (year 1) and a follow-up (year 2). Conducting the social audit twice will allow for a comparison of the results from the initial audit and also provide an opportunity for the coordinating organization to adjust the social audit tools/if as necessary. If the experience of the social audits is considered to be successful, these tools can be used in other districts of the KYEP and the overall KKV. Some of the indirect advantages of the social audits will be to train the community on participatory planning and encourage community participation in overseeing activities on the ground. Once an organization has been selected to coordinate the social audits, the following are the main steps anticipated for the social audits: Identification of social auditors a number of social auditors will be selected in each district through a community consultation/baraza, including the chief and other community members. Youth will be given priority to become social auditors, but to ensure the buy-in from the community the selected persons for the social audits have to be trusted in their communities. Once the social auditors have been selected, the names of social auditors will be posted on the MoYAS website. Development of training tools and training of social auditors the selected organization will be responsible for developing the relevant training material for the social audits, as well as provide relevant one-week training for the social auditors. These trainings should include a description of the KYEP, the objective of social audits and detailed steps of undertaking a social audit. The main objective of the training is to prepare the social auditors for the implementation of the social audits. Undertaking of the first round of the social audits the social auditors will be responsible for gathering the data for the social audits and support will be provided as necessary from the organization to guide the social auditors in this process. Data analysis Once relevant data has been collected by the social auditors the organization will be responsible to provide support to the social auditors to undertake the data analysis. The organization should also compile all the information from the social audits and prepare the material and possible adjustments for a second training of the social auditors. Feedback to the communities The results of the first round of the social audits will be presented in community barazas to be organized by the social auditors with support from the organization. The results will also be posted on the MoYAS website. Follow-up training and adjustment to social audit tools once the results of the first round have been finalized a follow-up training will be held to discuss the results. The 73

83 organization will be responsible for making adjustments to the original training material if/as necessary and prepare the social auditors for a follow-up round. Undertaking of second round of social audits the social auditors will repeat the social audits in the same 4 districts, using the adjusted tools. Feedback to the communities the feedback to the communities will be provided similar to the first round. Preparation of final report of the social audits with input from the social auditors the organization will be responsible for the preparation and printing of a final report of the social audit experience. Dissemination of the final report the final report will be disseminated to the community through dissemination events to be organized by the organization and the social auditors. The final report will also be posted on the MoYAS website. 35. This cycle is anticipated to take 2 years and will then be repeated in 5-6 new districts during year 3 and The social auditors will receive a small compensation for their work, and it will be the responsibility of the recruited organization to make these payments. The compensation rate to be used will be the same one as used for the KKV project (as indicated in the KKV Operations Manual). The organization will be requested to keep clear records of these (and any other) payments/expenses, including signed receipts. 37. A crucial requisite to enable the social audits is that adequate information on the KYEP is made easily accessible by the government at the national, district and local level, as well as by KEPSA and other stakeholders involved in KYEP implementation. The social audits are only possible to undertake if there is openness and transparency on project activities, expenses, etc. The GoK, KEPSA and other relevant KYEP stakeholders will be required to commit to cooperate with the social audits as part of the KYEP. Communication Activities 38. The MoYAS will receive support for communication activities for the KYEP. These activities aim to improve awareness of the project through the following; (i) design and distribution of relevant project information material, such as flyers, t-shirts, posters etc. for the KKV program (component 1), as well as the internship program (component 2); and (ii) organization of events to disseminate information at the local level through for example community barazas. Technical assistance will be provided to the MoYAS, through a communication specialist who will support the MoYAS in the development of a comprehensive communication strategy for the KYEP, as well as the design of the communication material. Given the importance of sufficient communication about the KYEP it has been agreed that the communication specialist will be recruited prior to Credit Effectiveness and be retro-actively finance through the KYEP. The consultant will work under the MoYAS, but will collaborate 74

84 closely with the OPM and KEPSA. The distribution of the communication material will be the responsibility of the district youth officers and will initially be undertaken in the districts where the KKV is being supported by the IDA funds. Once the structures for disseminating information have been put in place they will be scaled-up to other KKV districts. National Youth Council and Policy Development Support 39. The National Youth Policy was developed in 2006 and a National Youth Council Act was approved in December The Act aims to create a youth council with the following as some of its main functions; (a) register all youth groups and youth-focused community based organizations; (b) promote and popularize the national youth policy and other policies that affect youth; (c) facilitate the periodic review of the national youth policy in line with other government policy statements; (d) mobilize resources to support and fund youth programs and activities; and (e) lobby for legislation on issues affecting youth. This activity aims to provide some support to the MoYAS and the establishment of the youth council through technical assistance for developing a clear action plan for the establishment of the youth council, including details about support and resources required to effectively make the youth council operational. Some funds will also be set aside for policy development within the area of youth employment. Implementation Plan Component 3: First 18 months, January June 2011 Responsible Preparatory Phase Year 1 Q1 Q2 Q1 Q2 Q3 Q4 Training of MoYAS staff Recruitment of a consultant to support the PU MoYAS TNA (including ToRs and selection of consultant) Development of training curricula based on the TNA PU MoYAS and external consultant Training of MoYAS staff PU MoYAS and training provider Training of PU coordinator PU MoYAS Social Audits Preparation of procurement documents for PU MoYAS the social audit (EOI, RFP etc.) Recruitment of implementing organization PU MoYAS of the social audit Communication Activities Development of ToRs for communication PU MoYAS specialist Recruitment of communication specialist PU MoYAS Development of communication material PU MoYAS and communication specialist Communication activities at local level PU MoYAS and DYOs Policy Development Development of ToRs and selection of PU- MoYAS consultant to support National Youth Council Selection of relevant policy area for study PU- MoYAS 75

85 Annex 5: Project Costs KENYA: Kenya Youth Empowerment Project Table 1: IDA Financing Budget per Component (US$) 76

86 Table 2: IDA Financing Budget per Category of Expenditure (US$) Table 3: Projected IDA Disbursements per Year FY11 FY 14 (US$ million equivalent) IDA support FY11 FY12 FY13 FY14 Disbursements Cumulative disbursements

87 Table 4: Summary Table Expenditure per Category Category Amount of the Financing Allocated (expressed in US$) Amount of the Financing Allocated (expressed in SDR) Percentage of Expenditures to be Financed (inclusive of Taxes) Component 1: Goods, works, 43,000,000 27,700, % consultant services and cash for youth for component 1. Component 2: Goods, works, 15,500,000 10,000, % consultant services and stipends (for youth and employers) for component 2. Component 3: Goods, works and 1,500,000 1,000, % consultant services for component 3. TOTAL AMOUNT 60,000,000 38,700,000 78

88 Annex 6: Implementation Arrangements KENYA: Kenya Youth Empowerment Project 1. OPM will be the host of the KYEP and take responsibility of the overall coordination, oversight and M&E of the Project. A small Project Coordination Unit (PCU) of dedicated staff will be established in the OPM to coordinate the Project. This PCU will involve existing staff in the OPM (who can potentially be assigned full-time to the Project), staff seconded from other ministries and new staff will be recruited to the PCU as needed. The PCU will also coordinate component 1 and the KYEP Department in KEPSA and the PU in the MoYAS will be responsible for the implementation of component 2 and 3 respectively (see overall implementation structure in figure below). Overall KYEP Implementation Structure KYEP PCU Office of the Prime Minister (OPM) KKV Line Ministries KYEP Dep. Kenya Private Sector Alliance (KEPSA) Department KYEP PU Ministry of Youth Affairs and Sports (MoYAS) KKV subprojects Training Providers Private Sector Employers District Youth Officers Training Providers 79

89 KKV Management structure KKV Ministries Coordinating : Office of the Prime Minister Supporting: Finance Youth Affairs and Sports Planning Implementing: Roads Water and Irrigation Local Government Environment Forestry and Wildlife Regional Development Public Works Fisheries National Steering Committee Chair: Prime Minister Members: Ministers Standing Committee of Permanent Secretaries Chair: OPM Members: Permanent Secretaries National Management Committee (Committee of Deputies) Chair: OPM (Head of KKV PCU) Members: Nominated Ministerial Deputies Secretariat Functions KKV Programme Coordination Unit (Located in OPM) OPM and Seconded Ministerial Staff Provincial Management Committees Chair: Provincial Commissioners Members: Provincial Heads Provincial Management Committees Chair: Provincial Commissioners Members: Provincial Heads District Management Committees Chair: District Commissioners Members: District Heads, Regional Authorities, District Youth Officers District Management Committees Chair: District Commissioners Members: District Heads, Regional Authorities, District Youth Officers District Management Committees Chair: District Commissioners Members: District Heads, Regional Authorities, District Youth Officers District Management Committees Chair: District Commissioners Members: District Heads, Regional Authorities, District Youth Officers Project Management Committees Chair: Project Coordinator Members: Technicians, NYS, Community Leaders Project Management Committees Chair: Project Coordinator Members: Technicians, NYS, Community Leaders Project Management Committees Chair: Project Coordinator Members: Technicians, NYS, Community Leaders Project Management Committees Chair: Project Coordinator Members: Technicians, NYS, Community Leaders 2. Component 1: This PCU will also coordinate component 1 (the KKV, currently being coordinated by the OPM). The present KKV Operations Manual (OM) has been updated taking into consideration lessons learned from phase 1 and international experience on similar public works programs. 3. The PCU in OPM will have the following functions: (a) Overall KKV Program Management i. Coordinate overall KYEP and KKV; ii. Chair the KKV National Management Committee iii. Program design and review; and iv. Formulate recommendations on funding mechanisms, budgets and program design to the Committee of Deputies. 80

90 (b) Monitoring and Evaluation i. Develop and manage reporting processes procedures; ii. Establishment and management of MIS; iii. Prepare regular progress reports; and iv. Impact Evaluation. (c) Sector Management i. Screen program proposals forwarded by implementing line ministries ii. Develop Sector specific policies on activities and establish targets; iii. Assess line ministries performance and make recommendations on allocations to specific sectors; and iv. Oversee quality of outputs. (d) Geographical Coordination i. Oversee and support provincial and district KKV committees; ii. Ensure that sub-projects are distributed fairly over and within the selected districts iii. Develop geographic targeting policies and targets; and iv. Assess geographical performance and make recommendations on allocations to specific geographical areas. 4. Component 1 will also provide specific support to the OPM to establish a KKV Management Information System (MIS) that would enable better reporting and data management of KKV. OPM PCU Structure Head of PCU Designated procurement & financial officer Support staff Technical Specialists M & E Specialist Manager Innovations LI Works in Rural areas LI Works in Urban Areas Data Manager/ Analyst ICT Specialist Training/ Payment/Targeting 5. Component 2: Authority for implementation of component 2 will be delegated by the OPM (and its KYEP PCU) to KEPSA, a private sector-led apex organization. The KEPSA Secretariat, serving the Board of Governors, currently has five departments. It will create a sixth department for the KYEP, with a Project Manager and staff for implementation of component 2. 81

91 A separate OM will also be developed for this component to detail the roles and responsibilities of the different stakeholders in Project implementation, lay down criteria for training providers, and set rules for the incentives to be provided for private sector enterprises which will provide attachment opportunities for the youth. KEPSA Structure 6. The duties of KEPSA Board of Governors include: Oversight of all activities connected with the development of private sector internships and training; and Responsibility for establishment of the KEPSA Secretariat, its staffing, management, and rules and guidelines for operation. 7. The duties of the KYEP Department within the Secretariat include: Establishment of guidelines and forms for internships and contracting for training services by sector employer organizations within the guidelines provided for in the OM; Development of a pool of interns and management of the placement of interns with input from Sector Boards; Work with Sector Boards and their members to develop internships and design training programs; 82

92 Assist Sector Boards with the procurement of training services in line with their training plans; Plan for and implement capacity building activities for KEPSA and its Sector Board members; Carry out general management functions, including financial management, procurement, monitoring and evaluation; and Handle all program payments for services to sector employer organizations, employers, interns, and training organizations. 8. The duties of KEPSA Sector Boards are: Mobilize employer members in developing internships; Work with employer members to develop sector training plans; Assist KEPSA in placement of interns with employers; Procure training services for sector training plans with direction from KEPSA; and Assist KEPSA with M&E activities, including monitoring and reporting on all sector internship and training activities. 9. The duties of employers are: Maintain attendance records for all interns accessible to the relevant Sector Board and KEPSA; Provide internship services, including assignment of a mentor for each intern, periodic counseling and feedback to interns, conduct of exit interviews at the conclusion of the internship with Letter of Performance; and Assist in component M&E activities. 10. Component 3: Component 3 will be hosted and implemented by the MoYAS, which in turn will involve a number of other stakeholders. A project unit (PU) will be established within the MoYAS, consisting of a project coordinator, who will be fully assigned to the unit and be responsible for the oversight and implementation of the KYEP activities under component 3. In addition, a financial management officer, a procurement officer and a project accountant will all assist the project coordinator as necessary, but not be fully assigned to the PU. MoYAS will be recruiting training providers for the training activities to be financed by the component. 11. For the overall coordination and oversight, the Project will seek to expand the existing KKV Project Steering Committee (PSC) to include private sector participants. The PSC will ensure intersectoral coordination and collaboration amongst different parties involved, take policy-level decisions and follow up overall Project development. 83

93 Annex 7: Financial Management and Disbursement Arrangements I. BACKGROUND KENYA: Kenya Youth Empowerment Project 1. The Association conducted a Financial Management (FM) Assessment of the Office of the Prime Minister (OPM), the Ministry of Youth Affairs and Sports (MoYAS) and the Kenya Private Sector Alliance (KEPSA) for the proposed KYEP between October 21 and 23, The MoYAS is currently implementing an IDF Grant of US$ 300,000 from the IDA. 2. The objective of the assessment is to determine: (a) whether these three entities have adequate financial management arrangements to ensure project funds will be used for purposes intended in an efficient and economical way; (b) project financial reports will be prepared in an accurate, reliable and timely manner; and (c) the entities assets will be safely guarded. The financial management (FM) assessment was carried out in accordance with the Financial Management Practices Manual issued by the Financial Management Sector Board on November 3, II. EXECUTIVE SUMMARY 3. The Project will be coordinated by a Project Coordination Unit (PCU) in the OPM. The OPM has already set up the PCU. KEPSA will set up the KYEP department, made up of a Project Coordinator, Project Accountant, Procurement Officer and Monitoring and Evaluation (M&E) Officer as well as other technical staff who will be responsible for implementation of component two. The FM assessment revealed that the three agencies have adequate FM arrangements to undertake the Project. The OPM and the MoYAS will rely primarily on existing government accounting systems. The MoYAS has also set up a project unit (PU), consisting of a Project Coordinator and a Project Accountant, assigned on a full-time basis. Also, a Procurement Officer, a Finance Officer and an Internal Auditor have been designated to support the PU and the implementation of component 3 as necessary. The KEPSA has a Board of Directors and has developed an institutional FM Procedures Manual. The budget procedures for the three agencies are deemed adequate. The GoK accounting systems are computerized but the integration is not fully completed as some modules have not been activated in IFMIS. KEPSA s accounting system is manual. The accounting systems in the three agencies are deemed adequate. All the 3 agencies have developed FM sections in their Operations Manuals (OM) for their respective components, which have been reviewed by the Association and found satisfactory. 4. Treasury will open 3 Designated Accounts (DA) denominated in US dollars for each of the 3 components into which the IDA proceeds will be deposited. Treasury will also open respective Project Accounts (PA) denominated in Kshs, which will receive funds from DA s and from which local payments for the Project will be made. For component 1, the PA s will be opened in each implementing line ministry. The OPM will also have a PA through which it will receive funds for activities to be implemented in the OPM. Under component 1, funds for each implementing line ministry will be budgeted in the ministry s respective budget and the funds will flow directly to the ministry s PA. However, the flow of funds will be triggered by the 84

