Morocco - Third Agriculture Credit Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 3248 PROJECT PERFORMANCE AUDIT REPORT MOROCCO THIRD AGRICULTURAL CREDIT PROJECT (LOAN 1361-MOR) December 23, 1980 Operations Evaluation Department 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 authoriation. ABBREVIATIONS CGEA Centrale de Gestion des Exploitations Agricoles CLCA Caisse Locale de Credit Agricole (Local Agricultural Credit Bank) CNCA Caisse Nationale de Credit Agricole (National Agricultural Credit Bank) CRCA Caisse Regionale de Credit Agricole (Regional Agricultural Credit Bank) ORMVASM Office Regional de Mise en Valeur Agricole du Souss-Massa FISCAL YEAR January 1 - December 31 (Republic of Morocco) September 1 - August 31 (CNCA) FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT MOROCCO THIRD AGRICULTURAL CREDIT PROJECT (Loan 1361-MOR) TABLE OF CONTENTS Page No. Preface ............................................................ i Basic Data Sheet ............................................. ii Highlights ......................................................... iii PROJECT COMPLETION REPORT I. Results of the First and Second Agricultural Credit Projects ....... . ................ ... . .......... I II. Objectives and Description of the Third Agricultural Credit Project .. ............................. 3 III. Project Implementation ................................. . 4 IV. Institutional Development and Issues ................... 7 V. Economic and Financial Post Evaluation .................. 11 VI. Conclusions ............................................ .. 12 Tables 1. Estimated and Actual Allocation of Bank Proceeds 2. Actual and Estimated Project Costs 3. CNCA: Loan Disbursements under the Project 1976/77 to 1978/79 4. CNCA: Total Loan Disbursements 1976/77 to 1979/80 5. CNCA: Sources and Uses of Funds 6. CNCA: Audited Consolidated Income Statements 1974/75 to 1978/79 7. CNCA: Recoveries during Years 1975/76 through 1979/80 8. Ex-post Analysis of Investments 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.  - i - PROJECT PERFORMANCE AUDIT REPORT MOROCCO THIRD AGRICULTURAL CREDIT PROJECT (Loan 1361-MOR) PREFACE This is a performance audit of the Third Agricultural Credit Project in Morocco, for which Loan 1361-MOR was approved in January 1977 in the sum of US$35.0 million. The closing date of the project was June 30, 1980 and 99.9% of the loan was disbursed on that date. The remaining US$48,000 for research components, is expected to be disbursed in 1980 and the closing date has been postponed to June 30, 1981. The audit report consists of highlights prepared by the Operations Evaluation Department and the project completion report (PCR) dated Septem- ber 16, 1980. The PCR was prepared by the Europe, Middle East and North Africa Regional Office based on the President's Report (No. P-1966-MOR) of December 21, 1976; the Appraisal Report (No. 1300-MOR) of December 17, 1976; supervision reports, loan documents, correspondence in Bank files and inter- views with Bank staff. Since the project was a repeater having had no major problems, delays or overruns, as well as a high rate of return, and since in-depth PCRs and PPARs have been issued for the two previous projects, the PCR is appropriately abridged, saving staff time in research, report writing and reviewing. No field mission was specifically undertaken but a supervision mission for the follow-up Fourth Agricultural Credit Project collected infor- mation in the field for the PCR. A copy of the draft report was sent to the Borrower on October 27, 1980 for comments, but none have been received. Under OED's abbreviated procedures, the audit finds no reason to question the PCRs analyses and major conclusions.  - ii - PROJECT PERFORMANCE AUDIT REPORT BASIC DATA SHEET MOROCCO THIRD AGRICULTURAL CREDIT PROJECT (LOAN 1361-MOR) KEY PROJECT DATA Appraisal Actual or Item Expectation Current Estimate Total Project Cost (US$ million) 315.3 343.1 (DH million) 1355.8 1303.7 Overrun (%) (US$) 8.8 Underrun (%) (DH) -3.8 Loan Amount (US$ million) 35.0 35.0 Disbursed to ) 34.95 Repaid to ) July 31, 1980 35.0 Outstanding to Remains to be disbursed 0.05 - Proportion of Time Overrun (%) 0.0 Economic Rate of Return (%) 29 20 Cumulative Estimated and Actual Disbursements (US$ million) FY77 FY78 FY79 FY80 Appraisal 5.00 17.25 32.95 35.00 Actual - 16.30 22.70 34.95 Actual as % of Appraisal - 94.5 68.9 99.9 OTHER PROJECT DATA Original Actual or Item Plan Revisions Est. Actual First Mention in Files (repeater project) end 1974 Government's Application beginning 1975 Negotiations - - 11/17-22/76 Board Approval 01/11/77 - 01/11/77 Loan Agreement Date 02/07/77 - 02/07/77 Effectiveness Date 05/10/77 - 08/11/77 Closing Date 06/30/80 - 06/30/81 Borrower Caisse Nationale de Credit Agricole (CNCA) Executing Agency CNCA Fiscal Year of Borrower September 1 - August 31 Follow-on Project Name Fourth Agricultural Credit Project Loan Number 1704-MOR Amount (US$ million) 70.0 Loan Agreement Date 05/23/79 MISSION DATA Month/ No. of No. of Man- Date of Item Year Weeks Persons Weeks Report Appraisal 06/76 4 4 16 12/17/76 Total 4 16 Supervision T/b 03/77 1 2 2 04/01/77 Supervision IL/b 10/77 2 1 2 11/04/77 Supervision III 07/78 1 1 1 08/24/78 Supervision IV 07/79 1 1 1 08/08/79 Total 5 6 COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) Dirham (DH) Year: 1977 Exchange Rate: US$1 = 4.57 DH 1978 US$1 = 4.05 DH 1979 US$1 = 3.87 DH 1980 US$1 = 3.78 DH /a Remaining amount for research components. Expected to be disbursed in 1980. /b Supervision missions made in conjunction with other missions. The number of man-weeks allocated is estimated.  - iii - PROJECT PERFORMANCE AUDIT REPORT MOROCCO THIRD AGRICULTURAL CREDIT PROJECT (Loan 1361-MOR) HIGHLIGHTS The loan provided funds to the Agricultural Credit Bank (CNCA) to support its lending program for agricultural and livestock production. Prin- cipal objectives remained those of the two previous credit projects: increas- ing agricultural production, through mechanization and modernization of medium and large farms, and institution building, by expanding CNCA's capability to finance agricultural development. In adding a new objective: improving income levels of small farmers and strengthening cooperatives, the project more closely followed the development objectives of Morocco'S Third Develop- ment Plan. Project lending began slowly in 1976/77, a result of poor weather conditions; late effectiveness of the loan due to tardy receipt of legal opinions satisfactory to the Bank, and delays in initial disbursements of an Arab Fund loan. Lending continued below appraisal estimates during fiscal 1978, due to inadequate sources of farmer equity caused by the 1976/77 drought, while lending to the agrarian reform cooperatives was adversely affected by IBRD's requirement that cooperatives finance a larger percentage of investment from savings. Lending eventually picked up and loan proceeds for on-lending operations were fully disbursed on time. The project was successful both in its institution building and economic impact. The increased agricultural production of industrial crops, milk, meat and vegetables can be attributed to the project and to Government investment in supporting sectors as was expected at appraisal. Adverse weather conditions led to a relative stagnation in cereal and pulse production. The stagnation, however, would have been deeper and endured longer had the grain farm investment financed by the project not been undertaken. The research program for irrigated vegetable production was technically successful but suffered