Morocco - Integrated Small Scale Industry Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-2499-MOR REPORT AND RECOMMENDATION OF TEE PRESIDENT OF THE IIITERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE KINGDOM OF MOROCCO FOR AN INTEGRATED PROJECT FOR SMALL SCALE INDUSTRY DEVELOPMENT March 28, 1979 This document has a restricted distribution and may be used by recipients only in the performance of | thelr official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Currency Equivalents US$1.00 = DH 4.00 (Average 1978) DH 1.00 - .25 US$ Fiscal Year January 1 - December 31 GLOSSARY OF ABBREVIATIONS BCP Banque Centrale Populaire BNDE Banque Nationale pour le Developpement Economique CIH Credit Immobilier et H6telier CIOR Cimenterie de l'Oriental EEC European Economic Community OCP Office Cherifien des Phosphates ODI Office pour le Developpement Industriel ssi Small Scale Industry  FOR OFFICIAL USE ONLY KINGDOM OF MOROCCO INTEGRATED PROJECT FOR SMALL SCALE INDUSTRY DEVELOPMENT LOAN AND PROJECT SUMMARY Borrower: Kingdom of Morocco Loan Amount: US$25.0 million Terms: 15 years including four years of grace at an interest rate of 7 percent per annum. Relending Terms: Proceeds of the loan would be re-lent by the Government to Banque Nationale pour le Developpement Economique (BNDE) and commercial banks for re-lending to small industries at 8 or 9 percent per annum depending on sub- loan maturity. The foreign exchange risk would be borne by the Government. Project Description: The project consists of a two-year slice of a Government program to assist small and labor intensive industries through policies and technical, managerial and financial assistance. Objectives of the program are, for the short term, to create employment at low cost and improve the balance of payments, and for the long term, to foster opportunities for entrepreneurship, stimulate a better integration of the manufacturing sector and develop the industrial base in less developed regions of the coun- try. The lending component of the project is expected to provide assistance to over 200 firms. At least 5000 jobs would be created directly at an average cost of about $8000 per job, or about one third of the average cost per job created in the manufacturing sector during the Third Plan (1973-77). The main project risk would result from the novelty of the technical and financial assistance schemes and the need to coordinate activities of many participating institutions, and close supervi- sion will be required during the start-up of the project. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Estimated Costs: --- $ million --------- Local Foreign Total - Lending component 19.6 24.0 43.6 - Project identification and promotional activities 0.5 0.5 1.0 - Technical assistance to small firms 1.0 0.5 1.5 TOTAL 21.1 25.0 46.1 Financing Plan: --------- $ million --------- Local Foreign Total - Bank loan - 25.0 25.0 - Government contribution 1.5 - 1.5 - Financial Institutions 9.8 - 9.8 - Beneficiaries 9.8 - 9.8 TOTAL 21.1 25.0 46.1 Estimated Disbursements: ----------- $ million ------------ Bank FY 1980 1981 1982 1983 Annual 5.5 7.5 7.5 4.5 Cumulative 5.5 13.0 20.5 25.0 Staff Appraisal Report: Report No. 2365-MOR dated March 26, 1979  REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE KINGDOM OF MOROCCO FOR AN INTEGRATED PROJECT FOR SMALL SCALE INDUSTRY DEVELOPMENT 1. I F-bmit the following report and recommendation on a proposed loan to the Kingdom of Morocco for the equivalent of US$25 million to finance a pro- posed integrated project for small scale industry development. The loan would have a term of 15 years, including 4 years of grace, with interest at 7 percent per annum. A portion of the proceeds of the loan would be re-lent to project beneficiaries through financial intermediaries for up to 12 years, including 3 years of grace, with interest at prevailing rates for industry in Morocco. PART I - THE ECONOMY 1/ 2. A report entitled "Country Economic Memorandum on Morocco" (1473-MOR) was distributed to the Executive Directors in June 1977. An economic mission which visited Morocco in February/March 1978 was followed by a basic economic mission in November 1978. A basic economic report is under preparation; preliminary findings and conclusions of these missions are reflected in the following paragraphs. Country Data Sheets are attached as Annex I. Recent Developments 3. In 1977, Morocco completed the return towards a constitutional mon- archy. Having marshalled a strong national consensus over the Western Sahara issue, King Hassan II called municipal, provincial and national elections between November 1976 and April 1977. Opposition parties with platforms stressing social reform scored strongly in municipal elections in the larger cities, while at the provincial level, rural constituents supported Government candidates, who eventually obtained a majority of 141 seats out of 264 in the National Assembly. With the new Government formed in October 1977, both the Istiqlal party which had been in the opposition since 1963, and the Mouvement Populaire whose main support is in the Berber population returned to political responsibility. The new Cabinet was appointed with the mandate to prepare and implement economic austerity measures, the first of which were introduced in the 1978 Budget Law, and to pursue the social development objectives set out in the 1973-77 Development Plan. 4. Morocco's economic and financial situation became increasingly unbalanced towards the end of the 1973-77 Plan. Rapid growth of investments and imports, carried over from 1974-75 when phosphate export revenues reached an all-time high, did not slow down despite some Government restrictions, while the world demand for Morocco's main exports, especially phosphate, recovered only moderately. At the same time, efforts to increase budgetary savings were insufficient to meet the continued increase in investment and military expenditures. As a result, in 1977 Morocco faced again a large 1/ This Part is identical to paragraphs 2 to 16 of the President's Report on a Loan for the Fourth Education Project.  - 2 - resource gap (21 percent of GDP) and overall budget deficit (19 percent of GDP). To cover these, it sharply increased external borrowing to $1.9 billion (commitments), from $909 million in 1976 and $780 million in 1975; most were from commercial sources. Despite these borrowings, the country's net foreign assets stayed at a low level (1.2 months of 1977 imports by year's end). On the domestic side, external borrowings fueled monetary expansion which remained rapid in 1977; consumer prices rose 12.5 percent over 1976 compared to about 8 percent in the previous two years. 5. By and large, the new Government has succeeded in regaining control over the excessive increases in investment and external borrowing experienced towards the end of the 1973-77 Plan. Investment has since been reduced by an estimated 25 percent in real terms, and so has external borrowing which at $1.3 billion of new commitments was, however, still large and mostly on commercial terms. The Government has achieved these improvements through budgetary austerity, including severe cuts in public investment, restraint in current spending and some tax increases; it applied selective import restrictions and controls on private credit preserving as much as possible the growth momentum of private sector output and exports. A good agricultural crop in 1978 helped sustain growth, despite a sharp decline in construction activity largely resulting from cuts in public investment plans; overall, GDP grew by an estimated 4 percent in real terms in 1978. 6. The Government will have to pursue austerity policies for a while, considering the continued excessive resource gaps and low exports and savings which cannot be increased quickly for reasons largely beyond the Government's control. Instead of the 1978-82 Plan, the Government has introduced a three- year interim plan (1978-80) which was approved by Parliament in December 1978, together with the 1979 Budget Law. Its main objectives are to further reduce the budget and current balance of payments deficits, and to concentrate avail- able resources (after meeting defense requirements) on productive projects and the neediest population groups. Implementation of major public projects not meeting these criteria has been postponed, while the measures designed to preserve growth in the private sector have been strengthened. Recently, the Government agreed with the IMF on a short-term financial rehabilitation program for 1979. This program calls for continued limitation of budgetary expenditures, domestic credit expansion and new external borrowing, while maintaining selective import restrictions and credit controls favoring produc- tive private activities. It is aimed at reducing the overall budget deficit by 15 percent, and narrowing the current balance of payments deficit by more than 30 percent. Assuming harvests are equal to those of 1978 and phosphate exports increase by 6 percent in quantity and 7 percent in value, real GDP growth in 1979 again may still not exceed 4 percent. Gross official reserves would stay around 1.5 months of imports. 