Document of The World Bank FOR OFFICIAL USE I)NLY Report N,s 3689-TUN STAFF APPRAISAL REPORT TUNISIA ELECTRICAL AND MECHANICAL IN)USTRIES PROJECT March 2, 1982 Regional Projects Department Industrial Development and Finance Europe, Middle East and North Africa Region 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. CURRENCY EQUIVALENTS Currency Unit = Dinar (D) US$1 = D 0.5 DI = US$2.0 LIST OF ABBREVIATIONS ADB African Development Bank APB Association Professionelle des Banques API Agence de Promotion des Investissements BCT Banque Centrale de Tunisie BDET Banque de Developpement Economique de Tunisie BTKD Banque Tuniso-Koweitienne de Ddveloppement CNEI Centre National des Etudes Industrielles COFIT Compagnie Financiere du Tourisme DFC Development Finance Corporation EIB European Investment Bank EMIs Electrical and Mechanical Industries ERR Economic Rate of Return FRR Financial Rate of Return KfW Kreditantestalt fur Wiederanfbau MNE Ministry of National Economy SIAT Societe d'Investissement Arabe de Tunisie SSIs Small-Scale Industries STUSID Societe Tuniso-Saoudienne d'Investissement et de Developpement FOR OFFICIAL USE GIXJLY TUNISIA THE ELECTRICAL AND MECHANICAL INDUSTRIES PROJECT STAFF APPRAISAL REPORT TABLE OF CONTElITS Page No. I. INTRODUCTION ................ * .................... 1 II. THE MANUFACTURING SECTOR .......................... 2 A. Recent Performance. 2 B. The Sixth Development Plan .................. 3 C. Issues and Constraints ...................... 3 D. Prospects and Priorities ..................... 6 III. THE EMI SUBSECTOR .........................,.,, 7 A. Structure and Characteristics. 7 B. Subsectoral Patterns and Potential 8 C. Trade and Demand for EMI Goods .10 D. Market Prospects and Developmnent Strategy for the EMIs .11 E. The Sixth Plan and the Pipeline of EMI Projects .12 F. Sectoral Issues and Constraits .14 IV. THE FINANCIAL SECTOR AND ITS ROLE ON EMIs 18 V. BANQUE DE DEVELOPPEMENT ECONOMIQUE DE TUNISIE (BDET) 22 A. Structure Organization and Procedures 22 B. Operations .24 C. Quality of BDET's Portfolio .25 D. Financial Performance .27 E. Projected Operations and Finance .28 F. Resource Requirements ....................... 29 VI. THE PROJECT ................ 31 A. Financial Assistance .32 B. Technical Assistance to EMIt ................ 35 C. Incentive Framework for EMIs .39 D. Sectoral Studies ........................... 41 E. Project Benefits and Risks. . 41 This report was prepared by Messrs. Jean-Frangois Landeau, Fran.ois Ettori, Ms. Khanh Nguyen and Mr. Cesare Calari. Mr. Harry Choi, Consultanc, accompanied the Appraisal mission in June 1981. 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. Table of Contents (cont.) Page No. A VII. RECOMMENDATIONS .43 A. General Features of the Loan .43 B. Agreements and Understandings to be reached during Negotiations concerning the Proposed Loan to BDET .43 C. Agreements and Understandings to be reached during Negotiations concerning the technical assistance arrangements 44 D. Agreements and Understandings to be reached during Negotiations concerning Policy Measures for EMIs .................. 45 Annexes Annex 1: Economic Trends under the Fifth Plan (1977-81) Annex 2: Actual and Optimal Structure of Manufacturing in Tunisia Annex 3: Subproject Pipeline in EMIs in the Sixth Plan (1982-86) Annex 4: Structure of Tariff Duties on EMI Products Annex 5: BDET: Organization Chart, July 1, 1981 Annex 6: BDET: Summary of Operations 1977-80 Annex 7: BDET: Analysis of Approved Operations 1977-80 Annex 8: BDET: Outstanding Loans and Equity Investments as of December 31, 1980 Annex 9: BDET: Performance Indicators 1977-80 Annex 10: BDET: Major Assumptions Underlying Projections 1982-86 Annex 11: BDET: Projected Operations 1981-86 Annex 12: BDET; Income Statements, Audited (1977-80) and Projected (1981-86) Annex 13: BDET: Balance Sheets, Audited (1977-80) and Projected 1981-86) Annex 14: BDET: Pipeline of subprojects in EMIs Annex 15: BDET: Estimated Disbursement Schedule for the Proposed Loan Annex 16: Documents in Project File I. INTRODUCT'ION 1.01 This report appraises a project wh.ch will provide financial and technical assistance to the Electrical and lMechanical Industries (EMIs) in Tunisia, and introduce a number of sector policy improvements and institution- building efforts. The groundwork for this loan was laid down on the Bank side in the sector report on EMIs I/ prepared duHing 1979-80. Extensive prepara- tion was done in parallel by the Tunisians because the project would also coincide with the beginning of the Sixth Plan (1982-86) which, partly as a result of EMI sector report, has the development of EMIs as its first indus- trial priority. 1.02 The project would include five main elements, namely: (a) a US$30.5 million loan to BDET divided into a US$28.0 million credit line to BDET, half of which would be onlent to eligible subprojects in priority EMI subsectors and half to eligible industrial sub- projects in other industrial sectors, and a US$2.0 million loan to be onlent to the Government by BDET to cover the foreign exchange costs of experts to be hired by: (i) the Technical Center for Mechanical Industries (CTM) (US$1.5 million), (ii) the Standardization Institute ((c) below) (US$0.3 million), and (iii) the Bach Hamba Institute (US$0.2 million); and a front-end fee amounting to US$0.5 million. (b) the provision of technical assista.nce to selected EMI subsectors through the CTM to be established; (c) a product standardization and quality control program through the establishment of a new National IrLstitute for Standardization and Quality Control designed to cover all industrial products; (d) a package of incentives specific to EMIs to be improved and of administrative procedures to be streamlined; and (e) the preparation of development str-ategies for two EMI subsectors with development potential. 1.03 The relevant Project Performance Audit Report No. 3611, dated September 9, 1981, covers the third, fourt'a and fifth loans to BDET (Project File, Item 9). Points stressed in the repDrt, such as the need to increase promotion and supervision activities, adeqlacy of provisions for risk, and high concentration of subprojects in Tunis, were taken into account in the Seventh loan as well as in the preparation of the proposed loan. 1/ Tunisia Review of the Electrical and Mechanical Industries (Report No. 2666-TUN, dated June 4, 1980) (Project File, Item 1). -2- II. THE MANUFACTURING SECTOR A. Recent Performance 2.01 As the Fifth Development Plan (1977-1981) is drawing to a close, the performance of manufacturing continues to be good on the whole, and expecta- tions are high that most of the Plan objectives set for the sector will be achieved. Manufacturing value added grew at a healthy rate of 10.2% p.a. (compared to 6.7% p.a. growth in GDP) over the Plan period, in spite of slug- gishness in the textiles subsector due to the recession in the EEC market in 1978. Total employment creation in the sector exceeded the target, with almost 95,000 new jobs (compared to 60,300 during the Fourth Plan), represen- ting 45% of total new employment in the economy during the Plan as compared to 33% during the 1960s. The subsectors contributing most to manufacturing growth and employment creation were: textiles , construction materials, and electrical and mechanical industries (EMIs). With a total of D 750 million or 18% of total gross fixed capital formation over the Plan period, manufacturing investments came short of the 23% share targeted for the sector, chiefly because of some delays of large projects in the chemicals and construction materials subsectors, and the slowdown in the textile subsector. Total manu- facturing exports continued to perform well, fulfilling the target share of 45% of total commodity exports set for the Plan; textile products remained Tunisia's principal manufacturing exports in spite of the market difficulties encountered in 1978. 2.02 Despite these quantitative achievements, the shares of manufacturing in GDP and national employment remained quite modest at 11% and 20% respec- tively, thus leaving ample room for additional expansion. The manufacturing base continues to be dominated by two traditional subsectors,textiles and food processing. Private domestic initiatives in manufacturing were strong during the Fifth Plan, especially in the EMI and food subsectors. Having started however from a much lower base, private investments have remained smaller than those of the public sector, averaging 39% of total manufacturing investment during the Plan. In effect, most of the larger enterprises in Tunisia are publicly owned (especially in the chemicals, construction materials, and EMI subsectors). In contrast, private manufacturing enterprises tend to be small and medium-sized, employing between 10-50 workers 1/; according to the 1978 Industrial Census, they represented about 65% of the total number of firms in the sector. Manufacturing production is mostly concentrated in the Greater Tunis area and the regions bordering the east coast. There are indications, however, of some decentralization towards the interior in recent years, especially among the smaller enterprises. New incentives to foster faster decentralization have been introduced by the Government in June 1981 (para 2.08). 1/ A recent Bank loan (No. 1969-TUN) addressed the specific needs of these small-scale enterprises; see First Small-Scale Industry Development Project, Staff Appraisal Report No. 3266-TUN, February 5, 1981. (Project File, Item 7). 2.03 Factor performance in Tunisian manufacturing has improved slightly over the last Plan period. The incremental capital-output ratio (ICOR), though still high, has actually decreased from an average of 5.0 during 1973-1977 to about 4.0 during 1977-1981, this suggesting that Tunisian enter- prises have become relatively more efficient with their investments (Annex 1). Reinforcing this trend is the general decline in the capital intensity of investments in manufacturing; investment cost per job created decreased by 34% beeween 1977 and 1980, averaging about US$15,819. Productivity of labor (as measured by real value added per worker) experienced improvement as well during the Plan period. Its absolute value (LS$2,195 for 1980) nevertheless remained low compared to other comparable Mediterranean LDCs (for which value added per worker ranged between US$4,000 for Morocco and US$6,400 for Portugal). Although the above qualitative achievements in the manufacturing sector represent progress in the right direction, they remain quite modest. Substantially more efforts are still required, therefore, to improve produc- tivity and competitiveness before the sector can attain its full potential. B. The Sixth Developrnent Plan 2.04 The Sixth Plan 1982-1986 is still under preparation. Preliminary projections available for the manufacturing sector indicate that the Govern- ment will, on the whole, pursue the same development objectives as in the last two Plans, namely employment creation, exports, more efficient and better integrated industrial structure, and more rapid decentralization of industrial activities. Thus, a large share of the planned productive investments in manufacturing (tentatively projected at D 1.750 billion in current prices, or 22% of the total) would originate from the private sector, and especially from the labor intensive industries (eg. small and medium-scale enterprises, and EMIs). Manufacturing value added is projected to grow at about 11.5% p.a. in real terms, slightly faster than the growth rate achieved during the Fifth P'lan. Textiles, food processing, and chemicals are expected to grow at a much slower pace than before (10.2%, 7.1%, 8.5% p.a. respectively); in contrast, the fastest growth (18.7% p.a.) is foreseen for EMIs which have the highest priority for industry in the Plan. Their shz.re of total manufacturing value added is expected to reach 19% in 1986 compared with 14% in 1981. Overall, these targets correspond to the sectoral prospects envisaged for the next five years (para. 2.10). A more detailed assessment of the Government's objec- tives for the EMIs is provided in Chapter III. C. Issues and Constraints 2.05 The development potential of the manufacturing sector has been hin- dered by a number of constraints, some of which affect EMIs more specifically than others (para 3.19). Although closely related to each other, these pro- blems can be grouped into two main types: thia ones existing within the firms, and the ones stemming from the policy and incentive framework. 2.06 Technical Constraints. The first set of constraints involves: inefficient planning and management of production operations, poor product design and quality control, deficient machine operating and maintenance -4- practices, insufficient specialization of product mix, weak linkages between firms and subsectors, excessive capacities in several subsectors (including some EMIs), shortage of skilled labor, experienced production technicians and engineers, as well as experienced industrialists/promoters. Since 1979, some of the simpler project preparation and production management/accounting pro- blems specifically faced by the SSIs have been addressed through a technical assistance scheme operated by Agence de Promotion des Investissements (API) and Centre National des Etudes Industrielles (CNEI) 1/. Because of its spe- cific focus on the transitional problems of Tunisian SSIs, this scheme is not geared to resolve the specialized technical, engineering-type problems encoun- tered by industries in general, and EMIs in particular. An effort is made in the context of this project to address this deficiency for the EMIs (paras 6.08-6.16). With regard to shortage of skilled labor and especially of expe- rienced mid-level technicians, there are several ongoing technical training programs under the aegis of the Ministry of Education and the Office de l'Emploi, with the latter being given the central role in professional trai- ning activities. Under the Fifth Plan, these programs focussed on teaching and upgrading skills relevant to regional and sectoral employment needs. These programs produced 36,800 skilled and semi-skilled workers in 1978 of which about 30% are specialized in EMI skills. To further support the Govern- ment's efforts to train technical manpower, the Bank Fourth Education loan (No. 1961-TUN) approved on May 18, 1981 will assist the Office de l'Emploi in its efforts to expand the training output, to improve the quality of training, and to promote closer cooperation and involvement front the enterprises in the training activities. Annual output from these new and expanded facilities are expected to be about 6,200 workers, of which 3,300 with EMI skills . These present and future training programs would improve the supply and quality o' technical workers available to manufacturing firms in general, and EMIs in particular. To avoid duplication of efforts, the proposed project will address the issue of technical training of EMI workers only in the form of on-the-job and shop floor level guidance of workers in EMI enterprises (para 6.12) With regards to the need for product-on engineers, a major increase in their number is envisaged during the coming years through the establishment, under the Ministry of Higher Education, of the Institute of Technology and the strengthening of the National School of Engineering (Ecole Nationale des Ingenieurs Tunisiens). 2.07 Policy Constraints. The second set of constraints originates from the Goverment's continued reliance on a complex system of administrative controls with regards to investment criteria, pricing, tariff protection and import quotas, and several shortcomings in the existing incentive framework. In effect, although applied with greater flexibility in recent years, the price controls--of a cost plus type-- 2/ coupled with high protection have made the domestic market more profitable and less risky (especially for enterprises fabricating end products, including EMIs), without encouraging 1/ More details are available in the Staff Appraisal Report (No. 3266-TUN) of the First Small-Scale Industry Development Project. (Project File, Item 7). 2/ For miore details, see Special Economic Report on Price Controls and Subsi- dies in Tunisia, No. 3405-TUN, September 15, 1981. - 5 - them to increase efficiency and competitiveness. A comprehensive review of the pricing and protection structure is being undertaken by the Government in the context of the Sixth Plan; in the short term, the proposed project is addressing specifically the protection framework affecting EMIs (paras 6.21-6.22). The Government also has been controlling resource allocation and investment approval. This, however, has not ensured the desired coordination and consistency between investment programs, mnainly because well-defined sec- toral strategies are not sufficiently developed. Conscious of this problem, the Government has begun to place more emphasis on identifying integrated investment programs for the Sixth Plan, especially in the EMI subsector. This effort is commendable. However, the strategy to tie these investment projects together in a consistent development approach is still missing for a number of key subsectors; this deficiency will be addressed by the proposed project for two EMI priority subsectors (paras. 6.26-6.27). 2.08 The basic investment incentive framework (Law 1974-74 for Tunisian investors and Law 1972-38 for foreign export-oriented investments) 1/ gene- rally has had a beneficial impact on the initiatives of the private sector in manufacturing. There are, however, distorticns and negative secondary effects which have emerged in recent years, such as fiscal exemptions granted irres- pective of the efficiency of the investments and their employment creation; lack of encouragement for higher sectoral integration and value added content (especially from foreign assembly operations), and biases against SSIs. These shortcomings, in combination with the pricing/protection issues above, have further contributed to the low overall efficiency at the firm level. In June 1981, improvements were made by the Governmer.t to the Law 1974-1974; they are good steps in the right direction 2/. The new measures introduced to promote accelerated decentralization of industrial activities (e.g. granting of bonus per new job created in lieu of interest rate subsidies; establishment of a more refined geographical basis for fiscal benefits, etc.) are well thought out and relevant; in particular, they should help reduce further the capital intensive tendencies of investments in general, and be beneficial to SSI. The modifications intended to expand exports and increase their local value-added content (e.g. more liberal eligibility criteria for fiscal exemptions, simpli- fied procedures, increased fiscal benefits, improved exemptions of taxes on purchase of local goods and services to produice exports) also represent pro- gress from the past for the manufacturing sector as a whole, and for the EMIs to some extent. More concrete measures are still required, however, to address in particular the need to create more efficient employment (i.e. with higher domestic value-added per worker), to Lncrease linkages/integration between subsectors and firm sizes, and to better encourage efficient domestic fabrication of end-products. Finally, measures to specifically promote a faster and more efficient development of the EMI priority subsector are missing from the revised Investment Code. SDme solutions have been identified for the EMIs (para 3.25) and appropriate recommendations are detailed in the policy component of the proposed project (paras 6.21- 6.25). 1/ For more details, see Tunisia-Review of Electrical and Mechanical Industries, op. cit. (Project File, Item 1). 2/ The new Incentive Law No. 81-56 is available in the Project File, Item 10; see also para 3.20, - 6 - D. Prospects and Priorities 2.09 The outlook for manufacturing in the next two years is expected to remain relatively good. For the longer term however, growth prospects are more limited. In effect, an accelerated development of the two major export subsectors (textiles and chemicals) may be increasingly constrained by market and resource considerations, and will require major efforts to diversify the country's foreign markets and strengthen existing export promotion possibili- ties. The potential of the food processing industries will continue to hinge importantly on safety in supply and productivity gains in the agricultural sector. Production of construction materials will probably slow down somewhat as domestic demand stabilizes. The leather industries may have some export potential but would require some re-orientation in production (eg. improved productivity and geared towards high value added quality items) and strength- ening of marketing/export facilities. For these subsectors, prospects could be substantially improved if serious efforts are made over the next 2-3 years to increase the sector's productivity and market competitiveness; this is one of the objectives set by the Government for the Sixth Plan. 2.10 As for the EMIs, whose development has contributed little to that of overall manufacturing, there are substantial opportunities for both import- substitution and exports, particularly if focus is placed on efficient produc- tion of standard intermediate and capital goods as discussed in more details in paras. 