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Document of

The World Bank

Report No. 13416-ME

STAFF APPRAISAL REPORT

MEXICO

TECHNICAL EDUCATION AND TRAINING MODERNIZATION PROJECT

OCTOBER 5, 1994

Country Department IIHuman Resources Operations DivisionLatin America and the Caribbean Regional Office

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CURRENCY EQUIVALENTSCurrency Unit = New Peso (N$)US$1.00 = 3.38 New Pesos (August 1994)

FISCAL YEARJanuary 1 - December 31

ACADEMIC YEARSeptember 1 - June 30

ACRONYMS AND ABBREVIATIONSCBT Competency-Based Training

CBTIS Center for Technical High School Education in Industry and Services (Centro de BachilleratoTecnologico Industrial y de Servicios)

CEAs Accredited Testing Center (Centro de Evaluaci6n Acreditado)CECATI Training Center for Industrial Skills (Centro de Capacitaci6n para el Trabajo Industrial)

CETI Center for Industrial Technical Education (Centro de Enseftanza Tecnica Industrial)CETIS Center for Technical Studies in Industry and Services (Centro de Estudios Tecnol6gicos

Industriales y de Servicios)CIMO Multiple Support Service Program to MSMEs (Programa de Calidad Integral y Modernizacion)

CNs Competency Committees (Comites de Normalizacion)CONALEP National System for Vocational and Technical Education (Colegio Nacional de Educaci6n

Tecnica Profesional)Council Council for Normalization and Certification of Competency Standards (Consejo de

Normalizaci6n y Certificaci6n de Competencias Laborales)DGE General Directorate for Employment in STPS (Direcci6n General de Empleo)

DGETI General Directorate for Industrial Technical Education in SEP (Direcci6n General deEducaci6n Tecnol6gica Industrial)

DGPPP General Directorate for Planning, Programming, and Budgeting in SEP (Direcci6n General dePlaneaci6n, Progranaci6n, y Presupuesto)

ICB International Competitive BiddingIPN National Polytechnic Institute (Instituto Politecnico Nacional)

LCB Local Competitive BiddingLIB Limited International Bidding

MSMEs Micro, Small, and Medium-sized EnterprisesNAFITA North American Free Trade AgreementNAFIN National Financing Company (Nacional Financiera, S.N. C.)

NCO National Occupational CatalogNVQ National Vocational QualificationsOCs Certification Agencies (Organismo de Certificacion)PAU Project Administration Unit

PROBECAT Labor Retraining Program (Programa de Becas de Capacitaci6n para Trabajadores)SBDs Standard Bidding Documents

SEE State Employment Service (Servicio Estatal de Empleo)SEP Secretariat of Education (Secretarta de Educaci6n Publico)

SHCP Secretariat of Finance and Public Credit (Secretar(a de Hacienda y Credito Publico)SMEs Small and Medium-sized EnterprisesSNC National System of Competency Standards (Sistema Normalizado de Competencias Laborales)

SNET National System of Technical Education (Sistema Nacional de Educaci6n Tecnol6gica)SOEs Statement of ExpensesSTPS Secretariat of Labor and Social Welfare (Secretarta del Trabajo y Previsi6n Social)TCS Skills Testing and Certification SystemUPC Regional Productivity Support Unit of CIMO (Unidad Promotora de Competitividad)

MEXICO


STAFF APPRAISAL REPORT

TABLE OF CONTENTS

LOAN AND PROJECT SUMMARY ................................ iii

I. INTRODUCTION .......................................... 1

II. TECHNICAL EDUCATION AND TRAINING ...................... . 2A. Background and Overview ..... ...................... . 2

(1) Structure of Education System ......................... 2(2) Technical Education and Training ....................... 3

B. Issues of Vocational/Technical Education and Training ............... 5(1) Poor Preparation of Workers for Vocational/Technical Education

and Training .................................. 5(2) Supply-Driven Programs ............................ 6(3) Uneven Quality of Training Programs .................... 7(4) Lack of Private Sector Involvement in the Design and Provision of

Training .................................... 7C. Government Strategy for Technical Education and Vocational Training ..... 8

(1) Primary Education Access and Quality .................... 8(2) Technical Education and Training Access and Quality ... ....... 9

D. Lessons Learned from Past Operations . . ...................... 11E. Rationale for Bank Involvement . . ........................... 13

III. THE PROJECT ......................... 14A. Project Objective ...................... 14B. Project Description ...................... 14

Component A - National System of Competency Standards, SkillsTesting and Certification ................ 14Subcomponent A. 1 - National System of Competency Standards . .14Subcomponent A.2 - Skills Testing and Certification System ... 16

Component B - Modernization of Training Programs ...... ........ 17Subcomponent B. 1 - Pilot Training Modernization Programs .... 17Subcomponent B.2 - Development of Training Materials .. ..... 18

Component C - Stimulation of Demand for Competency-Based Trainingand Certification ............................... 19Subcomponent C. 1 - Promotion of SNC . . 19

This report is based on thefindings of an appraisal mission which visited Mexico in June-July 1994. Themission was composed of Messrs. IMmes. Mari Minowa (Economist, Mission Leader), John Innes (SeniorEconomist), Joao B. Oliveira (Educator), Rosita Estrada (Operations Analyst), Vinh Nguyen (OperationsAssistant), Kevin Rost (Operations Assistant), Manuel Briceflo (Training Specialist, Consultant), and StephenHoenack (Economist, Consultant). Peer reviewers are Messrs. Luis Pisani (LAIHR) and John Oxenharn(EDIST). Messrs. Edilberto L. Segura and Kye Woo Lee are the Department Director and Division Chief,respectively, for this operation.

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Subcomponent C.2 - Pilot Testing of CBT in Enterprises ..... . . 19Subcomponent C.3 - Training and Certification Incentives ..... . 20Subcomponent C.4 - Program for Equipment Purchase and

Instructor Training . . . . . . . . . . . . . . . . . . . . . . . . . . 21Component D - Information Systems, Studies, and Project

Administration ................................ . 22Subcomponent D. 1 - Information Systems ...... . . . . . . . . . . 22Subcomponent D.2 - Studies . . . . . . . . . . . . . . . . . . . . . . . . 22Subcomponent D.3 - Project Administration ...... . . . . . . . . . 24

IV. PROJECT COSTS, PROCUREMENT, DISBURSEMENTS AND AUDITS ..... . 25A. Project Costs and Financing ........ . . . . . . . . . . . . . . . . . . . . . . . 25B. Procurement ........... ... . .. .. .. .. .. .. .. .. .. .. .. .. . 27C. Disbursements ........... .. .. .. . .. .. .. .. .. . .. .. .. .. . . 30D. Accounts and Audits ......... .. . .. . . .. . . .. . .. . . .. . . .. . . 31

V. PROJECT IMPLEMENTATION ............................... . 31A. Project Implementation ......... . .. . . . .. . . . .. . . . .. . . . .. . . 31B. Supervision and Mid-Term Review ....... . . . . . . . . . . . . . . . . . . . . 32

Implementation Reviews ........ . . . . . . . . . . . . . . . . . . . . . . . 32Mid-Term Review ......... .. . .. . . .. . . .. . .. . . .. . . .. . . 33

VI. PROJECT BENEFITS AND RISKS ........ . . . . ......... . . . . . . . . . . 33A. Project Benefits ...................................... 33B. Project Risks ........................................ 34

VII. AGREEMENTS REACHED AND RECOMMENDATION ............... 35

ANNEXES

1. Technical Education System2. Evaluation of CONALEP and PROBECAT Training Programs3. National Vocational Qualifications System4. Component A - National System of Competency Standards, Skills Testing and

Certification5. Component B - Modernization of Training Programs6. Component C - Stimulation of Demand for Competency-Based Training and

Certification7. Implementation Plan8. Implementation Schedule9. Project Costs and Disbursement10. Monitoring Indicators11. List of Documents in Project File

MEXICO

TECHBNICAL EDUCATION AND TRAINING MODERNIZATION PROJECT

LOAN AND PROJECT SUMMARY

Borrower Nacional Financiera, S. N. C. (NAFIN)

Guarantor United Mexican States

Executing Agencies Secretariat of Education (SEP), Secretariat of Labor and SocialWelfare (STPS), and the Council for Normalization andCertifications of Competency Standards ("Council")

Beneficiaries Workers seeking training and/or certification of their skills;employers seeking qualified employees

Amount US$265 million equivalent

Terms Repayment in 15 years, including 5 years of grace at the standardvariable interest rate

Project The objective of the proposed project is to improve the quality ofObjective the technical education and training in Mexico so that it meets the

critical needs of the productive sector in a flexible manner. Morespecifically, this objective will be achieved by: (a) providing auniversal measure (a new system of competency standards andcertification) with which effectiveness and quality of differenttraining programs can be evaluated; (b) increasing the flexibility andrelevancy of the training system by redesigning training programsinto modular courses based on the new standards; (c) promotingprivate sector initiative and participation in training design andprovision, through the provision of incentives to individuals andenterprises for their participation in the proposed training reform;and (d) establishing the necessary information systems andundertaking a program of studies to improve implementation of newtraining orientation.

Project The project will consist of four components. The NationalDescription System of Competency Standards, Skills Testing and

Certification component (US$33.1 million, 8.0% of total costsincluding contingencies) will establish national competency standardsdefined by workers and employers for 20 key occupational clusters.Based on these new competency standards, a system of skills testingand certification will be established to serve as an objectiveevaluation tool of both worker skills and training programs. TheModernization of Training Programs component (US$152.8million, 37.1 %) will help selected training institutions, both publicand private, redesign their training courses into modular courses

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based on the new competency standards, by providing for teachingmaterials development, instructor retraining, and equipment updatingduring the first phase of the project, and by expanding the supportfor development of training materials during the second phase. TheStimulation of Demand for Competency-Based Training andCertification component (US$208.0 million, 50.5%) will promotethe benefits of the new system of competency standards andcertification to potential users of the system, and will providefinancial incentives to targeted individuals and firms to participate incompetency-based training. The component will also provideassistance for equipment purchase and instructor training to traininginstitutions through open competition at the national level during thesecond phase. The Information Systems, Studies and ProjectAdministration component (US$18.1 million, 4.4%) will supportestablishment of registries of data pertaining to the new training andcertification system for monitoring, evaluation, and as input into themainstreaming second phase of the project. The component willalso include a program of studies to guide project design andevaluation. Project administration through a Steering Committeeand a Project Administration Unit within SEP will also besupported.

Project First, the quality and relevance of training programs will improveBenefits because they will reflect the actual needs of work competencies.

Disparities between skills taught and skills needed will diminish,reducing the waste in human resource investment by theGovernment, industries, and workers themselves. The developmentof programs and training materials for about 130 different trainingmodules are expected to be financed directly through the project,which will be used in about 8,400 public and private trainingcourses. Second, more flexible, modular training programs willincrease the accessibility of skill formation and upgrading to a widerange of people. This will benefit both employers and workers,enabling workers to obtain continued training more fine-tuned totheir needs, and thus increasing worker productivity. About200,000 workers are expected to benefit from modular, trainingprograms over the five-year life of the project. Third, skills testingand certification will provide clearer signaling and labeling ofworker skills. Both workers and employers will benefit from this,since job search and hiring processes will become more efficient.Workers will also benefit from having better tools for their careerplanning, and employers benefit from having clearer measures withwhich to plan training of employees. Furthermore, a certificationsystem which does not depend on enrolling in training institutionswill provide opportunities for skill validation for those who gainedskills through on-the-job learning, thus possibly leading to betterjobs and higher income (approximately 160,000 people will receivesupport for their skills testing). Certification also facilitates mobility

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of labor across industries and geographical areas, increasing thecompetitiveness of the Mexican economy.

Project Risks First, the project suffers from potential complexity, involving anumber of executing agencies. To mitigate this risk, the projectprovides for a high-level Steering Committee which will helpresolve coordination problems. The project is also designed withsufficiently independent project components that can be implementedseparately by the Council, SEP, and STPS, to avoid unnecessarycoordination requirements. Second, the productive sector may notdemonstrate sufficient interest, participation, and ownership of theproposed training reform during the implementation despite theircurrent enthusiasm. This risk will be mitigated through (a) theCouncil established as an independent organization, led by privatesector employers and workers; and (b) a promotion campaign andpilot training programs which would demonstrate the effectivenessof competency-based training to employers and employees alike.Furthermore, inputs from the industrial sectors, unions, and trainingproviders have been and will be actively sought to encourage theirinvolvement in the project. Third, there may be poor understandingof the project by the intended beneficiaries resulting in initialresistance to the project. However, the participation of industry andlabor unions in establishing competency standards would help createthe right conditions for successful project implementation.

Poverty Category Not Applicable.

Program Objective The establishment of the competency standards and certificationCategory system and modularization of training courses will have a potentially

positive impact on the poor, first by making their participation inthe training easier through shorter and less costly courses, andsecond by providing them with means of validating their skillsacquired outside of the training system. Similarly, the gender-blindnature of the competency standards and certification system willalleviate biases against women in some of the technical occupations.

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PROJECT COST SUMMARY

(US$ million)LocAl Foegn )Tt

A. National System of Competency Standards,Skills Testing and Certification

1. National System of Competency Standards 10.3 0.3 10.62. System of Skills Testing and Certification 20.5 0.0 20.5

Subtotal 30.8 0.3 31.1B. Modernization of Training Programs

1. Pilot Training Modernization Programs 70.6 41.1 111.72. Development of Training Materials 6.0 24.0 30.0

Subtotal 76.6 65.1 141.7C. Stinulation of Demand for Competency-Based

Training and Certification1. Promotion of SNC 5.9 0.5 6.42. Pilot Testing of SNC in Enterprises 22.8 4.1 26.93. Training and Certification Incentives 98.9 12.5 111.44. Equipment and Instructor Training 31.9 13.4 45.3

Subtotal 159.5 30.5 190.0D. Information Systems, Studies

& Project Administration1. Information Systems 1.5 1.6 3.12. Studies 6.3 2.2 8.53. Project Administration 5.7 0.0 5.7

Subtotal 13.5 3.8 : 017*3TOTAL Baseline Costs 280.4 99.7 380.1

Physical Contingencies 4.4 3.5 7.9Price Contingencies 18.0 6.0 24.0

TOTAL PROJECT COSTS'" 302.8 109.2 412.0:

FINANCING PLAN

Local Foreign TotalUS$ million

Government of Mexico 118.3 0.0 118.3IBRD 155.8 109.2 265.0Beneficiaries 28.7 0.0 28.7

TOTAL 302.8 109.2 412.0

!' Includcs duties and taxes estimnated at about USS32.8 million.

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ESTIMATED DISBURSEMENTS TIMETABLE

IBRD Fiscal Year

1995 7 1996 i 1997 1 1998 1 1999 1 2000

Annual 22.5" 51.3 62.7 53.0 50.9 24.6

Cumulative 22.5 73.8 136.5 189.5 240.4 265.0

Includes initial Special Account deposit US$12.0 million. Retroactive financing of up to US$10.0 million would bepermitted for eligible expenditums incurred since June 28, 1994.

Economic Rate of Return: Not Applicable

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BASIC DATA SHEETMexico Year

A. General Country DataGNP Per Capita (US$) 3,470 1992Area (Thousand Square Kilometers) 1,958 1992Population Estimates (Millions) 85.0 1992Urban Population (% of Total) 74.0 1992Population Projection, Year 2000 99.0 1992

B. Social IndicatorsCrude Death Rate (per 1,000) 5.0 1992Average Annual Rate of Population Growth (%) 2.0 1992Total Fertility Rate 3.2 1992Infant Mortality Rate (per 1,000 live births) 35.0 1992Life Expectancy at Birth (years) 70.0 1992Adult Illiteracy Rate (% of persons 15 and over) 13.0 1992

C. Labor Force StatisticsTotal Labor Force (Millions) 24.0 1990

Male (Millions) 18.4 1990Female (Millions) 5.6 1990

Participation RatesMale (Age 12 and older) (%) 73.6 1992Female (Age 12 and older) (%) 35.0 1992

D. Employment and Wage StatisticsTotal Employment (Millions) 23.1 1991Distribution by Sector (%)

Agriculture, Forestry and Fishing 25.8 1991Mining and Manufacturing 12.0 1991Construction 10.8 1991Services and non Specified 51.4 1991

Unemployment Rate 2.9 1992Average Daily Minimum Wage (US$) 4.19 1993

Sources: World Bank, World Development Report. 1994; STPS, World Bank, Mexico: CountryEconomic Memorandum: Fostering Private Sector Development in the 1990s (Volume II), 1994; Informede Labores. 1991-1992, 1992; INEGI, Anuario Estad(stico de los Estados Unidos Mexicanos '92, 1993.

MEXICO


I. INTRODUCTION

1.1 Mexico's success in stabilizing, liberalizing and privatizing the economy has set thestage for long-term economic growth. The ratification of the North American Free TradeAgreement (NAFTA) is likely to induce changes in the Mexican industry profiles, requiringmore advanced technology and more efficient and competitive production capacity to competeinternationally. An educated and skilled labor force is one of the crucial factors for Mexicoto sustain the economic growth led by the private sector and to successfully compete in theinternational market, particularly within the framework of NAFTA. The new, open economywill require workers, industries, and training systems to respond quickly to new skillrequirements of the markets. Such labor mobility and flexibility can be achieved only byhaving reliable ways to identify skills demanded in the market and having a system oftraining flexible enough to respond to the changing demands and needs for new skills. Thetraining system needs to be more responsive to the demands of the productive sector, whichon its part, needs to be able to communicate its needs to the training providers; this impliesthe adoption of a common language that defines skill needs. According to a study thatanalyzed the demand and supply of technical workers, there are large imbalances between thedemand and supply of technicians, skilled and unskilled workers among many occupationalcategories and different skill levels."'

1.2 The proposed project addresses the issue of effective skills formation by establishing asystem of competency standards and skills testing and certification through substantialparticipation of the productive sectorY These new standards would provide tools withwhich to assess and improve the quality and relevance of both worker skills and trainingprograms. The project would assist public and private training institutions to redesign theircourses into more flexible courses based on modular units and new competency standards.The proposed project would also address the issue of promoting the effective demand fortraining by workers and industries through incentives. Continuing its effort to improve thequality of technical education and training, and recognizing the Bank's comparativeadvantage in the area of human resource development gained through past projects, theMexican Government has requested the Bank's support for the reform of its vocational andtechnical education system.

1.3 The proposed project recommends Bank financing of US$ 265 million to establish aNational System of Competency Standards and Certification (Sistema Normalizado deCompetencias Laborales, SNC), which will be coordinated under a new Council forNormalization and Certification of Competency Standards (Consejo de Normalizacion yCertificacion de Competencias Laborales, "Council"). The new system will promoteinvolvement of new and existing training institutions and other governmental assistance

' The study results are sumfarizcd in "Project Implementation Details" filed in the LAC Project Files.

Y "Competencies" are job behaviors typical of an occupation. Such behaviors are empirically derived and analyzed for theknowledge, and intellectual and physical skills required. The establishment of competencies for a given occupation also entailsdefining the frequency and criticality of a given competence. The empirical definition of competencies is usually performedthrough observation, interviews, job descriptions, and job analysis.

programs for labor force skills formation through competency-based training (CBT) andcertification. The proposed loan is recommended for Bank financing for the followingreasons:

(a) The proposed project is consistent with the Bank's country assistance strategyand would complement other Bank-financed projects for enhancing sustainableeconomic growth, poverty alleviation, and human resources development(Chapter II);

(b) The project would address critical issues of the existing training system bymatching the demand and the supply of relevant skills through a detailedstrategy and action plan (Chapter II);

(c) The project would finance the initial steps towards development of a nationalcapability to set up a coherent system of standards and certification by creatingthe necessary incentives for a demand-driven system of training andcertification (Chapter III);

(d) The project would create an innovative organization, the Council, led jointlyby representatives of the productive sector and the relevant GovernmentSecretariats, and responsible for ensuring active private sector participation indesigning and implementing the new competency standards system (ChapterIII);

(e) The project would promote coordination and cooperation between theSecretariats of Education (SEP) and Labor (STPS) for productivityimprovement of the Mexican labor force through reforms in pre-service, in-service, and retraining programs (Chapter V); and

(f) The project would produce important economic benefits, which are expected tobe far greater than the costs and risks involved (Chapter VI).

I. TEClINICAL EDUCATION AND TRAINING

A. Background and Overview

(1) Structure of Education System

2.1 During the 1993-94 academic year, the public sector, its decentralized agencies, andprivate accredited institutions provided educational services to a total of about 25 millionstudents in Mexico. The General Education Law establishes that the national educationalsystem includes nine years of basic education, followed by upper secondary and highereducation in either formal, in-class instruction or non-traditional extension programs. Duringthe 1993-94 academic year, a total of about 14.5 million students were enrolled in six yearsof primary education, of which 94% were in public schools. Net enrollment rates at theprimary and lower secondary levels reached 98% and 58%, respectively, in 1992. In 1993,in its effort to strengthen the basic human capital of its population, the Mexican Governmentextended the compulsory education from six years of primary education to nine years ofbasic education, consisting of six years of primary education and three years of lowersecondary education (para. 2.24). In 1993-94, about 3.1 million students (72% of total

lower secondary) were enrolled in general academic middle schools, and 1.2 million students(28% of total lower secondary) in technical middle schools.

2.2 For upper secondary education (high school level), two programs are offered: (a)academic curricula, including technical specialization (bachillerato tecnologico), which is aprerequisite for higher education; and (b) technical vocational curricula (profesional tecnico),which are terminal and do not lead to higher education. Thus, those students who plan topursue a technical career would have to choose either a vocational/technical curriculum toenter the work force upon graduation, or a technical college preparatory curriculum whichqualifies graduates to enter undergraduate programs in technical fields. During 1993-94,some 1.3 million (58% of total upper secondary enrollments) were enrolled in generalacademic high schools (including teacher training schools) and 530,300 (24% of total uppersecondary enrollments) students were enrolled in technical academic high schools, bothleading to bachillerato degrees. Those who were enrolled in terminal technical professionalschools were 406,500 students (18% of total upper secondary enrollments).

2.3 In addition to these programs, the national educational system also offers "job skillstraining" programs in a formal in-class format, with courses ranging from a few hours tothree to four months. These courses have no academic prerequisites and provide job skillstraining for entry-level technical positions. The majority of students in job skills trainingprograms have a primary education background. The system also encompasses adulteducation, including non-traditional job skills training in self-instructional formats, specialeducation, education for indigenous and rural peoples, and open education at all levels.Figure 1 of Annex 1 presents an overview of the Mexican educational system. Figure 2shows primary and secondary schools enrollments by type of programs for the 1993-94academic year.

(2) Technical Education and Training

2.4 Public System of Technical Education and Training. The public sector offers bothformal and informal technical education and training through the SEP and STPS. SEP'sOffice of Undersecretary for Technological Education and Research is responsible formanaging the National System of Technical Education (SNET), which offers formal technicaleducation and training at four levels: (a) job skills training with no formal academicrequirement; (b) upper-secondary (high school) level with middle school requirement; (c)undergraduate university level; and (d) graduate level. A total of 973,000 students wereregistered in the formal SNET system during the 1992-93 academic year, representing about45% of upper secondary school enrollment or 3.8% of the total student enrollment in theentire education system in Mexico. Table 1 of Annex 1 summarizes the current status of theSNET, and Table 2 further disaggregates the enrollment of the SNET into different units ofthe system.

2.5 Formal job skills training without academic requirement prepares skilled workers,craftsmen and experts, and is provided through 196 CECATIs (Centros de Capacitaci6n parael Trabajo Industria), which enrolled 91,700 students in 1992-93. The CECATIs offer shortcourses ranging from 100 to 450 hours of technical skills training, both in their trainingcenters and at the place of employment. Of the total enrollment in Mexico's formal jobskills training, CECATIs' share was about 24%, with nearly 65% trained in private

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institutions and the rest in state and autonomous institutions. While CECATI programs areconcentrated in the areas of industrial and manufacturing nature, private sector job skillstraining primarily is oriented to secretarial and service areas.

2.6 The upper-secondary level public programs further divide into (a) terminaltechnical/vocational programs and (b) bachillerato tecnologico programs whose graduates canproceed to university level education. The terminal vocational/technical programs enrolled210,500 students in 1992-93 preparing them to be technicians (tecnicos profesionales).During 1992-93, enrollment in the SNET programs represented about 53% of the totalenrollment of the mid-level terminal vocational/technical education track nationwide, withabout 30% enrolled in private training institutions and the rest in state and other independenttraining institutions. Of the 210,500 students enrolled in the SNET terminal programs, 81%were enrolled in 253 CONALEP (Colegio Nacional de Educaci6n Profesional Tecnica)schools, 18% were enrolled in the system of the General Directorate for Industrial TechnicalEducation (Direcci6n General de Educaci6n Tecnol6gica Industrial, DGETI) in either CETIS(Centro de Estudios Tecnol6gicos Industriales y de Servicios) or CBTIS (Centro deBachillerato Tecnol6gico Industrial y de Servicios), and a small number of trainees wereenrolled in IPN (Instituto Politgcnico NacionaO. These terminal programs offer 3-yearcourses in 164 career specializations in engineering and technology, agriculture, livestock,health science and administration.

2.7 While CETIS and CBTIS train some students who join the labor force aftergraduating from their terminal programs, most of their graduates obtain a technical highschool diploma and continue their study in universities. A total of 464,600 students wereenrolled in technical high schools in 1992-93, of which 75% were enrolled in the DGETIsystem (CETIS and CBTIS) and about 9% in IPN.

2.8 In addition to the formal training programs described above, the public sectorprovides informal training programs offering short courses to upgrade the skills of employedand unemployed adults. The informal training program is provided both in traininginstitutions and at the work place. Table 3 of Annex 1 summarizes the status of publicinformal training in three different modalities. In total, about 230,000 trainees went throughthe informal training during 1992-93. "Pre-service" informal training is offered in traininginstitutions of the SNET system, through short courses of 15 to 350 hours, and in-serviceinformal training is provided as part of employer-provided training required by the FederalLabor Law. For the latter, employers often contract the SNET institutions to provide theshort courses for their employees. Finally, STPS finances the PROBECAT program toretrain unemployed workers through many existing training institutions nationwide. Theprogram finances the stipend equivalent of the regional minimum wage plus a transportationallowance during the duration of training courses, which average three months. Since 1984,the SNET system has participated in this program, training over 50,000 unemployed workersannually.