94 OPM. For component 2, the funds will flow to KEPSA through the MoYAS in a PA opened specifically for this purpose. The MoYAS will have its own PA for component 3. The DA s and PA s will be opened in local commercial banks acceptable to IDA, identified, approved and selected by the CBK. 5. The OPM and the MoYAS will access funds from their respective DA s through the existing Government of Kenya (GoK) regulations and procedures. The KEPSA will open a PA in a local commercial bank acceptable to IDA, identified and approved by the CBK, into which funds from the MoYAS for component 2 will be transferred. The KEPSA s annual budget and application for withdrawal of funds (WA) will be reviewed and cleared by the MoYAS before being processed and submitted to the Association through ERD. KEPSA will also prepare and submit copies of its quarterly IFR s to the MoYAS for review before these are submitted to the Association through the ERD within the stipulated 45 days. The oversight role of the Government of the Project activities implemented by KEPSA will be contained in a subsidiary agreement signed between the MoF and KEPSA. 6. The audit arrangements are deemed adequate. The OPM and the MoYAS will be audited by the Kenya National Audit Office (KENAO) under the Controller and Auditor General. KEPSA will be audited by an independent private auditor acceptable to the Association, who will be approved by KENAO. The external auditor will conduct annual risk based fiduciary reviews. The audit reports and management letters will be submitted to the Association within 6 months after the end of the financial year to which they relate. The financial year end for the OPM and the MoYAS is June 30 while that for KEPSA is December The OPM and the MoYAS will be subjected to annual risk-based Fiduciary Reviews by the IAD Treasury, and copies of these reports will be submitted to the Association promptly, including comments from the respective Accounting Officers/CEO as to how the weaknesses identified will be addressed. The Association s fiduciary team will conduct appropriate capacity building of the three implementing agencies in FM, procurement and disbursements throughout project implementation. 8. The Project will adopt the report-based IFR method of disbursement to access funds. Each implementing agency will make payments against its expenditures. Three sets of IFR s will be prepared, each accompanied with the relevant withdrawal application, and submitted to the Association through ERD Treasury, for capturing of expenditures and replenishment of funds to the respective DAs. Under component 1, each implementing line ministry will have a project accountant who will prepare and submit quarterly IFRs to the PCU in the OPM within 10 days after the end of each calendar quarter for consolidation. The IFR will be accompanied by a copy of the bank statements showing the funds still held in the implementing line ministry project account as at the end of the calendar quarter. Any money paid out by the implementing ministry but not yet accounted for at the end of the relevant quarter should be carried as advances in the IFR and appropriately aged. These should be followed up and accounted for in IFRs for subsequent quarters. The OPM shall prepare the consolidated IFR and also raise the application for withdrawal of funds (WA) which will be submitted to the Association through ERD within 45 days after the end of the relevant calendar quarter. The MoYAS will prepare and submit separate IFR and WA for both KEPSA component 2 and its own component 3. These will be submitted to the Association through ERD within 45 days after the end of every calendar quarter. 85

95 9. Each implementing agency will make payments against its expenditures. The payments for capacity building activities for the MoYAS will be relatively simple as these will mainly consist of consultancies and the provision of training. The OPM and KEPSA will have more complex disbursement arrangements. KEPSA will make payments to youth undertaking internships under component 2. KEPSA will also make payments to employers to compensate for services provided by companies to interns and payments to training organizations hired to provide training for the youth. 10. The following Conditions of Credit Effectiveness need to be completed as a precedent to the Project being declared effective: (a) KEPSA has set up a Kenya Youth Empowerment Project Department (KYEP Department), hired and installed for the Project, an accountant, a procurement officer, an accountant, a Project director, and a monitoring and evaluation specialist with experience and terms of reference satisfactory to the Association; (b) The OPM, the MoYAS and each of the Implementing Line Ministries have each designated and installed a Project accountant on the basis of terms of reference satisfactory to the Association; and (c) The Subsidiary Agreement has been executed on behalf of the Recipient and the Project Implementing Entity (KEPSA). 11. KEPSA will sign the subsidiary agreement with the Office of the Deputy Prime Minister and Ministry of Finance (MoF), acceptable to IDA, defining the disbursement, financial reporting and accountability of Project funds by KEPSA under component The dated covenant for component 2 under KEPSA is the following: The Recipient shall no later than December 15, 2010 or any other date agreed with the Association ensure that the Project Implementing Entity has: (a) acquired and installed an integrated accounting software to manage the payments and operational data; and (b) recruited and installed an internal auditor and accounts assistant, all under conditions and terms satisfactory to the Association. 13. The overall risk rating of the implementing entity has been assessed as Substantial. The risk is expected to improve to Moderate on implementation of the mitigating actions as per the FM action plan. This risk rating will be further evaluated during the implementation of the Project. III. PROJECT INFORMATION 14. Development Objective: The Project s Development Objective (PDO) is to support the Government of Kenya (GoK) efforts to increase access to youth-targeted temporary employment programs and to improve youth employability. The Objectives would be achieved through three components: (a) Labor-intensive works and social services; (b) Private Sector Internships and Training; and 86

96 (c) Capacity Building and Policy Development. 15. The Project will be executed by the OPM (component 1) and the MoYAS (component 3). KEPSA will be the implementing entity for component Project Coordination: The Project will be coordinated by the PCU in OPM. However, KEPSA will set up their own KYEP department and the MoYAS will set up a PU to implement its respective component. IV. COUNTRY FINANCIAL MANAGEMENT ISSUES 17. The most recent piece of diagnostic work that provides up to date information on the country s public financial management (PFM) system is the Public Expenditure and Financial Accountability (PEFA) of Although the PEFA assessment rated highly the credibility of the budget, key risks related to project implementation were identified in the areas of classification of the budget, orderliness and participation of the budget process, effectiveness of internal audit especially in regard to the extent of management response to internal audit findings, timeliness and regularity of accounts reconciliation, quality and timeliness of annual financial statements mainly arising due to the difficulties in using the Integrated Financial Management Information System (IFMIS), scope, nature and follow up of external audit issues and legislative scrutiny of external audit reports and budget law. 18. Other country-level FM risks arise from the country s overall governance environment and corruption concerns. This is being addressed by strengthening of management oversight through ministerial audit committees, enhancement of social accountability mechanisms and capacity enhancement of integrity assurance agencies particularly Kenya Anti-Corruption Commission (KACC), KENAO and IAD. 19. Through its Public Financial Management Reform Strategy, the GoK remains committed to strengthening fiduciary safeguards with a view to achieving economy, efficiency and effectiveness in the use of public funds. With the support of a number of development partnerassisted initiatives, including the IDA-funded Institutional Reform and Capacity Building Project (IRCBP), the GoK is seeking to rapidly enhance the financial accountability framework, particularly through strengthening legislation related to public financial accounting and audit. 20. The government has initiated far-reaching portfolio-level FM reforms with support from the Association to address identified fiduciary weaknesses in management of projects supported by development partners and devolved funds. On the IDA-financed portfolio, Project implementation has generally been slowed down by constraints in the flow of resources and limited absorptive capacity. The government has also adopted International Public Sector Accounting Standards (IPSAS) cash basis of accounting for IDA-financed project effective FY08. The GoK also issued Treasury Circular No. 3/2009 on development and implementing of Institutional Risk Management Policy Framework (IRMPF), which make it mandatory for all public institutions including line ministries, state corporations and local authorities, to adopt a risk framework. The IRMPF provides for elaborate social accountability mechanisms including 87

97 public reporting, and corruption prevention mechanisms. On implementation, the IRMPF will mitigate the risks associated with management if public resources. 21. The GoK has also agreed to conduct annual risk-based Fiduciary and Funds Flow Review and in-depth/forensic audit reviews IAD Treasury. The first review was conducted during the year The MoF and the relevant implementing agencies are in the process of implementing the findings and recommendations. V. PROJECT FINANCIAL MANAGEMENT ARRANGEMENTS 22. A summary of the key findings of the FM arrangements for the is as follows: Budgeting 23. Budgeting for the Project will be undertaken as part of each implementing agency s budget process. Detailed cost tables will be prepared and approved for the Project. The budgeting process for the three agencies is assessed as adequate. However, for component 1, the expenditures related to the OPM will be factored in the OPM s budget, while those for respective implementing line ministries will be factored in the annual budgets of the respective implementing line ministries. This is similar to the current KKV arrangement. The OPM will trigger usage of budgeted for funds in the respective implementing line ministries. The second KEPSA-implemented component funds will be budgeted in the MoYAS budget. Hence the implementing ministries under component 1 will be expected to agree on their work-plans with the OPM in good time so as to have these included in their respective printed estimates. KEPSA will similarly agree on its budget early enough with the MoYAS as to have this factored in the MoYAS ministry budget. a. Financial Management Arrangements for Project Activities 24. Activities involving payments to youth (component 1 and 2): Component 1 and 2 involve payments to youth and the funds flow at the districts level to individual youth where the FM arrangements are assessed as weak. Component 1 will have short-term work-for-pay programs and supporting training providers to develop brief training programs on life skills and labor-intensive construction skills for a percentage of the youth. Component 2 will consist of internships and also payments to training providers. These activities will be conducted with some level of private-sector participation. The FM risk for the two components is assessed as high risk. 25. Component 1 (US$ 43 million IDA and GoK US$ 85 million): This is labor-intensive works and social services under the OPM. It is the biggest component of the Project and will take up over 70 percent of the IDA funds. It is modeled on the Kazi Kwa Vijana (KKV) ( Work for the Youth ), which is a work-for-money initiative implemented by respective line ministries and coordinated by the OPM. Under the KKV arrangement, the funds for labor-intensive activities are budgeted for under respective line ministries (e.g., Roads, Water and Irrigation, and local government) and each ministry is accountable for its funds. The OPM coordinates the activities. This arrangement has faced challenges, including slow disbursement of funds, coordination problems between the OPM, the MoF and the implementing line ministries, 88

98 political interference in the process at the community level and accountability concerns. This was confirmed during discussions with the Internal Audit Department (IAD) Treasury. IAD is conducting an audit of the KKV program, which will be submitted to OPM. Receipt by the Association of an audit report of the Kazi Kwa Vijana program, and incorporation of the audit s findings, if relevant, into the project s KKV Operations Manual to address any shortcomings identified in the audit report, has been agreed as a Condition of Disbursement for Component The FM capacity of the OPM will be enhanced by designating a Project Accountant at the headquarters level and also by designating a Project Accountant in each of the implementing ministries in which the Project funds will be disbursed. These are Financial Management Conditions of Credit Effectiveness. The Project will shift the payment method from the current cash basis under KKV to a transfer system. Different options are being explored (for example the post office, bank accounts and cell phones). The IAD Treasury will conduct annual Fiduciary Reviews of the funds up to the beneficiary level and copies of these reports will be forwarded to the Association. 27. Component 2 (US$ 15.5 million IDA): This is a Private Sector Internships and Training component providing work experience and skills development. It deals with creation of shortterm employment and skills enhancement for youth through work attachment in the private sector. The implementing entity for this component is KEPSA. Payments under this component will be made as stipends to the interns and fees to employers. There would also be payments for capacity building in form of workshops and fees for services provided by to training providers. The beneficiary youths under this component will consist of youths with a minimum of eight years of schooling who are not currently enrolled in school and have not worked in the past year. KEPSA will circulate a notice describing the internship program and solicit applications. Applicants will be screened to ensure all targeting criteria are met. A lottery method will be used to select interns in the event of an over-subscription. KEPSA will be accountable to the MoYAS for funds disbursed under this component. Hence the FM capacity of KEPSA will need to be enhanced. KEPSA hired an accountant in November As a condition of Credit Effectiveness KEPSA will also be required to hire a Project Accountant, Project Director and Project M&E Officer on the basis of a TOR/job description acceptable to the Association. As a dated covenant KEPSA will also be required to hire a Project Accounts Assistant and a Project Internal Auditor. 28. Fiduciary challenges: The Project FM arrangements will be tailored to mitigate against the following challenges in component 1: (i) targeting and selection of the districts with the highest numbers of unemployed youths; (ii) selection of the appropriate sub-projects that benefit the local community; (iii) criteria for measuring and pricing work done or the skills imparted by the private sector organization; (iv) valuation of work done or skills imparted; (v) credibility of payment process to deserving youths for actual work done; (vi) integration of Project activities into existing country systems (KKV, DDC and Constituency Development Fund) so as to avoid duplication, enhance community level FM arrangement and ensure sustainability; (vii) auditability of the whole process to ensure accountability and transparency; and (viii) political interference. For component 2 these challenges are: (i) credibility of payment process to the training providers and private sector organizations; and (ii) the identification, selection and value assessment of the training providers. 89

