The World Bank Local and Regional Competitiveness Project (P154263) REPORT NO.: RES38699 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF LOCAL AND REGIONAL COMPETITIVENESS PROJECT APPROVED ON JANUARY 12, 2016 TO GOVERNMENT OF THE REPUBLIC OF NORTH MACEDONIA FINANCE, COMPETITIVENESS AND INNOVATION EUROPE AND CENTRAL ASIA Regional Vice President: Cyril E Muller Country Director: Linda Van Gelder Regional Director: Lalita M. Moorty Practice Manager/Manager: Mario Guadamillas Task Team Leader: Melissa Metz The World Bank Local and Regional Competitiveness Project (P154263) ABBREVIATIONS AND ACRONYMS APST Agency for Promotion and Support of Tourism CSG Core Stakeholder Group DM Destination Management DMO Destination Management Organization MoE Ministry of Economy PIU Project Implementation Unit The World Bank Local and Regional Competitiveness Project (P154263) BASIC DATA Product Information Project ID Financing Instrument P154263 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 12-Jan-2016 31-Dec-2019 Organizations Borrower Responsible Agency Cabinet of the Deputy Prime Minister for Economic Government of the Republic of North Macedonia Affairs Project Development Objective (PDO) Original PDO The Project Development Objective (PDO) is to enhance the contribution of tourism to local economic development and improve the capacity of the government and public entities to foster tourism growth and facilitate destination management. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed TF-A1779 14-Jan-2016 14-Jan-2016 28-Jul-2016 31-Dec-2019 17.54 6.12 11.64 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Local and Regional Competitiveness Project (P154263) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Implementation Status 1. The Local and Regional Competitiveness Project has overcome some delays and now is well-placed to deliver on its planned activities and development objective; however, it requires additional implementation time to do so. The status of the key project activities is as follows: (a) Technical assistance for tourism development (Component 1): This component is Bank-executed, and is funding the Bank team’s implementation support for all of the areas described below, as well as expert advice and assistance in the areas of destination management, statistics, and national tourism strategy. (b) National-level policy and coordination (Component 2.1): (i) Tourism Strategy: The project is moving forward to support analytical input to the next National Tourism Strategy. The proposed extension can support preparation of the Strategy itself. The analytical input is being delivered through Bank-executed Component 1. Strong engagement from Ministry of Economy (MoE) and APST on its development is being supported through Component 2.1. Component 2.1 can also be leveraged to support Strategy preparation The strategy will address key aspects including institutional and governance framework for the sector, regulatory issues, strategic marketing, a national-level framework for DM, and others. (ii) Training for Ministry of Economy and APST staff: The project is supporting training for MoE and APST staff in two phases. The first will be training in project management and monitoring and evaluation. The second will be training in sustainable tourism management to include an internationally-recognized certificate course and in-person training customized to North Macedonia. (iii) Statistics: The project is supporting MoE, APST, and the State Statistics Office to define and address needs on gathering and using tourism sector data as identified in the LRCP Technical Note: Tourism Sector Data for Evidence- Based Decision-Making and the LRCP report Tourism Data in Macedonia: Best Practice Evaluation and Strategic Recommendations. (c) Destination management (DM, Component 2.2): The project’s destination management activities are proceeding to plan. Three destinations (one of which is a merger of two of the project’s original destinations) have been chosen for pilot destination management organizations (DMOs): Ohrid/Struga/Prespa, Tikvesh/Vardar, and Polog/Mavrovo. Work is ongoing with Core Stakeholder Groups in those destinations to move forward with the steps to establish DMOs and agree on the Destination Development Plans. The project is also supporting the government to establish the national- level destination management role through the Agency for Promotion and Support of Tourism (APST). (d) Sub-grants (Component 3): (i) Forty-two sub-grant agreements have been signed. An additional two sub-grants have recently finalized their Environmental and Social Management Plans (ESMPs), two sub-grants are finalizing technical documentation, and one is finalizing its ESMP. The Project Implementation Unit (PIU) and Bank teams are fully engaged with the beneficiaries and supporting finalization of these plans and documentation. (ii) Sub-grant reserve list: To allocate the full available budget, the PIU is proceeding with negotiations with the following: five municipality/infrastructure sub-projects; two association sub-projects; and five enterprise sub- projects. These sub-projects on the reserve list have been activated because budget negotiations with sub-grant beneficiaries resulted in funding becoming available for additional sub-projects. If the sub-projects that have not yet been signed do not materialize, additional sub-projects on the reserve list in each category can be activated in order to commit the full available budget. The World Bank Local and Regional Competitiveness Project (P154263) (e) Project Management (Component 4): This component is supporting the PIU that is implementing the project as described above. Project financial management is adequate and there are no outstanding audits. B. Rationale and Action Plan for Restructuring 2.. The restructuring aims to extend the project for one year. This will enable the activities listed above, and particularly the sub-grants, to be fully implemented. 