2.9 Private Technical Education and Training. Skills development of workers afterentering the work place has been left principally to employers. However, training foremployed workers is very limited. While large firms provide their own training programs,small and medium firms rely mostly on contracting out specific training courses in publictraining institutions. In all cases, training provided by employers has served only as a

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complement to the basic technical education and training provided by public traininginstitutions.

2.10 In recent years, with the support of the Bank, the STPS has been operating twotraining programs: CIMO and PROBECAT. The CIMO program (Total Quality andModernization Program) has been providing technical and financial assistance to about14,000 micro, small and medium-sized enterprises (MSMEs) annually over the last threeyears in developing their human resources strategies and arranging training and retrainingcourses for their workers. The PROBECAT program has been assisting the retraining ofunemployed workers, providing resources for training for more than 50,000 displacedworkers annually over the last five years.3'

2.11 In addition to the training provided by employers in the private sector, 484 privately-managed training institutions are currently listed in the SEP's registry. The programsoffered by private training institutions mostly fall into the non-manufacturing areas. Therelative shares of subject areas are: secretarial and clerical (32%), computer (25%),accounting (19%), construction, trades and manufacturing (12%), services, including healthand personal services (9%), and other (3%).

B. Issues of Vocational/Technical Education and Training

2.12 Despite the progress made during the last 20 years, the training system in Mexico stilldoes not meet the immediate and future requirements of both pre-employment and in-servicetraining. The most critical weaknesses of the vocational and technical training system inMexico are: (a) poor preparation of workers for vocational/technical education and training;(b) supply-driven programs, which lack flexibility and relevance to the changing labor marketneeds; (c) uneven quality of training programs, with no objective measures available to gaugethe quality of outputs; and (d) lack of an adequate institutional framework for private sectorinvolvement in the design and provision of training.4Y

(1) Poor Preparation of Workers for Vocational/Technical Education and Traininge'

2.13 The existing labor force has a low level of educational attainment, about 6 years ofschooling on average, while new entrants to the labor market (about 1 million people everyyear) have typically finished 8 years of education. Consequently, the productivity of thelabor force critically depends on raising the quality of basic education, which has beensubject to a progressive and continuing overhaul. Issues in primary education include: (a)low educational achievement, evidenced by a 1992 study which found that Mexican primarystudents mastered only 53% and 30% of the national core curriculum in Spanish andmathematics, respectively; (b) inappropriate curriculum, which had not been revised for 20years until 1992; (c) inadequate teaching quality; (d) teacher absenteeism and misallocation,especially in rural and remote areas due to poor salaries and harsh physical conditions; (e)

2' The proposed project is designed to use the institutional infrastructure of these existing programs. Particularly, expansionand conversion of CIMO to competency-based training programs would encourage employer-provided training in MSMEs.

4' Unless otherwise stated explicitly, "private sector" in this report includes both employers sad workers.

Y For a broader discussion of basic education issues, see Staff Appraisal Report No. 12529-ME, March 11, 1994, for theSecond Primary Education Project.

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inadequate supervision; (f) shortage of library books and other materials and deficiencies intextbook distribution; (g) dilapidated infrastructure; (h) need for community participation toensure teacher attendance and motivate students; and (i) inadequate managerial capacity.

2.14 The Government has been increasing investments in basic education for theimprovement of its quality, especially in those southern and central states which are poor andhave low educational indicators, and to extend the free compulsory basic education from sixto nine years. The Bank has approved two loans to support the Government's effort inimproving the quality of primary education (First and Second Primary Education projects,Ln. 3407-ME, 1991 and Ln. 3722-ME, 1994, respectively). These projects will contributeto the Mexican Government's ongoing efforts, and improve primary school students'academic achievement levels and reduce the high repetition and dropout rates within thepoorest 14 of the country's 31 states and in rnarginal areas of the Federal District,contributing to raising the general human capital level, redressing some of the country'ssocial and economic imbalances. Thus, these primary education projects would serve as thefoundation for the success of the proposed project (para. 2.24).

(2) Supply-Driven Programs

2.15 A predominant characteristic of the training system in Mexico is its supplyorientation. Though some training programs, including courses in CONALEP, CECATIS,and CETIS, have been strengthening their ties to the productive sector, and involving them inthe design of curricula, much of the training offered for both employed and unemployedworkers still follows the academic model of the vocational/technical schools of SEP. Eventhough specific courses may be demanded by employers, the curriculum tends to be drivenby academic subjects and related to obsolete occupational classifications which bear littleresemblance to the needs of the current work place. Historically, one of the reasons behindthe gap between training institutions and the productive sector in Mexico derived from theformal and legal separation between the concept of training for youths before entering thelabor market (pre-service training, or capacitaci6n para el trabajo) and training for employedworkers (in-service training, or capacitaci6n en el trabajo) established in the current LaborLaw. Each type of training has been governed by SEP and STPS, respectively, withoutadequate coordination and complementarity between them. Because of this separation, muchof the pre-employment technical and vocational training has been divorced from the skillneeds of employers. Many of the degree-granting courses tend to be long and rigidprograms not accessible to the majority of those already employed. Theoretical subjects andskill practices have often not been integrated and disjointed. This rigidity makes training notonly long and costly, but often irrelevant and unattractive. Other consequences of such rigid,supply-oriented structures are the lack of responsiveness to changes in the labor market andthe relative lack of participation by employers, which is both a cause and a consequence ofthis problem. The General Education Law of 1993 recognizes the need for coordinationbetween the two secretariats in their efforts on worker training and thus establishes a basisfor SNC.

2.16 On the other hand, while there exist critical needs for training, it may be difficult forthe private sector to translate these needs into actual demand for training, because thedemand for new skills is difficult to predict and also difficult to communicate through theexisting occupational classifications. First, while in the past skill demands were concentrated

on a few technical occupations involving a relatively small number of people, emergingneeds are neither limited to a small number of workers, nor can they be addressed merelythrough the definition of the conventional occupations. The characterization of skill needs isnot only more complex, but also more extensive, involving new forms of work organization.Second, the skills that employers need are more fine tuned than in the past, as customersbecome more sophisticated and have higher expectation of product quality. Third, the skillsthat employers need change faster, due to accelerated technological changes in general andthe increased importance of international competition in the new Mexican economy. Thereis, therefore, a role for the Government to launch a proactive strategy for technical educationand training by providing mechanisms and incentives to help the productive sector identifyand respond to the anticipated skill needs.

2.17 The proposed project plans to address the problem of supply-driven, inflexibletraining programs by helping to redesign the training programs into modular courses basedon competency-based occupational standards, which would be established by the initiative ofworkers and employers, and thus, would reflect the true needs of the labor market (paras.3.12-3.16 & 3.21-3.24). This proposed project also supports recent efforts of theGovernment to improve training curricula, where many obsolete course classifications werereorganized and consolidated to form more generally applicable core courses in severalspecializations.

(3) Uneven Quality of Training Programs

2.18 Given the limited training traditions of the country, there is very little standardizationof outputs of the training institutions. Training institutions are primarily managed by rulesconcerning curricula and teacher qualifications, and lack reliable and comparable standardsagainst which to evaluate the effectiveness of different training programs. In practice,quality is known to vary a great deal across institutions and courses, but the reputation of theinstitutions may or may not reflect the actual quality of the programs and the competence oftheir graduates. Even within the public systems of CONALEP, CETIS, CBTIS or CECATIschools, the quality of training provided by each school system may vary substantially.Between them, the quality differences can be even greater. Therefore, a diploma orcertificate in a given trade or occupation provided by training institutions usually does notconvey much useful information to employers about individuals' skills. Nor do individualshave clear information about the quality of the training they received and its usefulness in thelabor market.

2.19 The proposed project plans to address this issue by developing a system ofcompetency standards which are objective and independent, and apply universally to allsectors and regions of the country, thus providing a uniform standard with which to evaluatethe quality of training programs and skills acquired by individuals (paras. 3.4-3.8).

(4) Lack of Private Sector Involvement in the Design and Provision of Training

2.20 Pre-service training has been considered an integral part of the education system, thusis governed accordingly and dominated by the public sector. Most of the technical trainingprograms are highly subsidized by the Government. Even though there are several reasonswhy the Government may play a role in providing technical training, (such as economy of

scale, externality of the non-firm-specific training provision, and prohibitively highinvestment cost of some of the training facilities), there have not been sufficient policymeasures and strategic incentives that would induce more active participation of employers inworker training. As a consequence of past policies which did not provide incentives foremployers to invest in human resources development, financing of skills formation has beenperceived as a responsibility of either individuals and/or the Government, and not as aresponsibility of employers. In recent years, there have been some efforts to enlistinvolvement of the productive sector in training program design, such as the industrialadvisory committees (comites de vinculaci6n) of the CONALEP system. However, suchefforts still need to be expanded significantly.

2.21 The proposed project plans to address this issue of private sector participation byclosely involving the private sector in the development of competency standards and thedesign of a certification and testing system through the major roles played by them in theCouncil for Normalization and Certification of Competency Standards ("Council") andCompetency Committees, and through promotion programs with carefully designed financialincentives, which will decline over time. With the strong participation of employers andworkers, the new Council would be the legitimate vehicle to promote the dissemination of thenew system throughout the productive sector (paras. 3.4-3.6).

2.22 Nevertheless, Government participation in the proposed reform of the training systemis initially required for four major reasons. First, the Government's financial support isneeded to promote private sector interest in the development and utilization of standards andcertification procedures. Second, the Government is also needed to ensure that conflicts ofinterest and representation are duly managed and arbitrated, and that necessary changes areintroduced in the rules of the system at its early stages. Third, Government has an importantrole in the early stages to ensure that the system does not become excessively fragmented toaccommodate influences of individual occupations or special interests. Fourth, given the lackof tradition and experience with these activities, and the implications it will bring to thereform of the delivery and financing of training systems, Government itself would benefitfrom the learning process involved.

C. Government Strategy for Technical Education and Vocational Training

2.23 The Government has been launching several efforts in the area of education andtraining. Specifically, the Government is seeking to improve: (a) primary education accessand quality; and (b) technical education and training access and quality.

(1) Primary Education Access and Quality

2.24 Within the Governmenit's human capital development strategy, primary educationplays the key role. Increasing access and improving quality of primary education havebecome the priority issues in the country, and visible progress has been made in the recentpast. Since 1950, Mexico has made great strides in increasing both the access to and thequality of public education: adult illiteracy has decreased from 40% to 12%; the number ofschools has tripled, the number of teachers has quintupled, and school enrollments haveincreased sevenfold while the total population increased only threefold. The Government hasimplemented over the last five years a comprehensive reform of the education sector with the

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emphasis on improving basic abilities of the population. A national plan was launched in1989 to transform the education system, and General Education Law (Ley General deEducaci6n) was passed in 1993. Specific measures include: (a) decentralization of basiceducation to states (1992); (b) launching of the Teaching Career Program to foster teacherinterest in professional improvement, and to offer better salaries based on refinedperformance evaluation (1993); (c) quality improvement through teacher upgrading, curriculaupdating, and the free textbooks program; (d) extension of compensatory education programstargeted to underserved population; (e) extension of school year from 187 to 200 days(1993); (f) extension of basic education from six to nine years; (g) strengthening of teacherand administrator training; (h) new emphasis on the community participation throughestablishment of "Councils of Social Participation" at community, municipal, and state levels;and finally (i) a substantial increase in the Government budget for education. Sinceproductivity increase of workers through technical education and training is intrinsicallydependent upon the level of general education possessed by trainees, the Government'semphasis on the improvement of primary education establishes a solid basis for theproductivity increase of the Mexican labor force.

(2) Technical Education and Training Access and Quality

2.25 Expansion of access to vocational/technical education and training and improvementof the quality of the training programs is the other axis of the Government's parallel strategyfor productivity increase of the Mexican labor force. Faced with new labor productivityimperatives arising out of successful transformation of its economy to a market-oriented,open economy under increasing pressures of international competition, and drawing fromexperience and lessons learned from its existing training programs, the Government hasdecided to undertake a comprehensive overhaul of the country's technical education andvocational training programs.

2.26 Improving Quality. Several aspects contribute to the inadequate quality of existingtraining programs. As discussed in the previous section, they include: outdated curriculabased on obsolete job classifications and descriptions, outmoded skills of instructors, andoutdated materials and equipment, unreliable training output as these deficiencies exist atvarying degrees in different training institutions, and the lack of objective measure withwhich to evaluate the training outcome. The Government proposes to address these issues,by establishing the SNC, which will be developed by the private sector and regularly updatedafter the initial setup (paras. 3.4-3.8). The SNC will serve as the objective measure againstwhich both workers and training programs are evaluated. The system will also provide areliable basis for updating the curricula, training materials and equipment, and instructortraining (paras. 3.17 & 3.24). With more flexible training programs reflecting the needs ofthe labor market, in-service training of workers who are already employed can be facilitated.Links between training institutions and potential employers will be strengthened through theparticipation of businesses in training design and through arrangements where businessesprovide practical training opportunities for trainees, thus facilitating increased use of in-planttraining. These arrangements would benefit both trainees and businesses by providing morerelevant practical training opportunities for the former, and by providing opportunities toobserve and train potential employees before formally hiring them for the latter, thus,enabling smoother school-to-work transition.

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2.27 Since the improvement of training quality entirely depends on the change of the logicof the training system from the current supply-driven system to a demand-driven one, theGovernment aims to involve both employers and workers of private enterprises in theformulation of training policies, design of training programs, and their implementation. TheGovernment has maintained dialogue with private sector representatives throughout thepreparation of the proposed project, including several sessions to present the concept ofcompetency standards, skills testing and certification to representatives of chambers ofindustry and commerce. Various benefits of the new system have been indicated toemployers, including: an improved skill level of both new entrants to the labor force andworkers already employed; better external measures of workers' skills, thus reducing the costof hiring; and better access to continuous training of employees through shorter, modularcourses better matched to the direct needs of employers. The top representatives of theprivate sector associations have shown strong interests in the proposed reform, and theircommitment to actively participate in its implementation has been formally expressedYBenefits of the proposed new system to workers, including improved access to continuoustraining and skill upgrading leading to better jobs and income, and clearer definitions of jobskills requirements, facilitating workers' career planning, would also be communicatedthrough dialogues with worker representatives and promotional campaign throughout projectimplementation, to encourage their active participation in the project.

2.28 Improving Access. The Government expects that increased access to trainingprograms would result from the quality improvements. The re-orientation of trainingprograms to shorter, modular programs with more choices will increase enrollment fromamong those who cannot afford long courses or those who previously could not justify theinvestment due to the courses' low relevance content.

2.29 Stinulating Demand. Because the concepts of nationalized standards andindependent testing are new to Mexico, and because the realization of their benefits wouldnot be confined only to the enterprises adopting the SNC system and may take some time todevelop even when implemented properly, incentives are necessary not only to finance theinitial development cost, but also to generate early demonstration effects of the new system'spositive effects. For this reason, the Government aims to provide: (a) financial andtechnical assistance to the industrial committees who develop the competency standards; (b)financial and technical assistance to training institutions, both private and public, whichparticipate in redesigning their training courses; and (c) financial incentives to thoseindividuals and firms who participate in the modular training courses and new skills testing.The Government will gradually decrease its financial and technical contribution over time toenforce greater private sector responsibility and ownership of the reform process (paras.3.18-3.24).

2.30 To implement its strategy for the expansion of access and improvement of quality fortechnical education and training, the Government has made major investment along two lines:expansion and improvement of pre-service and in-service training offered by CONALEP; andexpansion and improvement of worker retraining offered by STPS. The Bank has a longinvolvement with technical education and training in Mexico, including three loans for the

Y The letter from the Business Coordination Council expressing their commitment for participation is translated in the "ProjectImplementation Details", which is filed in LAC Project Files.

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development of CONALEP (Technical Training projects I,II,III, Lns. 2042-ME, 1981; 2559-ME, 1985; and 3358-ME, 1991) and two loans to support retraining and labor marketadjustment through the STPS: the Manpower Training project7 and the Labor Marketproject.

D. Lessons Learned from Past Operations

2.31 Lessons. The relevant lessons which have been learned from the implementation ofBank-financed training projects, and the incorporation thereof into this project, are asfollows:

(a) Positive Impact of Training Programs and the Need for Targeting. TheBank's experience with both pre-service and in-service training hasdemonstrated their positive impact both in increasing the earnings profile oftrainees and meeting the needs of private and public sector skilled employees.There is justifiable ground for making greater investment in skills training bothfor poverty alleviation and productivity improvement. Evaluations have beenundertaken of CONALEP and of PROBECAT (Annex 2). These evaluationsdemonstrate the importance of careful selection of trainees if pre-service andin-service training programs are to raise earnings and increase employmentopportunities. For example, in the case of PROBECAT, age, prior workexperience and having economic dependents (therefore an inducement to reallyseek employment) were found to be important determinants of post-retrainingemployment and earnings outcomes. The proposed project will improve thetargeting of all training programs in Mexico through the clarification of theexpectations of and requirements for course entrants, achieved through the useof new competency standards. Furthermore, selection criteria of those whoreceive financial assistance will incorporate the results of these evaluationstudies (para. 3.22).

(b) Evaluation of Programs. There is an ongoing need to carefully evaluate theimpact of training programs to ensure that public funds are being used cost-effectively, in particular that course content and delivery methodology areresponding to the needs of the labor market. Both the evaluations ofPROBECAT undertaken within the Manpower Training project and thegraduate tracer studies undertaken within CONALEP III demonstrate theimportance of establishing appropriate control groups and defining statisticallyrigorous, but small and manageable, samples to yield valid and robust results.The importance of evaluation is particularly great for the proposed projectsince it introduces a new system whose effectiveness has not yet beenrigorously evaluated, even in countries such as the U.K. and Australia wherecompetency-based training (CBT) has been in place for some years. Theproject includes several studies with which the participating entities' capacityto undertake such evaluations would be fostered (paras. 3.26-3.29).

(c) Certification. Mexico has a variety of technical and vocational educationprograms, provided by both the public and private sector. No uniform and

2' A Project Completion Report for the Manpower Training project was issued in June, 1994.

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independent certification system exists, making it difficult to compare theeffectiveness of alternative training systems. Employers have little objectiveinformation available about the skills of a graduate from these traininginstitutions, resulting in two sets of costs: (i) to the employer, highrecruitment costs and the risks of hiring a sub-standard worker; and (ii)consequent upon this, the tendency to start all graduates off at the lowest entrypoint, thus depressing graduates' earnings until they are able to demonstratetheir competence. The tracer studies for CONALEP graduates and discussionswith employers amply show this effect, with graduates' earnings growingrapidly (compared with the control group) after initial employment in a firm.The need for certification in the case of PROBECAT retraining programs forthe unemployed is even stronger, as these programs are carried out by avariety of institutions, over variable course periods, with employers havinglittle idea as to the concrete accomplishments or skills of such trainees. Theexternal, and thus objective, certification process introduced through thisproject (including the creation of the SNC) will make the employment serviceand worker selection process more transparent, benefiting more competentworkers and trainees, and reducing employers' costs in assessing the ability ofpotential hires (paras. 3.9-3. 1 1).

(d) Public and Private Sector Linkages. Experience has shown that closecollaboration is required between publicly funded training institutions and theprivate sector (the main employer of such graduates) to ensure that coursecontent and graduate output match employers' needs and hence employmentopportunities available. Substantial progress has been made in this area byCONALEP through the establishment of "industrial advisory committees"(comites de vinculaci6n) at national and training center levels and by the stateemployment services establishing similar committees at the state level tostrengthen these linkages. The proposed project will deepen public and privatesector partnership in two ways: (i) through the involvement of employers' andemployees' organizations in a consultative process on establishing thecompetency standards (paras. 3.4-3.18) and the curricula (para. 3.17) for theCBT courses; and (ii) continuing this involvement through the joint monitoringand evaluation of results (para. 3.25-3.29).

(e) Flexibility and Adaptability. With the economic changes engendered throughMexico's program of reform and economic liberalization and with theprogressive implementation of the NAFTA accords, the pace of change inMexico's economic structure has accelerated. This has focussed attention onthe need to shift training and education programs away from rigid and lengthycourses to highly flexible and modular systems which respond to skillshortages in the labor market, from pre-service to in-service training.Y'Evaluations of existing training programs indicated that long, rigid courses

F Whilst CONALEP has almady moved substantially in this direction (over the academic years 1991/92 to 1993/94, the annualoutput of graduates from regular programs has risen by 10,500 or 21 percent, whilst in-service worker upgrading programshave risen by 53,000 or 68 percent, and the cumulative output under modular programs has reached to 14,780), studiesundertaken on these two modalities still showed that: (a) the exit points from modular training were not linked closely enoughto actual skill requirements on the job; and (b) upgrading programs did not take sufficient account of the existing skill levels ofworkers.

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result in high dropout rates and discourage workers from obtaining skillsupgrading. The move to a CBT system through this project would make amajor contribution to increasing the flexibility and adaptability of trainingprograms through redefining training in terms of job skill requirements andpermitting the flexibility for workers to move through course contents at theirown pace.

(f) Integrating Pre-service and In-service Training - A Continuum. As inmany other countries, a false dichotomy has arisen between pre-service and in-service training. In reality there is the need for a very strong link andcoordination between the two with a common set of standards and curriculum.Weak pre-service training increases the cost and lowers the effectiveness ofsubsequent in-service training, and poor in-service training makes the skillsacquired through pre-service training obsolete rapidly. In Mexico, SEP hashad responsibility for the pre-service training and STPS for in-service training.Often, there has been inadequate coordination between these two agencies, andcertainly there has been no unified framework for the pre-service and in-service continuum. The General Education Law rectified this issue, by settingthe principles for the definition of Competency Standards and for thecoordination between SEP and STPS. The proposed project will provide theunifying framework - Competency Standards and flexible CBT system thatrecognizes that workers need to update and change their skills throughout theirworking life - which emphasizes the continuum between the two dimensionsof training and ensures consistency and quality of both types of training. Theproject will also strengthen the close relationship between SEP and STPS bymaking them dually responsible for project implementation (Annex 7).

E. Rationale for Bank Involvement

2.32 The objectives of the proposed project are fully consistent with the Bank's countryassistance strategy, presented to the Board on June 9, 1994 which emphasizes povertyalleviation, human resource development, and private sector-led growth. By supporting theGovernment's effort to improve the quality and accessibility of technical education andtraining and to encourage private sector participation in training, the project will contribute tohuman resources development and productivity increase of the Mexican labor force, andconsequently to the continuation of the private sector-led growth.

2.33 The Bank is the major external agency assisting the Government in the developmentof technical and vocational education and training in Mexico. The Inter-AmericanDevelopment Bank has been assisting the Government in the development of science andtechnology through loans for training of scientists and for improvement of science andengineering faculties at the higher education level. Meanwhile, the Bank has been the majorsource of technical and financial assistance in the field of vocational and technical educationand training at secondary or adult education level.

2.34 The proposed project would also complement the recent and current Bank-financedprojects in the area of Mexico's human resources development. The proposed project wouldreinforce the Government's commitment to quality improvement of training programs andprovide more opportunities for training to a large portion of under-educated workers. In

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light of the experience and knowledge gained through its projects in the sector, the Bank hasa strong comparative advantage in supporting the Government's effort to make the trainingsystem more flexible and responsive to market needs.

m. THE PROJECT

A. Project Objective

3.1 The objective of the proposed project is to improve the quality of the technicaleducation and training in Mexico so that it meets the critical needs of the productive sector ina flexible manner. More specifically, this objective will be achieved by: (a) providing auniversal measure (a new system of competency standards and certification) with whicheffectiveness and quality of different training programs can be evaluated; (b) increasing theflexibility and relevancy of the training system by redesigning training programs intomodular courses based on the new standards; (c) promoting private sector initiative andparticipation in training design and provision, through the provision of incentives toindividuals and enterprises for their participation in the proposed training reform; and (d)establishing the necessary information systems and undertaking a program of studies toimprove implementation of new training orientation.

3.2 The potential impact of the proposed project on Mexican technical training, as well ason the labor markets is far reaching, and its effects will be realized over many years. Incountries with mature training systems and some experience with standards and certification,it takes from 10 to 20 years to set up a new system of occupational standards andcertification. Thus, for Mexico, where concepts of independent occupational standards andcertification are new, the proposed project constitutes the first phase in a long-term processof change.

B. Project Description

3.3 The project objective will be attained through four closely interdependent components:(a) National System of Competency Standards (Sistema Normalizado de CompetenciasLaborales, SNC), Skills Testing and Certification; (b) Modernization of Training Programs;(c) Stimulation of Demand for Competency-Based Training and Certification; and (d)Information Systems, Studies, and Project Administration. The Council for Normalizationand Certification of Competency Standards (Consejo de Normalizaci6n y Certificaci6n deCompetencias Laborales, "Council") will be responsible for Component A, SEP forComponent B, STPS for Component C, and the Council and both secretariats for theirrelevant activities under Component D.

Component A - National System of Competency Standards, Skills Testing andCertiflcation (US$33.1 million including contingencies, 8.0% of total project costs)

3.4 Subcomponent A.1 - National System of Competency Standards (SNC) (US$11.2million). This subcomponent will support the development of the SNC, which would besimilar to systems that already exist in many other OECD countries, providing an objectiveset of standards by which to evaluate worker skills and set curricula for training programs.

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The British system of National Vocational Qualifications (NVQ) (Annex 3) would be usedwhen appropriate, together with other foreign competency standards, as an input to thedevelopment of competency standards. Development of competency standards would followthe process outlined in para. 3.8 and Annex 4, section C. During appraisal, contractualarrangements regarding the purchase and use of copyrighted materials to be used forcompetency standards development were discussed and agreed.

3.5 To oversee the process of establishing the SNC, and to ensure coherence andconsistency across competency standards of different occupations, the project will require thecreation of a Council for Normalization and Certification of Competency Standards (Consejode Normalizaci6n y Certificaci6n de Competencias Laborales, "Council"). The Council willbe created through a trust (fideicomiso), which will be established by a contract between theGovernment and NAFIN, with SHCP and NAFIN, as grantor and trustee, respectively.2'This setup allows flexibility in the organization and operation of the Council, and mostimportantly allows majority control to the private sector (i.e. workers and employers of thenon-government sector). The draft terms of reference of the Council and its dependentbodies are given in Annex 4*LW

3.6 The roles and composition of the different elements of the Council are as follows:

(a) the Governing Board (Comiue Thcnico de FRdeicomiso)11' will be responsiblefor policy formulation and final approval of competency standards. It willconsist of representatives from the private sector employer associations,employee organizations, and high level representatives of SEP, STPS, SHCP,and NAFIN.