7. While the interim measures may be effective in re-balancing the economy, because of the short-term constraints on exports and savings, they might cause a rise in social pressures. The Government is therefore anxious to resume the more dynamic social policy stance which characterized Moroccan development during the 1973-77 Plan. Preparation of the 1981-85 Plan has begun and attention is being given to long-term reforms which are needed if an early resumption of more rapid economic and social progress is to be achieved.  - 3 - Economic Development Issues and Prospects 8. Bank projections summarized in Annex I reflect the Government's keen concern to avoid a liquidity crisis in the next two to three years. They assume sharp policy adjustments to keep the economy on a financially viable growth path over the long run, but also reflect the desiue to maintain adequate GDP and employment growth during the interim period, and to achieve further progress towards the country's social objectives. The projections show that investment and GDP growth will have to be curtailed for the next two to three years, given the constraints on savings and exports. In this period, Morocco will need substantial capital transfers from abroad on terms as favorable as possible to sustain the project investment and GDP growth. Beyond 1982, export prospects should enable Morocco to resume more rapid growth of investments, output and employment while progressively reducing the relative burden of debt and debt service. 9. Following the large windfalls in foreign exchange and domestic sav- ings caused by high phosphate prices in 1974-75, the investment target was raised to meet cost increases, permit some real expansion of original invest- ment programs, and undertake large capital-intensive projects geared to import substitution (in particular sugar, chemicals, shipping and steel). Thus the GDP growth target for 1973-77 was nearly met, and investment rose to nearly 32 percent of GDP in 1977 from less than 14 percent in 1972. In the process, Morocco built up its capacity to prepare and implement projects not only in traditional sectors such as irrigation, import-substitution industries and physical infrastructure, but also in new and more difficult sectors such as rainfed and small-scale agriculture, export industries, and socially-oriented programs. There is little doubt that Morocco can achieve the investment levels assumed in the Bank projections, the main constraints being domestic savings and foreign exchange availability. 10. Domestic savings have been falling in relation to GDP after the brief increase during the phosphate windfall years, mainly due to low public savings of only 4.7 percent of GDP in 1977. Successful efforts to raise public revenues to 28 percent of GDP in 1977 were offset by increases in current spending, partly for education and health, but particularly for price subsidies and military expenses. Tax reform measures (which are being prepared with IMF assistance) and unpopular price policy decisions, such as reduction of subsidies to urban consumers, farmers and industrial investors, will be required to increase public savings. Interest rate adjustments to reflect changes in the rate of domestic price inflation would also be called for. 11. During the 1973-77 Plan period, exports rose by less than 2 percent p.a. in real terms (the Plan target was 10 percent). This lackluster per- formance was largely due to weak external demand for Morocco's main export products since 1974, especially phosphate, other minerals and agricultural products. Moreover, with some exceptions, such as textiles, export produc- tion and marketing efforts were not sufficient, and new markets were not aggressively sought; Morocco continued to depend on demand from the EEC, especially France. Yet, it has considerable export potential if only products  - 4 - and markets were diversified. Export programs are now under preparation particularly for phosphate and its derivatives, fresh and processed food- stuffs, and tourism. With regard to phosphate, for example, Morocco and the USSR signed agreements in March 1978 under which Morocco will export phosphate rock and phosphoric acid for the next 30 years for possibly up to 10 million tons per year by 1985-86; in return, the USSR will lend Morocco up to $2 billion on favorable terms to develop its phosphate export capacity and will export various commodities and goods to Morocco, including crude oil. These agreements substantially improve Morocco's long-term prospects for phosphate exports. 12. While the emphasis on completion of high-return projects will have to continue, Morocco should shift away from highly capital-intensive, import substitution investments, as well as from some ambitious programs for phys- ical infrastructure. This would call for improvements in policy planning and investment programming. Consultants are currently completing a major study on industrial investment strategy, which should facilitate better investment selection. A changed investment pattern should reduce the external resource gap, and also contribute to higher growth and employment at lower investment and import costs than in recent years. Social Development Strategy 13. Comparatively slow economic growth and employment creation up to the early 1970's were accompanied by widening income disparities and a decline in real consumption for the weaker sections of Morocco's population. As a major objective, the 1973-77 Plan set out to reverse these trends. The Government's strategy since 1973 has emphasized: (i) acceleration of employment creation; (ii) measures aimed at reducing income disparities; and (iii) specific investment programs to benefit the least favored population groups. 14. Progress has been made towards these objectives, as witnessed by the increased expenditures for social sectors (from DH 1.3 billion in 1972 to DH 3.7 billion in 1977). However, the institutions created to meet social sector objectives are in many cases still fragile. Understaffing, weak policy analysis and inadequate program formulation are common. As a result, public programs to improve productivity, collective amenities and social services are reaching relatively small proportions of the population, especially in rural areas. In addition, during the period of financial stringency ahead, Morocco will not be able to sustain the current level of expenditures in socially-oriented sectors, and cuts have been made as part of the measures to re-balance the economy. 15. With the population growth rate now at about 3 percent, pressure to provide adequate social services will rise. Despite short-term financial constraints, efforts will be needed to limit such growth. Consequently, strengthening health and family planning services is now an integral part of the Government's social objectives.  - 5- External Debt and Debt Service 16. Morocco sharply increased external borrowings after 1973 (para. 4). Nearly all of the increase came from Arab and commercial sources. With a hardening of terms on new commitments, average maturity dropped from 19 to 10 years and a-~rage interest rose from 5 to 7.5 percent between 1974 and 1977. Morocco also drew on the IMF automatic credit facilities in early 1976, and obtained about $70 million in IMF compensatory financing in August 1978. From the low levels in 1974-75, Morocco's external debt has risen rapidly to an estimated $4.0 billion (disbursed only) at the end of 1978, and in that year debt service amounted to $481 million (18 percent of exports and workers' remittances). As a result of recent and projected borrowings, debt and debt service may be expected to increase further, and debt service may exceed 25 percent of exports and workers' remittances by 1980-82, and decline progres- sively thereafter. The country's net foreign assets would remain at a rela- tively low level. Because of the expected upswing in debt service, external debt management has become more restrictive and selective since 1978. If debt service is to stay manageable, Morocco will have to continue this policy over the next few years. Additional commercial borrowing should be limited, and efforts should be increased to seek loans on softer terms. Yet, external borrowing needs would be sizeable. Beyond 1980-82, however, the situation should progressively improve with the Government firmly controlling domestic demand and with good long-term prospects for exports and, in particular, with assured sales of phosphate rock and derivatives. Morocco should therefore be considered creditworthy for further Bank lending. PART II - BANK GROUP OPERATIONS IN MOROCCO 17. Bank and IDA lending to Morocco has supported 38 projects, financ- ing a total of $918.9 million (net of cancellations), of which $755 million has been lent since the beginning of FY73. IDA credits, totalling $50.0 mil- lion, have been made available for five projects. A Third Window loan for $25 million for the third education project was approved in March 1976. IFC investments have amounted to $12.6 million ($10.5 million after cancellations, terminations, repayments and sales). Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of February 28, 1979, and notes on the execution of ongoing IBRD/IDA projects. In some cases, delays in project implementation have been caused by management or procurement difficulties, and in 1974 cost overruns increased due to the upsurge in investment activity in Morocco and the acceleration of inflation. Overall performance in project execution, however, has considerably improved in recent years. Total disbursements as of December 31, 1978, amounted to 72 percent of original appraisal forecasts and to 75 percent of revised forecasts. 