minor administrative problems. The project continued CNCA's development as an efficient agricul- tural credit institution. Major policy changes enabled CNCA to expand its capability while still recovering a large percentage of loans and maintaining costs within reasonable limits. CNCA successfully improved its staff training program without drawing on consultants services which had been provided for under the project. The Government made constructive suggestions for institu- tion building. - iv - The project was successful in increasing small farmers- income and strengthening cooperatives, although there is still room for improvement. Agricultural incomes of CNCA clients increased as a result of the project, but results would have been better had lending procedures for small farmers taken better account of their financing needs and repayment capacity. Moreover, the credit obtained by small farmers could have been utilized more effectively had certain sectoral constraints been resolved by the Government, particularly in respect of producer prices and subsidies. Project impact on employment exceeded appraisal expectations, reflecting the shift in sub-loan distribution between investment categories towards labor-intensive activities. Loan dis- bursements to agrarian reform cooperatives and pre-cooperative associations, members of which were almost entirely small farmers, did not reach appraisal expectations. Responsibility is shared by the Government, which halted medium term lending to cooperatives in order to assess the efficiency of credit use, and by the cooperatives, some of which failed to repay their loans. Economic returns range from 7% to 150% depending on the investment and particular farm conditions. On average, small farmers and medium/large farmers performed the same. The weighted average is estimated at 20% compared with 29% at appraisal. The difference is explained by relative price changes unfavorable to agriculture and a slightly over-optimistic assessment, at appraisal, of likely crop production increases. The following points may be of special interest: - Credit for the success of this project rests largely with CNCA and its sub-borrowers (para. 22). - CNCA was one of the first institutions in the region to estab- lish a monitoring and evaluation system (para. 16). - CNCA's rate of loan recovery is among the best for agricul- tural credit institutions (para. 13). This efficient recovery system has encouraged farmers only to seek credit for high- yielding investments, thus the shift in demand towards live- stock (appraisal report for the Fourth Credit Project, para. 4.06). KINGDOM OF MOROCCO PROJECT COMPLETION REPORT THIRD AGRICULTURAL CREDIT PROJECT (LOAN 1361-MOR) I. Results of the First and Second Agricultural Credit Projects 1. Introduction. Agricultural Credit has been highly productive in Moroccan agriculture, financing small scale investments in wells, pumps, livestock, fruit and vegetable production etc. Bank strategy in Morocco emphasizes credit, and to date four agricultural credit projects have been financed by the Bank for which the National Agricultural Credit Bank (CNCA) has been the borrower. Results of the first two are discussed below. 2. The First Agricultural Credit Project (Loan 433-MOR), February 1966. The Bank loan for US$10 million helped finance CNCA's lending program for the period 1966-69. It included lending for investments by medium and large farms and for farm equipment and machinery of a state company managing land confiscated from foreign settlers (CGEA; Centrale de Gestion des Exploitations Agricoles). The Project was audited by the Operations Evaluation Department!1. Project problems included: (a) shortage of qualified CNCA personnel causing delays in loan processing; (b) Government intervention directing CNCA resources to CLCA/2 (small farmer) lending not approved by the Bank; (c) dissolution of CGEA 18 months after loan effectiveness without prior notification of the Bank. In February 1968, the Bank suspended disbursements for subloans to individual farmers and cancelled the unused balance (US$234,600) committed to CGEA. Disbursements against subloans to individual borrowers were reinstated after the Bank was assured that all CLCA operations would be separated (both in financing and staffing) from CNCA, and that CNCA would update its accounts and strengthen its staff. CNCA's weakness, along with the Government's interference in CNCA operations, /1 OED Report Agricultural Credit Programs, Background Paper No. 4, "Evaluation of the CNCA/IBRD Agricultural Credit Program in Morocco". /2 CNCA maintains separate branch banks serving small farmers, designated CLCA's; and branch banks serving medium/large farmers which are designated CRCA's. -2- were the principal causes of the Project's mixed results. According to the OED Report, about 6,000 farmers obtained credit (0.5% of Moroccan farmers) under the Project. Investments financed by CNCA caused an increase in income for these farmers, with investment in irrigation pumps, wells and livestock being particularly productive. Mechanization was profitable in high rainfall areas, but risky in semi-arid areas. The OED reported that the most important achievement under the first loan was the institutional development of CNCA, permitting an increasingly better performance in the future. 3. The Second Agricultural Credit Project (Loan 861-MOR, Credit 338-MOR). The Loan/Credit of US$34 million was made to finance CNCA lending during 1973-76 to medium and large farmers for investments in grain farm equipment, citrus plantation development, winter vegetable production, marketing facilities, dairy, cattle and sheep operations. Total project cost was estimated at US$69 million. Based on experience gained during implementation of the first Project, the Bank's concern was on CNCA's institutional problems. These included: (i) the need to introduce separate accounts to permit differentiation between CNCA's general lending activities and operations administered by it on behalf of the Government; (ii) the strengthening of CNCA's capital structure made necessary by the three-fold expansion of its lending program; (iii) the need to increase profitability which led to emphasizing higher interest rates; and (iv) the reliability of all financial data, which the Bank thought could be obtained through audits of financial statements through an internationally recognized accounting firm. Results were positive according to a Project Performance Audit Report (PPAR) issued June 15, 1979, because of the high caliber of CNCA management/l. Accounts were separated in 1972 and the increase in capital was made effective in 1973. Following Bank insistence, interest rates on medium term loans were increased to 7% for cooperatives, 8.5% for medium/large farmers/2. Auditing of project accounts was begun by Price Waterhouse. The PPAR stated that "over the past years CNCA has grown to become a relatively sophisticated institution, which is now one of the central forces in.the agricultural development of Morocco". 