(b) the Executive Secretariat (Secretarta Ejecutiva),L2' headed by an ExecutiveSecretary, will assist the Governing Board and is responsible for theimplementation of its decisions. Inter alia, it will review and makerecommendations on the Competency Committees proposals to the Board,promote the SNC, carry out tasks related to the operation of the certificationsystem, supervise certification agencies (OCs, paras. 3.9-3.10 & Annex 4,section D), and maintain databases on occupational classifications, competencystandards, and workers who apply for and receive certification.

(c) Competency Committees (Comites de Normalizaci6n, CNs) will beestablished by the Council, drawing representatives of the private sector andworkers to develop competency standards (para. 3.11 & Annex 4, section B).

(d) a Consultative Committee (Comite Consultivo) will be established by theCouncil to maintain close linkages between the Council and labor unions,employers, training institutions and other interested parties by acting as achannel to express views and make inputs into the decision-making process.

2' The arrangement involves the transferring of funds or goods (patn'monio) by the grantor to the trust and the adminitionby the trustee of such funds or goods through a ConutU Tt'cnico (the Council's Governing Board) for the purpose and in themanner specified in the trust agreement. For further details, see Annex 7.

0' The draft trust agreement (9/15/94 version) is filed in the LAC Project Piles.

L Called 'Technical Committee" in the legal documents.

Iv Called "Technical Secretariat" in the legal documents.

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3.7 The loan would finance equipment, supplies, technical assistance, training of Councilmembers and key staff, and, on a declining basis, incremental operating costs of the Council.As a condition of loan effectiveness, the trust agreement, satisfactory to the Bank, creatingthe Council will have been signed (para. 7.2(a)). As a condition of disbursement for Councilexpenditures, satisfactory key staff of the Council will have been appointed, and satisfactoryrules and procedures of the Council will have been issued (para. 7.3).

3.8 The actual development of competency standards would be undertaken by CNsconsisting of qualified workers and employers' representatives in each occupation oroccupational cluster, assisted by experts in competency-based functional analysis. CNmembers would be selected by the Council with advice from the Consultative Committee.For each occupation or occupational cluster, the CN would carry out a detailed functionalanalysis with complementary support of corresponding competency standards in othercountries. After field tests and revisions, the final list of competency standards would besubmitted to the Council for its approval. Since standards would have no legal character,there would be no need for governmental approval or special legislation. During the fiveyears of project implementation, a total of 20 sets of competency standards in the mostcritical occupational clusters will be established. During appraisal, the criteria,prioritization, and timetable for selection of occupational clusters were discussed and agreed.The first set of competency standards are expected to be approved by the Council by June30, 1996. The loan would finance the costs of acquisition of copyrighted materials thatwould serve as inputs for development of Mexican standards, technical assistance and othercosts of developing competency standards, operating costs, and publishing of the standardsestablished.

3.9 Subcomponent A.2 - Skills Testing and Certification System (TCS) (US$21.9million). Once the competency standards are established, a system of skills testing andcertification will be developed. The Council would license certification agencies(Organismos de Certificaci6n, OCs), whose main function would be to certify thatindividuals have mastered competencies established in the standards for a given occupationalcluster. The OCs would operate independently as private sector agencies under a licenseprovided by the Council and would either develop and execute their own tests or accredittesting institutions (Centros de Evaluaci6n Acreditados, CEAs) for that purpose. It isexpected that various types of institutions would eventually be authorized to become OCs,including chambers of industry and commerce, industrial and professional associations, orany organization which satisfies the requirements set by the Council. Up to four OCs will befinanced by the project over the five-year life of the project. Each OC may grantcertification for one or any number of occupational clusters for which competency standardshave been established by the Council.

3.10 The activities of OCs include the following: (a) developing general criteria foroccupational testing leading to national certification; (b) developing testing instruments; (c)testing individuals directly; (d) accrediting CEAs; (e) supervising CEAs to ensure compliancewith the norms; (f) maintaining a database of certification applicants and certified workers;and (g) training examiners. Each OC's database of certification applicants would beincorporated into a national database managed by the Council, which would provideemployers and employment services (Federal, State, and independent) with rapid access tothe pool of qualified workers.

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3.11 In addition, OCs may accredit training institutions, firms, or individuals as CEAs toperform testing. CEAs will use either the tests developed by the OC or their own testingmechanisms, if previously approved by the OC. Individuals passing approved tests wouldautomatically receive a national certificate. CEAs would be set up as financially independentinstitutions and would generate revenues through testing fees and other related activities.The testing fees would be regulated by the Council. The Council will also supervise OCsand, indirectly, CEAs to ensure the validity of the certification process. The loan wouldfinance the establishment of OCs, including start-up costs, training of personnel, developmentand validation of tests, a standardized information system, and operational costs on adeclining basis. At the same time, the share of operational costs recovered by the OCs andCEAs would be progressively increased over time through fees paid by examinees andindustry contributions. The project will finance a study to examine the financial solvency ofthe Council and OCs (para. 3.27(a)). During negotiations, agreement was confirmed that:the proposalfor the organizational structure of OCs will be provided to the Bank forcomment by June 30, 1995 (para. 7. 1(a)).

Component B - Modernization of Training Programs (US$152.8 million includingcontingencies, 37. 1 % of total project costs)

3.12 The modernization of training programs and their re-orientation toward modularcourses based on competency standards (CBT) will be carried out in two phases. The firstphase (Subcomponent B. 1), which would last about 18 months from loan effectiveness,consists of pilot training programs, using existing materials for modular programs in othercountries and newly developed materials based on the existing ones, with the objective oftesting and developing methods for implementing CBT courses in a limited number oftraining institutions. The second phase (Subcomponent B.2) would consolidate expertisegained and lessons learned from the first phase and implement the training modernization ona national scale, using actual competency standards which by this time will have beendeveloped, tested, and approved (para. 3.8).

3.13 Subcomponent B.1 - Pilot Training Modernization Programs (US$118.7 million).The initial pilot phase (about 18 months) would involve three public training systems,CONALEP, CETIS and CECATI, as well as private sector training institutions associatedwith these public systems. The objective of the first phase is to help these traininginstitutions acquire the technical expertise in developing and delivering CBT modules. Eventhough these programs would be developed before Mexican competency standards can beestablished for the corresponding occupations, starting the development and implementationof modular CBT programs from 1995 would provide valuable lessons to be incorporated intothe second phase of the component, which would only start once the first set of competencystandards are established.

3.14 The training institutions which would receive project funding during the first phasewere selected based on their technical expertise and readiness to carry out the pilot,considering the following characteristics: (a) capacity to design and offer courses in theareas that the productive sector considers as high-priority for its productivity growth; (b)wide geographical coverage of the training centers; (c) existence of collaboration andcoordination mechanisms with the productive sector for the development of programs; (d)existence of sufficient equipment in its workshops and laboratories that would facilitate, with

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the support of complementary equipment purchase, the implementation of CBT; and (e)quality of instructors, to be supplemented with training for the new training model,pedagogic methods, and didactic techniques. For example, CONALEP is already preparingnew modular courses and is planning to offer them starting in September 1994. TheCONALEP system is well suited to carry out this initial phase, because of its priorexperience with modular courses, close relationship with the private sector, instructors withpractical experience, relatively high quality of the programs, and its willingness to participatein the project. CECATI is also a good vehicle for the initial phase, as all of its courses arealready offered in a modular format. CETIS will also start designing CBT courses for theirterminal vocational and technical courses to be offered starting in September 1995.

3.15 The following specialization areas have been selected for the first phase pilotprogram: (a) administration; (b) computer and data processing; (c) construction; (d)electronics and telecommunication; (e) maintenance; (f) metalmechanics and metallurgy; (g)auto mechanics; (h) tourism; and (i) electromechanical and electrical maintenance. Theseareas were selected based on the following criteria: (a) careers and courses with greaterdemand in the productive sector; (b) careers and courses with greater enrollment; (c) highquality of instructors teaching the courses; and (d) results of the labor market study onprojection of the demand for technical workers. The private sector was consulted andactively participated in the selection of these areas. Since the main objective of the initialphase is to provide early experiences and lessons in program conversion, a study to evaluatethe effectiveness of these pilot programs will be undertaken (para. 3.28(b)).

3.16 Specifically, the initial phase will consist of the following elements: (a) redesign ofcurricula, including changes in the syllabus and in the proportion of teacher-contact hoursand self-study segments, of theory study and skill practices, and of supervised andindependent practices; (b) redesign of instructional materials, including textbooks, self-studybooks, laboratory guides, and workshop manuals; (c) retraining of instructors based oncompetency standards and a new pedagogical approach; and (d) replacement of obsoleteequipment, based on a careful evaluation of requirement for the new courses and the status ofexisting equipment. Since the pilot programs will use curricula and materials from abroad asinputs to the materials design, the copyright agreement thereto will need to be obtainedbefore the materials can be reproduced for the classroom use.

3.17 Subcomponent B.2 - Development of Training Materials (US$34.1 million). Thissubcomponent will start supporting the development of training materials based on a first setof competency standards, which would have been established through Component A by June1996 (para. 3.8). This subcomponent will finance the cost of acquisition and preparation oftraining materials and will be complemented, where appropriate, by support under STPS forequipment purchase and for instructor retraining (para. 3.24). Funds for teaching materialsdevelopment would be allocated through a competitive process managed by the ProjectAdministration Unit (PAU, para. 3.31 & Annex 7) within SEP. Any entity, including, butnot limited to training institutions, publishing firms, and industry organizations interested indeveloping CBT materials would submit their proposal to SEP through the PAU, whichwould review and approve the proposals. During appraisal, the basic elements of a fundingrequest were discussed and agreed (Annex 5) and will be further developed into finalguidelines. During negotiations, agreement was confirmed that satisfactory final guidelinesfor the provision of support for training materials development would be issued by SEP hy

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September 30, 1996 (para. 7.1(b)). The project would finance the costs associated withdevelopment of new instructional materials, acquiring copyrights, related local and foreigntechnical assistance, and reproduction of training materials developed. It is expected thatover the three-year period of the second phase, the project would finance the purchase ofapproximately 450 sets of written materials, 270 sets of audiovisual materials, and 45 sets ofcomputer software.

Component C - Stimulation of Demand for Competency-Based Training andCertification (US$208.0 million including contingencies, 50.5% of total project costs)

3.18 The objective of this component is to stimulate demand for the competency-basedmodular training courses, skills testing, and certification among employers and targetedindividuals, through promotional campaigns, pilot demonstration testing, and financialincentives for both CBT and certification. This component builds upon the experience gainedunder the Labor Market project and will be implemented by the same agency (STPS) underthe existing CIMO and PROBECAT programs. However, funding under this project willonly be used for activities using the new CBT, thereby avoiding duplication. Moreover, theLabor Market project will be largely disbursed by the time that large post-pilot disbursementsunder this project commence in 1997. This component seeks to: (a) achieve a demonstrationeffect of the new system's advantages, thus facilitating early diffusion of CBT andcertification throughout the user populations; (b) assist employers in planning their trainingprograms in accordance with the new skill specifications; (c) assist target groups in obtainingaccess to the new CBT system; and (d) facilitate the direct participation of employers topromote user ownership and encourage feedback.

3.19 Subcomponent C.1 - Promotion of SNC (US$6.9 million). The diffusion of the newsystem of CBT and certification would be achieved through an integrated program ofpromotion activities and publicity campaigns. Promotion activities would be targeted atvarious levels in the private sector, including: (a) apex level employers and workersorganization; (b) sectoral chambers and other employer associations, and correspondingworker organizations; (c) industry-sponsored training institutions; and (d) firms at the locallevel.

3.20 Promotion would occur through: (a) special meetings with the private sector; (b)participation in general council sessions, national and regional conferences and workshops;(c) dissemination of written materials; and (d) public announcements in the press, radio andtelevision. The Council would be responsible for the promotion at the level of the apexemployer associations, with other promotion activities at individual sector and firm levelsconducted by the Council, CNs, the Regional Productivity Support Units of CIMO (UnidadesPromotoras de Competitividad, UPCs), and PROBECAT program staff, under the overallcoordination of the Council. The loan would finance the production costs of promotionalliterature and printed materials, videos, and diffusion through national and local mediachannels.

3.21 Subcomponent C.2 - Pilot Testing of CBT in Enterprises (US$28.9 million). Tovalidate the appropriateness of the CBT programs and also to provide a strong demonstrationeffect in the economy, thus increasing demand for the SNC, the loan would reimburse 60%of the enterprises' costs of developing CBT programs, and implementing the training and

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certification in a sample of large firms and small and medium enterprises (SMEs). A total of80 large firms and 320 SMEs are expected to receive this support during the five-year projectlife, with an estimated 10,720 workers directly benefiting from it. For 1995, four sectorshave been identified as priority: tourism, metalworking, construction andtelecommunications. On average two or three large enterprises and about 10 SMEs will beselected and receive support for each sector for which new competency standards aredeveloped. The pilot testing experience will be documented and used for disseminationpurposes and for input into the design of the training program.

3.22 Subcomponent C.3 - Training and Certification Incentives (US$120.4 million).Incentives in the form of stipends and/or fee reductions would be granted to selected usergroups to encourage their participation in the new system. The main user groups targeted forthe incentives programs would be: (a) micro, small and medium-sized enterprises (MSMEs)wishing to undertake skills training of their employees and participate in skills testing forcertification; and (b) targeted population groups, including (i) youth seeking to enter thelabor market without sufficient skills, (ii) unemployed and displaced workers, includingwomen trying to re-enter the labor market, (iii) adults with educational and trainingdeficiencies, and (iv) workers seeking skills certification. During appraisal, the selectioncriteria and mechanisms for granting training and testing/certification incentives for differentbeneficiary categories were discussed and agreed.

3.23 Three separate categories of incentives will be provided under this subcomponent asfollows:

(a) Incentives under CIMO (US$28.7 million) would support MSMEs todiagnose the skill needs of their employees and design appropriate CBTprograms. UPCs, which are already supported through the Labor Marketproject, would manage this additional category of funds with the sameoperational rules but only when firms adopt the new CBT programs. Theproject would finance technical assistance for diagnosis of needs, design oftraining programs, and actual implementation costs of training programs as areimbursement based on presentation of satisfactory documentation of actualcosts. Disbursement of this funding category would start in 1997, when thefirst set of competency standards and modular training programs are expectedto have been established. Incentives under CIMO are expected to providetechnical assistance for 1,900 enterprises in training diagnosis and financialassistance for 9,000 CBT modules, benefiting 76,000 trainees. Consistent withthe Labor Market project, this project would finance technical assistance toMSMEs and SMEs at 70% and 60%, respectively, and training at 70% and35%, respectively, through reimbursement of the enterprises' training costs;the beneficiary enterprises would finance the balance.

(b) Incentives under PROBECAT (US$62.6 million) would support targetedindividuals, selected according to a criteria previously established under theLabor Market project (para. 2.31(a)) to participate in CBT courses. Similarlyto the existing PROBECAT funds, the new incentives would be managed bythe program staff who would evaluate the training needs of applicants anddirect them to the appropriate new training courses. Though the staff assignedfor this task will be located within the offices of the State Employment

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Services (SEEs) and use the physical infrastructure of the SEE, the program ofstipends will be financed completely by the federal budget and the loan,without involving the state government. The beneficiaries would receive atraining stipend equivalent to one minimum wage and a transportationallowance to the training facility. The actual training costs would bereimbursed directly to the training institution. Starting in July 1995 as a pilotphase, then progressing to full implementation in January 1997, this categoryof incentives is expected to provide scholarships to a total of 88,000 traineesover the project's life. These scholarships represent an investment in thehuman capital of the individuals concerned, financing the opportunity cost ofthe training time, acting as an incentive for enhancing skills and, as a by-product, providing social support to the families of these low-income targetedtrainees and would be financed by the loan on a declining basis.

(c) Certification incentives (US$20.0 million) would be provided to workerswishing to have their skills validated through the new TCS (paras. 3.9-3.11)by helping finance the cost of certification. During the first year ofimplementation of this incentive program (1997), the beneficiaries wouldreceive financial assistance of 90% of the certification cost (100% in the caseof the unemployed) from the loan proceeds; this percentage will decline insubsequent years. The demand for certification from individuals will bemonitored and carefully evaluated at the end of 1997 to determine individuals'capacity and willingness to pay. During negotiations, agreement was reachedthat the results of the evaluation of the certification process and incentivesprogram would be provided to the Bank for its review by April 30, 1998 (para.7.1(c)). Beneficiaries of incentives under the CIMO or PROBECAT programswould also receive reimbursement for participating in the TCS, withenterprises paying the balance of costs in the case of CIMO. During thethree-year period of 1997-99, certification incentives are expected to assistapproximately 160,000 individual test incidences at an average unit cost ofabout US$100."' Strict selection criteria will be employed so that: (i)certification modules taken by any individual fit into a coherent career plan,thus avoiding financing frivolous test takers; (ii) for any one module theincentive will only be paid once providing a strong inducement for theindividual to prepare seriously for the test, while an individual would be freeto take the certification again at his/her own expense; and (iii) individuals notcoming from CIMO, PROBECAT or training courses from recognizedinstitutions would be subject to a simple diagnostic evaluation to determinetheir readiness for testing, thereby dramatically reducing the potential wastagefrom failed certifications. Each trainee passing the certification test willreceive a module guide for future reference and the certificate itself.

3.24 Subcomponent C.4 - Program for Equipment Purchase and Instructor Training(US$51.8 million). This subcomponent will finance the purchase of training equipment andinstructor training and certification necessary for the delivery of CBT courses. The

3' While this number of certifications is in absolute terms only a smnall fraction (1.2%) of all the semi-skilled and skilledworkers and technicians, it is a reasonable estinate as it corresponds to an annual average of about 75% of the NVQcertificates issued in the UK over the last seven years.

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beneficiary training institutions, both public and private, will be selected through competitionbased on previously established criteria. During appraisal, the criteria, procedures, andtimetable for the selection of beneficiaries were agreed upon, and are presented in Annex 6.The funds for equipment purchase will finance a total of 300 training centers over the period1997 to 1999 at a maximum of US$200,000 per institution. Those centers that receiveassistance for equipment purchase are required to participate in the instructor trainingprogram and will also receive funding for that purpose. However, training centers will notbe required to participate in the equipment purchase program, in order to be eligible for theinstructor training program. All training institutions would be responsible for maintenance ofthe equipment, and privately owned training institutions would provide a discount on thetraining provided under the project, at a rate equal to 15 percent of the equipment's valueannually.

Component D - Information Systems, Studies, and Project Administration (US$18.1million including contingencies, 4.4% of total project costs)."'

3.25 Subcomponent D.1 - Information Systems (US$3.3 million). Several informationsystems will be developed and maintained under the project for promotion, monitoring,evaluation, and planning purposes:

(a) For Component A, the following databases will be developed and maintained:(i) registry of the competency standards approved by the Council; (ii) registryof OCs, CEAs, and evaluators; and (iii) registry of the certification applicantsand certified workers.

(b) For Component B, SEP will develop and maintain: (i) a registry ofinstitutions providing CBT and available CBT courses; and (ii) studentenrollment data, collected from participating training institutions. Theinformation contained in these databases would be made available formonitoring, evaluation studies, and employment services.

(c) For Component C, STPS will maintain databases on: (i) CIMO MSMEs andstudents under CBT; and (ii) PROBECAT beneficiaries under CBT. Inaddition, STPS will continually update the National Occupational CatalogNCO) based on the new competency standards and will closely monitor anddocument the pilot training modernization programs (Subcomponent B. 1).

3.26 Subcomponent D.2 - Studies (US$8.7 million). A program of studies will beundertaken to support the development and implementation of the project. The Council,SEP, and STPS will be responsible for studies related to Components A, B, and C,respectively. During appraisal, the terms of reference for the key studies were discussed andagreed, and the timetable for studies and expected delivery periods of study results arepresented in Annex 7. The results of all studies will be reviewed jointly by the Bank and theSteering Committee during the annual implementation and mid-term reviews (paras. 5.5-5.6)to determine necessary actions to be taken. The project will finance consultant services forthese studies.

W Description of the information systems and terms of reference for the key studies are included as Annex I to the Memorandum andRecomnendation of the President.

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3.27 For Component A, three studies will be undertaken:

(a) The Financial Solvency of the Council and OCs would be studied todetermine appropriate long-term organizational and financial arrangements ofthe SNC. During negotiations, agreement was confirmed that for the study onfinancial solvency of the Council and OCs, (i) terms of reference will beprovided to the Bank for comments by June 30, 1997, and (i) the final reportwill be provided by June 30, 1999 (para. 7. 1(d)).

(b) A Basic Skills study will be supported by the project, using the job analysismethodology developed by the American College Testing service (ACT)."'This study will try to identify the basic skills and competencies generallyfound across occupational clusters and economic sectors in the Mexicanproductive sector. A test will be developed to measure the level of these basicskills possessed by the Mexican labor force, and will be applied initially in1995 and again in 1999 with control groups (Before-After Comparison ofBasic Skills). The comparison of the two test results would indicate changes,if any, in the basic skills of the Mexican labor force as a result of theintroduction of CBT. During negotiations, agreement was confirmed that (i)the results of the Basic Skills study would be provided to the Bank byDecember 31, 1996 and (ii) the results of the Before-After Comparison ofBasic Skills study, with control groups, would be provided by June 30, 1999(para. 7.1(e)).

(c) A study to determine Success Factors for Certification will seek to identifythose combinations of basic skills that would contribute most to the successfulacquisition of competency certificates.

3.28 For Component B, the following three studies would be undertaken:

(a) A study on Enrollment Trends would identify (i) the areas of specializationfor which the demand for training is growing and (ii) changes in theenrollment population.

(b) A Comparison of Traditional versus Competency-Based Training usinggraduate tracer studies would evaluate the labor market performance, successrates at finding employment, and productivity of trainees under the twotraining modalities. During negotiations, agreement was confirmed that theconsultant proposal for the Comparison of Traditional versus Competency-Based Training study would be provided to the Bank for comments by June 30,1995 (para. 7.1(g)).

(c) A study to examine CBT-Driven Changes in Training Institutions woulddocument adaptation in training institutions resulting from the transition toCBT.

L5' The National Job Analysis Study project currently carried out by the American College Testing service (ACT) under acontract with the U.S. Department of Labor is an effort to identify, across narrow occupational categories, neceasay generalskills for workers to be productive in the modem U.S. labor market. Although this work is still in its first phase, its potentialhas been recognized; the project would support a study to adapt relevant core job competencies to the Mexican context throughfield testing (Mexican Job Analysis Study).

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3.29 For Component C, STPS will undertake four studies:

(a) An Evaluation of CBT in MSMEs under CIMO would analyze changes inwork organization and productivity brought about as a result of the new CBTreceived by their workers;

(b) An evaluation of the CBT Effectiveness for PROBECAT Beneficiaries wouldevaluate the effects on the labor market performance of the graduates of CBTcompared to graduates of corresponding traditional training courses.

(c) A detailed technical analysis of the CBT Impact in Pilot Enterprises wouldprovide lessons for the mainstreaming process.

(d) An Evaluation of the Certification Process and Incentives Program during1997 would analyze the program's performance, roles played by employersand workers associations, and the flow of funds, including the analysis oftrainees' ability and willingness to pay for skills testing.

3.30 Subcomponent D.3 - Project Administration (US$6.1 million). The implementationof the proposed project through three distinct entities (the Council, SEP, and STPS) poses adifferent set of challenges. Overall coordination of the project will rest with a SteeringCommittee composed of high-level representatives of SEP and STPS, the Council's ExecutiveSecretary, and representatives of SHCP, NAFIN. The Steering Committee will be a mediumfor participating executing agencies to coordinate activities, adjudicate on agreements, andoversee the execution of the project. As a condition of loan effectiveness, the SteeringCommittee will have been established (para. 7. 2. (b)).

3.31 The STPS-managed component will be implemented by STPS staff, who haveextensive experience in both operating the CIMO and PROBECAT programs and executingBank-financed projects. The Council is to be managed mainly by the private sector (bothemployers and workers representatives), and relatively independently of Government input.SEP, on the other hand, will require incremental staff and operating costs to administerComponent B. For this reason, the Project Administrative Unit (PAU) will be located withinSEP. Beside implementing Component B, the PAU would maintain regular dialogue with theCouncil and STPS counterparts, carry out the principal monitoring and evaluation functions,and be the repository of project information for Bank supervision missions. Terms ofreference of the Steering Committee and the PAU were discussed and agreed duringappraisal; these terms of reference and the project's implementation plan are presented inAnnex 7. The project will provide for start-up investment costs of the PAU and forincremental salaries and operating costs on a declining basis. During negotiations,agreement was confirmed on the terms of reference of the Steering Committee and the PAU(para. 7.1(g)). As a condition of disbursement for certain SEP expenditures, the PAU willhave been established and the PAU Director and three Coordinators will have beenappointed (para. 7.4).

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IV. PROJECT COSTS, PROCUREMENT, DISBURSEMENTS AND AUDITS

A. Project Costs and Flnancing

4.1 The total project cost, including physical and price contingencies and taxes, isestimated at about US$412.0 million equivalent, of which an estimated US$109.2 millionwould be foreign exchange (26.5% of project costs); taxes amount to about US$32.8 million(7.9% of project costs). The table below summarizes the estimated costs by component.Investment costs amount to 88.8% of total costs; recurrent costs account for 11.2% of totalcosts. Project costs were estimated at July 1994 price levels and include physicalcontingencies of 5% for equipment, furniture, and for technical assistance for studies andsurveys. Price contingencies are calculated at 2.2% per annum over the period 1995-99.