99 29. Capacity building and policy development (US$ 1.5 million): Component 3 will be implemented by the MoYAS and will mainly focus on training of district youth officers, but will also include pilot of social audits, communication activities and support to MoYAS for policy development. The activities consist of relatively straightforward consultancies that can be managed with the ministry s accounting and procurement systems. Accounting Accounting System 30. The OPM and the MoYAS: The MoF under the PFM Reform Project is in the process of implementing an Integrated Financial Management System (IFMIS), which is expected to increase efficiency within the OPM and the MoYAS accounting systems. However, the IFMIS computer system is still being rolled out. The MoYAS is currently implementing a US$ 300,000 IDF Grant with the IDA, hence has adequate experience in managing IDA funds. 31. KEPSA uses an off-the-shelf accounting package (QuickBooks) that is adequate for small transactions but may not be suitable for large transactions. KEPSA will be required to handle large volumes of financial and non-financial data and hence the current accounting system will not be able to cope. This could impact negatively on accounting, funds flow and financial reporting and could result in accountability and integrity concerns for project funds. KEPSA has never handled such large sums of money and does not have adequate experience in managing decentralized payments. All funds so far received by KEPSA have always been consumed internally. The assessment revealed that the total income for the year ended December 2008 was K.Shs. 33 million. This was the highest annual income over the past four years. This is equivalent to US$ 440,000. However, KEPSA will receive an average of US$ 4 million annually under the Project and most of these funds would be paid to third parties in an arrangement where the actual work and services rendered will be outside the control of KEPSA. Hence KEPSA will have to manage a budget ten times more and in a disbursement arrangement that it not accustomed to. KEPSA will therefore acquire suitable accounting software, preferably integrated with a database, by December 15, This would be part of the capacity development initiative to be funded under the Project. 32. Financial Management Procedures Manual: The OPM, the MoYAS and KEPSA have included a FM section in their OMs which have been reviewed by the Association and found to be acceptable. The FM Manuals include fiduciary arrangements for the funds disbursed in all components. The FM section also includes fiduciary procedures on the oversight, disbursement and accountability by the MoYAS of funds transferred to KEPSA. 33. Staffing: The OPM and the MoYAS will designate Project Accountants. The accountants will work under the supervision of the respective Heads of Accounting Units. All implementing ministries under component 1 will further designate a Project Accountant for each implementing line ministry to which project funds will be disbursed. KEPSA will recruit a project accountant, procurement officer, accounts assistant and internal auditor. The TOR/job descriptions of all the above positions will be discussed and agreed with the Association. Filling of all the above positions except the KEPSA internal auditor and accounts assistant is a Condition of Credit 90

100 Effectiveness. Hiring of the KEPSA project internal auditor and accounts assistant is a dated covenant. b. Internal Controls 34. Financial Management Operations Procedures: The OPM and the MoYAS rely on the Government Financial Procedures and Regulations issued by the Treasury in line with government policy. The approval and authorization controls over payments are deemed sufficient. Fixed assets registers are maintained and regularly updated. There is adequate segregation of duties in the accounts sections. KEPSA has adequate internal control procedures including segregation of duties between the CEO and the accounts clerk and authorization and approval procedures. 35. Internal audit and oversight committees: The internal audit function in the OPM and the MoYAS is well staffed and headed by Chief Internal Auditors who are qualified and experienced. The ministries have set up functional oversight committees, namely the Finance (Budget Implementation Committee) and Audit sub-committees as required by government policy. The examination unit within the accounts department is managed by staff who are appropriately qualified. KEPSA has audit and finance committees as sub-committees of the Council. However, it does not have an internal audit function. KEPSA will set up an effective internal audit function and hire an internal auditor, by December 15, Given the complex nature of the Project design and intricate procedures for the flow of funds to the youths (in component 1 and 2), it is necessary to have regular internal audit reviews of the Project from the national, district and youth levels. The implementing agencies internal auditors will perform yearly risk-based internal audit reviews and their internal audit reports will be acted on by the respective Accounting Officers/CEO and audit committees. 37. As part of the Portfolio Management and monitoring by MoF, the IAD Treasury will perform annual risk-based Fiduciary Reviews of components one and three of the Project. KEPSA s part will be done by the external auditor. Copies of the Reports, together with an action plan agreed with the respective implementing agencies shall be submitted to the Association within two months. 38. IRMPF: The OPM and the MoYAS will develop and implement an IRMPF in line with Treasury Circular No. 3 of February This will include measures to develop social accountability, strengthen public disclosure of information and develop complaint handling mechanisms as follows: (a) Public disclosure of information regarding: (i) activities funded under the Project; (ii) periodic resource appropriation and accountability; (iii) project implementation progress and operational results; and (iv) sharing of best practice experiences among beneficiary entities. These are expected to be prominently disclosed including through the media. (b) Complaint handling mechanisms: Anti-corruption hotlines including toll free communication lines and other complain handling mechanisms are expected to be established/strengthened with explicit arrangements for collation of information, follow- 91

101 up action and public reporting. It is proposed that collation and follow-up responsibilities are vested in Internal Audit and overseen by ministry Audit Committee. 39. Oversight mechanisms: Oversight arrangements within the sector have been discussed in detail in Paragraph 20 (Project Coordination). Major oversight mechanisms include: (a) The ERD in the MoF carries out regular project monitoring. (b) The OPM will coordinate and monitor all project activities through the PCU. (c) Project Steering Committee (PSC) will provide overall policy guidance to the Project. (d) Audit and Finance Committees will provide oversight on financial management and audit matters. 40. Social accountability: The Project focuses at empowering beneficiary youth within their communities hence must have elaborate transparency and social accountability arrangements including public reporting of financial and non-financial reports/information, independent complaints handling, corruption reporting, community participation in the activities of the Project involving the youths (component 1 and 2). The social accountability mechanisms will be incorporated as part of the FM section of the operations manuals. c. Financial Reporting 41. Interim un-audited financial reports (IFR): The accounting system of the three implementing agencies will be used to generate quarterly un-audited Interim Financial Reports (IFR) in form and content satisfactory to the Association, which will be submitted to the Association within 45 days after the end of the quarter to which they relate. The quarterly IFR s will be used as a basis for the disbursement. Separate IFR s will be prepared and submitted to the Association through ERD Treasury, for each of the 3 implementing agencies. The KEPSA IFR will be submitted through the MoYAS. For component I, each of the implementing ministries will be expected to submit IFR s to the OPM which the OPM will consolidate and submit to the Association. The respective project accountant for each implementing ministry will ensure that this is done within 10 days after the end of each calendar quarter. The project accountant for the implementing line ministries will also submit copies of the bank statements of relevant project accounts to support the closing bank balances as shown in the IFR. They will also submit 6 months cash forecast to facilitate the preparation of the withdrawal application (WA) by the OPM. KEPSA will similarly attach the bank statements, aged breakdown of advances and 6 months cash forecast to the IFR submitted to the MoYAS within 10 days after the end of each calendar quarter. 42. Accountability for project funds: The respective Accounting Officers of the OPM, the MoYAS and the various implementing ministries will be responsible for ensuring accountability of project funds disbursed to their respective line ministries. Similarly, the KEPSA management will be held accountable for funds disbursed to them under the project. The role of the OPM for the project for component I and the project in general will be to monitor and coordinate the activities of the project. Any funds paid out by the implementing ministry but not spent by the end of the relevant quarter will be carried as an advance in the IFR and appropriately aged. A proper breakdown of such advances will be attached as part of the IFR to be submitted to the Association. Such advances will be monitored by the respective implementing ministry and 92

102 accounted for in IFR s for subsequent quarters. Delays in accounting for funds by one ministry (which will be shown as advances in the IFR) will not affect the disbursement of funds to the project, as long as all the implementing ministries submit IFR to the OPM for consolidation within the stipulated time, and reflect this appropriately. However, implementing ministries with funds not accounted as shown by the advances in the IFR will have their subsequent request for fund replenishment as per the cash forecasts reduced by equivalent amounts, until such advances are properly accounted for. This will also be the case for ineligible expenditures. 43. Contents of the IFR: The IFR will consist of a statement of sources and uses of funds (by main expenditure classifications); opening and closing balances of the funds from the Association; and actual and budgeted expenditures by component and/or activity within component and explanations of any variances, for the quarter and cumulatively for the Project. It will also contain forecasts for the next six months. Copies of the relevant Designated Accounts and project accounts will also be attached. The format of these reports has been agreed between the Association and the three agencies. d. Audit Arrangements 44. Annual audit reports and management letters: Each of the three agencies will have annual audits conducted and the audit reports and management letters will be submitted to the Association within six months after the end of the financial year end. The OPM and the MoYAS will be audited by the KENAO, which is the Supreme Audit Institution (SAI) in Kenya and has adequate capacity to audit IDA-funded projects. The Government financial year ends on June 30 and the OPM and the MoYAS financial statements will be prepared as at this date. The financial statements will be prepared in accordance with IPSAS cash basis of accounting in line with the government policy of September The audit by KENAO will be conducted in accordance with International Standards of Auditing. KEPSA will be audited by an external private auditor acceptable to the Association. The external auditor will be hired within four months after Credit Effectiveness on the basis of the TOR agreed with the Association at negotiations. The audit should be conducted in accordance with International Standards on Auditing and the accounts. The financial statements will be prepared in line with International Financial Reporting Standards (IFRS). The financial year end of KEPSA is December 31 and the KEPSA component financial statements will be prepared as at this date. 45. Audit completion timetable: The implementing agencies have also committed to a clear timetable for the completion of the annual audit and the submission of the audit reports and management letters. The audit reports to be submitted are summarized below: Audit Report Project financial statements (including Designated Accounts with appropriate notes and disclosures) and management letter Due Date By December 31 each year for the OPM/MoYAS and June 30 for KEPSA 46. In order to meet the above deadlines, the three agencies has committed to the following timetable: 93

103 No. Activity Date 1. Completion of Project Financial Statements August 31 each year for the OPM and February for KEPSA 2. Invitation of Auditors 1 st week of September for the OPM/MoYAS and 1 st week of March for KEPSA 3. Audit Exercise September and October for the OPM/MoYAS and March to April for KEPSA 4. Issuance of Management Letter October 31 for the OPM/MoYAS and March 31 for KEPSA 5. Ministry to respond to Management Letter queries from the auditors By mid-november for the OPM/MoYAS and mid-may for KEPSA 6. Issuance of Draft Audit Certificate By end November for the OPM/MoYAS and end of May for KEPSA 7. Issuance of Final Audit Certificate December 15 for the OPM/MoYAS and June 15 for KEPSA 8. Submission of copy of audited Financial Statements, Auditor s Report (including Designated Account Opinion) and Management Letter to the Association On or before December 31 for the OPM/MoYAS and June 30 for KEPSA 47. Audit of payments to the youth: The scope of the audit by the external auditors will be expected to cover payments made to interns and employers using appropriate sampling techniques. This will give assurance as to the effectiveness of beneficiary-level payment processes, and whether the funds are getting to the deserving cases. This requirement will be included in the TOR for the external auditors. Flow of Funds and Disbursement Arrangements 48. Disbursement method: The Project shall adopt the report-based method of disbursement by use of quarterly IFRs. Separate IFR s and withdrawal applications will be prepared for each of the 3 implementing agencies (i.e. for each component) and these IFR s will be submitted to the Association for posting of expenditures and replenishment of the respective DA s. 49. Funds flow arrangements: The OPM and the MoYAS will open separate Designated Accounts (DA) denominated in US dollars, in local commercial banks acceptable to IDA, and identified and approved by CBK for their respective components 1 and 3. In addition, the MoYAS will open a DA for component 2 through which it will disburse funds to KEPSA. The MoYAS will also open a Project Account denominated in K.Shs. in a local commercial bank 94

104 acceptable to IDA for the respective components into which the funds in the DA s will be transferred to facilitate payments for local expenditure. 50. The OPM and the MoYAS: The OPM and the two MoYAS Designated and Project accounts will be opened and managed in line with the existing government exchequer procedures. For component 1 under the OPM, the funds will flow directly from the DA to the relevant implementing ministries. The implementing line ministries will be expected to open their own segregated PA s into which funds will flow from the OPM DA. The OPM will exercise appropriate management oversight and will review the financial reports and other accountability reports from these ministries through the Project Coordination Unit. The MoYAS will disburse funds to KEPSA as advances under component 2 on the basis of agreed work-plans and the MoYAS will ensure that previous advances are properly accounted for before any further replenishment is made. 51. KEPSA banking arrangements: KEPSA will receive funds through the MoYAS and in this regard, KEPSA will open a segregated non-commingled bank account in a local commercial bank acceptable to IDA, into which funds from the MoYAS will be deposited. Applications for withdrawal from KEPSA for replenishment of funds will be channeled through the MoYAS for approval and processed through ERD before being sent to the Association. The MoYAS will be entitled to request for any other information or documents related to the usage by KEPSA of funds under the Project. KEPSA will also be subject to annual Fiduciary Review by IAD Treasury and to any other audit or review that the GoK may deem necessary. In this regard, KEPSA will sign a subsidiary agreement with the MoF providing for the disbursement, financial reporting and accountability of funds to KEPSA under the Project. The signing of the agreement between MoF and KEPSA will be a condition of Credit Effectiveness. 95

105 52. Funds Flow Diagram: The funds flow process from financiers to beneficiaries can be depicted diagrammatically as follows: IDA Financiers GOK Government Systems OPM- DA MOYAS-DA MOYAS-DA Implementing Ministries- PA Project Account (PA) Project Account (PA) KEPSA- Project Account Suppliers, youth beneficiaries, interns, workshops, employers, training institutions Financial Reports 96

106 53. The OPM and the MoYAS Bank Signatories: The Designated Account, the Project Account will be operated under the existing Government Financial Procedures and Regulations issued by Treasury which provides for two mandatory signatories. The DA s will be operated by the Treasury in line with the existing exchequer procedures. The categories of signatories for the PA s will be as follows: Category 1: Accounting Officer: The Permanent Secretary (PS), of the implementing ministry (OPM/MoYAS) as the ministry s Accounting Officer or designate; and/or Category 2: Accounts Department Staff: (a) Principal Accounts Controller (PAC) (b) Four ministry Accountants appropriately authorized as account signatories. Any two signatories can sign a check for making payments for the Project. 54. KEPSA Bank Signatories: The Project Account will be operated in line with KEPSA FM procedures, which provide for two mandatory signatories. The categories of signatories as follows: Category 1: Chief Executive Officer: The Chief Finance Officer or designate; for purposes of the project, the CEO s designate will be the Project Director, who will also be the mandatory signatory to the Project Account, and/or Category 2: Accounts Department Staff: Any one of the four approved council members; any two signatories can sign a check for making payments for the Project. 55. IDA Disbursement methods: (a) Report-based Disbursements: IDA disbursements will be made into the respective Designated Account based on quarterly IFRs which would provide actual expenditure for the preceding quarter and cash flow projections for the next two quarters. Initial cash flow forecasts upon which the advance disbursement will be made from the IDA credit should be prepared within one month after the Date of Credit Effectiveness. A duly authorized Withdrawal Application for the additional cash replenishment required into the Project Account will be provided along with the IFRs. The IFR together with the Withdrawal Application (WA) will be reviewed by the Association s Financial Management Specialist (FMS) and approved by the Task Team Leader (TTL) before the request for disbursement is processed by the Association s Loan Department. (b) Other Methods: In addition, whenever needed the direct payment method of disbursement, involving direct payments to suppliers for works, goods and services upon the borrower s request, may also be used. Payments may also be made to a commercial bank for expenditures against pre-agreed special commitments. These payments will also be reported in quarterly IFRs. The IDA Disbursement Letter will stipulate the minimum application value for direct payment and special commitment procedures as well as detailed procedures to be complied with under these disbursement arrangements. 56. Remedies for non-compliance: If ineligible expenditures are found to have been made from any of the Project Accounts, the borrower will be obligated to refund the same. If the Project Account remains inactive for more than six months, IDA may reduce the amount 97