4. The main issues of the Second Project cited in the PPAR included the following; (i) The Bank refinanced CNCA loans for the destoning of fields and purchase of draft animals, both of which the PPAR claims were not supposed to be financed by the Project. The problem was caused by a faulty English translation of the loan agreement negotiated with CNCA in French. The Project was implemented on the basis of the negotiated French text. This text permitted refinancing of draft animals and destoning operations. The English version mistakenly did not foresee such investments. /1 See M79-442 /2 Defined as those with fiscal incomes above DH 3,000 (real farm income above US$1,500 equivalent). (ii) The PPAR claimed that the Bank lost the opportunity of having a wider project impact by not including an extension component in the Project. The region disagreed with this conclusion, indicating that all of the Bank's agricultural, irrigation and rural development projects in Morocco have extension components, implemented by Government. The region does not believe that a credit project, implemented by an institution which we are encouraging to become as autonomous as possible from Government, is the proper place for an extension component. The linkage is unnecessary and would encourage Ministry of Agriculture interference in CNCA. Such interference was an issue cited by OED in the First Credit Project (para. 2). (iii) The PPAR indicated that the benefits of introducing tractors could have been more carefully studied by the appraisal mission. (iv) The PPAR stated that Bank disbursements were slowed because the Bank, unnecessarily, insisted on being informed of tractor brands financed under the Project. This requirement imposed a heavy paperwork burden on CNCA and delayed disbursement requests. It was unnecessary in that spot-checks by supervision missions could have determined that tractor brands being purchased were acceptable to the Bank (imported from Bank member countries). (v) The Project completion report indicated that the Project could have been more beneficial had it not excluded small farmer loans through the CLCA's. II. Objectives and Description of the Third Agricultural Credit project 5. The Third Agricultural Credit Project had the same objectives as the first two Projects, which were aimed principally at increasing agricultural production through mechanization, modernization of medium and large farms, and strengthening CNCA's institutional ability to finance agriculture. Added objectives of this Project were the improvement of the income of small farmers borrowing through the CLCAs, (eligible for the first time for Bank financing), and the strengthening of cooperatives and farmers associations. The Project consisted of eight components for the period January 1, 1977 to August 31, 1979: (i) sub-loans to small/medium farmers through the CLCAs for on-farm investments/1; (ii) sub-loans to medium/large farmers through CNCA and /1 CLCA's are Branch Banks of CNCA which lend only to small farmers: having fiscal incomes below DH 3,000 (about US$1,500 in net farm income in real terms). the CRCAs/l for on-farm investments; (iii) sub-loans to an irrigation office for sugar cane development; (iv) sub-loans to Agrarian Reform Cooperatives for their own on-farm investments and those of their members; (v) sub-loans to farmers' associations for agricultural machinery; (vi) technical assistance to CNCA for establishing a monitoring and evaluation system; (vii) consultant's services to CNCA for studies on banking development and personnel training; and (viii) a research program in vegetable cultivation by the land development agency for the Souss-Massa region (ORMVASM). The Bank and CNCA financed components (i), (iv), (v), (vi), and (viii). The Arab Fund and CNCA financed components (ii), (iii), and (vii). Excluded from the Project were CNCA medium term loans to state and private companies operating in agriculture and in agro-industry, and short term loans. State and private companies were excluded because the appraisal mission determined that CNCA loan decisions regarding these borrowers were subject to Government influence and CNCA was unable to apply its standard evaluation criteria to these loans. CNCA short term loans are financed by CNCA's own resources and by Central Bank rediscounting facilities. III. Project Implementation and Costs Loan Effectiveness and Closing 6. The loan became effective on August 11, 1977, three months later than originally anticipated due to the late receipt of legal opinions with respect to the new interest rate structure for small farmer lending stipulated in the loan agreement. CNCA obtained a Eurodollar loan of about US$31 million equivalent in 1976/77 in order to compensate the unexpected shortfall in funds. The closing date of the Project was June 30, 1980 and most of the loan was disbursed on that date (99.86%). The remaining funds amounting to about US$49,000, will finance consultant fees of the University of Arizona for their research program in vegetable cultivation (para. 11). As their work is expected to be completed only towards the end of 1980, the closing date of the Project has been postponed to June 30, 1981. Project Lending and Costs 7. Project Costs. Project costs were estimated at appraisal on the basis of a projection of CNCA lending by category of borrower included in the Project. CNCA finances 70% of investment cost, with the remainder financed by farmer equity. In addition, Cooperatives and farmer associations receive Government subsidies. Project cost thus equals CNCA disbursement, farmers equity, and Government subsidy. Actual Project costs are shown in table 2, and summarized below: /1 CRCA's are Branch Banks of CNCA which lend to medium and large farmers having fiscal incomes above DH 3,000. - 5 - Project Cost Appraisal Actual Actual Estimate Cost Cost (US$Million ------ DH Million------ Equivalent) Project Component Lending Program A. Small Farmers (CLCA Clients)/ 640.4 636.2 167.4 B. Medium/Large Farmers (CRCA Clients)/2 506.3 494.0 130.0 C. Irrigation Office, Sugar Cane /2 48.3 48.0 12.6 D. Agrarian Reform Cooperatives /1 139.6 113.6 29.9 E. Pre-Cooperative Croups /1 15.4 10.0 2.6 Technical Assistance F. Monitoring Fellowships for CN1/1 .2 .2 .1 G. Consultants Services to CNCA -. 4.1 .2 .1 H. Agricultural Research with Irrigation Office /1 1.5 1.5 .4 Total Cost 1,355.8 1,303.7 343.1 8. CNCA Lending Program. The above table indicates that appraisal estimates were nearly identical to actual investment costs and loan disbursements for three components: small farms (CLCA clients), medium/large farms (CRCA clients), and the irrigation offices for sugar cane operations. Investment costs and loan disbursements for agrarian reform cooperatives equaled 82% of the appraised estimates, and for pre-cooperative farmers groups 64%. These latter shortfalls resulted from the Ministry of Agriculture's decision to stop disbursements of medium-term loans to the cooperatives, particularly for mechanization and livestock, in order to assess the efficiency of their credit use. In addition, several cooperatives did not repay their loans, and CNCA penalized them by stopping credit disbursements. Total CNCA medium-term lending, including loans not eligible for refinancing by IBRD, increased at an average rate of about 12% per annum during the Third Project period compared to an average rate of price inflation of 10% (Table 4). There were wide fluctuations in the increases each year: about 32% in 1976/77, 10% in 1977/78, and a decrease in 1978/79 by about 7%. The lower loan disbursements for all categories in 1978/79, with the exception of agro-industries, was mainly due to poor climatic conditions and the low disbursements to cooperatives. /1 Financed by CNCA, IBRD, farmers, Government subsidies. /2 Financed by CNCA, Arab Fund, farmers, Government subsidies. - 6 - 9. Objects Refinanced by the Bank Loan. As indicated above, and shown in tables 1 and 3,Bank funds were used to refinance small farmer loans, loans to agrarian reform cooperatives, loans to pre-cooperative groups, and some technical assistance. The Bank financed 27.5% of CNCA loan disbursements to eligible farms and was to provide US$50,000 for the monitoring and evaluation system, US$300,000 for agricultural research. Investments to which Bank lending contributed included the following: Total Investment Cost to which IBRD Lending Contributed Actual Appraisal Estimate Total Investments DH 761.5 Million DH 797.1 Million (US$200.3 Million (USf185.3 Million Equivalent)/-l (Equivalent)/! Of which: Land improvement 5.3% 1.5% Wells and pumps 8.4 9.8 Tractors, harvestors 5.6 5.4 Implements, small equipment 2.0 2.4 Other equipment, trucks 1.8 2.6 Stables, storage 23.6 27.4 Livestock 38.8 30.1 Draft animals 13.8 19.1 Fruit trees, vineyards 0.5 1.5 Agricultural research, monitoring and evaluation components 0.2 0.2 Total 100.0 100.0 /1 An exchange rate of DH 4.3 = US$1.0 was applicable at appraisal. DH 3.8 = US$1.0 was the average exchange rate during project execution. 