Project Cost Summary

(US$ million)

LcIal Foreign Total

A. National System of Competency Standards,Skills Testing and Certification

1. National System of Competency Standards 10.3 0.3 10.62. System of Skills Testing and Certification 20.5 0.0 20.5

Subtotal 30.8 0.3 31.1B. Modernization of Training Programs

1. Pilot Training Modernization Programs 70.6 41.1 111.72. Development of Training Materials 6.0 24.0 30.0

Subtotal 76.6 65.1 141.7C. Stimulation of Demand for Competency-Based

Training and Certification1. Promotion of SNC 5.9 0.5 6.42. Pilot Testing of SNC in Enterprises 22.8 4.1 26.93. Training and Certification Incentives 98.9 12.5 111.44. Equipment and Instructor Training 31.9 13.4 45.3

Subtotal 159.5 30.5 190.0D. Information Systems, Studies

& Project Administration1. Information Systems 1.5 1.6 3.12. Studies 6.3 2.2 8.53. Project Administration 5.7 0.0 5.7

Subtotal 13.5 3.8 17.3TOTAL Baseline Costs 280.4 99.7 380.1

Physical Contingencies 4.4 3.5 7.9Price Contingencies 18.0 6.0 24.0

TOTAL PROJECT COSTSS 302.8 109.2 412.0

6' Includes duties and taxes estimated at about US$32.8 million.

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These inflation rates have been applied to local and foreign costs as well, assuming thatcurrency rate adjustments would compensate for the difference between international inflationon a US dollar base and local inflation rates. Annex 9 provides a detailed breakdown ofproject costs.

4.2 Project cost estimates are based on recent experience with training and stipend costs.Estimated costs for minor office rehabilitation are based on detailed cost analyses of typicalSTPS and SEP offices. Estimated costs of computer, training, office equipment, andeducation materials are based on unit prices per item obtained in recent international andlocal purchases. Estimates for technical assistance and studies are based on current rates forlocal and foreign experts. Cost estimates for travel allowances and other operating costs arebased on current costs and costing standards used by STPS and SEP.

4.3 Incremental Recurrent Costs. Over the implementation period, the project wouldadd an average of about US$7.9 million per year to the combined recurrent expendituresbudgets of the SEP and STPS. Taking into account the breakdown of these recurrent costsbetween these two secretariats, these costs represent increases of about 0.1% and 1.9% overthe 1994 SEP and STPS recurrent expenditures budgets, respectively. These increases in therecurrent budget of the two secretariats involved can be readily absorbed, thus enhancingimplementation and sustainability of the project programs. Incremental operating costs wouldbe generated by salaries for incremental staff, operation and maintenance of equipment,office supplies, and travel and subsistence costs for supervision activities. Incrementalrecurrent costs would be financed by the Bank on a declining basis (from 75 % initially, to25% by the end of the project). Recurrent costs under the project are estimated as follows:

Incremental Recurrent Costs(US$ million)

Year 1995 1996 1997 1998 1999 TOTAL

SEP 2.8 7.8 8.0 8.2 8.3 35.1

STPS 0.8 1.1 1.8 3.8 3.8 11.3Total Recurrent Costs 3.6 8.9 9.8 12.0 12.1 46.4

4.4 Sustainability. The Council is expected to become self-financing in the long run asresources for its operations will come from fees, contributions of its members as well ascontractual agreements entered with the Government and other agencies. Whilst the OCswould be initially funded by the project, their operational activities should become self-financing in the long run (although not entirely under the project) through testing and otherfees as well as other income-generating activities. CEAs are expected to be self-sufficientfrom the beginning of the project. Moreover, once the new training standards have becomeaccepted as the norm, there will be no need to continue government incentives and promotionof the standards. Incentives costs are being financed on a declining basis under the project tofacilitate this phasing out of support.

4.5 Project Financing. The project would be financed by the Bank, the FederalGovernment and beneficiaries (private enterprises and trainees). The Government wouldfinance all taxes and duties, estimated at US$32.8 million, and would finance US$85.5million of local expenditures, representing 22.5% of project costs net of taxes and duties.During negotiations, agreement was reached that the Government will provide adequate

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annual budget allocations for the project, including for 1995, and that these allocationswould be reviewed annually with the Bank during project implementation reviews (para.7.1(h)). The proposed Bank loan of US$265.0 million would finance 64.3% of total projectcosts, or 69.8% of project costs net of taxes and duties. The loan would finance 100% offoreign exchange expenditures and 58.8% of local expenditures, net of taxes. The loanwould be made to Nacional Financiera, S.N. C. (NAFIN), which would make the fundsavailable to STPS and SEP for the execution of the project. For the Council, theGovernment through SHCP as grantor will transfer to thefideicomiso some start-up funds(which cannot come from loan proceeds) and eventually other funds to reimburse the trust foreligible expenditures; the Council's allocation will come from the SEP budget, and NAFINwould administer the trust as trustee. The contribution of private enterprises and traineesparticipating in in-service training and skill certification, and benefiting from CIMO andtechnical assistance under the project would be US$28.7 million, or 10.2% of project costsnet of taxes. The contribution of private enterprises and trainees would be ensured throughthe cost-sharing arrangements described in para. 3.23.

Fmancing Plan

Local Foreign Total'US$ million

Government of Mexico 118.3 0.0 118.3IBRD 155.8 109.2 265.0Beneficiaries 28.7 0.0 28.7

TOTAL 302.8 109.2 412.0

4.6 The actual contribution of the Government and beneficiaries is higher than stated, as anumber of indirect costs, which are difficult to estimate, have not been included. Theseinclude: (a) ongoing operational support to be offered by institutions such as CIMO andPROBECAT; (b) the counterpart resources contributed by the various institutions bidding forthe development of training resources; (c) volunteer time which will be donated by BoardMembers, industry advisors, supervisors and employers for the various committee activities;(d) financial contributions of chambers of industry and commerce to the operating expensesof the Council; and (e) expenditures by individuals taking certification tests on their ownaccount, which, in the long run, will constitute a substantial part of the financing of the OCsand CEAs.

B. Procurement

4.7 The project would include procurement of equipment for testing and certificationcenters and training institutions, computer equipment, office furniture, training materials,proprietary materials for certification and testing, promotion and information campaigns,incentives for training and testing, studies and consultant services. Procurement of goodswould be carried out in accordance with Bank guidelines for procurement (May 1992).Detailed project procurement and disbursement procedures would be included in theoperational guidelines of all relevant project executing agencies.

4.8 All procurement under international competitive bidding (ICB) and limitedinternational bidding (LIB) will be undertaken by the Council with assistance from the PAU

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and approved by NAFIN for Component A, SEP for Component B, and STPS forComponent C. Procurement for private training institutions would also follow standard Bankprocedures. Procurement for OCs would be done by international or local shopping with atleast three price quotations. OC's procurement packages are not expected to be greater thanUS$325,000 for each OC. The procurement categories for OCs would include furniture,office equipment, skill testing materials, and technical assistance. The total amount ofprocurement of goods, training materials and printing services for OCs would not exceedUS$1.3 million (0.5% of the total loan amount), and the total amount of procurement oftechnical assistance for OCs would not exceed US$3.9 million (1.5% of the total loanamount) over the life of the project.

Procurement Methods by Category(US$ million)

Category ICB LCB Other Non-Bank TOTALI Financed

Goods and Equipment' 64.2 31.8 10.61" 0.3216/ 106.9(57.2) (28.6) (9.5) (95.3)

Training Materials 10.97" - 34.33' - 45.2(5.3) (16.7) (22.0)

Printing and Reproduction of Training 2.1 14.4 4.14' - 20.6Materials (1.3) (9.0) (2.6) (12.9)Consultants, Studies and Technical - - 79.75' - 79.7Assistance"' (59.8) (59.8)Scholarships, Stipends and Incentives - - 118.96/ - 118.9

(54.2) (54.2)Incremental Staff - - 25.26/ - 25.2

(14.5) (14.5)Incremental Operating Costs - - 15.56/ 15.5

(6.3) (6.3)

TOTAL 77.3 46.6 289.4 0.3 412.0(63.8) (37.6) (163.6) (0.0) (265.0)

Figures in parentheses are the respective amounts financed by the Bank./ Local shopping = US$10.6 million.

2v For use of a Customs Agent.v Direct Contracting = US$23.4 million, of which US$11.4 million financed by the Bank.4 Direct Contracting.' Consultant Services.~ Does not involve procurement.7' LIB = US$10.9 million, of which US$5.3 million financed by the Bank..' OCs = US$1.3 million, of which US$1.3 million financed by the Bank.b/ OCs = US$3.9 million, of which US$3.6 million financed by the Bank.

4.9 For ICB, all executing agencies will use the standard bidding documents (SBDs)issued by the Bank, with such modifications as agreed by the Bank to be necessary for thepurpose of the project. For local competitive bidding (LCB), SBDs as agreed by the Bank

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with the Government of Mexico would be used. For the purpose of comparing foreign andlocal bids for goods during ICB evaluation, domestic manufacturers would be allowed amargin of preference in accordance with Bank guidelines. The Procurement Table aboveshows project cost breakdown by procurement methods. Annex 7 shows administration andspecific procurement responsibilities and arrangements for each component. Duringappraisal, detailed procurement arrangements were discussed and agreed.

4.10 Goods and Equipment. Procurement includes new and replacement equipment foreducational and testing centers up to an aggregate of about US$106.9 million.Approximately 61 % of this category of procurement would be procured by the SEP, 37% bySTPS and the remaining 2% by the Council. Packages of furniture and equipment valued atUS$150,000 or more and less than US$350,000, up to an aggregate of US$31.8 million, notexpected to attract foreign bidders, would be procured using LCB procedures acceptable tothe Bank. Furniture and equipment packages costing less than US$150,000 would beprocured on the basis of comparison of price quotations for at least three qualified suppliers(local or international shopping), up to an aggregate of US$10.6 million.

4.11 Training Materials. Training materials would be procured by three methods: (a)materials readily available in the international market would be procured following the ICBprocedures, (US$10.9 million); (b) specialized materials for which only a limited number ofsuppliers exist (e.g. teaching materials for CBT courses) would be procured following LIBprocedures (US$10.9 million); and (c) printed materials, including the NVQs, which areproprietary and obtainable from only one source, would be procured through directcontracting with local and international sources that hold the copyright. Packages to behandled under the last method would not exceed an aggregate amount of US$23.4 million.In cases where the authors of the procured materials hold the copyright, and these materialsare to be reproduced widely for use with little modification, the procuring entities wouldhave to enter into an agreement with the copyright owner regarding the use of suchmaterials, and contract the printing according to the procurement procedures and thresholdsindicated in 4.12 below.

4.12 Printing and Reproduction of Training and Promotional Materials. Contracts forprinting of materials to be used and distributed to trainees or for use for promotional andinformational purposes would be procured through ICB for packages costing US$350,000 ormore and through LCB in packages costing US$150,000 or more but less than US$350,000,up to an aggregate of US$14.4 million. When printing of materials obtained from only onesource costs under US$150,000, direct contracting may be used up to an aggregate ofUS$4.1 million.

4.13 Consultants, Studies and Technical Assistance. Individual consultants andconsultants firms carrying out technical assistance, training or studies would be hiredfollowing Bank Guidelines for Consultants (August 1984) fBank Guidelines for the Use ofConsultants by World Bank Borrowers and by the World Bank as Executing Agency). Forcontracts for studies, the executing agencies would use a standard invitation package, withdetails amended as required for the specific study.

4.14 Prior Review. Prior review for procurement procedures and documentation would berequired for all tender packages and contracts for ICB and LIB and those to be contracted

- 30 -

through direct negotiation or single-source basis, as well as the first tender package andrelated contracts for LCB and shopping for each executing agency for: (a) goods andequipment; (b) printing of materials; and (c) non-durable training materials packages. Allother packages would be subject to review in the field (ex-post) during Bank's supervisionmissions on the basis of random sampling. All terms of reference for technical assistanceand studies would be subject to ex-ante review by the Bank. Documentation for contractswith consultants' firms valued above US$100,000 and for individual consultants valued aboveUS$50,000 would be reviewed ex-ante by the Bank. This threshold for prior review isjustified based on a careful review of estimated costs and nature of consultant services whichare required for the project. About 67% in total contract value for goods, equipment,materials, and printing, and about 88% in total contract value for consulting services areexpected to be subject to prior review.

4.15 No recent Country Procurement Assessment on Mexico is available. However,Mexico's procurement regulations (Ley de Adquisiciones y Contrataciones, January 1994),clearly authorize, as a special provision, application of procurement procedures ofinternational financial institutions in the procurement of works, goods and services wherefinancing of such procurement comes from the international financial institution.

C. Disbursements

4.16 The proposed project would be implemented over a period of approximately fiveyears and is expected to be completed by March 31, 2000 and closed by September 30,2000. The proceeds of the loan would be disbursed over a 51/2 year period as shown inAnnex 9. The Bank's contribution for incremental recurrent costs, on a declining basis,would help the Govemment absorb these costs. Retroactive financing of up to US$10.0million equivalent (3.8% of the total loan amount) would be provided to help cover eligiblestart-up expenditures for equipment, technical assistance, and acquisition of training materialsmade on or after June 28, 1994, for which an extraordinary budget allocation has been madeby SHCP to SEP/CONALEP in anticipation of reimbursement by the Bank.

4.17 Proceeds of the proposed loan would be disbursed against expenditures to bepresented to the Bank and fully documented for goods and equipment contracts ofUS$350,000 or more, for consultant contracts with individuals of $50,000 or more and withfirms of $100,000 or more, subject to prior review as per para. 4.14. Claims forexpenditures under contracts below those amounts and other expenditures not covered by acontract, such as incentives, training costs, incremental salaries, travel allowances, etc.would be disbursed against presentation of Statements of Expenditure (SOEs), for which thesupporting documentation would be retained by SEP and STPS for periodic inspection by theBank and by external auditors. A Special Account in U.S. dollars with authorized allocationof US$19 million would be established at the Banco de Mexico. An initial allocation ofUS$12 million would be deposited to the Special Account. The allocation can be increasedabove US$12 million when the aggregate withdrawals from the Loan account reaches US$24million. The Special Account will be replenished monthly and will be used for alltransactions with a value of less than US$1.2 million. Normal documentation requirementsapply, except that in addition, a copy of the bank statement from the institution holding theaccount detailing the transactions made and reconciled by the borrower would accompanyeach replenishment request.

- 31 -

D. Accounts and Audits

4.18 The PAU, STPS, and NAFIN would maintain records and accounts adequate toreflect, in accordance with sound accounting practices, the resources and expenditures inconnection with the execution of the project. These records would reflect the resources andexpenditures in connection with the execution of the entire project. During negotiations,agreement was reached that NAFIN, SEP (including the PAU) and STPS would: (i) have therecords and accounts for each fiscal year audited by independent and qualified auditors witha separate opinion provided on SOEs, in accordance with generally accepted auditingstandards and procedures, and with the specific current understanding with the Mexicanauthorities; (ii) furnish to the Bank, no later than six months after the end of each year, acertified copy of the agreed audit reports; (iii) furnish to the Bank such other informationconcerning the records and accounts as well as the audit as the Bank wouldfrom time totime reasonably request (para. 7.1(i)). For all expenditures with respect to whichwithdrawals from the Loan Account were made on the basis of SOEs, and for allexpenditures with respect to which withdrawals were made from the Special Account, SEPand STPS would provide to NAFIN all records and accounts necessary to allow the timelyperformance of its obligations, and to the independent auditors, both the records and thesupporting documentation.

V. PROJECT IMPLEMENTATION

A. Project Implementation

5.1 A detailed implementation plan and schedule have been prepared (Annexes 7 & 8).For Component A, after the establishment of the Council during the first quarter of 1995,draft operational procedures are expected to be provided to the Bank no later than October30, 1995; by the same date, the first CNs would be established. The first set of competencystandards would be adopted by June 1996 and following this, the first group of OCs wouldbe accredited and start operation by September 1996. For Component B, CONALEP willstart offering modular CBT courses in September 1994, to be followed by other pilotprograms in CECATIs and CETIS in September 1995. Financing of training materialsdevelopment would be made open to other training institutions starting in 1997 for theproject's second phase, following the establishment of the first set of competency standardsin 1996. For Component C, both the CIMO and PROBECAT programs would start, in1995, to support SMEs and targeted individuals who participate in the pilot courses inCONALEP, CECATI, and CETIS during the first phase of the project. The main incentivesprograms will start in 1997. At the same time, the programs to support equipment purchaseand instructor retraining will be started. For Component D, several studies will beundertaken in accordance with the project implementation schedule throughout the project.Key studies include the Basic Skills study and the Comparison of Traditional versus CBTstudy. During negotiations, agreement was reached on the project implementation plan andschedule (para. 7.1(j)). The PAU, which will reside in SEP, will help coordinate andfacilitate project activities (para. 3.31).

5.2 Project Readiness for Implementation. Project preparation has advanced withoutserious setbacks, and has been accelerated during the final months to the stage of readiness

- 32 -

for implementation. Under the leadership of the Project Preparation Coordinator, all projectimplementing agencies, including STPS's Directorate of Employment (Direcci6n General deEmpleo, DGE), CONALEP, DGETI, SEP's General Directorate for Training Centers(Direcci6n General de Centros de Capacitaci6n), and SEP's Special Advisors Office havesuccessfully collaborated in the preparation of project components. Experience fromexisting Bank projects has also helped DGE and CONALEP in the preparation of theircomponents.

5.3 Since the Mexican project team has maintained dialogue and consultation with privatesector representatives throughout project preparation, the level of understanding andenthusiasm for the proposed project is very high among business organizations, which augurswell for Component A, the most crucial component, the establishment of the Council and itsrelated activities. The project preparation team, in close consultation with the private sector,has already selected the occupational clusters for which competency standards will be firstprepared. For Component B, similarly, the private sector has been consulted for theselection of the occupational groups under the pilot training modernization programs.CONALEP has been studying and preparing its CBT methodology for nearly a year and hasalready purchased sufficient materials from various foreign institutions to start offeringmodular CBT courses in the initial occupational areas selected under the project. CETIS andCECATIs are starting to prepare for their CBT courses, which will be offered in the 1995-96academic year. Implementation of Component C will be greatly facilitated by the fact thatDGE has successfully been implementing the Labor Market project since 1992. Since theinstitutional infrastructure of incentive programs is already in place (PROBECAT andCIMO), little impediment is foreseen. No difficulties are expected in the implementation ofComponent D, as (a) information systems and studies are technical in nature and therequired technical assistance is abundant, and (b) the PAU will be small and not be burdenedwith a lot of functions.

5.4 Monitoring Indicators. During appraisal, monitoring indicators for projectimplementation and initial project impact were discussed and agreed (Annex 10). This willform an important basis for the project implementation reviews. During negotiations,agreement was confirmed on the project monitoring indicators (para. 7.1(k)).

B. Supervision and Mid-Term Review

5.5 Implementation Reviews. Annual implementation reviews would be organized bySEP/STPS with the assistance of the PAU and would involve the participation of SEP/STPSsenior staff, representatives of the Council, authorities from SHCP and NAFIN, and Bankstaff. The purpose of the implementation reviews would be to evaluate project performanceagainst implementation plans and agreed monitoring indicators; provide management withfeedback on project achievements and issues and areas needing improvement. Each reviewwould include: (a) analysis of the previous year's performance (i.e., performance againstmonitoring indicators, functioning of implementation arrangements, main issues, andremedial actions to overcome the constraints); (b) review of work plan and budget for thefollowing year; and (c) modifications in project design, if needed, to adjust to changingcircumstances. Thus the implementation reviews would provide for on-going refinements inproject strategies and plans, consistent with the overall objectives of the project. Thesereviews would be undertaken in November of each year, based on annual project

- 33 -

implementation reports prepared by the PAU for the Council, SEP, STPS, and the Bank.During negotiations, agreement was reached that (i) annual implementation reviews would beheld with representatives of the Council, SEP, STPS, SHCP and NAFIN and Bank staff byNovember 30 of each year, starting in 1995, and (ii) the PAU would provide to the Bankimplementation reports covering all project activities no later than 30 days prior to thescheduled date of the review (para. 7.1(1)).

5.6 Mid-Term Review. A mid-term review would be conducted in November 1996E'(replacing that year's annual review), following the same format as the implementationreview meetings, but the analysis of project achievements would be expanded to include in-depth review of the performance of each component. The early timing of the mid-termreview was chosen to coincide with the expected end of several intermediate projectactivities: (a) the completion of a first set of competency standards; (b) conclusion of thepilot training modernization programs; (c) final results of the CIMO and PROBECATevaluations under the Labor Market project; (d) design and preliminary installation of severalinformation systems; and (e) preliminary results of several studies under the variouscomponents. The mid-term review would thus be an occasion to take important decisions inpreparation for the second phase of many project activities, consolidating lessons learned tomake improvements in project design where needed. Because better estimates of demand forthe SNC and TCS will have been obtained, the mid-term review will pay special attention torevision of project cost estimates. Other important agenda items would be the workings ofthe Steering Committee and the Council, and the effectiveness of inter-institutional as well aspublic-private cooperative arrangements. In addition, the mid-term review would result in anupdated set of targets and actions for the subsequent years of project implementation.During negotiations, agreement was reached that (i) the terms of reference for the mid-termreview would be provided to the Bank for comments by July 31, 1996, and (ii) the reviewitself would be undertaken by November 30, 1996 except for the Component B.1, for whichthe mid-term review would be undertaken by May 30,1997 (para. 7. 1(m)).

5.7 Supervision Requirements. Extensive and close Bank supervision would be requireddue to the incipient nature of a system of national competency standards in Mexico and themulti-institutional and cross-sectoral nature of the project. The supervision team would becarefully planned, combining Bank staff and consultants with specialties in education,training, labor markets and procurement. About of 53 staffweeks have been budgeted forFY95, FY96, and the first half of FY97 (including the Mid-Term Review)."'

VI. PROJECT BENEFITS AND RISKS

A. Project Benefits

6.1 The project's immediate outputs would be: (a) the creation of standards in a numberof critical occupational areas; (b) the development of certification criteria and testingmechanisms to certify the achievement of standards by workers and graduates from trainingsystems; (c) a national evaluation of the level of generalizable skills considered basic for the

W7 Except for Component B. I for which a mid-term review would be undertaken in May 1997.

Lo' A detailed supervision plan is presented as Annex 2 of the Memorandum and Recommendation of the President.

- 34 -

development of Mexico's work force; (d) the development of the capacity to produce anddeliver modular CBT systems; (e) the production of a number of complete instructionalpackages in key occupational areas, consistent with the new standards. At the same time, theproject will: provide incentives for 158,000 individuals to certify competencies acquired onthe job or through training system; assist micro, small and medium sized firms to developcompetency-based human resources; and assist targeted individuals and firms' trainingthrough modular CBT programs.

6.2 The expected long-term benefits are even more important. Critical to the success ofthe program is inducing a change of logic in the entire system of training in Mexico. Thatchange includes more intensive participation of the private sector, a emphasis on demand-driven training, and a more responsive training system which offers training of the levels andkinds demanded by firms. The use of a standard language introduced by the SNC would alsofacilitate and improve the communication between prospective employees and employers, aswell as between training supply and demand.

6.3 The introduction of modular training would allow training institutions to become moreflexible through the use of incentives to induce them to convert to the new system on avoluntary basis. At the same time, the system of certification would allow an automatic,transparent external mechanism to evaluate the quality of training institutions, and contributeto improve their quality and efficiency over time.

6.4 From an economic point of view, clearer labor market indications of worker qualityand more efficient ways to identify training needs should yield substantial economic returnsto the country. The new system of standards, testing and certification should provide aneffective mechanism for screening an applicant's technical skills and knowledge in moreprecise ways. It would reduce information imperfections and thereby reduce the costs ofscreening and the costs of ineffective training. The system would also make employmentservices, wage systems and personnel management more efficient. Most importantly,economic benefits would derive from improving the overall quality and relevance of thetraining system. Employers would be more motivated to engage in training activities andemployees would be able to certify their previously-acquired skills and find more feasiblealternatives to engage in further training.

B. Project Risks

6.5 The project is subject to three potential risks: (a) complexity leading to poorimplementation; (b) inadequate private sector involvement; (c) resistance of interest groupsdue to poor understanding of the project.

6.6 Any project aiming at such ambitious goals and dealing with multiple actors in thepublic and private sectors, multiple issues such as standards, certification, testing andtraining delivery modes, and a variety of implementation agencies including traininginstitutions and mechanisms such as CIMO and PROBECAT, as well as the establishment ofnew organizations to introduce a new culture of standards and certification is subject to risk.The main instrument of the project, the Council for Normalization and Certification ofCompetency Standards, is expressly intended to address project complexity and permit theflexibility necessary to adapt project implementation to the realities of the country. The

- 35 -

Government understands its role and will enable the Council to operate so that it increasesprivate sector ownership and responsibility. The presence of the Steering Committee willhelp resolve coordination problems emerging during implementation at an early stage.

6.7 The second risk is that the private sector will not assume its roles and responsibilitiesadequately. Employer's indifference may be more damaging than resistance. Ensuring theincreasing participation, involvement, and ownership of the project is critical for projectsuccess and continuity. This is particularly challenging in Mexico where Governmentpresence in training has been extensive and employers have been led to expect all trainingsupport to come from the Government free of charge. The project is based upon strategy toincrease the authority and responsibility of employers over the Council, as well as to ensurethe necessary participation of representatives from employees and unions.

6.8 The third risk is potential resistance from localized interest groups. Competency-based training, modular courses and external evaluation may be perceived negatively due topoor understanding by the intended beneficiaries. This risk will be mitigated by the fact thatbeneficiary institutions and individuals will participate in the project only voluntarily. Inaddition, the project includes a strong program of information and promotion, and the pilotdemonstration of the benefits to interest groups.

