Date of Submission to Coordination Unit:

A. GENERAL INFORMATION

1. Activity NameLibya Finance and Private Sector Development Technical Assistance

2. Requestor Information Name: H. E. Al Kilani Abulkarim Al Jazi

Title: Minister of Finance

Organization and Address: Ministry of Finance, Tripoli, Libya

Telephone: +218 21 3620145 Email:

3. Recipient Entity Name: Dr. El Sadiq El Kabir Title: Governor

Organization and Address: Central Bank of Libya

Telephone: +218 21 333 3588 Email:

Name: Mostafa Mohammad Abo Funas Title: Minister of Economy

Organization and Address: Ministry of Economy

Telephone: +218 21 483 1416 Email: suhilabb@economy.gov.ly

Name: Khaled Al Bakory Title: Director

Organization and Address: Privatization and Investment Board

Telephone : +218 21 340 5226 khaled.saleh18@yahoo.com

Name: Ahmed El Faghi Chamber of Commerce - Tripoli Title: General Manager

Organization and Address: Privatization and Investment Board

Tel. +218 21 333 3706 Email. ahmedfaghi@yahoo.com

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November 1, 2013

Name: Mr. Abdulnaser Ben Nafaa Title: Chairman

Organization and Address: Libyan Business Council

Telephone : +218 91 222 0629 naser@bennafaa-group.ly

4. ISA SC RepresentativeName: Junaid Kamal Ahmad Title: Sector Director, MNSFP, World Bank

Organization and Address: The World Bank 1818 H Street, N.W. Washington, DC 20433 USA

Telephone: +1 202 458-8470 Email: jahmad@worldbank.org

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

Country-Execution Attach written endorsement from designated ISA

Joint Country/ISA-Execution

Attach written endorsement from designated ISA

(Provide justification for ISA-Execution)

√ ISA-Execution for Country

Attach written endorsement from designated ISA

Low capacity of Government entities. High turnover in the aftermath of the revolution has depleted managerial experience and technical expertise in many ministries, departments and agencies.

The implementation of this TA by the World Bank will be used to provide capacity building to the Libya public and private sector entities.

The World Bank staff and a roaster of experts will implement the project activities, and will ensure active and consistent team presence in Libya during execution. The World Bank will carry out procurement and financial management of the activities to speed project implementation. This will be done in coordination with the technical committees to strengthen their capacity in procurement and financial management.More background is provided below.

ISA-Execution for Parliaments

Attach written endorsements from designated Ministry and ISA

6. Geographic Focus√ Individual country (name of country): This request focuses on Libya

Regional or multiple countries (list countries):

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

USD 3,300,000(USD3,300,000)

Amount Requested for ISA Indirect Costs:1 USD 137,400

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

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Total Amount Requested: USD 3,437,400

8. Expected Project Start, Closing and Final Disbursement DatesStart Date:

January 1, 2014 Closing Date:

January 31, 2017 End Disbursement Date:

May 31, 2017

9. Pillar(s) to which Activity RespondsPillar Primary

(One only)

Secondary(All that apply)

Pillar Primary(One only)

Secondary(All that apply)

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

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

√ √

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

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

√ √

B. STRATEGIC CONTEXT

1. Country and Sector Issues

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Country ContextFollowing the lifting of economic sanctions in 2003, Libya experienced sustained economic growth. Real growth performance was slightly positive over 2003-10, with average GDP growth of 6.5 percent. This growth was driven more by the non-oil sector than the oil sector. Hydrocarbon GDP accounted for 3 percent of the 6.5 percent growth of GDP for this period, whereas the non-oil sector accounted for 3.6 percent of GDP growth, boosted by increased government investment in housing and infrastructure, as well as increased trade and financial services. However, it should be noted that Libya’s economic base has narrowed in general, with the share of the non-oil sector in the economy having fallen from 66 percent in the 1990s to 26 percent in the 2003-2010 period

Libya has remained in a political transition since the declaration of liberation in October 2011. An interim parliament, the General National Congress (GNC), was elected in July 2012, to oversee the transition to a new constitution by end 2013. The government of Ali Zeidan took office in November 2012 with the goal of establishing security, reinforcing the rule of law, and restoring infrastructure, but it is struggling to establish control over the country. Security problems pose the greatest immediate challenge to the government’s efforts to stabilize the country.2

Libya’s economy is completely dominated by the oil and gas sectors. The industrial sector in Libya encompasses food processing, textiles, steel products, petrochemicals, and electrical consumer goods. The service sector accounts for about 52 percent of non-oil GDP. However, its share in GDP declined slightly in recent years.

Libya is characterized by (i) extremely high unemployment and under-employment, (ii) a high concentration of public sector jobs, and (iii) strong competition from foreign labor.

A labor assessment prepared by the World Bank in early 2012 estimated the overall unemployment rate to be at 33 percent, and even higher for the younger population.3 Libya has a significant youth bulge which includes a large number of young men out of and unprepared for work. The median age in Libya is 25 and 33 percent of the population aged 15 or younger. Estimates of pre-conflict unemployment levels (in 2010) vary greatly but were generally between 13-20 percent, with youth unemployment at over 35 percent.

More than half (55 percent) of the Libyan labor force is employed by the government, and 4-6 percent by private sector companies, and 6 percent is self-employed. The rest is are employed in state-owned enterprises. Despite the recovery in oil production and high revenues, the hydrocarbon sector generates a limited amount of jobs. Developing sectors with high employment potential, including in the services industry (hospitality, tourism, media, ICT), agriculture & fisheries, manufacturing, trade and construction is essential to meet the demand for sustainable jobs.

Prior to the 2011 conflict, some 47 percent of the labor force was foreign, a majority of whom worked informally. A large share of these workers, (about one million of the estimated 2.5million foreign workers), fled the country during the conflict. Immigrants have started returning, mainly from Egypt,

2 Libya – Economic Monitoring Note, April 2013, World Bank3A Rapid Assessment of the Libyan Labor Market – Key Findings and Areas of Opportunity, July 23, 2012. Altai Consulting for the World Bank Group

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Tunisia and South Asia.

With this demographic structure and the limited growth of employment potential in the public sector and the oil sector, the pressure will be strong on the Government for job promotion and creation. The Government is eager to diversify the economy to tackle the looming risk of growing working age population.

The Government has requested World Bank support to help in the modernization of the financial infrastructure, and increase private sector participation in the local economy, through a comprehensive approach that builds on strategic planning, institutional development, and capacity building. The World Bank and the Government conducted a mission to (i) define and agree on priority activities to be implemented as part of a World Bank supported Transition Fund Technical Assistance Project to help lay the foundation for private sector and financial sector development and improve the capacity of key Libyan key actors in charge of managing finance and private sector infrastructure; and (ii) define activities to support the development of the financial and private sector, to be implemented a medium to longer term finance and private sector development support activities to be implemented possibly through a Libya financed advisory services. A total of 19 activities were identified. Only 6 have been retained to be supported under this Transition Fund supported Technical Assistance Project. These short term activities have been retained for the following reasons: (i) the Government and private sector demand; (ii) they are prerequisite to any long term financial and private sector development; and (ii) their readiness to be implemented given the uncertain situation and immediate challenges and opportunities at hand. Key members of the transitional government have an opportunity, and the will, to initiate a process that would be deepened and expanded after the elections.

This approach is consistent with the World Bank Group Partnership Framework for engagement in Libya, which consists of accompanying Libya’s short term economic recovery efforts and help Libya lay the foundation and develop the framework and institutions for a market-based economy, diversified beyond the oil and gas sector able to generate jobs. For these short term activities, instruments available to support Libya’s transition will be analytical and advisory assistance funded with World Bank resources and grants financed by trust funds. In the short term, the World Bank aims to help Libya design reforms, strategies and action plans and to build institutional capacity to implement reforms, programs or provide services. For the medium and long term, it is likely that the Libya program will be fully on a Reimbursable Advisory Services (RAS).

Sector Context

The failure to develop a diversified and robust private sector is one of the most significant challenges of the economy. Libya’s oil sector accounts for 75 percent of GDP, 90 percent of government revenues, and 97 percent of export earnings (2003-10). The economy is largely controlled by the state, which nationalized oil and other productive sectors in the 1970s. The private sector is small, accounting for 25 percent of non-oil activities, which in turn account for 25 percent of GDP. Prominent non-oil activities are centered on trade, public services, and construction.4 There are about 50 state-owned enterprises (SOEs) that lack efficiency and profitability. However, privatization of SOEs is challenged by workers’

4 Libya – Economic Recovery Watching Brief, June 2011, World Bank

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unions’ opposition, and the government’s limited expertise in public-private partnership transactions. There are 15 planned industrial zones in Libya, but none of them is properly developed to attract new investments.5 Numerous SMEs were established in the last two years, mainly in the trade/ retail sector. The existing managerial capacity of SMEs is limited, and requires much support to sustain growth and provide job opportunities to the local market.