107 advanced. IDA will have the right, as to be reflected in the terms of funding agreement, to suspend disbursement of the funds if significant conditions, including reporting requirements, are not complied with. VI. SUMMARY OF STRENGTHS AND WEAKNESSES 57. The major strengths of the project financial management system are: One of the agencies, the MoYAS, has past experience in implementing the IDF Grant. The OPM and the MoYAS have well qualified professionals in the financial management and internal audit functions. Project FM arrangements for the two ministries are well integrated into the existing central government FM systems. Strong audit arrangements are in place, including audit by IAD and KENAO. KEPSA has strong institutional structure. The KKV program has already been implemented by the GoK and the Project will benefit from lessons learned. 58. Areas of weaknesses that need to be addressed and monitored are: Possible coordination challenges for the OPM of the implementing ministries activities could cause delays in completing and submitting quarterly financial reports and audited financial statements. These would be addressed by designating the PCU Accountant at the OPM and implementing ministries Project Accountants and developing FM sections in the OMs. Risk of corruption/fraud and political interference in utilization of funds at beneficiary level. Robust audit arrangements including hiring of internal auditor for KEPSA, quarterly internal audit reviews by each entity, strengthening of audit committees, annual Fiduciary and Funds Flow Reviews (up to beneficiary level) and annual external audit. There also Portfolio-level integrity arrangements between Treasury and KACC. The Association will conduct the necessary capacity building training for all the three implementing agencies. Overall coordination challenges for the whole Project, which has a complex design between two government ministries and a private sector organization. This will be addressed by signing of the subsidiary agreement between KEPSA and the MoF and having separate banking arrangements for each component to avoid delays in one affecting the others. Also the ERD will also provide portfolio-level monitoring and evaluation. Weak accounting capacity in KEPSA including lack of past experience and accounts staff limitations. Capacity development by recruitment of more accounts and internal audit staff and acquisition of suitable accounting software. 59. Actions to address these have been discussed in preceding paragraphs and are summarized in the FM Action Plan. 98

108 VII. RISK ASSESSMENT TABLE 60. The analysis of the assessment is as follows: Type of Risk Preliminary Risk Rating Brief Explanation INHERENT RISKS Country Level S Takes into account overall country governance environment, weak judiciary and corruption concerns and current political crisis arising from the general election in December Entity Level H The OPM and the MoYAS are relatively new ministries that are in the process of setting up its structures. Limited FM capacity at KEPSA. Weak district level FM arrangements. Project Level H Complex project design and weak FM capacity at community level. Most of the Project funds to flow to beneficiary-level activities outside country systems where FM arrangements are weak. Corruption fraud risk. Risk Mitigating Measures Incorporated into Project Design Issues are being addressed at the country level through the country s governance action plan, strengthening of the public financial management system (supported by the Association through the institutional reform and capacity building project). Designation/hiring of FM Project staff for all agencies. KEPSA to acquire computerized accounting software. Clearly defined activities and funds flow mechanisms for the Project. Setting up of social accountability structures as part of Project design. Subsidiary Agreement between MoF and KEPSA. Condition of Effectiveness (Y/N)? No Yes, condition of Credit Effectiveness Yes, dated covenant No No Residual Risk Rating S S S Payment method will be shifted from cash to a transfer system. Yes, Credit Effectiveness condition OVERALL H INHERENT RISK CONTROL RISKS Budgeting M Budget system deemed adequate for purposes of the Project. Detailed Project budgets and cost tables to be prepared and agreed. No No S M Accounting S Potential capacity constraints and weak beneficiary-level FM structures where most of the Project funds will flow. Regular reporting including variance analysis. Develop FM sections as part of the OM Recruitment/ designation of Project accountants. Acquisition of accounting software for KEPSA. No No Yes, Credit Effectiveness condition M Payment method will be shifted from cash to a transfer system. Yes, dated covenant No 99

109 Type of Risk Internal Controls Preliminary Risk Rating S Brief Explanation Internal audit section adequately staffed and internal controls in the two ministries assessed as adequate. Oversight committees (Audit and Finance) constituted. However, weak FM arrangements at beneficiary youth level. Lack of internal audit function in KEPSA. Corruption/fraud risk related to payments to youth for the OPM and KEPSA. Risk Mitigating Measures Incorporated into Project Design Internal control procedures to be defined in the FM sections. Recruitment of project accountant for KEPSA. Recruitment of internal auditor and accounts assistant. Quarterly internal audit reviews to be carried out by internal audit department. Annual Fiduciary Review by IAD Treasury. Condition of Effectiveness (Y/N)? No Yes, Credit Effectiveness condition Yes, dated covenant No Residual Risk Rating M External audits to cover communitylevel activities. No Payment method will be shifted from cash to a transfer system. No No Funds Flow S Complex operational arrangements for component 1 and 2, and high-volume small payment at beneficiary level. Development of FM sections in OM. Subsidiary Agreement between the MoF and KEPSA. No Yes, Credit Effectiveness condition M Financial Reporting S Accounting system deemed capable of generating quarterly IFR and annual financial reports. However, possibility of delays in financial reporting as a result of weak community-level FM structures and weak capacity in KEPSA. FM Procedure sections in OMs to provide for simplified accounting records at beneficiary level. Acquire accounting software for KEPSA. Format of IFR to be agreed at negotiations. No Yes, dated covenant. M Auditing S Audit reporting arrangements deemed adequate. Audit TOR to include community-level audit of funds. No No M OVERALL S CONTROL RISK OVERALL S RISK H = High; S = Substantial; M = Moderate; L = Low. KEPSA to hire external auditor No M M 100

110 VIII. Financial Management (FM) Action Plan 61. The action plan below indicates the actions to be taken and the dates by which the actions are due to be completed as well as the person(s) responsible for the specific actions. The FM Action plan has been discussed and agreed with the three entities. Conditions of Credit Effectiveness Action Date Due By Responsible 1. KEPSA has set up a Kenya Youth Empowerment Project Department (KYEP Department), hired and installed for the Project, a procurement officer, an accountant, a Project director, and a monitoring and evaluation specialist with experience and terms of reference satisfactory to the Association. 2. The OPM, the MoYAS and each of the Implementing Line Ministries have each designated and installed a Project accountant on the basis of terms of reference satisfactory to the Association. Credit Effectiveness Credit Effectiveness KEPSA The OPM and the MoYAS 3. The Subsidiary Agreement has been executed on behalf of the Recipient and the Project Implementing Entity (KEPSA). Dated Covenant Component 2 4. The Recipient shall no later than December 15, 2010 or any other date agreed with the Association ensure that the Project Implementing Entity has: (a) acquired and installed an integrated accounting software to manage the payments and operational data; and (b) recruited and installed an internal auditor and accounts assistant, all under conditions and terms satisfactory to the Association. Other FM Actions Credit Effectiveness By December 15, 2010 The MoF and the KEPSA The OPM and KEPSA 5. Internal auditor to conduct quarterly internal audit reviews. 6. IAD Treasury to conduct annual Fiduciary Reviews of all the three agencies up to community level. Quarterly Annually 7. Open Designated and Project Bank Accounts. Within 2 months after Credit Effectiveness The OPM, KEPSA, the MoYAS ERD, IAD, the OPM, KEPSA, the MoYAS The OPM, KEPSA, the MoYAS 101

111 Action Date Due By Responsible 8. Submit audit reports to the Association (including Designated/Special Account Opinion) and management letters for the Project. 9. Prepare and submit Withdrawal Applications for reimbursement of funds together with the quarterly IFR in form and content satisfactory to the Association. As soon as available but within 6 months after the end of the relevant financial year end (by December 31) Within 45 days after the end of the quarter to which these relate The OPM/MoYAS/ MoF The OPM, the MoYAS/ KEPSA IX. CONDITIONALITY AND FINANCIAL COVENANTS 62. Conditions of Credit Effectiveness: The following Conditions of Credit Effectiveness need to be completed as a precedent to the Project being declared Effective: (a) KEPSA has set up a Kenya Youth Empowerment Project Department (KYEP Department), hired and installed for the Project, an accountant, a procurement officer, an accountant, a Project director, and a monitoring and evaluation specialist with experience and terms of reference satisfactory to the Association; (b) The OPM, the MoYAS and each of the Implementing Line Ministries have each designated and installed a Project accountant on the basis of terms of reference satisfactory to the Association; and (c) The Subsidiary Agreement has been executed on behalf of the Recipient and the Project Implementing Entity (KEPSA). 63. Conditions of Disbursement: The following Conditions of Disbursement need to be completed as precedent to disbursement under Component 1: a) Receipt by the Association of an audit report of the Kazi Kwa Vijana program, and incorporation of audit s findings, if relevant, into the project s KKV Operations Manual to address any shortcomings identified in the audit report. 64. KEPSA will sign the subsidiary agreement with the MOF, acceptable to IDA, defining the disbursement, financial reporting and accountability of Project funds by KEPSA under component The FM dated covenant for component 2 under KEPSA is the following: The Recipient shall no later than December 15, 2010 or any other date agreed with the Association ensure that the Project Implementing Entity has: (a) acquired and installed an integrated accounting software to manage the payments and operational data; and (b) recruited and installed an internal auditor and accounts assistant, all under conditions and terms satisfactory to the Association. 102

112 66. Other conditions related to FM: (a) Financial Management Arrangements: The three entities are required to ensure the continuing adequacy of financial management arrangements over all aspects of the Project until it is completed. In this regard, the OPM, KEPSA and the MoYAS shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the Standard Conditions. (b) Interim Financial Reports (IFR): The OPM, the MoYAS and KEPSA shall ensure that quarterly un-audited Interim Financial Reports (IFR) are prepared and submitted to the Association as stipulated. (c) Financial Statements and Audit Report: The ministry shall prepare Financial Statements for the Project for every financial year as herein stipulated, in form and substance acceptable to the Association. X. IMPLEMENTATION SUPPORT PLAN 67. Based on the outcome of the financial management risk assessment, the following implementation support plan is proposed: FM Activity Frequency Desk Reviews Interim financial reports review Quarterly. Audit report review of the program Annually. Review of other relevant information such as interim internal Continuous as they become control systems reports. available. On Site Visits Review of overall operation of the FM system Two times per year (Implementation Support Mission). Monitoring of actions taken on issues highlighted in audit reports, As needed. auditors management letters, internal audit and other reports Transaction reviews (if needed) As needed. Capacity Building Support FM training sessions Before Project start and thereafter as needed 103

113 Annex 8: Procurement Arrangements KENYA: Kenya Youth Empowerment Project A. General 1. Procurement for the proposed Project will be carried out in accordance with the World Bank s "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004 revised October 2006; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004 revised October 2006, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Loan/Credit, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Association in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual Project implementation needs and improvements in institutional capacity. The procurement entities as well as suppliers, services providers, and consultants (including NGOs) will observe the highest standard of ethics during procurement and execution of contracts financed under this project. The Project will carry out implementation in accordance with the Guidelines on preventing and combating Fraud and Corruption in projects financed by IBRD Loans and IDA Grants dated October 15, 2006 (the Anti-Corruption Guidelines). 2. Procurement Environment: The public procurement system in Kenya covers all government entities which include the central government, local authorities, state corporations, education institutions and other government agencies that purchase goods, works and services using public resources in accordance with the provisions of the public procurement law (i.e., the Public Procurement and Disposal Act of 2005 (PPDA), which came into effect in January 2007, replacing the Exchequer and Audit Act (Public Procurement), the Regulations (2001). Section 8 (1) of the Act established a central Public Procurement Oversight Authority (PPOA) in addition to the Public Procurement Department established under the Regulations (2001) in the MoF. The PPOA was officially launched in June The Act sets out the rules, procedures and institutional arrangements that the public entities should follow in the management of public procurement. The Act also provides mechanisms for enforcement of the law. The PPOA provides oversight function in monitoring compliance with rules and procedures spelt out in the Act. However, the Law contains critical provisions that impede transparency and efficiency. Corruption in procurement is not yet controlled. Capacity building is underway, but compliance and enforcement of the Law to ensure value for money remains very weak. The provisions are listed in paragraph 4 of this annex. 3. Procurement Implementation Arrangements: The Project comprises three main components to be implemented by the Office of the Prime Minister (OPM), the Kenya Private Sector Alliance (KEPSA) and the Ministry of Youth Affairs and Sports (MoYAS), respectively. 4. Component 1: This component comprises labor-intensive works and social services. The credit will support the procurement of consultancy services for technical assistance and 104

114 capacity building for OPM and the procurement of limited amounts of goods, vehicles, tools, safety equipment and works materials to be used in public works and social services projects. A Project Coordination Unit (PCU) has been established in OPM to coordinate the implementation, monitoring and evaluation and preparation of reports for the overall Project. Part of the credit will support procurement of consultancy services, goods and equipment necessary for OPM own operations to be carried out by the PCU. The larger proportion of the funds will go toward payment of labor costs for the Kazi Kwa Vijana (KKV) program, to be implemented by KKV line ministries. 5. The KKV implementing line ministries (at District level) will undertake the implementation of their respective sub-projects which will include procurement of minor works using small local contractors or use labor only contracts whereby local contractors will only provide labor and the implementing agencies will provide materials and equipment in case of specialized sub-projects such as water supply, irrigation schemes etc. In the event that the implementing line ministries will provide equipment, the project will finance running costs only (i.e. fuel, oils, lubricants, and attendants allowances) excluding spare parts. In case of simple sub-projects such as tree planting, clearing of drainage, bush clearing, garbage collection, etc., the implementing agencies will recruit casual and/or skilled or semi-skilled labor selected based on criteria specified in the KKV manual, implementation supervision, payment of labor, and procurement of materials and tools necessary for the implementation of the sub-projects. 6. Component 2: This component comprises private sector internships and training. The credit will support the procurement of consultancy services for training purposes, limited goods and works, payment of allowances to interns, trainees and incentives for employers. KEPSA currently does not have the procurement capacity to implement component 2. A KYEP Department will therefore be established within KEPSA, to assist the process of all necessary procurement (including selection of consultants), and further coordinate internships and training programs (to be conducted by its individual member organizations, through the respective sector boards). With assistance from the Association, the KYEP Department will be responsible for the procurement of all the procurement of the KYEP under component Component 3: The third component comprises institutional capacity building and policy development support to MoYAS. This will be done through activities under the following main areas: (i) training of MoYAS staff; (ii) social audits, focusing on the implementation of the Project s other two components; (iii) communication activities to increase awareness of the Project; and (iv) support to policy development, through the provision of technical assistance. The credit will finance capacity building activities for MoYAS, through technical assistance, consultancy services, procurement of goods, and training. Due to the increased procurement requirements under KYEP, the Association s support and other forms of capacity building to the MoYAS procurement unit will be provided. 8. Use of National Procurement Procedures: All contracts other than those to be procured on the basis of International Competitive Bidding (ICB) and consulting services shall follow the procedures set out in the Public Procurement and Disposal Act of The Act has been reviewed by the Association and found to be acceptable except for the following provisions that would not be applied under this project: (i) bidding period for National Competitive Bidding 105