VII. AGREEMENTS REACHED AND RECOMMENDATION

7.1 During negotiations, agreement was confirmed and/or reached:

(a) that the proposal for the organizational structure of OCs will be provided tothe Bank for comment by June 30, 1995 (para. 3.11);

(b) that satisfactory final guidelines for the provision of support for trainingmaterials development would be issued by SEP by September 30, 1996 (para.3.17);

(c) that the results of the evaluation of the certification process and incentivesprogram would be provided to the Bank for its review by April 30, 1998(para. 3.23(c));

(d) that for the study on financial solvency of the Council and OCs, (i) terms ofreference will be provided to the Bank for comments by June 30, 1997, and(ii) the final report will be provided by June 30, 1999 (para. 3.27(a));

(e) that (i) the results of the Basic Skills study would be provided to the Bank byDecember 31, 1996 and (ii) the results of the Before-After Comparison ofBasic Skills study, with control groups, would be provided by June 30, 1999(para. 3.27(b));

(f) that the consultant proposal for the Comparison of Traditional versusCompetency-Based Training study would be provided to the Bank forcomments by June 30, 1995 (para. 3.28(b));

- 36 -

(g) on the terms of reference of the Steering Committee and the PAU (para.3.31);

(h) that the Government will provide adequate annual budget allocations for theproject, including for 1995, and that these allocations would be reviewedannually with the Bank during project implementation reviews (para. 4.5);

(i) that NAFIN, SEP (including the PAU) and STPS would: (i) have the recordsand accounts for each fiscal year audited by independent and qualified auditorswith a separate opinion provided on SOEs, in accordance with generallyaccepted auditing standards and procedures, and with the specific currentunderstanding with the Mexican authorities; (ii) furnish to the Bank, no laterthan six months after the end of each year, a certified copy of the agreed auditreports; (iii) furnish to the Bank such other information concerning the recordsand accounts as well as the audit as the Bank would from time to timereasonably request (para. 4.18);

(j) on the project implementation plan and schedule (para. 5.1);

(k) on the project monitoring indicators (para. 5.4);

(1) that (i) annual implementation reviews would be held with representatives ofthe Council, SEP, STPS, SHCP and NAFIN and Bank staff by November 30of each year, starting in 1995, and (ii) the PAU would provide to the Bankimplementation reports covering all project activities no later than 30 daysprior to the scheduled date of the review (para. 5.5); and

(m) that (i) the terms of reference for the mid-term review would be provided tothe Bank for comments by July 31, 1996, and (ii) the review itself would beundertaken by November 30, 1996 (para. 5.6).

7.2 As conditions of loan effectiveness:

(a) The trust agreement, satisfactory to the Bank, creating the Council will havebeen signed (para. 3.7); and

(b) The Steering Committee will have been established (para. 3.30).

7.3 As a condition of disbursement for Council expenditures:

Satisfactory key staff of the Council will have been appointed, and satisfactory rulesand procedures of the Council will have been issued (para. 3.7).

7.4 As a condition of disbursement for certain SEP expenditures:

The PAU will have been established and the PAU Director and three Coordinatorswill have been appointed (para. 3.31).

- 37 -

7.5 Recommendation. Subject to compliance to the above conditions, the proposedproject is suitable for a Bank loan of US$265 million equivalent to NAFIN, with theguarantee of the United Mexican States, for 15 years, including a 5-year grace period at theBank's standard variable interest rate.

- 38 -

ANNEXES

1. Technical Education System2. Evaluation of CONALEP and PROBECAT Training Programs3. National Vocational Qualifications System4. Component A - National System of Competency Standards, Skills Testing and

Certification5. Component B - Modernization of Training Programs6. Component C - Stimulation of Demand for Competency-Based Training and

Certification7. Implementation Plan8. Implementation Schedule9. Project Costs and Disbursement10. Monitoring Indicators11. List of Documents in Project File

Table 1 - Formal Training Offered by SNET, 1992-93

Educational Level Total New Educa- Instruct- Other Grad- Installations

Enroll- Enroll- Schools/ Courses tional ors Person- uates Class- Labs Work- Other- Educational Modaliy ment* ment Centers Svces_ nel rooms I shops facilities

Training 93,149 92,994 217 57 209 4,460 3,761 40,683 523 28 1,175 4,145

- Formal Training 93,149 92,994 217 57 209 4,460 3,761 40,683 523 28 1,175 4,145

Upper Secondary 675,082 341,796 944 331 1,354 45,170 34,312 124,680 11,342 3,090 4,970 21,260

- Terminal 210,487 109,517 264 183 413 14,934 11,461 39,061 2,916 1,025 1,415 13,968

- Technical Bachillerato 464,595 232,279 680 148 941 30,236 22,851 85,619 8,426 2,065 3,555 7,292

University 200,610 55,370 129 141 179 19,567 13,388 24,871 4,302 1,156 594 4,907

- Licenciatura 200,610 55,370 129 141 179 19,567 13,388 24,871 4,302 1,156 594 4,907

Graduate 4,136 1,128 16 168 73 1,867 815 701 59 260 23 229

- Professional 505 126 21 12 179

-Master 3,309 963 16 109 50 1,867 815 491 59 260 23 229

- Doctor 322 39 38 11 31

Total 972,977 491,288 1,306 697 1,815 71,064 52,276 190,9351 16,226 4,534 6,762 30,541

* Enrollment at the beginning of school cycle 1992-1993,Source: SEP, Essad(stica Bdsica Sistema Nacional de Educaci6n Tecnol6gica, 1992-93, Inicio de Cursos.

ci

- 40 - ANNEX 1TECHNICAL

EDUCATION SYSTEM

Table 2 - Enrollment by Training Institution Units of SNET, 1992-93*

Educational Upper Secondary Univty. GraduateLevel/ Job Skill

Responsible Training Terminal Tech. Licen- Profes Master | Doctor TotalUnit IBachill . ciatura sional l

DGCC 91,700 91,700% (98.44) (9.42)

CONALEP 171,142 171,142% (81.31) (17.59)

DGETI 37,735 348,340 386,075% (17.93) (74.98) (39.68)

CETI 2,208 670 2,878% (0.48) (0.33) (0.3)

UECyTM 11,025 1,628 12,653% (2.37) (0.81) (1.30)

DGETA 58,404 5,853 107 64,364% (12.57) (2.92) (3.23) (6.62)

DGIT 16 133,623 311 1,058 13 135,005% (0.01) (66.61) (61.58) (31.97) (4.04) (13.88)

ODE** 1,449 1,594 4,095 1,941 7,501% (1.56) (0.76) (0.88) (0.97) (0.77)

IPN 40,523 56,895 194 1,536 73 100,815% (8.72) (28.36) (38.42) (46.42) (22.67) (10.36)

CIEA - IPN 608 236 844% (18.37) (73.29) (0.09)

TOTAL || 93,1491 210,487 464,5951 200,610 505 3,309 3221 972,977% iI (100.0)1 (100.0) (100.0)J (100.0) (100.0)1 (100.0) (100.0)1 (100.0)

* Enrollment at the beginning of school cycle 1992-1993 (Sept. '92), except for DGCC where thefigures are enrollment at the first quarter of school cycle 1992-1993 (Sept. '92).

** Decentralized Institutions of the State Government with Federal participation.

DGCC Direccio6n General de Centros de Capacitaci6nCONALEP Colegio Nacional de Educaci6n Profesional TecnicaDGETI Direcci6n General de Educaci6n Tecnologica IndustrialCETI Centro de EnsefTanza Tecnica IndustrialUECyTM Unidad de Educaci6n en Ciencia y Tecnolog(a del MarDGETA Direcci6n General de Educaci6n Tecnol6gica AgropecuariaDGIT Direcci6n General de Institutos Tecn6logicosODE Organismos descentralizados de los Gobiernos de los Estados con participaci6n

FederalIPN lnstituto Politecnico NacionalCIEA-IPN Centro de Investigaci6n y de Estudios Avanzados del Instituto Politecnico

Nacional

Source: SEP, Estadfstica Bdsica Sistema Nacional de Educaci6n Tecnol6gica, 1992-93, Inicio de Cursos.

- 41- ANNEX 1TECHNICAL

EDUCATION SYSTEM

Table 3 - Informal Training Offered by SNET, 1992-93

Informal Training (in training institution)

Responsible No. of Courses No. of trainees No. of traineesUnit per year under

___________I j__PROBECAT

UECyTM 163 4,475

DGCC 8,869

CONALEP 17,001

DGETI 6,133

DGETA 9,695 86,066 1,459

DGIT 490

[ Total IF 9,858 J1 190,541 33,952 ]Informal Training (at work place)

Educational # of courses # of trainees per No. of groupsServices year trained under

PROBECAT

CONALEP 474 9,208 269

DGCC 154

DGETA 91

DGETI 199 3,215 120

DGIT 403 9,824

Total IF 1,076 22,247 634

Note: UECyTM Unidad de Educaci6n en Ciencia y Tecnolog(a del MarCONALEP Colegio Nacional de Educaci6n Profesional TecnicaDGETI Direccion General de Educaci6n Tecnol6gica

IndustrialDGIT Direcci6n General de Institutos Tecnol6gicos4DGCC Direcci6n General de Centros de Capacitaci6nDGETA Direcci6n General de Educaci6n Tecnol6gica

Agropecuaria

Source: SEP, Estadstilca Bdsica Sistema Nacional de Educaci6n Tecnol6gica,1992-93, Inicio de Cursos.

- 42 - ANNEX 1TECHNICAL

EDUCATION SYSTEM

Figure 1The National System of Education

(T)

3 H

T TG

PROFESSIONAL MASTER'S 2CERTIFICATE DEGREE

I H

5UNDERGRADUATE

t ~~~~~~~~~~~~~3

R | ~~~~HIGH LEVEL 2 R

4 5

TECHNICAL I3 n TRIA ECIALIST ~~~~~~~~~~~2 CSPECILS TECHNICAL ||ACADEMIC |TECHNICAL I C

N

14 T2 A13 | GENERAL-TECHNICAL MIDDLE SCHOOL 1 R12 (7JOB SKILL

1110 6

119 PRIMARY L 8 L E

6 2 E

5 2 T4 PRESCHOOL/KINDERGARTEN A

1 Ry

AGE Exit to job market YEARS

NOTE: Special and adult education are not included

Grades I - 6 Grades 7 - 9 Lower Grades 10 - 12Primary Secondary Upper Secondary

General & Tele General Academic &Secondary Teacher Training

Federal 318, 130 Federal 163,759State 2,511 ,378 State 463,537Autonolous 2,450 AutonoROus 3Z3,598Private 300,238 Private 356,116

Primary / Total 3,132,196 Total 1,307,010

Federal 979,935State 12,567,126 Technical Highschool :Priva.Le 922,389 Technical Secondary (Bachullerato Tecnologico) 4C

Total 14,469, 450\ \ c ____________________________ Federal 125,541 ~Federal 467,995 ~1

tae ea1,025,5460 State 21,833 I _

State 1,042,460 ~~~ADtoamllRUS 7,502 I 'OOPriv\ State 41,727 460 > Private 32,967 I

Total l.Z09,7Z63 \ \ Total 530,297]

\o Skill TraininTerminalJob Skills Training \ \ YVocational/Technical

Federal 123,924 Federal 235,100 1State 393415 AuState 27o 00,5AStoaot ou5 9.585 Sutoaot ous 30,358Private 214,104 Private 113,541 i

Total 391,028 Total 406,479 J0

- 44 - ANNEX 2EVALUATION OF

CONALEP & PROBECAT

EVALUATION OF CONALEP AND PROBECAT TRAINING PROGRAMS

1. This annex summarizes the findings of evaluation studies conducted for CONALEPtraining programs under the Third Technical Training Project (Loan 3358-ME), and also forthe PROBECAT program under the Labor Market and Productivity Enhancement Project(Loan 3542-ME). Since the proposed project builds upon these existing programs, theevaluation of their effectiveness in improving the participants' performance in the labormarket is an important basis for the design of the proposed, and future projects in the area oflabor force skill development.

A. Returns to CONALEP's Technical Training

2. Origin and Nature of CONALEP. CONALEP (National System for Vocational andTechnical Education) was established in 1978 to train mid-level professional technicians.With the support of three Bank loans the system has grown rapidly over the years into theflagship technical training system in Mexico. CONALEP currently has over 250 trainingcenters, offering over 200 course specialties with its entire teaching staff drawn fromindustry and the private sector. Whilst CONALEP's main emphasis is still a full-time 3-yearupper secondary (grades 10 to 12) vocational education (54,500 such students graduated in1993) i.e. pre-service training, in-service training is growing rapidly through modulartraining (1,700 graduates in 1993) and retraining programs for the unemployed (viaPROBECAT) and already employed workers (with a combined total of 88,400 trained in1993). In addition CONALEP now has 50 mobile training units in operation, with another25 under construction, to provide skill upgrading to mainly self-employed workers in poorand marginalized communities.

3. Graduate Tracer Studies. On the occasion of the Appraisal of the Third TechnicalTraining Project (Loan 3358-ME), concern was expressed in the Bank concerning theeffectiveness and rate of return for vocational training both in Mexico and more generally inother countries. In order to address this issue, the current Third Technical Training Projectmakes provision for a statistically robust graduate tracer system. Whilst there have beensome teething problems in operationalizing an adequate tracer system, the initial results areencouraging:

(a) Since 1987, CONALEP has run its own annual tracer system for all graduates.The 1993 graduate tracer study shows that 63% of CONALEP graduates hadsecured employment within six months of graduation, 87% of whom in aposition closely related to their study specialty. This placement rate comparesfavorably with 69% in Germany (6 months after completed apprenticeship.Y'The congruency rate (or broad match between training and work) also comparesfavorably with 78% among apprentices in Germany and 43% among upper

!' Herget, Harmann: The transition of young people into Employment after Completion of Apprenticeship in the'Dual System." Berlin: CEDEFOP, 1987.

-45 - ANNEX 2EVALUATION OF

CONALEP & PROBECAT

secondary technical school graduates in Japan.2' Available evidence showedthat their salary levels were about 10% higher than those following non-vocational education (bachillerato) to the same level. However, these results arenot as statistically robust as desired, as the tracer survey relies on voluntaryresponse to a mailed questionnaire with no follow-up of non-respondents, therebyintroducing a possible bias. In the 1993, more than 21,000 students respondedincluding some from previous cohorts.

(b) To remedy these biases, a special tracer study was contracted. The numericalresults were more positive than those of CONALEP's own tracer evaluation,showing 76% of graduates employed one month after graduation rising to 98%after 12 months. The study showed that the average income of the CONALEPgraduates was 2.4 times the minimum salary (SM).2' Graduates incomes wereshown to grow rapidly (in nominal terms) by 9% within six months and by 23%in 2 years, when comparing different cohorts of graduates in similar occupations,reflecting the high potential earnings profile of CONALEP graduates. Whilst thesurvey purported national coverage and representativity, less than 50% of thesample graduates responded. The results could not be considered statisticallyrobust and moreover no measurement against a control group was undertakendue to the difficulties in obtaining data.

(c) The same study included an Employers Assessment, based on a survey of arandom sample of 551 employers who were questioned regarding theirexperience with CONALEP graduates of educational level required for theirworkers. Of those companies employing CONALEP graduates, 90% stated thatCONALEP students were technically good or excellent.

(d) To rectify the lack of data for a control group, CONALEP hired a consultantwho used data from the ENEU (National Urban Employment Survey), which isundertaken monthly by INEGI (National Statistics and Geography Institute), toextract appropriate control groups relating employment and earnings toeducational profiles. Using data for 1991, for the 20-24 year-old cohort (the ageat which CONALEP graduates enter the labor market), the average income of aperson with lower secondary education only is 2.07 SM, slightly above thenational average of 1.96 SM (see table below), about 12.5% higher than that ofgeneral high school graduates. While the income of high-school graduates(bachilleres) is 2.44 SM, the income of youth with middle-level technical training(such as CONALEP) is 2.70. These results show that CONALEP graduates'earnings are 30.4% higher than lower-secondary graduates, representing anannual rate of return of 9. 1 % for each additional year of technical training;whereas bachilleres earnings have an overall gain of only 17.9% over lower-secondary school graduates earnings, or an annual rate of return of 5.6% for

Y Inoue, K: The Education and Trainino of Industrial manpower in Japan. Washington: The World Bank. StaffWorking Papers No.729.

1' One minimum salary is currently about US$143 per month.


CONALEP & PROBECAT

each additional year of high-school.' However, this study, could not isolateCONALEP graduates from those of other mid-level technical training programs.Nevertheless, this study is indicative of CONALEP program's cost-effectivenessbecause CONALEP accounts for about 40% of total national enrollments in mid-level technical training.

Annual Average Incomes 1991(expressed as multiples of the Minimum Salary - SM)

Education Level Age 20-24 All Ages

All Levels - 1.96Lower-Secondary (Grades 7-9) 2.07 1.83Mid-level Technical (Grades 10-12) 2.70 2.41Bachillerato (Grades 10-12) 2.44 2.51

* Source: National Urban Employment Survey (ENEU), INEGI

(e) 1994 Graduate Tracer Study. To improve the confidence in the data obtaineda smaller and statistically robust random sample was drawn from the 1991, 1992and 1993 cohorts.5' This tracer study seeks to measure employment outcomesand earnings of CONALEP graduates by gender, academic specialty and incomparison to alternative types of education for similar age groups (or controlgroups). This evaluation is currently being finalized, but preliminary results forCONALEP graduates are indicated:

(i) 30.1 % had obtained employment within 1 month, and 86.6% within 6months of graduating. Comparable employment percentages (after 6months) from other related institutions are DGETI 82.8%, DGETA 81.7%and NMSET 82.6%;

(ii) average 33% has employment upon graduating, reflecting predominantlythe significant number of graduates who work and study simultaneously. Itis interesting to note that for the 1993 cohort, both the percentage ofgraduates with employment immediately upon graduation (25%) and theaverage number of weeks employed prior to graduation (86.4) had declinedsubstantially compared to 1991 36% and 105.5 respectively, reflecting thereduced creation of entry-level employment possibilities as a result ofMexico's slow economic growth in 1993;

" The relationship between mid-level technical (CONALEP) and general high school (bachilleres) is reversed if thedata for 'All Ages' is considered. This may reflect either: (i) improvements in the quality of, and therefore rates ofreturn to, vocational education over time; or (ii) a higher longer-term earnings profile for those undertaking generaleducation. The latter explanation is unlikely as it would contradict the experience of paragraph (b) which indicatesrapidly increasing earnings for CONALEP graduates over time.

1' A rigorous sample was selected to give 95 % confidence levels in the results of an employment, earnings andcourse relevancy, by gender, cohort and geographic regions (for this purpose the country was divided into 6regions). The sample of 1,399 graduates was 346 from the 1991 graduate cohort (24.7%), 704 from 1992 (50.3%)and 349 from the 1993 cohort (34.9%).


CONALEP & PROBECAT

(iii) 64.7% found employment related to their field of study, of whom 62%declared it was highly related;

(iv) average earnings amounted to 2.45 SM per month, about 12% higher thanthose for bachilleratos according to the best estimates available;

(v) average male earnings exceeded female earnings by N$170 per month;

(vi) the evaluation demonstrated that there exists an informal ceiling income ofabout 3 SM (N$ 1,305 per month) which is very difficult for a CONALEPgraduate, bachillerato or other recent technical education graduate tosurpass. 84.7% of 1993 received incomes of 3 SM or less. Time-seriesanalysis shows that only 15.3% of the 1993 cohort exceed this level,compared to 24.3% of the 1992 cohort and 31.3% of the 1991 cohortreflecting the importance of experience and "time on the job" asdeterminants of income; and

(vii) average earnings for CONALEP graduates of the 1991 cohort amounted to2.63 SM, with a median value of 2.3 SM. These significantly exceedmedian values of 1.6 SM for 1991 graduates at the level "medio-superior"from DGETI and NVSET, but, as expected, are significantly lower thanthose for "superior" of 3.5 SM and 4.5 SM for the cases of DGETI andDGETA respectively-'.

B. PROBECAT's Impact on Employment and Wages

4. PROBECAT (Prograna de Becas de Capacitaci6n para Trabajadores) wasestablished in 1984 by the Mexican government to retrain unemployed and displacedworkers. The acceleration of the structural adjustment in Mexico greatly expanded the needto retrain those workers, and the program was later supported by the Bank through theManpower Training Project (Loan 2876-ME) in 1987 with expanded scope and coverage.Since then, the program has provided short-term vocational training to over 250,000unemployed workers, approximately 50,000 trainees per year.2' The PROBECAT program,administered through the network of state employment offices, offers training allowancesequivalent to one minimum wage to unemployed workers who enter a retraining program.The allowances are paid for the duration of the course which varies from one to six months,with the majority lasting three months. The program was originally designed for displacedworkers, but in practice, some 40% of the participants were unemployed workers who soughtjob for the first time without prior work experience.

5. To provide information on the effectiveness of the PROBECAT program as a basisfor policy decision making whether to continue with the program for a longer period than

§/ Source: Doxa Internacioral S.A. de C.V., Analisis c Informe de Resultado del Levantamiento de la Informacion en Camp de laEncuesta de Emvleo Para Emresados 1991-1993 del CONALEP. Reoorte Eiecutivo, Junio 1994 and SEP, Evaluacion de la EducacionTecnolomica. Volumen V. Seuirmiento de Beresados de la Educacion Tecnoloeica. Tomo 3. Informe de Resultados. 1989-1990 y 1990-1991, Junio 1994.

2' These figures are through the end of 1992.

-48- ANNEX 2EVALUATION OF

CONALEP & PROBECAT

originally intended, a rigorous evaluation of the impact of PROBECAT on the employmentand earnings of the program participants was conducted as a part of the project.1' The studyevaluated the post-training labor market experiences of the 1990 cohort of PROBECATtrainees, using new longitudinal data developed for this purpose. A matched sample ofunemployed workers from the 1990-91 quarterly urban labor force surveys (ENEU) was alsodeveloped as a control group. Unlike previous evaluation studies of retraining programs, thisstudy corrects for potential biases in the estimates of effectiveness by using an appropriatecontrol group and an estimation method which takes into account the nonrandomness ofworkers accepted for the program.

6. Main findings regarding the PROBECAT's impact on employment and wages aresummarized as follows:

(a) Compared to the control group, PROBECAT trainees on average tend to findjobs more quickly. For PROBECAT participants, the mean duration ofunemployment spell is shorter by 2.5 months for males and 1.9 months forfemales. However, there is a wide variation in this effect across different agegroups, and no effect is found for those with no prior work experience.

(b) For males, the likelihood of being employed three and six months after trainingis higher for PROBECAT trainees than for the controls, though at twelvemonths, the probability of employment is the same for both groups. This,combined with the finding (a), means that PROBECAT program shortens thetime for male trainees to find job.

(c) Female trainees with prior work experience are more likely to be employedthree, six, and twelve months after program completion as compared to thecontrols. However, those without prior work experience are less likely to beemployed at comparable intervals than the controls, suggesting that womenwithout work experience, who otherwise would have remained outside the labormarket, are drawn into the PROBECAT program. This, combined with thefinding (b), means that PROBECAT program is effective for workers with priorwork experience, but less effective for workers without prior work experience.

(d) For males, PROBECAT trainees are more likely to find employment in largefirms than comparable controls. For females, no similar effect is found.

(e) PROBECAT training increases the monthly earnings of male trainees, but thiseffect varies systematically by level of schooling attainment. The largest effects(28 to 37% increase in monthly earnings) are found for males with 6 to 12 yearsof schooling. For females, training does not appear to raise their monthlyearnings.

(f) Combining all the above findings, we can conclude that the monetary benefits oftraining outweigh the costs of the PROBECAT program for certain groups oftrainees. For male trainees with prior work experience and over 25 years of

' Revenga, A., Riboud, R. and Tan, H., 'The Impact of Mexico's Retraining Program on Employment andWages,' World Bank Policy Research Working Papers, November 1992.

-49 - ANNEX 2EVALUATION OF

CONALEP & PROBECAT

age, the benefits of program participation outweigh the costs within 3 months ofstarting employment. For all other males with prior work experience, thebenefits outweigh the costs within one year. However, for males with no priorwork experience, the costs of training are offset only after 17 months of higherearnings upon finding employment. For women, on the other hand, the costs oftraining are offset by benefits only for those who are older than 25 years withprior work experience. The costs exceed the benefits for other women.

Table 1 below summarizes the effects of PROBECAT on employment and earnings by typesof trainees. Table 2 translates these effects into monetary terms and reports the calculatednet benefits of the program by types of trainees.2'

2' IBID

Table 1 - Summary of Program Effects

Average Duration of Search Time to Job Time to Job Predicted Monthly Wage4

Trainee Type (months) = Search + Trainees - Wage Effect3 ('000s)Trg2 Period Controls LnW, - LnW. (6)

Trainees Controls Trainees Controls(1) J ~~(2) (3) (4) (5) _______

Males

All 4.0 6.5 6.9 0.4 .27* 642 490

With Prior Wk Exp. 3.5 6.5 6.4 -0.1 .35** 665 507

No Prior Wk Exp. 7.2 5.9 10.1 4.2 .27* 541 413

Age <==25 4.7 6.1 7.6 1.5 .37** 609 421

Age > 25 3.2 6.9 6.1 -0.8 .22* 719 577

Meeting Education

Selection Criteria' 3.9 6.1 6.8 0.7 .28 to .37* 632 460

Females

All 5.9 7.8 8.8 1.0 .02 444 435

With Prior Wk Exp. 5.0 9.0 7.9 -1.1 .11 467 457

No Prior Wk Exp. 8.2 5.8 11.1 5.3 .02 402 394

Age <=25 6.0 7.0 8.9 1.9 .16 475 404

Age >25 5.7 9.4 8.6 -0.8 .04 454 436

Meeting Education

Selection Criteria' 5.9 7.8 8.8 1.0 -.13 to .10 435 422

* Significant at 10% level ** Significant at 5% level1. Individuals with at least complete primary education but no more than complete higher secondary. z2. Average duration of training period = 2.9 months3. Equals the coefficient on a dummy for trainee status from regression of log monthly wages on experience, experience squared and 0; 1

schooling. The regression also includes quarter dummies, a dummy for self-employment, duration of unemployment prior to time t°, a IVdummy for prior vork experience, and interactions between the training dummy and schooling status, and between the training dummy and Reage (see main text and tables 10 and 11 for detailed description of results). >

4. Predicted monthly wages at sample means from same regression.

> o XH t t

Table 2 - Net Benefits By Type of Trainee

Costs of Training Increase in Monthly Wage (000s)

Trainee Type Direct Trg Costs Search Costs' Over 3 months Over 12 mos.(OOOs) (OOOs) 3

(1) (2) (3) (4)

Males

All 350.4 196.0 456.0 1,824.0

With Prior Wk Exp. 350.4 -66.52 474.0 1,896.0

No Prior Wk Exp. 350.4 1,734.6 384.0 1,536.0

Age <=25 350.4 631.5 564.0 2,256.0

Age > 25 350.4 -575.22 426.0 1,704.0

Meeting Education

Selection Criteria' 350.4 322.0 516.0 2,064.0

Females

All 350.4 435.0 0 0

With Prior Wk Exp. 350.4 _513.72 0 0

No Prior Wk Exp. 350.4 2,088.2 0 0

Age < =25 350.4 767.6 0 0

Age >25 350.4 -348.82 0 0

Meeting Education

Selection Criteria' 350.4 422.0 0 0

1. Equals the additional time trainees take to find a job (because of time in training) times the Oopportunity cost of that time (which equals the wage of the controls --i.e.. the wage the 0trainees would have received without the training).