10. Reasons for Differences between Appraisal Estimates and Actual Results. Both total Project investment costs (para. 7) and that part refinanced by the Bank (para. 9) were slightly lower than appraised due to (a) devaluation of the dollar and (b) CNCA's decision not to use all of the technical assistance foreseen under the Project, particularly that financed by the Arab Fund (para. 11). The first reason is characteristic of credit projects where the Bank refinances a set percentage of loan disbursements to eligible borrowers (27.5% in the case of the Third Credit Project), using the exchange rate official at the time of disbursement. As the dollar depreciated, the Bank loan was used to finance a lesser amount of dirham disbursements. The distribution of the Bank loan between investment categories (table in para. 9) approximated that estimated at appraisal. Investments in land improvements and livestock development exceeded appraisal estimates while investments in draft animals, fruit trees, stables and storage were lower than estimated at appraisal. Table 1 attached shows that there was also a reallocation of Bank loan funds to small farmer lending as a result of shortfalls in CNCA disbursements to cooperatives and pre-cooperative associations. - 7 - 11. Technical Assistance Components. Table 2 attached (and the summary table in para. 9) shows mixed results on the technical assistance components. CNCA spent about DH 200,000, as foreseen at appraisal, to send two staff to Mexico to study the monitoring and evaluation system of the Bank financed rural development project "PIDER". However, CNCA never requested reimbursement of costs from the Bank, financing the trip from its own funds. The funds allocated (US$50,000) for this component were reallocated to small farmer lending. The Arab Fund also made available about US$700,000 to help finance an expected DH 4.1 million in consultants services to assist CNCA in improving its staff training program. CNCA decided during project execution that consultant services were unnecessary for the improvement of its training program. Improvements were made by CNCA's own training staff, and CNCA's training program was appraised during the Fourth Agricultural Project Appraisal as excellent. The Arab Fund agreed to reallocate a small part of these funds to finance a study of CNCA's computer system by foreign consultants, the total cost of which was DH 200,000. The study's objective was to suggest improvements to CNCA's computer system. None of its recommendations have been implemented to date. The remainder of the Arab Fund technial assistance component has been reallocated to medium/large farmer lending. The Third technical assistance component, financed in part by the Bank, was for agricultural research in irrigated vegetable production, particularly in Southern Morocco. The program was undertaken as a joint Moroccan/foreign research institute effort and the University of Arizona was selected to provide the technical assistance. The program, under contract with the Office Regional de Mise en Valeur Agricole du Souss-Massa (ORMVASM), has been completed and final reports will be submitted in October 1980. The research program has been technically successful and was particularly useful for the preparation of the Bank financed Vegetable and Marketing Project in Morocco. The problems have been administrative with the University of Arizona consistently receiving its payments late due to late submission of bills by ORMVASM for payment. Final Bank disbursements (US$49,000 remaining) on this component are expected by June 1981. IV. Institutional Development and Issues 12. Positive Institutional Developments during the Period of the Third Project. The conclusion of the Project Performance Audit Report for the Second Project that CNCA had become a "relatively sophisticated institution, which is now one of the central forces in the agricultural development of Morocco", continued to hold during execution of the Third Project. The positive institutional developments during the period of the Third Project were discussed in the appraisal report for the Fourth Agricultural Credit Project and are therefore summarized only briefly here /1. The major improvements included: (i) the establishment of a monitoring and evaluation /1 See Appraisal Report and Project File of Fourth Agricultural Credit Project (Report No. 2426-MOR), April 30, 1979 for detailed discussions on improvements in lending policies and procedures, organization and staffing. - 8 - unit in September 1977, which greatly improved the internal and external reporting system of CNCA (para.16); (ii) the increase in lending to low income small farmers (who were excluded by the Bank from the Second Project); (iii) the increase in the loan ceiling for small farmers thereby better satisfying their credit needs; (iv) increases in interest rates paid by small farmers and cooperatives (para. 13); (v) the expansion of CNCA's agricultural staff and increases in salaries by about 18% to maintain a competitive compensation system; (vi) increases in the number of CRCAs and CLCAs resulting in improved credit distribution and better access of farmers to credit; (vii) improvements in the training program; (viii) the decentralization of important lending decisions to branch banks (CRCAs) and (ix) the regionalization of lending norms for medium and large farmers which permitted agro-economic conditions of each region to be accounted for in sub-loan appraisal criteria. 13. Financial Performance. The following summary indicators represent CNCA's excellent financial performance during execution of the Third Project (see also tables 6 and 7): 1976/77-1978/79 Average recovery of loans 81% -1 Current assets/current liabilities 218% Long term borrowings/own funds + income 110% Operating expenses/operating revenues 96% CNCA's rate of loan recovery is among the best for agricultural credit institutions in the developing world (CNCA's recovery performance is shown in table 7). CNCA has been financially prudent during execution of the Third Project, with current assets greatly exceeding current liabilities; equity resources and long term debt adequately covering medium and long term loans outstanding. CNCA's debt-equity ratio was very low, suggesting room for expanding debt, and hence lending/2. Net income after taxes slightly increased to DH 2.7 million in 1978/79 from DH 2.5 million in 1977/78 (table 6), due largely to the increase in lending rates agreed to for the Project (to 8.5% for medium and long term loans to small farmers as well as medium/large farmers; and 7% for newly created Agrarian Reform Cooperatives and pre-cooperative groups increasing to 8.5% in