3. The actions the Bank team and PIU team are taking/will take to ensure smooth implementation over the extended implementation period are: (a) The PIU will report to the Bank monthly on the implementation status of all sub-grants, and quarterly with more detailed information on the implementation progress for each sub-grant. . (b) The Bank team will continue to provide support to the PIU on matters related to procurement, including holding bi- weekly procurement meetings to discuss any questions the PIU has on the application of the World Bank Procurement Guidelines. (c) Capacity to monitor cultural heritage issues during sub-grant implementation will be strengthened by: (i) the appropriate national authority will conduct monitoring visits according to the national legislation; (ii) the PIU will engage proactively with the authority and ensure timely and adequate monitoring by both the PIU and the authorities; and (iii) the Bank has engaged a cultural heritage expert to advise on these matters, including conducting site visits. (d) The Bank team will conduct site visits of sub-project implementation quarterly, with participation (at a minimum) of the Bank's Environmental Specialist, Civil Engineer, and Sub-grant Monitoring Specialist. The Bank’s Cultural Heritage consultant will conduct site visits relevant to his area of expertise. (e) The Bank will strengthen its team for implementation support to sub-grants at municipalities by engaging a team member from the Social, Urban, Rural and Resilience (SURR) Global Practice with relevant expertise. 5. The restructuring also proposes to change one Project Development Objective (PDO)-level indicator. The indicator “Reforms implemented that were identified through a consultative PPD destination management process” is proposed to be replaced with “Destination Management partnerships formed”. The new indicator captures the original intention of the indicator (to measure capacity for destination management) in a quantitative way, and is a more accurate reflection of the approach the project is taking to destination management. 6. The restructuring proposes to add an Intermediate Objective Indicator: Destination development plans agreed (Number, cumulative). 7. The restructuring proposes to clarify the existing Intermediate Objective Indicator on destination management capacity built, as described below. 8. Finally, the disbursement schedule and the End Target dates of the Results Framework indicators are being revised in line with the extended timeframe. II. DESCRIPTION OF PROPOSED CHANGES A. Proposed Change 1: Extension 1. The restructuring proposes to extend the project by 12 months, to December 31, 2020. The Administration Agreement with the EU Delegation has already been amended to allow this, by extending the Trust Fund to June 30, 2021. The World Bank Local and Regional Competitiveness Project (P154263) B. Proposed Change 2: PDO Indicator on Destination Management 2. The indicator “Reforms implemented that were identified through a consultative PPD destination management process” is proposed to be replaced with “Destination Management partnerships formed”. The new indicator will be measured as number, cumulative, and will have a target of 3 by the end of the project, as the project is working to establish three pilot Destination Management Organizations (DMOs). The project recommends that the DMOs be formed first as a loose partnership of the already-identified Core Stakeholder Groups (CSGs), and then transition to legal establishment as a new non-profit association or modification of an existing institution. The project will support the CSGs through this process. A Destination Management partnership will be considered formed when one of the following is achieved: (i) the relevant CSG members sign a Memorandum of Understanding to cooperate on the establishment of a DMO; (ii) a new non-profit association is formed; or (iii) an existing institution’s mandate is modified to include a role as a DMO. C. Proposed Change 3: Intermediate Outcome Indicator on Destination Management 3. To further capture the project’s work on destination management, it is proposed to include a new indicator “Destination development plans agreed (Number, cumulative)”. For the pilot DMOs that the project is supporting, measured in the PDO- level indicator discussed above, each DMO will need to agree on the plan for its destination. This indicator measures when the Core Stakeholder Groups in each destination agree on the Development Plan for that destination, which will guide the DMO’s work going forward. The target will be 3 by the end of the project. D. Proposed Change 4: Clarification of the existing Intermediate Objective Indicator on destination management capacity. 4. The indicator is currently “public and private stakeholders trained in destination management and development (Number, cumulative)”. The restructuring proposes to add “Destination management capacity built” to the indicator, so that it reads “Destination management capacity built, as measured by public and private stakeholders trained in destination management and development (Number, cumulative)”. The methodology for the indicator will not change. E. Proposed Change 5: Updated Disbursement Schedule 5. The disbursement schedule has been updated as per this Restructuring Paper to reflect the longer implementation period of the project. F. Proposed Change 6: Updated End Target dates 6. The End Target dates for all of the indicators in the Results Framework have been adjusted to reflect the new proposed project end date of December 31, 2020. III. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Loan Closing Date(s) ✔ Disbursement Estimates ✔ Implementing Agency ✔ DDO Status ✔ The World Bank Local and Regional Competitiveness Project (P154263) Project's Development Objectives ✔ Components and Cost ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications TF-A1779 Effective 31-Dec-2019 31-Dec-2020 30-Apr-2021 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes The World Bank Local and Regional Competitiveness Project (P154263) Year Current Proposed 2016 0.00 0.00 2017 711,429.70 711,428.00 2018 3,047,098.44 3,047,095.00 2019 6,397,895.61 1,184,430.00 2020 7,806,036.25 5,900,000.00 2021 0.00 7,119,507.00 . The World Bank Local and Regional Competitiveness Project (P154263) . Results framework COUNTRY: North Macedonia Local and Regional Competitiveness Project Project Development Objectives(s) The Project Development Objective (PDO) is to enhance the contribution of tourism to local economic development and improve the capacity of the government and public entities to foster tourism growth and facilitate destination management. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 Enhance the contribution of tourism to local economic development Additional private investment generated in tourism-related activities at beneficiary 0.00 0.00 1,500,000.00 4,600,000.00 10,000,000.00 10,000,000.00 destinations (US$, cumulative) (Number) Rationale: Action: This indicator has been Extending the End Target date to reflect the revised project end date. Revised Increase in tourism-related jobs in beneficiary destinations 0.30 0.00 2.00 5.00 7.00 7.00 (Percentage) Rationale: Action: This indicator has been Extending the End Target date to reflect the revised project end date. Revised The World Bank Local and Regional Competitiveness Project (P154263) RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 Improve the capacity of the government and public entities to foster tourism growth and facilitate d Destination Management 0.00 0.00 0.00 0.00 3.00 3.00 partnerships formed (Number) Action: This indicator has been Revised PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 Component 2: Strengthening destination management and enabling environment (Recipient executed) Destination management capacity built, as measured by public and private stakeholders 0.00 60.00 100.00 150.00 200.00 200.00 trained in destination management and development (Number) Rationale: Action: This indicator has been The change clarifies this indicator and its relationship to the PDO by adding “Destination management capacity built” to the indicator. The methodology for Revised the indicator will not change. Share of local residents that are satisfied with tourism 0.00 0.00 30.00 50.00 70.00 70.00 development in the destinations that benefit from The World Bank Local and Regional Competitiveness Project (P154263) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 the activities in the project. (Percentage) Rationale: Action: This indicator has been Extending the End Target date to reflect the revised project end date. Revised Destination development plans 0.00 3.00 agreed (Number) Rationale: This new indicator will further capture the project’s work on destination management. For the pilot DMOs that the project is supporting, measured in the revised PDO-level indicator, each DMO will need to agree on the plan for its destination. This indicator measures when the Core Stakeholder Groups in each Action: This indicator is New destination agree on the Development Plan for that destination, which will guide the DMO’s work going forward. The target will be 3 by the end of the project. Component 3: Investment in tourism-related infrastructure and linkages at destinations (Recipient executed) Grant beneficiaries who consider that supported activities are subject to 0.00 40.00 60.00 70.00 80.00 80.00 consultation and reflect their views. (Percentage) Rationale: Action: This indicator has been Extending the End Target date to reflect the revised project end date. Revised Private enterprises that benefit from activities funded through the project’s grants, owned or 0.00 5.00 10.00 12.00 15.00 15.00 managed by a woman (Percentage) The World Bank Local and Regional Competitiveness Project (P154263) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 Rationale: Action: This indicator has been Extending the End Target date to reflect the revised project end date. Revised Private enterprises that benefit from activities funded through 0.00 20.00 40.00 60.00 100.00 100.00 the project’s grants. (Number) Rationale: Action: This indicator has been Extending the End Target date to reflect the revised project end date. Revised Private stakeholders that participate in project- supported capacity-building 0.00 50.00 100.00 200.00 300.00 300.00 activities (e.g. training, supplier development, others) (Number) Rationale: Action: This indicator has been Extending the End Target date to reflect the revised project end date. Revised Increase in number of overnights by tourists in 0.00 0.00 2.00 7.00 12.00 12.00 beneficiary destinations (Percentage) Rationale: Action: This indicator has been Extending the End Target date to reflect the revised project end date. Revised Number of tour packages 0.00 30.00 10.00 20.00 30.00 30.00 offered by tour operators (local The World Bank Local and Regional Competitiveness Project (P154263) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 and foreign) that include the project-supported destinations as a new offering (Number) Rationale: Action: This indicator has been Extending the End Target date to reflect the revised project end date. Revised IO Table SPACE The World Bank Local and Regional Competitiveness Project (P154263)