2. Trainees with work experience and those aged 25 and over find a job sooner than controls ,

even when you take into account the training period. This estimate equals the extra time >worked by trainees relative to controls * trainee wage. R r

CnZ

- 52 - ANNEX 3NATIONAL VOCATIONAL

QUALIFICATIONS SYSTEM

NATIONAL VOCATIONAL QUALIFICATIONS SYSTEM (NVQ)

1. The system of National Vocational Qualifications (NVQ) in the U.K. started in 1981,and provides for the development of skill or competency guidelines recognized at the nationallevel. It obtained formal support from the government in 1986 with the creation of theNational Council of Vocational Qualifications (NCVQ), which is the body in charge ofcreating a national structure of NVQs. The system includes the following characteristics:

* It is based on the definition of national skill or competency guidelines thatcorresponds with what the workplace effectively requires, and what it will require inthe future;

* It is independent of any kind of training or learning, which allows trainees to developskills in the workplace, through the schools, and with the systems of open teachingand distance education;

* The system is structured in knowledge units, some of which are transferable betweendifferent activities, which facilitates a horizontal skill development, which can be veryuseful for retraining programs;

* The structure allows for the accumulation and transfer of credits based on knowledge,in such a way that the units obtained can be stored and added throughout theproductive life of workers;

* The system is free of entry barriers, such as required periods of service in an industryor age restrictions;

O One important condition stands out among these characteristics of the British model:that they have skill guidelines on the part of the employers' community, as they arethe ones who generate their specification and definition.

2. In the U.K., skill guidelines have been developed for approximately 80% ofbusinesses in the economy. In addition, the development of general vocational qualificationguidelines has recently been initiated, to provide a basis for full-time training programs inschools.

3. Most of the work of defining labor competency guidelines has been carried out bycommittees representing different industries, especially formed for this purpose (LeadBodies). These organizations are made up of employer representatives of a specific industry,and of the unions. In each case, the representatives are the people that have directresponsibility for the production of goods and services, which ensures that they have anunderstanding of the responsibilities that are developed on the job. The results are classifiedin a general framework of guidelines and refined jointly with the particular industry, in aprocess of validation that guarantees the acceptance of the community.

4. The development of labor competency guidelines that are both understood andaccepted at the national level serves as the basis for improving the training and developmentof the labor force. The guideline proposals are the following:

- 53 - ANNEX 3NATIONAL VOCATIONAL

QUALIFICATIONS SYSTEM

* Create a relationship between the requirements for a competent work performance andwritten definitions of skills, knowledge and understanding, so that they guideindividual training;

* Establish a plan and a vocabulary through which guidelines can be changed andupdated to fulfill the new needs that arise from technological development and themodernization of labor practices in general;

* Facilitate the educators' and trainers' understanding of the precise level of skills,knowledge and understanding that the trainees have to attain;

* Provide a commonly accepted reference through which the performance of workerscan be understood and accredited, with qualifications of national recognition;

* Provide an instrument for quality control, to measure the effectiveness of training,and eventually specify national objectives for competency levels in the work force.

5. In the U.K., the new system has modified the credibility of vocational practice.Evidence shows that the skills and competency of the labor force have increased recently,with positive effects on the quality of goods and services. For the first time, there is asystem of equal valuation for vocational and academic education, and training anddevelopment opportunities, expressed in labor guidelines recognized by both employers andemployees.

6. Starting with the support that the British Government has given since 1986,confidence in the system has grown, particularly since the adoption of diverse nationalobjectives for training and education. These objectives set the dates for attaining particularperformance levels which have to be reached by the labor force in each one of the skills andcompetencies that now make up the system.

7. A recent report in the U.K. summarizes the benefits of the system of labor guidelinesbased on skills or competencies:

* The skills and competencies, evaluation and certification are related to the bestperformance of the labor force, which is itself related to increases in productivity;

* The skill guidelines of the labor force are easily identified, revised and updated,which facilitates the training process;

* The system has created an incentive for individuals to participate in training;

* The training and the individual development generate an observable product, thatpermits a rigorous evaluation;

* The improved competency of individuals forms a basis for organizations to reachquality objectives;

* It encourages supervisors to train and evaluate the skills of the workers under hissupervision, thus helping to improve relations in the workplace.

- 54 - ANNEX 4COMPONENT A

COMPONENT A - NATIONAL SYSTEM OF COMPETENCY STANDARDS,SKILLS TESTING AND CERTIFICATION

A. Council for Normalizationand Certification of Competency Standards

Terms of Reference

1. The Council would be created under a trust agreement between SHCP and NAFIN.It would be managed by a Governing Board consisting of representatives of the productivesector (employers and employees) and relevant government Ministries, and will operateunder its own charter. Given the importance of private sector participation, involvement andownership of the competency standards and certification, the by-laws of the Council willestablish mechanisms to ensure that their representation is consistent with such principles.Specifically, the Council will be established based on the following organizational principles:

(a) decision-making mechanisms will ensure that the Council's deliberationsconcerning standards and certification matters unequivocally represent the needsof the productive sector;

(b) deliberation process will include fair representation and audience of interestedparties, particularly that of employers, professional associations and specialistsin the various occupational areas;

(c) deliberation will follow rules of open access, fairness and non-monopolisticcontrol by any occupational or professional group in the definition of standardsor in the process of certification; and

(d) the Council will be non-profit, but operate on sound financial principles in orderto eventually reach self-sustainability and independence from governmentbudgets.

2. The overall function of the Council is to operate as a coordination mechanism for thesystem of occupational standards and certification in order to ensure quality and consistency.Its main functions are:

(a) to set up the basic norms for the operation of the whole system, includingestablishing boundaries across occupations and sectors to avoid conflicts andduplication;

(b) to define, promote, authorize, and fund the development of occupationalstandards through Competency Committees (Comit'6s de Normalizaci6n, CNs, seebelow);

(c) to approve competency standards proposed by CNs;

(d) to establish rules and accredit Certification Agencies (OCs) in the various sectorsof economic activities where competency standards are established; and

(e) to listen to appeals and solve any conflicts of interest or jurisdiction that mayarise.


3. Governing Board. The Board will include representatives from Government as wellas the private sector (both employers and employees organizations), with majority controlresting with the private sector. Private sector members will be leading representatives oftheir respective sectors and industries. For the initial establishment of the Board, memberswill come primarily from the sectors and chambers involved in the initial development ofcompetency standards and committed to the adoption of standards and certification. Detailsabout the composition, qualification and nomination procedures will be presented in theoperational procedures of the Council.

4. Executive Secretariat. The overall function of the Executive Secretariat is to assistand implement the decisions of the Board. Its major functions are:

(a) to provide technical support to the Board, including drafting policy andnormative documents to be submitted to the consideration of the Board;

(b) to develop and master methodologies for functional and job analysis applied tothe definition and establishment of occupational competency standards;

(c) to identify, set up, coordinate and provide logistical, technical and financialsupport to the operation of CNs;

(d) to ensure compatibility among the competency standards developed by variousCNs;

(e) to identify, promote and oversee the activities of OCs;

(f) to keep the necessary records of competency standards and consolidate acentralized registry of certification applicants and recipients, as well as topromote studies and research related to the functions of the Council; and

(g) to promote and disseminate the use of standards and certification throughout thecountry.

5. The Executive Secretariat would be managed by a Executive Secretary, appointed bythe Board, who will be responsible for coordinating the overall activities of the Council.Staff members will be recruited on the basis of detailed job profiles and according to openand fair recruitment norms, and remunerated at competitive market levels. Staffing designwill ensure a high level of professionalism and continuity. Adequate training will beprovided for the staff.1'

B. Competency Committees (CN)Terms of Reference

6. The CNs' major task is to develop, recommend and submit occupational standards forthe approval of the Board, according to the national guidelines and methodologies approvedby the Board. The CNs would consist of employers representing the sectors most relevant tothe occupations being analyzed and of employees who will provide the inputs to the actual

1/Proposed training programs for Council numbers are described in the 'Project Implementation Details", filed in theLAC Project Files.


definition of skills. The Committees would be further assisted by an expert provided by theExecutive Secretariat of the Council, who will ensure conformity of the competencystandards to the national norms. Additional consultations will also be made with employerand employee organizations, work place supervisors and instructors during the process ofdesigning and validating the standards and assessment requirements.

7. The CNs will be formed by representatives of sectors, firms and occupations,according to the parameters and boundaries defined by the Council. Proposals for theestablishment of Committees for the development of standards can also be submitted to theCouncil by individual occupational groups or groups of occupations or sectors, in which casethe Council will approve and define the boundaries of the standards to be developed.Individual members will typically be representatives of Chambers of industry or commerce,and/or of professional and labor organizations involved in the occupations or occupationalcluster being developed. These individuals and organizations will be identified by theExecutive Secretariat and invited to participate in the Committees.

8. The main functions of the CNs are:

(a) elaborate, approve and adopt the standards of competence and certificationrequirements;

(b) submit the adopted standards for an occupation or an occupational cluster to theCouncil, for the purpose of national recognition;

(c) guarantee that standards are kept up-to-date and responsive to the needs of theprivate sector; and

(d) promote and disseminate the adoption of standards and certification in theirrespective areas.

9. In order to ensure the legitimacy of the entire process and the acceptance of theestablished standards by its practitioners, the Committees will organize their activities in away that norms will actually be developed by individuals with relevant work experience inthe occupations being analyzed. For this purpose, working groups will be primarily formedby practitioners and other individuals who can contribute to increasing the quality, relevanceand acceptance of the competency standards. These members of the working group will benominated by the Committee members, and will work on a voluntary basis. Criteria for thenomination and appointment of participants in such working groups will include:

(a) outstanding technical competence and sufficient experience in the respectiveoccupation or occupational area;

(b) willingness to participate and attend all the activities of the group during theperiod necessary for the completion of work, including the training activities;and

(c) support and approval of their respective employers.

10. The actual composition of the working group will be determined by the Council'sExecutive Secretariat, which will provide technical, logistical and financial support to the


activities of the group. In addition to the criteria related to individual qualifications, theExecutive Secretariat will also consider the following criteria in its appointments:

(a) fair and balanced representation of the various sectors, types of firms andoccupations involved;

(b) regional balance, according to employment indicators of the occupations beinganalyzed;

(c) overall variety of the group members' experience and educational background;and

(d) total number not exceeding 8 to 12 members, depending on the size of the task.

11. The main function of the working group is to develop the competency standards ofoccupational certification and general guidelines for the assessment of occupational domainunder consideration. Sub-groups may be formed when necessary. Standards prepared bythe working group will be submitted to technical validation through field tests andconsultation with relevant individuals and organizations. Once agreed upon, standards andassessment guidelines will be adopted by the CN. Once adopted, these standards will besubmitted to the Council's Executive Secretariat for approval by the Board, in order to obtainnational recognition.

C. Procedures for Normalization of Competency Standards

12. To establish competency standards and certification norms for individual occupationsor occupational clusters, the CNs would follow standard operational procedures, whichinvolve the following steps:

(a) Identification. The Executive Secretariat would identify and propose to theBoard the sectors or areas in which development activities would be undertakenand funded. Identification would be based on a mixed number of criteria, thetwo most important of which are economic relevance of the sector or occupationand demonstrated interest and readiness to undertake the task. The ExecutiveSecretariat would also keep a balance between the needs of industry andcommerce. It would be the responsibility of the Executive Secretariat to proposethe composition and membership of the CNs, which would include professionalsin the given occupation and representatives of the major sectors or professionalorganizations. Regional representation would also be taken into account.Special consultations would be held to ensure the audience of workerorganizations, technical experts and training instructors.

(b) Approval of CNs. The Board would consider the proposal and, if adequate,would approve the launching of the development effort and assign a budget.

(c) Development. Development would follow a standard methodology which wouldbe flexible enough to be adapted to sector-specific or occupation-specificcircumstances. The initial approach may be revised after the first round ofdevelopment efforts. In general, for each occupation or occupational cluster themethodology would include:(i) compiling existing occupational classifications and standards in Mexico;


(ii) analyzing existing competency standards from other countries;(iii) elaborating a first compilation of standards, based on the two previous

steps and any additional considerations proposed by the committee;(iv) submitting the list to panels of practitioners and other relevant, selected

audiences;(v) revising the list and preparing a field test;(vi) field testing the new list, according to a standard methodology;(vii) revising the standards;(viii) limited testing of the new standards;(ix) revising and adopting the standards by the committee;(x) submitting the standards for approval by the Council, through the

Executive Secretariat; and(xi) drafting the evaluation criteria and standards for certification, according to

a standard methodology.

(d) Approval of Standards. Before submitting the standards for approval to theBoard, the Executive Secretariat of the Executive Secretariat would ensure thatthe proposed standards and certification requirements comply with the generalrules of the national system (SNC). On the basis of his recommendation, theCouncil would approve the new standards or require the CNs to introducemodifications.

(e) Implementation. Once approved, the evaluation standards would be used asinputs by Certification Agencies (OCs) to prepare certification, accreditation andexamination instruments and requirements. Training institutions would beinvited to adapt their curricula in order to better prepare trainees to pass thecertification exams.

(f) Evaluation and Revision. Procedures and routines would be put in place by theExecutive Secretariat to systematically review the standards. Initially, standardswill be reviewed at intervals of approximately five years, unless majorrestructuring or technological changes occur in a given industry, sector oroccupation.

D. Certification AgenciesTerms of Reference

13. Functions of OCs. One of the functions of the Council is to accredit specializedagencies to operate as Certification Agencies, according to pre-defined rules. Agencies maybe accredited for specific occupations or for a range of occupations or sectors. The mainfunction of the OCs is to certify individuals who have passed competency tests according tothe new standards. Individuals may be tested directly by the OC or by testing agenciesaccredited by the OCs. OCs would perform the following activities:

(a) develop general criteria for the assessment of standards of occupationalcompetency leading to national certification;

(b) directly test individuals or accredit other testing centers or individual examinersto use tests prepared by the OC or by the testing centers themselves, in whichcase the tests need to be previously approved by the OCs;


(c) award certificates to individuals achieving the performance criteria established inthe national standards;

(d) maintain a database concerning the competencies and awards achieved byindividuals, and also on the characteristics of those who apply for skill testing,but do not pass, according to the model, formats and technical specificationsdefined by the National Council;

(e) develop or commission the development and updating of tests and otherassessment mechanisms and approve assessment mechanisms proposed byaccredited testing centers or individual examiners; and

(f) train and supervise accredited testing centers and examiners to ensure compliancewith the standards.

14. Criteria for Authorizing and Selecting OCs. There would be no monopoly of OCsconceming one or more occupations or geographical areas. Given the lack of tradition withextemal evaluation and accreditation in Mexico, the initial criteria to accredit OCs will takeinto consideration primarily the technical quality of the proposal and of the proposingorganization, and its willingness to share costs. OCs would be required to offer asatisfactory geographical coverage of the testing sites, which would initially bepredetermined to ensure adequate access to the skill tests for all workers. OCs would alsouse the national standard formats for the certificates and records prescribed by the Council.

15. Potential OCs will be identified by the Executive Secretariat and invited to submitproposals. Initial criteria for the authorization and accreditation of OCs will include:

(a) compliance with legal documents and requirements, according to the Mexicanlegislation;

(b) presentation of a detailed plan of activities for the first four years of operation,including organizational characteristics, certification and record-keepingprocedures, testing arrangements, and supervision and training of local examinersand testing centers. The plan should also include a detailed financial plan andcost recovery mechanisms;

(c) provision of an adequate plan for staffing, with the required qualification profilecompatible with the activities; and

(d) formal agreement to comply with the norms set up by the Council, includingnational coverage and adequate access of students to testing facilities.

In principle, any organization complying with these and other requirements set by theCouncil can apply for accreditation at any time and for any number of occupations.

16. During the life of the project, a maximum of four OCs will be financed by theproject. The Council will ensure that OCs provide an adequate coverage of the sectors andregions. Certification agencies will be selected through a competitive bidding process, inwhich costs and co-financing or cost-sharing arrangements will play an important role in theevaluation of the proposals. Based on the experience of other countries, it is expected that


the project will need to finance most of the installation, test development and some of theoperational costs of the OCs during the first years, as well as the development costs oftesting and assessment procedures. At the same time, it is expected that given sufficientvolume of testing and certification activities as well as through the provision of other relatedservices, OCs will be able to become self-sufficient over a period of time. Funding will begranted according to a declining scale, starting at 80% of proposed costs and decreasing overa five-year period to 0%. The funds provided by the Council will cover installation andoperational costs, as well as costs of test development.

17. Initial criteria to approve proposals of OCs for funding will include:

(a) Compliance with the formal and legal requirements;

(b) Overall quality of the proposal;

(c) Quality and relevance of the profiles of the staff;

(d) Relevant or related experience of the organization and staff;

(e) Costs compatibility with project funds and unit costs estimated by the ExecutiveSecretariat; and

(f) Among the proposals of acceptable quality, the proposal with higher cost sharingwill be chosen.

18. Accredited Testing Centers. OCs may accredit individuals or CEAs to perform testsof individual candidates. Such institutions may be self-standing testing centers, traininginstitutions, or consortia involving training institutions and the individual firms where testingwould be conducted. CEAs may use the tests developed by the OCs or develop their owntesting mechanisms, which need to be previously approved by the accrediting OC. The teststaken at an accredited CEA or examiner would be automatically validated by the respectiveOC, and the individual passing the test would be entitled to receive a national certificate.CEAs would operate as financially independent institutions and would generate revenuesthrough testing fees and other related activities. The project, however, may reimburse OCsfor the cost of training examiners and, when justified, some of costs of inputs to CEA swhich may be required for certain types of tests.

19. The accreditation of examiners or CEAs will follow criteria set by the respective OC.The criteria will necessarily include demonstrated technical competence, availability ofequipment, compliance with rules, and agreements on fees to be charged. The criteria willalso include free access of the OC to the records of individuals and supervision of examiningpractices.

- 61 - ANNEX 5COMPONENT B

COMPONENT B - MODERNIZATION OF TRAINING PROGRAMS

Development of Training Materials

1. The second phase of the Modernization of Training Programs component (ComponentB), starting in late 1996, will consist of technical and financial assistance to traininginstitutions or individuals in developing modular training materials (paquetes diddcticos)based on the new competency standards and will be managed by SEP.

2. Institutions or individuals wishing to obtain assistance from the Fund would submitproposals to the PAU, which would then review the package against a set of operationalguidelines and pass it on to the Steering Committee for final review. Training materialsdeveloped with the Fund's assistance would remain in the public domain and be made widelyavailable (although not necessarily free of charge). Each proposed package of trainingmaterials would have the following elements:

(a) Study Program, which would have to specify the competency standards that thecourse graduates are expected to attain, major occupational functions they wouldbe able to perform, and major economic sectors where these functions can beused;

(b) Students' Study Guide, which would describe the competency standards to bemastered by successful course graduates, the available learning help, and variousalternatives on how to complete the training requirements depending on the typeof training institution and the student's prior experience;

(c) Teaching Guide, intended to lead instructors through the training program,recommending appropriate teaching techniques for each stage of training, underboth formal classroom and informal modalities. This guide would include theelements included in the Students' Study Guide, with a very close interrelationbetween the two;

(d) Evaluation Guide, which would contain evaluation instruments, includinginstructions for their application, to assess the performance level against therelevant competency standards; and

(e) Teaching Aids, designed to encourage self-learning, and which could includewritten or audiovisual materials, computer-based learning tools, simulationequipment, etc.

3. The review and approval criteria and the arrangements for copyrights, usage, andfinancing of the proposals will be determined by the Steering Committee. A consultantwould be hired to prepare draft operational guidelines for the Fund.

4. Elements of Proposal. For the success of the component, decisions would have to becarefully made regarding the criteria and procedures for reviewing and approving proposals,ways to ensure the public nature of the materials developed, cost recovery mechanisms, andother aspects related to the selection, production, and diffusion of the materials. Theconsultant would have to complete the work by March 30, 1996 for submission to theSteering Committee, which would issue the final guidelines by September 30, 1996.

- 62 - ANNEX 5COMPONENT B

5. The consultant would:

(a) Propose criteria for the selection of proposals and corresponding operationalguidelines;

(b) Prepare a draft of contracts which would secure the copyrights of the materialswithin the public domain, especially guaranteeing universal access to thematerials developed. These draft contracts will encompass different modalitiesof joint investment between the Fund and the material developers, consideringalternatives for risk sharing and joint ownership of the copyrights;

(c) Propose legal mechanisms for the assigning of copyrights to public institutions,including the Council;

(d) Prepare draft documents of convocation for submission of proposals; and

(e) Propose mechanisms for diffusion and facilitating universal access to the trainingmaterials.

- 63 - ANNEX 6COMPONENT C

COMPONENT C - STIMULATION OF DEMANDFOR COMPETENCY-BASED TRAINING AND CERTIFICATION

A. Pilot Testing of CBT in Enterprises

1. Pilot Testing and Validation of Competencies. The project would fund pilot testingof development or conversion of training programs. Large enterprises and SMEs (within thenumeric limits as presented in the monitoring indicators) are eligible if they fulfill thefollowing criteria:

(a) Relevant competency based modules have already been developed for testing;

(b) The firm wishes to participate and is prepared to finance 40% of the costs oftraining and technical assistance involved;

(c) The firm is prepared to have the experience documented and disseminated and toact as a demonstration center by accepting visits from other employers ortraining agencies through CIMO to observe the experience;

(d) Priority in the development of competencies will itself reflect the interestexpressed by the private sector, with priority given to those industrial activitieswhich: (i) have a larger weight in production, employment or exports; (ii) areexperiencing rapid technological change; (iii) need to increase the skill level oftheir workers; or (iv) are confronted by significant needs to increaseproductivity. Based on these criteria, some of the initial sectors likely to qualifyinclude tourism, metalworking, construction and telecommunications in 1995;food processing, cement, glass and manufacturing subsequently. Priorityoccupational areas include equipment maintenance, business administration,informatics, instrumentation, hydraulics, pneumatics, electronics, marketing,accounting and total quality controls; and

(e) To facilitate the demonstration effect, enterprises will be chosen, to the extentpossible, so as to increase the geographic dispersion of the activities supported.

B. Training and Certification Incentives

2. Training Incentives - Competency-Based Training in Firms (CIMO Program).Firms participating in the CIMO program would be eligible for funding under the followingcriteria:

(a) Relevant competency based modules have already been developed formainstreaming;

(b) Is either a microenterprise or an SME; and

(c) The firm wishes to participate and is prepared to finance 30% of the costs oftraining and technical assistance involved in the case of microenterprises; 65% oftraining and 40% of technical assistance in the case of SMEs.

3. Training Incentives - Workers and the Unemployed (PROBECAT Program).Through PROBECAT, several categories of individuals would be eligible for limited support


(cost of training, a stipend equal to one minimum salary and a transport allowance - all ofwhich on average lasting about three months) to undertake competency-based courses.Eligibility of individuals for such support will be determined using criteria outlined for eachof the four beneficiary groups below:

(a) Youths in the Education System - must be between 16 and 24 years old, in arecognized training institution, and have established a contractual commitment toundertake professionally related training in an enterprise;

(b) Youths outside of the Education System - must be between 16 and 24 yearsold, having basic literacy and numeracy, and demonstrate the lack of capacity topay for training (ie.earning less than one minimum salary);

(c) Unemployed - must be registered as unemployed with the SEE, actively seekingemployment, between 16 and 55 years old, having family dependents andexperiencing difficulty in finding employment due to a skill deficit; and

(d) Special Needs Groups - must be either migrants from rural areas or urbanworkers from low-income areas, between 18 and 55 years of age, functionallyilliterate (the training program would include basic literacy and numeracy skills).

4. Certification Incentives. The project would provide incentives for workers toundergo the certification process by financing part of the cost of testing on a declining basis,starting in 1997, under the following conditions:

(a) The individual has completed either a course supported by CIMO, PROBECATor recognized training institution;

(b) Individuals lacking this background are still encouraged to present themselves forcertification in which case a simple and rapid diagnostic evaluation will beundertaken to assess the candidate's eligibility for the certification test. Thediagnostic test will be in two parts: (i) auto-diagnosis, where the candidatepresents past training and work experience, and demonstrates the ability to readand write through completing the required form; and (ii) diagnosis throughapplication of a few strategic questions;

(c) All candidates (or their employers including the government or other non-publicentities) must pay 10% of the cost in advance, except for those who areregistered to be unemployed and instructors under Component C, who would beexempted. In most cases, it would be expected that the employer would pay thiscost. Over time the percentage of the cost paid by the beneficiary could beincreased, based upon the results of the willingness and ability to pay evaluationundertaken in late 1997; and

(d) For any one module, a candidate can only receive the incentive once. However,a candidate could receive support for up to 8 modules as long as these formedpart of a coherent career strategy.

5. Mechanisms for Support. The mechanisms to provide this support would be thesame as those used under the Labor Market project, whereby STPS reimburses the privatesector for its share of costs, thereby ensuring that the private sector makes its agreed


contribution. In the case of the pilot testing of SNC in enterprises, the UPCs would makepayments based on the presentation of satisfactory documentary evidence that the agreed CBTor supporting consultancy services had taken place.

6. For workers and the unemployed under PROBECAT, STPS (through the SEEs) wouldpay for the costs of training directly to the training institution. Stipends and travel supportwould be paid monthly directly by the SEE to the trainee. Certification payments would bemade by CIMO and PROBECAT to OCs and CEAs upon presentation of satisfactorydocumentary evidence that actual testing has taken place and that the portion of the cost hasbeen paid by the trainee, employer or non-governmental sector organization.

C. Program for Equipment Purchase and Instructor Training

7. To promote the nationwide transition to competency-based training programs, theproject will provide financial and technical assistance to training institutions, public andprivate, who submit satisfactory proposals for the modernization of their training programs.This support would be available during the second phase of the project (starting in late1996), and will be implemented by STPS.