the sixth year of their existence onwards). Despite this increase, and the profitability which it permitted, these lending rates were negative in real terms, with price inflation at 12% in 1977, 9% in 1978 and about 13% in 1979. Negative real rates of interest resulted in a small interest rate subsidy to borrowers, and caused credit rationing (demand for credit greater than supply at these interest rates). Rationing was undertaken,by application of CNCA's stringent lending criteria which probably work on average to exclude the least productive investments (para. 20)./3 /1 Estimated total recovery, however, is over 95%. /2 An expansion of CNCA lending, and debt, is occurring under the Fourth Project. /3 Interest rates are art issue during the present execution of the Fourth Credit Project. CNCA has formally reanipstprl ('-vPr-Qnrit'q annroval oF an increase in lending rates. -9- 14. Audit Reports. The Third Project maintained the requirement that CNCA accounts be audited by an internationally recognized auditor. The Auditor, Price Waterhouse Inc., has produced audit reports for each year of the Third Project. Price Waterhouse has verified the accuracy of CNCA accounts, with two minor qualifications. (i) Gains and losses from changes in exchange rates. CNCA does not record in its accounts losses or gains from exchange rate changes. CNCA's position is that at the end of the repayment period for each foreign loan, exchange losses and gains will be computed and CNCA will be reimbursed by Government for losses, or will transfer gains to Government. Therefore, CNCA argues, any current year exchange loss or gain will disappear eventually, and need not be shown in annual accounts. Price Waterhouse maintains that such losses or gains should be recorded as such until actually settled with Government. Presently, such recording would result in CNCA reporting higher income (gains exceed losses). CNCA claims that this would inaccuratelyjortray its financial position as stronger than it really is. - (ii) Commitment fees. CNCA includes commitment fees under deferred charges, hence treating such fees like investments. CNCA amortizes the fees in its income statement, again as it would an investment. This is acceptable accounting practice in the French system. Price Waterhouse believes that fees should be shown as expenses in the income statement when incurred (the Anglo-American practice). CNCA has ignored these two recommendations of Price Waterhouse. This has not however had any influence on Project success or on CNCA's financial strength. 15. Progress on Issues Identified by the Bank's Project Performance Audit Report for the Second Credit Project. The issues identified in the PPAR for the Second Agricultural Credit Project were only partly relevant to the Third. (a) Under the Third Project, Bank loan funds were disbursed only for objects foreseen in both the French and English versions of the loan agreement. These included destoning of fields and draft animals, which the PPAR claimed were mistakenly financed under the Second Project. (b) An agricultural extension component was not included in the Third Project (nor the Fourth), although this was recommended in the PPAR. The reasons were that the loan was made to CNCA and CNCA's autonomy from Ministry of Agriculture interference was an objective of the Project. Inclusion of an extension component, executed by the Ministry of Agriculture, would constitute a vehicle for interference in CNCA lending policy. The Bank unsuccessfully pursued a possible extension and research project with the Ministry of Agriculture, independent from the credit project, and included extension components in every other rural development, agriculture, and irrigation project undertaken in Morocco. (c) As recommended in the PPAR, the introduction of tractors was more carefully studied by the appraisal mission for the Third Project, and found to be /1 CNCA has been requested to reach agreement with Price Waterhouse under the Fourth Project. - 10 - beneficial (see also para. 20). (d) Disbursement procedures were changed for the Third Project following recommendations made by the PPAR, and disbursements were accelerated as a result. (e) Finally, as recommended in the Completion Report for the Second Project, Bank financing was extended to small farmers under the Third Project. 16. Monitoring and Evaluation. CNCA was one of the first institutions in the region to establish a monitoring and evaluation system, as recommended by the Bank under the Third Project. Data is collected by 8 full time monitoring agents about 7 times per year for a sample of 200 farms. The system has been used to assess the financial impact of CNCA credit on its clients, the productivity of various CNCA investments, and to improve CNCA lending norms (for example number of hectares required to obtain a tractor loan, number of hectares of forage crops required to obtain a livestock loan, costs of various investments). Data from the system was used in the preparation and evaluation of the Fourth Agricultural Credit Project. Improvements to the system could include (a) improved analytical methods to be used in exploiting data; (b) increased direction by CNCA management in posing questions to be answered through the system, and (c) computerization of analysis/1L 17. Reporting. CNCA reporting to the Bank was deficient during the period of the Project. Trimestrial reports did not include all of the data requested by the Bank and came 3 to 5 months late. In comparison, CNCA's Annual Report was of high quality/2. 18. Lending Norms for Small Farmers. The Third Project provided Bank funds to small farmers for the first time. Under the Third Project, CNCA also increased lending ceilings for small farmers, permitting better satisfaction of their financing needs. However, the loan ceilings continue to be restrictive. Small farmer (CLCA) lending norms specify credit per object to be financed, subject to a loan ceiling for each level of "fiscal income" (income defined for tax purposes). The loan ceilings minimize both CNCA lending risk and client indebtedness. However, fiscal income is a largely fictional number and is related neither to farmer repayment capacity nor to real investment cost. Credit provided to small farmer clients is most often less than, although sometimes greater than, what it would be if determined on the basis of cost of investment and debt service capacity created by the investment. This unfortunate situation is difficult to remedy because appraisal of CLCA loans is based on a desk review. Systematic field appraisal and supervision of small farmer loans would not be administratively feasible and would result in a reduction of such lending (there are about 100,000 CLCA loans per year). /1 These issues are being addressed under the Fourth Project. /2 Agreement was reached under the Fourth Project on a new reporting format and on accelerated reporting. - 11 - What is required in the short run is (a) the differentiation of CLCA lending norms by region to take into account at least regional variations in agricultural, economic, and climatic conditions affecting investment costs and farmer repayment capacity, (b) field appraisal for the larger CLCA clients for certain investments where the loan ceiling can be discarded, (c) increased loan ceilings, (d) supervision of a random sample of CLCA clients, (e) experimentation with new credit delivery systems (collective responsibility for credit repayment by groups of small farmers). Some of these innovations are being introduced under the Fourth Agricultural Credit Project, and under