3.12-3.14. This prospect is confirmed by the analysis of indus- trialization patterns in Tunisia compared with those in 32 countries similar in population size, and manufacturing orientation 1/ for the years 1977, 1979, 1981 and 1985. The results show that, for TunisiaTs size and level of deve- lopment, the manufacturing sector in general, and the EMIs in particular, should contribute larger shares to the country's GDP (Annex 2). To correct the above imbalances and to exploit more fully the EMI's ability to create more employment and strengthen existing industrial linkages, the Government has given the EMIs first industrial priority in the Sixth Plan. This objec- tive is supported by the project. 1/ See the World Bank Research Project "Patterns of Industrial Development" (RPO 671-05). - 7 - III. THE EMI SUBSECTOR A. Structure and Characteristics 3.01 Engineering industries usually lie at the heart of the industriali- zation process around the power, transportation and manufacturing sectors. They provide the design, development and fabrication technology for most iran-made products, and they establish a crucial link between the end-products assembly industries and the supplier industries manufacturing all components and sub-assemblies. Well-developed EMIs generally comprise five groups of subsectors: - basic metals (steel works, ferrous/non-ferrous foundries); - fabricated metal products, and non electrical machinery and supplies; - electrical machinery, appliances ancl supplies; - transport equipment; and - measuring and control equipment. 3.02 Tunisia has so far entered some simple production lines of EMIs, in the subsectors of basic metals (steel mill and foundries), metal products (mostly consumer and durable goods), electrical machinery and appliances, and transport equipment (ship repair and vehicle assembly). The outstanding gap in the structure of Tunisia's EMIs is the subsector of non-electrical machi- nery, which has been neglected due largely to its intrinsic complexity and technological requirements. Excluding the artisans with less than 5 workers, the EMIs comprise about 300 industrial enterprises, generally small 1/, with a majority of enterprises in the activities of steel structure/platework, metal products, and mechanical works. They are dominated by a dozen large public enterprises (steel mill, foundries, ship repair, vehicle assembly, engines, household appliances, hardware), which account for more than half of the sector's output. 3.03 Tunisian EMIs have grown rapidly, 1y 18% p.a. during the 1960s from a small base, and by 13% p.a. during the 1970s. They are still small, represen- ting only 1.9% of GDP. The sector is essentially inward-oriented. The deve- lopment of EMIs in the 1970s has taken place principally in import-substituting assembly industries producing consumer and dlurable goods and relying largely on imported components. As a consequence oi- the focus on assembly activities, the value-added content of the sector's output has remained low at an average of 30%. 1/ Of these enterprises, 70% employ less than 50 workers. -8- Tunisia - Structure and Growth of EMIs (in percent of Output) Structure of Output VA Growth Rate p.a. EMI Subsector 1972 1980 Output 1972-1980 Mechanical Industries Intermediate Goods 53.1 39.1 40 8.9 Capital Goods 12.3 12.4 40 13.4 Consumer/Durable Goods 20.3 25.9 20 16.8 Sub-Total Mechanical 85.7 77.4 33 11.8 Electrical Industries Intermediate Goods 2.5 2.9 15 15.5 Capital Goods 4.8 7.4 40 19.6 Consumer/Durable Goods 7.0 12.3 15 21.4 Sub-Total Electrical 14.3 22.6 23 19.9 TOTAL EMIs 100.0 100.0 30 13.2 3.04 Labor Productivity in EMIs (measured by value-added per worker) is low compared to Mediterranean LDCs, averaging some $2,900 in 1980. It has increased steadily in the late 1970s, by some 5% p.a. in real terms, reflec- ting improvements of the EMI labor force's skills. The proportion of tech-. cians and foremen in the EMI's labor force rose from 5.7% in 1969 to 7.2% in 1979, and the proportion of unskilled labor decreased from 37% to 18% to the benefit of skilled workers. The average ratio of 1:7 between supervisory staff and direct production labor has been adequate in comparison with EMIs in other countries. however, the proportion of skilled labor relative to unskil- led labor has remained low, in particular in the foundry and steel platework subsectors, and the share of production engineers and other supervisory staff has been significantly lower in the mechanical works subsector comparatively to other subsectors. The output of EMI skilled labor from the education and vocational training systems will increase substantially through education pro- jects assisted by the Bank and bilateral sources. However, the availability of electrical and mainly mechanical engineers will be a major constrairnt on (a) the aevelopment of the EMI sector in general; (b) diversification of EMIs into new or more complex activities (such as machinery); and (c) increases in labor productivity. B. Subsectoral Patterns and Potential 3.05 EMIs can be classified functionally into three groups: those produ- cing consumer and durable goods, those producing capital goods and supplies, and those producing intermediate components and sub-assemblies for the two other groups. Consumer and durable goods EMIs (hardware, metal products, household appliances and TV/radio sets, vehicle assembly for 11,000 units p.a.) account for 40% of the Tunisian EMI output and meet about half of the - 9 - clomestic demand for these goods. These industries rely mostly on assembling imported inputs, which represent 40-70% of tthe output value, and are weakly integrated within the sector. Moreover, the low degree of capacity utiliza- tion (about two-thirds), the low content of Labor (5 to 10% of output value) and the amount of duties and taxes on inputs have resulted in uncompetitive prices and made it necessary to protect domentic production by substantial import duties (30% and above, and up to 100% for automobiles). Intra-sectoral integration of these EMIs could increase in the long-term with the development of efficient intermediate goods EMIs. The Low efficiency and productivity of consumer/durable goods EMIs stem from the weak organization and management of plants and mainly from the excessive diversi:fication of product-mix and frag- mentation of the small domestic market, which have miade the integration of Local parts and components more difficult. Che strategies and policies with respect to rationalization and standardization which would permit a sound development of these EMIs will require long gestation and are likely to result in implementation delays. 3.06 Intermediate goods EMIs (8,000 t.p.a. of foundry castings, steel maill producing 170,000 t.p.a. of construction rods, wires, pipes, and parts) repre- sent 40% of the EMI output and meet one-third of the domestic demand for these goods. The technologies rely less on imports and more on local inputs, which entails lower charges from duties and taxes. Finally, the moderate protection (9 to 16% nominal duties) given to these industries (except the steel mill) constitutes an effective incentive to select appropriate technologies and ope- rate them efficiently. As a result, intermediate EMIs goods have been reason- ably competitive (prices being generally 10 to 30% above European FOB prices). However, the iron/steel foundries, which should be the backbone of EMIs deve- lopment, are still weak, representing only 2.5% of total EMI output. They produce at competitive prices low grade simple castings in small series for varied uses on the domestic market (construction, mines, cement industry, railways, other EMIs); the cost of labor is low, but labor productivity is equally low due to old equipment and technical deficiencies which make better grade castings more costly to produce (up to 20% above European imports). Foundries have potential for development and need to modernize their pla-nts, and upgrade labor skills and the quality of production and technical manage- ment. A study of the foundry subsector is being carried out with Bank assis- tance to define a clear long-term development strategy aimed at rationalizing and specializing productions and markets between firms and projects and out- lining specific investment programs (para 6.28). 3.07 EMIs producing capital goods, which represent 20% of the sector's output and meet only 10% of the domestic demand for capital goods, comprise mainly an important steel structure and platework subsector (30,000 t.p.a.). a ship repair yard, efficient industries producing basic electrical equipment (transformers, motors, cables) and agriculttral implements, and small ineffi- cient diesel engine assemblies. TechnologiEs are labor-intensive (labor cost represents 20-50% of output value, and up to 60% in ship repair) and use local inputs up to 35% of output value. Until recently, they had generally no or negative protection (except diesel engines -- see para 3.22), and domestic ex-factory price typically range between 10; below and 10% above of European FOB prices. The competitiveness of these industries stems essentially frorm the lower overall cost of labor (one-third of the European average) which more than offsets the fiscal charges on inputs and the lower productivity of labor (about half tnat in Europe). 10 - J.06 The comparative advantage of Tunisia lies in: its labor force with relatively low wages and increasing competence and quality, although there remains a major need to improve production management and upgrade labor pro- ductivity up to international standards; its proximity and preferential access to the EEC markets; and its liberal policies toward foreign investment which would be instrumental in the development of EMIs. Because the domestic market is small, complementary exports are required in some production lines to reach efficient scales of production (e.g., in mechanical works, automobile compo- nents, hardware). The major identified potential rests, however, with further efficient import-substitution of intermediate and capital goods using simple or intermediate labor-intensive technologies, where there are economies of scale at a low level and where local enterprises have generally been effi- cient. The subsectors of steel structure/platework and mechanical works offer ample room for improvements in technical management and modernization of the product-mix towards more technologically advanced products. A coordinated development of these two subsectors will require technological assistance to the firms; also a study of the platework subsector is needed to specify econo- mically efficient production lines and to recommend optimal allocations of production lines and markets between the firms and the projects. For similar reasons, there is a need for a study of the foundry subsector (para. 3.06). The proposed project addresses these needs (paras 6.12 and 6.27). C. Trade and Demand for EMI Goods 3.09 Imports of EMI goods have put an increasing pressure on the balance of payments 1/; they increased from 35% of total Tunisian imports in 1970 to a maximum of 45% in 1978, and totalled D 440 million (US$880 million) in 1979. Imports of capital goods (excluding transport equipment) have represented on the average half of total EMI imports (up to 57% in 1978); they comprised advanced equipment (e.g., machine tools, telephone equipment) and mainly stan- dard machinery 2/ which in a large part could be produced locally (para 3.12). Imports of intermediate EMI goods, representing one fourth of total EMI imports, have consisted mainly of iron/steel primary products totalling some 200,000 tons, including about 12,000 tons of ferrous castings and 20,000 tons of steel structures. Others imports comprised primarily transport vehicles, and components and parts for the automobile and radio/TV local assemblies. 3.10 Exports of the EMI sector have represented an increasing share of the sector's output (from 11% in 1976 to 18% in 1979) and of total manufacturing exports (from 6.5% to 8.5% over 1976-1979). Exports of electrical machinery and electronic products emerged after 1974 and have taken the largest share in EMI exports (40%), before the traditional exports of lead products. They represented one third of the electrical industries' output in 1979, and have come mainly from foreign firms operating on an "off-shore" basis under the Law 1972-38 to assemble electronic products, measure instruments, and radios and TV sets for exports. 1/ Major reasons have been an elasticity of total demand for EMI goods to GIoss Fixed Investment greater than 1 and with total investments growing at some 15% p.a. 2/ Lifting/hoisting machinery, earth moving machinery, mining equipment, pumps, engines, industrial boilers; electrical switchgear/switchboard apparatus, motors and generators, cables and wires. - 11 - D. Market Prospects and Development Strategy for the EMIs 3.11 The focus of further development of EMIs in Tunisia should shift away from consumer and durable goods industries, which had received priority during the 1970s and which need above all to be rationalized, especially the automo- tive industry with its small and fragmented domestic market (para 3.05). The primary development objectives for the sector, i.e., to increase labor produc- tivity and local value-added content, will be best achieved in the medium-term by focusing on three major groups of priority activities, in the industries producing capital and intermediate goods and exports, with potential for growth and efficiency improvement. 3.12 The first group with potential and prospects for efficient import- substitution are intermediate and capital goods using simple or intermediate labor-intensive technologies and having domestic markets large enough to sustain economic operations. It comprises mainly: - ferrous castings from foundries, where local production could reach 20,000 t.p.a., including 6,000 t which would substitute for castings currently imported; - steel structures and platework, for which the domestic market could grow by an additional 15,000-20,000 t. by 1985, including about 10,000 t. of imported items which could be manufactured in Tunisia (boilers, furnaces, pressure vessels, lifting and hoisting machinery) 1/; - selected mechanical works, for the fabrication of agricultural imple- ments, small earth-moving and construction machinery (cranes), rail- road freight cars, pumps and compressors for which imports rose from US$60 million in 1977 to US$90 million in 1979; and - electro-mechanical and electronic machinery (motors, transformers, switchgears, cables, and telephone equipment) for which imports increased up to US$105 million in 1.979. 3.13 The second group with potential for development comprises a coordi- nated and integrated set of capital goods and supplies with smaller domestic markets than in the first group. This second group includes mainly power engines, their components and parts and varhous derived machinery and equip- ments (air compressors, generating groups, l:ractors, fork lifts, trucks, dumpers, excavators). The development of the production of diesel engines will constitute an opportunity to standardize and rationalize the fragmented domestic market and thereby achieve some economies of scale 2/. Imports of diesel engines and derived machinery have averaged some US$30 million p.a. during the late 1970s. 1/ Imports of these items increased from US$36 million in 1977 to US$75 million in 1979. 2/ Ongoing feasibility studies for a diesel engines project (para. 3.18) are investigating whether export outlets, to be secured through foreign partners and "compensation" (buy-back) contracts, would be necessary to complement the domestic market and achieve higher economies of scale. - 12 - 3.14 The third group consists of other intermediate goods and end-products with established or potential markets for exports, such as hand tools and cut- lery, mechanical and electrical components and appliances (transformers, TV/radio sets, electronic components, hi-fi and measure instruments), heavy metal structures and electrical gear for neighboring countries, and possibly castings in the longer term. The potential for exports has partly been har- nessed by foreign ventures in the electrical industries (para 3.10) as well as by some local firms (hand tools and cutlery, structures and electrical gear). Exports can be expanded further, in particular for automobile accessories through joint ventures and buy-back/subcontracting agreements with large foreign manufacturers. The export projects should be promoted keeping in mind the need to increase the intra-sectoral integration of these projects and the local value-added content of the exports. 3.15 A focus on these three groups of priority activities would help to foster the development of subsectors representing currently about two-thirds of the EMIs' output. It would also aim over the medium term at substituting efficiently for some 20% of total EMI imports (equivalent to 11% of total Tunisian manufactured imports) and promoting abroad the image of Tunisia as an efficient and significant exporter of engineering goods. E. The Sixth Plan and the Pipeline of EMI Projects 3.16 The preliminary draft of the Sixth Plan 1/ has projected a total investment in EMIs of about D 480 million (US$960 million, equivalent to D 350 million in constant 1980 prices), representing 27% of total projected manufac- turing investment as compared to 14% during the Fifth Plan (para 2.03). T-is program would more than double the annual investment in EMIs in 1980 prices from D 20-25 million p.a. during 1976-1980 to D 70 million p.a., and a recent economic mission which reviewed the draft Plan considered this program very ambitious and requiring a major effort of project identification and promotion. If achieved, this program is expected to accelerate the growth of the sector's output from 15.5% p.a. during 1977-1981 to 18.7% p.a. during 1982-1986. Given that the manufacturing sector and the GDP are projected to grow by 11.7% and 6.7% p.a. respectively, the EMI sector would thus catch up a substantial part of its current development lag. By 1986, it would represent about 19% of manufacturing output and 3.3% of GDP, thereby making the structure of the Tunisian manufacturing sector closer to that of countries of similar size and level of development. 3.17 The Plan's subsectoral allocation of total EMI investments reflects largely the sectoral strategy proposed for the sector (paras 3.12-3.14), with a shift away from consumer and durable goods industries towards mechanical works, foundries, steel structures and platework, and buy-back exports for automobile components and accessories (in joint ventures with foreign firms). Some 37% of total EMI investments would be for mechanical works projects (most private) to produce capital goods and supplies and automobile components for exports; 33% for the basic metals subsectors (foundries and one steel mill, by the public sector); 14% for the steel structure and platework subsector; 9% for electrical and electronic (telephone) equipment; and only 6% for hardware and consumer/durable goods. As a result, steel structures and platework would maintain their share of the sector output (30%); mechanical works and 1/ The final Sixth Plan Document will be issued by July 1982. - 13 - electrical industries, both with relatively hiigh value-added and technology content, would increase their shares (respectively to 30% and 15% in 1986, compared to 17% and 10% in 1981). The following table summarizes these patterns: Structure of the EMIs Investments in 1982-1986 Plan (in %) Projects Projected Share of Ready for Under Over- Growth Priority Public 1982/1983 Consider- a.1 1982-1986 Projects Projects Subsector ation 3/ (p.a.) 4/ Basic Metals 21.2 8.5 33.2 8.4 6.2 77.3 Mechanical Works 1/ 22.4 12.5 37.2 26.8 66.2 1.4 Structure/Platework 1.3 8.5 13.9 20.2 100 - Electrical Industries 0.3 7.9 9.2 24.4 72.0 0.1 Hardware/ Consumer Goods 2/ 2.0 4.1 13.4 13.2 - 71.0 TOTAL 47 42 10') 18.7 47.7 32.4 3.18 Within the D 480 million 5/ of investments projected for EMIs, pro- jects totalling D 9 million have been initiated or will be undertaken before 1982, and D 46 million are earmarked for maintenanc, and renewal in existing enterprises. Some D 220 million are currently at a preparation stage such that they would likely be financed during 1982 and 1983 and implemented within the Plan period. Other projects totalling D 190 million could be financed and implemented afterwards. Projects in tthe priority groups identified earlier (paras 3.12-3.14) would total about D 220 million for the Plan period, and would be undertaken essentially by the private sector; the public sector is programmed to invest some D 12 million in priority activities (foundries and shipyards) and some other D 150 million in ron-priority projects and activi- ties (a new steel mill, vehicles assembly, consumer durables). Out of the D 220 million of priority projects, some D 90 million would likely be financed and undertaken during 1982-1983, half of which being buy-back export projects for automobile components. The major projects and programs contemplated in the priority activities supported by the Banik are listed in Annex 3; they com- prise: (i) for 1982-1983 financing: four joint ventures for buy-back exports (D 30 million), rehabilitation of public foundries and shipyards (D 12 million), modernization and restructuring oi the steel structure and platework 1/ Including "compensation" export projects but excluding automobile compo- nents for the domestic market. 