115 (NCB) shall not be less than 30 days as opposed to 21/14 days provided in the law; (ii) government parastatal institutions shall be allowed to participate in procurement only if they are legally and financially autonomous, operate under commercial law, and are independent from the borrower and its purchasing/contracting authority; (iii) preference system shall not be allowed; (iv) merit point system shall not be used for bid evaluation; (v) price negotiations under NCB shall be allowed only where the bid price is substantially above market or budget levels and only then if negotiations are carried out to try to reach a satisfactory contract through reduction in scope and/or reallocation of risk and responsibility, which can be reflected in a reduction in Contract price; (vi) shopping procedures shall be used instead of direct procurement for low value contracts; (vii) the two envelope bid opening procedure for procurement of goods shall not be permitted; and (viii)the Association s standard bidding documents for goods and works with appropriate modifications shall be used. A specified number of NCB contracts to be prior reviewed by the Association will be identified in the procurement plan each year. 9. Scope of Procurement and Applicable Procurement Methods. The implementation of the Project entails procurement of various types that comprise: (a) goods (motor vehicles, computers and associated equipment, computer software, office furniture and equipment, hand tools, safety equipment and clothing, etc), (b) consulting services (training services, technical assistance, monitoring and evaluation, audits etc.) ; and (c) training and workshops. The implementing agencies will be responsible for procurement activities under each component while OPM will be responsible for the overall coordination of the Project. 10. Procurement of Goods. Goods procured under this project will include four motor vehicles for OPM, computers, computer software, MIS, office furniture and equipment, hand tools, safety clothing and equipment, etc. No International Competitive Bidding or Limited International Bidding is envisaged under this project. Goods estimated to cost less than US$500,000 equivalent per contract will be procured on the basis of National Competitive Bidding (NCB) procedures subject to the exceptions described in paragraph 4 above of this annex. Goods estimated to cost less than US$80,000 equivalent per contract may be procured through Shopping procedures. As a general rule, a qualified supplier who offers goods or materials that meet the specifications at the lowest price shall be recommended for award of the contract. 11. Procurement of Works. No major works contracts are envisaged under the Project. Minor works to be undertaken under the KKV program will be carried out through contracts awarded in accordance with the procedures set forth in the two Project Operations Manuals for components one and two submitted to and agreed with the Association prior to negotiations. Works with an estimated contract value of US$5,000,000 and below per contract will be procured through National Competitive Bidding (NCB), and those below US$80,000 per contract through Shopping. 12. Direct contracting for goods: Direct contracting may be an appropriate method when it can be justified that a competitive bidding is not advantageous and meets the requirements of paragraph 3.6 of the procurement Guidelines after consultation with the Association. In particular, Direct Contracting may be used under the following circumstances: 106

116 (a) Where an existing contract for goods, awarded in accordance with procedures acceptable to the Association, may be extended for additional goods of a similar nature. The Association shall be satisfied in such cases that no advantage could be obtained by further competition and that the prices on the extended contract are reasonable. b) Where there is need for standardization of equipment or spare parts, to be compatible with existing equipment, may justify additional purchases from the original Supplier. For such purchases to be justified, the original equipment shall be suitable, the number of new items shall generally be less than the existing number, the price shall be reasonable, and the advantages of another make or source of equipment shall have been considered and rejected on grounds acceptable to the Association. (c) Where the required equipment is proprietary and obtainable only from one source. (d) Where a contractor responsible for a process design requires the purchase of critical items from a particular supplier as a condition of a performance guarantee. (e) In exceptional cases, such as in response to natural disaster. 13. Procurement of non-consulting services. Non-consulting services are services that are not of intellectual or advisory in nature. The procurement of non-consulting services shall follow the existing SBDs with appropriate modifications. The applicable thresholds will be as per paragraph 10 above. 14. Selection of Consultants. Consulting services under the Project will include but are not limited to: (i) technical assistance, (ii) training services, (iii) Monitoring and evaluation, (iv) audits etc. All consulting services will be procured following the procedures set forth in the Guidelines for the Selection and Employment of Consultants by World Bank Borrowers. Consulting contracts will as far as possible be awarded under Quality and Cost Based Selection (QCBS) procedures. Other methods of selection will be determined for each assignment depending on the type of assignment and the provisions of the Consultants Guidelines, and will be indicated in the procurement plan. Quality Based Selection (QBS) would be followed for assignments, which meet the requirements of paragraph 3.2 of the Consultants Guidelines. Assignments for standard and routine nature such as audits and other repetitive services would be selected through Least-Cost Selection (LCS) method in accordance with paragraph 3.6 of the Consultants Guidelines. Consulting services by firms used for assignments estimated to cost less than US$ 200,000 equivalent per contract and for which the cost of a full-fledged selection process would not be justified may be selected on the basis of Consultant Qualifications Selection (CQS) in accordance with paragraphs 3.7 and 3.8 of the Consultants Guidelines. Fixed Budget Selection (FBS) would be followed for assignments, which meet the requirements of paragraph 3.5 of the Consultants Guidelines. Single-Source Selection (SSS) would be followed for assignments, which meet the requirements of paragraph of the Consultants Guidelines, and will be subject to the Association s prior review regardless of the amount. Specifically, SSS would be applied only in exceptional cases if it presents a clear advantage over competition when selection through a competitive process is not practical or appropriate and would be made on the basis of strong justifications and upon Association s concurrence to the grounds supporting such justification: (a) for tasks that represent a natural continuation of previous work carried out by the firm, (b) in emergency cases, such as in response to disasters 107

117 and for consulting services required during the period of time immediately following the emergency, (c) for very small assignments, or (d) when only one firm is qualified or has experience of exceptional worth for the assignment. Short List of consultants for services estimated to cost less than US$200,000 equivalent per contract may be comprised entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Individual Consultants (IC) will be selected on the basis of their qualifications by comparison of CVs of at least three candidates from those expressing interest in the assignment or those approached directly by the Implementing Agency in accordance with the provision of Section V of the Consultants Guidelines. 15. Training and Workshops. All consulting and non-consulting services identified under the training program will be procured using the appropriate methods described in this document. Few workshops are envisaged under component three. KEPSA, for component two, will prepare an annual training plan and budget, which will be submitted to the Association for review and approval. The annual training plan would include: (i) training envisaged; (ii) justifications for training; (iii) personnel or group of people to be trained; (iv) selection methods of institutions conducting training; (v) institutions, which will conduct training; (vi) the duration; and (vii) estimated cost of training. 16. Operating Costs. Incremental operating costs include expenditures for maintaining equipment and vehicles, fuel, office supplies, utilities, consumables, travel per diems and allowances, travel and accommodation, workshop venues and materials (excluding salaries). These will be procured using the Borrower's administrative procedures, acceptable to the Association. 17. Retroactive Financing: The project will include a retroactive financing provision to assist a) OPM in procuring vehicles and equipments, 2) KEPSA in the setting up of a Project Implementation Unit (PIU), and c) MoYAS to initiate training needs assessment. Retroactive financing will be applicable as of January Small monitoring and evaluation consulting services will also be pre financed for both OPM and KEPSA. To be eligible for IDA financing, contracts shall be awarded in accordance with the Association s procurement Guidelines and are only permitted if within the limitations specified in the Loan Agreement. All such contracts shall be subject to Association s review. 18. IDA s Review Thresholds. The Borrower shall seek IDA s prior review in accordance with Appendix 1 of both Procurement and Consultant Guidelines for contracts above the thresholds as agreed in the Procurement Plan. For purposes of the initial Procurement Plan, the Borrower shall seek IDA prior review for (i) works contracts estimated to cost US$5,000,000 and above per contract, (ii) goods estimated to cost US$500,000 equivalent and above per contract; (iii) consulting services to be provided by consulting firms estimated to cost US$200,000 equivalent per contract and above; (iv) for individual consultants contracts estimated to cost the equivalent of US$100,000 equivalent per contract or more; (v) all direct contracting and single source selection contracts regardless of their value; and (vi) annual training plan. In addition, three contracts to be identified in the procurement plan for the procurement of works and goods below the ICB threshold will also be subject to prior review. These prior review thresholds may be reviewed annually and any revisions based on 108

118 reassessment of the implementing agency s capacity will be agreed with the Borrower and included in an updated Procurement Plan. B. Assessment of the agency s capacity to implement procurement 19. Procurement activities for component 1, 2 and 3 will be carried out by OPM, KEPSA and MoYAS, respectively. OPM and MoYAS each have a Procurement Unit, which pursuant to the provisions of the Public Procurement and Disposal Act 2005, is responsible for all procurement activities under the ministry. The OPM procurement unit is staffed with eleven personnel comprising a Principal Procurement Officer (PPO), Chief Procurement Officer (CPO), Procurement Officer (PO), two Procurement Assistants (PA), five Clerical Officers (CO), and a Secretary. The PPO and CPO have both undertaken training on IDA s procurement procedures and have experience and working knowledge on IDA-financed projects. All the other staff in the unit has little or no experience in IDA funded procurement. The MoYAS procurement unit is staffed with nine personnel, comprising the PPO, two procurement Officers, three Assistant Procurement Officers, two Senior Stores men and a Stores man. The PPO and one of the PO have undergone training in IDA Procurement Procedures. In addition, the PPO has a good working knowledge and experience in IDA-financed projects. All the staff members for the two ministries are computer literate and have limited access to computers, printers, photocopiers and internet connection. KEPSA does not have a procurement unit or procurement trained staff. KEPSA will therefore be required to establish a Project Unit within its Secretariat and engage a procurement consultant who will be responsible for all procurement activities for the duration of the Project. 20. An assessment of the capacity of OPM, MoYAS and KEPSA to implement procurement actions for the Project was carried out between the months of October and November The assessment reviewed the organizational structures, institutional strengths and weaknesses, staff skills and experiences, and the operating procurement environment under which the Project will be implemented. The key issues and risks concerning procurement for implementation of the Project have been identified and mitigation measures proposed. It was observed that OPM being a relatively new ministry has limited procurement capacity but it is in the process of designing its operational structure to assist it seek for additional staff from MoF. The Unit serves more than twelve departments within OPM; it recently relocated to new offices and the setting up of offices and acquisition of furniture and equipment is going on. Due to office space, equipment and staffing constraints, the unit is not in a position to function efficiently. MoYAS is also a relatively new ministry but is sufficiently staffed to meet its own procurement operations. Some of the staff within the procurement unit has undergone training on IDA procurement procedures. However, the ministry has not undertaken an IDA-financed project before and therefore lacks the working knowledge and experience for implementing IDA-financed projects. KEPSA does not have a procurement unit or procurement trained staff and the Secretariat has not implemented a IDA-financed project. It does not therefore have the required procurement capacity to implement the Project. It is further noted that the PPOA has limited capacity to carry out procurement audits for the sub-projects. The OPM would therefore recruit an independent consultant who would carry out procurement audit of the sub-projects on an annual basis. The OPM will prepare the TORs for the selection of the consultant and share with the Association for its review and clearance. 109

119 21. The overall procurement risk of the Project is therefore assessed as high. The proposed risk mitigation measures are summarized below: Risk Action Timeframe Responsibility Inadequate OPM sets up a Project Coordination Before Credit Borrower Procurement capacity Unit (PCU) to be staffed with a Effectiveness at OPM, MoYAS qualified Procurement Officer and KEPSA conversant with IDA s procurement procedures. KEPSA sets up a Project Implementation Unit (PIU) and engages a Procurement Consultant to manage procurement activities for the duration of the Project. Conduct induction procurement training for staff in OPM, MoYAS and KEPSA on IDA procurement procedures. By Credit Effectiveness Before Credit Effectiveness KEPSA Borrower / IDA Sustainability of Existing Capacity in OPM and MoYAS National Procurement Procedures SBD for NCB Contracts RFP documents for selection of consultants Procurement Planning Procurement Audit Increased thresholds for ICB/NCB and prior review Inadequate record keeping and filing system Develop and follow up on formal training program for procurement staff in OPM and MoYAS. MoF to retain the incumbent Procurement Officers seconded to OPM and MoYAS for Project duration. Financing Agreement to include the exception provisions. IDA s SBD to be used for NCB contracts. IDA s RFP documents to be used. The first 18 months Procurement plan has been developed and will be updated regularly. Recruit an Independent Consultant to carry out annual procurement audits on sub-projects Determine NCB contracts each year in the procurement plan to be priorreviewed. Establish and maintain a record keeping and filing system. 110 During implementation Borrower / IDA of the Project During Borrower implementation of the project During negotiations IDA/Borrower During implementation of the project During implementation of the project During Negotiations Within the first 12 months of project implementation During project preparation and updating of the procurement plan Within six months of project implementation Borrower Borrower Borrower Borrower Borrower / IDA Borrower

120 C. Procurement Plan 22. The Borrower, at appraisal, developed the procurement plan for Project implementation, which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Project Team on January 29, 2010 and is available at the OPM. It will also be available in the Project s database and in the Association s external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual Project implementation needs and improvements in institutional capacity. D. Frequency of Procurement Supervision 23. In addition to the prior review supervision to be carried out from Association offices, the capacity assessment of the Implementing Agencies has recommended supervision missions twice a year to visit the field to carry out post-review of procurement actions. E. Details of the Procurement Arrangements Involving International Competition 1. Goods and Non-Consulting Services 24. No goods or works foreseen to be procured using ICB. 2. Consulting Services (a) List of consulting assignments to be undertaken under the Project: Ref. No. Description of Assignment 1. Management Information System for component 1 2. Monitoring and Evaluation for component 1 3. Impact Evaluation for Component 2 Estimated Cost in US$ Selection Method Review by Association (Prior/Post) Expected Proposals Submission Date 100,000 QCBS Prior April 20, ,000 QCBS Prior April 2, ,000 QCBS Prior April 9, Life Skills 1,264,000 QCBS Prior April 20, 2010 Training for Interns 5. Entrepreneurship 160,000 QCBS Prior July 12, 2010 Training for Interns 6. Technical Training 3,728,000 QCBS Prior July 12, 2010 for Interns 7. Social Audits 200,000 QCBS Prior May 13, 2010 Comments 111