The industrial sector in Libya encompasses food processing, textiles, steel products, petrochemicals, and electrical consumer goods. Heavy industries, mostly export-oriented, include chemical, petrochemicals, oil refineries, and metallurgical industries. Light industries produce mostly for the domestic market, including final consumer goods as well as intermediate products destined for the domestic agricultural, manufacturing, and construction sectors.

The service sector accounts for about 52 percent of non-oil GDP. However, its share in GDP declined slightly in recent years. The share of education and health fell by about two percentage points, and other public services registered a slight decline. The contraction of public services was in line with the measures taken by the government to reduce the size of the state — while preserving health and education service levels — with a view to reallocating resources toward productive sectors.

Sector Challenges

Finance and private sector development continues to be constrained by a variety of structural challenges, including (i) unfriendly business environment in a post-election transition environment characterized by political and security uncertainties that are further hindering private sector activity and investor confidence; (ii) undeveloped financial infrastructure and low access to finance, which continues to be distorted by subsidized credit institutions; and (iii) limited capacity of private enterprises and institutions.

Unfriendly business environment. Private sector development continues to be constrained by a variety of structural challenges, including restrictions on access to land, regulatory and macroeconomic uncertainty, and low access to finance. , which continues to be distorted by subsidized credit institutions.6 Starting a business is a challenging process in Libya. The current process takes about one month (30-35 days) and goes through 10 steps. The complication of the process may have contributed to increasing informal businesses in the country, and to decreasing private sector participation in the economy.7

Undeveloped financial sector infrastructure and limited access to finance. The Libyan financial sector is small, underdeveloped, and mainly owned by the public sector, which holds about 80 percent of total assets. The banking sector is the main provider of financial services to the economy and represents 81 percent of the financial sector. Non-banks remain relatively small, underdeveloped, and unimportant in Libya. The lack of access to finance made it particularly difficult for private sector enterprises to start or expand their operations. The recent decision of the GNC agreement to implement an inclusive strict Islamic Banking regime starting January 2015 has further cast a twin fold uncertainty on the financial sector as, (i) as banks are unwilling to make loans past December 2014; (ii) banks have no , in addition to lacking the expertise vision to transform their its operations from conventional to Islamic banking;

5 Project team interview with Dr. Khaled Al Bakory, Director General, Libyan Privatization and Investment Board, August 20136 Libya-World Bank Group Partnership Framework for engagement (FY 13-14), April 2013, World Bank7 Project team interview with Mr. Abulghasem Mrabet, Manager, Libya Enterprise, August 2013

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and (iii) the Central Bank does not have the capacity and expertise to regulate and supervise an exclusive Islamic financial institutions. that was augmented by uncertainty on the regulatory side. Liquidity remains high in the banking system, making it very difficult to conduct any effective monetary policy. Banking supervision is weak; collateral regimes are difficult, if not impossible, to enforce; credit information systems are extremely nascent; the Specialized Banks (Development Banks) considerably distort the sector; and banking sector skills are very weak at all levels of the financial sector. As a result, Libya remains essentially a cash economy. The recently completed Financial Sector Review provides a Road Map and an Action Plan for moving forward on Financial Sector Reform. A World Bank team conducted an identification mission in August 2013 to prioritize potential engagements in cooperation with key finance and private sector representatives in Libya.

Limited capacity of private enterprises and private sector institutions. The existing and emerging Libyan enterprises had limited exposure to and experience in modern management methods and standards during the decades of the old regime. As a result, the level of technical and managerial capability in the business community is low and constitutes an obstacle to new technology adoption, worker productivity improvement and product development. This is further exacerbated by the lack of adequate labor force skills. The skills of the labor force are relatively low and need to be upgraded. Even educated Libyans may not always have the right skills to be readily hired by the private sector.

The capacity of key private sector institutions is limited, and does not support growth of local SMEs. The main private sector institutions are: (i) Chamber of Commerce, which has 14 branches across Libya. Tripoli branch (www.tcci.ly) represents 29,000 thousand active members from 24 sectors, employs about 50 staff members, and provides basic services that include organizing meetings with foreign commercial delegations, facilitating members’ participation at international trade fairs, and facilitating issuance of foreign visas for members; (ii) Libya Enterprise (www.sme.ly), which is the national SME agency of Libya that was established in 2008, and works under the ministry of economy. The agency premises include 7 business centers and 3 incubators. Current activities are focused on supporting startups in terms of incubation, mentorship, feasibility study development, and access to finance. The agency has recently completed 70 feasibility studies, which are now in the pipeline to receive loans from Al Jumhuriya bank, after being reviewed by the partial credit guarantee fund of the Ministry of Economy; and (iii) Businessmen councils, which is a private sector organization that represents 570 businessmen in Tripoli. Their services are mainly organizing incoming/outgoing commercial trade missions, and providing trade/travel facilitation to members.

2. Alignment with Transition Fund ObjectivesThe proposal delivers on the Transitions funds objectives of (i) fostering sustainable economic growth by enhancing the business environment for SMEs, private sector development strategies, and access to finance; (ii) inclusive development and job creation through increasing youth employability, vocational training, financial inclusion, and promoting equitable fiscal policies; and (iii) enhancing economic governance by enhancing public financial management and oversight, capacity building for local government, and sound banking systems.

3. Alignment with Country’s National StrategyThe government is faced with a number of challenges in the context of a complex transition and citizens’ high expectations that the revolution will bring quick, visible improvements in their lives. In its

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2013 plan, the Government points to the enormous challenges it faces in restoring security and building the state and institutions. The Government program is articulated around 8 themes: (i) Security: To build a national professional army and security institutions that maintain public order, (ii) Justice and Human Rights: To create a legal and judicial environment which enables the drafting of the constitution, and the establishment of a state of law; (iii) Public Services and Infrastructure: To increase transparency in public spending and disbursements. Among the many challenges in this area are the lack of adequate data and statistics for planning; incomplete construction projects; contracts signed without adequate technical evaluations, as well as projects completed for which contract payments were never settled. The Government will focus on restoring the Libyan administrative structure, rebuilding institutions in each sector and implementing priority infrastructure projects; (iv) Economic (Private Sector) Development: To strengthen the business environment to be more competitive and attractive to investors; and to promote private sector development leading to sustainable job creation. This includes improving legislation and regulations for the private sector; establishing a database of all development projects; increasing transparency in public spending and disbursements; (v) Economic Diversification: To diversify the economy to promote industry and trade, tourism, agriculture and rural development, and the oil and gas sector (vi) Human Development: To build the country’s human resources, and improve management of human resources in the public and private sector; (vii) Institutional Development and Decentralization: To strengthen public sector performance and accountability and to promote decentralization; and (viii) Communications and Outreach: To strengthen coordination within government on the reform program and promote citizen participation, including outreach to civil society institutions and citizens, strengthening CSOs and private sector organizations etc.

The proposed TA project will contribute to the following pillars of the Government program: (i) Building Public Services and Infrastructure by helping the Government design ing a legal, regulatory and institutional framework for privatization and PPPs; (ii) Economic Diversification and Development by helping map the private sector activities that will enable the government to support growing clusters in the economy, and to address challenges they are facing; their growth; and (iii) Institutional Development and Decentralization through supporting the institutional development of key public and private sector institutions, including the Central Bank of Libya, the Libya Privatization and Investment Board, the Libyan Chamber of Commerce, etc. , the Libya Business Council etc. and Libya Enterprise.

C. PROJECT DESCRIPTION

1. Project ObjectiveThe Development objective of this Technical Assistance Project is (i) to strengthen the capacity of key Libyan financial institutions to assess and reform the foundational elements of financial infrastructure; and (ii) to strengthen the capacity of institutions responsible for promoting private investment and private sector development.

2. Project ComponentsComponent 1. Financial Sector Development (USD1.5million).Objectives Assist the monetary and financial authorities and institutions in their

modernization efforts to develop the financial infrastructure..Activities Finance a gap analysis of the payment system and electronic clearing system

(US$0.5million). Despite a recent development supported by the acquisition in

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2008 of modern infrastructure for a comprehensive national payments system (RTGS, ACH and ACP), the system reliability and efficiency is limited and modern payments instruments (ATMs, POS terminals, e-banking), remain underdeveloped, even in urban areas and check clearing encounters delays.

The project will finance (i) TA to do a gap analysis of the exiting payment system framework and infrastructure and identify bottleneck; and (iii) provide solutions to have the system function efficiently.

Conduct a needs assessment and develop a strategic plan to lay the framework to enable the Libyan financial system provide Islamic financial services (US$0.6million). The GNC has adopted an Islamic banking law since 2012 to introduce and transform the financial sector into an exclusive Islamic financial e system in Libya by 2015. While this step is posed to create opportunity for the growth of Islamic financial products and services, it entails many risks given the limited capacity of the banking system’s human resources, weak regulatory capacity of the Central Bank on on conventional financial services, let alone Islamic finance. if adopted.