2/ Including automobile components for the domestic market. 3/ Excluding ongoing projects and renewal investments which represent 11% of total investments. 4/ As defined in paras 3.12-3.14. 5/ Dl = US$2. - 14 - subsector (D 6 million), agricultural machinery (D 4 million), and possibly the first phase of a mechanical complex for the production of diesel engines (D 16 million); and (ii) for financing after 1983: three joint ventures for exports (D 22 million), further modernization and restructuring in steel structure and platework (D 39 million), electrical gear ana motors/generators (D 20 million), machinery for public works and construction (D 10 million), telephone switchboards (D 6 million), and possibly the completion phase of the diesel engines complex (D 23 million). Most of these projects (except those few consisting of mere expansion of existing production lines) are aiming at developing products and machinery which would be new for Tunisia and would thus require some transfer of technology or know-how. The Ministry of National Economy and its Direction of Industry intend to strongly advise project promotors to rely on foreign partners or associates so as to ensure the technology transfer, the technical assistance and acceptable standards of quality required for new products. F. Sectoral Issues and Constraints 3.19 Two outstanding constraints which have affected the manufacturing sector in general, and the EMIs in particular, are: a. the low level of labor productivity; and b. the biases of the incentives framework (Investment Code, protection, pricing) against firm specialization, rationalization of product-mix, intra-sectoral integration, exports, and the production of capital goods and supplies. The first constraint derives partly from the biases against firm specializa- tion, but mainly from general weaknesses in plant design/lay-out and in opera- ting practices due, in turn, to constraints on the supply of technical assis- tance and on-the-job training of labor. The Technical Center for EMIs to be established as a component of the project will provide in-plant technical assistance in subsectors with the most urgent needs (para 6.12). 3.20 The Investment Code (Law 1974-74, revised by Law 81-56) encourages EMI enterprises to expand their labor force beyond levels that are economi- cally justified, essentially because the rate of income tax relief granted by the Code increases with the number of jobs created in enterprises which are not led by the protection and price control structures to increase their labor efficiency. Normal operating practices in the EMIs of industrialized coun- tries are based on strong linkages between the supplies of intermediate and semi-finished products and the end-product assembly industries 1/. In con- trast, the Tunisian firms have often invested for the sake of self-sufficiency into accessory production lines where additional equipment and labor are under- utilized and operating costs high, thereby hampering firm specialization and 1/ In advanced engineering industries, the final processing and assembly typically account for 20-30% of the end-product value, with 70-80% going to the suppliers industries where most of the engineering processes take place. - 15 - intra-sectoral integration. Another factor constraining the exchange of goods and services between local firms has been the low or irregular quality of semi- finished products largely because of the lack: of generally accepted quality standards and controls. The Government plans; to open in 1982 an Institute for Standardization and Quality Control of indust:rial products (para 6.18). 3.21 Administrative red tape and the laclc of quality standards have also constrained exports by local EMIs and intra-sectoral linkages between local firms and the foreign exporting firms which operate on an "off-shore" basis. Red tape has made it difficult, and often im?ossible, to exempt from duties and taxes the inputs used for indirect, marginal or unforeseen exports; this has discouraged not only local firms to look for contracts abroad or to pur- chase some of their inputs from foreign exporting firms, but also the latter ones to integrate locally backwards for part of their inputs. The Government agreed to study streamlining measures to remove red tape and to enact them through the Finance Law for 1982 (para 6.23). 3.22 The structure of protection and tariff schedules for imported EMI goods (see Annex 4) indicates that: (i) capital goods imports bear no or low duties, ranging from 0 (agri- culture and dairy machinery) to 162% (compressors, public works machinery), with the major exception of steel structure and platework products which enjoy a nominal protection of 26% 1/; (ii) intermediate goods and supplies imports generally bear duties ranging from 6% (flat and long steel basic products) to above 20% (fasteners), representing an average 13% duty on imported inputs and intermediate goods used by Tunisian EMIs. As a result, capital goods industries (where the value added/output ratio ranges typically between 40 and 50%) have received a low or negative effective protection (between +20% and -15%, with the exception of +50% for steel struc- ture and platework), due to the duties paid on inputs which represent up to 8-10% of the output value, expressed in international prices. 3.23 Moreover, the Investment Code has traditionally provided all approved projects with exemptions of duties on imported capital goods, except on those which could be produced locally. Because of administrative difficulties, the latter restriction has not been fully applied, with the result that most local capital goods industries have de facto received no nominal protection and a negative effective protection ranging between -10 and -15%, thus hampering severely the development of these industries as well as of exports. Given that most consumer and durable EMI goods, on the other hand, have received nominal protection of 30% or more (up to 200% for automobiles) corresponding to effective protection rates of 90% and above, local enterprises have been encouraged neither to expand or diversify their production into capital goods and exports nor to increase the efficiency of their operations. 1/ In fact, this 26% duty aims at protecting the local production of metallic frames for doors and windows, which is regrouped with large steel struc- tures in a single customs item. - 16 - 3.24 To compensate for the negative effective protection on capital goods industries, the Tunisian authorities have also been using a discretionary import licencing procedure to limit imports of capital, as well as of inter- mediate, goods. The licencing authorities have, under the guidance of the Direction of Industry of the Ministry of National Economy, regulated the amount of imports of capital and intermediate goods in those cases where Tunisian products are satisfactory in terms of prices and quality but cannot meet the whole demand within schedule or where there is evidence of unfair pricing practices which would jeopardize Tunisia's infant EMI industries. 3.25 The Investment Code revisions of June 1981 have been focussed on the general issues of regional decentralization and capital intensity of invest- ment in manufacturing (para 2.08) 1/. These revisions fall nevertheless short of what would be necessary to remove all the constraints noted above. The overhaul of the tariff and protection structure is a long and complex under- taking, where the Bank plans to assist through an Effective Protection Study programmed for 1982-83 (para. 6.22). In the context of the Sixth Plan prepa- ration, a Commission has started to review the current tariffs with a general view to reducing the variations in tariff levels and, if possible, adjusting on an ad-hoc basis some obvious cases of overprotection (such as some consumer and durable EMI goods). In view of all this, attention was focussed during project appraisal on those major issues where remedies could be undertaken more quickly and easily. The Government agreed on specific incentives (para 6.21) for EMIs, for specific industrial standards and better quality control (para 6.18) and for better procedures for tax/duties exemption on inputs used for exports (para 6.23). 3.26 Ensuring that quantitative restrictions on imports of EMI goods do not lead to inefficiency is an important factor for the development of EMIs. Existing industries producing capital goods and supplies, which constitute one of the major target groups of the proposed project, have been able to operate with reasonable efficiency and competitiveness under the current tariff duties and procedures for import licencing. Putting the current tariffs into effect could be sufficient to induce and permit further efficient development of most existing industries producing capital goods and supplies. On the other hand, further liberalization of the import licencing procedures could endanger the establishment and existence of projects and enterprises promoted by Tunisia under the Bank loan to develop and manufacture new capital goods and machi- nery. Several reasons account for that: the pervasive Tunisian preference for foreign products 2/, the use of "dumping" prices by foreign suppliers as an easy means to monopolize the small Tunisian markets, and the reluctance of potential foreign partners or associates to enter joint ventures with Tuni- sians (in particular for export-compensation projects) in the absence of import controls and of guaranteed local markets. 1/ These revisions should indirectly benefit EMIs which are relatively labor-intensive. 2/ Even if quality and/or prices should favor local products. Imports of capital goods often provide purchasers with foreign exchange abroad. - 17 - 3.27 Given that most projects for the production of new capital goods and machinery would be undertaken with foreign partners (para 3.18) and that their initial level of production would leave part of the domestic market to be met by competing imports under existing licencing procedures, it was agreed with Tunisian authorities that the objective of maintaining efficiency within EMI while giving sufficient incentives and safeguiards to project promoters be fulfilled along the following guidelines for all projects in EMI priority sub- sectors: (i) use the import licencing procedure, in particular to monitor the volume of competing imports, and apply consistently the tariff duties on such imports; (ii) limit these tariff duties at up to 18%, and reduce the tariff duty on steel structure and platework from 26% to 21%; and (iii) ensure that the project manufacturers would not be allowed to charge ex-factory prices in excess of 118% (121% for steel structure and platework products) of the comparable foreign price, defined as the ex-factory price of the foreign paitner in his domestic market I/ plus a reasonable estimate of costs for insurance and freight to Tunisia). This would be achieved during the first three years of production through price controls and subsequently through gradual liberalization of imports, if the price levels defined above were exceeded by the Tunisian manufacturers. Thus projects that could not become or remain competitive would be forced, through import liberalization, either to inc.rease their efficiency and com- petitiveness under modest levels of protection, or remain unprofitable and eventually close down. The other projects would be operating with nominal rates of less than 18% implying effective protection rates of 20-30%, which are satisfactory in the context of the Tunisian manufacturing sector. 1/ For projects undertaken without foreign partners or associates, the Ministry of National Economy would determine through consultation an average ex-factory price in the domestic market of the major.traditional commercial partners of Tunisia. - 18 - IV. THE FINANCIAL SECTOR AND ITS ROLE ON EMIs 4.01 Tunisia has a well developed financial system for its size. The financial community is composed of ten commercial banks (the largest ones are State-owned), seventeen local savings and loans banks, four development finance companies (BDET, COFIT, and two new ones), a small investment bank, five portfolio management institutions, two savings institutions, and four offshore banks. Although there are numerous institutions, there is a high degree of concentration of activity. For example, three commercial banks accounted for 60% of the deposits received by all commercial banks in 1980 and BDET alone accounted for 39% of all medium and long-term loans granted by financial institutions. 4.02 Two New Development Banks. A far reaching change in the Tunisian financial community has been the Government's decision in 1980 to establish alongside BDET and COFIT two new development banks: The Tuniso-Koweiti Bank (BTKD), and the Tuniso-Saoudi Investment Company (STUSID). In addition, a Tuniso-Franco-Qatari Development Bank and two other banks to promote and finance exclusively projects undertaken in cooperation with Algeria and Morocco respectively are at an advanced stage of planning. The purpose of these new banks is threefold. First, to reduce Government involvement in the public sector by financing capital expenditures for viable projects which can borrow on commercial terms; this will relieve the Government from the burden of appraising and supervising such projects. Second, to increase substan- tially Tunisia's resources mobilization capacity to fund the Sixth Plan, in particular by tapping additional funds from oil surplus countries interested in investing in Tunisia. Third, to increase existing project identification capacity and help achieve the ambitious investment targets of the Sixth Plan (para 2.04). 4.03 The two banks established in 1981 each have a capital of D 100 million (US$200 million), which make them the largest financial institutions in Tunisia. To try to match the new banks' resources, BDET is planning to triple its capital (para 5.02). The new banks can lend and take equity parti- cipations in all sectors of the economy whereas BDET's involvement is limited to industry, transportation, and tourism. BTKD, which started its operations in June 1981, has a very tentative plan of building up a portfolio distributed between 20% in tourism and real estate, 15% in agriculture and agribusiness, 60% in industry, and 5% in transportation; half would be loans, half equity participations. The banks are expected to rely heavily on project promotion to support their lending targets. These new banks are bringing a certain ele- ment of competition in the financial system. Some specialization among the new and existing development banks is bound to occur, either by consensus, or by guidance from the Government but the relative roles of the new and existing financial institutions remains unclear at this stage; in terms of project size, however, the new banks are likely to focus on medium and mainly large projects, thus leaving long-term financing of SSIs to BDET. Also, because of its long experience in project appraisal and promotion, BDET has a comparative advantage on which the new banks intend to capitalize by cofinancing projects appraised by BDET. - 19 - 4.04 Medium- and Long-term Financing 1/. Outstanding medium- and long- term credits to the economy amounted to D 617 million ($1.2 billion) at the end of 1980; although still preponderant, the commercial banks' share has been decreasing steadily (from 70% in 1975 to 55% in 1980) in favor of development institutions (from 24% to 42%). This share is likely to increase with the formation of the new development banks. 4.05 Financing of EMIs. Of all sectors, EMIs are the largest recipient of institutional credits in Tunisia. Outstanding credits granted by commercial banks and development institutions to EMIs amounted to D 133 million at the end of 1980 accounting for 9% of all outstanding credits, and 19% of those to industry. Short-term credits still represent the major share of credits to EMIs (65% in 1980), though medium- and long-term financing has steadily increased from 15% in 1970 to 28% in 1975 and 35% in 1980 due mainly to BDET's activity. 4.06 EMIs have traditionally been one of the priority sectors for BDET financing and more recently for its promotional activities. Between 1977 and 1980, EMIs received on the average 13.4% of BDET's yearly approvals, with a range of 6.3% in 1979 to 25.5% in 1978. At the end of 1980, with 40 out- standing long-term loans for D 13 million and 15 participations for D 1.89 million, EMIs accounted for 13.3% of BDET's total portfolio, and 22.1% of BDET's portfolio in manufacturing. EMIs are also given clear priority in BDET's promotional activities. Out of five Frojects promoted by BDET in 1980 and 1981, three were in the EMIs (the mechanical complex for diesel engines and tractors (para 3.18), windshields wipers, and fork lifts). BDET plans to expand its financing and promotional activities in the sector (para 6.03) in accordance with Plan priorities and the targets of the proposed project. 4.07 EMI Suppliers' Credit. In 1972, Banique Centrale de Tunisie (BCT) created a facility called "credit a la production" which enables some local equipment manufacturers to grant medium-term credits directly to their clients provided that they are industrial promoters. These credits can finance up to 80% of the equipment cost for up to seven years at the same interest rate as for rediscountable medium-term credits (currently 9.5%) The procedure is simple and expeditious; disbursements are male on the basis of rediscountable paper signed by the EMI supplier and the client. However, this facility, uniquely geared to EMIs' financing needs, is largely underutilized. Although there are incentives for commercial banks to grant such credits 2/, only ten firms have benefited from them, and STIA (car and bus assembly) still accounts for 90% of the amounts committed each year. In 1979, outstanding credits peaked at D 7.9 million, but decreased to D 6 million in 1980 because of a slowdown in STIA's activity. It is estimated that new commitments finance at most 0.5% of annual EMI output eligible for such financing (excluding STIA). During the appraisal of this project, it was agreed with BCT and APB (the Tunisian Bankers Association) that an effort will be made by the banking 1/ The first Small-Scale Industry Development Project gives more details, op. cit. (Project File, Item 7). 2/ In particular, these credits count towards meeting the minimum ratio (18%) of transformation of deposits into medium-term credits to which all com- mercial banks must adhere to. - 20 - system to advertise and market more extensively this facility. To that effect, the list of EMI products eligible for this type of financing will be extended to include all EMI capital goods and supplies currently manufactured in Tunisia 1/. The new list will be published through a circular to be issued by BCT (para 6.24); this was recorded in the Guarantee Agreement. The Bank will closely monitor the progress achieved in expanding this credit facility to EMIs as a result of these measures. 