18. Past Bank Group lending has been concentrated in the agricultural and industrial sectors, which have accounted for 32 and 34 percent respec- tively of total net commitments; the balance is represented by utilities (18 percent), tourism (8 percent), roads (5 percent), education (4 percent) and urban development (2 percent). Apart from the transfer of resources to  -6- Morocco (Bank Group gross disbursements amounted to 5.5 percent of total fixed investment in 1970-74), the main objectives of lending were to foster and strengthen development institutions, provide technical assistance especially for project preparation, and increase productive capacity, in order to improve the balance of payments. 19. While these objectives remain, greater emphasis is being given to prepare projects that support the Government's policy of fostering social development and improving income distribution. An increasing share of Bank Group lending will be devoted to projects directly or indirectly developing the productive capacity of the lowest urban and rural income groups and meeting their basic needs, including, possibly, Bank participation in the Government's program for promoting integrated regional development, which is under discussion. 20. Past lending for agriculture has supported irrigation development, credit and, through a first operation in FY75, improvement in the produc- tivity of rainfed farming. Continued selective lending for irrigation is envisaged but emphasis will be increasingly given to support small farmers and the development of rainfed areas. The Fez-Karia-Tissa Agriculture Proj- ect, approved in June 1978 was the second, after the Meknes Project (Credit 555-MOR) to directly address these objectives. An integrated rural develop- ment project, including livestock/forestry development, is under preparation in a rainfed zone in northern Morocco, as are projects aimed at extending agricultural credit to farmers and at developing production, marketing and processing of vegetables on small holdings. A Government program for pro- moting integrated regional development is also under discussion. 21. Projects in industry and tourism have had as key objectives increased foreign exchange earnings or savings and the improvement of sectoral policies, which have taken on increased importance in view of the country's short-term resource constraints. The eighth loan to Banque Nationale pour le Developpe- ment Economique (BNDE) which was approved in 1977, included a pilot small- scale industry component to promote labor intensive investments. The present project follows up on this pilot effort. The loan to Maroc Phosphore made in 1978 will help increase Morocco's foreign exchange earnings. Continued lending for industry through the BNDE is contemplated as well as further lending to Credit Immobilier et Hotelier (CIH) for tourism development. 22. Previous lending for utilities has consisted of a loan for potable water supply, two loans for power and one engineering loan for the preparation of a sewerage project for Casablanca. A follow up project for water supply and distribution in urban centers, including distribution to low income urban consumers, is under preparation, as are a sewerage project in Agadir and a village electrification project. 23. Education continues to need attention to ensure Morocco's manpower development. Two credits and a loan have been made to develop secondary education and teacher training, to improve technical and vocational training,  and to expand facilities in rural areas. A fourth project with emphasis on technical education has been recently negotiated. 24. The recently approved Rabat project was the first Bank-financed project in the urban sector. Follow up projects are under consideration to support the Government's program for slum upgrading and urban deielopment through the provision of basic infrastructure, housing and social services and the creation of employment opportunities. 25. Loan commitments from multilateral and bilateral official sources to Morocco rose from $221 million in 1975 to $296 million in 1976, and dropped from $831 million in 1977 to $370 million in 1978. Major sources of aid were France, Saudi Arabia, the UAE, the U.S., Germany and the Bank Group. At the end of 1978, the Bank Group's share in Morocco's outstanding and disbursed external public debt was 11.2 percent. The share of the Bank Group in debt service was 24 percent in 1976 and declined to 18 percent in 1977, and 9.5 percent in 1978. By 1983 the Bank Group's shares in debt outstanding and in debt service are expected to be about 25 percent and 12 percent respectively. PART III - SECTORAL BACKGROUND Manufacturing 26. Despite increasing growth rates during the last decade, the share of the manufacturing sector in GDP and employment (respectively 16 percent and 11 percent in 1977) remains modest. Value added by manufacturing grew at an average annual rate of 4.0 percent during the twelve years following Independence (1956-68), 5.4 percent during the period of the Second Plan (1968-72) and 7.2 percent during the period of the Third Plan (1973-77). Output of the sector still mainly meets demand for consumer goods and con- struction materials; growth since 1966 has been led by the food processing, motor vehicle assembly, textile, leather and construction material subsectors. Exports of manufactured products grew at about 10 percent per annum in real terms over the past decade to reach in 1977, 24 percent of total exports, 10 percent of total manufacturing output and 13 percent of imports of manufac- tured products. This increase has not been sufficient to offset the surge in imported inputs. Manufacturing industries are concentrated along the Casablanca-Rabat-Kenitra axis (75 percent of workers; 54 percent in Casablanca alone). But Government policies aimed at regional decentralization, mostly through public investment, begin to show results. 27. Investment in manufacturing during the Third Plan totalled DH 6.5 billion as compared to DH 1.9 billion for the previous Plan. This jump was the result of a favorable investment climate following a new Investment Code in 1973 and implementation of large public sector projects. The share of foreign investment in total investment in the sector was minimal mainly because of the "Moroccanization" laws enacted in 1973 which made it man- datory for most industrial and commercial firms to be at least 50 percent owned by Moroccan nationals. Total estimated cost of private manufacturing  - 8 - projects approved under the provisions of the Investment Code rose steadily from DH 887 million in 1973 to DH 2,529 million in 1977, while public invest- ment on a commitment basis soared from DH 90 million to DH 2,616 million in 1976, but decreased to DH 290 million in 1977. The peak reached in 1976 was the result of the Government's decision to use increased resources from phosphate sales to accelerate the pace of industrialization through invest- ment in basic industries. The decrease in phosphate prices did not allow the Government to continue this policy in 1977. While the sharp increase in public investment during the first four years of the Plan period has fostered private investor confidence, its sharp decline in 1977 did not visibly affect the growth pattern of private investment. 28. The number of jobs created in the manufacturing sector during the Third Plan amounted to 75,000 as compared to 30,000 during the previous Plan. The average cost per job was high at about DH 60,000 during the Second Plan and increased to about DH 90,000 during the Third Plan. This largely reflects the Government's then prevailing policy to invest in basic industries and to induce capital intensive investment through low interest rates, tax deductions on investments and custom duty exemptions on imported equipment. 