121 (b) TOR for all contracts shall be cleared by the Association. (c) Short lists composed entirely of national consultants: Short lists of consultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. 3. Thresholds for Procurement Methods and Prior Review Expenditure Category Contract Value Threshold (US$) Procurement / Selection Method Contracts Subject to Prior Review Works Above ICB All 5,000,000 Below 5,000,000 NCB To be specified in the PP Below 80,0000 Shopping None All Values Direct contracting All Goods Above 500,000 ICB All Consulting Services (Firms) Consulting Services (Individuals) Below 500,000 NCB To be specified in the PP Below 80,000 Shopping None All Values Direct Contracting All Above 200,000 QCBS/LCS All International Shortlist Below 200,000 QCBS/CQS/LCS None National Shortlist All Values SSS All Above 100,000 Individual All Consultant s Qualification Below 100,000 Individual None Consultant s Qualification All Values SSS All ICB=International Competitive Bidding, NCB=National Competitive Bidding, QCBS=Quality and Cost Based Selection, CQS=Consultant Qualification Selection, SSS=Single Source Selection. 112

122 Annex 9: Economic and Financial Analysis KENYA: Kenya Youth Empowerment Project A. Introduction 1. The KYEP aims to support the GoK efforts to increase access to youth targeted temporary employment programs and to improve youth employability. This objective will be obtained by providing youth employment, through labor intensive works and social services, by expanding and improving the ongoing jobs for youth program; the Kazi Kwa Vijana (KKV) (component 1). In addition, the provision of training opportunities, through short term internships, coupled with relevant training in the formal and informal sector (component 2) will help to reach the overall project objective. The project will also provide support for capacity building and policy development of the MoYAS (component 3). 2. There is limited data available to undertake comprehensive economic and financial analyses, but expected benefits and costs are discussed in this annex. This discussion aims to determine the viability of the proposed project to the extent possible. Assumptions used to estimate benefits from component 1 (the KKV) are derived from a recent study on past employment-intensive programs implemented in the last five years in Kenya 26, an in-depth analysis of a representative sample of completed/ongoing KKV projects carried out during the preparatory phase (September/October 2009) and experience gained from similar labor-intensive public work programs in other countries. Assumptions used to explore benefits from component 2 are mainly based on recent survey data and previous experience from similar training related projects in other countries The first section of this annex focuses on the economic rationale for investing in the KYEP, including its impact on household poverty and provision of a stable social environment for development, while the following section examines the possible economic benefits and the last section presents a discussion on the project cost and the financial viability of the project. The cost-effectiveness is also discussed for component 1 and 2, indicating that public works spending has a large multiplier effect and that labor intensive public works tend to be more cost-effective in developing countries, creating more job opportunities for the same amount spent in developed countries. For component 2, engaging employers in the design of the training and work experience is expected to lead to more efficient results. B. Economic Rationale for Investing in the KYEP 4. Kenya recently experienced a slowdown in economic growth, partly as a result of violent post election disruptions in 2008 and the financial, fuel and food crisis. For several consecutive 26 Assessment of employment-intensive works in Kenya, Max and Partners Ltd., United Nations Development Program, Evaluating the Impact of Job Training Programs in Latin America: Evidence from IDB funded operations, Ibarrarán Pablo, Rosas Shady David, Inter-American Development Bank, March 2008 and Impacts of Active Labor Market Programs: New Evidence from Evaluations with Particular Attention to Developing and Transition Countries, Betcherman, Olivad and Dar,

123 years in the early 2000s the economic growth increased, which was a welcome development after years of close to zero growth in the 1990s. In 2007 economic growth reached 7.1 percent. However, after the disputed presidential elections in December 2007 the country suffered from serious post election violence and more than 1,000 people were killed and over 300,000 people internally displaced. In addition to this social disruption, the Kenyan economy was affected by the financial, food and fuel crisis and the economic growth slowed down substantially to 1.7 percent in The post election violence highlighted the importance of addressing poverty and inequality in the country and demonstrated how widely and violently youth were engaged in the conflict. 5. The economic rationale for investing in the proposed project is strong, since youths have important potential to accelerate productivity growth and left idle, this population represents a risk to social stability and in the long-term a risk to development of the nation s economy and the welfare of Kenyan households. Failure to provide youths with income opportunities leads to under-utilization of labor, which in turn leads to inefficiency related to productive factors that are left idle. Ensuring that youths are successfully integrated into the economy and employment (with adequate skills) is expected to open the pathway to a demographic dividend for development that will improve Kenya s competitiveness, raise household incomes, reduce poverty, and create a virtuous circle of investment and growth. The failure to achieve this integration raises the risk of further social disruption and an economy unable to attract industries that are globally competitive in their use of modern technology. 6. Investment in the project can also be justified on grounds of social equity. Youths in Kenya are poorer and more often unemployed than other active age groups and they represent an increasing number of the total population and the labor force. 28 According to a recent report (KPIA, 2009) almost one in three of Kenya s poor population is between years of age, and they make up 67% of the unemployed. According to the Ministry of Youth Affairs and Sports (MoYAS), roughly 750,000 Kenyans enter the labor market each year with only a fraction of that number being employed. 29 The KPIA also shows that households with at least one youth member are poorer than the national average (50 percent compared to 47 percent) and for households with at least one unemployed youth the poverty rate increases even further (55 percent). The project would particularly target unemployed youth, aiming to decrease social inequalities. 7. The high level of poverty in Kenya is one of the country s main challenges and it has become evident that supporting disadvantaged groups in the country is crucial, not only to reach expected growth, but to decrease inequality and sustain the growth. The GoK recognized this in their Medium-Term Plan and the launch of the KKV project is an attempt to support unemployed youth, through labor intensive public works projects. Finding a job increases the chance of young Kenyans to lift themselves out of poverty, and to break the cycle of intergenerational transmission of poverty. According to the Youth Employment Marshal Plan in 2007 over 90 percent of the unemployed youth have no job training and component 2 tries to 28 Youth (between years of age) represent 30 percent of the population. The number of youth is higher than ever in Kenya in both absolute and relative terms. The total number reaches almost 11 million people compared to 8.5 million in 1999 (KPIA, 2009). 29 Youth Employment Marshal Plan, Ministry of Youth Affairs and Sports, November

124 address this problem by providing youths with relevant work experience, coupled with relevant training. 8. Economic rationale for component 1 the KKV: To invest in the creation of a solid safety nets system thorough the KKV would allow the GoK to smooth consumption of poor households if/as necessary in the future, expanding and decreasing the program as a result of major shocks, such as for example the recent financial crisis. The exact extent of the recent crisis and losses of jobs in the formal and informal sector is unknown, but is expected to be substantial. Fewer household members with employment opportunities leads to less income for the households and coupled with a rapid increase in prices, in particular food prices, there has been a serious decline in average household income for many households. This has particularly affected households in informal settlements thus reducing the purchasing capacity of the poor urban dweller. With declining incomes and increasing prices, the gap households must overcome to meet the survival threshold has increased dramatically. 9. Public Work Programs (PWPs) have been launched in the past in many countries to provide an income transfer via wages to smooth consumption of poor households in the wake of a major shock, such as economic crisis or natural disaster or seasonal shortfalls in employment and income. PWPs are today part of many stimulus packages 30, but also serve as a safety net tool that can be scaled up and down as necessary in many countries. With weak demand in private-sector markets, the government serves as an employer of last resort in an effort to sustain both jobs and aggregate demand. Public works spending has a large multiplier effect, which is even larger in developing countries, and is the most direct way of increasing employment and of boosting or stabilizing aggregate demand. 10. An assessment of the impact of public works spending on employment concludes that US$ 1 billion spent on large projects generates employment in the area of 28,000, both directly and indirectly in roughly equal proportions, in advanced economies. 31 Public works expenditure in developing countries has a substantially greater employment impact: US$ 1 billion spent in Latin America can yield up to 200,000 direct jobs; spending the same on labor-intensive rural projects can yield up to 500,000 direct jobs 32, suggesting that the choice of production technology, whether labor-based or equipment-based, can significantly influence the employment component of the expenditure. This is the case in Kenya where the cost of creating a job opportunity for a person per year under the KKV amounts to US$ 1,500, resulting in about 670,000 direct jobs for a US$ 1 billion investment. 11. The KKV can be classified as a PWP targeting youths in Kenya. It is one of the measures introduced by the GoK to confront the current crisis. As mentioned earlier, postelection violence and the financial, food and fuel crisis have resulted in an economic slump from a growth rate of 7% in 2007, to a mere 1.7% in A survey conducted recently by the 30 How to make public works work: A review of the experiences, Carlo del Ninno, Kalanidhi Subbarao and Annamaria Milazzo, World Bank, Tools for Assessing the Labor Market Impacts of Infrastructure Investment. J. Bivens,J. Irons and E. Pollack, EPI Working Paper, April Infrastructure Investment and Potential for Employment Generation. Tuck, L., Schwartz, J. and Andrea, L Crisis in LAC. World Bank LCR Crisis Briefs. 115

125 Federation of Kenya Employers indicates that companies are laying off staff at an alarming rate. More than 10,000 workers lost their jobs in the months of February to April 2009 in the formal sector, corresponding with a rate of job losses of six percent. 33 The KKV is a measure to respond to the large amount of unemployed youths in Kenya and provide them with temporary income opportunities. 12. Economic rationale for component 2 internships, coupled with training: In addition to the KKV, the project would introduce a second component to provide youths with training opportunities through internships, coupled with relevant training. This component seeks to better prepare youths for the labor market, by providing them with real work experience in the formal and informal sector. 13. The KPIA shows that households with more education are less likely to be poor and is associated with better employment prospects, but informal vocational training is associated with even greater increases in employment. The KPIA does not only show a negative correlation with level of education of the head of the household and the poverty level, but also confirms that having a household member with vocational training increases consumption by 14 percent in rural and by 19 percent in urban areas. Data from the urban slums further confirms the importance of vocational training. Among women of all formal education levels, only 31 percent of those without informal vocational training were employed, compared with 54 percent of those with information vocational training. The gain among men is similar, 54 percent versus 79 percent, respectively. 14. The provision of vocational training through internships with the private sector, coupled with demand driven training is expected to be an efficient way of providing youths with improved employability. A recent study measuring the impact of similar training programs in several Latin America countries shows that there has been a significant positive impact in terms of employment for youths in most of these countries. 34 As the study rightly points out these programs do not tackle the root causes of unemployment, but they are in general cost-effective and do help to increase employability of participants. 15. This component seeks to address the problem of youths who are not building skills at a critical stage of the lifecycle by giving them a chance to acquire skills on the job through work experience and training that is closely aligned with the work experience. The minimum of 8 years of schooling is included as a means to ensure that this group will have a basic education and ability to benefit from further training. The component opens opportunities for further employment, skills development, and entrepreneurship. It responds to the issue raised by Kenyan employers who assert that many youths who come out of schools and training centers lack the relevant work experience and competencies needed for employment. 33 Effect of the Economic Crisis on Labor Industry 2009, Federation of Kenya Employers, Ibarrarán Pablo, Rosas Shady David, Inter-American Development Bank, March

126 C. Expected Economic Benefits of the KYEP Protective Benefits (component 1) 16. The expected direct benefits generated through Component 1 are presented in Table 1. Out of a total additional investment in the KKV of US$ 43 million equivalent in small public works and social services, in both rural and urban areas, around US$ 23 million equivalent will be spent on wages to youth, creating almost 190,000 job opportunities, equivalent to about 40, 000 full time jobs. Table 1: Total Direct Benefits Generated through Component 1 Component 1 KKV Year 1 Year 2 Year 3 Year 4 Total a) Labour intensive works in rural areas 4,800,000 9,600,000 4,800,000 4,800,000 24,000,000 Cost training 480, , , ,000 2,400,000 Cost rural works 4,320,000 8,640,000 4,320,000 4,320,000 21,600,000 Number of PD 1,512,000 3,024,000 1,512,000 1,512,000 7,560,000 Cash to youth 3,024,000 6,048,000 3,024,000 3,024,000 15,120,000 Number of job opportunities 30,240 60,480 30,240 30, ,200 b) Labour intensive works in urban areas 3,200,000 4,800,000 2,400,000 2,400,000 12,800,000 Cost training 320, , , ,000 1,280,000 Cost urban works 2,880,000 4,320,000 2,160,000 2,160,000 11,520,000 Number of PD 432, , , ,000 1,728,000 Cash to youth 1,440,000 2,160,000 1,080,000 1,080,000 5,760,000 Number of job opportunities 8,640 12,960 6,480 6,480 34,560 c) Social services 1,600, , ,000 3,200,000 Cost training 160,000 80,000 80, ,000 Cost civil services 1,440, , ,000 2,880,000 Number of PD 388, , , ,600 Cash to youth 1,296, , ,000 2,592,000 Number of job opportunities 3,110 1,555 1,555 6,221 Total number of WD 1,944,000 4,060,800 2,030,400 2,030,400 10,065,600 Total number of job opportunities 38,880 76,550 38,275 38, ,981 Cash to youth 4,464,000 9,504,000 4,752,000 4,752,000 23,472,000 Amount going to training 800,000 1,600, , ,000 4,000,000 Total number of trainee days 21,333 42,667 21,333 21, ,667 Number of people trained 4,267 8,533 4,267 4,267 21, Impact studies of past labor-intensive public work projects reveal that an important benefit of these programs is the protective benefits, since the majority of beneficiaries spent the income primarily to satisfy basic needs and these programs reduce households asset depletion. Often more than 75% spent the income primarily for food consumption and others invest the extra income in the diversification of their economic activities (small business, livestock), strengthen their production capacity (farming in rural areas) or spend it on the acquisition of material goods (for example intermediate means of transport). The employment multiplier effect of such projects is quite high and indirect job creation is likely to be at least 1.5 times the direct job creation, as the income is spent particularly on household food expenses. In addition, laborintensive public works programs reduce households asset depletion, since the extra income will help households with unmet consumption needs and avoid households having to borrow money or sell household assets (such as livestock or farm implements). The KPIA shows that economic shocks are by far the most common chock reported in the previous five years and spending cash savings and selling assets (animals) are the two most common responses to deal with chocks. 117