4.08 Financing of Permanent 'Working Capital Needs. Until recently, the Tunisian practice has been to finance working capital needs, whether permanent or not, exclusively with short-term credits. This has created problems for promoters who were unable to start operations for lack of sufficient financing once they had completed their investment. Starting with the SSI Pilot Line of Credit (Loan 1505-TUN) and also under the First SSI Development project (Loan 1969-TUN), permanent working capital needs of SSI projects were included in the total investment cost and financed with medium-term credits 2/. This new practice is being extended gradually by BCT to other industrial projects. In the context of the proposed project, permanent working capital needs of all EMI subprojects will be eligible to medium-term financing (paras 6.06 and 6.24). This was recorded in the Loan Agreement and the Guarantee Agreement. 4.09 New Interest Rate Structure. Effective April 1, 1981, BCT revised upward the whole interest rate structure 3/. BCT's basic rediscount rate, which applies to short-term credits, was raised by 1.25 point to 7% and the rate on rediscountable medium-term credits (up to seven years) to industry was also raised by 1.25 point to 9.75-10.25%. Long-term rates were freed with a minimum rate of 10.5% (compared to 9% maximum previously). To meet compet,.- tion from medium-term credits from commercial banks, BDET has kept in 1981 its lending rate for long term loans to local industries at the minimum 10.5% p.a. Its loans for tourism and foreign industries currently carry interest charges at 11% and 12% respectively. In addition, it charges commissions and fees amounting to an equivalent of about 0.5% p.a. 4.10 Cost of Capital and Onlending Rates. On the basis of projected inflation during the next years (9% in 1982, 8% in 1983 and 7% in 1984), effective lending rates for most industrial projects 4/ are clearly positive in real terms, since all subsidies were rescinded when the Investment Code was revised in June 1981 (para 2.08). Given that the lending rate for subprojects to be financed under the Bank loan (currently 11% p.a. includinig commissions and fees) would be negative compared to the Bank's lending rate, BDET plans to increase its lending rates in future years (by half a percentage point every year until 1985) provided that other interest rates, in particular rates for 1/ The list of EMI goods produced in Tunisia is available in the Project File, Item 5. 2/ See First Small Scale Industry Development Project, op. cit. (Project File, Item 7). 3/ The last revisions were made in September 1977 for rates on deposits and in January 1978 for lending rates. 4/ Except for export-oriented and decentralized projects for which medium- term lending rates are between 7.75% and 8%. - 21 - medium-term credit, would be allowed by BCT zand the Government to increase similarly. A commitment (recorded in the Loan Agreement) was obtained during negotiations from BDET to review annually its interest rate structure in the light of its average cost of capital and administrative costs and then make the adjustments required to achieve starting in 1982 a reasonable spread (between its interest income on average loan portfolio and its interest pay- ments on average term debt) to ensure its provisions and reserves as well as payment of dividends on its equity; this reasonable spread was agreed to be at least 2% (Minutes of Negotiations). If the general level of interest rates restricts BDET's ability to raise its lending; rates, some form of Government assistance will continue to be necessary. In recent years, the Government had guaranteed BDET a 3-point spread on loans financed with foreign exchange resources, and it indicated in 1981 that new forms of assistance to BDET could substitute to the former one if special circumstances warrant it. It is pro- jected that, with its lending rates increasing by 0.5 percentage point each year and without Government assistance to alleviate partly the high cost of its future borrowings (para 5.22), BDET's spread would be about 1% in 1983 and 1984 (compared to 1.7% in 1981) and would increase to 1.6% in 1985 and 2% in 1986. Assurances were obtained during negotiations from the Government that the necessary measures would be taken to ensure BDET a reasonable spread (minimum 2%), through lending interest rate adjustments, greater access to cheaper local or foreign resources, and Government assistance when necessary with a view to rescind such assistance before end of 1986 (Guarantee Agree- ment). The purpose of the annual review of BDET's interest rate structure would be to limit the magnitude of any Government assistance to BDET. The foreign exchange risk on BDET's foreign exchange resources will continue to be borne by the Government. - 22 - V. BANQUE DE DEVELOPPEMENT ECONOMIQUE DE TUNISIE (BDET) 5.01 BDET will be the only financial intermediary for the proposed sector loan. An experienced DFC like BDET can be relied upon to carry out effec- tively the complex financing assistance program (paras 6.03-6.10). Since 1966, the Bank has channelled most of its lending to industry through BDET, which received seven Bank loans between 1966 and 1977. The last loan for $30 million was fully committed in June 1981. BDET was also the apex insti- tution for the $5 million pilot credit line to small scale industries (SSIs) and is a participant in the $35 million SSI loan approved by the Board in April 1981 1/. Until early 1981, BDET has been the only development finance intermediary in Tunisia oriented towards long-term lending to the industrial private sector. As noted earlier (para 4.06), BDET has a wide technical experience in EMI project financing. Although two new development banks have been established (para 4.02), they just started their operations and it will take time before they can match BDET's experience in appraising and promoting project ideas into tangible and viable projects. Moreover, the new develop- ment banks will not require financial resources at least until they use up their initial share capital. Finally, lending to the commercial banks would not be practical at this stage given the extent and depth of the promotional effort that will be required under this loan. A. Structure, Organization, and Procedures 5.02 Since the last Bank appraisal in 1977 2/, BDET's structure has under- gone several changes. A capital increase from D 6 million to D 10 million took place as planned during the period 1978-1981. In the process, the share directly owned by the Government and other public institutions more than doubled to 39%, but foreign shareholders, including IFC with 10%, maintained their share at about 41%. IFC is represented on BDET's Board 3/. Overall, BDET remains owned in majority by shareholders other than the Tunisian public sector, and is free of major interferences from the Government in its lending and borrowing policies. A new share capital increase is scheduled in 1982. After subscription, BDET's capital will be doubled to D 20 million by absorp- tion of SIAT (an investment subsidiary), incorporation of reserves, and a paid-in capital increase of about D 6 million. The purpose of this capital increase is to allow BDET to match, by using its greater leverage, the resour- ces of the new development banks. With the likely entry of new shareholders from the Middle East, the Government participation in BDET is not expected to increase. 5.03 BDET has been reorganized in July 1981, into five departments (Annex 5). This consolidation should improve BDET's efficiency in the long run. In the process, BDET's management has strengthened its control with two new services (Personnel and Internal Auditing) now reporting directly to it. 1/ First Small Scale Industry Development Project, op. cit. (Project File, Item 7). 2/ Seventh Loan to BDET, Staff Appraisal Report No. 1734b-TUN, November 29, 1977 (Project File, Item 6). 3/ Through its representative, IFC has continued to offer a substantial con- tribution in helping BDET meet resource requirements while assisting in strengthening performance and results. - 23 - More importantly, the Follow-up division is now attached to the Credit Depart- ment; this change has been advocated for some time by the Bank because it will allow staff involved with supervision to partLcipate in the appraisal of pro- jects (para 5.08). 5.04 BDET's statutes and policy statement have not been changed since the last Bank appraisal. Exposure limits (less than 30% of BDET's lending to public sector enterprises, less than 25% of its financing to the tourism sector, and less than 25% of its equity to a single borrower) have not been constraints in recent years. They are closely monitored by BDET's Board, which meets every quarter to approve loans and equity investments greater than D 300,000 while small operations are approved by the Executive Committee. This allows the Board to review formally 75-80% of the value of approvals, representing 25-30% of the number of projects. 5.05 Since the last appraisal, BDET's management has undergone some changes. In March 1979, an experienced banker and President of STB's sub- sidiary in Paris was appointed Deputy General Manager. In June 1981, the manager of the Credit Department left to head CTKD, a Tuniso-Koweiti invest- ment joint-venture; he was replaced by the head of the Participations and Supervision Department. In spite of these changes, continuity was ensured under the leadership of Mr. Habib Bourguiba Jr., President and General Manager since 1971. Staff turnover is also low, thus adding to the institution's overall stability. Total staff increased by only 8% to 192 between March 1977 and June 1981. Support staff increased by 23% to 140 but professional staff decreased from 60 to 50. However, staff involved in appraisal and promotion increased from 14 to 20. To meet its considerably increased lending objec- tives starting in 1982 (para 5.21), as well as to carry out the promotion effort implied by the new focus on EMIs, BDEI' plans to hire additional pro- fessional staff. Recruitment of three engineers has already taken place, and other recruitments planned for 1982. 5.06 Project Appraisal. BDET is an experienced DFC and its appraisal reports are usually of a good quality. Yet there is still room for improve- ment. Contingencies are often underestimatec.; in recent years, delays in pro- ject realization have caused cost overruns averaging 20%. FRRs have been found to be over-stated in several cases because they were calculated on the basis of gross cash-flow instead of net cash-flows; this has been corrected. Economic appraisals are too often limited to the quantification of value added and of job created and not enough projects are submitted to the ERR test. Although the technical aspects are usually thoroughly addressed, efforts could be made to assess better alternative technologies, especially for projects promoted by BDET. Strengthened formats for appraisal reports of EMI sub- projects will be used by BDET (para. 6.09). In spite of the competition from the new development banks (para 4.02), it is important that BDET maintain its appraisal standards. In the context of the proposed loan, the Bank will con- tinue to assist BDET in this area by reviewing a larger proportion of BDET appraisal reports than under the previous loan (para 6.07). 5.07 Project Promotion. Although created in the mid-70s, the Promotion Department has been active only since 1978. It contributed 12% of BDET's approvals to industry in 1978, 23% in 1979 and 5% in 1980. The department is - 24 - involved from the identification of project ideas, through feasibility study, search for foreign technical partners and Tunisian promoters, to arranging the necessary financing. Since 1980 the department's performance is assessed not only in terms of the number of projects approved by the Board, but also on the number of projects actually implemented, which requires that more time be spent during project start-up. Consequently no more than half a dozen pro- jects can be promoted per year with the current staff of seven professionals. Expansion of the Promotion Department is under way, and total staff in the Department would be increased by about 50% by mid-1982 when the proposed loan is expected to become effective. The commitment to further strengthen this Department was confirmed during negotiations (Supplemental Letter). 5.08 Project Supervision. Since the last Bank appraisal report, which pointed out project supervision as one of the weakest aspects of BDET's ope- rations, follow-up has improved. BDET is now forwarding the Follow-up division's main recommendations to the borrowers. The recent reorganization (para 5.03) should improve the feeding of supervision information into apprai- sal work. The current staff of four professionals is, however, insufficient to handle the amount of work required in order to systematically follow-up the large number of loans to and equity participations in enterprises in their start-up period (161 out of a total of 454 clients). To increase manpower available for supervision, BDET's management plans to involve the appraisal staff in following up the subprojects that they appraised. Even with this arrangement, additional staff dealing with supervision are needed. A commit- ment from BDET was obtained during negotiations and recorded in the a supple- mental letter to hire additional staff for supervision purposes. B. Operations 5.09 Characteristics of Operations. As shown in Annex 6, BDET's approvals increased by 6.5% between 1978 and 1979 and by 5.3% between 1979 and 1980, which is close to the growth rate (6.5% p.a.) assumed at the time of the last appraisal, and jumped up by 90% in 1981. They had declined by 13.7% between 1977 and 1978; this decline was due to a recession and a slower growth affec- ting respectively textiles and food processing, which obliged BDET to curtail approvals in these two subsectors by more than 70%. The relatively modest growth of approvals in 1979 and 1980 is due to several factors. One factor outside BDET's control was the 21% decline in industrial investment in 1980; other factors were BDET's recent focus on project promotion (with its inherent year-to-year fluctuations), and on small-scale industries (with lower loan amount per project), and the partial transfer of participations to a subsi- diary (SIAT). The boom in 1981 approvals is mainly due to the tourism sector (approvals increased from D 10.5 million in 1980 to D 27 million in 1981), and secondarily to resumption of industrial investment. 5.10 On the average, 73% of BDET's approvals went to new projects as opposed to expansion ones during 1977-80, while 75% went to the private sector (Annex 7). Industry has accounted for 81% of total approvals since 1977 (except in 1980 when approvals to industry declined by 23%, and in 1981 when tourism took up 53% of total approvals). Within industry, food processing was 25 - the main recipient of BDET's financing with 26% of total approvals during 1977-80, followed by EMIs (19%) and construction materials (18%). The share of the tourism sector declined steadily from 22% of total approvals in 1976 to 13% in 1979 as planned by BDET, but increased to 33% in 1980 partly to comr pensate for the slowdown of approvals to indtstry and up to 53% in 1981. Overall BDET has become a major lender to the Tunisian manufacturing industry. I't is estimated that BDET contributed to the financing of 44% of total manu- facturing investments in 1980 (up from 36% in 1978), providing about one-third of total financing requirements. At the end of 1980, BDET had in its port- folio 44% of all long-term loans to the manuiacturing industry outstanding. BDET's relative share, however, is expected to decrease in the future with the competition from the new development banks (paras 4.02-4.03). 5.11 BDET's financing helped create about 4,600 jobs in 1980, and 10,300 in 1981. Although the overall average investment cost per job created was ) 18,500 in 1980, this was largely due to a :ew highly capital-intensive projects in the public sector 1/. Actually ,mall-scale industry projects Einanced by BDET had an average cost per job of less than D 6,000 in 1980, and their share in total projects and jobs financed by BDET increased respectively to 36% in 1980 (from 14% in 1978). BDET's diual strategy of lending to both small/labor-intensive projects and large/relatively capital-intensive projects is expected to be pursued in the future. The emphasis put by the Bank in its two loans to SSIs on low-cost job creation is expected to keep down the average investment cost per job of projects financed by BDET. 5.12 To complement commercial banks, which can lend only on medium-term (up to seven years), BDET has become basically a long-term lending institu- tion. The average maturity has been lengthened in recent years, with very few loans made for less than nine years and practically none for less than seven years 2/. In order to contribute to the development of the Tunisian capital ,uarket, BDET has changed in recent years the focus of investment policy from accumulating to increasingly selling equity participations. Its equity port- folio thus increased by 20% p.a. between 1976 and 1981 against an increase of 57% p.a. between 1972 and 1976. BDET plans to maintain a relatively high portfolio turnover (5% in 1980) in the future to free resources for new investments and to realize capital gains. C. Quality of BDET's Portfolio 5.13 BDET has a well diversified and sound portfolio, which amounted to D 111.7 million at the end of 1980 3/. Annex 8 details BDET's portfolio as of December 31, 1980 into medium-term loans (0.2%), long-term loans (89.2%) and equity participations (10.6%), as well as the portfolio's sectoral breakdown. 1/ A pipeline and a cigarette plant in 1979; the extension of an automobile plant and the purchase of wagons by the national railroad in 1980. 2/ In 1980, 3% (one loan) of loan approvals were for less than 7-year matu- rity, 41% for 7-10 years, and 56% for lCi years and above, 3/ D 121.3 million as of December 31, 1981 (latest available data; unaudited). - 26 - . 14 Loans in Arrears. BDET's arrears of over three months amounted to D 1.1 million at the end of 1980. Arrears in principal represented 1.5% of the outstanding loan portfolio, and 2.7% including overdue interest; only 9.7% of the portfolio was affected by arrears at the end of 1980. The 1981 accounts have not yet been finalized; some deterioration of the portfolio is expected. Overall, BDET's portfolio is sound reflecting Tunisia's relatively stabl,e economic situation and BDET's collection procedures. About one fourth of total arrears at the end of 1980 were under litigation, involving thirty- two lawsuits by BDET. Rescheduling was kept within reasonable limits. It amounted to D 2.7 million in 1980, affecting 14% of the loan portfolio. Without these reschedulings, the arrears would have represented 2.4% of loan portfolio at the end of 1980 instead of 1.5%. 5.15 Loan Provisions. BDET does not make provision for individual loans, but for the entire loan and equity portfolio. Provisions on a case-by-case basis are, however, discussed between BDET and its auditors to arrive at a total provision amount that is adequate. For 1980, the auditors recommended earmarking provisions totalling D 4.2 million, with D 2.1 million on twenty eight loans amounting to D 10.7 million, and D 2.1 million on thirty six equity contribution amounting to D 4.1 million. Actual provisions accumulated by BDET at the end of 1980 amounted to D 5.0 million, and represented 4.4% of total portfolio, which is satisfactory. 5.16 Equit Portfolio. BDET's equity portfolio amounted to D 11.8 million (at acquisition cost at the end of 1980, (Annex 8) 1/ while its market value was estimated at D 13 million. One-third of the total portfolio was invested in the tourism sector, 8% in banks and financial institutions, and the rest in industry. With very few exceptions (notably a hotel management company joint- ly owned with COFIT), BDET's participations do not exceed 30% of the capital of any company; 80% of them are in the 1% to 20% range. Out of the 126 com- panies in BDET's equity portfolio, 31 were in difficulties or unprofitable, 47 reported profits on their 1979 operations, and among them 29 declared divi- dends. Dividend income accruing to BDET is modest and declining, representing 1.9% of average equity investments, steadily down from 2.6% in 1976 and 5.4% in 1973. Dividend income is, however, not BDET's primary objective in taking participations in projects; BDET draws most of its income on participations from capital gains (D 267,000 in 1980). 