29. In 1976, the Government recognized the need to adopt a more aggres- sive strategy for industrial development and hired consultants to prepare investment proposals. The consultants showed that the Government should promote industrial development in sectors other than import substitution for consumer goods, while maintaining the share of industry in total employment generation. The sectoral program for industry in the Three-Year Plan (1978- 80) emphasizes the need to promote (i) export industries using locally pro- duced raw materials or cheap labor; (ii) industries producing intermediate and capital goods for efficient import substitution; and (iii) small-scale industries which could create employment at low cost and realize the potential of backward and forward linkages with large and medium industries. Measures under consideration to implement this strategy include: a revision of the investment code to favor labor intensive and selected industries in specific sectors; assistance for export-oriented industries; a technical assistance scheme for small industries; and the expansion of vocational training programs. Small-scale Industries 30. The new emphasis on small-scale industries follows years of neglect. Government policies have long favored large industries and handicrafts - defined as activities for producing specific artistic goods with investment per job of less than DH 5000 -, while small industries were largely ignored despite their importance for the economy. According to the 1976 industrial census, 3200 firms with 5 to 50 workers accounted for 23 percent of employ- ment and 21 percent of value added in manufacturing, their majority in food processing, textile and leather products and metal working. A comparison of the 1969 and 1976 industrial censuses indicates that value added by small industries increased by 2.5 percent per annum, employment by 2.1 percent and productivity by 0.4 percent. These figures, by not taking into account those firms which, because of their dynamism, became medium size firms during the  - 9 - period under consideration, fail to give an adequate picture of the subsector. However, they point to a relatively slow growth of small industries in the past and the need to impart greater impetus to a vital subsector of the economy. A better assessment of the present situation and growth potential of small industries can be obtained from the 1977 survey financed by Banque Nationale po-r le Developpement Economique (BNDE). This survey of some 122 firms showed that overall, labor productivity was low due to outdated machinery, deficient production planning and inability to attract skilled workers. In spite of this, a number of small industries have proved suc- cessful in tapping specific markets, including abroad. The firms surveyed exported 30 percent of their output as compared to 10 percent for the sector as a whole. About 60 percent of the small industries surveyed had good prospects for growth, if provided with adequate technical, managerial and financial assistance. The remaining 40 percent would likely stagnate, mostly because of passive and untrained management. 31. While handicrafts receive substantial Government support through a special and generous investment code, training programs for apprentices and marketing promotion, similar assistance is not available to small industries. Among the limited number of those aware of the incentives provided by the 1973 investment code for industry, only a few are in a position to benefit from them. Since they do not import their equipment, the majority does not qualify for rebates on import duties, or cannot make use of tax holidays since they do not keep adequate accounts. The Financial System and Small Industry Financing 32. Morocco has a well developed financial sector including Banque du Maroc (the Central Bank), fifteen commercial banks, five specialized institu- tions, including BNDE, the industrial development bank, and two saving banks. Commercial banks are efficient and have a good record of profitability. Sight deposits represent more than two-thirds of their consolidated resources, the average cost of which is a low 2 to 2.5 percent. Short-term loans account for about 90 percent of their lending activity. It is estimated that up to 30 percent of these loans finance fixed assets. The practice of financing investment through short-term loans is more costly than through rediscountable medium-term loans (interest rate of 10.5-11 percent p.a. instead of 8 percent p.a.). In spite of this, short-term financing of investment is widespread, mostly because small enterprises are reluctant to apply for medium-term loans or their inability to meet stringent down payment and collateral requirements. Medium-term loans to industry may be rediscounted with Banque du Maroc only if appraised and guaranteed by BNDE under a complex procedure. To facilitate access of small and medium enterprises to such medium-term loans, simplified procedures were introduced in 1973. However, procedures remain complex, involve lengthy delays and require full collateral. Only few small industries have been able to benefit. 33. BNDE was established in 1959 and received its first Bank loan in 1962. Since then it has obtained eight loans totalling $185 million. It is now a mature and well-managed institution. The latest IBRD audit report on BNDE (OED-817) was distributed to the Executive Directors in 1975 and an  - 10 - Appraisal Report on the Eighth Loan to BNDE was distributed in April 1977 (1505a-MOR). Operationally, BNDE has performed well, and the quality of its appraisals has continued to improve. BNDE is the only source of long-term financing for industry and plays a key role in the distribution of medium- term loans by commercial banks to the sector. Its activities have tradi- tionally been oriented towards larger industries. Only recently it became more directly involved in assisting small industries through the preparation and implementation of the small scale industry pilot project under the eighth loan it received from the Bank. The $5 million earmarked for this purpose under the loan will refinance BNDE's participation in small industries' equity ($0.3 million), BNDE's direct loans to small industries ($1.7 million) and for the remaining part, medium-term loans to small industries through Banque Centrale Populaire (BCP), the largest commercial bank in Morocco. The pilot project had a slow start but commitments have recently picked up, and the credit line will be entirely committed by July 1979. The sectoral survey prepared by BNDE's consultants and the experience gained in implementing the pilot project helped in the design of the proposed project. 34. Interest rates are established by the Government. Sight deposits yield no interest, while term deposits yield up to 8 percent to encourage savings. Lending rates range from a minimum of 4.5 percent for some short-term rediscountable loans to a maximum of 11 percent for medium non- rediscountable and long-term loans. Medium-term rediscountable loans, which are screened on their economic merits by specialized financial insti- tution, carry a maximum rate of 8 percent. Interest rates on BNDE's loans are 10 percent p.a. for loans up to seven years and 11 percent for longer term loans plus about 1 percent for commission and fees. These rates are reduced by a budgetary rebate of two percent for industry and five percent for handicrafts. This rebate would not apply under the proposed project. Government Institutions in the Manufacturing Sector 35. The Government sets policies for the development of industry through its Ministry of Industry. It also participates directly in manufacturing activity. The Office Cherifien des Phosphates (OCP) is responsible for mining, processing and export of phosphates and derivatives, which has been reserved to the public sector because of its importance to the economy. Established in 1973 under the supervision of the Ministry of Industry, the Industrial Development Office (ODI) is responsible for industrial promotion activities. ODI undertakes pre-investment studies, acquires equity shares in new industrial enterprises, and aims at contributing to regional development and local participation in manufacturing. Since its inception, ODI has prepared or supervised fifty sectoral or project studies which have led to the establishment of 14 industrial firms. Some of them have shown poor results, mainly due to wrong conception. Others are operating satisfactorily, among them the CIOR cement plant which was financed with the help of the Bank. The Government's new policy to rely more on the private sector and less on direct public investment for industrial development is echoed in ODI's guidelines calling for more promotional activities to stimulate foreign and domestic investment while discouraging direct participation by ODI in industrial ventures.  - 11 - PART IV - THE PROJECT Project History 36. The proposed project was identified by a Bank missior in April 1978. An interministerial committee was established to prepare the project taking into account the recommendations of the mission and the conclusions of the BNDE-financed survey of small industries (para. 30); its proposals were reviewed in June 1978 by a Bank mission which agreed with the Government on the basic project design and institutional requirements. Before appraisal of the project in October/November 1978, a unit responsible for formulating policies for small industry development was established in the Ministry of Industry and another unit responsible for providing technical and managerial assistance to small industries in ODI. Negotiations took place in Washington from March 19 to 23, 1979. The Moroccan delegation was led by Mr. Belkoura of the Prime Minister's Office and included representatives of all agencies participating in the project. A Staff Appraisal Report entitled "Integrated Project for Small Scale Industry Development" (No. 2365-MOR dated March 26, 1979) is being circulated separately to the Executive Directors. The main features of the loan and project are listed in the Loan and Project Summary and in Annex III. Project Objectives 37. Recognizing the economic potential and social importance of promot- ing the growth of the small industry subsector, the relative scarcity of financing available to it and the deficiencies in institutional support, the Government has decided to launch a comprehensive program of assistance to small industries. The proposed project would consist of the first two-year tranche of this program. It would entail a major institution building effort, already initiated during project preparation both in the Government and the banking system where BNDE will play a key role in view of its long and credit- able record in industrial lending. 