The introduction of Islamic finance However this should be done in a way that (i) avoids further sector distortion; and (ii) is , integrated with emerging global Islamic finance standards, and respect for the diverse needs of the Libyan population. The current groundwork for creating an Islamic finance framework has not been fully conducted and minimally exists and many pieces remain missing. The direction of the Islamic banking and finance industry, which is likely to become a significant portion of Libya’s overall financial sector, needs a robust strategic plan to determine how details of the 2012 Islamic Finance law will be implemented (e.g. the treatment of profit-sharing investment accounts from a regulatory standpoint) and how missing pieces of the overall framework will be crafted (e.g. a takaful industry and a sukuk market). The appropriate course of action as evidenced by experience from other countries (including Qatar, Oman, UAE and others) is for the Government to adopt a dual “Islamic-Conventional” banking system, which the project can support.

The main objectives of this activity are (i) to mitigate the shock to the Libya’s financial system of the transition to Islamic finance; and (ii) outline well defined policies and instruments for a smooth introduction of Islamic finance.

This project will implement the following:

(i) Organize a dialog with key decision makers, parliamentarians concerned with economic affairs, regulators and industry stakeholders on the global best practice and international experience in building a sound dual financial systems and pillars for building a well-functioning Islamic banking system. This will be done through the organization of a conference that brings in experiences on mechanics of implanting transition to Islamic Finance and emphasize the significance of a

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gradual approach rather than the big-bang overnight transition. This will allow developing a strategic plan that will outline a well-structured policy reform matrix that defines a realistic timeline for gradual introduction of Islamic financial services as well as a program that will help authorities develop needed capacity that ensures the soundness and functionality of the system.

(ii) Finance TA to conduct a detailed needs assessment and diagnostics for the current status of the Islamic financial services in Libya, to review existing gaps that will guide the drafting of the strategic action plan for adopting Islamic finance in Libya. The scope will also include considering overseeing needed reforms and policy actions on Islamic capital markets and Takaful (Islamic insurance) that are linked to areas of adopting risk and liquidity management frameworks needed for a well-functioning Islamic banking system

(iii) Finance an expert to help the CBL develop a supervisory capacity in Islamic finance, so as to detect any additional risks emerging from sharia compliant products or approaches, and to ensure a reasonably level playing field between conventional and Islamic banks.

The ToRs of these activities are attached to the project document

Provide capacity building to the Central Bank on Banking supervision (US$0.4million). Years of isolation have resulted in weak capacities in the Central Bank of Libya (CBL). The banking sector regulation appears to be weak and to lack clarity. Onsite inspection, off site supervision, training, and capacity building are required at all levels of the CBL. from the Central Bank of Libya. The project will provide such training and TA to the CBL in collaboration with the IMF.

As requested by the CBL, a resident technical advisor will be financed for one year to help the CBL develop and implement processes and tools for banking supervision. The ToRs of the advisor are annexed to the project document.

Implementation This sub-component will be implemented by the World Bank together with a financial Technical Committee led by the Central Bank of Libya. The CBL Financial institutions will be closely associated with all the activities, especially the ones related to the payment system, and Islamic Finance.

Component 2. Private Sector Development(USD1.2million)Objectives Assess and develop the capacity of private sector entities, and develop

opportunities for private sector investment and growth.

Activities There are three activities in this sub-component.

Mapping and assessing private sector activities and opportunities for growth (USD0.25million). While numerous private sector businesses have emerged over the last two years, there is a limited understanding for the emerging/growing

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clusters in the economy. Mapping private sector activities will enable the government to support growing clusters in the economy, and to address challenges facing their growth. There is a need to assess recent activities of the private sector in Libya, and identify growing/ emerging clusters across the country (identify conglomeration of businesses, assess their positioning in the marketplace, and opportunities for growth). This activity will depend on survey activities, field research, value chain analysis, and focus group meetings. The activity will incorporate an Enterprise Survey instrument, which is a firm-level survey of a representative sample in the country (about 600 enterprises). The survey covers a broad range of business environment topics including access to finance, corruption, infrastructure, crime, competition, innovation, and performance measures. The activity will be implemented in cooperation with relevant private sector institutions, and the Central Statistics Office of Libya.

Capacity building of private sector institutions (USD0.4million). The project will support the institutional development of key private sector institutions, which include the Chamber of Commerce, the Business Councils, and Libya Enterprise. Depending on the type of engagement with each institution, the project interventions may include developing bylaws, strategic planning, and organizational structure, line of activities, annual plans, and staff training. The World Bank will inform the process by introducing good practices from regional and global leaders in the field. As part of the public-private dialogue process, the World Bank will support the Government in defining the mandate of key private sector associations, so as to ensure complementarity of scope among working institutions.

Privatization and Public Private Partnership (PPP) framework (USD0.55million). There are about 50 state-owned enterprises (SOEs) that provide opportunities for domestic and foreign investments. The Government is challenged by worker unions’ opposition to privatization, and the limited expertise in public-private partnership transactions. The Government may elect to proceed along the following lines: (i) corporatize SOEs to ensure higher efficiency and profitability; (ii) prepare the legal, regulatory and institutional framework for privatization and PPP; and (iii) move towards privatization and PPP at a later stage. The project will only finance activity (ii) in the form of technical assistance to the Government, and its Privatization and Investment Board (PIB) to design a Public Private Partnership (PPP)/ privatization legal and institutional framework.

The project will help lay the foundation for PPP and privatization, by hiring experts to (i) conduct a diagnostic assessment of existing laws and regulations governing privatization and PPP (ii) help draft a legal framework and regulatory framework for both privatization and PPP; (iii) support the capacity of relevant institutions in charge of PPP and Privatization in Libya (in particular the Privatization and Investment Board-PIB of Libya); and (iv) assist the PIB in identifying a pipeline of SOEs and Project for privatization and PPP.

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The ToRs for these activities are attached to the TA proposal.Implementation This sub-component will be implemented by the World Bank in coordination

with a private sector Technical Committee. The Technical committee will be led by the Ministry of Economy and will consist of relevant public and private representatives, including the Investment and Privatization Board, Libya Enterprise, the Libyan Business Councils, the Chamber of Commerce, and other public and private representatives.

Component 3. Project Implementation (US$600,000)

Objective Assist the Libyan authorities in implementing the project and help strengthen their capacity in project management.

World Bank team and local presence to help with project implementation. (USD0.5million). The project will finance a World Bank staff who will be based in Libya and a team with an appropriate skill mix responsible for the day-to-day running of the project. The team will draft Terms of References (TORs) to commission consultants to deliver technical assistance and capacity building activities, assist the Government to launch and sustain the Public Private Dialog (PPD) process and ensure coordination with other World Bank and other donors’ initiatives.

PPD mechanism for project implementation (USD0.015million). The project will be implemented in coordination with the Government Advisory and Technical Committees through a PPD mechanism. The project will finance TA to facilitate the organization of the dialogue sessions of the committees, and consultant to conduct technical studies to feed into the discussions.

Monitoring and Evaluation (USD0.035million). The project will finance a monitoring and evaluation system of project activities to ensure indicators are established and verified and the outputs and outcomes are attained. The World Bank team will coordinate the monitoring and evaluation of the project results.

Other: Travel Cost: (USD0.050million). Finance travel for World Bank supervision missions especially during the third year of project implementation.

3. Key Indicators Linked to Objectives

Key indicators for measuring the results of the project in include:

(i) A strategic plan to outline gradual introduction of Islamic financial services developed and endorsed by the advisory committee;

(ii) Instruction manual to enable banks examiners produce regulatory reports to CBL, aligned with CAMELS rating, developed and endorsed by the CBL;

(iii) Mapping/assessment of private sector activities completed and endorsed by the advisory committee and

(iv) Identification of a pipeline of projects that will be privatized and suitable for PPP and preparation of

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promotion material for these projects.

Section E (Results Framework and Monitoring) identifies the project’s key indicators and progress measures of intermediate results. The World Bank will be in charge of the monitoring and evaluation (M&E) system.

D. IMPLEMENTATION

1. Partnership Arrangements (if applicable)

2. Coordination with Country-led Mechanism/Donor Implemented Activities

The project will be implemented in coordination with complementary donor projects to take advantage of synergies between different donor-funded activities. The proposed programs under this TA will complement and augment on-going efforts by other donors on ground as well as cover new areas where Libyan authorities would need our support. During project preparation, four points of coordination and collaboration have been identified and will be an important aspect of project implementation:

World Bank Group (IFC) Doing Business Report 2014 - The IFC team of the World Bank Group includes Libya -for the first time- in the Doing Business 2014 report. The Doing Business report provides detailed ranking for Libya’s position in ten main topics. Based on the results of the report, and the interest of the Libyan Government, the World Bank team will cooperate with the IFC team in developing a reform memorandum that outlines short-term and medium-term reform recommendations. The team will work with the Government to validate policy recommendations, identify priority areas for reform, and then provide technical recommendations for prioritized interventions. By implementing reform recommendations, the government will improve the overall business environment in the country, and to provide a favorable image for Libya as an attractive venue for investors.