1/ D 13.0 million as of June 30, 1981 (unaudited). - 27 - D. Financial Performance 5.17 BDET's audited income statements and balance sheets for the years 1977 to 1980 are shown in Annexes 12 and 13 and the relevant performance indi- cators are shown in Annex 9. BDET's profits (D 1.4 million) declined by 4.5% in 1980 compared to 1979 and, thus, the return on equity declined from 12.3% to 10.9%. Income from loans as percentage of the average loan portfolio was 9.1% in 1980 (down from 9.5% in 1979), while financial expenses and adminis- trative expenses represented respectively 5.E% (5.9% in 1979) and 1.3% (1.4% in 1979) of average total assets. Cost of term debt in percentage of average outstanding term debt was 7.6% in 1980, thus leaving a modest spread of 1.5%, clown from 2% in 1979 and 2.2% in 1978. This decline is entirely due to a reduction (by 41%) of the Government subsidy in 1980 given to BDET to ensure a 3-point interest spread on loans financed wit:h foreign exchange borrowings; without this subsidy, the spread would have been only 1.3% in 1980. Prelimi- nary results for 1981 on the basis of unaudil:ed accounts for the first 11 months indicate an improvement of the profit picture with a spread of 2.4% (1.7% excluding the Government subsidy). The matter of BDET's spread has been discussed in para 4.10; starting in 1982, BD]ET will be required to maintain a minimum spread of 2 percentage points. 5.18 Between 1977 and 1980, total assets increased by 44% to D 117.9 million 1/, outstanding long-term debts increased by 42% to D 83.7 million, and equity increased by 66% to D 25 million. According to BDET's Policy Statements and to the Loan Agreement for the Seventh Bank loan, BDET's term debt-equity ratio should not exceed 8:1 2/. The actual ratio remained well within this limit at 5.7:1 in 1978, 6.3:1 in 1979, 6.5:1 in 1980, and 7.1:1 in 1981. The debt-service ratio 3/ was healthy at 1.3 in 1980 up from 1.2 in 1979, while the interest coverage ratio remained at a satisfactory 1.3 in 1979 through 1981. 5.19 Resource Position. BDET's resourcE position at the end of June 1981 summarized below shows a resource gap on a commitment basis of D 12.2 million representing 9.4% of total available resources. BDET has traditionally been successful in mobilizing foreign currency resources from concessionary lenders such as ADB, EIB and KfW for a total of D 9.7 million in 1980. A special effort has been made by BDET since 1980 to mobilize Dinar resources, tradi- tionally a weak point. The rediscount facility with BCT was increased by 80% to D 4.5 million and, early in 1981, a bond issue was subscribed for about D 2 million. 1/ D 131.3 million as of December 31, 1981 (unaudited). 2/ In the debt/equity ratio definition, a reserve for equity participations reinvestments is excluded from BDET's equity. 3/ Defined as earnings before interest and tax, plus loan collections, over payments (in principal and interest) on borrowings. - 28 - TUNISIA: BDET Resource Position as of June 30, 1981 (D 1 US$2) Resources D'000 Percentage Equity, reserves and provisions 18,161 14.1 Local borrowings 30,999 24.0 IBRD loans 23,146 17.9 Other foreign borrowings 56,759 44.0 129,165 100.0 Portfolio Loans outstanding ) Investments ) 110,061 Others 529 110,590 Resources available for disbursements 18,575 Less undisbursed commitments 30,743 Resource gap on a commitment basis 12,168 5.20 Audit. Audits at BDET are carried out jointly by Peat, Marwick, Mitchell and Company and the Tunisian firm, Cabinet Finor. Their review of BDET's portfolio and financial results is satisfactory and the audit report has been discussed by the Board in presence of the auditors since FY1978. The 1980 Audit report did not qualify BDET accounts and made only minor comments. E. Projected Operations and Finance 5.21 BDET's projected operations are given in Annex 11 and their under- lying assumptions in Annex 10. They have been reviewed in detail by the Bank and found satisfactory. Although BDET's capital increase proposal has not yet been submitted to the Board, BDET's projections assume that its share capital will increase to D 30 million by 1985, thus allowing BDET to increase consi- derably its borrowings and, hence, its lending. During the two-year period 1982-83 -- which corresponds roughly to the commitment period for the proposed loan to BDET -- loan approvals would increase by 66% compared to the two year period 1979-80, and due to the absorption of SIAT (para 5.02), equity parti- cipations approvals would increase faster (by 256%); loan commitments would increase by 123% and equity participations commitments by 223%; and total dis- bursements would increase by 56% 1/. Based on the pipeline of projects iden- tified in EMIs (Annex 14), on the pending applications as of March 31, 1981, which amounted to D25.5 million of financing, and on the rate of new 1/ Due to time lags between approvals, commitments and disbursements, the 1981 boom in approvals will lead to a boom in commitments in 1982 and 1983 and in disbursements in 1983-1985. After 1984, approvals and disburse- ments are projected to stabilize at 180% of their 1979-1980 level (120% in real terms). - 29 - applications (about D 15 million per quarter), BDET should be able to meet its target of about D 54 million of approvals p.a. during 1982-83. BDET plans to achieve this by both scaling up its promotior. efforts (in EMIs and SSIs) and by increasing its financing exposure in largE projects. 5.22 In the financial projections reviewed by the Bank (Annexes 12 and 13), it is assumed that, due to a substantial recourse to costly foreign borrowings (TD 53 million), the average cost of debt would increase from 7.5% of average debt in 1982 to 8.4% in 1983 and 8.9% in 1986, while the yield on average loan portfolio would increase from 9.0% to 9.4% and 10.9% in the same years, without Government subsidy but assuming half percentage point increase in BDET's lending rate every year. However, assurances were obtained during negotiations from the Government (as recorded in the Guarantee Agreement) that the necessary arrangements would be made to ensure BDET a minimum spread of 2 points (para.4.10); in addition to increases in its lending rates and greater access to cheaper resources on the local financial market, BDET has asked from the Government a new form of assistance by subsidizing interest rates exceed- ing 8% on foreign resources. Such assistance would be required until 1985 to ensure a minimum spread of 2% and to allow B])ET to remunerate its increasing capital at the minimum 8% of par value required by its shareholders and keep provisions at a level judged adequate by its auditors (at least 4% of the total outstanding portfolio). The return on average net worth is expected to decrease from 10.9% in 1980 to a minimum of 7.4% in 1983, due to the share capital increase, and to increase to 10.0% ili 1985 and 1986. Although BDET plans to borrow about D 177 million during 1982-86 to meet its financing requirements, the planned capital increase will help the long-term debt-equity ratio decline from 7.1:1 in 1981 to 6.4:1 in 1983 and 6.1:1 in 1986. The debt service ratio is projected to improve from 1.1 in 1981 to 1.3 afterwards, while the interest coverage ratio will remaia at or above 1.2 (Annex 12). F. Resource Requirements 5.23 BDET's resource gap on a commitment basis amounted to D 12.2 million as of June 30, 1981 (para 5.19). BDET's projected resource requirements and financing plan for 1982-83 are summarized below: TUNISIA - BDET: Resource Requirements 1982-83 (D million) Foreign Local Exchange Currency Total Resource Requirements (1982-83) 54.20 39.00 93.20 Resource Gap (estimated at 12-31-81) 4.60 4.70 9.30 58.80 43.70 102.50 Financing Plan Cash generation 9.25 9.25 Net loan collection 11.55 11.55 Disbursement on existing resources 1.30 4.45 5.75 Share capital increase 6.65 6.65 Subtotal 1.30 31.90 33.20 Identified resources (excluding new proposed Bank loan) 43.30 5.00 48.80 Total identified resources 44.60 36.90 81.50 Resource Gap (1982-83) 14.20 6.80 21.00 - 30 - BDLE projected the resource gap in foreign currencies to be D 4.6 million (US$9.2 million) at the end of 1981. Moreover, foreign exchange resource requirements to meet lending commitments during 1982-83 are estimated at D 54.1 million (US$108.3 million). BDET has already identified D 25.3 million (US$50.6 million) of concessionary resources (French and Italian Governments, KfW, ADB) and expects to be able to mobilize D 18 million (US$36 million) additionally from FADES and EIB during 1982-83. The proposed credit line to BDET (US$28.0 million) would cover most of the remaining foreign exchange resource gap and would represent 25% of all long-term resources to be mobi- lized abroad by BDET during 1982-83. Disbursements in Dinars 1/ on loans and participations are projected at D 39 million during 1982-83. The planned capital increase will provide D 6.7 million, net loan collection D 11.6 million, cash generation D 8.2 million, sales of equity portfolio D 1 million and local bond issues D 5 million, that is a total of D 32.5 million. To avoid any gap in Dinar disbursements, BDET's practice since 1980 has been to borrow short-term Euro-currencies and then consolidate the bridge loans when long-term resources are mobilized. It is expected that, in line with its commitments (para 5.23), the Government will allow BDET to raise large Dinar resources on the Tunisian financial market. 1/ Given that BDET has been traditionally meeting its financing requirements in Dinars on a disbursement basis, to express BDET's Dinar resource gap on a disbursement basis is more meaningful. - 31 - VI. ThE PROJECr Project Objectives 6.01 The main objectives of the proposed project are the following: a. To promote the efficient development of EMIs and other industries by financing, through a line of credit to BDET, new and modernization/ rehabilitation projects in priority subsectors. b. To increase the delivery of technical assistance to EMIs in two com- plementary ways by: (i) fostering product quality by es:ablishing standards and quality control of products through the establishment of an Institute for Standardization and Quality Control of industrial products; and (ii) delivering technical assistance to EMI firms and providing on-the-job training using the services of a Technical Center (CTM) to be established. c. To help implement changes in incentives specific to EMIs in the areas of protection, exports and financing. These objectives are in line with those set hy the Government for the EMI sector in the Sixth Plan (1982-86). Because most EMIs are inherently labor intensive, the proposed project de facto wilL also address the important government objective of employment creation during the Sixth Plan. Project Description 6.02 The proposed project aims at meeting these objectives through the following components as follows: a. A loan to BDET (US$30 million), composed of a US$28.0 million credit line subdivided in two parts earmarked to finance respectively EMIs (US$14 million) and other industrial subprojects (US$14 million) (para 6.04), and of a US$2 million subloan to the Government to finance part of the technical assistance component (para. 6.11). b. A technical assistance component fcr EMIs through a Technical Center (CTM) to be set up; its foreign exchange operating costs (US$1.5 million) for the first two years would be financed under the proposed subloan to the Government (paras 6,11-17). c. An Institute for Standardization and Quality Control of industrial products to be set up; the foreign exchange cost of technical assis- tance to the Institute (US$300,000) would be financed under the pro- posed subloan to the Government (paras 6.18-20). - 32 - d. A study of effective protection in manufacturing, with priority to EMIs, in the context of an incentive package for EMIs (paras 6.21-6.25); the foreign exchange cost of technical assistance for the study (US$200,000) would be financed under the proposed subloan to the Government (para 6.22). e. A front-end fee of US$0.5 million. Also, two studies would be undertaken to define long-term development stra- tegies for the platework and foundry subsectors (paras 6.26-27). The proposed allocation of Bank funds is summarized in the table below; Allocation of Proposed Bank Loan Amount (US$million) Loan to BDET, 30.5 of which: a) Credit Line 28.0 Part A: Credit line for EMI priority subsectors 14.0 Part B: Credit Line for general purpose lending to industry 14.0 b) Technical Assistance Subloan to the Government 2.0 Part C: (i) the CTM 1.5 (ii) the Institute for Standardization and Quality Control 0.3 (iii) the Effective Protection Study 0.2 c) Front-end Fee 0.5 A. Financial Assistance 6.03 Overall Lending Target in EMIs for BDET. To maximize financing of EMI projects irrespective of the source of funds, BDET agreed to commit itself to a minimum lending target in EMIs. On the basis of BDET's past lending to EMIs, its projected lending to industry (Annex 11), and an analysis of its pipeline in EMIs (Annex 14), a lending target of at least $30 million equiva- lent of commitments for EMIs over the two-year period mid 1982-mid 1984 was agreed upon. This target, representing 14% of projected commitment during the same period, is more than twice the amount of Bank funds to be earmarked for direct EMI financing (para 6.04). Annually, this will represent a doubling of BDET's commitments to EMIs over the annual average achieved during 1977-80. Moreover, BDET agreed that at least two-thirds of this lending target would go to the priority EMI subsectors, as identified in paras 3.12-3.14. These two targets were recorded in the Loan Agreement. BDET's minimum lending target of US$30 million in EMIs should finance projects with a total cost of US$80 million equivalent or about 20% of projected investments in EMIs over the next two years. These investments will help create about 6,000 jobs at an average investment cost of about US$13,500, generate sales totalling US$45 million p.a. and save about US$30 million p.a. in foreign exchange. - 33 - 6.04 Allocation of the Credit Line. BDEr requested that one half of the proposed credit line be available for generaL purpose lending to industry. BDET wants to retain some flexibility in managing its borrowed resources, many of which are tied to specific types and sizes of subprojects (such as the last KfW loan which is SSI-oriented) or to particular sources of procurement (such as the French and Italian credit lines). ThLs request is reasonable given BDET's commitment to the above lending target, and since it will still allow the Bank to review a sufficient number of EMX subprojects (para 6.07). It was therefore agreed that the credit line ($28.0 million) be divided in two parts: a part A of $14.0 million to finance subprojects in priority EMI subsectors, and a part B of $14.0 million for general purpose lending to industry. 6.05 Subproject Eligibility Criteria. The proposed credit line under parts A and B will finance the direct foreign exchange cost of machinery and equipment for industrial projects. In line with recent Bank financing to BDET for general purposes, it will be open to any subproject that is technically sound, and financially and economically viable, i.e. meeting the test of a minimum FRR of 12% and a minimum ERR of 10% (the difference between these two thresholds reflecting the difference between the estimated current economic and financial opportunity costs of capital in Tunisia). 6.06 In addition, EMI subprojects to be financed under part A or to be accounted for BDET's lending target to priority EMIs (para 6.03) would have to meet the following specific eligibility criteria; a. They should be in one of the priority subsectors, defined as EMI goods for which, at the time of Barnk approval, the nominal tariff duty would be lower than 18%, and the steel structure and platework subsector for which the nominal tariff duty would be reduced to 21% 1/. Moreover, in the case of projects which the Government would consider necessary to protect also through import licencing proce- dures, the Government would ensure that: (i) arrangements will be made betwgeen the Tunisian firm and foreign associates to guarantee that l:he new products to be developed under the project would meet qluality standards satisfactory to the Government; (ii) the Tunisian promotors substanitiate their expectations to pro- duce at an ex-factory price not exceeding 118% of the comparable foreign price (as defined in para 3.27) after the first three years of operation and will sill at such a price during these first three years; and (iii) the project output will be subjected to, as to be understood by the project promotors, increasing import competition whenever, after the first three years of operation, the ex-factory price of the project output would exceed the 118% benchmark. For steel structure and platework projects, the benchmark would be 121% of the comparable foreign price. 1/ See paras 3.22-3.27 for details on the protection situation in EMIs. - 34 - b. Export-oriented EMI subprojects in non-priority subsectors will also be eligible if they are based on buy-back arrangements with foreign partners covering at least 70% of the subproject output and if appro- priate evidence of the buy-back arrangements is submitted. c. Subprojects should be in the private sector 1/. d. Subprojects should not exceed a total investment cost--including permanent working capital needs--of $12 million equivalent. To finance a minimum number of EMI subprojects, sub-loans will be limited to $2 million per subproject. Permanent working capital needs will be financed with medium-term credits granted either directly by BDET or co-financed with a commercial bank (para 4.08). 6.07 No free limit is granted under part A to allow Bank review of all EMI subprojects and a feedback to BDET on its lending orientations in EMIs. It is estimated, based on BDET's pipeline in EMIs (Annex 14), that up to twelve sub- projects could be submitted to the Bank under part A, with most of the subloans ranging from US$500,000 to US$1.0 million. In addition, all other priority EMI projects financed by BDET will be reviewed by the Bank and one out of three subprojects financed by BDET in non priority EMI subsectors will be sent to the Bank for ex-post information and review. For part B, it was agreed to use the free limit agreed under Loan 1504-TUN after adjusting for inflation and exchange rate fluctuations since 1977. The free limit will thus be D 500,000 (US$1 million equivalent). It is estimated that about eighteen sub- projects will be submitted to the Bank under part B; at least twelve of them, with subloans totalling US$5 million, would fall under the free limit. 6.08 Link with the Technical Assistance Scheme. BDET will assess the need for technical assistance of all subprojects that it will finance in either platework or mechanical works -- subsectors on which the proposed technical assistance scheme will focus (para 6.12). CTM will propose for each sub- project a technical assistance action program which would be reviewed by BDET. Both the CTM proposal and the BDET review will be included in the subproject appraisal report. An agreement on the scope of and timetable for the techni- cal assistance program to be implemented should be reached between the con- cerned promoter and BDET before the subproject is submitted to the Bank for approval. 6.09 Appraisal Format. BDET's appraisal reports for EMI subprojects eli- gible under Part A of the credit line will include, as recorded in the Loan Agreement, the following information: a. When local integration is contemplated, the list of components should be provided and detailed between components to be imported, those purchased from Tunisian manufacturers, and those manufactured by the promoter; the local cost/CIF price ratios for each component to be produced or purchased locally should also be estimated. 1/ i.e., any subproject in which the State owns directly and indirectly less than 50% of equity participation. - 35 - b. Permanent working capital needs, either initial in the case of a new project or additional in the case of extension of production capa- city, should be estimated and justified; these needs will be eligible for medium-term financing to be provided by BDET or obtained from commercial banks by BDET. c. In the case of export-oriented subprcjects in EMI priority (at least 30% of total sales) or non priority (at least 70% of sales) sub- sectors, prospects of markets abroad and the subproject's ability to export should be analyzed and assessed. d. A detailed status of the protection granted, or to be granted, to the subproject, specifying the duties and taxes levied on imports and, if any, the quota protection (level, schedule and duration of quota). e. In the case of subprojects protected by import licencing and quota, the comparable foreign prices should be quoted and compared to the projected prices of the subproject's output, and the non-confidential features of arrangements made (technical assistance or licencing contract with foreign firms, other local arrangements) to ensure acceptable specifications and quality standards of the products. f. When requested by the Bank, simplified computation of the effective protection to be enjoyed by the project (with foreign prices used only for output and tradable inputs but not for production factors). g. For subprojects in platework or mechanical works, the technical assistance program proposed by CTM and agreed upon by BDET and the promoter (para 6.08). 