38. The Government's present interest in small industry development following years of neglect springs from both short and longer term considera- tions. The immediate objectives of the Government are to create employment at low cost and increase exports. Because they provide employment at lower cost and absorb more labor per unit of output than the average producer in the manufacturing sector, small industries in Morocco are well suited to implement these objectives. Objectives for the longer term in promoting small industry development are to (i) foster opportunities for entrepreneur- ship, particularly for skilled immigrant workers returning from abroad; (ii) stimulate the establishment of a better integrated industrial sector by expanding linkages between small and large firms; and (iii) develop an industrial base in less developed regions of the country.  - 12 - Project Beneficiaries 39. The main beneficiaries of the proposed project would be small manufacturing firms capable of generating employment at low cost. Small construction and mechanical repair firms would also benefit from the project, as would larger firms, if labor intensive or located in less developed regions. The two criteria for eligibility under the project are their net assets excluding land after investment and the cost per job created or maintained. Figures are expressed in 1978 prices and would be adjusted at regular intervals to take account of price variations for investment expendi- tures (Schedule 4 of draft Loan Agreement). Three categories of firms have been selected on the basis of these criteria: (i) very small firms with net assets after expansion of less than DH 500,000; (ii) small firms with net assets after expansion ranging from DH 500,000 to DH 2,500,000; and (iii) medium firms with net assets after expansion of less than DH 5 million. As a general rule, the cost per job created or maintained should not exceed DH 40,000 ($10,000). However, this ceiling would be DH 50,000 for industries in the electrical and mechanical subsectors to take account of their higher average cost per job. To discourage further concentration of investment in the Casablanca- Mohammedia region, ceilings for medium firms located there would be DH 5,000 lower. The ceilings for cost per job have been set at levels low enough to limit assistance under the project to labor intensive firms hitherto unable to benefit from existing credit facilities. The eli- gibility criteria would be reviewed during project implementation and modified if they prove too stringent. Government Program to Assist Small Industries 40. The three main components of the Government's program for assisting small industries are (i) a policy-making unit to analyze the requirements of small industry and formulate policies for its development; (ii) technical and management assistance to small industries through the constitution of a special team; and (iii) a financial assistance scheme, including a guarantee mechanism. 41. The policy-making unit was established in October 1978, and a compe- tent director nominated under the direct supervision of the Director General of Industry in the Ministry of Industry. Its terms of reference are to pro- pose and supervise studies of the subsector, propose administrative measures or policy changes in favor of small industry, review the effectiveness of regulations and more generally, channel information to and from SSI's and ensure that small industries are aware of the advantages provided to them. 42. The technical assistance unit was established within ODI in Septem- ber 1978 to identify and prepare projects, advise entrepreneurs in the selec- tion and procurement of equipment and assist them in identifying and solving production and management problems, in preparing requests for financing and in locating marketing opportunities. Some of these activities would be conducted in cooperation with commercial banks and specialized institutions,  - 13 - in particular the Moroccan Training Institute for Business (ISCAE). The unit started operating in ODI headquarters in Rabat and would concentrate its activities, at least initially, in selected areas. The services of the unit would be sought at the request of the firms concerned or their bankers but its assessment of sub-projects would be required in the approval of all sub-loans (para. 45). Xt present, the staff of this unit comprises five professionals. By mid-1979, the unit should have nine professionals and by end-1979, twelve, including four expatriates who would be financed from the proposed loan (para. 44). The work program and staffing arrangements of the unit would be reviewed periodically in consultation with the Bank (Section 3.08 draft Loan Agreement). The Moroccan professionals will be financed out of ODI's current budget, but the unit should increasingly charge for its services and eventually become partially self-financed. 43. The financial assistance scheme would involve commercial banks and BNDE and include a guarantee mechanism. Interested commercial banks have been requested to program their activities in support of small industry development as a condition of participation in the scheme. Procedures for loan appraisal and approval would follow a pattern based on the existing rediscounting proce- dure (para. 32) but considerably simplified. Participation in the guarantee mechanism would facilitate access to credit by small industries without readily available collateral and eliminate lengthy procedure required at present for mortgage registration. Proposed Project and Bank Loan 44. The proposed project would help finance the first two years of a long-run Government program of assistance to small industries. It would cover (i) investments made by small industries and financed through the new scheme; (ii) the technical assistance program to be carried out by ODI; and (iii) discrete promotional activities for the benefit of small industries and fi- nanced on a reimbursable basis. The proposed Bank loan would be made to the Government of Morocco and would finance the estimated foreign exchange cost of the project. $24 million of the Bank loan would be re-lent to small indus- tries. The remaining portion of $1 million would finance the foreign exchange cost of promotional activities ($0.5 million) and the cost of foreign experts for the technical assistance unit ($0.5 million). If financing of these experts is later secured from other sources, the $0.5 million would be added to the lending component of the project. As some of the sub-projects are expected to have maturities of up to 12 years, and may be approved up to the end of the commitment period, the Bank loan would be repaid over a period of 15 years including 4 years of grace (expected period to complete disburse- ments). A fixed amortization schedule would be used for repayment of the proposed loan due to the large number of sub-projects involved. Investments financed under the proposed loan would represent one third to one half of total investment in small industry during the same period. Half of the lending component ($12 million) would be directed to small firms as defined in para. 39 above; the remaining half would be equally divided among the very small and medium firms ($6 million each). This allocation would be reviewed from time to time.  - 14 - Appraisal and Approval Procedures under the Lending Component 45. The proceeds of the loan would be re-lent by the Government to com- mercial banks and BNDE, which would in turn re-lend them to small industries. BNDE would have a double role under the project: that of a direct lender and of an agent of the Government in supervising the commercial banks and managing the funds re-lent to them. It would do so under a management agreement. To achieve the above tasks, BNDE recruited additional staff in its unit specially responsible for small industry financing. To safeguard the interest of com- mercial banks in the project, BNDE would limit its own re-lending to thirty percent of the lending component. Commercial banks willing to participate in the scheme and ready to commit sufficient resources to promote and appraise small industry projects would sign a standard convention with BNDE. This convention would spell out eligibility criteria and procedures for appraisal of sub-loans, disbursements and supervision. The proposed system should work smoothly considering the long standing association between BNDE and the com- mercial banks in extending medium term credits. Under the proposed project, the commercial banks, which are well staffed, have expressed their keen interest in drawing even further than in the past on BNDE's experience in industrial long-term lending, and welcome the advisory role that BNDE would play in the proposed lending scheme. The draft management agreement and standard convention were reviewed during loan negotiations. Signature of the agreement by the Government and BNDE and of the convention by BNDE and at least three commercial banks would be a condition of loan effectiveness (Section 6.01(a) and (b), draft Loan Agreement). Approval of sub-loans would be made by a Credit Committee on which the Ministries of Finance and Industry, Banque du Maroc, ODI and BNDE would be represented. The committee would also coordinate project implementation. Appointment of the members of the Credit Committee would be a condition of effectiveness for the loan (Section 6.01(d), draft Loan Agreement). 