OECD project “SME Development Strategy for Libya” - The MENA Transition Fund has recently approved the OECD project “SME Development Strategy for Libya”. The project development objective is “To develop and strengthen the overall legal and institutional framework for promoting entrepreneurship and high-potential SME’s in Libya "Together with Enterprise Libya, OECD will (i) conduct macro and microeconomic diagnostic studies and assessments, (ii) develop horizontal and vertical strategies for SME development, (iii) reform the legal framework for enterprise creation and growth, (iv) assist “Libya Enterprise” in the implementation of recommended interventions, and (v) support access to finance for SMEs through assessment and assistance for the establishment of venture capital fund and an SME financing bank. The proposed World Bank project focuses both on financial and private sector development, and designed to complement the OECD project, which focuses on SME development. While the OECD project will focus on supporting the capacity of Libya Enterprise, the World Bank project engagement will extend the support to key organizations in the field. The World Bank project will support the development of key public and private sector institutions (i.e. chambers of commerce and business councils), as well as the management capacity of local enterprises. The World Bank project will benefit from OECD’s diagnostic assessments, studies, and strategies in supporting the project operations. The World Bank project team has discussed potential synergies with the Ministry of Economy and Libya Enterprise (OECD’s partner) during the identification mission in August 2013.

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The Islamic Development Bank Group (IsDB Group). The IsDB is currently providing support to Libya in a wide range of areas. Both parties signed a Memorandum of Understanding (MoU) on furthering mutual cooperation earlier in March 2012. The MoU emphasizes cooperation in various sectors such as infrastructure, power generation, transportation, health, education, housing, etc. The MoU also seeks to mobilize the participation of all IsDB Group entities namely; the ICD, ITFC, ICIEC, and IRTI, in the Libyan reconstruction drive.

The IsDB and the Libyan Ministry of Economy launched a project to offer micro-finance services to the unemployed Libyan youth in line with IsDB’s Arab Youth Employment Support Program. This will allocate US$ 50 million for micro finance projects. IsDB Group shall grant a US$ 320,000 technical assistance to support establishing a Credit Insurance Fund for employment in Libya.

On Islamic finance, the IsDB is supporting Libya’s efforts in developing the nascent industry. This is being done through a TA program put in place to support the Aljumhuria Bank (the largest Libyan State owned bank accounting for 42% of the market) to provide Islamic financial services. Technical assistance is being provided to the bank’s management in this respect. This will be complemented later with capacity building to the Aljumhuria Bank’s staff.

This proposed Transition Fund financed TA will complement the IsDB program by focusing on strengthening the supervisory capacity and conducting a comprehensive diagnostic analysis on Islamic banking that would require close coordination with transition efforts of financial institutions in the market.

A first step of this collaboration is joining efforts with the IsDB (IRTI) to co-organize a conference on the global best practice and international experience in building a well-functioning Islamic banking system in collaboration with CBL. The conference details and objectives are listed under component one activities.

International Development Agencies - The World Bank project team has coordinated with the EU, UK AID/ DFID, and the French Consulate representatives in Tripoli during the team’s identification mission in August 2013. Their planned activities will complement the proposed TA operation (private sector development component), however, current activities in the financial and private sector development field are very small and do not duplicate with this project.

3. Institutional and Implementation ArrangementsThe Project will be a programmatic Technical Assistance financed under a World Bank executed Trust Fund. It will follow the World Bank’s standard operational policies and procedures, including procurement and financial management policies.

A World Bank team with an appropriate mix of specialists will be responsible for the day-to-day running of the project. It will draft/validate the Terms of References (TORs) to commission consultants to deliver the technical assistance and capacity building activities. It will coordinate monitoring and evaluation for the project. Budget will be allocated to monitoring and evaluation of activities to ensure indicators are established and verified and the outputs and outcomes are attained.

This team will be led by a World Bank technical staff who will be posted in Tripoli to help with project implementation. He will assist the Government to launch and sustain the PPD process, ensure

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coordination with other World Bank and donors’ initiatives.

Public-Private Dialogue for project implementation. The project will be implemented in coordination with the following Government entities though a PPD mechanism:

(a) Advisory committee: The committee formed by the Government to benefit Libya from the MENA Transition Fund will serve as the proposed Project’s steering committee. The project will support the functioning this advisory committee that comprises relevant public and private representatives, and led by the deputy minister of finance. In addition to its chair, the committee includes representatives from the Ministry of Economy, the Ministry of Finance, the Central Bank of Libya, the Investment and Privatization Board, public and private commercial banks, Libya Enterprise, the Business Councils, the Chamber of Commerce, and other public and private representatives.

(b) Technical Committees. The World Bank counterpart for project implementation will be the two technical sub committees that will support the advisory committee. These two technical committees are: (1) a financial committee to be formed under the Central Bank; and (2) a private sector committee to be formed under the Ministry of Economy. The dialogue process at the two-level committees will address challenges facing growth of the Libyan economy, put forward recommendations and mechanism for improvement, and facilitate building linkages across major economic entities in Libya.

The project will facilitate the organization of the dialogue sessions, and technical studies to feed into the discussion.

4. Monitoring and Evaluation of ResultsThe ISA will be responsible for the overall monitoring and evaluation of the project with the support of the project Technical Committees. It will coordinate with these committees to establish the baselines, control the quality of the work of the different consultants, and will follow up on the targets and monitor the achievement of the objectives.

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E. PROJECT BUDGETING AND FINANCING

5. Project Financing (including ISA Direct Costs8) Cost by Component Transition Fund

(USD)Country Co-

Financing (USD)Other Co-Financing

(USD)

Total(USD)

World Bank

Component 1: Financial Infrastructure DevelopmentImproving the functioning of the payments (Gap analysis of the payment system and electronic clearing system)

$500,000 $500,000

Strategic plan to lay the framework for implementing Islamic finance in Libya

$600,000 $600,000

Capacity building to the Central Bank on Banking supervision $400,000 $400,000

Sub-Total Component 1: $1,500,000 $1,500,000Component 2: Private Sector Development

Capacity building of private sector institutions

$400,000 $400,000

Mapping/assessing private sector activities and opportunities for growth

$250,000 $250,000

Development of a Privatization and Public Private Partnership (PPP) framework $550,000 $550,0000

Sub-Total Component 2: $1,200,000 $1,200,000Component 3 Project Implementation

World Bank Staff cost to be based in Libya for 2 years

$500,000 $500,000

Monitoring and Evaluation $35,000 $35,000Travel Cost $50,000 $50,000PPD process for project implementation (TA to the Advisory and Technical Committees)

$15,000 $15,000

Sub-Total Component 3: $600,000 $600,000Total Project Cost $3,300,000 $3,300,000

The Terms of Reference (TORs) of the different studies and consultants services will be validated in coordination with the Government committees, for the various activities to be financed under the Transition Fund.

6. Budget Breakdown of Indirect Costs Requested (USD)

Description Transition Fund Total (USD)For grant preparation and administration:

Project preparation cost $100,000 $100,000TF Management $37,400 $37,400

Total Indirect Costs $137,400 $137,400

8 ISA direct costs are those costs related to the ISA’s direct provision of technical assistance within the project.

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F. Results Framework and Monitoring

Project Development Objective (PDO): (i) to strengthen the capacity of key Libyan financial institutions to assess and reform the foundational elements of financial infrastructure; and (ii) to strengthen the capacity of institutions responsible for promoting private investment and private sector development.

PDO Level Results Indicators*

Unit of Measure

BaselineCumulative Target Values**

FrequencyData

Source/Methodology

Responsibility for Data

Collection

Description (indicator definition etc.)

YR 1 YR 2 YR3

(i) Endorsement by the Advisory Committee of a strategic plan that outlines gradual introduction of Islamic financial services

Plan to introduce exclusive Islamic finance in Jan 2015

Plan developed

and adopted before the Jan 2015 deadline

Annually Bank Endorsement of the advisory committee reported in the committee’s minutes of meeting

ii) Endorsement by the CBL of an Instruction Manual to enable banks examiners to produce regulatory reports aligned with CAMELS rating.

Resident advisor

recruited

Manual developed

and adopted

Annually Advisor progress report and CBL supervision program

World Bank Endorsement of the advisory committee reported in the committee’s minutes of meeting and the CBL

(iii) Endorsement by the Advisory Committee of the private sector mapping and capacity assessment

PS mapping

and capacity

assessment prepared

and endorsed

by the committee

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INTERMEDIATE RESULTS

Component I: Financial Infrastructure DevelopmentIslamic finance conference organized and attended by key Libyan public and private sector representatives, as well as international practitioners and experts.

Number of participants

Female participation (%)

0

0

40

20%

- - Annually World Bank Conference completion report

International Islamic finance case studies prepared and disseminated in the conference.

Number of case studies prepared

0 4 - - Annually World Bank Conference completion report

CBL supervision unit staff members trained on key banking supervisory and reporting tasks

Percentage of supervision staff trained

0 20 50 100 Annually World Bank Training completion report

Component 2: Private Sector DevelopmentPrivate sector associations’ staff trained in: Organizational

development. Corporate governance. Strategy development. Business development

practice.