the Fes-Karia-Tissa Agriculture Project financed by the Bank. Others are being prepared for a possible Fifth Credit Project. V. Economic and Financial Post Evaluation 19. In 1977/78, CNCA had debt outstanding to 323,830 farmers out of a total 1,928,000 farms in Morocco /1. About 40% of CNCA's borrowers lived at or below the absolute poverty level when loans were made. The Third Project also assisted the rural poor by creating farm employment. Farm budget analysis based on data collected by CNCA's monitoring and evaluation system suggests that about 52,000 manyears of employment were created under the Project, despite the direct replacement of 5,500 manyears caused by Project mechanization. During appraisal, the number of manyears created was estimated to be about 40,000 including temporary labor and permanent jobs. The better than expected performance resulted form the fact that investment in labor intensive activities (livestock and land improvement) exceeded appraisal estimates, while investment in activities using little labor (storage, draft animals which in some cases replace manual labor, and certain types of labor replacing equipment) were less than projected at appraisal. 20. Given the fact that disbursements under the Third Project began only three years ago and were recently completed, no economic assessment can be made of the investments financed by the Project. Benefits are only now building up. However, there is considerable data available at CNCA on the results of similar investments made by the same categories of farmers since 1970 (i.e. investments financed under all three credit Projects). This data was exploited to calculate financial and economic rates of return for a sample of CNCA clients typical of those financed under the Third Project (Table 8). Financial rates of return vary from 10% for milk production to an unusual 155% for a combination of land improvement, stable construction and animal fattening operations. The economic returns vary from 7 to 150% depending on the investment and particular farm conditions. Small farmer and medium/large farmers clients performed about the same on average. The weighted average economic return on investments financed by the Third Project is estimated on the basis of the above results at 20%, compared to the 29% estimated at appraisal. The difference is due to (a) relative price changes which have not favored agriculture, and (b) a slight over-estimation of likely crop production increases at appraisal/I. /1 For details on assumptions for economic and financial analysis see Appraisal Report and Project File of Fourth Agricultural Credit Project (Report No. 2425-MOR), April 30, 1979. - 12 - VI. Conclusions 21. The objectives of the Project summarized in para. 5 were achieved in terms of expansion in lending activity, expansion in number of farmers using credit, financing of investments having a significant positive impact on farm income (represented by the high financial rates of return), employment creation, and beneficial impact on the Moroccan economy (high economic return). Bank funds were used as planned. The significant institutional improvements summarized in para. 12 were planned during preparation and appraisal of the Third Project, and implemented during the Projects 2 1/2 year disbursement period. The issues raised by the Bank's audit report for the Second Credit Project (para. 4) were either resolved during the third, or not relevant to it. Financial performance was excellent, although interest rates were slightly negative in real terms, and Price Waterhouse had minor disagreements over two of CNCA's accounting procedures. Institutional improvements are possible in the areas of monitoring and evaluation, reporting to the Bank, and lending norms for small farmers. These are being addressed in the Fourth Credit Project. 22. The credit for the success of this Project lies primarily with CNCA and its borrowers. The Bank contributed not only financially, but through its recommendations regarding: (i) maintenance of a competitive staff compensation system; (ii) introduction of new lending policies and procedures and new lending rates; and (iii) introduction of a monitoring and evaluation system. CNCA agreement and implementation of these recommendations has contributed to CNCA's impressive performance. The evolution of Bank thinking is reflected in its agreement to finance small farmer lending under the Third Project after refusing to do so under the Second. 23. Government Performance. Government policies have a continuous impact on the efficiency of credit use as well as on the CNCA activities. Agricultural policies are analyzed elsewhere (Memorandum on Morocco's Agricultural Sector, May 1980). Government action to increase the interest rates of the CLCAs and Agrarian Reform Cooperatives in September 1977 benefitted both the Project and CNCA's financial position. Government has given CNCA a large degree of autonomy in making credit decisions and in internal management. Government provides small operating subsidies for small farmer lending, and covers CNCA's foreign exchange risk, in conformity to the Project's Guarantee Agreement. Government agricultural investments in irrigation facilities, sugar processing plants, milk collection and processing centers, animal health services, etc. have complemented CNCA credit in facilitating an expansion in agricultural production, and in providing markets for that production. Government has organized the purchase of superior livestock in Europe, which CNCA credit finances, and has been partly responsible for the expansion in the use by farmers of high yield seeds, fertilizer, and chemical treatment. CNCA provides credit to farmers to purchase these inputs. On the negative side, Government has compelled CNCA to make loans to certain public companies which do not always meet conventional economic criteria. This lending was excluded from the Third Project but CNCA continued using its own resources to finance such loans. In addition, certain deficiencies in Government agricultural policy during the period of the Third Project reduced the efficiency of credit use compared to what it could have - 13 - been. These deficiencies, discussed in the above referenced Sector Memorandum include: (a) inadequate agricultural research and extension; (b) price policy which is generally biased against agriculture; (c) an interest rate structure which subsidizes borrowers and penalizes savers; (d) inability to alter the land tenure situation which contributes to inefficient agricultural practices; (e) failure to attack problems of livestock development in non-irrigated areas; (f) input supply bottlenecks; (g) absence of a cadastral survey that would have facilitated the introduction of better credit norms and conditions for small farmers; (h) absence of technical assistance and promotion of small scale agro-industry/l. /1 During execution of the Fourth Credit Project, Government has raised agricultural prices, re-organized the agricultural research service, is planning to increase interest rates at the suggestion of the IMF, has prepared a program of alleviating input supply constraints, and may accelerate completion of the cadastral survey. Inadequate extension, a difficult land tenure situation, inadequate emphasis on livestock development in non-irrigated areas, and absence of assistance to agro-industry will continue to be bottlenecks. These issues will again be raised during preparation of a Fifth Credit Project. - 14 - Table 1 KINGDOM OF MOROCCO PROJECT COMPLETION REPORT THIRD AGRICULTURAL CREDIT PROJECT (Loan 