127 Asset creation and social benefits 18. One important complementary objective of public works programs is the generation of public goods for the community. In the case of the KKV, small-scale work projects with high labor content in the field of soil and water conservation, water supply and sanitation, irrigation, reforestation, maintenance of roads and waste collection will be implemented. This is a risk reduction measure and aims to support beneficiaries and their communities through meaningful and necessary asset creation, rehabilitation or maintenance. Second round benefits (long term employment/employment gains) can be expected from investments in certain sectors such as small-scale irrigation, reforestation, and soil and water conservation. In addition, these assets are likely to create benefits to the community as a whole, through for example less accidents on a better road, less illness because of a new borehole etc. The social services (which will be introduced in the second or third year of the project) would also provide indirect benefits to the elderly and the orphans and vulnerable children. All these indirect additional gains are, however, very difficult to quantify, given their complex and unclear nature. Table 2 presents rough estimates of number of KKV projects to be implemented per year per sector. Over a period of 4 years it is estimated that around 1,200 projects are implemented in the districts where the KKV will be supported with IDA funds. Table 2: Estimated Number of Total KKV Projects and Sector Allocation for Year 1 Assumptions for year 1 (number of districts 8) Number of projects per implementing ministry per year Implementing Ministry % of budget In Kshs In US$ Year 1 Year 2 Year 3 Year 4 MoW&I 25.0% 150,000,000 2,000, MoRD 12.5% 75,000,000 1,000, MoR 25.0% 150,000,000 2,000, MoF&W 12.5% 75,000,000 1,000, MoEnv 12.5% 75,000,000 1,000, MoLG 12.5% 75,000,000 1,000, Average number of projects per year Total number of benefiting districts per year (old boundaries) Average number of projects per year per district (old boundaries) Productive Benefits (component 1 and 2) 19. The KYEP will not only increase the number of public works implemented, but also increase the quality and efficiency of public works being implemented. By improving aspects of the KKV, such as the labor intensity, the payment method used for cash benefits to youth, and technical assistance to sub-project managers to improve their management and coordination capacity it is expected that the overall quality and efficiency of the KKV will increase. It is also estimated that 16,000 youth will be provided with life skills training under component 1. Lack of proper life skills seems to be an important impediment for many youth. Depending on the needs identified, short-term training will also be provided in the field to; (i) project managers and site supervisors in the proper management of labor-intensive work sites; and (ii) technical staff in certain technical fields. It is expected that this training will benefit primarily young professionals 118

128 who are employed on a temporary basis by line ministries. This certified training together with on the job experience is anticipated to increase their employability. 20. The employability of youth is also expected to increase through the provision of life skills training and other work related training in combination with internships under component 2. Around 10,800 youths will be provided with life skills and other training under component 2 and an estimated 96,000 training weeks is expected to be provided over a four year period. Table 3: Estimated number of Interns for Component A recent study (Betcherman, Olivad and Dar, 2004) shows that evidence from a few evaluations in developing countries indicate that training programs for the unemployed show better results for on-the-job training and active employer involvement and less positive result for other type of training. Results are also more positive for women than men. The large majority of impact evaluation from industrialized countries seems to apply broadly to transition countries, but this is not always true for the case of developing countries. The much larger informal labor markets and weaker capacity to implement programs may limit what some programs can achieve in terms of creating formal employment or increasing wages. The study also shows that there are few evaluations of the impact of training programs in developing countries, but some show that youth training programs in developing countries seems to have much more positive impacts than are seen in industrialized countries. The study also shows that the ingredients for successful interventions seem to apply for all countries. Programs that are oriented to labor demand and linked to real workplaces, and careful targeting are good design features. A study from last year (Ibarrarán, Rosas, 2008) clearly confirms the theory that training and internship programs can have positive results on employability of youth, improving the quality of employment, and raising earnings modestly. The study reconfirms the importance of active employer involvement and demand driven training activities, and rightly points out that these programs do not tackle the root causes of unemployment and to be achieve full potential success these programs rely on a positive macroeconomic context. 22. Component 2 builds on the literature by ensuring active employer involvement and also aims to create specific evidence from Kenya through the pilot approach. Engaging employers in the design of a training program and coupling it with work experience to reinforce the training intervention aims to increase the efficiency and sustainability of this component. A 119

129 comprehensive impact evaluation will allow for the creation of evidence and hopefully guide future design of similar programs in Kenya. D. Program cost and Financial Analysis 23. Social Protection is a fairly new concept in the Kenyan context. Lately, the GoK has increased the recognition of the importance to invest in SP interventions and a comprehensive SP strategy has been developed. The GOK s Vision 2030 spells out the importance of investing in human capital and that human resources play a major role in contributing to efficiency gains, as well as diversification of economic sectors. To ensure that the growth is shared more equally, the Vision 2030 spells out a number of targeted interventions, including core poverty programs to accelerate development and reduce inequality. One of the visions is to improve livelihood for all vulnerable groups in the country, through the establishment of a consolidated SP fund. 24. A recent review of targeted programs in Kenya (Kiringai, 2009) 35 shows that Kenya is spending about 1 percent of GDP on social safety nets, which is low compared to many developing countries. 36 Global estimates indicate that spending on social safety nets varies substantially by country, but averages about 1.9 percent of GDP, the targeted programs reviewed show that Kenya is currently spending less than 1 percent of GDP (including external funding). However, low income countries prone to poor harvests such as Malawi and Ethiopia spend around 4.5 percent of GDP, including external financing (see table 4). When external aid is excluded, expenditure on social safety nets in the two countries is estimated at about 0.5 percent of GDP. Although Kenya has other poverty reducing programs like the Constituency Development Fund (2.5 percent of revenue) and other core poverty programs, government spending on direct social safety nets is relatively low, but not significantly different from spending by other governments in the region. The average spending on SP interventions in low income countries represents between 1 and 2 percent of GDP (Weigand, Grosh 2005) and the very high level of inequality in Kenya argues for insufficient spending on social safety nets in Kenya. Table 4: Regional Spending on Social Safety Nets Social Assistance Expenditures Total % of GDP Year Senegal Madagascar Kenya /09 South Africa /03 Malawi Ethiopia /02 Mauritius /02 Source: Kiringai, 2009 (World Bank mimio) 25. The GoK is contributing US$ 85 million equivalent to the KKV (component 1) for FY10 and the total funds for the KYEP project is US$ 60 million equivalent (with US$ 10 million equivalent 35 Review of targeted programs in Kenya, Kiringai, 2009 (World Bank mimio). 36 The review includes the following targeted programs; The Cash Transfer Program for Orphans and Vulnerable Children, the Hunger Safety Net program, Food Distribution: Emergency Operations, Regular & expanded School feeding, Home grown School feeding (estimates), Most Vulnerable Children program, Supplementary feeding & Mother & child Health program, HIV/Aids Nutrition feeding, Njaa marufuku Kenya, National Accelerated Agricultural Inputs Access Program (NAAIAP), Kazi kwa Vijana program and Support to the Elderly program. 120

130 for year 1, US$ 20 million equivalent for year 2 and US$ 15 million equivalent for the last two years). Table 5 summarizes the estimated total cost of the program per year with two scenarios; (i) assuming a continued GoK commitment to the KKV of US$ 85 million equivalent per year, in addition to the IDA credit; and (ii) assuming IDA credit as only GoK commitment to the KKV. With the assumption that the GoK will continue to support the KKV program through the IDA credit and an additional US$ 85 million equivalent the project would represent between 0.17 and 0.22 percent of GDP (see table 5). Assuming that the IDA credit is the only GoK commitment to the KKV these figures would decrease, representing between 0.02 and 0.04 percent of GDP (at market price). Table 5: Estimated Total Cost of the KYEP Program per year Assuming a continued GoK commitment to the KKV of US$ 85 million per year Total Program Total Program % of GDP at Fiscal Year Cost in US$ (mn) Cost in KES (bn) market prices* 2010/ % 2011/ % 2012/ % 2013/ % Assuming IDA credit as only GoK commitment to the KKV Fiscal Year Total Program Cost in US$ (mn)* Total Program Cost in KES (bn)* 2010/ % 2011/ % 2012/ % 2013/ % * GDP at market prices (bn. LC, curr. prices), projections KENLDB % of GDP at market prices* 121

131 Annex 10: Safeguard Policy Issues KENYA: Kenya Youth Empowerment Project Table 1: Safeguard Policies Triggered by the Project Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [X] [ ] Natural Habitats (OP/BP 4.04) [ ] [X] Pest Management (OP 4.09) [ ] [X] Physical Cultural Resources (OP/BP 4.11) [ ] [X] Involuntary Resettlement (OP/BP 4.12) [ ] [ ] Indigenous Peoples (OP/BP 4.10) [X] [ ] Forests (OP/BP 4.36) [ ] [X] Safety of Dams (OP/BP 4.37) [ ] [X] Projects in Disputed Areas (OP/BP 7.60) [ ] [X] Projects on International Waterways (OP/BP 7.50) [ ] [X] 1. In accordance with the Association s Safeguard Policy on Environmental Assessment, the Kenya Youth Empowerment Project has been classified as a Category B project. It is expected to have limited and reversible adverse impacts on human populations or environmentally important areas which are site-specific and which in most cases can be relatively easily mitigated. The assessment of Category B projects requires examination of the Project's potential negative and positive environmental and social impacts and identification of measures needed to prevent, minimize, mitigate, or compensate for adverse impacts and improve environmental performance. This Project triggers two safeguards: OP 4.01 (Environmental Assessment) and OP 4.10 (Indigenous People). If the sub-projects trigger additional OPs, then additional safeguards documents, as appropriate, will be prepared by the Borrower and reviewed by the Association. Tree planting on degraded habitat will not trigger either OP 4.04 (Natural Habitats) or OP 4.36 (Forests). I. SAFEGUARDS 2. OP 4.01 Environmental Assessment: The objective of OP 4.01 is to ensure that projects financed by the Association are environmentally and socially sustainable, and that the decisionmaking process is improved through an appropriate analysis of the actions including their potential environmental impacts. The environmental assessment (EA) is a process whose breadth, depth, and type of analysis depend on the nature, scale and potential environmental impact of the proposed Project. EA takes into account the natural environment (e.g., air, water and land); human health and safety; social aspects (e.g., involuntary resettlement, indigenous peoples and cultural property); and trans-boundary and global environmental aspects. EA considers natural and social aspects in an integrated way. OP 4.01 is triggered if a project is likely to present some risks and potential adverse environmental impacts in its area of influence. 122

132 3. OP 4.10 Indigenous People: The objective of the policy is to: (i) ensure that the development process encourages full respect of dignity, human rights and cultural features of indigenous people; (ii) ensure they do not suffer from the detrimental effects during the development process; and (iii) ensure indigenous people reap economic and social advantages compatible with their culture. Depending on the activities chosen under the Project, there is a small chance that this Operational Policy may be triggered when indigenous peoples are present in, or have collective attachment to, project lands. 4. OP 4.04 Natural Habitats: This policy recognizes that the conservation of natural habitats is essential for long-term sustainable development. The Association, therefore, supports the protection, maintenance and rehabilitation of natural habitats in its project financing, as well as policy dialogue and analytical work. Natural habitats are not expected to be impacted by the Project, as Project target areas are expected to be in areas that are already environmentally degraded with high population density. Any development of greenfield areas (such as in forestry sub-projects) will be assessed through the ESMF screening of sub-projects, and appropriate compliance measures will be taken to limit impact. The ESMF and the KKV Manual will contain a screening mechanism to ensure that sub-projects do not take place in natural habitats that are fragile, unique, and/or limited in size. The Project is therefore not expected to adversely impact wildlife or natural vegetation. 5. OP 4.11 Cultural Property: The objective of this policy is to help countries avoid or reduce the adverse impacts of development projects on physical cultural resources. In order to implement such policy, the word "physical cultural resources" means movable and unmovable objects, sites and structures, and natural aspects of landscapes that have an archeological, paleontological, historic, architectural, religious, aesthetic or other importance. Physical cultural resources could be found in urban or rural areas. The ESMF will contain instructions on the procedures for a chance find as a precautionary measure. II. SAFEGUARD INSTRUMENTS 6. There will be numerous sector- and site-specific activities for this project necessitating an Environmental and Social Management Framework (ESMF). A draft ESMF has been prepared by a consultant under the guidance of the KYEP Secretariat in the Office of the Prime Minister. When finalized, the ESMF will serve as the basis to provide an environmental and social screening process for implementation of KYEP sub-projects. As these activities are sector- and site-specific, the ESMF is intended to be used as a practical tool during sub-project formulation, design, implementation and monitoring. It describes the steps involved in identifying and mitigating the potential environmental and social impacts of future sub-project activities. It also provides guidance in cases where the screening results indicate that a separate Environmental Management Plan (EMP) is required. A summary of the EMSF has been incorporated into the KKV Manual. 123

133 7. Environmental and Social Checklists, Appraisal and Report Forms, and accompanying guidelines are included in the ESMF to assist in the environmental and social evaluation of planned sub-projects under the Project. The forms are designed to place information in the hands of line ministries and reviewers so that impacts and their mitigation measures, if any, can be identified. A checklist for documenting consultations with communities, NGOs, civil society,etc will be added to the final ESMF. 8. It was also agreed that the Government prepares an indigenous people's policy framework (IPPF) to guide interventions in this area. The IPPF has been prepared to ensure that the development process fully respects the dignity, rights, economies and cultures of these communities and that the Project is able to gain the broad community support of affected indigenous peoples and other vulnerable marginalized groups. Included in the IPPF is a Screening process and a Social Assessment (prior to the Action Plan) and the required implementation budget. These documents have been finalized by the borrower, cleared by the World Bank Safeguards unit for disclosure and the IPPF was disclosed in Kenya on December 11, These steps ensure that the World Bank disclosure requirements have been carefully implemented III. IMPACTS 9. While still to be determined, it is likely that KKV projects supported by the Association will involve unskilled and semi-skilled manual labor on road works and water and sanitation projects. Given the relatively simple and mostly manual nature of most KKV work (with the exception of some drilling in the case of the sewage pipeline laying), environmental issues are limited. 10. Although the potential environmental and social impacts of KKV projects are likely to be minimal, and in most cases positive, potentially significant and localized negative impacts may occur, thus requiring appropriate mitigation. Potential adverse effects on the environment as a result of the KKV sub-projects may include increased noise, vibration, and dust pollution levels due to construction, and to a lesser extent, slope erosion, water flow obstruction, impairment of non-critical natural habitat, and minimal and temporary water pollution due to constructionrelated activities. No major contamination of soil or surface water is envisaged. Tree planting on degraded habitat will not trigger either OP 4.04 (Natural Habitats) or OP 4.36 (Forests). Construction waste management and occupational health and safety requirements (provision of safety gear and access to first aid) will be addressed in the ESMF. 11. In most instances a separate EMP will not be required, as long as the screening checklists are completed before Project start and are subsequently monitored. In cases where an EMP will be required, it will be a simple one or two page document detailing impacts and mitigation of those impacts. IV. INSTITUTIONAL ARRANGEMENTS 12. The implementing Line Ministries, Ministry of Water and Irrigation (MoW&I), Ministry of Regional Development Authorities (MoRDA), Ministry of Roads (MoR), Ministry of Forestry (MoF), Ministry of Environment and Natural Resources (MENR), and Ministry of Local 124