6.10 Procurement and Disbursements. BDET's procurement and disbursement procedures are satisfactory: appraisal reports usually describe in detail and justify the equipment to be purchased, its technical characteristics, the names of suppliers and prices quoted. Procurement will continue to be carried out, as under previous loans, in accordance with BDET procedures which re- quire, in particular, borrowers to obtain at least three price quotations from suppliers/contractors 1/. These aspects of,procurement were recorded in the Loan Agreement and the agreed minutes of negotiations. B. Technical Assistance to EMIs 6.11 Technical assistance is a fundamental part of this project. It extends well beyond the scope of financial assistance since it aims at covering the entire EMI sector. Few institutions in Tunisia are able to meet the technical assistance needs of EMIs. This project will therefore help 1/ International competitive bidding procedures were discussed with BDET and considered difficult to implement under the proposed project, in view of the small size of components to be refinanced by the Bank loan (maximum US$2 million and average US$1 million p4er project), the wide variety of equipment needs and specifications related to each project's output and quality standards, and the technical re,ommendations of the projects' foreign partners or associates. - 36 - create two new technical assistance agencies to respond to the priority needs of EMIs. These are (i) a Technical Center focusing on EMIs to support the accelerated development of the subsector expected over the Sixth Plan and beyond. The Government accepted the Bank proposal to set up such a Center, called Centre Technique de la Mecanique (CTM); and (ii) an Institute for Standardization and Quality Control to give EMIs the basis for improving the quality of their products. It was agreed that the technical assistance requirements for these new institutions be financed out of the US$2 million subloan to the Government, which will also provide for the Effective Protec- tion study on manufacturing, to cover the foreign exchange costs of the con- sultants (salaries, fees, travel) under Part C of the project. 6.12 CTM - Scope and Activities. In a first phase, the proposed CTM will deliver technical assistance to two priority subsectors where the potential for efficient projects are the highest and the needs for technical assistance are the most urgent. These are: steel structure/plateworks, and mechanical works (para 3.08). The range of technical services offered to enterprises in these subsectors would comprise initially: a. In-plant guidance and trouble-shooting to resolve production problems (e.g., reorganize plant layout and work flow; remove bottlenecks; improve product quality; demonstrate to workers and technicians appropriate and more efficient practices with regards to machinery and tools utilization as well as their maintenance). b. Assistance to firms in their efforts to rationalize existing product mix, to adapt/adopt new and appropriate products 1/, to plan and prepare new or expansion investments. c. Advice to firms in the design and improvement of cutting tools and die metals. 6.13 Although the training of technicians is crucial to the development of EMIs, CTM would limit itself, at least during the first two years, to custom- ized in-plant demonstrations because there is a sufficient number of formal professional training programs already provided by several institutions (para 2.06). In the longer term, CTM could participate in the training programs organized by these institutions, and eventually organize com,plementary trai- ning actions on specialized technical aspects of EMIs (e.g. seminar on methods to prevent metal corrosion, adapted to Tunisian conditions and quality of raw materials, foundry technology). 6.14 CTM's services will be offered to all firms in the two priority sub- sectors regardless of size. Yet firms seeking assistance will likely be small- and medium-sized because the large firms often obtain technical assis- tance directly from their foreign technical partners. During its first two 1/ CTM would also coordinate with API's current efforts to promote subcon- tracting arrangements between small and larger firms within a subsector and between subsectors. These efforts, started under the Bank SSI Pilot Project (Loan 1505-TUN), are continued under the SSI I Project (Loan 1969-TUN). They will also be strengthened by the activities of the Stan- dardization Institute (para. 6.18). - 37 - years of activity, it is expected that the CTM would provide in-depth assis- tance to about 20-30 small- and medium-size firms in the two priority subsec- tors, not counting numerous spot assistance actions in other EMI subsectors. 6.15 CTM will be an autonomous semi-public institution created under MNE. To carry out its assistance in tools and dies, CTM will absorb the existing Centre Pilote de l'Outillage (CPO), located in Sousse. The CPO was created in 1971 with the original objectives of training, development and fabrication of tools and dies as needed by enterprises. Over time, however, the CPO has con- centrated mostly on production of dies, essen:ially because of deteriorating human and financial resources. The main beneEit of integrating the CPO within the CTM (as a Tools and Dies Department) is tD help re-orient and strengthen its tools and dies activities along the very -orthwhile original objectives, using the human and financial resources being proposed for the CTM. To encou- rage private EMI firms to accept more readily CTM's services, four of the nine members of CTM's Board, including its Chairman, would be representatives from the private sector, of which three should be from small- and medium-size firms (i.e.,. with net fixed assets lower than D 3 million). The General Director of the CTM would be recruited on the basis of his management and technical ex- perience, preferably in the private sector. The drafts of the Law and Decree establishing the CTM were reviewed by a Bank mission in September 1981 and during negotiations (Project File, Item 2). The final texts are scheduled to be submitted shortly to the Parliament. Given the importance of the technical assistance scheme in this project and the advanced stage of legal processing of the CTM, it was confirmed during negotiations that the signature of the Decree establishing the CTM and the appointmcnt of its General Director be made conditions of effectiveness of the proposed loan. 6.16 Initially CTM will have a minimum core of staff composed of eighteen Tunisians (six engineers and twelve technicians) and of eight experienced foreign experts. The team of foreign expertis will be headed by a senior engi- neer, whose task will be to assist in the management of CTM and formulate its program. The other foreign experts will carry out technical assistance acti- vities, with the following specializations: two production engineers (one experienced in steel structure/plateworks and one in mechanical works); one product development and design engineer; and four senior technicians (one experienced in welding; one in mechanical works; one in tooling and one in dies). Draft terms of reference for all these experts were agreed to with the Tunisian authorities and are available (Project File, Item 2). The Tunisian engineers and technicians (in a ratio of two Tunisians to one foreign expert for the engineers, and three to one for the technicians) will be expected to carry out the whole technical assistance program once the foreign experts have completed their work after about two years. To ensure that EMI subprojects financed under the Bank loan receive the necessary technical assistance (para 6.08), at least half of the team of foreign experts (including the head of the team) should be in place no later than October 1st, 1982. This was recorded in the Guarantee Agreement. 6.17 CTM's operational costs in foreign exchange are estimated at US$1.5 million equivalent for the first two years to cover the foreign experts' sala- ries (192 man-months at about US$7,500 per man-month), the expenses for addi- tional external consultancy services as neecled, and some training abroad for the Tunisian counterparts. It was agreed tthat this amount be financed out of 38- he~ lxoceeds of the US$2 million subloan to be made by BDET to the Tunisian Goverament, subloan to carry terms (interest rate and maturity) identical to those granted by the Bank to BDET. The experts will be selected in accordance with the "Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency" published by the Bank in August 1981 In any event, the Bank will approve the final terms of reference for the foreign experts and will review the technical assistance program for the first two years. CTM's activity will also be reviewed regularly in the context of Bank supervision missions and MNE will have CTM prepare an annual report describing past and projected activities. The Government agreed to finance the operating expenses of CTM in Dinars (estimated at D 100,000-150,000 p.a.) by the State Budget; D 101,000 have been earmarked to that effect in the Finance Law for 1982. Given the importance of establishing the technical assistance scheme as soon as possible, the signature of this $2 million subloan between BDET and the Government was made a condition of effectiveness of the proposed loan. All the above arrangements were recorded in the legal documents. 6.18 Institute for Standardization and Quality Control. This Institute will aim at standardizing Tunisian industrial products in general, and EMI goods in particular. Its creation had been one of the recommendations of the Bank EMI sector report. While the idea of a National Standardization Insti- tute was in gestation, MNE set up in July 1980 a Standardization and Quality Control Division within the Industry Directorate to prepare standards. In less than a year and with limited means, a dozen standards (of which seven for EMI products) were prepared in close cooperation with the manufacturers con- cerned, and about seventeen more EMI standards were under preparation. During this process, a consensus emerged among manufacturers on the need to set up a National Institute to develop standards on a larger scale and at a faster pace, and to ensure that those standards are adhered to. In March 1981, the Tunisian authorities decided to establish the Institute. 6.19 The Institute will be a semi-public, autonomous agency under the aegis of MNE. It will be responsible for preparing and issuing standards in cooperation with manufacturers, and for ensuring that goods are produced in accordance with them. It will be assisted by the existing laboratories to perform the necessary tests and controls. During its first two years, the Institute would start off with a minimum core of about ten technical staff and would be able to produce each year about thirty standards while adapting a greater number of existing international standards. EMIs will be among the first priorities of the Institute's work program. The draft Law and Decree estabLishing the Institute (Project File, Item 3) were reviewed during nego- tiations. The signature of the Decree establishing the Institute will be a condition of effectiveness of the proposed loan, and a Government commitment to financially support the Institute was confirmed during negotiations. D 240,000 have been earmarked in the Finance Law for 1982 to cover the Insti- tute's current and capital expenditures during the first year. These arrange- ments were recorded in the loan documents. 6.20. To assist MNE in setting up the Institute, it was agreed to finance out of the proceeds of the $2 million subloan to the Government (para. 6.17), the costs of services of three foreign experts in standardization (30 man- months at about US$10,000 per man-month, that is US$300,000). The first expert (whose preliminary terms of reference have been prepared by the Bank - 39 - (Project File, Item 4)) will advise MNE on the main orientations and priori- ties of the standardization program, and make concrete recommendations on the Institute's scope of activities, administrative organization, work procedures, staffing and budget; he will also prepare the terms of reference of the two other experts (one in standardization, one in quality control) which would come subsequently for one year each. These recommendations and the final terms of reference will be reviewed by the Bark. These arrangements were recorded in the loan documents. MNE agreed during negotiations to appoint a project coordinator to do the preparation wort: for setting up the CTM, hiring its Director and the foreign experts for the CTM and the Institute of Stan- dardization, and to expedite the overall implementation of Part C of the project (Minutes of Negotiations). C. Protection and Incentive Framework for EMIs 6.21 Protection and Incentives for CapitaL Goods Industries. In order to introduce appropriate protection measures as well as sufficient incentives for the development of local capital goods industries and for competitiveness and efficiency improvement, agreement was confirmed during negotiations that the Government would: a. apply existing tariff duties on imports of EMI capital goods and supplies which could be produced in Tunisia 1/. A preliminary list of such products was worked out by the Government, and was reviewed by the Bank during negotiations; MNE agreed to publish this list before July 31, 1982 through an ArrOt4 to be used systematically by the authorities responsible for granting tariff exemptions and import licences. b. decrease current tariff duties on steel structure and platework products from 26% to 21% (it was agreed that this would be enacted through an Arrete before July 31, 1982); c. maintain below 18% the tariff duties on products referred to in a) above, and consult with the Bank be:-ore it increases any of these duties above 18%, or above 21% for steel structure and platework products; and d. take appropriate measures to ensure that priority EMI products pro- tected by import licencing procedures be charged reasonably competi- tive prices in comparison with similar foreign products (para 6.06). These commitments were recorded in a supplemental letter to the Guarantee Agreement. 1/ The Investment Code (Law 74-74, revised by Law 81-56) includes a provision to that effect, but it has not been applied effectively (para 3.22). The alternative exemption of capital goods and supplies industries from duties and taxes on their inputs would be, however, impractical because, under the principles regulating the Tunisian fiscal system, taxes and duties are attached to the products (e.g. steel plates) and not to the users (e.g. platework industry, as opposed to steel wholesalers). - 40 - 6.22 It was also agreed with the Government that the appropriate levels of protection for EMI would be subsequently discussed in the context of an Effec- tive Protection study for manufacturing to be carried out in the context of the project. The Tunisian Economic Research Agency of the Ministry of Planning and Finance (Institute Ali Bach Hamba) would be in charge of it 1/, and would receive technical assistance for this purpose according to terms of reference satisfactory to the Bank; it was agreed that the foreign exchange cost of this technical assistance (up to $200,000, for up to two man-years of foreign experts) be financed out of the $2 million Technical Assistance Sub- loan to the Government (para 6.17). 6.23 Incentive to Industrial Exports. The Government has agreed, at the Bank's suggestion, to a review of the procedures designed to allow industrial producers (in particular in EMIs) who export infrequently or under short notice to recover the custom duties they pay on the imported inputs used in the manufacture of exports. Even though such procedures are provided for in the 1971 law, they are not being applied; this discourages local firms from seeking contracts abroad. A review of these procedures, begun in July 1981, was carried out by a Government task force. After studying various refund formulas, the choice was made to streamline existing procedures by requiring the refund authorization from one authority only (Customs). The Bank had con- cluded that this solution would be satisfactory. The task force's proposal was submitted to the Government, and the final text was incorporated in the Finance Law for 1982. The text was reviewed during negotiations and was considered acceptable to the Bank. Refunding procedures will be defined by an ArrZt6 to be published shortly. 6.24 Financing of EMI Activities. BCT agreed that permanent working capital needs of EMI subprojects would be eligible for medium-term financing (paras 4.08 and 6.06). This was recorded in the loan documents. To broaden and expand the utilization of the special production credit facility (para. 4.07), BCT also agreed to extend the current list of eligible EMI products to the list of all EMI equipment goods manufactured in Tunisia (as to be estab- lished by MNE - para 6.21(a)). BCT will publish the extended list in a cir- cular to be issued after MNE has published its list. This was reflected in the agreed minutes of negotiations. 6.25 Information on Available Incentives. To improve the information on incentives available to EMI producers, the Tunisian authorities have agreed to advertise the existing incentive framework and the new measures (paras. 6.21 to 6.24). To that effect, API will prepare, with the assistance of the 1/ The Ali Bach Hamba Institute carried out in 1975, with Canadian technical assistance, a study on effective protection in the Tunisian economy using the 1972 input-output table, detailed in 130 sectors. Based on border prices, the study estimated protection rates and domestic resource costs for each sector and assessed the impact of various tariff and exchange rate policies. ("La Protection Effective des Branches d'Activite de l'Economie Tunisienne: Mesure et Analyse", report jointly published by the Institut Ali-Bach-Hamba and by Similar International Inc. in Montreal, July 31, 1975). - 41 - concerned ministries, a booklet summarizing incentives available to all industries and detailing incentives specific to EMIs. This booklet would be published before July 31, 1982. This was confirmed during negotiations (Agreed Minutes). D. Sectoral StLdies 6.26 The Government agreed on the need for detailed subsector studies with priority to be given to two subsectors -- fou.ndries and platework -- which have potential for efficient import-substitution but require rationalisation (paras 3.06-3.08). These studies would: (i) identify economically efficient EMI product lines based on a suffi- ciently large local market and on relatively simple technological processes; (ii) propose to rationalize and specialize productions between firms and outline investment programs for them; and (iii) define long-term development strategies for these two subsectors. 6.27 In June 1981, MNE commissioned BTKD 1/ to do a study of the platework subsector. At MNE's request, the Bank prepared draft terms of reference for the sectoral part of the study. The study, l:o be carried out by a Tunisian consulting firm with the assistance of a major European platework firm, is scheduled to be completed before July 1982. The Bank will, upon its comple- tion, review it and discuss with the Government its proposed strategy for the development of the platework subsector. Moreover, in the context of both the SOFOMECA project 2/ and this project, the Bank, in agreement with the Govern- rnent, carried out a sectoral study of the fouindry subsector to propose a stra- tegy for the development of foundries. The study was completed, and given to the.Tunisian delegation during negotiations. The Bank will discuss with the Government the conclusions and recommendatio,2s of this study to reach an understanding on the desirable strategy for the development of the foundry subsector. It was agreed during negotiations that these two studies will be reviewed and discussed by the Bank and the GDvernment before September 30, 1982 (Guarantee Agreement). An understanding was reached also with BDET that it will submit to Bank financing subprojects in these two subsectors only after the Bank and the Government agree on the development strategies to be implemented in these two subsectors (Minutes of Negotiations). E. Project Benefits and Risks Benefits 6.28 BDET's minimum lending target of US$30 million in EMIs (para 6.03) should finance projects whose total cost is US$80 million equivalent over the next two years, or about 20% of projected investments in EMIs. These invest- ments will help create about 6,000 jobs at an average investment cost of about 1/ BTKD is one of the new development banks established in 1981 (para 4.02). 