Number of assoc. staff trained

Female participation (%)

0

0%

10

20%

50

20%

70

20%

Annually World Bank Training completion reports

Identification of a pipeline of projects that are suitable for privatization of PPP

Number of projects included in the pipeline

0 0 10 15 Annually World Bank PIB annual reports

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ANNEXE2. DRAFT TERMS OF REFERENCE

TERMS OF REFERENCES: BANKING SUPERVISION TECHNICAL ADVISOR

I. ContextYears of isolation have resulted in weak capacities in the CBL. The banking sector regulation appears to be weak and to lack clarity. Onsite inspection, off site supervision, training, and capacity building are required at all levels from the Central Bank of Libya. Libya has mobilized funding form the Deauville Partnership TF to help the Central Bank of Libya strengthen its supervision function by providing technical assistance and on the job training. A resident technical advisor will be hired for one year to help the CBL develop and implement processes and tools for banking supervision. These ToRs describe the tasks of the advisor. II. Description of the tasks This assignment has 3 sequenced components: (A) An assisted self-assessment of the Basel Core Principle for Effective Banking Supervision, (B) Off Site Supervision Strengthening and (C) On-site supervision.

A. An assisted self-assessment of the Basel Core Principle for Effective Banking Supervision

Effective system of banking supervision is highly correlated to its compliance with minimum standards for sound supervisory practices. The Core Principles defined by the Basel Committee constitute the framework of these minimum standards that is considered universally applicable.Experience has shown that self-assessments of countries' compliance with the Core Principles have proven helpful for the authorities, in particular in identifying regulatory and supervisory shortcomings and setting priorities for addressing them.In its Financial Sector Review report dated July 2, 2012, the World Bank has found that to align them with international best practices, some regulations needed to be updated and refined while others need to be introduced. Also, the report shows that the current banking sector regulation lacks clarity. In such a situation, a full Basel Core Principles assessment will be necessary to precisely• Measure the quality of the current regulatory framework and • Assess the actual degree of implementation.a. Nature of the technical assistance to be provided • Assisted self-assessment of the regulatory framework and its degree of implementation and identification of the areas of improvement. This assessment will follow the revised Basel Committee methodology. b. Tangible and verifiable outputs: • Assessment and recommendations (action plan) report to the CBL (same form than the reports usually delivered in the framework of the Financial Sector Assessment Programs jointly conducted by the IMF and the World Bank –FSAP- all over the world). The report and its recommendations will have to take into account one of the objectives of the CBL which is to prepare a road map for Basel II implementation in the medium term.• The report will have to be delivered no later than March 30, 2014Dates and efforts required for this first component:• The mission will have to take place between January and March 2014.• The mission will last 7 weeks

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B- Off Site Supervision StrengtheningBased on the work carried out before (see A), the objective of this capacity building component is to:(a) Revise/clarify existing regulation / issue new regulation (whenever it is needed)(b) Revised /issue regulatory statements (i.e. reporting requirements) for the Libyan banks.(C) Draft a comprehensive off-site instruction manual enabling CBL banks examiners to produce regulatory reports for the CBL management in the form of a CAMELS rating. These three deliverables will help to ensure that the prudential data and information provided by the banks translate into meaningful signals to CBL management concerning the financial soundness of the banks at the micro as well as at the macro level. Dates and efforts required for the second component:• The mission will have to take place between March and December 2014.• The mission will last 20 weeks.C- On-site supervision:The objectives of this are to assist the CBL in: training/coaching the on-site examiners (Banking Supervision Department). In detail, the component will have the following activities:C-1 Procedures for on-site audit preparation Assistance to the on-site examiners of the CBL in:a) Multi-year bank audit schedule and resource estimates necessary for the audits;b) Guidelines for the selection of departments to be audited within the audited banks and the depth of audits to be performed; andc) Templates for the "first day" letters and interviews. C-3.Assisting the on-site examiners in their mission Assistance to the on-site examiners of the CBL in:a) Working hand-in-hand with on-site examiners to address difficulties and the technical shortcomings encountered (development of technical skills);b) Advising on-site examiners on the management of their interviews with banks senior management and board of directors, including conflict management and refusal to cooperate (development of soft skills);c) Working with on-site examiners on the audits findings in order to ensure that their recommendations are based on thorough analytical work and the tangible evidence;d) Supporting the on-site examiners in the drafting of their "Management Letter"; ande) Advising the on-site examiners in evaluating and scoring the banks through “CAMELS” (when the CBL starts putting this early warning system in place). C-3 TrainingAssistance to the CBL in: a) Developing a system for the selection and training of new recruits; andb) Preparing and delivering a training program for on-site examiners aiming at improving their supervisory skills.Dates and efforts required for the third component:• The mission will take place between January and December 2015.• The mission will last 20 weeks.III. Qualification requirementsTo carry out this assignment successfully, the senior consultant will need to meet the following requirements: Master’s degree in economics, public administration, or related field

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Seasoned professional with at least 10 years of relevant work experience as Bank regulator and supervisor in a central Bank of banking regulation body Demonstrate prior knowledge of MENA countries, in addition to prior hands-on experience in onsite and offsite inspection, BCP assessment and training Proven record in capacity to work with government, successfully manage consensus building efforts High-level communications and presentation skills Fluency in English and Arabic

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TERMS OF REFERENCE FOR LIBYA ISLAMIC FINANCE STRATEGY AND ACTION PLAN

These ToRs are put together to recruit a team of four consultants to conduct the gap analysis and draft the strategic plan for the introduction of Islamic finance in Libya and financial sector transformation.

Consultant (1) + (2): Financial Sector Strategy Specialist:Duties and Scope of Work:

Provide analysis and advice concerning (i) financial sector development; (ii) Access to Finance and financial inclusion; (iii) micro-finance and SME development; (iv) Investment Climate Assessments; (v) financial stability; (vi) corporate governance, and (v) AML/CFT issues

Review and analyze the capital markets practices, standards, and conventions dealing with Islamic financial markets in different jurisdictions.

Provide high quality advice on development of local securities markets, with a focus on Sukuk (Islamic bond) markets, and work on developing enabling environment for further development of Sukuk market.

Review and analyze corporate governance issues dealing with Islamic financial institutions in different jurisdictions.

Collaborate with international standards setting bodies such as Islamic Financial Services Board (IFSB) and Accounting and Auditing Organization of Islamic Financial Institutions (AAOIFI) in designing, reviewing, and implementing financial stability assessment of Islamic financial institutions.

Support to the development of effective financial sector development projects through effective regulatory, securities, and insurance standards and frameworks dealing with Islamic finance.

Provide expertise and TA on development and implementation of Islamic Financial Sector Assessment Program (iFSAP). Develop adequate stress testing and risk management measures for Islamic financial institutions.

Participate in domestic and global advisory programs and projects relating to development of Islamic financial sector.

Provide analytical support and collaborate as well lead in the discussion with senior authorities and other local counterparts in the area of bank regulations and supervision;

Participate in financial sector assessments of the World Bank’s member countries with significance presence of Islamic finance.

Build and manage relationships with key government and industry officials in emerging and developed markets for depth of knowledge and contacts.

Design high quality training programs and provide training and share knowledge with clients on trends and appropriate/best practices in global financial sector development.

Organize, lead and participate in outreach activities (including seminars and workshops) of the center. Provide training to securities regulators and other stakeholders in the form of a seminar and/or workshop.

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Consultant (3): Financial Sector Regulatory Reform Specialist:Duties and Scope of Work:

Review and analyze the banking legal and regulatory frameworks dealing with Islamic banking in different jurisdictions.

Review the banking supervisory framework and supervisory frameworks (including systems, practices, procedures and methodologies), identifying gaps between conventional and Islamic banking, and prepare drafts of proposed relevant enhancements to the supervisory framework and supervisory approach concerning Islamic banking.

Review and develop Islamic banking regulatory framework based on sound standards (such as issued by the Islamic Financial Services Board (IFSB) and Accounting and Auditing Organization of Islamic Financial Institutions (AAOIFI)) and experience and practices in other countries.

Develop regulations and supervisory procedures for Islamic Banking (on, among other things: corporate governance, conduct of business, reporting/disclosure requirements, capital adequacy, risk management, loan classification and provisioning, lending policies, equity investment - supported by international sound practices and international standards where available (e.g. IFSB, AAOIFI)).

Provide analytical support and collaborate as well lead in the discussion with senior authorities and other local counterparts in the area of bank regulations and supervision;

Prepare background notes and drafts on GIFC activities. Monitor, report-on, follow-up and troubleshoot as necessary on the implementation of the GFIC work program; and

Organize, lead and participate in outreach activities (including seminars and workshops) of the center. Provide training to bank regulators and interested stakeholders in banks on different regulatory frameworks in the form of a seminar and/or workshop.

Consultant (4): Financial Sector – Capital Markets and Insurance Specialist:Duties and Scope of Work:

Review and analyze the capital markets practices, standards, and conventions dealing with Islamic financial markets in different jurisdictions.

Provide high quality advice on development of local securities markets, with a focus on Sukuk (Islamic bond) markets, and work on developing enabling environment for further development of Sukuk market.

Participate in domestic and global advisory programs and projects relating to development of Islamic capital markets and Islamic insurance (Takaful).

Provide analysis and advice on securities markets operations, including participation in financial sector assessments on capital markets in countries developing Islamic capital markets.