134 Government (MoLG), will be responsible for working with the local community chiefs and/or community supervisors in preparing the initial screening checklists, preparing Environmental Management Plans where necessary, and compiling Annual Reports of sub-projects under their mandate. A checklist for documenting consultations with communities, NGOs, civil society, etc will be added to the final ESMF. For the ESMF it is envisioned that the National Environmental Management Agency will be the "umbrella" agency overseeing the screening process, the preparation of Environmental Management Plans (EMPs) for sub-projects where necessary, and participation in general supervision through monitoring of Annual Reports for Line Ministries in each region. 13. Borrower s capacity to implement safeguards. The Government of Kenya s institutional capacity to implement and monitor environmental and social safeguards is reasonably high. According to Kenyan Environmental laws, specific investment activities require EIAs. However, there are no clear EIA requirements for those activities of a smaller scale, which might have negative localized impacts that would require appropriate mitigation, and capacity to monitor low-impact projects is limited. This is the reason why this project will use the environmental and social screening process outlined in the ESMF. In order to ensure proper implementation of environmental and social screening, and mitigation measures, as well as effective project management, the KYEP will undertake an intensive program of environmental training and institutional capacity building. The objective of the training under the ESMF is to: Support representatives and leaders of community groups and associations to prioritize their needs, and to identify, prepare, implement and manage the environmental and social aspects of their sub-projects; Support local NGOs and other service providers to act as extension teams to provide technical support (including basic the specific competencies of the ESMF) to communities in preparing their sub-projects; and Ensure that local government officials have the capacity to assist communities in preparing their sub-project proposals, and to appraise, approve and supervise implementation of sub-projects. 14. A draft budget has been prepared for capacity building for implementation and supervision of the IPPF and ESMF. V. EIA SCREENING PROCESS 15. The EIA process in Kenya is regulated under the Environmental Management and Coordination Act (EMCA) passed in The EMCA requires the proponent of any project or program to be carried out in Kenya to undertake a systematic examination to determine whether or not the activity will have any adverse impacts on the environment. The act stipulates, inter alia, that: EIAs must be carried out in accordance with the Environmental (Impact Assessment and Audit) Regulations of 2003; Projects subject to the Regulations must be approved and an EIA license granted by the National Environmental Management Authority (NEMA) prior to their development; 125

135 Environmental Audits must be undertaken during implementation to check the impacts of the development and plan any further environmental mitigation; and District and Provincial Environmental Committees (DEC), comprising representatives of national government, local authorities, non-governmental organizations and the community, are established as independent tribunals (independent of NEMA) to oversee disputes and provide a forum where affected parties can complain. 16. Kenya's Environmental Management and Coordination Act (EMCA) Kenya's Environmental Action Plan seeks to promote and implement sound environmental policy. The EMCA represents the culmination of a series of initiatives and activities coordinated by the government and stakeholders. It is the master plan for the environment in Kenya and contains a National Environment Policy, Framework Environmental Legislation and Environmental Strategy. 17. In the instance of the KYEP project, the procedure for assessing sub-projects is as follows: An area will be indentified as suitable for a sub-project by the Line Ministry The representative from the Line Ministry will work with the local community chief (or appointed supervisor from the community) in preparing an ESMF Checklist If necessary, simple Environmental Management Plans will be prepared. If the umbrella supervising organization, the National Environmental Management Agency (NEMA), is not satisfied with the Checklist, a field visit will be made by a NEMA official and the Environmental and Social Field Appraisal form will be completed if the NEMA official determines that necessary mitigation measures have been undertaken. Once any recommendations made by NEMA have been implemented, the sub-project can proceed. An Annual Report form will be prepared for each region by the Line Ministry involved, detailing the number of projects under their supervision, any environmental or social issues that may have arisen, and any training needs requires. The annual report must also specify if adequate occupational health and safety gear was provided including (as necessary) wellington boots, gloves, masks and hard hats. Copies of the annual review report will be delivered to NEMA and to the Association. NEMA may also host national or district workshops to review and discuss the view findings and recommendations. VI. CONSULTATIONS AND DISCLOSURE 18. Consultation on the Environmental and Social Management Framework. A consultation on the draft ESMF was done prior to Project appraisal with implementing agencies. 19. Date of disclosure in InfoShop and cooperating country. The draft ESMF was disclosed in the InfoShop and in publicly accessible locations in Kenya on January 13,

136 Annex 11: Project Preparation and Supervision KENYA: Kenya Youth Empowerment Project Planned Actual PCN review August 4, 2009 August 4, 2009 Initial PID to PIC August 21, 2009 August 21, 2009 Initial ISDS to PIC August 22, 2009 August 22, 2009 Appraisal January 19, 2010 January 18, 2010 Negotiations February 19, 2010 February 17, 2010 Board/RVP approval March 30, 2010 Planned date of Credit Effectiveness July 5, 2010 Planned date of mid-term review July, 2012 Planned closing date February 28, The key institutions responsible for preparation of the Project are: Office of the Prime Minister (OPM), Kenya Private Sector Alliance (KEPSA) and Ministry of Youth Affairs and Sport (MoYAS). Government and KEPSA staff who worked on the Project included (among others): Name Title Ahmed Mohammed State Counsel, State Law Office Anne Olubendi Office of the Economic Advisor to the Prime Minister Alice Githu Senior Youth Officer, MoYAS Carole Kariuki Acting Chief Executive Officer, KEPSA Caroli Omondi Chief of Staff, OPM Celestine Otunga Director Public Procurement, MoF Doris Olutende Program Officer, KEPSA Ernest Alela Assistant Director, Human Resource Development, MoYAS Esther Kanini Nzioki Chief Accountant, MoYAS Habil Omutola Accounts Officer, KEPSA Henry Mutwiri Deputy Head of the World Bank Division, MoF Former Chief Isaac Kamande Economist, MoYAS Jackson Kinyanjui Director, External Resources Department, MoF James Waweru Permanent Secretary, MoYAS John Musale Deputy Chief Economist, OPM John Mwangi Ndungu Human Resource Management Officer, MoYAS Linda Thompson Communications and Marketing Advisor, KEPSA Michael Gatimu Accountant General, MoF Mohamed Isahakia Permanent Secretary, OPM Moses Kanagi Head of the World Bank Division, MoF Rachel Gesami Director, Vision 2030 Coordination, OPM Samuel Wambugu Economist, MoYAS Tom Amek Economist, MoYAS Nahum Okwiya Governor & Chair. KEPSA Youth and Sports Board 127

137 IDA staff and consultants who worked on the Project included: Name Title Unit Arvil van Adams Asa Torkelsson Astania Kamau Carine Clert David Newhouse Emma Mistiaen Henry Amena Amuguni Joel Munyori Kalanidhi Subbarao Lucy Musira Luis Schwarz Maddalena Honorati Maikel Lieuw-Kie-Song Marc van Imschoot Michael Mills Nightingale Rukuba- Ngaiza Noreen Beg Nyambura Githagui Randa El-Rashidi Shobhana Sosale Wendy Cunningham Wilfred Omari Nyakundi Yasser El-Gammal Senior Training Consultant Senior Gender Specialist Team Assistant Peer Reviewer, Senior Social Protection Specialist Peer Reviewer, Labor Economist Operations Officer Financial Management Specialist Procurement Specialist Senior Public Works Consultant Team Assistant Senior Finance Officer Economist Public Works Specialist, ILO consultant Public Works Specialist, ILO Lead Economist Senior Counsel Senior Environmental Specialist Senior Social Development Specialist Operations Officer Senior Operations Officer Peer Reviewer, Lead Specialist Civil Engineer, ILO consultant Lead Social Protection Specialist, TTL - PRMGE AFTSP LCSHS HDNSP AFTSP AFTFM AFTPC - AFCE2 CTRFC HDNSP - - AFTHE LEGAF AFTEN AFTCS AFTSP AFTED HDNCY - AFTSP 2. The WB team would like to recognize, with profound gratitude and respect, the leadership of the project identification work by their late colleague and friend, Wim Alberts. 3. IDA funds expended to date on Project preparation: IDA resources: US$305,000 Trust funds: Total: US$305, Estimated Approval and Supervision costs: Remaining costs to approval: US$20,000 Estimated annual supervision cost: US$20,000 Implementation Support Strategy 5. The project s implementation support strategy is built around the following: 6. Close and day-today support: to be provided by the FM and Procurement specialist who are both based in the IDA Nairobi Office and are accessible to project staff. A Social Protection Economist based in Nairobi will also provide technical support as needed. 128

138 7. Training. Initial fiduciary training will be provided to the FM and Procurement Officers involved in project implementation as part of the Nairobi Office s quarterly training sessions. Since the FM and Procurement Officers were identified before project presentation to IDA s Board of Directors, this training will start even before Credit Effectiveness. 8. Within the budget of each of the project s three components, allocations are made to provide specialized training in areas like FM, Procurement, and M&E. The components costs also included allocations to recruit Technical Assistance in areas like M&E and the MIS in both the OPM and KEPSA, Impact Evaluation, and Training Needs Assessment. 9. The Association team will, similar to the preparation period, hold regular Video Connection sessions with project management to tackle issues as they come up. The team will go on two implementation support missions a year each of a duration of two weeks. During these missions, more intensive interaction will take place. Implementation support missions will include technical specialists, fiduciary specialist, and safeguard ones. 129

139 A. Government Documents Annex 12: Documents in the Project File KENYA: Kenya Youth Empowerment Project 1. Kenya Vision 2030: Transforming National Development (2007) 2. Draft Social Protection Strategy (November 2008) 3. Draft Social Protection Policy (2009) 4. Kazi Kwa Vijana Program Manual (April 2009) 5. Environmental and Social Management Framework (2009) 6. Indigenous People Planning Framework (2009) 7. National Youth Policy (2006) 8. National Youth Council Act (December 2009) B. IDA Documents 9. Kenya Country Assistance Strategy Progress Report (March 2007) 10. Country Social Analysis (August 2007) 11. Kenya Human Development Strategy (draft June 2009) 12. Project Concept Note (July 2009) 13. Minutes from Concept Note Review Meeting (August 2009) 14. Aide Memoire from the Appraisal Mission o the KYEP (January 2010) 15. Aide Memoire from the Pre-appraisal Mission of the KYEP (December 2009) 16. Aide Memoire from Preparation Mission of the KYEP (October 2009) 17. Aide Memoire from Preparation Mission of the KYEP (June 2009) 18. Aide Memoire from Preparation Mission of the KYEP (September 2008) 19. Aide Memoire from Preparation Mission of the KYEP (August 2008) 20. Kenya Poverty and Inequality Assessment (April 2009) 21. Review of targeted programs in Kenya, Kiringai, (World Bank mimio, 2009) 22. How to make public works work: A review of the experiences, Carlo del Ninno, Kalanidhi Subbarao and Annamaria Milazzo, World Bank (2009) 23. Infrastructure Investment and Potential for Employment Generation. Tuck, L., Schwartz, J. and Andrea, L. Crisis in LAC. World Bank LCR Crisis Briefs (2009) C. Studies and Assessments 24. Financial Management Assessment Report, including OPM, KEPSA and MoYAS 25. Procurement Assessment Report, including the OPM, KEPSA and MoYAS 26. Assessment of a sample of representative KKV projects, Eng. W.N Omari, (December, 2009) 27. Assessment of employment-intensive works in Kenya, Max and Partners Ltd., United Nations Development Program (February 2009) 28. Survey of Government and Non-Government Training Providers in Kenya (April 2008) 29. Vocational Education Voucher Delivery and Labor Market Returns: A Randomized Evaluation among Kenyan Youth (April 2009) 130

140 30. Youth Assessment (USAID) 31. Evaluating the Impact of Job Training Programs in Latin America: Evidence from IDB funded operations, Ibarrarán Pablo, Rosas Shady David, Inter-American Development Bank (March 2008) 32. Impacts of Active Labor Market Programs: New Evidence from Evaluations with Particular Attention to Developing and Transition Countries, Betcherman, Olivad and Dar (2004) 33. Tools for Assessing the Labor Market Impacts of Infrastructure Investment. J. Bivens,J. Irons and E. Pollack, EPI Working Paper (April 2009) 34. Effect of the Economic Crisis on Labor Industry 2009, Federation of Kenya Employers (2009) 131

141 Annex 13: Statement of Loans and Credits KENYA: Kenya Youth Empowerment Project Original Amount in US$ millions Difference between Expected and Actual Disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev d P KE-Water & Sanitation Srv Impr (FY08) P KE-NRM SIL (FY07) P KE-Edu Sec Sup Project (FY07) P KE-Natl STATCAP Dev P KE-Total War Against HIV/AIDS-TOWA (FY07 P KE-W Kenya CDD/Flood Mitigation (FY07) P KE-Inst Reform & CB TA (FY06) P KE-Energy Sec Recovery Prj (FY05) P KE-Financial & Legal Sec TA (FY05) P MSME Competitiveness P KE-Northern Corridor Trnsprt SIL (FY04) P KE-Agricultural Productivity Prj (FY04) P KE-Dev Learning Centre LIL (FY04) P KE-Arid Lands 2 SIL (FY03) P Regional Trade Fac. Proj. - Kenya Total:

142 KENYA STATEMENT OF IFC s Held and Disbursed Portfolio In Millions of US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic AEF AAA Growers AEF Ceres AEF Deras Ltd AEF Lesiolo AEF Locland AEF Magana AEF Redhill Flrs BARCLAYS BK KEN Diamond Trust GTFP Barclays Ke GTFP I & M BANK Gapco Kenya IM Bank IPS(K)-Allpack IPS(K)-Frigoken IPS(K)-Prem Food Intl Hotels-Ken K-Rep Bank K-Rep Bank Kingdom Hotel Kongoni Mabati Magadi Soda Co Magadi Soda Co Panafrican Panafrican Panari Center TPS EA Ltd Tsavo Power Total portfolio: Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic Greenlands Barclays-Kenya Adv Bio-Extracts Total pending commitment:

143 Annex 14: Country at a Glance KENYA: Kenya Youth Empowerment Project 134

144 135