2/ SOFOMECA is Tunisia's largest foundry, for which the Bank is preparing a possible loan of $15 million for FY83. 42 - USS13,500 (at 1980 prices). While some of these projects will generate ex- ports, they will be primarily for import-substitution of capital and interme- diate goods. They will generate estimated sales of US$45 million p.a., and save about US$30 million p.a. of foreign exchange to Tunisia. As a conse- quence of the focus of BDET's lending and the Plan on EMI priority subsectors, the importance of priority subsectors within EMIs will increase substantially; they will receive 45% of total EMI investments during 1983-84 and generate 75% of future EMI incremental output. Thus, the project will be instrumental in supporting (or re-orienting) EMI investments towards activities where Tunisia has a strong comparative advantage. EMIs' product quality and productivity will be improved through the creation of a National Institute for Standardiza- tion and Quality Control; and the Technical Center for EMIs will deliver for the first time a comprehensive technical assistance program to Tunisian EMI firms. A better knowledge of the foundry and platework subsectors will also help the Government formulate a balanced development strategy in these subsec- tors. Better sector knowledge will also derive from the important promotional effort to be undertaken by BDET to meet the lending target of US$30 million of commitments for EMIs over the next two years; BDET has already taken steps to hire additional staff for that purpose. These improvements should benefit directly not only subprojects to be financed under the proposed credit line but all EMIs, and this should lead to a faster growth of the sector. The pro- ject finally provides a vehicle for pursuing in a concrete way the fruitful sector dialogue with the Tunisian authorities with respect to protection and policies affecting EMIs - a point of potential importance now that the Sixth Plan (1982-86) gives priority to EMIs within the industrial sector. Risks 6.29 The major risk of the proposed project is that the complex institu- tion-building efforts, including the technical assistance program, could be delayed for a variety of reasons. The quality of the institutions and their effectiveness in assisting EMI development remains also uncertain. This risk is, however, manageable and well worth taking. The Bank will assist the Tunisian Government in minimizing this risk through closer supervision of the various components of the proposed project. - 43 - VII. RECOMMENDAT':ONS 7.01 The proposed loan of US$30.0 million to BDET, composed of a US$28.0 million credit line for the financing of EMIs subprojects and of other indus- trial subprojects, and of a US$2.0 million subloan to the Tunisian Government to finance the foreign exchange costs of experts and consultants to the CTM, the Standardization Institute, and the Bach Hamba Institute, is suitable for Bank financing, given that the following agreements and understandings were reached during negotiations. A. General Features of the Loan 7.02 The credit line (US$28.0 million) wculd be available to finance any EMI subproject under Part A and any industrial subproject under Part B meeting agreed eligibility criteria (paras 6.05-06). The final date for submission of subprojects to the Bank would be December 31, 1984 1/, and the closing date would be December 31, 1987 2/. The subloan to the Government (US$2.0 million) would be available to finance the foreign exchange cost of experts to be hired by (a) the CTM for a total of 192 man-months, or an average of US$7,500 per man-month (para 6.17), (b) the Institute for Standardization and Quality Con- trol for a total of 30 man-months, or about US$10,000 per man-month (para 6.20), and (c) the Bach Hamba Institute for a total of 20 man-months, or about US$10,000 per man-month (para. 6.06). The loan would be repaid according to a composite amortization schedule not to exceed fifteen years, including three years of grace, and reflecting the amortization schedule of the subloans. The loan is subject to a front-end fee of US$0.5 million. B. Agreements and Understandings reached during Negotiations concerning the Proposed Loan to BDET 7.03 (a) BDET to target at least US$30 million of financing to EMIs, of which at least two-thirds to priority EMI subsectors, during the period June 1982-June 1984 (Loan Agreement) (para 6.03). (b) Definition of eligibility criteria for EMI and other industrial sub- projects (Loan Agreement) (paras 6.05-6.06). (c) Allocation of the loan amount showing parts A and B of the credit line and the Technical Assistance subloan to the Government (Loan Agreement) (paras 6.04 and 6.17). (d) No free limit for subloans under Part A, and review by the Bank of all priority EMI projects financed by BDET and of one out of three BDET subprojects in non priority EIII subsectors; free limit under Part B (Loan Agreement) (para 6.071. (e) Appraisal reports of EMIs subproje,:ts to follow a detailed format (Loan Agreement) (paras 6.08 and 6.09). 1/ Though the credit line is expected to cover BDET's pipeline through June 30, 1984, a six-month extension is envisaged as a contingency. 2/ Based on the standard disbursement profile for EMENA IDF loans (Annex 15), with a six-month extension for contingencies. - 44 - (f) Procurement procedures for subprojects to be refinanced under the credit line (Loan Agreement and Agreed Minutes) (para 6.10). (g) Subloan to be made available to the Government on terms identical to those of the Bank loan to BDET (Loan Agreement) (paras 6.17, 6.20 and 6.22). (h) BDET to hire additional staff to deal with project promotion and project supervision (Supplemental Letter) (paras 5.07-5.08). (i) BDET's commitment to review annually its interest rate structure and make necessary adjustments to ensure a reasonable spread, of at least 2 percentage points, starting 1982 (Loan Agreement and Agreed Minutes) (para 4.10). (j) The Government's assurances to make arrangements necessary so as to help BDET maintain the required spread, and to rescind its financial assistance to BDET before end of 1986 (Guarantee Agreement) (para. 4.10). (k) BDET's understanding to submit to Bank financing projects in foundry and platework subsectors only after agreement between the Bank and the Government on the development strategies for these two subsectors (para 6.27) (Minutes of Negotiations). C. Agreements and Understandings reached during negotiations Concerning the technical assistance arrangements 7.04 (a) Terms of reference of experts to be hired by the CTM and technical assistance program for the first two years to be satisfactory to the Bank (Guarantee Agreement) (para 6.17). (b) At least half of the team of foreign experts (including its leader) to be in place in the CTM no later than October 1st, 1982 (Guarantee Agreement) (para 6.16). (c) Government's agreement to the principle of annual report on the func- tioning and progress of the CTM (Guarantee Agreement) (para. 6.17). (d) Government's commitment to provide the necessary financial support to the CTM's technical assistance program (Guarantee Agreement) (para. 6.17). (e) Government's commitment to guarantee financial support to the National Institute for Standardization and Quality Control (Guarantee Agreement) (para. 6.19). (f) Terms of reference of the experts to be hired by the Institute for Standardization and Quality Control and work program for the first two years to be satisfactory to the Bank (Guarantee Agreement) (para. 6.20). - 45 - (g) Terms of reference of the Effective Protection Study to be carried out by the Ali Bach Hamba Institute to be reviewed by the Bank before July 31, 1982 (Guarantee Agreement) (para. 6.22). (h) MNE appoint a project coordinator to expedite implementation of Part C of the project (para 6.20) (Minutes of Negotiations). D. Agreements and Understanding reached during Negotiations concerning Policy Measures for EMIs 7.05 (a) Government's commitment to give priority to EMIs in its study of effective protection to be carried out by the Ali Bach Hamba Insti- tute (Guarantee Agreement) (para 6.22). (b) Government's list of EMI capital goods produced in Tunisia, for which corresponding imports will bear tariff duties (para 6.21) and for which the Central Bank would extend the eligibility to the special liproduction credit" facility (para 6.24), to be published before July 31, 1982 (Side Letter to the Guarantee Agreement). (c) Central Bank's and BDET agreement to allow permanent working capital needs of EMIs subprojects to be financed with medium-term credits (Loan and Guarantee Agreements) (para 6.06). (d) the Government's agreement to decrease the current tariff duty on steel structure and platework products to 21% before July 31, 1982, and to consult with the Bank before it increases this duty above 21% or any tariff duties on imported capital goods above 18% (para 6.21) (Supplemental Letter to the Guarantee Agreement). (e) Government's commitment to ensure for priority EMI projects protected by import licencing that local ex-factory prices would not exceed 118% of the appropriate foreign price for similar products, through import liberalization when necessary, and that local products meet satisfactory quality standards (para 6.06) (Supplemental Letter to the Guarantee Agreement). (f) Government's agreement to discuss with the Bank before September 30, 1982 the conclusions and recommendations of the foundry and platework subsector studies (Guarantee Agreement) (para 6.27). Conditions of Effectiveness 7.06 The loan documents specify the following conditions of effectiveness which were agreed upon during negotiations: (a) Signature of the Decree establishing the CTM and appointment of its General Director (para 6.15); and (b) Signature of the Decree establishing the National Institute for Stan- dardization and Quality Control (p,ara 6.19). (c) Signature of the $2 million Techni.cal Assistance subloan between BDET and the Government (para 6.17). - 46 - Annex 1 TUNISIA - Growth rates (% p.a.) over the Plan period (1977-81) (based on values in 1972 prices) Const. Chem- Total Food Mat. EMI icals Text. Misc. Mfg. Value Added +10.3 +20.6 +14.4 +14.8 +5.5 +13.1 +11.4 Value added/ worker -0.3 +9.2 +4.2 +19.5 +1.9 +4.4 +4.6 (1980 D in current prices) (2,940) (1,550) (1,190) (4,120) (490) (1,110) (1,100) Investment/job (1977-81) (avg in current prices) (9.6) (15.8) (6.9) (46.2) (1.9) (3.0) (7.9) Output +11.3 +19.2 +11.7 +19.9 +7.0 +9.8 +11.5 Investment 1/ -1.0 -11.5 +5.5 +24.7 -10.8 +6.5 -4.7 Private Investment -8.1 +1.1 +10.7 +2.0 -4.2 +13.8 +1.0 Public Investment +7.9 -14.0 -1.0 +29.5 -27.0 -5.4 -3.4 Employment Creation +17.3 -2.1 +9.4 +27.5 -1.8 +14.9 +5.5 Exports +7.8 - +19.7 +23.1 +16.7 +12.6 +15.9 ICOR 3.2 8.7 4.1 8.4 3.0 1.8 3.9 1/ This rate is based on gross capital formation since data on net capital stock are not available yet. It is nevertheless a meaningful indicator of investment rate in manufacturing, because most of Tunisia's manufacturing activities have relatively new capital stock thus not necessating yet substantial renewal/replacement investments. Source: Annexes of Budget Economique 1981, Ministry of Planning and Finance TUNISIA Actual and "Optimal/Normal" Structure of Manufacturing in Tunisia (Shares in % of Manufacturing Value Added) 1977 1979 1980 1981 1985 Subsector Norm Variance Norm Variance Norm Variance Norm Variance Norm Variance Food 20.9 +3.1 19.7 +5.2 19.3 +5.0 19.0 +5.7 18.6 +5.6 Const. Mat. 6.0 +4.0 5.6 +6.6 5.4 +8.4 5.4 +8.9 5.11/ +11.4 EMI 23.7 -10.7 24.8 -12.6 25.2 -13.3 25.5 -13.3 29.2V/ -14.2 Chemicals 16.5 -1.5 17.3 -1.7 17.7 -2.1 17.5 -3.0 16.0 -5.7 1 Textiles 18.5 +6.5 18.5 +4.4 7.8 +4.5 17.8 +4.0 15.5 +4.2 Misc. 14.3 -1.3 14.5 -2.1 14.6 -2.2 14.7 -2.3 15.6 -2.1 Total Mfg. 100.0 100.0 100.0 100.0 100.0 (MD) (435.0) (b14.4) (738.3) ov.3) I1361.q Mfg. % of GDP 23.4 -10.7 24.5 -10.9 25.0 -11.3 25.4 -11.1 24.0 -7.3 1/ These results are based on preliminary projections for the Sixth Plan. The final share to be assigned to EMI during the Sixth Plan is expected to be higher than the preliminary data available. 2/ It is noted that this large variance may be explained by the important tourism sector in Tunisia. Source: Annexes to the Budget Economique 1981, Ministry of Planning and Finance. Annex 1 of Tunisia - Review of the Electrical-Mechanical Industries, Report No. 2666-TUN. 4. - Annex 3 TUNISIA EMIs - SUBPROJECT PIPELINE IN 1982-1986 PLAN (excluding subprojects under implementation) PROJECTS AGREED AND STUDIED PROJECTS IDEAS OR UNDER STUDY (likely to ba financed in 1982-1983) (to be financed after 1983) Description cost Private BDET Description Cost Private BDET (ID mln) (TD ron) 1. Priority Subprojects and Activities currently considered by BSET 1. Basic Metals Aluminum Foundry 0.46 Private Yes Steel Cables 1.50 n.a. If Private 2. Mechanical Works Leaf Springs 4.50 Private Yes Agricultural Iplemencs 4.00 Private Yes Excavators 0.37 Private Yes Wood Machines 2.50 Private Yes Conpressors 0.30 Private Yes Diesel Generators 0.50 Private Yes Auto Radiators 1.50 Private Yes Fork Lifts 0.36 Private Yes 3. Steel Structure and Platework Modernization 6.00 Private Yes 4. Electrical-Electronic industries Telephone Switchboards 6.00 Private Yes Motors/Transformers 9.80 Private Uncertain 5. Export "Compensation" in Auto Industry Mechanical Foundry 20.00 Peugeot Uncertain Auto-Assembly 5.00 VW Auto Assembly 4.41 Renault Uncertain Auto Components 6.30 Renault Uncertain Tool making 2.60 Citroen Uncertain SUBTOTAL BDET 16.49 Yes 11.50 Yes 33.31 Uncertain 14.80 Uncertain 49.80 26.30 1. Priority Subprojects not considered by BDET 1. Basic Metals SOFOMECA Rehabilitation 6.00 Public tpriva Foundry Extension (Fonderies Reunies) 1.20 Public No 2. Mechanical Works Hand Tools 2.34 Private No P.W. Machinery 10.00 Private No Handling Equipment 0.48 Private No Machine-tools 10.00 Private No Specialized Sub-contracting 6.00 Private No Agricultural Machinery 5.00 Private No Low-Speed Diesel Engines 2.00 Private No Mechanical Gears 0.50 Private No 3. Steel Structure and Platework Mudernization 39.00 Private No 4. Electrical-Electronic Industries Electrical Gear 10.30 0.0. No 5. Export "Compensation" in Auto Industry Auto-Assembly 10.20 GM/ISUZU No Auto Components 5.00 GM/ISUZI No 6. Shiprepair Yards SOCOMENA Modernization 5.67 Public No SFAX Shipyards 0.52 Public N. SUBTOTAL PRIORITY 30.20 84.00 TOTAL PRIORITY 16.49 Yes 11.50 Yes 33.31 Uncertain 14.80 Uncertain 30.20 No 84.00 No TOTAL 80.00 110.30 III. Other Sobprojects and Activities 1. Basic Metals Foundry Tubs/Pipes 10.00 Public If privatised Mechanical Foundry (CMIT 15.00 Private Yes Extension Gas Containers 1.50 Private No Wire Mill 7.50 Public If Privatised Welded Pipes 1.00 Privare No Forge 5.00 0.a. No New Steel Mill 77.60 Public No Helicoidal Pipes 6.00 n.a. No Other Pipes 3.00 n.a. No 2. Mechanical Works Diesel Engines (CMT)-Phase I 16.00 Private Yes Truck Rims 2.00 Private No Car Rims 1.12 Private Yes Gear Boxes 6.00 Private No Auto) Seats 0.Di Private Yes Vehicle Components 3.50 Private No Auto Wipers 0.31 Private Yes Engine Assembly 3.00 Private No STIA Extension 1.80 Public Yes STIA Extension 6.00 Public Yes Extension Diesel Engines 2.30 Public No Vehicles Assembly 5.00 Public Ho CMT - Phase 2 22.80 Private Yes 3. Electrical-Electronic Industries Auto Electrical Accessories 0.94 Private Yes Electric Cables 4.90 n.a. No Auto Alternates 0.54 Public No Printed Circuits 0.50 Private No Batteries 5.00 Private No 4. Household Appliances - Hardware Various (4 projects) 1.21 Privace Yes Various (2 projects) 8.00 Public No Various (4 projects) 4.09 Private No TOTAL NON PRIORITY 44.68 Yes 21.10 Yes 10.00 Uncertain 7.50 Uncertain 87.02 No 51.90 No TOTAL 118.90 103.20 Source: Ministr- of National Econor.c - Di:ac;o sf loduatry. - 49 - Annex 4 Page 1 of 3 TUNISIA - EMI: Structure of Tariff I)uties on EMI Products/ TUNISIE-EMI : Structure de la Protect:.on sur les Produits IME I - Produits sans Quota d'Importation Droits de Douane Code Denomination 0 84.24/26/28 Machines agricoles de laiterie et materiel avicole 89.01 Bateaux de peche et de remorquage 0 - 3 84.36/37 MachineE, pour l'industrie textile 87.01 Tracteurs agricoles et non agricoles 3 73.13/16 Toles; elments de voies ferrees 84.01/02/05 Chaudieres et Machines a Vapeur 84.45/47/49 Machines;-outils a metaux, a bois et manue::les 84.60 Moules Endustriels 6 73.10/11 Barres, fils et profiles en fer et acier 73.15 Tous demi-produits en Aciers fins 73.18/19 Tubes et tuyaux en fer et acier 73.26B/27A Fils de cl8ture et grillages 82.09A Lames de couteaux (y.c. pour machines) 84.14 Fours industriels 84.23 Pelles Mecaniques/Excavateurs 84.30 Machines pour Minoteries et Industries 84.40C Machines a laver industrielles et commerciales Agro-Alimentaires 85.01E Moteurs et Transformateurs Electriques de grarde puissance 85.05 Machines-outils glectriques manuelles 86.06/09 Wagons de chemin de fer et parties 87.07 Chariots elevateurs, basculeurs 3 - 13 84.56 Concass;eurs, betonnieres 73.31 A/C Agrafes et autres 6 - 13 84.11 Compresseurs, Ventilateurs 84.59 Engins de Travaux Publics, Presses pour huileries 9 74.04/76.03 T8Ies en Cuivre et Aluminium 82.05 Outils de machines 83.08 Tuyaux flexibles 13 73.17 Tubes et tuyaux en fonte 73.25 Cables en acier 73.29A Chaines de transmission 73.40 ABC Ouvrages divers en fonte, fer ou acier 76.09/lOB/ll R6servDirs et emballages en Aluminium 84.41AB Machines a coudre (sans les meubles) -50 - Annex 4 Page 2 of 3 85.21 Tubes et composants electriques 87.14C Parties pour montage de remorques 89.05 Engins flottants inertes 13 - 16 84.06BF Moteurs de bateaux de pgche, piaces d4tachees de moteurs 16 76.06 Tubes d'Aluminium Exceptions a Ajuster 20 84.63 Engrenages, arbres de transmission 26 73.21 Construction metallique 73.22 Chaudronnerie II. Produits avec Quota d'Importations a promouvoir 6 73.35 Ressorts en acier 84.50 Machines pour soudage et oxycoupage 90 26A Comptoirs 4lectriques 13 84.10C Pompes sans mesureur 84.22BCDE Grues, palans, ponts roulants, ascenseurs 85.01BCD Moteurs et transformateurs de petite/moyenne puissance 85.01A Groupes 6lectroganes 85.18 Condensateurs electriques 16 73.20AB/74.08 Divers Accessoires de tuyauterie fer et cuivre III. Produits Non-Prioritaires avec quota d'Importation 6 73.12 Feuillards Fer/Acier 85.25/27 Isolateurs electriques 9 74.03/76.02 Barres en Cuivre et Aluminium 13 74.10/19 Reservoirs et Cables en Cuivre 16 74.07/15 Tubes et Clouterie en Cuivre 85.23 Cables et Fils Electriques IV. Autres Produits avec Droits de Douane Superieurs a 18% 19 85.13 Thldphones et Interphones 20 84.17 Chauffe-eau solaires 85.14 Microphones et Amplificateurs 78.03 Feuilles de Plomb 85.12A Chauffe-eau electro-solaires 23 85.12B-H Appareils domestiques electrothermiques 85.20* Ampoules et tubes d'eclairage * Numeros Douaniers soulignds egalent soumis a quota dtimports - 51 - Annex 4 Page 3 of 3 20 - 32 73.32 Boulonnerie et Vis 73.36 Cuisinieres et Calorif6res 83.01 Serrures et Cles 87.06 Automobil.es en CKD pour montage 26 73.31B Clouterie 73.37 Chaudieres Chauffage Central 83.02 Ferrures de menuisierie 84.61 Robinetterie Industrielle 85.19 AppareilLage de Coupure et Sectionnement 87.04/05 Carrosseries et chassis pour Automobiles 26 - 32 82.06 Lames et Couteaux pour Machines 30 82.01 Outils agricoles h main 84.51 Machines a ecrire 32 78.02/05/06 Barres, tubes et divers en plomb 82.02/03/04 Outils mscaniques et domestiques a main 83.15 Electrodes et baguettes de soudure 85.04 Accumulateurs 85.08/09 Accessoires electriques pour automobiles 36 73.38 Articles de menage en fer 40 76.08 Construction et Menuiserie en Aluminium 82.14 Couverts de table 83.03 Coffres-forts 84.20 Bascules et Balances 85.03 Piles electriques 94.02 Mobilier medical 42 76.15 Articles de menage en aluminium 84.12 Conditionneurs d'air 50 83.04 Classeurs Metalliques 94.03/04 Meubles et Literie Mgtalliques 60 83.13/14 Bouchons metalliques et Plaques indicatrices 140 82.11 Razoirs 50 - 80 83.07 AppareiLs d'eclairage, lampes 42 - 100 84.06 ACDE Moteurs a combustion interne 30 - 60 84.15 Refrige:rateurs 50 - 100 84.19 Machines a laver la vaisselle 26 - 70 85.15 Radios et Tel6viseurs 23 - 200 87.02 Automobiles et Vehicules Commerciaux 26 - 180 87.09 Cycles at Motocycles