1361-MOR) Estimated and Actual Allocation of Proceeds Category Number Appraisal Disbursed as of Disbursements as and Description (December 1976) June 30, 1980 /1 % of Allocated Funds (------Expressed in $ '000------- (1) Subloans for on-farm investments to small/ medium farmers 26,000 30,361 117% (2) Subloans for on-farm/ investments to Agri- cultural Cooperatives and their members 5,000 4,084 82% (3) Subloans for agricultural machinery to farmers' associations 500 255 51% (4) Technical assistance for a monitoring and evaluation system 50 - 0 (5) Research Program in vegetable cultivation by ORMVASM, 300 251 84% (6) Unallocated 3,150 - - Total 35,000 34,951 /1 The closing date of the Project has been extended to June 30, 1981. The remaining amount, about US$49,000 is earmarked for the research program. Source: IBRD August 1980 KINGDOM OF MOROCCO PROJECT COMPLETION REPORT THIRD AGRICULTURAL CREDIT PROJECT (Loan 1361-MOR) Project Costs -- Actual and Appraisal Estimates- -Actual Cost - - - - - - - - - - Appraisal Estimate-- -- Actual Cost as Project Component Local Foreign Total Total Local Foreign Total Total Propction of ------ DH million ----- US$ million ----- DH million ------ US$ million Appraisal .5 Estimate W )1 A. Small Farmers (CLCA Clients) 514.0 122.2 636.2 167.4 517.4 123 640.4 148.9 99 B. MediumlLarge Farmers (CRCA/Ifeadquarter Clients) 256.9 237.1 494.0 130.0 263.3 243 506.3 117.7 98 C. Loans to Irrigation Office for Sugar Cane 25.3 22.7 48.0 12.6 25.5 22.8 48.3 11.2 .99 D. Agrarian Reform Cooperatives 61.5 52.1 113.6 29.9 75.5 64.1 139.6 32.5 82 1 E. Pre-Cooperative Groups 4.1 5.9 10.0 2.6 6.3 9.1 15.4 3.6 65 F. Monitoring Fellowships /2 for CNCA - 0.2 0.2 0.1 - 0.2 0.2 0.1 100 G. Consultants Services to /3 CNCA - 0.2 0.2 0.1 1.0 3.1 4.1 1.0 5 H. ORMVASM Research 4 Program 0.2 1.3 1.5 0.4 0.2 1.3 1.5 0.3 100 TOTAL 862.0 441.7 1303.7 343.1 889.2 466.6 1355.8 315.3 0 I1 Using the exchangh rate of US$l Dil 4.3 for appraisal estimates and US$1 = DH 3.8 average for actual costs. Errors due to rounding. 1 153,000 Dirhame for expenses to Mexico-PIDER Project. The remaining expenses for training of 4 people in CNCA Parts. /I Consultancv services financed by the Arab Fund for a preliminary computer study. 14 Total costs expected to be the same as appraisal estimates. (5 Based on costs expressed in DH1. August 1980 KINGDOM OF MOROCCO PROJECT COMPLETION REPORT THIRD AGRICULTURAL CREDIT PROJECT (Loan 1361-MOR) CNCA Loan Disbursements Under the Project 1976/77 to 1978/79 Sept. 1, 1976 Sept. 1, 1977 Sept. 1, 1978/1 Actual Total Disbursements to Aug. 31, to Aug. 31, to Aug. 31, Total Estimated at Z 1977 1978 1979 Disbursements Appraisal Realisation Loans Eligible for Refinancing - ---- -. - Under the Project_by IBRI A. CLCA LENDING MEDIUM TERM (small farmers) Land Improvement 647 7,693 19,014 27,381 8,400 326 Wells and Pumps 5,442 19,909 18,324 43,675 53,020 82 Stables, Storage 13,431 40,817 54,649 108,903 132,600 82 Plantations 22 88 1,473 1,583 440 360 Livestock 24,947 76,889 76,737 178,573 137,050 130 Draft Animals 3,983 28,291 36,074 68,348 97,220 70 Small Equipment 273 1,188 9,150 10,611 13,270 80 Subtotal 48,778 174,875 215,421 439.074 442,000 99 c B. LOANS TO AGRARIAN REFORM COOPERATIVES Tractors, Harvestors 10,499 9,321 5,474 25,294 23,482 107 Equipment -2,930 2,467 2,429 7,826 11,883 67 Stables, Storage 4,849 3,377 6,220 14,446 16,126 90 Livestock 9,437 6,711 6,793 ;2,941 26,518 87 Draft Animals 1,150 1,882 123 3,155 6,202 51 Plantations 383 409 371 1,163 7,489 16 Subtotal 29,248 24,167 21,410 74,825 91,700 82 C. LOANS TO PRE-COOPERATIVE GROUPS Mechanizntion - 3,158 579 3,737 5,842 64 Other - 385 897 1,282 1,958 65 Subtotal - 3,543 1,476 5,019 7,800 64 1w /1 Includes some loans disbursed after August 31, 1979 but included under the project. - 17 - Table 4 KINGDOM OF MOROCCO PROJECT COMPLETION REPORT THIRD AGRICULTURAL CREDIT PROJECT (Loan 1361-MOR) CNCA6 Total Loan Disbursements 1976/77 to 1979/80 (D1 '000) --- 3rd. Project Period --- 4t. Yrof 1975/76 1976/77 1977/78 1978/79 1998 P it 1979/80- A. Small Farmers (CLCA Clients) 95,292 161,074 176,232 158,454 180,166 B. Medium/Large Farmers (CRCA and HQ Clients) 77,503 84,503 125,417 120,996 109,598 C. Agrarian Reform Cooperatives 21,243 44,878 48,571 43,454 31,520 D. Pre-Cooperative Groups 1,184 1,176 3,754 2,263 1,043 E. Agro-Industry 2 7,662 8,000 13,111 8,726 66,004 F. Loans to State and Private Enterprises and Other Loans J 44,457 17,547 12,801 36,032 Sub-Total Medium-Term 261,226 343,750 379,521 351,079 367,085 Sub-Total Short-Term 375,828 365,497 445,075 432,342 502,897 TOTAL 637,054 709,247 824,596 783,421 869,982 /1 Based on commitments. It is assumed that for CLCAs 98% represent disburse- ments and for CRCAs and headquarters 79% represents disbursements. Up to May 30, 1980. /2 Figures shown are commitments. Disbursements estimated to be only slightly lower. August 1980 - 18 - Table 5 PR1:43 001t-0*00 4ctD8} ProjecNed /4 1975/M 19vf/77 1977/78 1970/79 179/00 35ol 19/ 1962/.3 193/86 6 * .3 4. E.72KCFt0 ereresoman (pr p) 402,442 576,08 371.W 491.470 000,7 1,03,299 1203,40 1,43.244 1,723,422 0,943 M~tom - lnSD 48redit tw380ts) 45,451 - 30,04 04.112 66,954 1301 0 10.000 50,.0*, - - 0lab )58e3ot de seedit) - Lea ir.'. Iraa 40,000 22.258 • • - - - - - - Ie - Eurrdollor L,> o - 15860 39.424 - - - - -3~ dÅe~ld - Ar. Fu,d 10m0 • • 6,701 10.70 6,773 - 1& 9 - e Y.1 • 13 Les - - L 9 20.000 3.,000 85.0 . . - - ~t~ • 1FAD Leem • • • • 220,000 4000 40.000 - - - - Fla6 - 0*CAP Puede8 - 50,00 - - - • • - - - - EA - 8807 (Fe3 Kari0 7e.s 333g) • -. 12,0m 10 10.000 10.800 10.03 • nkD aPe.}.t pes-o.ri.-Tead. • 850D <1eg. 40410t. Pseje03) 20JL 00 000 e 800 00 MB - ., - - 0880 (Pr82.8 developpeme do ..statekgs subtesal5 05,451 207,0.8 125.730 96,306 213,732 31.000 315,000 ,m 0 10,00 • Se.tse lnress. 83 depeetta (11.754) 55,808 35.568 53,058 40,000 46.000 40.400 53,26 S0.564 66,420 augm8ta.ta de dpe increase. (decrease8 80 pank eeses 77,Mo (112,000) 0,.000 <576> 0,.00 15,009 110.912 159,020 173.986 203,654 dumtta=a teIdkste>es de 34e8m0i*ee (0*, CBC) 7pera3te8 133ems Il 40,732 76.026 94,354 123,361 130,460 80.,68 2*7,547 251,442 103,220 36.,210 06emm T&-d 70.j 019.054 054.7 95,208 : 369.067 1 508 6*0 1 sta 79 2.812 9e8 2:«. 2,wo2.5 1m. . Madam1/0*n 3ese 1em 261,926 543,750 379,521 351,079 341,455 719,209 039.363 8,011,668 1,Ul112 8.,40,777 Ps4.3. 1 asp 8 et les tss short0* te1= lcn 375,08 360,527 045.075 432,362 400,362 663,005 774.797 0533,67 1,107.133 8,381147 P.1.. . come ees P-~ -depa9m e. 9o . S.rrng 10,918 l6M1 • - - 3~ 3.m5e •-.6 12,477 132,42. 2U.415 ,06.n 31.00 27.0 ,0 77,0 - 3686 - Ara 0.und L.e0 - - • • 6,600 10,000 10,000 10.000 - NBEE0 - e.4d 000 4800 4000 4 ,.00 4,000 4 ,0 0000 4.0* 4.My - Bn • E046della La08ms - - 66,0* 49,N* 69,0 49,0* • - - 1.m411... intresse in loweaream see0ritie 2.250 2.051 1,353 0.0 - - - - - - 1838tese de garm803e d'tesett0ssee 18e8ess8 88.evessei is insere3 64243 7,097 <21.306) (1.0,3) - - - - - - 4eguem8t (d81080tte3) d'in.met 88080... 88. s8wa 7.8em . 2,058 2,176 5,613 1..t02 2,070 2.5 2.065 2,020 3,n64 3,575 a..ea.- de I80.. et £ens.73. 7 Operatta 3801a 13 36.231 68.398 8J.11 115372 13.6 889.022 .. 252...620~ ...X 6 36,6 seats d'empletaceans 70r18 71.ki 1ILs.4 n±.293 909.302 JLE 1.0231 0 a31 1.9153.5 2 20r oss L!0i..fla 39.a 100:a c0 sDca < > cash (51,00) 20,912 (2,4> 04,006 (3,311) 21,651) (19,93*) <278.119% <423.621) f500.409 C. augmnta8en (di0t80ts.el de 88ent48ed 0 Accamaketed Ca66 Fle., 9.173 40.0t5 19,50 1~0693 p.182 Z2.531 2,595 (273.536) (8,545) (1.306.934) 0. os==. be't d'a.1e 38ce 3 Total Lea 0e9gge00 r 1.210 m11em E T.ta1 de Iet0li~ de p.. t p Sh Cr-dit L..8 320 0001118.. 