46. BNDE has agreed to develop simple standard forms for sub-loan appli- cations and a brochure describing conditions and appraisal procedures for sub-loans before end-July 1979 (Section 2.06, draft Project Agreement). The smaller the firms, the simpler the loan appraisal requirements and approval procedures would be. As a general rule, BNDE would screen all appraisal reports prepared by participating banks, and all loans would be approved by the Credit Committee which would meet every fortnight. A loan would be considered approved in the absence of objection during the period in which the committee would have met twice, after receipt by BNDE of the appraisal report. This would not apply to loans to medium firms. A free limit could be extended by the Credit Committee to participating banks in consultation with the Bank for loans to very small firms (amounting to less than $75,000). This would exempt banks from the necessity of both BNDE's review and the Credit Commit- tee's approval, and sub-loan applications would be sent to BNDE only for notification and disbursement (Schedule 4, draft Loan Agreement). Appraisals of loans to medium firms would include calculation of financial and economic rates of return and would be thoroughly reviewed by BNDE.  - 15 - Terms and Conditions of Sub-Loans 47. The terms of sub-loans would conform to the economic life of sub- projects with a maximum maturity of twelve years including three years of grace. Interest rates would be those prevailing under BNDE's loans to indus- try (Schedule 4, draft Loan Agreement). Interest rates paid by sub-borrowers would be 8 percent per annum for sub-loans with maturity up to v years and 9 percent per annum for sub-loans with maturity more than seven years. Commis- sion and taxes would add about 1 percent to these rates to which would be added a one-time guarantee fee of 1.25 to 3.25 percent (para. 49). Recent rates of inflation in Morocco have been 8.6 percent in 1976 and 12.5 percent in 1977; they are expected to average 9 percent through 1978-79 and decrease and stay at 7 percent thereafter. Onlending rates under the proposed project would therefore be slightly positive. The foreign exchange risk would be assumed by the Treasury, in line with the practice followed in Morocco for larger industrial enterprises. Commercial banks and BNDE would draw the proceeds of the proposed loan from the Treasury at a rate of two percent below the rate to be paid by sub-borrowers. This spread would be less than the average spread earned by commercial banks but has been judged acceptable by them in view of the potentially large clientele they could serve through the project. 48. The Bank loan would finance the foreign exchange cost of the sub- projects estimated to represent on average 60 percent of total sub-project cost excluding land. Sub-borrowers would provide 20 percent of sub-project cost. The remainder would be funded by the participating banks and would be rediscountable with Banque du Maroc. Guarantee Mechanism 49. The Caisse Centrale de Garantie, a government agency established for guaranteeing loans to contractors under Government sponsored projects which in the past has also guaranteed loans for property transfers under the Moroccanization process, would provide a guarantee of up to eighty percent of the outstanding amount of sub-loans under the project. The one-time guarantee fee payable by sub-borrowers (para. 47 above) would correspond to an annual charge of about 0.35 percent of the guaranteed amount. The guarantee would be approved at the same time as the sub-loan. The guarantee mechanism would facilitate access to institutional financing for small industries, which generally have insufficient collateral, and expedite sub-loan disbursements by not making them contingent upon completion of the lengthy process of mortgage validation. Draft guidelines governing the guarantee mechanism under the project were discussed during negotiations. These guidelines would be issued as a condition of effectiveness of the proposed loan (Sections 3.09 and 6.01(c), draft Loan Agreement). Procurement and Disbursement 50. Given the small size and cost of individual investment items, most of them will be directly purchased from suppliers. BNDE would develop a set of guidelines for procurement under the project in conformity with the  - 16 - Bank's recommended procedures (Section 2.06, draft Project Agreement). These guidelines would require sub-borrowers to obtain and submit price quotations from at least two suppliers or contractors in the majority of cases. Par- ticipating banks would be invited to describe procurement procedures to be used in their appraisal reports. Disbursements would in most cases be made directly by BNDE or commercial banks to the suppliers or contractors. Tech- nical assistance for promotional activities and building up ODI's small industry unit would be provided by experienced consultants. 51. The proposed Bank loan of $25 million is expected to be fully committed by December 1981 and fully disbursed by June 1983. Bank funds would finance up to 60 percent of the cost of each sub-project (including permanent working capital but excluding land), which represents an estimate of the average needs of foreign currency by SSI sub-projects in Morocco. Disbursements would be supported by standard documentation to be retained by commercial banks and BNDE and available for periodic review by Bank supervision missions. Bank disbursements to the borrower, or BNDE on its behalf, would be made against certified statements of expenditure issued by BNDE. Disbursements under the technical assistance and promotional activities components of the loan would reimburse 100 percent of fully documented foreign exchange expenditures. Supervision and Monitoring 52. Participating banks would prepare an annual supervision report on all their borrowers under the project. BNDE would consolidate these reports and prepare an analysis of investment activities by sub-sector, region and size of enterprise. BNDE's report together with an annual monitoring report prepared by the Ministry of Industry and a report prepared by ODI on tech- nical assistance activities would be reviewed by the Credit Committee which would assess the results achieved under the project and recommend adjustments to criteria and procedures as necessary (Section 3.05, draft Loan Agreement). Project Justification 53. The proposed project would be the first integrated small industry development program in Morocco. Its objectives are to ease and remove the main constraints to the development of small industries in Morocco: lack of specific policies tailored to their needs, insufficient access to institu- tional investment credit and working capital, and lack of technical and managerial assistance resulting in poor project conception. The project is expected to have significant social and economic effects in terms of: employment creation, development of technical and managerial skills, redis- tribution of income by class and region, encouragement of savings and invest- ment, and increase in quantity and quality of output and exportable goods. The lending component of the project would provide assistance to over 200 firms approximately distributed as follows: 135 to 150 smallest firms; 50 to 60 small firms; and 10 to 12 medium firms. At least 5,000 jobs would be created directly at an average cost of about $8,000 per job, or about one third of the average cost per job created in the manufacturing sector during the Third Plan (1973-77). Indirect employment generation has not been quantified, but it is expected to be high. Also, by increasing productivity  - 17 - and competitiveness in existing enterprises, jobs would be maintained that would otherwise be lost to larger and capital intensive units in the country, or to imports. 54. The major long-term result of the proposed project would be the building of i stitutions to support development of the small industry sector: a policy-making unit has been established in the Ministry of Industry and a technical assistance unit in ODI; commercial banks and BNDE would develop their capabilities of assisting small industries in investment financing. In addition, BNDE would reinforce its recently started promotional activities in favor of small industries and less developed areas. This institution-building is expected to pave the way for expanded operations to the benefit of small industries in Morocco. Project Risks 55. This project involves more risks than a standard loan to development finance companies in view of some of the project's features and the participa- tion of several institutions with limited experience in project appraisal and assistance to sub-borrowers. Delays in their start-up are possible and could affect the timely implementation of the project. To minimize this risk, a great effort has been made during project preparation to complete the legal arrangements, formulate detailed work programs, and train key officials for the new institutions. During project implementation, Bank staff would closely monitor the progress achieved by these institutions, particularly by the technical assistance unit, and provide all necessary assistance to adjust work programs as necessary. Another risk could be the reluctance of small entrepreneurs to avail themselves of the services provided by ODI's unit, for fear of Government intervention in their affairs. To minimize this risk, it has been agreed with ODI that at the beginning the new unit would concentrate its activities in selected areas and on firms where its assistance is most likely to bring about immediate and tangible results. PART V - LEGAL INSTRUMENTS AND AUTHORITY 56. The draft Loan Agreement between the Kingdom of Morocco and the Bank, the draft Project Agreement between the Bank and BNDE and the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement are being distributed to the Executive Directors separately. 