Israel - Industrial Development Project

Report No. 656a-IS RETURN To Appraisal of an R REPORTS DzSK Industrial Development Project WITHIN in Israel May 7,WFILE COPY Industrial Credits and Development Finance Companies Division F L C O PY Regional Projects Department Europe, Middle East, and North Africa Region Not for Public Use Document of the International Bank for Reconstruction and Development International Development Association This report was prepared for official use only by the Bank Gcroup. It may not be published, quoted or cited without Bank Group authorizatiors. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  CURRENCY EQUIVALENTS C 0. JAN 12 1979 Prior to November 10, 1974 US $1.00 = IL 4.20 IL 1 . US$ o.24 After November 10, 1974 US $ 1.00 = IL6.0o IL 1= US $ 0.17 LIST OF ACRONYMS AND ABBREVIATIONS IDBI Industrial Development Bank of Israel Ltd. OCS Office of the Chief Scientist IFC Industrial Finance Corporation Limited Histadrut Federation of Labor Unions GTEI General Telephone and Electronics International, Inc. GOVERNMENT OF ISRAEL FISCAL YEAR April 1 to March 31  APPRAISAL OF AX 1`rtJSTRIAL DEVELOPMENT PROJECT IN ISRAEL TABLE OF CONTENTS Pae No. BASIC DATA SUMMARY AND CONCLUSIONS ................................. i-v I. INTRODUCTION ......................................... 1 II. THE ENVIRONMENT. 1 A. Economic Performance. 1 B. The Industrial Sector. 3 C. Financial Setting .5 III. APPRAISAL OF THE INDUSTRIAL DEVELOPMENT BANK OF ISRAEL (IDBI). 7 A. IDBI's Structure. 7 Ownership and Control. 7 Management and Staff. 7 Policies and Procedures. 8 B. IDRI's Operations. 9 Summary of Operations ........................ 9 IDBI's Role and Development Impact. 9 Progress in Meeting the Objectives of the Third Bank Loan .10 C. IDBI's Financial Situation .10 Resource Position .10 Resource Mobilization Effort .11 Quality of Portfolio .11 Financial Performance and Position .11 D. IDBI's Prospects .12 The Environment .12 Forecast of Operations and Resources .13 Projected Financial Situation .13 The present report is based on the findings of an appraisal mission to Israel in October-November 1974, composed of Messrs. George C. Maniatis, James L. Theodores, Henry B. Thomas, H.K. Work (R&D consultant) and J.C. Jones (con- sultant on technical training). Mr. Charles Weiss collaborated in the ap- praisal and selection of the R&D subprojects.  TABLE OF CONTENTS (Continued) Page No. IV. APPRAISAL OF THE RESEARCH AND DEVELOPMENT COMPONENT ...... 14 A. The Role of R&D in Israel's Development ........... .. 14 B. The Proposed R&D Project .............. .............. 16 Objectives .......................................... 16 Selection of R&D Subprojects ..........* .............. 17 Nature of R&D Project Appraisal ...................... 17 Major Features of R&D Subprojects ............... .... 19 The Risk Element .. ................ ........ I....... . 22 Cost Estimates and Financing ............... ...... #.. 23 Disbursement and Procurement ....... ............... 25 C. Project Implementation ..... ......................... 26 The Project Unit .................................... 26 Development of OCS's Organization and Appraisal/ Supervision Capability ........... ................... 27 V. APPRAISAL OF VOCATIONAL/TECHNICAL TRAINING COMPONENT ..... 29 A. Educational System and Development Strategy in Israel ........ ..................................... 29 B. The Proposed Vocational/Technical Training Component . . ......... I ............ 30 General ........................................ 30 Vocational Training Centers ........ ............... 31 Technician Training Institutions ................... . 31 Cost of Vocational/Technical Training Component ..... 32 C. Implementation and Disbursement ...................... 33 Project Administration ...... ........................ 33 Procurement .......... 33 Disbursement ........................................ 34 Design and Implementation .................. .. 34 VI. THE PROPOSED LOAN - OBJECTIVES AND JUSTIFICATION ......... 34 VII. RECOMMENDATIONS ............................... .. . ........ ....... 36 A. IDBI Component ..... . ............... 36 B. R&D Component ................................... ..... 37 C. Vocational/Technical Training Component .......... .... 