(1) Equipment Purchase

8. The distribution of the funding will be accomplished through close collaborationbetween public and private sectors. The Direcci6n General de Empleo (DGE) of the STPSwill be responsible for implementing and coordinating the actions.

9. Criteria for Qualification of Beneficiary Training Institutions. Traininginstitutions wishing to apply for funding of equipment purchases must meet the followingrequirements:

(a) Be legally established and accredited as a training institution, and recognized assuch by either STPS or SEP;

(b) Currently offer or be ready to offer courses based on normalized competencystandards; criteria to determine readiness include, inter alia, submission of anintegrated training plan with adequate provision of instructor training in thepertinent areas;

(c) Be willing to assist the programs of competency-based training promoted by theproject and to respond to training needs identified through the CIMO andPROBECAT programs;

(d) Show ability and willingness to satisfactorily meet cost-sharing requirements,e.g., (i) investment in complementary physical installations, electric, hydraulic,and other infrastructure necessary for the satisfactory installation of the requestedequipment, and (ii) recurrent costs such as maintenance and insurance; and

(e) Promise to provide in a timely manner statistical information that STPS, SEP, orother organizations of the Council request related to the areas of competenciesfor which the institution receives assistance.


10. To prepare for the review and approval of requests for equipment funding, theExecutive Committees of the State Employment Services (SEEs) and the PCU of the CIMOprogram would form Equipment Subcommittees which would carry out the followingpreliminary work:

(a) Deflnition of Areas of Competencies. Only those areas where competencystandards are already established by the Council would be considered. TheEquipment Subcommittees will start identifying training institutions with thenecessary qualifications and likely to participate;

(b) Induction Program. DGE will develop a induction program directed to theExecutive Committees of the SEEs and PCUs of the CIMO programs which willexplain in detail the procedures involved in obtaining the funding. DGE will atthe same time start identifying those schools already offering courses based oncompetency standards, or others that are ready to do so, taking into considerationthe training needs of local employers; and

(c) Announcement of Tender for Equipment Funding Proposals. DGE will callfor a meeting of Equipment Subcommittees, where the tender is announced andnecessary documents are handed out. At the same time, DGE will mail thesedocuments to each of the training institutions identified by the EquipmentSubcommittees.

11. The process of review and approval of equipment funding proposals would be carriedout as follows:

(a) Receipt of Applications. The Equipment Subcommittees will receiveapplications for the funding by a set date. These applications will have totechnically justify the use of requested equipment and present an integral trainingplan based on competency standards;

(b) Preliminary Evaluation. Equipment Subcommittees will review thequalification of applicants based on a preset criteria (para. 3);

(c) Submission of Applications to DGE. Once they meet the review criteria of thepreliminary evaluation, training institutions' applications will be submitted toDGE, together with the Equipment Subcommittee's comments;

(d) Review and Approval of the Applications. Personnel from DGE (STPS) andSEP will form Technical Subcommittees under the auspices of the ProjectSteering Committee which will evaluate the applications. The TechnicalSubcommittee will submit their recommendations through the PAU to theSteering Committee for its approval;

(e) Notification of Award. Upon approval by the Steering Committee, EquipmentSubcommittees and approved institutions will be notified of the award forfunding. The approved institutions will receive forms and instructions forequipment funding requests;

(f) Receipt of Technical Specifications. At a specified date, DGE personnel willmeet with the Equipment Subcommittees to receive the technical specificationssubmitted by the selected training institutions. A legal representative or officerof the institutions will participate in this meeting to answer all the questions that


might arise. State Coordinators of the Training Institutions of SEP will alsoparticipate in this meeting. The equipment requested will be evaluated bothtechnically and in terms of their pertinence to the area of competencies offered inthe course. If necessary, DGE personnel will travel to the schools to review therequest on site.

(2) Instructor Training

12. The process of training instructors, to be carried out under this component, will serveas a means to support the project as a whole and be aimed at assisting and strengthening themodernization and reform of training services for and in the workplace, in order to improvethe quality of teaching staff and thereby the quality of training offered to various targetpopulations under the focus of skills training.

13. This process will take place between 1997 and 1999 which, under the project'sseasonal development framework, coincides with the existence of standardized skills by therespective Council and with the second stage of the process of reforming and modernizingpublic institutions which provide training for and in the workplace, although it will alsoinclude instructors from private institutions for the purpose of providing regions with qualitytraining options and fostering appropriate processes for improving institutional skills.

14. The system's frame of reference will be comprised of three main elements:

(a) The demand for training in determined areas or fields which may arise in variousregions;

(b) The existence of standardized skills in occupational fields or areas;

(c) Institutions' logistical and technical capacity to offer training in determined areasor fields and the feasibility of doing so if they have instructors who arespecifically trained for this purpose;

15. The pro-active association of these three elements will be the objective of the processprompted by this component and its basic purpose will be to respond to the demands ofcompanies and target populations.

16. The process should therefore rely upon and be adjusted to a system of analysis andcoordination with the participation of productive sectors, agencies that promote and supporttraining for and in the workplace based on demand (CIMO and PROBECAT), andinstitutions that contribute proposals, projects, outlines and operating plans, so that trainingprocesses aimed at improving institutions can be integrated and consolidated, on the basicpremise of responding to demand.

17. Another feature of the process is that training, in turn, will be geared toward theoutline of standardized skills that an instructor is expected to have, both in his occupation'sgeneric, associated and basic aspects, and in specific skill areas in which human resourceswill be trained or updated.


18. The following may be some of the basic criteria for participating in this system:

(a) Instructors should belong to legally established public or private institutions, withthe infrastructure and technical'' capacity to carry out skills instruction andtraining programs in those fields and areas for which there is national or regionaldemand. The institution should fill out data forms allowing participation in theprocess of identifying institutions for the instructor training program.

(b) The institution should nominate and endorse the persons who will receivetraining.

(c) The persons who will receive training, regardless of the legal or administrativemanner in which they were hired, should provide services for the equivalent fulltime, or at least part time, in the institutions.

(d) In the case of public institutions, the institution may decide that the beneficiaryof instructor training should agree to participate in certain projects for adetermined period of time in order to utilize or share his training with others.

(e) In the case of instructors from public institutions, it should be agreed that theymust obtain a skill certification attesting to the training received. The Projectwill cover the cost of this certification.

(f) In the case of private institutions, under the framework of regulating theIncentives Component a commitment should be made to teach skills courses inareas related to the institution's scope when companies ask the institution to doSO.

(g) In the case of instructors from private institutions, a commitment should be madefor the institution or trained instructor to pay the costs of any skill certificationsthat may be required.

(h) Institutions should agree to promptly provide requested statistical and impact dataon its project-supported instructor training program.

!' This capacity should be consolidated through the complementary staffing program which will also be promotedunder the framework of the Project.

- 69 - ANNEX 7IMPLEMENTATION PLAN

IMPLEMENTATION PLAN

A. Overview

1. The project will be implemented jointly by the Council, SEP, and STPS. Overalldecision-making, coordination, and supervision of project activities will be carried out by theSteering Committee, which will be composed of high-ranking representatives of SEP, STPS,SHCP, NAFIN, the Council, and others as required.

2. The Council will implement Component A (System of Standards, Testing andCertification). SEP will be responsible for Component B (Modernization of Training).STPS will be responsible for Component C (Stimulation of Demand and Incentives).Component D (Information Systems and Studies) will be implemented by various actors inthe Council, SEP, and STPS.

Project Responsibilities

Component Subcomponent Managed by Implemented by Procurement

A - SNC & TCS Competency Standards Council Council

Testing & Certification Council OCs/CEAs OCs

B - Modem- Pilot Training Modernization CONALEP/ SEP/ization of Programs SEP CETIS/CECATI CONALEPment of Training Materials SEP SEPPrograms

C - Stimulation Promotion STPS STPSof Demand for Pilot Testing of SNC in Enterprises STPS/CIMO STPSCBT and STPSCertification Training & Certification Incentives STPS

(CIMO/ N/APROBECAT)

Fund for Equipment & Training STPS STPS

D - Information Information Systems Council/OCs/ Council/Systems, Studies Council/ SEP/STPS SEP/STPS& Project Studies SEP/STPS Council/ Council/Administration SEP/STPS SEP/STPS

Project Administration SEP SEP

Note: Further implementation details are given below.

Component A - National System of Competency Standards, Skills Testing andCertification

3. The Council will be created through afideicomiso agreement, which is a trustestablished by trust agreement (contrato de fideicomiso) between a grantor (the Government,through SHCP in this case) and a trustee (NAFIN). The arrangement involves thetransferring of funds or goods (patrimonio) by the grantor to the trust and the administrationby the trustee of such funds or goods through a Comitg Ejecutivo (the Council's Governing


Board) for the purpose and in the manner specified in the trust agreement. The Council'sregular activities will be carried out by its Executive Secretariat. Annex 7 provides greaterdetails of the Council's operation.

4. Subcomponent A.1 - National System of Competency Standards (SNC). Thecompetency standards will be designed by Competency Committees (Comites deNonnalizaci6n, CNs) composed of private sector volunteers (both employers and workers),with the assistance and supervision of the Council Executive Secretariat, and forwarded tothe Board for approval. The standards will then be registered in a national registry anddisseminated. Costs directly associated with the SNC are for: (a) start-up installation costs;(b) acquisition of licenses for copyrights, whenever necessary, and standards from othercountries and their translation; (c) operating costs of the Council and CNs; (d) training ofCouncil members; (e) reproduction and distribution of standards; and (f) technical assistance.

5. Subcomponent A.2 - Skills Testing and Certification System (TCS). The Councilwill implement the TCS through OCs and testing institutions (CEAs). OCs will be recruitedfrom institutions in the non-governmental sector with a keen interest in training and, oncequalified, will operate under independent, renewable license. CEAs will similarly be inducedto join the new TCS and will operate under the supervision of OCs. Costs directlyassociated with the TCS are for: (a) start-up and operating costs of OCs; (b) design andproduction of tests and related materials; (c) training of examiners; and (d) technicalassistance.

6. Flow of Funds. The Council budget for the coming year will come from the SEPallocation. The Council's expenditures, including operating costs and those under bothsubcomponents, will be reimbursed out of the SEP Special Account (paras. 22-23). It isexpected that, as acceptance and support of the competency standards grows wider, thedemand for and revenues stemming from certification will increase, with a view toward long-term self-sufficiency. The loan will fund recurrent expenditures on a declining basis.

7. Procurement. The Council will carry out its procurement with assistance from thePAU, subject to final approval of NAFIN, as per terms of the trust agreement (para. 23).The OCs will carry out their own procurement under similar procedures.

Component B - Modernization of Training Programs

8. Subcomponent B.1 - Pilot Training Modernization Programs. The publicinstitutions CONALEP, CETIS, and CECATI and associated private training institutions willreceive financial and technical assistance during the project's first phase (approximately 24months) to make their programs modular, competency-based, and more relevant to theworkplace. Costs directly associated with the pilot programs are for: (a) copyright licenseand translation/adaptation costs; (b) redesign of curricula and related instructional materials;(c) installation/replacement of training equipment; (d) training of instructors; and (e)technical assistance.

9. Subcomponent B.2 - Development of Training Materials. Starting with theproject's second phase, SEP will provide financial support for development of training

- 71- ANNEX 7IMPLEMENTATION PLAN

materials. Any interested entity (training institutions, publishers, etc.) will be eligible tosubmit proposals, which will be reviewed and approved by SEP. Costs under thissubcomponent will go toward the redesign and/or development of training curricula andassociated materials. Ownership of the materials developed will rest with SEP.

10. Flow of Funds. Under this component, SEP will be the sole administrator of funds.Under the pilot training modernization programs subcomponent, the funding requests fromCETIS and CECATI will follow the normal SEP budgetary procedures as they are subsidiaryprograms; CONALEP, a semi-autonomous institution, has strong links to SEP and will dolikewise.

11. Procurement. SEP will carry out procurement for CETIS, CECATIs, and theDevelopment of Training Materials program. CONALEP will carry out its ownprocurement.

Component C - Stimulation of Demand for Competency-Based Training (CBT) andCertification

12. Subcomponent C.1 - Promotion of SNC. STPS will carry out a variety ofpromotional activities (eg. meetings, conferences, workshops, media announcements) to seekapproval and support of the competency standards at all levels of private sector businesses,industry, and workers. Costs under this subcomponent are for the design and production ofpromotional materials (printed and audiovisual) and for a diffusion campaign through varioustypes of media.

13. Subcomponent C.2 - Pilot Testing of SNC in Enterprises. Concurrently andthroughout the life of the project, STPS will select a number of small and medium-sizedenterprises and a few large firms for financial and technical support to develop andimplement pilot CBT programs. Costs associated with this subcomponent are for: (a)copyright license and translation/adaptation costs if necessary; (b) training equipmentpurchase or conversion; (c) instructor training; and (d) technical assistance.

14. Subcomponent C.3 - Training and Certification Incentives. STPS will manage aprogram of incentives for CBT and certification through three modalities:

(a) CIMO participants will receive partial reimbursement of their CBT expenses;

(b) PROBECAT participants (i.e., unemployed and displaced workers) will receivestipends while enrolled in CBT; and

(c) Certification incentives will be given, on a declining basis, to induce workers tohave their skills validated through competency testing.

15. Subcomponent C.4 - Fund for Equipment Purchase and Instructor Training.STPS will make funds available for equipment purchase and instructor training to public andprivate training institutions who submit sucessful proposals for development or conversion of


their programs into CBT. Costs under this subcomponent will go toward the purchase ofequipment and toward instructor training.

16. Flow of Funds. STPS will manage all activities and expenditures under ComponentC. Support to CIMO and PROBECAT, and the administrative/financial arrangementsthereto, have been ongoing under the Labor Market project and will continue. Certificationincentives will be redeemed by the OCs and CEAs through a procedure to be agreed at themid-term review.

17. Procurement. STPS will carry out all procurement. As under the Labor Marketproject, equipment procured by STPS for the use of training institutions will remain theproperty of STPS.

Component D - Information Systems and Studies

18. Subcomponent D.1 - Information Systems. The information systems to be set upunder the project are as follows:

Information Systems

Information System | Implemented By Budget Source

SNC Registries Competency Standards Council Council (SEP)

OCs and CEAs Council Council (SEP)

Certification Applicants OCs/CEAs Council (SEP)

Certified Workers OCs/CEAs Council (SEP)

CBT Programs - Institutions & Courses SEP SEP

CBT Enrollment SEP SEP

National Occupational Catalog STPS STPS

CIMO Participants under CBT STPS STPS

PROBECAT Beneficiaries under CBT STPS STPS

Costs associated with this subcomponent are for: (a) system design; (b) equipment purchaseand installation; (c) operating costs; and (d) technical assistance.

19. Subcomponent D.2 - Studies. The studies to be conducted under the project are asfollows:


Studies

Component Study Managed By

National System of Financial solvency of the Council and OCs/CEAsCompetencyStandards and Skills Before-after comparison of basic skills Council

Certification System Basic skills as success factors for certification

Modernization of Enrollment trends - market demands and student populationTraining Programs Comparison of traditional vs. competency-based training SEP

CBT-driven changes in training institutions

Stimulation of CBT-driven changes in MSMEs participating in CIMODemand for CBT and CBT effectiveness for PROBECAT participantsCertification STPS

CBT impact in enterprise-based pilot testingEvaluation of certification process & incentives program

20. Flow of Funds. The Council, SEP, and STPS will be separately responsible forestablishing and administering the information systems and for carrying out the studies aspresented in the preceding tables.

21. Procurement. The Council, SEP, and STPS will purchase equipment, installsoftware and hardware, and contract consultants as per their respective responsibilities forinformation systems and individual studies.

B. Disbursements

22. Special Account. A Special Account will be maintained with an authorized allocationof US$19 million and an opening deposit of US$12 million. The allocation of US$12 millioncannot be increased until the aggregate amount of withdrawals from the Loan Account isequal to or exceed the equivalent of US$24 million. The range of project activities fallingunder the Special Account and the flow of funds are illustrated in the figure on the followingpage.

-74 - ANNEX 7IMPLEMENTATION PLAN

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Ai

-75 - ANNEX 7IMPLEMENTATION PLAN

23. Council TrIst Agreement. The operating procedures of the proposed trustagreement are as follows. The trust would be established by agreement between theGovernment (through SHCP) as grantor and NAFIN as trustee. The grantor would transferto the trust some start-up funds (which cannot come from loan proceeds) and eventually somefunds (which can come out of loan proceeds) to reimburse the trust for expenses incurred inthe course of its operations. NAFIN as trustee (in return for some servicing fees) wouldadminister the funds in accordance with the terms of the trust agreement, which specifies thatsuch funds be used: (a) to further the purposes agreed with SEP/STPS; and (b) according tothe dictates of the trust's Comitg TMcnico (the Council's Governing Board) which would becreated pursuant to the terms of the trust agreement and which would in turn create its ownExecutive Secretariat. In case the trust needs to contract with outside parties (e.g., to hirepersonnel or obtain copyrighted materials), the trustee will do so on its behalf as instructedby the Governing Board, but in no case can the trustee obey Board instructions whichcontravene the terms or purposes of the trust agreement. For the project, the trust agreementwill stipulate that the trust must act in compliance with relevant conditionalities in the BankLoan and Guarantee Agreements.

C. Steering Committee and Project Administion UnitTerms of Reference

Steering Committee

24. The Steering Committee will be responsible for coordinating the execution of theproject, and its functions will include:

(a) Coordinating activities among the project's distinct executingagencies;

(b) Supervising and ensuring adequate execution of the project asagreed with the Bank;

(c) Adjudicating on agreements within the project's overallframework, and when necessary, seeking to defuse controversiesand unify norms and criteria among executing agencies;

(d) Informing concerned authorities about the project's progress;and

(e) Providing technical assistance to the Trust, within itscapabilities.

25. The Steering Committee will be composed of representatives of SEP, STPS,SHCP, NAFIN, and the Council.


Project Administion Unit

26. The project will be implemented in parallel by the Trust, SEP (CETIS,CECATI, and CONALEP), and STPS. STPS, which has extensive previous experience withBank-financed training projects, already has the institutional capacity to integrate project-related activities into its normal functions and would not require additional administrativeassistance. For this reason, the PAU to be created under the project would be attached toSEP and facilitate its activities, particularly in regards to administrative and logisticalsupport, particularly for procurement, disbursement, auditing, and other legal/financialmatters in a manner consistent with Bank guidelines. The PAU's services would be availableto the Trust, if so requested, on a consultative basis. At the project level, the PAU will alsohelp maintain the dialogue between the Trust, SEP, and STPS to share experience andexchange lessons learned.

27. Staff Composition. The PAU will be headed by a Director, who will beresponsible for: (a) coordination and supervision of the SEP-managed parts of the project;(b) liaison between the Steering Committee and other institutions for coordination of projectactivities; and (c) regular communication with NAFIN and Bank supervision staff, includingpreparation of periodic reports and organization of annual and mid-term implementationreviews, together with STPS project staff.

28. The Director will oversee three Coordinators whose duties are as follows:

(a) Admninistration and Financial Management. The Coordinatorwill be responsible for administrative and financial matters,including, inter alia: (i) coordinating the administration,accounting, and planning of project activities; (ii) consolidatingthe yearly work review and plan for coming year; (iii) maintainadequate records for Bank review (prior and ex-post); (iv)generally assist the SEP and other institutions in ensuringsmooth and timely disbursement of project funds; (v) facilitatingthe budgeting and securing of counterpart funds; and (vi)financial management, including disbursements, recordkeeping,and auditing.

(b) Procurement. The Coordinator will assist in the timelyfulfillment of procurement activities in accordance with Bankand Government guidelines. More specifically, theCoordinator's duties will include, inter alia: (i) preparation ofbidding and invitation packages, criteria for evaluation of bidsand technical proposals; and (ii) conduct or coordinate/facilitatebidding processes.

(c) Monitoring/Evaluation. The Coordinator will be responsiblefor: (i) ensuring smooth and timely information flow among theinformation systems created under the project to facilitatecoordination among the competency standards, certificationresults, training, incentives, and employment assistanceprograms; (ii) coordinating and assisting as needed the


contracting of studies; and (iii) monitoring overall projectperformance according to monitoring indicators; (iv) makingrecommendations for improvement; and (v) helping implementthe development of training materials during the second phase.

6. Functions. The PAU will help coordinate all operational activities and ensurethat project implementation is carried out in accordance with the loan and guaranteeagreements signed between the Government and the Bank. It will also respond to theinformation needs of the Steering Committee, NAFIN, SHCP, the Bank, and other localauthorities.

7. More specific functions of the PAU, except as already specified under the dutiesof the Unit Coordinators, include:

(a) Coordinating and assisting SEP's DGPPP in ensuring consistentand timely flow of funds through its annual investmentprograms, and monitoring and assisting as required STPS' andthe Trust's work program under the project;

(b) Developing and implementing training programs for projectstaff;

(c) Providing technical, financial, and administrative assistance toimplementation agencies through the Unit Coordinators andother staff;

(d) Coordinating the activities of CONALEP, CETIS, andCECATIS during the pilot phase through regular consultation,sharing of experiences, and a consistent framework forinformation exchange in order to (i) avoid duplication in thefunding of equipment and the provision of training and (ii) toseek complementarity;

(e) Assisting staff in all components in the preparation of biddingpackages, evaluations, reports, and other documentation neededfor the procurement of goods and services and the hiring ofconsultants, particularly in resolving procurement anddisbursement bottlenecks;

(f) Monitoring and following up on actions taken by implementationagencies in all components; consolidating periodic progressreports for each component and the project as a whole incollaboration with STPS and the Trust counterparts through theuse of a monitoring system to be developed and agreed with theBank;


(g) Monitoring the delivery and quality of products by consultantsin accordance to the terms of their contracts;

(h) Collecting, integrating, and maintaining audit andimplementation reports and other project files from executingagencies and submitting them for review by Mexican authoritiesand the Bank in accordance with applicable agreed guidelines;

(i) Assisting in the preparation of annual budgets for eachcomponent, in collaboration with Trust and STPS counterparts,to ensure adequate counterpart funds as per the agreed annualwork programs;

(j) Assisting in all necessary arrangements to ensure availability ofcounterpart funds through NAFIN, including providing in anappropriate and timely manner all information requested byNAFIN to process disbursement applications and replenish theSpecial Account as per procedures agreed with the Bank;

(k) Carrying out, together with NAFIN and representatives ofexecuting agencies, annual implementation reviews with theBank; agreeing on an action plan for project improvement andcausing it to be carried out;

(1) Preparing terms of reference for the Mid-Term Review, togetherwith STPS and the Trust staff, to occur in November 1996",and presenting them to the Bank by July 31, 1996; conductingthe Mid-Term Review, together with SEP, STPS, the Trust,NAFIN, SHCP, and the Bank, agreeing on an action plan forproject improvement and causing it to be carried out; and

(m) Preparing the Implementation Completion Report with theexecuting agencies.

1' Except for Component Bi, whose mid-term review will take place in May 1997.