57. Special conditions of the project are listed in Section III of Annex III. 58. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank.  - 18 - PART VI - RECOMMENDATION 59. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President by Ernest Stern Attachments March 28. 1979 Washington, D.C.  19 "~, MANEX I Page 1 of 6 TABLE 3A MOROCCO - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AVERAGES MOROCCO /a LAND AREA (THOUSAND SQ. RM.) - MOST RECENT ESTIMATE) TOTAL 659.9 /f SAME SAME NEXT HIGHER AGRICULTURAL 157.8 MUST RECENT GEOGRAPHIC INCOME INCOME 1960 lb 1970 /b ESTIMATE Lb REGION /c GROUP Ld GROUP /e CNP PER CAPITA (US$) 190.0 290.0 570.0 1438.5 432.3 867.2 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 148.0 180.0 274.0 816.7 251.7 578.3 POPULATION AND VITAL STATISTICS TOTAL POPULATION, MID-TEAR (MILLIONS) 11.6 14.8 17.7 URBAN POPULATION (PERCENT OF TOTAL) 29.3 32.2 39.5 45.8 24.2 46.2 POPULATION DENSITY PER SQ. KM. 26.0 33.0 39.0 tg 23.2 42.7 50.8 PER SQ. KM. AGRICULTURAL LAND 61.0 74.0 112.0 112.4 95.0 93.3 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 44.3 46.4 45.8 46.0 44.9 42.9 15-64 TRS. 51.7 51.1 51.6 50.6 52.8 53.5 65 YRS. AND ABOVE 4.0 2.5 2.6 3.3 3.0 3.5 POPULATION GROWTH RATE (PERCENT) TOTAL 2.6 2.4 2.4 2.9 2.7 2.5 URBAN 6.4 4.0 4.8 5.0 8.8 4.7 CRUDE BIRTH RATE (PER THOUSAND) 50.4 49.2 44.5 45.0 42.2 37.8 CRUDE DEATH RATE (PER THOUSAND) 24.2 18.5 13.4 13.7 12.4 10.8 GROSS REPRODUCTION RATE 3.4 /h 3.4 3.3 3.4 3.2 2.5 FAMILY PLANNING ACCEPTORS. ANNUAL (THOUSANDS) .. 25.1 68.0 USERS (PERCENT OF MARRIED WOMEN) .. 3.0 5.4 14.7 14.2 20.0 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1970-100) 118.7 100.0 86.0 107.1 104.3 107.3 PER CAPITA SUPPLY'OF CALORIES <PERCENT OF REQUIREMENTS) 90.0 102.0 108.0 99.2 99.5 105.3 PROTEINS (GRAMS PER DAY) 43.0 64.0 70.5 63.4 56.8 63.0 OF WHICH ANIMAL AND PULSE .. 14.0 A 15.6 16.4 17.5 21.7 CHILD (AGES 1-4) MORTALITY RATE .. .. .. .. 7.5 8.0 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 45.4 50.4 53.0 53.7 53.3 57.2 INFANT MORTALITY RATE (PER THOUSAND) 149.0 h .. 130.0 77.7 82.5 53.9 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 51.0 .. 59.1 31.1 56.8 URBAN .. 92.0 .. 85.9 68.5 79.0 RURAL .. 28.0 .. 38.0 18.2 31.8 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 29.0 .. 64.3 37.5 30.9 ,RBAN .. 75.0 .. 94.5 69.5 45.4 RURAL .. 4.0 .. 27.7 25.4 16.1 POPULATION PER PHSICIN 9700.0 / 12650.0 12400.0 4271.6 9359.2 2706.8 POPULATION PER NURSING PERSON .. 2820.0 1500.0 2077.4 2762.5 1462.0 POPULATION PER HOSPITAL BED TOTAL 680.0 660.0 710.0 580.2 786.5 493.9 URBAN .. 460.0 .. 310.0 278.4 229.6 RURAL 2980.0 .. .. 1358.4 2947.9 ADMISSIONS PER HOSPITAL BED .. 15.5 16.5 22.0 19.2 22.1 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 4.8 5.5 .. 5.4 .. 5.2 URBAN 4.3 4.9 .. .. .. 5.0 RURAL 5.1 5.8 .. .. .. 5.4 AVERAGE NUMBER OP PERSONS ?ER ROOM TOTAL 2.2 2.4 .. .. .. 2.0 URBAN 2.1 2.1 .. 1.8 2.3 1.5 RURAL 2.3 2.6 .. .. .. 2.7 ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 76.0 / .. .. 40.3 28.3 64.1 URBAN 85.4 /1 68.4 55.0 .. .. 67.8 RURAL 31.0 LI .. 12.2 10.3 34.1  -20- ANNEX I TABLE 3A Page 2 of 6 MOROCCO - SOCIAL INDICATORS DATA SHEET - REFERENCE GROLPS (ADJUSTED AVERAGES MOROCCO /5 - MOST PECENT ESTIMATE) SAME SAYE NEXT HIGHER NDST RECENT GEOGRAPHIC INCOME INCOME 1960 Lb 1970 /b ESTIMATE /b REGION /c GROUP /d GROUP Le EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 47.0 52.0 65.0 80.8 75.8 99.8 FEHALE 27.0 37.0 47.0 61.8 67.9 93.3 SECONDARY: TOTAL 5.0 13.0 17.0 23.6 17.7 33.8 FEMALE 2.0 7.0 12.0 18.2 12.9 29.8 VOCATIONAL (PERCENT OF SECONDARY) .. 2.0 3.0 6.7 7.4 12.8 PUPIL-TEACHER RATIO PRDIARY 43.0 34.0 40.0 31.5 34.3 34.9 SECONDARY .. 20.0 22.0 22.3 23.5 22.2 ADULT LITERACY RATE (PERCENT) 17.0 21.0 28.0 50.1 63.7 71.8 CONSLMiPTION PASSENGER CARS PER THOUSAND POPULATION 11.0 15.0 18.0 14.5 7.2 12.4 RADIO RECEIVERS PER TIOUSAND POPULATION 46.0 60.0 77.0 125.8 71.1 104.5 TV RECEIVERS PER THOUSAND POPULATION 0.4 11.0 23.0 34.5 14.1 28.1 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 22.0 16.0 14.0 17.4 16.3 45.2 CINEMA ANNUAL ATTENDANCE PER CAPITA 2.0 .. 1.6 1:6 1.6 4.6 E1MPLOYMENT TOTAL LABOR FMICE (THOUSANDS) 3250.0 3980.0 4930.0 FEMALE (PERCENT) 10.6 15.2 19.0 9.3 28.0 25.7 AGRICULTLRE (PERCENT) 56.4 49.9 42.5 42.0 54.1 46.2 INDUSTRY (PERCENT) 11.3 14.9 18.1 PARTICIPATION RATE (PERCENT) TOTAL 28.0 26.3 27.0 26.9 37.8 33.8 MALE 50;1 44.5 44.4 46.6 50.3 48.1 FEMALE 5.9 8.0 10.3 5.3 20.9 17.3 ECONOGIC DEPENDENCY RATIO 2.0 1.9 1.8 1.9 1.3 1.4 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 18.0 /k 20.0 /k .. .. 19.5 23.6 HIGHEST 20 PERCENT OF HOUSEHOLDS 43.3 /k 49.0 /k .. . 4 48.9 52.3 LOWEST 20 PERCENT OF HOUSEHOLDS 7.0 /k 4.0 /k .. .. 5.9 4.3 LOWEST 40 PERCENT OF HOUSEHOLDS 18.0 /k 12.0 /k .. .. 15.7 13.1 POVERTY TASGET GROUPS ESTIMATE) ABSOLUTE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN 107.0 157.0 288.0 .. 155.9 191.9 RURAL 66.0 101.0 174.0 142.0 97.9 193.1 ESTIMATED RELATIVE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. 189.0 236.1 143.7 319.8 RURAL .. .. .. 144.7 87.3 197.7 ESTIMATED POPULATION BELOW POVERTY INCOME LEVEL (PERCENT) URBAN 59.0 39.0 34.0 21.5 22.9 19.8 RURAL 49.0 45.0 45.0 37.4 36.7 35.1 Not available Not applicable. NOTES La The adjusted group average& for each indicator are population-eighted geometric means, excluding the extreme values of the indicator and the most populated country in each group. Coverage of countries aong the Indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1973 and 1977. Ic North Africa & Middle East; /d Lower Middle Income (S281-550 per capita, 1976); /e Intermdiate Middle Income (5551-1135 per capita. 1976); Lf Including Moroccan provinces In Western Sahara; LI Excludes Moroccan provinces in W. Sahara; /h 1962; /i Av. 1964-66; . Brick building only; /k Consumption expenditures of households. September, 1978  - 21 - MINEX I DEFINITIONS OF SOCIAL INDICATORS tagt 3 of 6 U=~: The adjusted group aver ges for each inidicator are population-weighted geometric means, excluding the extreme values of the indicator and toe most populated country in each grouc~. Coverage of countries among the indicators depends on availability of data and is not uniform. Due to lack of data, group averages for Capital Surplus Ol Exporters and indicators of access to water and excrete disposal, heusing, income diarribution and poverty are simple population-weighted geometric means without the exclusion of extreme values. IMtAREA (thousand so . km) population per hospital bed - total, urban, ar.d rural - Population (total. lotal - Total surf ace area comprising land urea and inland waters. urban, and rural) divided by their respective number of ioupctcl beds krciorl- Moot recent estimate of agricultural area used temporarIly available in public and private general and specialiced hospital c ro- ar permamr.ecly (or crops, pastures, market and kitchen gardeos or to habilitation centers. Hospitals are establishments per~manentl tarafio o lie fallow. at ..east one physician. Establishments providir.g principallycstdl care are not included. Rural hospitals, however, include health and .edil- .2'N? PEP, lAP1A (Uii) - SIMP pe -apica ascomates at current market prices. cal renters not permatneoly staffed by a physician (but by a nedlool o- calculated by sam,e conver, machod as World Bank Atlas (1975-77 basis); sistant, nurse, midwife, etc.) which offer in-patient accommodation and 1960, 1970, and 1977 daca. provide a limited range of medical facilities. Admissions per hospital bed - Total number of admissions to or discharges ENERGY CONSL'MPTIGN PER CAPITA - Annual crosumption of commercial energy from hospitals divided by the number of heda. (coal and lignite, petroleum, natural gas and hydro-, nuclear and geo- thermal electricity) in kilograms of coal equivalent per capita. HOUSING Aveag size of household (persons per household) - total, urban, and rural- POPULATION blID VITAL STATISTICS A household consists of a group of individuals who share living quarters Total population. mid-year (millions) - As of July 1; if niot available, end their main meals. A boarder or lodger may or may not he included in a ~~~~average of two end-pear estimates; 1960, 1970, and 1977 date, the household for statistical purposes. Statistical definitions of house- Urbam population (percent of total) - Ratio of urban to total popula- hold vary. tion; different definitions of urban areas may affect