Build and manage relationships with key government and industry officials in emerging and developed markets for depth of knowledge and contacts.

Provide training and share knowledge with clients on trends and appropriate/best practices in global and emerging securities markets.

Review the capital markets and insurance frameworks (including standards, practices, conventions and codes), identifying gaps and impediments to Islamic financial markets, and prepare drafts of proposed relevant enhancements to the securities and insurance framework to enable Islamic finance.

Collaborate with international standards setting bodies such as Islamic Financial Services Board (IFSB) and Accounting and Auditing Organization of Islamic Financial Institutions (AAOIFI) in

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designing, reviewing, and implementing standards concerning Islamic capital markets and insurance (Takaful) industry.

Organize, lead and participate in outreach activities (including seminars and workshops) of the center. Provide training to securities regulators and other stakeholders in the form of a seminar and/or workshop

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TERMS OF REFERENCE: MAPPING/ ASSESSMENT OF PRIVATE SECTOR ACTIVITIES IN LIBYA

1. BACKGROUNDThe failure to develop a diversified and robust private industry is one of the most

significant challenges of the economy. Libya’s oil sector accounts for 75 percent of GDP, 90 percent of government revenues, and 97 percent of export earnings (2003-10). The economy is largely controlled by the state, which nationalized oil and other productive sectors in the 1970s. The private sector is small, accounting for 25 percent of non-oil activities, which in turn account for 25 percent of GDP. Prominent non-oil activities are centered on trade, public services, and construction.9

The industrial sector in Libya encompasses food processing, textiles, steel products, petrochemicals, and electrical consumer goods. Heavy industries, mostly export-oriented, include chemical, petrochemicals, oil refineries, and metallurgical industries. Light industries produce mostly for the domestic market, including final consumer goods as well as intermediate products destined for the domestic agricultural, manufacturing, and construction sectors.

Numerous private sector businesses have emerged over the last two years, yet there is a limited understanding for the emerging/growing clusters in the economy.

Unfriendly business environment. Private sector development continues to be constrained by a variety of structural challenges, including restrictions on access to land, regulatory and macroeconomic uncertainty, and low access to finance, which continues to be distorted by subsidized credit institutions.10 Starting a business is a challenging process in Libya. The current process takes about one month (30-35 days) and goes through 10 steps. The complication of the process may have contributed to increasing informal businesses in the country, and to decreasing private sector participation in the economy.11

2. OBJECTIVE OF THE ASSIGNMENT

The objective of the assignment is to (i) assess recent activities in the private sector; (ii) map growing/ emerging value chains/ clusters in the country; (iii) identify impediments to private sector development; and (iv) suggest strategic options to enhance competitiveness, diversify the economy, and generate employment.

3. SCOPE OF WORKThe Consultants will be required to carry out, but not limited to, the tasks described below in order to achieve the objectives of the assignment in two phases:

(i) Enterprise survey;(ii) Value chain/ cluster analysis;(iii) Results validation, and approach building;(iv) Report development.

Phase one (Enterprise Survey) will consist of the following tasks:

9 Libya – Economic Recovery Watching Brief, June 2011, World Bank10 Libya-World Bank Group Partnership Framework for engagement (FY 13-14), April 2013, World Bank11 Project team interview with Mr. Abulghasem Mrabet, Manager, Libya Enterprise, August 2013

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Subtask 1 - Consolidation of private sector database: The Consultants, through an on the ground visit to Libya, will map the existing private sector institutions at large and those to be targeted by the program in specific. Advised by preparatory desk review, the Consultants will consolidate and stratify a private sector database from existing private sector institutions (e.g. chamber of commerce, business councils, etc) and the central statistics office of Libya. Stratification of database will be based on geographic location, sector of activity, size of labour, and other recommended levels, if needed.

Subtask 2 - Enterprise survey sample: The Consultants will draw a sample for the ES, which covers the formal non-agricultural private sector, defined as all firms with at least some percentage of private ownership (fully government owned firms are excluded). The sampling methodology is stratified random sampling with replacement. There are three levels of stratification: sector of activity: manufacturing, retail and other services; firm-size: 5-19 employees = small, 20-99 employees = medium and < 100 employees = large; and within country location (main centers of economic activity in the country). No establishments with fewer than five (5) employees are surveyed.

Subtask 3 - Enterprise survey implementation: The Consultants will survey 600 enterprises using a global questionnaire for manufacturing and services. The survey covers a broad range of business environment topics, including: access to finance, corruption, infrastructure, crime, competition, innovation, and performance measures. Enterprise Surveys offer a number of benefits:

Identification of existing conditions, issues, and impediments; Benchmarking of conditions to monitor changes over time; Analysis of the impact of these conditions on firm-level performance; Facilitation of cross-country regional comparisons.

The final size and composition of the sample can be negotiated according to fit the client’s needs. While the overall coverage of the survey should be standard, emphasis can be placed on sectors and locations of choice by choosing more sectors of stratification and/or locations.

Subtask 3 - Data analysis: The Consultants will analyze the collected data to provide perceptions of local enterprises regarding investment climate, laws, and regulations, and views on key impediments, and opportunities for private sector development. The output of analysis will mainly include:

Key characteristics and evolution of the private sector enterprises, and major sectors in the economy;

Laws, regulations and institutions governing or facilitating business entry, exit and growth, including key administrative and regulatory barriers; Inefficiencies and constraints to the effective functioning of the main factor markets that are relevant to investment, that is, financial markets, land market, and labor market.

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Quality and use of infrastructure services; Potential actions to facilitate exports to global markets; Total of factor of productivity for covered sector activities; and Firm-level innovation through innovative product, process, organizational method, and/or marketing techniques.

Phase two (value chain/ cluster analysis) will consist of the following task:

Subtask 4 - value chain/ cluster map: The Consultants will build on the results of the enterprise survey to develop value chains/ cluster maps for emerging/ growing industries or services in the country (3-5 value chains/ clusters). This subtask will require mapping of the main contributors to the value chain of the cluster activity, and interviews with relevant stakeholders on the supply, demand, and support sides of the chain. Based on interviews, the Consultants will organize industry-specific focus group meetings to analyze the cluster map/ value chain, identify the strengths and weaknesses of clusters, and suggest instruments to counter challenges, and catalyze growth.

Phase three (results validation and approach building) will consist of the following tasks:

Subtask 5 - investors’ case studies: The Consultants will conduct sector-specific interviews with local and foreign investors to identify/ confirm the main impediments to growth in the business environment, as well as perceptions regarding legal and regulatory environment, infrastructure services, and other insights related to the main topics covered in the Enterprise Survey. The Consultants will develop case studies (5-7 cases) for interviewed investors, and include them in the assessment report.

Subtask 6 – Thematic focus group meetings: The Consultant will present a summary of results (of subtasks 2-5) to consistent focus groups of public and private sector representatives, in order to validate findings and put forward suggestions to enhance competitiveness, diversify economy, and generate employment. The consultants will plan to organize 3-5 focus group meetings, with up to 10 participants in each of the meetings. Focus group meetings may target the technical and advisory committees of the project.

Phase four (report development) will consist of the following task:

Subtask 7 – Report development and publishing: The Consultants will draft the private sector mapping/ assessment report to cover the main findings of the Enterprise Survey, cluster-based analysis, investors’ case studies, and recommendations generated through focus group meetings. The outline of the report will be agreed upon in preparation for this assignment. The Consultants will present a draft report to the advisory committee of the project, respond to comments, and amend the relevant chapters as required. The final version of the report will be submitted to the World Bank Task Team and the Project Advisory Committee for approval.

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4. EXPECTED OUTPUTS

The Consultants are expected to deliver the following outputs, which will form part of the final report of the assessment.

Initiatives Outputs1. Enterprise Survey

Subtask 1: Consolidation of private sector database

Subtask 2: Enterprise survey sample

Subtask 3: Enterprise survey implementation

Subtask 4: Data analysis

(i) A consolidated database of private sector enterprises, stratified per location, employment, and sector activity.

(ii) A sample of 600 enterprises randomly selected for the enterprise survey.

(iii) Filled questionnaire for 90-95% of the selected sample.

(iv) Raw data, data sets, charts, and preliminary analysis developed.

2. Value chain/ cluster analysis

Subtask 5: value chain/ cluster maps

(i) 3-5 value chains/ cluster maps developed and analyzed for emerging/ growing activities.

3. Results validation and approach buildingSubtask 6: Investors’ case studiesSubtask 7: Thematic focus group meetings

(i) 5-7 investors’ case studies developed.

(ii) 3-5 focus group meetings organized, with up to 10 participants in each meeting

4. Report development and publishing:

Subtask 8: Report development and publishing:

(i) Final mapping/assessment report developed, endorsed by the advisory committee of the project, and approved by the World Bank Task Team Leader.