Source: Ministry of Plan and Finance - Direction of Customs BDET - ORGANIZATION CHART (July 1, 1981) I - PHcSIDLtNT LUNEHAL MANALiUH- PERSONEL AND MR, HABIB BOURGUIBA JR, INTERNAL AUDITING PROGURE}l-NT DEPARTMENT DEPART1,1ENT DEPUlYGENERAL ER MR. A. ABDELHAK Mr. JARRAYA Taoufik ' MR. CHEKIB NUIRA P 4 =4 PROJECT APPRAISAL EXPLOITATION COMMITMENTS RESSOURCES MOBILIH t MANAGEMENT r MANAGEMENT MANAGEMENT ZATION AND PARTICIC MENTATION MANAGE- | jMR. F. BELKAHIA MR. RIDHA JOULAK MR. NEJIB TNANI PATION MANAGEMENT MEN ;H P=1 8=1 P=2 S=2 MR. BRAHIM RIA I MR. NEJIB BEN DEBB . TREASURY DEPARTMENI URENTS STAI PROJECTS APPRIAISAL Mh. HAMADI BEN MUS DEPARTMENT TISTIC DEPMATMENT DePARMENT DEPART%MEN F TAPHA ITSI EATETDPRMN t CcHARTei:Nr r S7 TAPHA 8=|13MR YOUSSEF TMAR MR. HABIB JABBESR DRIDI kW%- , AbIUM t3cN SAAD , 3 ACCOUNTING AND LEGAL DEPARTMENT | PARTICIPATION DOCUMENTATION ~~DU -RVISION REPAYMENTS~ ~ ~ ~ ~ ~ ~~~DOUMETAID WPER'IINREAMNSMR. MOHAMED ABDEL- DEPARTMIENT M.AI JI * ,'ii, M.;OHAME) CHAKER DEPARTMENT A_ Au MR. AHMNED NAIJA MR. BECHIR MAJOUL i P3S-P= 61 P=3 S=3 P=4 S 12 P=4 S=6 Managemnernt : Profe,;sio',al- (p) 50 :uouiort STAFF (:) EKENA/IDF September 1981 TUNISIA - BDET SUMMARY OF OPERATIONS 1977-1980 (Amounts in thousand dinars) 1977 1978 1979 1980 Number Amount % Number Amount % Number Amount % Number Amount Applications Foreign currency loans 136 25656 62 115 27277 73 166 37896 84 121 22453 52 Dinar Loans 49 11894 29 54 6607 18 34 5460 12 67 17339 40 Equity Parficipations 33 3816 9 33 3259 9 25 1530 4 34 3615 8 Totals 171 4116Q too 157 37143 100 192 44887 100 183 43407 100 App rovals Foreign currency loans 84 21041 63 64 19841 69 80 23021 75 6 5 14862 46 Dinar Loans 47 R6nl 26 38 6063 21 47 6058 20 62 14338 45 Equity Participations 34 3552 11 25 2729 10 23 1407 5 30 2889 9 Totals 113 33194 100 100 28633 100 105 30486 100 115 32089 100 Commitments Foreign currency loans 91 14703 67 61 15018 66 79 15666 70' 4.9 15283 68 Dinar Loans 34 47C7 22 38 5089 25 46 4922 22 32 5552 24 Equity Participations 27 236 10 27 1916 9 23 1811 8 27 1778 Totals 105 21770 100 104 22622 100 122 22399 100 91 2261 XT Disbursements Foreign currency loans 10103 50 10267 46 12127 48 10256 43 Dinar Loans 8403 41 10154 46 11841 46 12683 52 Equity Participations 1866 9 1858 8 1593 6 1154 5 Totals 20372 100 22280 100 25561 100 24093 TGU BDET/ March 1981 Annex 7 TUNISIA - BDET ANALYSIS OF APPROVED OPERATIONS 1977 - 1980 (Amount in D '000) 1977 1978 1979 1980 Number Amount % Number Amount % Number Amount % Number Amount % New Projects: Extensions and modernizations -New Projects 77 24,691 74.4 77 21,592 75.4 73 24,352 80 82 20,217 63.0 -Extention Projects 36 8,503 25.6 31 7.041 24.6 32 6,134 20 33 11,873 31.0 TOTALS 113 33,194 100 108 28,633 100 105 30,486 100 115 32,090 100 Private Versus Public Sect -Private Sector 107 27,339 82.4 106 27,433 95.8 98 23,893 78.4 111 27,330 85.2 -Public Sector 6 5,855 17.6 2 1,200 4.2 7 6,593 21.6 4 4,760 14.8 TOTALS 113 33,194 100 108 28,633 100 105 30,486 100 115 32,090 100 Sectors of Activity INDUSTRY Mechanical 12 1,875 5.6 20 7,305 25.5 9 1,915 6.3 20 6,250 16.1 Construction Materials 12 3,515 10.6 23 4,951 17.3 19 5,875 19.3 14 2,425 7.6 Chemical and Rubber 4 2,469 7.4 3 2,212 7.7 6 1,539 5.0 7 868 2.7 Food Processing 25 10,674 32.1 15 3,150 11.0 23 9,005 29.5 11 1,336 4.2 Textiles 19 4,348 13.1 12 1,172 4.1 16 2,058 6.8 I 3,463 10.7 Woold Cock 5 1,510 4.5 5 1,214 4.2 3 1,233 4.0 5 595 1.9 Plastics 3 243 0.7 2 260 0.9 3 361 1.2 8 1,465 4.6 Miscellaneous lnd. 19 2,339 7.0 14 3,718 13.0 14 2,034 6.7 15 2,121 9.9 Sub-Totals = Industry 99 26,971 81.3 94 23,982 83.7 93 24,021 78.8 98 18,532 57.8 Tourism 13 6,123 18.4 14 4,651 16.3 11 4,070 13.3 16 10,557 32.9 Transport 1 100 0.3 -- __ __ 1 2,395 7.9 1 3,000 9.3 TOTALS 113 33,194 100 108 28,633 100 105 30,486 100 115 32,090 100 Size of Operations D 15 to 49,999 28 800 2.4 23 557 1.9 9 231 0.8 32 722 2.3 D 50 to 199,999 52 5,196 15.7 48 4,953 17.3 63 6,332 20.8 47 5,416 16.9 D 200 to 499,999 11 2,958 8.9 20 3,845 20.4 17 4,745 15.6 15 4,112 12.8 D 500 to 999,999 10 7,171 21.6 10 8,123 28.4 10 7,120 23.3 11 7,555 23.5 D 1000 and over 12 17,070 51.4 7 9,155 32.0 6 12,059 39.5 10 14,285 44.5 TOTALS 113 33,194 100 108 28,633 100 105 30,486 100 115 32,090 100 Duration 5 to less than 7 years 8 29 1.4 4 1,856 7.2 4 3,008 10.4 1 1,100 3.8 7 to less than 10 years 65 9,411 31.8 79 12,583 48.6 71 13,617 46.8 83 11,866 40.6 Ten years and above 28 19,802 66.8 14 11,465 44.2 16 12,454 42.8 20 16,235 55.6 TOTALS 101 29,642 100 97 25,904 100 91 29,079 100 104 29,200 LOCATION Projets Inter regional TUNIS 62 16,728 50.35 47 7,859 27.4 42 7,736 25.4 44 10,032 31.3 BIZERTE 1 43 0.13 6 4,053 14.2 2 211 0.7 3 2,383 7.4 BESA 3 2,376 7.2 4 2,195 7.7 2 234 0.8 1 14 0.1 CAP PON (NABEUL) 6 1,187 3.6 5 1,323 4.6 8 1,722 5.6 17 7,041 21.9 JENDOUBA 2 1,571 4.7 1 29 0.1 2 142 0.5 - - - LE MEF 1 545 1.6 1 52 0.2 1 216 0.7 - - - SIDI BOUZID 1 60 0.18 1 300 1.1 - - - - - - 1(AIROUAN 1 25 0.07 4 3,902 13.6 4 4,422 14.5 1 30 0.1 SOUSSE 7 2,928 8.8 13 2,631 9.2 7 6,729 22.1 9 4,587 14.3 MONASTIR 9 3,169 9.5 1 25 0.1 3 600 2.0 11 2,555 8.0 MARDIA 1 1,280 3.9 4 1,080 3.8 2 1,028 3.3 2 316 0.9 KASSERINE - - - 1 120 0.4 4 405 1.3 3 1.352 4.2 GAPSA 1 1,250 3.8 2 1,670 5.8 - - - 2 159 0.5 SFAX 11 1,215 3.7 7 1,210 4.2 14 1,639 5.4 11 1,656 5.2 GARES 2 414 1.25 2 582 2.0 3 962 3.2 1 45 0.1 KINENINE 2 185 0.56 3 190 0.7 1 874 2.9 2 1,374 4.3 ZAGHOUAN 3 219 0.66 5 1,362 4.7 7 857 2.8 8 546 1.7 SILIANA - - - 1 51 0.2 2 314 1.0 - - - TOTAUX 113 33,194 100 108 28,633 100 105 30,486 100 115 32,098 100 Entreprise de Transport par Pipe Line entre Bizerte et Tunis BDET/ March 1981 - 55 - Annex ., TUNISIA - BDE1r Outstanding Loans and Equity Investment:s, as of December 31, 1980 (amounts in D'000) Medium-Term Loans Long-Term Loans Equity Invest. Total Industry No. Amount No. Amount No. Amount No. Amount Food processing and beverage - - 93 18,843.8 17 1,540.9 110 20,384.6 18.2 Textiles, Clothing Leather - - 69 8,282.1 9 494.0 78 8,776.0 6.1 Wood, cork, Furniture - - 15 2,308.9 5 166.4 20 2,475.2 2.2 Chemicals - - 21 5,519.7 10 1,776.9 31 7,296.7 6.5 Tiles, Ceramics, Glassware - - 3 1,900.7 3 494.1 6 2,394.8 2.1 Electro-Mechanical - - 40 13,059.1 15 1,790.2 55 14,849.3 13.3 Rubber and Plastics - - 7 700.6 3 120.5 10 821.1 0.7 Mining - - 13 1,343.9 1 92.3 14 1,436.2 1.3 Paper and Printing - - 17 2,394.1 3 132.7 20 2,526.8 2.3 Construction - - 80 14,119.4 13 701.4 93 14,820.8 13.3 Miscellaneous 2 32.5 35 6,074.0 9 347.9 46 6,454.4 5.8 FOPRODI 1/ - - 28 1,124.3 28 1,124.3 1.0 Subtotals 2 32.5 421 75,6X0.6 88 7,657.2 511 83,360.3 74.6 Tourism 1 62.0 65 19,1L9.3 31 3,055.4 97 22,266.7 19.9 Transport 2 119.9 2 3,243.7 2 5.9 6 3,369.5 3.0 Banking and Insurance - - 1 1,620.0 5 1,094.9 6 2,714.9 2.4 Totals 5 214.4 489 99,683.6 126 11,813.4 620 111,715.4 100.0 1/ FOPRODI: Industrial Promotion and Decentraliza:ion Fund; See First Small Scale Industry Development Project, op.cit. (project File, Item 7). BDET - Audit Report 1980 TUNISIA - BDET Performance Indicators 1977-1980 1977 1978 1979 1980 Profitability Indicators Net profit as % of average net worth 11.1 10.9 12.3 10.9 Profit before tax as % of average net worth 13.9 12.5 14.1 12.0 Dividends as % of net profit Dtvidends as % of par value share 8.0 8.0 8.0 8.0 Book value share as % of par value share 150.9 158.7 180.0 150.0 Operational Indicators Gross income as % of average total assets 8.3 8.2 9.0 8.5 Administrative expenses as % of average total assets 1.4 1.4 1.4 1.3 Financial expenses as % of average total assets 5.3 5.4 5.9 5.8 Dividends and realized capital gains as % of average equity portfolio 3.5 3.7 3.2 4.2 Income from loans as % of average loan portfolio 8.9 8.8 9.5 9.1 Cost of term debt as % of average term debt 6.3 6.6 7.5 7.6 Financial Structure Indicators Total debt/year-end networth 6.8 6.5 6.5 6.9 Long term debt/year-end networth 6.3 5.5 6.1 6.2 Provision for risk as % of total portfolio 3.8 3.9 4.2 4.4 Interest coverage ratio 1.4 1.3 1.3 1.3 Year end total assets (in thousand dinars) 81,932 94,628 108,835 117,937 Year net networth (in thousand dinars) 10,445 12,688 14,400 15,000 0 EMENA/IDF June 1981 - 57 - Annex 10 TUNISIA - Major Assumptions Uncerlying BDET's Projections A. Operational Projections 1. Total approvals after the 1981 jump will resume growth after 1984 only. SSIs' share in total loan approvals will increase from 49% in 1982 to 61% in 1986. Financing of large projects will average 10% of share capital and 20% of medium- and long-term credits. Financing of the tourism sector will decrease from D 26 million in 1981 to D 12 million in 1982 and 1983 and D 10 million afterwards.. 2. Loan maturities will average 10 years for industrial loans and 14 years for tourims loans, including an average yrace period of 3 years. B. Financial Projections 1. Interest on industrial loans approved in 1982 will be 11%, to increase by 0.5 percentage point p.a. to reach 13% irn 1986. Interest rates on tourism loans will be 0.5 percentage point higher than for industrial loans. In addition, BDET charges a study commissionI of 0.5% flat of loan conmmit- ments, an exchange commission of 0.5% flat of foreign exchange loan commitments, and a commitment fee of 1% p.a. on undisbursed loans. 2. Other income from deposits of BDET's excess liquidity at 11% p.a. in foreign currencies and 7.5% p.a. in Dinars (the latter yield to increase by 0.5% p.a. after 1982). 3. Charges on future borrowings are assumed to be: Interest rate (%) Maturity incl.grace prd. in yrs IBRD 11.8 15 (3) ADB 8.5-9 15 (3) KfW 6 30 (10) French credits 3 and 8 26 (6) and 8 Arab funds 6 15 (4) EIB 8 12 (3) Other preferential credits 8 7 (4) Local bonds 8.25-9.25 10 Euro-currency 12 (15% in US$; 9% in 7 (3) borrowing other currency) 4. BDET shall continue to distribute dividends at 8% of per value. EMENA/IDF November 1981 - 58 - Annex 1 1 TUNISIA - BDET: Projected Operations (1981-1986) (D'000) 1981 * 1982 1983 1984 1985 1986 Approvals Loans Industry n.a. 37,000 35,000 36,000 37,500 40,500 Tourism, others n.a. 12,000 13,000 14,000 14,000 14,000 Sub-total 53,940 49,000 48,000 50,000 51,500 54,500 Participations Industry n.a. 3,500 2,500 3,500 3,500 3,500 Tourism n.a. 2,500 2,500 2,500 2,500 2,500 Sub-total 6,690 6,000 5,000 6,000 6,000 6,000 Total Financing Industry 28,490 43,000 41,000 46,000 47,500 50,500 Tourism, others 32,140 12,000 12,000 10,000 10,000 10,000 Total 60,630 55,000 53,000 56,000 57,500 60,500 Commitments Loans n.a. 46,900 45,400 41,600 41,900 43,600 Participations n.a. 6,100 5,400 4,700 5,100 5,100 Total 22,840 53,000 50,800 46,300 47,000 48,700 (in foreign currencies) (13,910) (23,850) (30,315) (29,250) (30,150) (31,700) Disbursements Loans 23,000 30,000 38,300 42,100 38,100 38,000 Participations 1,900 3,400 5,100 5,400 5,100 5,000 Total 24,900 33,400 43,400 47,500 43,200 43,000 (in 'foreign currencies) (14,500) (16,130) (21,630) (27,900) (26,705) (27,140) * Preliminary actuals for 1981 EMENA/IDF November 1981 TUNISIA - BDET: Audited and Projected Income Statements 1977-86 (o000) Atudited Projected Income 1977 1978 1979 1980 1981 a/ 1982 1983 1984 1985 1986 Interest on loans and advances 5,142 5,982 7,141 8,110 8,947 10,302 12,580 15,575 18,349 20,635 Interest on deposits 216 252 480 197 200 820 700 730 370 450 Dividend income 149 219 210 217 Capital gains 115 124 131 267 370 530 b65 79O 895 945 Commissions and Fees 593 361 430 360 54O 8b5 955 925 970 1,050 Total Income 6,215 6,938 8,392 9,151 10,057 12,517 14,900 18,020 20,584 23,080 Expenses Interest on deposits 88 367 246 268 200 250 300 350 400 450 Interest on borrowings 3,571 4,033 5,334 5,917 6,340 7,929 10,481 13,275 14,927 16,679 Administrative expenses 1,120 1,249 1,650 1,424 1,315 1,515 1,745 2,010 2,310 2,660 Depreciation and amortization 55 54 61 66 178 247 335 352 378 422 Other expenses -- -- -- -- 185 270 305 300 320 350 Total Expenses 4,833 5,702 7,092 7,673 8,218 10,211 13,165 16,287 18,335 20,561 Operation income 1,629 1,560 2,069 1,931 1,839 2,30o 1,735 1,733 2,249 2,519 (less) provision for doubtful loan (300) (300) (400) (400) (870) (735) (1,085) (1,150) (810) (645) Interest subsidy 248 324 768 454 750 600 1,200 1,730 1,790 1,340 Income betore tax 1,.27 1,260 1,669 11 1 719 2.171 1,850 2,313 3,229 3,214 (less tax) (270) (156) (217) (144) (649) (210) (245) (305) 1105) _ Net Income before appropriations 1,059 1,104 1,452 1,387 1,070 1 1,605 2,008 2,924 3,214 Debt service coverage ratio 1.3 1.3 1.2 11.3 1.1 1.6 1.3 1.3 1.3 1.3 Interest coverage ratio 1.4 1.3 1.3 1.3 1.3 1.3 1.25 1.2 1.2 1.2 Spread (in %), with subsidy 2.2 2.0 1.8 2.4 2.0 1.9 2.2 2.6 2.8 without subsidy 1.8 1.1 1.3 1.7 1.4 1.0 1.1 1.6 2.0 a/ Preliminary resuilts BDET: Audit Reports for 1977-1980 BDET/EKENA-IDF for projections 1981-19&6 November 1981 TUNISIA - BDET: Audited and Projected Balance Sheets 1977-86 (D 000) Audited Projected Assets 1977 1978 1979 1980 1981 a/ 1982 1983 1984 1985 1986 Cash and Bank deposits 4,236 4,638 5,201 2,711 Accounts receivable 3,169 2,877 2,917 2,662 Accrued income from loans 1,570 1,848 1,t37 2,207 Short-term investments 274 230 217 257 Current Assets 9,249 9,592 9,972 7,837 13,626 14,829 15,724 16,898 18,730 20,724 Medium and long-term loans 65,624 76,802 88,624 99,898 107,882 122,622 145,212 168,972 184,607 196,224 Equity Participations 8,293 9,964 11,203 11,814 13,479 17,239 21,849 26,759 31,369 35,879 Total Portfolio 73,917 86,766 99,827 111,612 121,361 139,861 167,061 195,731 215,976 232,103 (less) provisions for bad loans (1,752) (2,228) (2,797) (3,401) (4,104) (4,839) (5,924) (7,074) (7,884) (8,529) Net Portfolio 72,165 84,538 97,030 108,211 117,257 135,022 161,137 188,657 208,092 223,574 Fixed Assets (net) 270 278 316 288 259 226 189 408 363 314 Other Assets (net) 248 221 421 293 184 460 802 861 673 565 Total Assets 81,932 94,628 108,836 117,937 131,326 150,537 177,852 206,824 227,858 245,177 C' Liabilities Deposits 4,103 6,924 6,157 6,377 Accounts payable 8,361 12,000 9,335 12,892 Current Liabilities 12,464 18,924 15,492 19,269 14,882 14,882 14,882 14,882 14,882 14,882 Long-term borrowings 59,023 63,016 78,944 83,668 100,023 111,402 138,742 162,736 178,276 184,811 (of which) IBRD (14,236) (14,100) (18,181) (20,290) "1 "1 Govt. subordinated (4,615) (3,768) (3,298) (3,298) Employee's Social Fund 322 386 446 535 655 805 955 986 1,286 1,636 Reserve for exonerated reinvestment 1,069 1,194 1,427 1,554 1,720 1,720 1,720 1,720 1,720 1,720 Share capital 6,000 7,000 8,000 8,000 10,000 20,000 20,000 25,000 30,000 30,000 Premium on capital subscription 750 1,550 1,550 1,550 -- -- -- -- -- Government grant 500 500 500 500 500 500 500 500 500 500 Reserve and surplus 1,805 2,058 2,478 2,862 3,546 1,228 1,053 3 __ 1,194 1,628 Sub-Total Equity 9,055 11,108 12,528 12,912 14,046 21,728 21,553 26,500 31,694 31,728 Total Liabilities 81,932 94,628 108,83 117,937 131,326 150,537 177,852 206,824 227,858 245,177 D a/ Preliminary Data BDET; Audit Reports for 1977-1980 BDET/EMENA-IDF for projections 1981-1986 November 1981 - 61 - Annex 14 Page 1 of 2 BDET's PIPELINE IN THE EMIs 1. The pipeline of EMI projects identified by the Plan comprises D 220 million for priority projects, of which D 90 million are likely to be undertaken and financed during 1982-1983 (ChaFter III, para 3.18). BDET has selected among those a number of projects which it expects to finance, and a number which it may consider financing under certain conditions, as summarized below; BDET Pipeline and Potential Demand for 3MI Financing (1982-83) Subsectors Projects by BDET API Agreements Priority_Projects Other Projects Priority PLrject No.Proj Invst. Investments No.Proi. Invst. TTD millon TD million) Foundries/Metal 1 0.46 1O.0Q 6 1.03 Mechanical Works 7 10.03 19.73/a 39 6.18 Structures/Platework n.a. 6.00 - - - ELectrical Industries - - 0.94 7 0.77 Buy-back Export 4 33.31/b - 2 0.47 Oither EMIs - 1.21 - - Total EMIs 12 49.80 31.88/a 54 8.45 /a Includes D 16 million for the first phase of the Diesel Engine Mechanical Complex for which ongoing feasibility studies will establish the impact of complementary exports on its economic viability. /b BDET's attitude towards financing these projects is still uncertain. 2. BDET is considering favorably to finance eight priority projects totalling D 16.5 million which would be ready in 1982-83; it is still uncertain about four buyback export joint ventures with European manufacturers (Renault, Peugeot, Citroen) which would total investment of D 33.3 million. BDET is also considering to finance during 1982-83 some ten projects in non-priority activities with an estimated total investment of D 15.9 million. These projects comprise a foundry for bath tubs and iron pipes, five projects for automobile accessories for the domestic mnarket, and four projects for household appliances and common hardware. Finally, BDET intends to finance part of the first phase (D 16 million) of the Mechanical Complex for diesel engines, which it has actively promoted during the last three years (para 3.18). - 62 - Annex 14 Page 2 of 2 3. In addition, some of the 90 small project ideas and proposals which have been agreed by API in 1980 and in the first half of 1981 for a total investment of D 14 million in priority subsectors may apply for BDET financing, and thus constitute a "pool" of projects on which BDET could draw to expand its lending operations to EMIs. Two thirds of these projects are in the mechanical works subsector, with a majority for specialized machining shops. Allowing for a time lag for project maturation of 1.5-2 years and for an attrition rate of 40% between API approval and actual financing/ implementation, this potential demand for additional BDET participation in priority EMI subsectors during 1982-1983 would represent some 54 projects totalling an investment of D 8.45 million. 4. On the basis of the above pipeline, and given that BDET has on the average financed 40% of the total investment costs of its subprojects, BDET would lend in 1982-83 between a minimum of D 10 million and a maximum of D 23 million in EMI priority activities. Total BDET lending in the EMI sector (including non-priority projects) during 1982-83 would total between D 22 and 36 million, representing 28-46% of its total projected lending and 10-16% of total EMI investments. The contribution of BDET lending to EMI priority projects would increase in absolute terms from D 1.5 million p.a. to D 5-12 million p.a., and relatively to total investment costs, from 14% in 1977-80 to 11-25% in 1982-83. More importantly, the share of priority EMIs in total manufacturing lending of BDET would increase from 6.5% in 1970-81 to 12-29% in 1982-83. This increase will require from BDET a substantial effort in project identification and promotion of priority EMI activities, not only for new enterprises but also for modernization and restructuring of existing firms and subsectors; this latter objective would apply in particular to the steel structure/platework subsector. -63 - Annex 15 BDET - Estimated Disbursement Schedule 1/ ($ 000,1 Credit Line to BDET Subloan to the Government ($28.0 million) ($2.0 million)- Semester Disbursement Disbursement Ending during Semester Cumulative during Semester Cumulative 1983 December 31 5,000 5,00J 1,400 1,400 1984 June 30 4,500 9,500 400 1,800 December 31 9,000 18,500 200 2,000 1985 June 30 3,300 21,8C0 December 31 2,800 24,600 1986 June 30 1,400 26,0C 0 December 31 1,200 27,2C0 1987 June 30 800 28,000 December 31 1/ This schedule does not include the front-end fee of $0.5 million to be disbursed and repaid at effectiveness (est. July 1982). EMENA|IDF January, 1982 - 64 - Annex 16 Selected Documents Available in the Project File 1. Tunisia, Review of the Electrical and Mechanical Industries (Report No. 2666-TUN, June 4, 1980). 2. First draft Law and Decree establishing the Centre Technique de la Mecanique (Ministry of National Economy). 3. First draft Law and Decree establishing the National Institute for Standardization and Quality Control (Ministry of National Economy). 4. Terms of Reference for the expert to assist in stabilizing the Institute (Aide Memoire of Appraisal Mission, June 21, 1981). 5. List of EMI goods produced in Tunisia (Ibid). 6. Seventh Loan to BDET (No. 1504-TUN), staff Appraisal Report No. 1734B-TUN, November 29, 1977. 7. First Small Scale Industry Development Project (Loan No. 1969-TUN) Staff Appraisal Report No. 3266-TUN, February 5, 1981. 8. Draft Terms of Reference of the foreign experts to be hired by CTM (Aide M4moire, Op. cit.). 9. BDET - Project Performance Audit Report, No. 3611, September 9, 1981. 10. Incentive Law No. 81-56, Republic of Tunisia, June 21, 1981.
Группа Всемирного банка · Staff Appraisal Report
Tunisia - Electrical and Mechanical Industries Project
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