comparability Average number of persons oar room - total, urban, and rural - Average un of data among countries. bar of persons per room in all, urban, and rural occupied conventional Population density dwellings, respectively. Dwellings eXolude non-pernanest structures and per so. km. - M.id-year population per square kilometer (105 bectares) unoccupied parts. of total arses. Access to electricity (percent of dwellings) - total, orban, and rural - Per sq. km. agriculture land - Computed as above for agricultural land Conventlonal dwelli-ngs with electrlcity in 1lvivn quarters as percentage only. of total, urban, and rural dwellings respectively. Ponu.lation age structure (percent) - Children (I-li years), working-age (15-6i years), and recired (H5 years and aver) as percentages of mid- EDUCATION year population. Adjusted enrollment ratios Population orowth rate (percent) - total, and urban - Compound annual Primary school - total, and female - Total and female enrollment of all ages growth rates of total and urban mid-year populations for 1-950-6O, at the primary level as percentages of respectively primary school-age 1960-70, and 1970-75. populations; normeily includes children aged 6-11 years hoc adjusted fcr Crude birth rate (per thousand) - Annual live births per thousand of different lengths of primary education; for countries with universal edu- mid-year population; ten-year arithmetic averages ending in 1960 and cation enrollment may exceed 110 percent since some pupils are boelow or 1970 and five-year average ending in 1975 for most recent estimate. above the official school age. Crude death rate (per thousand) - Annual1 deaths per thousand of mid- Secondary school - total, and female - Co-pated as above; secondary ed..a- year Population; ten-year arithmetic averages ending in 1960 and 1970 tion requires at least four pears of approved primary instruoction; pro- and five-year average ending in 11975 for most recent estimate. vides general vocational, or teacher training instructions for pup-is Grass reproduction rota - Average number of daughters a womenl will bear usually of 12 to 17 years of age; correspondence courses are generally in aer normal reproductive period if she experiences present age- excluded. specific fertility races; osually fiv-veer averages ending in 1960, Vo.cational enrollment (neccect of zecocdarv( - Vocational iSjtlt4tins is- 1970, and 1975. clods cechniosl, inoustolal, or other pacc which operate indop-eooiiv Family ola-nnis - acoptor, annua. l (thousa.nds) - Annual number of or as departments of aecondary institutions. acceptors of birth-controL devices under auspIces of national. family Pupil-teacher ratio - prcoaro, and secoindar, - Total orodents eccollei in planning program. primary and secondary levels divided by tuckers ci teachers :n th carrte- Family nlanning - users (percent of married women) - Percentage of sponding levels. married women of child-bearing age (Ih years) who use birth-control Adult l1iteracy rate (percent) - Literate adults shIve to read and urtzc, as devices to all married women in s-am age group, a percentage of total adult popu-lation aged 15 years and aver. POOD AND NUTRITION IONSU9"TEON Index of food production per capita& (il197-100) - Index numnber of Per Passenger cars (per thousand population) - Passenger cars comprise motor cars capita annual production of all foco comoities. seating less than eight persons; esciudes ambulances, hearses and oiitary Per capita supply of calories (percent of requirements) - Computed from vehicles. energy equivalent of net food supplies available in country per capita Radio receivers (per thousand population) - All types of receivers for radio per day. Available supplies comprise domestic production. imports less broadcasts to general public per thousand of n-vultior; occludes, unlicensel' esports, and changes in stock. Net supplies exclude aninal feed, seeds, receIvers in countries and in years when registration of radio sets aeo in quantities used in food processing, and losses in distribution. Re- effect; data for recent yearn ma;' nor be comparoole since most countries quicoments were estimated by PAO based oni physiological needs for nor- abolished licensing. c,al activity and health considering environmental temperature, body TV receivers (per thousand population) - TV reoc.iers for broadcast to generat weights, age and sex distributions of pnpulation, and allowing 10 per- public par thousand Population; encludes unlIcensed TV receivers in nou n- cent for waste at household laeve. tries and in years when registration af TV sets was in effect. Per capita supoly of protein (grams per dav) - Protein content of pe wpaer circulation (par choo..and posulorlon) - Shows the average circula- capita net sppl y of food per day. Pet oupply of food is defined as tion of "daily general interest newspaper", defined as a periodicl -ucli- oho-e. P.eqoiremetst for all countries escabliahed by USDA Provide for cation devoted yrinar1v to recording general news. it is considered to a minimum allowance of 6i grane of total protein per day and 10 grams he "doiUr if it appears at least four times a wek.. of animal and pulse protein, of whicn II grams should he animal protein. Cinema annual attendance per canitcs nor veer - Baned an the nunher of tickets These standards are lower than those of 75 grams of. total protein and sold during the pear, inclu~ding admisslons to drive-in oioemas .an mobile 2) grams of animal protein as an average for the world, proposed by units. PAO in the Third World Pond Survey. Per capita protein supply from animal and pulse - Protein supply of food EMPLOYMENT. derived from animals and pulses in grams per day. Intel laker force ithousands) - Econ-ically actIve persons. including ormed Chili (ge 1-4) sortality race (per thousand) - Annual deaths per thcus- fume.s and unemployed but eacudngheseivs. stoosnts, otc. D.aCic- - ~~~~~ama in age group i-h years, to children in this age group. tions in various countries are not comparable. Female (peronot) - Peamel labor force as percentage of total labor force. HEALTH~ Agriculture (percent) - Labor forte in farmting, forestry, hunting and fishing Life expectancy at birth (pes.ra) Average number of years of life as percentage of total labor force. remaining at birth; usually five-year averages ending in 1960, 1970, Industry (percent) - Labor force in mining, construction, manufacturing and and 1975. electricity, water and gas as percentage of total labor force. - ~~~~infanr mortality rare (per thous.and) - AnnualI deaths of infamts under Participatiom rate (percent) - total .Isale and female - Tntol, tale, and one year of age per thousand live birhts. 0emale labor force as percentages of chair respectovi oultos Access to safe water (percent of sosulation) - total, urban, and rural - These are LOD's adjusted participation rates reflecting eec-sen Numpber of people (total, urban, and rural) with resonable aces o atrcrarrur of rho veooio.ad lone tine trend. safe water supply (includes treated surface waters or untreated hut -tononit dependency ratio - Ratio of popullation u-der 11 and 65 and overt .ononcaminsted water such as that from protected boreholee, springs, the labor force in age groop ci 12-6 ..pears. and sanitary "ello) as -percentages of their respective populatcone. .inon urban area a Pooliconcc or standpost located not more INCOME DISTRIBUrTON tban 201 motors iron s house mat be considered as being within tee- Percencoos of private income (both in cask and kinad) received hr rIchiestI socable access of that ocuse. In rural areas reasonable access wou ld percent, richest 210 percent, Poorost 20 percent, and pocrest 4O portent imply coat the a--ewife or ome.brs of the ,ousehold do nor have to of households. soend a disproportionate part of the day in fetching the family's water needs. POVeiTY TARGET GROUPS Access to excrete disposal (percent of population) - total. urban. and intimated aboolute novertv Income level (15$ per capita) u rhon, and coral - rural - Number of people (total, crban, and rural) served by excrete Abso lutepoverty income level is chat icoron level holw which a no..ctal disposal as percentagas of their respective populations. Excreta nutritionally adequate diet plus essential ons-food requirementa Ls cot disposal map include the colletion. and disposal, with or withnut affordable. tramn,of human excrete end waste-wter by water-borne systems Istinoced roSactve noverty income. level (105 cer aota) - urban andcra - at the use of rot privies and similar installations. Relative poverty income level is that income level lass than, one-third PopulatIon nor physician - Population divided by number of practIcIng Per capita personal income of rho country. shicsicans qualified iron a medical school at oni-ersity level. Gotrtoscd posulacion below anver:y income level verrcent - 'rba ar.d rural- Puoulation Par narsina 'arson - Pepulation divided by number of Percent of population ,urban and rural) woo ore either "absolute poor" or pr-ntainig male and fosi graduato scenes praroical across, and "eaiepoor' whichever is greeter. oacatant nurse.. E--ssio and Social boata vica Economnic Analysis and Protections Departmnort  21, .40II 3 021212132 0 012 COns taOC12 20I.CaCIOWO .. 0001 12 2 aro-1 Cl 2 C' 2022 C 2(02122 12 50011 0 clrlOaCOabr*12212A2 - I -.1222222 22-0