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TERMS OF REFERENCE: CAPACITY BUILDING OF PRIVATE SECTOR INSTITUTIONS PROGRAMME IN LIBYA

1. BACKGROUNDThe existing and emerging Libyan enterprises have never had sustain exposure and experience on modern management methods and standards during the decades of the old regime. As a result, the level of technical and managerial capability in the business community is low and constitutes an obstacle to new technology adoption, worker productivity improvement and product development. This is further exacerbated by the skills issues discussed above. The capacity of key private sector institutions is limited, and does not support growth of local SMEs. The main private sector institutions are: (i) Chamber of Commerce, which has 14 branches across Libya. Tripoli branch (www.tcci.ly) represents 29 thousand active members from 24 sectors, employs about 50 staff members, and provides basic services that include organizing meetings with foreign commercial delegations, facilitating members’ participation at international trade fairs, and facilitating issuance of foreign visas for members; (ii) Libya Enterprise (www.sme.ly), which is the national SME agency of Libya that was established in 2008, and works under the ministry of economy. The agency premises include 7 business centers and 3 incubators. Current activities are focused on supporting startups in terms of incubation, mentorship, feasibility study development, and access to finance. The agency has recently completed 70 feasibility studies, which are now in the pipeline to receive loans from Al Jumhuriya bank, after being reviewed by the partial credit guarantee fund of the Ministry of Economy; and (iii) Businessmen councils, which is a private sector organization that represents 570 businessmen in Tripoli. Their services are mainly organizing incoming/outgoing commercial trade missions, and providing trade/travel facilitation to members.

2. OBJECTIVE OF THE ASSIGNMENT The objective of the assignment is to build the capacity of dormant private sector institutions, including: Chamber of Commerce, Libya Enterprise, Businessmen councils and Libyan Export Promotion Centre into democratic institutions capable of addressing issues affecting the business environment in a constructive and collective manner. This assistance will provide a strategic implementation framework, which will positively contribute to the sustainability of private sector growth. The key outputs of the assignment will be:

Organizational capacity building and promotion of good governance among key private sector institutions; and; Identification and development of business services for promoting private sector growth Established public-private dialogue process for defining the mandate of key private sector institutions to facilitate complementarity of scope and activities.   It must be kept in mind that the different components of the CBPSI program will need to be blended into the existing framework, so as to create a comprehensive, consistent and unambiguous framework for promoting business enabling environment. Furthermore, the design and implementation of these components must incorporate the following key principles that are critical to successful capacity building process and sustainable results, namely: (i) Ownership, leadership and active participation of beneficiary organizations in the capacity building process and (ii) Promotion of evidence-based capacity building practices yet sensitive to context

3. SCOPE OF WORK

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The Consultants will be required to carry out, but not limited to, the tasks described below in order to achieve the objectives of the assignment in two phases, i.e:

(i) Inception and scoping visit to inform the development of the organizational capacity building framework.

(ii) CBPSI implementation Phase one consist of the following tasks:

Inception and scoping visit to inform the development of the organizational capacity building framework:Subtask 1: Scoping visit to Libya: The Consultants, through an on the ground visit to Libya, will map the existing private sector institutions at large and those to be targeted by the program in specific. Advised by preparatory desk review, this step will enable better understanding of the capacity building issues including environment, pattern of performance and the related knowledge, attitude and practices which will hence ensure accomplishing the outcomes. Furthermore, it will enable a proper assessment of the impacts of the proposed program components and development of measures to mitigate negative impacts and enhance positive ones. Subtask 2 – Setting an appropriate organizational capacity building framework: The Consultants will undertake a comprehensive design exercise advised by the results of the scoping visit in consultation with practices from regional and global experience that are both tested and proven in the field of organizational capacity building. Accordingly the Consultants will develop an organizational capacity building framework and relevant tools that will be organized around four components: organizational functions, organizational practices, standards and performance indicators. Phase 2 will consist of the following task after completion of phase 1.

CBPSI implementation: Subtask 3 – Organizational assessment and design of capacity building plans: The Consultants will conduct organizational assessment of the existing capacity of the targeted institutions, in terms of: i) Aspiration (purpose, vision, mission and strategic goals); ii) Strategy (strategic plan, results framework); iii) Governance (by-laws, governance model and practices), iv) Management (planning, administration, information system, systems and infrastructure, continuous improvements); v) Program/Service Delivery (technical expertise, comparative advantage, program/service development, monitoring and evaluation, sustainability); vi) Human Resources (organizational structure, organizational culture, human resources, diversity, human resource administration); vii) External Relations (sector/constituency relations, government relations, networking and coordination, media, advocacy and lobbying); viii) Finance (budgeting, fundraising, procurement, accounting and compliance). Furthermore, the consultants will develop detailed capacity building plans that will be based on the result of the needs assessment and identified organizational gaps. The plans must be results oriented with clear indicators. The capacity building plans are critical link to the proposed technical assistance throughout the assignment.Subtask 4 – Strategic Planning: Advised by the results of the organizational assessment and the capacity building plan, the Consultants will work with the targeted institutions to build and strengthen their organizational strategic capacity for the development/refinement of their strategy

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framework. The Consultants will employ result-oriented and stakeholder focused strategy development approach that will be organized around scenario building.

Subtask 5 – Leadership capacity building and governance development: The Consultants will work on reviewing/refining and /or developing governance systems including by-law, governance manuals, accountability matrixes, etc. Furthermore, the Consultants will focus on working with the leadership of the targeted institutions for building their capacity in areas of good governance as they determine opportunities for or constraints to development by how they exercise power.  This will include targeted training, coaching and exposure to successful models. Subtask 6 – Institutions human resources capacity building and skills development: The Consultants will conduct a Training Needs Assessment to assess the training / learning requirements of the personnel of the targeted institutions at various levels (based on an identification and analysis of the gaps), for enabling them to perform their functions effectively, efficiently and economically. Based on the assessment and its recommendations, the Consultants will propose a training plan that is practical, interactive and will ensure that action-based learning mechanisms are met. Subtask 7 – Development of management systems and procedures: Advised by the results of the organizational assessment, the Consultants will work closely with the senior management of the private sector organizations to review/upgrade internal systems and procedures, if available, and propose additional needed systems and procedures to efficiently run the organization. This task will focus on the development of the organizations administration manual that includes, among other, correspondence management, communication management, records archival management, document control and procurementSubtask 8 – Refine and develop business development services: The Consultants will work closely with private sector organizations to map Business Development Services (BDS) needs by the private sector to improve performance of individual enterprises. This approach seeks to build markets in services needed by the private sector. Some of the most important BDS includes training, consultancy, marketing, market information, information technology and technology transfer. Initially, some of these services will be procured from regional experts who will work closely with Libyan professionals to build their capacity in the provision of such services.Subtask 9 –: Identification of Public-Private Dialogue Platforms

The consultant will work closely with private sector organizations to identify platforms for public-private dialogue. These platforms could include regulatory reform, competitiveness, trade, etc. Each of the target organizations will assume a leadership role in the dialogue which will eventually encourage each of these organizations to seek specialization in one or more of these areas and thus help in defining the objective of each.

Subtask 10: Launching of Public-Private Dialogue Program: The Consultants will support private sector organizations to draft policy papers (white papers) on one of the issues identified above. The consultant will provide guidance on the development of the papers to build capacity at these organizations to draft additional papers as needed. At the end of this task, the consultant will support private sector organizations to organize a national conference to be attended by both public and private sector and where those papers will be presented for discussion. The outcome of the conference will be a set of recommendations to the government on the needed policy changes.4. EXPECTED OUTPUTS

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The Consultants are expected to deliver the following outputs, which will form part of the final report of the study.

Initiatives Outputs

5. Phase 1: Inception and scoping visit to inform the development of the organizational capacity building frameworkSubtask 1

Subtask 2

(i) Scoping visit – mission itinerary(ii) Scoping visit – mission report.(iii) Inception report indicating detailed

methodology, work plan, organizational capacity building framework and relevant tools.

6. Phase 2: CBPSI implementation

Subtask 3 (i) Organizational assessment report per organization

(ii) Capacity building plan per organizationSubtask 4 (i) Organization Strategy (per organization)

supported with results framework

Subtask 5

(i) Reviewed/refined and /or new governance systems mainly by-law and governance manuals)

(ii) Training for leadership capacity building in areas of good governance

Subtask 6 (i) Training Needs Assessment per organization(ii) Training plan per organization

Subtask 7 (i) Administration manual per organization

Subtask 8 (i) BDS assessment report per organization(ii) Regional Experts Identified(iii) Libyan potential professional identified

Subtask 9 (i) Report defining at least three dialogue platforms:

Subtask 10 (i) Draft of at least three policy papers(ii) National Dialogue Conference

TERMS OF REFERENCE: PRIVATIZATION AND PPP FRAMEWORK FOR THE PRIVATIZATION AND INVESTMENT BOARD (PIB), LIBYA

1. BACKGROUND 1.1. The failure to develop a diversified and robust private industry is one of the most significant challenges of the economy. Libya’s oil sector accounts for 75 percent of GDP, 90 percent of government revenues, and 97 percent of export earnings (2003-10).The economy is largely controlled by the state, which nationalized oil and other productive sectors in the 1970s. The private sector is small, accounting for 25 percent of non-oil activities, which in turn account for 25 percent of GDP. Prominent non-oil activities are centered on trade, public services, and construction.12 There are about 50 state-owned enterprises (SOEs) that lack efficiency and profitability. However, privatization of SOEs is challenged by