IMPLEMENTATION SCHEDULECom nt Subcomponent/ 1994 1995 1996 1997 1998

Component Activity 3141 1_ |12|1||21131|4 121314 121314I|

Component A A. 1 - National System of Competency StandardsNational Select sectors to develop first groups of standards

Competency Establish Council'_Standards, Establish Council proceduresSkills Testing Establish first set of CNs& Certification Train Council staff and others

Develop first groups of standards (preliminary)Validate and approve first groups of standardsEstablish second set of CNsDevelop second groups of standards (preliminary) __ __

Validate and approve second groups of standardsDevelop standards continuously

A.2 - Skills Testing and Certification SystemContract consultants & conduct organizational studyAnalyze certification logisticsEstablish final criteria for selection of OCsSelect first group of OCsSet up, initiate, train staff of first group of OCs

Develop first set of competency tests

Pilot testing & evaluation of competency tests

Evaluation of potential CEAs

Establish final criteria for support of CEAsProvide support to CEAsSelect second group of OCs EnSet up, initiate, train staff of second group of OCs

Referred to as 'Trust' in the legal documents

Component 1 Subcomponent/ 1994 1995 1996 1997 1998 1999

| ~~~~~Activity |3 | |I | 2 | 3 | 4 | I | 2 | 3 | 4 I | 2 | 3 | 4 I | 121|31|4111|21|3 141

Component B B. I - Pilot Training Modernization ProgramsModernization CONALEP to start CBT coursesof Training Provide support to CONALEP for conversionPrograms

Provide support to CETIS & CECATI for conversion

CETIS & CECATI to start CBT courses

B.2 - Development of Training Materials

Establish final cfitefia for fuinding approval_____

Provide support for successful funding proposals ____

Component C C. I - Promotion of SNCStimulation of Conduct promotional activitiesDemand for 0 0

Demand for C.2 - Pilot Testing of SNC in Enterprises CCBT &Certification Conduct enterpfise-based pilot testing

C.3 - Training & Certification Incentives

Provide PROBECAT support to CETIS/CECATI pilotng

Provide CIMO support to CBT participants|||||

Develop pre-certification diagnostic test ||||||| _ |111111111111

Provide cerlification incentives L1 C.4 - Fund for Equipt. Purchase & Instnictor Training|

Select Beneficiary Training Institutions |||{||LI_zZMrsz|1

Prc adSppyFuimn

Component Subcomponent/ 11994 1995 1996 1997 | 1998 1999_ Component Activity 13| I 1 2341 2 12 3 4 234

Component D D. 1 - Information Systems (start dates indicate when systems are fully operational)Information Competency standards registry (Council) _Systems,Studies & OCs/CEAs registry (Council)

Project Certification applicants registry (OCs/CEAs) _Administration Certified workers (OCs/CEAs) _ -

CBT program - institutions & courses (SEP)

CBT enrollment (SEP) -

Competency-based occupational catalog (STPS)

PROBECAT participants under CBT (STPS)

CIMO participants under CBT (STPS)

D.2 - Studies

Financial solvency of OCs/CEAs (Council)

Basic skills & before-after comparison (Council) -

Success factors for certification (Council)

Enrollment trends - demand & student pop. (SEP)

Traditional vs. CBT comparison (SEP)

CBT-driven changes in training institutions (SEP) -

Evaluation of CBT under CIMO (STPS)

CBT effectiveness/PROBECAT participants (STPS)

CBT impact in pilot training modernization (STPS)

Evaluation of certification & incentives (STPS)

D.3 - Project Administration

Establish PAU U1Conduct Implementation Reviews |

Prepare TORs for Mid-Term Review UIConduct Mid-Term Review

r-I1

PROJECT COST SUMMARY

(N$ Million) (US$ Million % % TotalLocal Foregn ITotal Local Foreign Total Foreign Base

;;~~TTO`aa I I ~~ Exch. CostsA. National Systen of Competecy Stiandards & Skll Tetig :

Certification

1. National System of Competency Standards 34.6 1.2 35.8 10.3 0.3 10.6 2.8 2.8

2. System of Skills Testing and Certification 68.2 0.0 69.1 20.5 0.0 20.5 0.0 5.4

Subtotal 103.7 1.2 104.9 30.8 0.3 31.1 1.0 8.2

B. Moderniation of Training Programs

1. Pilot Training Modernization Programs 238.0 138.6 376.6 70.6 41.1 111.7 36.8 29.4

2. Development of Training Materials 20.2 81.0 101.2 6.0 24.0 30.0 80.0 7.9

Subtotal 258.2 219.6 477.8 76.6 65.1 141.7 45.9 37.3

C. Stimulation of Demand for Training aud Promotiou of SNC1. Promotion and Validation of SNC 96.7 15.5 112.2 28.7 4.6 33.3 13.8 8.8

2. Training and Certification Incentives 333.3 42.1 375.4 98.9 12.5 111.4 11.2 29.3

3. Equipment and Instructor Training 107.5 45.2 152.7 31.9 13.4 45.3 29.6 11.9

Subtotal 539.2 102.8 642.0 159.5 30.5 190.0 16.1 50.0

D. Information Systems, Studies and Project Administation

1. Information Systems 5.1 5.4 10.5 1.5 1.6 3.1 51.6 0.8

2. Studies

Competency Standard Studies 12.7 6.4 19.1 3.8 1.9 5.7 33.3 1.5

Modernization Studies 6.1 0.4 6.5 1.8 0.1 1.9 5.3 0.5

Demand Studies 2.4 0.6 3.0 0.7 0.2 0.9 22.2 0.2

3. Project Administration Unit 19.4 0.0 19.4 5.7 0.0 5.7 0.0 1.5

Subtotal 45.7 12.8 58.5 13.5 3.8 17.3 22.0 4.6

Total BASELINE COSTS 946.8 336.4 1,283.2 280.4 99.7 380.1 26.2 100.0

Physical Contingencies 13.7 11.5 25.2 4.4 3.5 7.9 44.3 2.1

Price Contingencies 60.7 20.1 80.8 18.0 6.0 24.0 25.0 6.3

Total PROJECT COSTS 1,021.2 368.0 1,389.2 302.8 109.2 412.0 26.5 108.4

B.W0

PROJECT COMPONENTS BY YEAR - BASE COSTS

US$ Million

1995 1996 1997 | 1998 1999 Total

A. National System of Competency Standards, Skills Testing and Ctstifiation

1. National System of Competency Standards 2.4 2.1 2.1 2.0 2.0 10.6

2. System of Skills Testing and Certification 0.0 5.3 5.1 5.1 5.0 20.5

Subtotal 2.4 7.4 7.2 7.1 7.0 31.1

B. Moderniation of Training Programs

1. Pilot Training Modernization Programs 71.0 35.6 5.1 0.0 0.0 111.7

2. Development of Training Materials 0.1 0.1 10.0 9.9 9.9 30.0

Subtotal 71.1 35.7 15.1 9.9 9.9 141.7

C. Stimulation of Demand for Competeny-Based Training and Certification

1. Promotion of SNC 0.3 0.1 2.0 2.0 2.0 6.4

2. Pilot Testing of SNC in Enterprises 2.9 3.1 6.9 7.0 7.0 26.9

3. Training and Certification Incentives 4.7 8.9 25.2 36.4 36.2 111.4

4. Equipment and Instructor Training 0.0 0.0 21.5 21.6 2.2 45.3 x

Subtotal 7.9 12.1 55.6 67.0 47.4 190.0

D. Information Systems, Studes and Projedt Administration

1. Information Systems 1.7 1.2 0.1 0.1 0.0 3.1

2. Studies

Competency Standard Studies 1.5 4.1 0.0 0.0 0.2 5.8

Modernization Studies 0.7 1.0 0.0 0.0 0.0 1.7

Demand Studies 0.0 0.0 0.2 0.7 0.1 1.0

3. Project Administration 1.2 1.2 1.1 1.1 1.1 5.7

Subtotal 5.1 7.5 1.4 1.9 1.4 17.3

Total BASELINE COSTS 86.5 62.7 79.3 85.9 65.7 380.1

Physical Contingencies 2.6 1.4 0.9 1.5 1.5 7.9

Price Contingencies 1.4 2.3 3.7 7.3 9.3 24.0

Total PROJECT COSTS 90.5 66.4 83.9 94.7 76.5 412.0

Taxes 8.7 5.7 4.5 6.9 7.0 32.8

Foreign Exchange 32.4 16.4 14.0 22.9 23.5 109.2 X 2

PROJECT COMPONENTS BY YEAR - TOTALS INCLUDING CONTINGENCIES

US$ milLion

1995 r 196 1 9 1998 1999 Total

A. Nationa System of Competency Standards, Skills Testing and Certificatin

1. National System of Competency Standards 2.5 2.1 2.2 2.2 2.2 11.2

2. System of Skills Testing and Certification 0.0 5.5 5.4 5.5 5.5 21.9

Subtotal 2.5 7.6 7.6 7.7 7.7 33.1

B. ModernizatiDn of Trahiing Programs

1. Pilot Training Modernization Programs 74.8 38.2 5.7 0.0 0.0 118.7

2. Development of Training Materials 0.1 0.1 11.1 11.3 11.5 34.1

Subtotal 74.9 38.3 16.8 11.3 11.5 152.8

C. Stimulation of Demand for Competency-Based Training and Certification

1. Promotion of SNC 0.3 0.1 2.0 2.2 2.3 6.9002. Pilot Testing of SNC in Enterprises 2.9 3.2 7.5 7.6 7.7 28.9

3. Training and Certification Incentives 4.8 9.3 25.9 40.1 40.3 120.4

4. Equipment and Instructor Training 0.0 0.0 24.4 24.5 2.9 51.8

Subtotal 8.0 12.6 59.8 74.4 53.2 208.0

D. Information Systems, Studies and Project Administration

1. Information Systems 1.8 1.3 0.1 0.1 0.0 3.3

2. Studies

Competency Standard Studies 1.5 4.2 0.0 0.0 0.2 5.9

Modernization Studies 0.8 1.0 0.0 0.0 0.0 1.8

Demand Studies 0.0 0.0 0.1 0.8 0.1 1.0

3. Project Administration 1.3 1.2 1.2 1.2 1.2 6.1

Subtotal 5.4 7.7 1.4 2.1 1.5 18.1

Total PROJECT COSTS 90.8 66.2 85.6 95.5 73.9 412.0

C 1

Ue)

EXPENDITURE ACCOUNTS BY COMPONENT - BASE COSTS(US$ million)

SNC & TCS Modempizati; of Sfuuad | Infbo. Systn, Studies, & | bsci

Tr-g- Promo- PilotAdmint. Cquip. Ief

_SNC_ _|_TCS_| Pro Matrs ti Tig I ies I & T1. |Tot Ad T mnT

I. I. vnyestet Costs

A. Goods & Equipment 0.1 0.0 59.1 0.0 0.0 0.0 0.0 37.6 1.6 0.0 0.1 98.5 5.0 4.9

B. Training Materials 0.0 0.0 29.3 30.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 59.3 5.0 3.0

C. Stipends & Incentives 0.0 0.0 0.0 0.0 0.0 0.0 104.1 0.0 0.0 0.0 0.0 104.1 0.0 0.0

D. Promotion & Info Campaigns 0.1 0.0 0.0 0.0 6.4 0.0 0.0 0.0 0.0 0.0 0.0 6.5 0.0 0.0

E. Consultants, Studies &TA 2.4 1.0 23.3 0.0 0.0 26.9 0.0 7.4 1.5 8.5 0.2 71.2 5.0 3.6

TotalInvestmentCosts 2.6 1.0 111.7 30.0 6.4 26.9 104.1 45.0 3.1 8.5 0.3 339.6 2.3 7.8

Hi. Recuct Coss

A. Incremental Salaries 4.7 12.7 0.0 0.0 0.0 0.0 5.5 0.0 0.0 0.0 3.1 26.0 0.0 0.0 00

B. Incremental Operating Costs 3.3 6.8 0.0 0.0 0.0 0.0 1.8 0.3 0.0 0.0 2.3 14.5 0.0 0.0

Total Recurrent Costs 8.0 19.5 0.0 0.0 0.0 0.0 7.3 0.3 0.0 0.0 5.4 40.5 0.0 0.0

TotalBaseineCosts 10.6 20.5 111.7 30.0 6.4 26.9 111.4 45.3 3.1 8.5 5.7 380.1 2.1 8.0

Physical Contingencies 0.0 0.0 4.1 1.4 0.0 0.0 0.0 2.3 0.1 0.0 0.0 7.9 0.0 0.0

Price Contingencies 0.6 1.4 2.9 2.7 0.5 2.0 9.0 4.2 0.1 0.3 0.3 24.0 1.8 0.4

TotalProjectCosts 11.2 21.9 118.7 34.1 6.9 28.9 120.4 51.8 3.3 8.8 6.0 412.0 2.0 8.2

Taxes 1.0 2.1 11.8 3.5 0.5 2.0 5.2 5.0 0.2 0.9 0.6 32.8 2.5 0.8

Foreign Exchange 0.4 0.0 43.8 27.6 0.0 4.9 13.7 15.5 1.0 2.3 0.0 109.2 3.4 3.7

ioIN

PROJECT COMPONENTS BY FINANCIER(US$ million)

Govt. Mexico World Bank Beneficiaries Total___________________ __________________ For. L oA lA Dutie

_________________ . jAmt. | At. % AmtA I % Exch. Taxes Taxes

A. National System of Competency Standards, Skills Testing and Certification

1. National System of Competency Standards 4.6 41.1 6.6 58.9 0.0 0.0 11.2 2.7 0.4 9.8 1.0

2. System of Skills Testing and Certification 10.7 48.9 11.2 51.1 0.0 0.0 21.9 5.3 0.0 19.8 2.1

Subtotal 15.3 46.2 17.8 53.8 0.0 0.0 33.1 8.0 0.4 29.6 3.1

B. Modernizaion of Training Programks

1. Pilot Training Modernization Programs 20.8 17.5 97.9 82.5 0.0 0.0 118.7 28.8 43.7 63.2 11.8

2. Development of Training Materials 17.0 49.9 17.1 50.2 0.0 0.0 34.1 8.3 27.0 3.6 3.5

Subtotal 37.8 24.7 115.0 75.3 0.0 0.0 152.8 37.1 70.7 66.8 15.3

C. Stimulation of Demand for Competency-Based Taining and Certificatiou

1. Promotion of SNC 0.5 7.3 6.4 92.8 0.0 0.0 6.9 1.7 0.0 6.4 0.5 0O

2. Pilot Testing of SNC in Enterprises 2.3 8.0 15.3 52.9 11.3 39.1 28.9 7.0 4.2 22.7 2.0

3. Training and Certification Incentives 52.4 43.5 50.6 42.0 17.4 14.5 120.4 29.2 13.6 101.6 5.2

4. Equipment and Instructor Training 5.7 11.0 46.1 89.0 0.0 0.0 51.8 12.6 16.5 30.3 5.0

Subtotal 60.9 29.3 118.4 56.9 28.7 13.8 208.0 50.5 34.3 161.0 12.7

D. lufomation Systems, Studies and Project Administration

1. Information Systems 0.5 15.2 2.8 84.9 0.0 0.0 3.3 0.8 1.5 1.6 0.2

2. Studies

Competency Standard Studies 0.8 13.6 5.1 86.4 0.0 0.0 5.9 1.4 2.0 3.3 0.6

Modemization Studies 0.3 16.7 1.5 83.3 0.0 0.0 1.8 0.4 0.1 1.5 0.2

Demand Studies 0.1 10.0 0.9 90.0 0.0 0.0 1.0 0.2 0.2 0.7 0.1

3. Project Administration 2.6 42.6 3.5 57.4 0.0 0.0 6.1 1.5 0.0 5.5 0.6

Susbtotal 4.3 23.8 13.8 76.2 0.00.0 18t.1 4.4 3,8 12.6 1.7

Total DISBURSEMENT 118.3 28.7 265.0 64.3 28.7 7.0 412.0 100.0 109.2 270.0 32.8

c10

Cir %O

- 87 - ANNEX 9PROJECT COSTS

& DISBURSEMENT

WITHDRAWALS OF THE PROCEEDS OF THE LOAN

Amount of theCategory' Loan Allocated (in % of Expenditures To Be Fmanced

USS millionequivalent)

1. Goods and Equipment (other than 95%those covered under Categories2,4,7-9, and 11-13 below)a. Part A 0.2b. Part B 60.0c. Part C 28.5

2. Training Materials, Printing and 25.4 50%Reproduction of Materials forParts A and B (other than thosecovered by Categories 4,7-9, and11-13 below)

3. Consultant Services (other than 100%those covered under Categories7,8 and 10 below)a. PartAandD.1 3.5b. Part B and D.2 34.5c. Part C and D.3 1.0

4. Incremental Operating Costsa. Part A 7.1 75% up to US$3.7 million; 50% up to US$6.1 million;

and 25 % thereafterb. Part B and D.4 5.0 75% up to US$2.5 million; 50% up to US$4.0 million;

and 25% thereafterc. Part C 4.8 75% up to US$2.4 million; 50% up to US$4.0 million;

and 25% thereafter5. Stipends 15.4 50% up to US$9.0 million; 25% thereafter6. Certification Support (other than 9.0 90% up to US$3.8 million; 70% up to US$8.6 million;

that covered under Category 13) 50% thereafter7. Training and Technical Assistance 15.5 60%

under Part C.28. Training of MSME workers and 4.4 70%

Technical Assitance to MSMEsunder Part C.3 with less than 15employees

9. Training of MSME workers to 5.5 35%MSMEs under Part C.3 with morethan 16 employees

10. Technical Assistance to MSMEs 2.5 60%under Part C.3 with more than 16employees

11. Training under Part C.4(a) 11.9 100%12. Publicity Activities under Part C.1 6.2 100%13. Training of Instructors under Part 7.2 100%

C.6(b) and certification supportfor Instructors

14. Unallocated 17.4

Total 265.0

Parts correspond to the Project Parts described in Schedule 2 of the Loan Agreement.

- 88 - ANNEX 9PROJECT COSTS

& DISBURSEMENT

ESTIMATED SCHEDULE OF DISBURSEMENTS(in USS million)

Bank Quarter Ending Disbursed Cumulative Disb as % of Balance ofFiscal During Amount Total LoanYear Quarter

95 March 31, 1995 12.0 12.0 253.0

June 30, 1995 10.5 22.5 8 242.5

96 Sept. 30, 1995 12.3 34.8 230.2

Dec. 31, 1995 12.8 47.6 217.4

March 31, 1996 12.8 60.4 204.6

June 30, 1996 13.4 73.8 28 191.2

97 Sept. 30, 1996 12.9 86.7 178.3

Dec. 31, 1996 15.7 102.4 162.6

March 31, 1997 16.8 119.2 145.8

June 30, 1997 17.3 136.5 52 128.5

98 Sept. 30, 1997 14.0 150.5 114.5

Dec. 31, 1997 13.0 163.5 101.5

March 31, 1998 13.0 176.5 88.5

June 30, 1998 13.0 189.5 72 75.5

99 Sept. 30, 1998 12.8 202.3 62.7

Dec. 31, 1998 12.7 215.0 50.0

March 31, 1999 12.7 227.7 37.3

June 30, 1999 12.7 240.4 91 24.6

00 Sept. 30, 1999 12.3 252.7 12.3

Dec. 30 1999 12.3 265.0 100 0.0

'j Includes Special Account deposit of US$12.0 million. Retroactive financing of up to US$10.0 millionwould be permitted for eligible expenditures incurred since June 28, 1994.

PROJECT MONITORING INDICATORS

Subcomp. Indicator Unit 1995 1996 1997 1 I98 1999 Total

Component A - National System of Competency Standards & Skills Testing & Certification

A. 1 - SNC Establish Council End Date 2128/95*

Appoint satisfactory key End Date 3/31/95*Council staff

Adopt Council operating End Date 10/30/95*procedures

Establish CNs No. 4 4 4 4 4 20Produce standards for Clusters - 4 5 5 6 20occupational clusters l

A.2 - TCS Finalize proposal for End Date 6/30/95establishment of OCs

Establish OCs OCs - 1 l 1 1 1 4

Develop first set of Sets of Tests 12/30/96 _certification tests (4 clusters) x

Component B - Modernization of Training Programs

B.l - Pilot CONALEP to start CBT Start Date 9/1/94Training coursesModerniza- Convert CETIS & Start Date 10/1/94tion CECATI courses to CBT End Date -- 12/3196Programs

CETIS & CECATI to start Start Date 9/30/95CBT courses

CBT Produce training modules Modules 20 20 30 30 30 130Programs Provide training courses Courses 1,000 1,400 2,000 2,000 2,000 8,400 0(CombinedPhases 1&2) Train students Students 10,000 14,000 50,000 50,000 50,000 174,000

D po* Indicates projected date.

Subcomp. Indicator Unit 1995 19 1997 199 1999 Total

B.2 - Finalize criteria forDevelop- funding approval End Date - 9130196ment of _Training Fund training materials Sets of 150 (printed) 150 (printed) 150 (printed) 450 (printed)Materials development Materials _ _ 90 (alv) 90 (a/v) 90 (a/v) 270 (a/v)

15 (software) 15 (software) 15 (software) 45 (software)Component C - Stimulation of Demand for Competency-Based Training and Certification

C.A - Meetingsw/ private sectorPromotion of (conferences, workshops, Event TBD TBD TED TBD TBD TODSNC etc.) _ __ _

C.2 - Pilot Conduct pilot testing in Enterprises 10 10 20 20 20 80Testing of large firms Trainees 800 800 1,600 1,600 1,600 6,400SNC in Conduct pilot testing in Enterprises 40 40 80 80 80 320

Enterprises SMEs Trainees 160 320 1,280 1,280 1,280 4,320

C.3 - Provide support to CIMO Enterprises 400 750 750 1,900Training & enterprisesCertification Provide support to PROBECAT 6,000 12,000 20,000 25,000 25,000 88,000Incentives PROBECAT beneficiaries Beneficiaries

Provide certification Test-takers - - 38,000 60,000 60,000 158,000incentives

C.4 - Provide support for Competency . -

Equipment equipment purchase Area/ - _ 150 150 300Purchase/ TrainingInstructor InstitutionsTraining Provide support for

instructor training and Instructors - _ 650 650 700 2,000Certific-ationI

Component D Information Systems, Studies, & Project Adminisration

D. . - National Occupational JMilestone I/1/95 9/30/96Information Catalog Dates (Start) (Full Continuous operationSystems implementation)

SNC Registry - Milestone 12/31/95 3/30/96 Continuous operationCompetency Standards Dates (Final design) (Implementation)

* Indicates projected date.

|subcomp. Indicator Unit 19 1 1" 1997 1 98 I 1999 Total

SNC Registry - OCs/CEAs Milestone 9/30/95 1/1/96 Continuous operationDates (Final design) (Implementation)

SNC Registry - Milestone 9/30/95 7/1/96Certification Applicents & Dates (Final design) (Implementation) Continuous operationCertified Workers

CBT Supply - Institutions 3/30/95& Courses Milestone (Final design) Continuous operation

Dates 9/30/95(Implementation)

CBT Enrollment 3/30/95Milestone (Final design) Continuous operation


CIMO Participants under 6/30/96CBT Milestone _ (Final design) Continuous operation

Dates 9/1/96(Implementation) __

PROBECAT Beneficiaries 6/30/96under CBT Milestone (Final design) Continuous operation


D.2 - Studies Financial Solvency of Milestone - - 6/30/97 Conduct 6/30/99Council & OCs Dates (TOR) Study (Final report)

Basics Skills Study & 3/30/99Before-After Comparison Milestone 06/30/95 12/31/96 ("After' test)

Dates ("Before' Basic (Final report of 6/30/99Skills test) Basic Skills (Final report of 0

study) Before-Afterstudy) O

Success Factors for Milestone _ 9/30/96 Conduct Study 6130/99 E

Certification Dates (TOR) (Final report) Z

Enrollment Trends Milestone 1/1/95 Conduct study w/periodical reports 12/30/99Dates (TORs) ___________________________ (Final report) _ _ _ _

de O.d*Indicates projected date. (

Subcomp. Indicator Unit 1995 1996 |1997 L 199 1999 1 Total

Comparison of Traditional Milestone 6/30/95 Conduct study w/periodical reports 12/30/99vs. CBT Dates (Methodology) (Final report)

CBT-Driven Changes in Milestone _ 9/30/96 Conduct study 6/30/99Training Institutions Dates (TORs) (Final report)

Evaluation of CBT in Milestone _ 10/1/97 Conduct 6/30/99CIMO MSMEs Dates (Start) Study (Final report)

CBT Effectiveness for Milestone 1/1/98 6/30/99PROBECAT Benefic. Dates - _ Conduct (Final report)

___________ ___________ Study

CBT Impact in Pilot Milestone 09/30/95 1/1/96 Conduct study w/periodical 9/30/99Enterprises Dates (TORs) (Start) reports (Final report)

Evaluation of Certification 6/30/97Process & Incentives Milestone _ _ (TORs) 4/30/98Program Dates 10/1/97 (Final

(Start) Report)

D.3 - Project Establish Steering End Date 2/28/95*Adminis- Committeetration Establish PAU & Appoint End Date 2/28/95*

PAU Director

Conduct Annual Milestone 11/30/95 11/30/96 11/30/97 11/30/98 11/30/99Implementation Reviews Dates l_7_31_96 5l30_97

Conduct Mid-Term Review _ 7/31/96 5/30/97Milestone - (TORs) (Component

Dates 11/30/96 BI)(Review) _

0

z

C* dIndic-ates projected date.

- 93 - ANNEX 11DOCUMENTS IN

THE PROJECT FILE

LIST OF DOCUMENTS IN PROJECT FILE

A. Studies and Reports on the Project

ACT, 1993. Performing a National Job Analysis Study: Overview of Methodology andProcedures.

CONALEP, 1993. Sistema Modular de Formaci6n Profesional Tecnica.

Contrato de Fideicomiso en Apoyo al sistema Normalizado de Competencias Laborales y alSistema Nacional de Certificaci6n de Competencias Laborales, (Draft Trust Agreementcreating the Council), September 1994.

INEGI, 1993. Anuario Estadfstico de los Estados Unidos Mexicanos.

Project Implementation Details, 1994.1'

Revenga, A., Riboud, M. and Tan, H., 1992. The Impact of Mexico's Retraining Programon Employment and Wages, The World Bank, Policy Research Working Paper 1013.

SEP, no date. Centro de Estudios Tecnol6gicos Industrial v de Servicios no. 16: Mexicano-Italiano.

SEP, no date. Centro de Estudios Tecnol6gicos Industrial v de Servicios no. 115: Mexicano-,N0nel.

SEP, no date. CETMA.- Centro de Estudios Tecnol6gicos Mexicano-Alemdn.

SEP, no date. Escuelas Y Carreras. Sistema Nacional de Educaci6n Tecnol6gica. Catdlogo1992-1993. Distrito Federal v Area Metropolitana.

SEP, no date. Escuelas v Carreras. Sistema Nacional de Educaci6n Tecnol6gica. Catdlogo1992-1993. Estados de la Republica Mexicana.

SEP, no date. Estad[stica Bdsica Sistema Nacional de Educaci6n Tecnologica. 1992-1993.Inicio de Cursos.

SEP, 1994. Evaluaci6n de la Educaci6n Tecnol6gica. Volumen V. Seguimiento de Egresadosde la Edu-roh6n Tecnol6gica. Tomo 3. Informe de Resultados. 1989-1990 v 1990-1991.

SEP, 1993. Formal Training for Industrial Work Educational Services.

1' This document contains the annexes that were deleted from the SAR. These annexesinclude: (1) Labor Market Overview; (2) Letter from the Private Sector Representativeexpressing their committment to the proposed reform of the training system; and (3) Trainingprograms for Council members.

- 94 - ANNEX 11DOCUMENTS IN

THE PROJECT FILE

SEP, 1992. National System for Technical Education.

SEP, 1993. Sistema de Inventarios: INVEN.

STPS, 1993. Encuesta Nacional de Empleo 1991.

STPS, 1992. Informe de Labores 1991-1992.

STPS, 1992. Programa CIMO: Capacitaci6n Industrial de la Mano de Obra - lrforme deActividades 1988-1991.

STPS, 1991. Caracter(sticas del Personal Ocupado v Requerimientos de Capacitaci6n enEstablecimientos Manufactureros Mexicanos.

STPS, 1990. Catdlogo Nacional de Ocupaciones: Compendio de 7Ttulos Ocigacionales.

B. General Studies and Reports

Benus, Jacob M. and Kulik, Jane, 1993. First Annual Assessment Report of the WorkforceDevelopment Partnership Program (WDPP), Abt Associates.

Benus, Jacob M. and Wood, Michelle, 1993. Does Self-Employment Work for theUnemployed? First Impact Analysis of the Washington State Self-Employment andEnterprise Development (SEED) Demonstration, Abt Associates.

Festo Didactic, "Training Guide for Automation." (Manual)

Kulik, C.C., Kulik, J.A. and Bangert-Drowns, R.L. "Effectiveness of Mastery LearningPrograms: A Meta-Analysis." Review of Educational Research 60 (Summer 1990):265-99.

Lauglo, Jon, 1993. Vocational Training: Analysis of Policy and Modes.

Spencer, Lyle M., McClelland, David C., and Spencer, Signe M. 1992. CompetencyAssessment Methods: History and State of the Art.

World Bank, 1994. Mexico Country Economic Memorandum. Fostering Private SectorDevelopment in the 1990s, Volume II Statistical Annex. Report No. 11823-ME, 1994.

World Bank, 1994. World Development Report 1994.

MAP SECTION

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