38  LIST OF ANNEXES Annex 1. ISRAEL: Summary of Investment and Export Incentives to Industry 2. ISRAEL: Interest Management and Its Implications 3. IDBI: Shareholders as of October 31, 1974 4. IDBI: Board of Directors and Committees as of October 31, 1974 5. IDBI: Organization and Staff Chart as of March 1, 1975 6. IDBI: Subsidiaries 7. IDBI: Computer System 8. IDBI: Loan Operations Table 1: Summary of Loan Operations 1968-1974 Table 2: Summary of Loans Outstanding by Industrial Sector 1972-1974 Table 3: Analysis of Loans Approved 1958-1974 9. ISRAEL: Sources of Finance for Industrial Fixed Investment 10. IDBI: Resources Position as of September 30, 1974 11. IDBI: Loans Portfolio Analysis as of June 30, 1974 Appendix: Note on Arrears 12. IDBI: Income Statements 1970-1974 13. IDBI: Balance Sheets 1970-1974 14. IDBI: Analysis of Spread 1970-1974 15. IDBI: Projections of Loan Operations 1974-1979 16. IDBI: Projected Cash Flow Statements 1974-1979 17. IDBI: Projected Statements of Income 1974-1979 18. IDBI: Projected Balance Sheets 1974-1979 19. IDBI: Projected Disbursement Schedule 20. ISRAEL: Organization of R&D Activity Appendix: Organization Chart of Research and Development in Israel 21. Multipurpose Facility for Industrial R&D in Negev Appendix 1: Organization Chart Appendix 2: Key Scientific Personnel of Research and Development Authority as of January 31, 1975 Appendix 3: Budget April 1, 1974-March 31, 1975 Appendix 4: Analysis of Expenses for Year Ended March 31, 1974 22. Solar Ponds Appendix 1: Scientific Research Foundation - Organization Chart Appendix 2: Scientific Research Foundation - Balance Sheets 1973-74 Appendix 3: Scientific Research Foundation - Budget - April 1, 1975-March 31, 1976 23. Liquid Wax Production from Jojoba Beans  Annex 24. Rural Telephone System Appendix 1: Financial and Economic Calculations Appendix 2: Tadiran's Projected Market Share Appendix 3: Summary Balance Sheets 1972-1977 Appendix 4: Summary Profit and Loss Statements 1972-1977 25. Prime Movers (Engines) for On-Site Power Generation Appendix 1: Financial and Economic Calculations Appendix 2: Summary Balance Sheets 1972-78 Appendix 3: Summary Profit and Loss Statements 1972-78 26. Transverse Section Tomographic Scanner Appendix 1: Financial and Ecomomic Calculations Appendix 2: Surmary Consolidated Balance Sheets 1972-1976 Appendix 3: Summary Consolidated Profit and Loss Statements 1972-76 27. Projections of R&D Expenditures 28. Functions of the Office of Chief Scientist Appendix 1: Industrial Research Administration - Board of Directors as of October 31, 1974 Appendix 2: Office of Chief Scientist - Research Committee as of October 31, 1974 29. Office of Chief Scientist: Organization Chart as of October 31, 1974 30. R&D Component: Schedule of Estimated Quarterly Disbursements 31. ISRAEL: Education and Training System 32. ISRAEL: Ministry of Labor - Structure of Vocational Training Department, 1974 33. ISRAEL: Population by Age Group and Enrollment by Educational Level, 1973 34. ISRAEL: National Expenditure on Education FY1963-72 35. ISRAEL: National Expenditure on Education by Agency and Type of Expenditure FY1972 36. ISRAEL: Projection of Employment by Sectors 1970-1985 37. ISRAEL: Estimated Requirements of Middle and High Level Technicians 1970-1985 38. ISRAEL: Estimated Output of Project Institutions in 1980 39. Project Costs by Type of Expenditure 40. Contingency Allowances 41. Estimated Recurrent Expenditure for the Project Institutions 42. Vocational/Technical Component: Estimated Disbursement Schedule 43. Implementation Schedule Map of Israel IBRD No. 11483  - a - BASIC DATA A. INDUSTRIAL DEVELOPMENT BANK OF ISRAEL LIMITED Year of Establishment: 1957 Ownership (as of October 31, 1974) IL (OO) Percent Ordinary A (voting) Shares Government 3,925 26.0 Private domestic 9,775 614.7 Foreign 1 400oo 9.3 Sub-total 15,100 100.0 Non-Voting Shares Government 189,718 52.7 Private domestic 2,106 o.6 Foreign 79,839 22.2 Mixed 1/ 88 279 24.5 Sub-total 359,939 100.0 Total 375,039 Resources Position (as of September 30, 1973) (IL million) Domestic Currency Equity 5D3 9 Perpetual deposit 467.0 Long-tenn debt 323.0 1,293.9 Foreign Currency IBUD loans ($38.8 million) 162.5 Capital notes 71 .4 Other long-term debts 832.5 1,066.h Total resources 2,360.3 Loans outstanding 2,009.2 Equity investments outstanding .5 Sub sidiaries 1.5.1 2,028.8 Resources available for disbursement 331.5 1/ Entities owrned jointly by dorrestic and foreign shareholders.  -b - Jan. - Sept. 1971 1972 1973 197h