12 Libya – Economic Recovery Watching Brief, June 2011, World Bank

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worker unions’ opposition, and the government’s limited expertise in public-private partnership transactions.1.2. The Government of Libya wishes to enhance corporate governance of local State-owned Enterprises (SOEs), develop the privatization law, legal and institutional framework for PPPs and then identify a pipeline of projects for privatization or candidate for PPP.1.3. To achieve this goal, the Government wishes to create an environment conducive to encouragement and attraction of private sector investors and operators to play a greater role in financing projects through Public-Private Partnership (PPP) or full privatization. However, any PPP or privatization initiatives undertaken without creating an environment conducive for investment could result in a low uptake rate and high perceived risks, both of which can be detrimental to investor confidence.1.4. The success of the private sector involvement will depend, to a large extent on the establishment of a strategic framework at the Libyan Privatization and Investment Board (PIB) comprising of: a clear guiding policy; appropriate legal provisions and institutional set up capable of efficient implementation of PPP projects or privatization,; standard procedural guidelines for the process; and adequate transaction, technical, contract management and project monitoring expertise. Capacity building in project planning, co-ordination and monitoring of projects among public officers is another essential element required to strengthen the implementation capacity. The overall implementation framework will ensure that PPP implementation is uniformly coordinated and managed to optimize expected outcomes for Government.2. OBJECTIVE OF THE ASSIGNMENT

2.1. The objective of the World Bank Technical Assistance (TA) is to develop a strategic implementation framework, which will introduce an environment that facilitates PPP projects and privatization, provides comfort to potential investors and provides guidance and direction to implementing agencies. Key outputs will be (i) the policy/legal framework, and (ii) institutional components of an enabling strategic framework and Pipeline of projects and promotion material for priority projects. 3. SCOPE OF WORKThe Consultants will be required to carry out, but not limited to, the tasks described below in order to achieve the objectives of the study in four phases:

(iii) Diagnostic assessment of the privatization and PPP legislation, frameworks, and capacity of relevant entities (i.e. PIB and SOEs),(iv) Help draft privatization and PPP laws,(v) Develop capacity of the Privatization and Investment Board, and (vi) Help identify pipeline of projects for privatization/PPP and prepare promotion material for identifies priority projects.Phase one consist of the following tasks:

3.1. Diagnostic assessment of the privatization and PPP legislation, frameworks, and capacity of relevant entities (i.e. PIB and SOEs).Subtask 1: Scoping visit to Libya: The Consultants, through an on the ground visit to Libya, will map the main stakeholders. Advised by preparatory desk review, this step will enable better understanding of the gaps in the legal and regulatory framework as well as the capacity building issues. Furthermore, it will enable a proper assessment of the output/ impact of the proposed program components and development of measures to mitigate negative impacts and enhance positive ones.Subtask 2: Diagnostic assessment of privatization and PPP legislation, and capacity of relevant entities: The Consultants will review, analyze, and recommend draft amendments to existing legislation clarifying the power and authority of local and central governments as well as public enterprises to procure and enter into long-term contractual arrangements with private sector service providers. The Consultants should identify any gaps in existing legal and regulatory instruments and recommend

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amendments to ensure that a comprehensive, fully harmonized legal framework is in place to support PPPs. The assessment process will examine the institutional capacity of the Privatization and Investment Board (PIB), skills of staff, and the line of communication/ authority with existing SOEs. The consultants will survey a sample of existing SOEs to identify strengths and weaknesses of these enterprises.

3.2. Help draft privatization and PPP laws.Subtask 3 – Reform legislation suitable for Public Private Partnerships: The Consultants will examine the relevant existing legislation and regulations, and make recommendations as to new legislation and regulations, or amendments to existing legislation and regulations, as may be necessary to facilitate future PPP transactions. In this regard, the Consultants shall prepare copies of the draft texts of such new or amended legislation and regulations, with explanatory notes. In developing this material, the Consultants shall have regard to international best practices and, in particular, precedents developed within the region and by other OHADA member countries. Subtask 4 – Develop standardized documentation for PPP and privatization transactions: The Consultants will advise on standardized documentation for PPP transactions, which documentation should be compliant with the Consultants’ recommendations in respect of procurement legislation and other relevant laws. This material should include items such as bid documents, model contracts, and model financial security packages, and the Consultants shall provide guidance on the use of, and limitations of, such documentation.

Subtask 5 – Prepare policies and/or laws establishing minimal requirements for consultation with labor: The Consultants will be required to recommend appropriate standards and methods for consultation with labor as a requirement of any PPP project initiation. Such standards and requirements should establish processes and practices sufficient to enable government departments and labor to negotiate mutually beneficial and acceptable parameters for project implementation.

3.3. Develop the capacity of the Privatization and Investment Board.

Subtask 6 – TA to the PPP unit: A key objective in this respect is to support the PPP Unit to champion the PPP process and carry out other key functions related to the development and implementation of PPP projects.

The institutional set up, to support and streamline PPP implementation, must be guided by a set of institutional development principles. Key among these principles are:

That the institutional arrangements should streamline processes in order to minimize administrative and procedural burdens.

The new arrangements must comply with the general fiscal practices in Libya, especially the emphasis on greater fiscal accountability and the determination not to allow a proliferation of institutions that may duplicate functions, work at cross purposes or add significantly to the overall fiscal burden.

The arrangements need to cut across line user departments in Government, yet respect the latter’s spheres of accountability

Such institutional arrangements should not crowd out the private sector but instead facilitate a network and market of mutually supportive expertise in both the private and public sectors.

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Considerable use should be made of outsourced technical expertise at various stages of PPP preparation and implementation; this implies a structure that has strong capacity to manage outsourced services.

Clear division of responsibility should be maintained between technical project feasibility and process regulation with respect to in-house and outsourced resources.

The institution should be modeled on “output” rather than being process driven. Consideration should be given to an institution modeled on “Project Management” principles. The Consultants are specifically required to define the PPP Unit’s authorities and responsibilities, and

prepare an organizational structure recommending institutional relationships, job profiles and any human resource competencies required, based on experience with similar units in the region and elsewhere. Key organizational design issues shall include, among others basic role of the unit, regulatory role, staff functions and skills and funding.

Key functions of the unit, that are desirable from the Government's point of view, will require particular attention by the Consultants. These functions include the following:

Development of PPP policy and an environment conducive to PPP implementation. Promoting sound PPP projects in conformity with Government policy and legislation, through co-

sponsoring of projects together with the Sectors/Government agencies concerned. Marketing PPP approach to infrastructure development. Communicating the Government’s PPP strategy to government Ministries and departments, potential

private investors and other stakeholders. Supporting capacity enhancement activities by initiating, managing and, where appropriate, facilitating

technical assistance and training activities. Reviewing existing policies and legislation, as well as participating in periodic or ongoing reviews to

identify potential constraints to successful implementation of PPP arrangements, and recommending additional reform and refinements as required.

Implementing PPP transactions, where capacity is lacking within the concerned Government agency to do the work and especially in agencies in which it will not be economical to create such capacity.

Clearing all PPPs and ensuring that centralized monitoring is carried out to ensure that PPPs continue to deliver value for money.

Subtask 7 – Outline the specific roles and relationships between the institution to be set up and other Government departments and agencies: This should provide clarity of roles of government departments involved in the implementation of PPPs as well as outline the co-ordination process between these departments for PPP initiatives, to ensure coherent positions among government agencies and departments

Subtask 8 – training and capacity building: Provide training sessions to PIB staff and relevant government officials who are likely to interact with or become members of the future PPP unit.

3.4. Help identify pipeline of projects for privatization/PPP and draft promotion material for a short list of priority projectsSubtask 9 – Identify pipeline of SOEs for privatization/PPP: The Consultants will help the PIB/ PPP Unit in identifying the pipeline of SOEs based on their existing corporate governance readiness, industry type, labor skills level, profitability, and support of labor union.

4. EXPECTED OUTPUTS4.1. The Consultants are expected to deliver the following outputs, which will form part of the final report of the study.

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Initiatives Outputs

7. Diagnostic assessment of the privatization and PPP legislation, frameworks, and capacity of relevant entities (i.e. PIB and SOEs)

(i) Report including review, findings and recommendations for Sub-tasks under phase 2 activities.

8. Help draft privatization and PPP laws (i) Draft Policy Document on PPPs and privatization

(ii) Draft amendments to existing legislation to incorporate PPP and privatization facilitation provisions

9. Develop capacity of the Privatization and Investment Board, and

(i) Draft PPP Unit design (including the organization chart)

(ii) PPP Unit’s Staff Terms of Reference or Job Profiles

(iii) Report on roles and relationships between PPP Unit and other Government departments and agencies

(iv) Implementation plan for establishment of PPP Unit

(v) Outline of steps of establishing PPPs including conceptualization and initiation.

10. Help identify pipeline of projects for privatization/PPP.

(i) A list of prioritized SOEs for privatization/ PPP.

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