8e 5$ elgt~ de .448 /l 8ac1.des 4.3.r8at popment8 an g.01us embeid. Ij 0ea88.t d' 80atéréta et am.as . da 06.... S .opeca . a e ,d. 1 å 7 ffåtm. u-tt. L-k- T mrs. 1976/77 de t t s ~ - .de ... a tr . 3e3 . l s e8 n /4 Préusstem. 8>La dsnsset based e836303 C 8 Ca sz333ctins -.at 880f 0803sse let 8 880101 d 85 681-r0388 08 ana3a.33g alter.ter di8heiaammat represent4 8.1 oa and 80edim/10 08e 52. 1) 0eurosammat depsi baj If r prt 4n f . accreissement.0 estime a .t 8 e d ban8814 m..3an 1i IL) 5an 33re=838 *ndeqi0.8 ass8.e 13 .ema8* 8h es. It ...8. t. **"'1*"'a*e a de3.43t0o.. 88380 08008801080 0.3-.ss ml. 888> 8891888.8*08084 8.8 80.0800.81 .6.83 It.<14* 303.4 31L 88a.85es8.e.=888 1en3 *3e1:3era.0e.tn1 e.8tt (8at e83<ri8a. 84.l0. OJ8 55pastr.s expected0 387.8eress et abou 1018 (.h expectd rate ofl 0.02*33e4. 8ig> 6,3*..s 03 83.seenter188888de8101 6.8080 d'5is.0 pes) in opertsat icome an empemes basd se Tale . CCA prelmiaarypre3en 8) 8.4 Mo.38 38 798*3*1 18338313.0.3 0f388. 8 886 -800w4 ) 1en1 et8 rais*8 18 exltta.8ion 4.n 3fl0os. sur le 888akadane3 aeexece8t3nceaeseese aetfla a8ah n 488previsaans,338 de. la C*3CA.(..ablem anort-t=== crede diebursement. e 0833e8t3Pre qu8 8les8 faclits e *r8aa8pe sge tea - 19 - Table 6 KTN('rDON OF MOROCCO PROJECT COMPLETION REPORT THIRD AGRICULTURAL CREDIT PROJECT (Loan 1361-MOR) CNCA Audited Consolidated locome Statements 1974/75 to 1978/79/1 - - Actual--- -Estimated- Average Average Crowth I Year Growth % Year 1974/75 1975/76 1976/77 1977/78 1978/79 1974/75 - 1978{79 1976/77 - 1978/?9 1979/80 f1perating Income Interest on short term loans 12,051 18,022 22,494 112,744 Interest on medium term loase 26,177 29,037 39,250 81,544 101,760 262 28.5% Bank, other interest 2,261 4,059 5,053 Penalty Interest 1,167 662 690 5.070 6,869 9.5Z Government Subsidy 5,759 6,236 5,630 2,898 8,016 8.6% 9.5% 6,924 Other Operating Income 2.305 2,116 2A09 4,842 6,696 30.5% 19.4% 20.000 Total 49,720 60,132 76,026 94,354 123,341 25.5% 27.21 139,668 Operating Expenses Salaries and other Employe* 24,008 24,417 31,616 34,903 45,461 17.3% 20% 53,000 Benefits Finance Charges 17,787 21,704 26,808 42,555 57,774 34.3% 46.5% 69,941 Depreciation and Amortization 904 1,347 1,388 2,385 2,698 31.52 39.5% 3,400 Provision for debts (write back) 55 R09 2,375 1,655 2.966 2,000 Transport and Travel Allowance 1,278 1,654 1,930 - - 3,065 Rent, Maintenance and other services 2,036 2.585 3,312 3,455 4,063 19% 13.8% 4,500 Miscellaneous Administration Costs(including taxes) 2,517 2.870 3.827 6,828 7.706 32% 41.5 3540 Total 48,585 58,386 71,256 91,781 120,668 25.5% 30% 139,446 Net Operating Income for the Year 1,135 1,746/2 4,770/3 2,573/4 2,67315 24 - 222 1 The fiscal year is from September 1 to AuRust 31. /2 Adjusted to take account of the auditor's qualification that operating expenses were understated by 011 218,000. /3 Adjusted to take account of the auditor's qualification that operating revenue was understated by DR 82,000 and operating expenses understated by Di 1,407,000. 4 Adjusted to take account of the auditor's qualification that operating income was overstated by DR 1,500,000 and operating expenses understated by DH 952,461. 15 Adjusted to take account of the creditor's qualification that operatiag expenses was understated by DH 120,433. July 1980 - 20 - Table 7 KINGDOM OF MOROCCO PROJECT COMPLETION REPORT THIRD AGRICULTURAL CREDIT PROJECT (Loan 1361-MOR) CNCA: Recoveries During Years 1975/76 Through 1979/80 Overdue at Recoveries Z Falling Recoveries % Total Total 2 beginning During Due During Due Recoveries of Year Year During Year Year 1975/76 Recoveries of HQ/CRCA 107.5 79.4 74 419.9 326.1 78 527.4 405.5 77 CLCA 12.3 8.9 72 83.2 68.2 82 95.5 77.1 81 Total 119.8 88.3 74 503.1 394.3 78 622.9 482.6 77 1976/77 Recoveries of HQ/CRCA 121.9 89.0 73 456.1 376.1 82 578.0 465.1 80 CLCA 18.5 15.3 83 109.0 96.4 88 127.5 111.7 88 Total 140.4 104.3 74 565.1 472.5 84 705.5 576.8 82 1977/78 Recoveries of HQ/CRCA 112.9 75.0 66 530.3 396.4 75 643.2 471.4 73 CLCA 15.7 12.3 78 142.5 128.4 90 158.2 140.7 89 Total 128.6 87.3 68 672.8 524.8 78 801.4 612.1 76 1978/79 Recoveries of HQ/CRCA 171.8 132.6 77 616.0 525.0 85 787.8 657.6 83 CLCA 17.5 .14.2 . 185.2 157.3 202.7 171.5 U Total 189.3 146.8 78 801.2 682.3 85 990.5 829.1 84 1979/80 /1 Recoveries of CRCA 97.0 70.2 72 248.3 225.7 91 345.3 295.9 86 CLCA 31.2 27.5 88 14.6 9.7 66 45.8 37.2 81 Source: CNCA /1 Up to June 28, 1980. Data for Headquarter recoveries not yet available - 21 - Table 8 KINGDOM OF MOROCCO PROJECT COMPLETION REPORT TIRID AGRICULTURAL CREDIT PROJECT /1 Ex-Post Analysis of Investments Farm Investment Financial Economic Model Rate of Rate of Number Basic Investment Type Return Return Cattle, Stable, Land Imvrovement 1. Pure bred cow, stable, truck, storage (24 ha farm, CRCA client, 500 mm rainfall) 130 95 8. Pure bred cow, fattening (4 ha, CLCA Client, 500 mm rainfall) 10 7 10. Desconing, purchase of local bred livestock, stable (13 ha, CLCA client, 500 mm) 155 105 12. Draft animals, animal shelter, local bred livestock (23 ha, CLCA client, 600 mm) 35 50 Sheep, Sheep Stall 3. Sheep cooperative; acquiring sheep (1,550 ha pasture land) 150 150 9. Destoning, purchase of sheep and stable (13 ha, CLCA client, 500 mm) 80 70 rrigation (pump, well, small scale hydraulic eouiDment) Combined with Livestock 2. Pure bred cow, pumps, irrrigation equipment, truck (92 ha, CRCA clients, 400 mm rainfall) 45 30 6. Well, pump, forage sheep (14 ha, CLCA client Arid) 50 90 1rrigation and Plantations 5. Pump, irrigation equipment, fruit tree plantation (55 ha, CRCA, 650 mm) 25 20 Mechanization 7. Tractor and combine purchase by Agrarian Reform Cooperative 40 12 13. Tractor, combine, pick-up truck (CRCA, client, 216 ha, 500 mm rainfall) 30 20 4. Stable, tractor, fattening (60 ha CRCA clients, 325 rainfall) 30 60 7eeetable Grower (truck, plough) '1. Pick-up truck, plough, stable, short-term credit for vegetables (9 ha, CRCA client) 20 40 '1 See Project File, Fourth Agricultural Credit Project Appraisal Report 'No. 2426-MOR), April 30, 1979 for Data. ** Note (see next page) - 22 - Note to Table 8: The rates of return, based on empirical observation, are extraordinarily high. It should be noted that not all Moroccan farmers can obtain such rates of return. Farmers borrow from CNCA only when they are certain to have a productive invest- ment. The risk of losing property in case of investment failure and loan default, since CNCA can and will take a defaulting farmers property, ensures that the farmer avoids risky investments. Self-selection thus ensures that users of CNCA credit will generally obtain good financial returns on investment. Price distortions cause economic returns to diverge from financial returns, but not so much as to compromise economic viability. Although considerable effort was made to ensure that the above sample was representative, it probably is not, and reflects performance by average and better, rather than less than average, borrowers. The 5% of CNCA borrowers, and 12% of HQ/CRCA borrowers who default on their loan repayments in many cases do so because return on investment was too low to permit repayment. Nonetheless, the conclusion is that investment in Moroccan agriculture, given appropriate farm conditions, can be one of the most profitable activities in Morocco, and at the same time is economically beneficial. The economic rate of return of 20 to 25% estimated in the OED report for the Second Project, although of questionable value due to measurement problems, is consistent with the above results. 요 IBRD 15252 …