Tanzania - Investment Bank Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 3881 PROJECT PERFORMANCE AUDIT REPORT TANZANIA--TANZANIA INVESTMENT BANK (TIB) I (CREDIT 460-TA) March 30, 1982 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  PROJECT PERFORMANCE AUDIT REPORT FOR OFFICIAL USE ONLY TANZANIA--TANZANIA INVESTMENT BANK (TIB) I (CREDIT 460-TA) TABLE OF CONTENTS Page No. Preface .......................................................... Basic Data Sheet ..................................................ii Highlights ............................................................ iii PROJECT PERFORMANCE AUDIT MEMORANDUM A. Introduction .................................... 1 B. The Institution .......2............................ 2 C. Use of Bank Funds ................5................. 5 D. TIB's Overall Operations .......................... 5 E. Conclusions ...............................6............ 6 Annexes I. Performance of Sub-projects ........................... 9 II. Status of Portfolio ..................................... 10 ATTACHMENT A: COMMENTS RECEIVED FROM THE BORROWER ............... 11 A' ACHMENT B: PROJECT COMPLETION REPORT .................... 15 I. Introduction ........................................... 15 II. Tanzania Macro-economic Industrial and Financial Objectives .............................. 16 III. TIB - The Institution .................................. 17 IV. Allocation of the Credit ............................ 20 V. Operations and Finance .............................. 23 VI. Conclusions ............................... ............ 26 Annexes 1. List of Sub-projects Financed Under Credit 460-TA ...... 28 2. Economic Characteristics of Sub-projects Financed under Credit 460-TA ............................... 29 3. Financial Characteristics of Sub-projects Financed under Credit 460-TA .................................. 30 4. Arrears Position on Sub-projects Financed Under Credit 460-TA ........................................ 31 5. Economic Characteristics of Sub-projects Financed under Loan 1172-TA ................................. . 32 6. Evolution of Operations (1974-1979) ............... 33 7. Analysis of Loans Approved as of March 31, 1980 34 8. Comparative Balance Sheets (Forecasts and Actual) ...... 35 9. Comparative Income Statements (Forecasts and Actual) ... 36 10. Comparative Financial Ratios (Forecasts and Actual) .... 37 11. Comparative Sources and Uses of Funds Statements (Forecasts and Actual) ............................. . 38 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.  PROJECT PERFORMANCE AUDIT REPORT TANZANIA--TANZANIA INVESTMENT BANK (TIB) I (CREDIT 460-TA) PREFACE This report presents a performance audit of IDA Credit 460-TA. The credit was made to the United Republic of Tanzania for on-lending to the Tanzania Investment Bank (TIB). It was approved in February 1974, declared effective in April of the same year and fully disbursed by January 1981, two and one-half years after the original closing date. The credit was followed by three Bank loans to TIB approved in 1975, 1977 and 1979, for a total amount of US$55 million. The Bank's Eastern Africa Regional Office prepared a Project Comple- tion Report (PCR) on the basis of information and data supplied by the bor- rower. This report, which presents a factual review of TIB's use of the credit and of its institutional development over the last seven years, is attached. OED staff visited Tanzania in July 1981 and discussed the effec- tiveness of the Bank's assistance with TIB, the Government and a number of parastatal holding companies that had been the recipients of Bank funds. The credit was one of the first World Bank operations involving a state-owned financial intermediary dealing mostly with state-controlled industrial enter- prises. The audit memorandum attempts to assess the success of replicating in the public sector the Bank's traditional DFC approach to financing small- medium size industrial projects. The Government indicated it agreed with the contents of the report. TIB offered a number of specific comments and clarifications; these have been taken into account in finalizing the report and are reproduced as Attachment A to the audit memorandum.  - ii - PROJECT PERFORMANCE AUDIT BASIC DATA SHEET TANZANIA--TANZANIA INVESTMENT BANK (TIB) I (CREDIT 460-TA) PROJECT DATA (US$ Million) As of 01/31/82 Original Disbursed Cancelled Repaid Outstanding Credit 460-TA 6.0 6.0 - -- 6.0 Cumulative Credit Disbursement FY75 FY76 FY77 FY78 FY79 FY80 FY81 (i) Planned 1.4 3.8 5.6 6.0 6.0 6.0 6.0 (ii) Actual 2.2 3.1 4.7 5.0 5.5 5.9 6.0 (iii) (ii) as % of (i) 157 82 84 83 92 98 100 Original Credit Date(s) Actual or Re-estimated Board Approval 02/05/74 02/05/74 Credit Agreement 02/13/74 02/13/74 Effectiveness -- 04/18/74 Credit Closing 06/30/78 06/30/80 Physical Completion 06/30/76 12/31/77 MISSION DATA No. of No. of Date of Month, Year Weeks Persons Manweeks Report Preappraisal 11/71 2.5 2 5 03/72 (approx.) Appraisal 05/73 2 2 4 10/02/73 Supervision I 10/74 2 2 4 01/05/75 Supervision II 06/75 2 3 6 08/08/75 Supervision III 05/76 2 2 4 06/25/76 Supervision IV 04/77 3 2.5 7.5 11/21/77 Supervision V 06/78 1.5 2 3 06/26/78 Completion 11/79 1.5 1 1.5 08/11/80 FOLLOW-ON PROJECTS Loan No. 1172-TA, approved on October 28, 1975, for US$15 million. Loan No. 1498-TA, approved on December 6, 1977, for US$15 million. Loan No. 1750-TA, approved on July 24, 1979, for US$25 million.  - iii - PROJECT PERFORMANCE AUDIT REPORT TANZANIA--TANZANIA INVESTMENT BANK (TIB) I (CREDIT 460-TA) HIGHLIGHTS IDA Credit 460-TA was the first World Bank operation with the Tanzania Investment Bank. This is the case of a state-owned DFC dealing almost exclusively with public enterprises and one of the first such institu- tions supported by the Bank. It raises the question of the replicability in the public sector of the Bank's traditional "DFC approach" originally designed to finance industrial enterprises in the private sector. The issue centers around the DFC's ability to establish satisfactory bank-client relationships with other public institutions and the Government's role in this process. After a difficult start-up period, TIB progressively met most of its institutional objectives. Over the years, it has been able to make investment decisions based on an independent evaluation of the merits of projects sub- mitted for financing by parastatal enterprises. Appraisals have, however, proved often optimistic in a number of respects, as problems encountered by the sub-projects financed under the credit tend to suggest (PPAM, paras. 6 and 11; PCR, paras. 4.02 to 4.04). Progress in strengthening supervision proce- dures was slower but notable (PPAM, para. 7). Overall, TIB's institutional development was encouraging, particularly if viewed in the face of severe environmental constraints, and appears to justify IDA's decision to support a DFC catering to the needs of public enterprises given the important role of the public sector in Tanzania. Yet, despite TIB's independence in its decision-making process, some limitations to the "DFC approach" in dealing with public enterprises have emerged: TIB's contribution to project preparation, through the occasional financing of feasibility studies or by way of informal discussions, has been real but limited (PPAM, paras. 9 and 10); at times, however, TIB has not been in a position to suggest changes in project design or, more critically, parastatals have been able to secure alternative financing from the Government when TIB refused to finance their projects, thus defeating an important purpose of TIB's institution. The audit concludes that there is need for the Government to define in clearer terms TIB's role in the investment decision- making process of parastatals (PPAM, paras. 15 and 16). Other points of interest are: - the delays with which the audited accounts of public enter- prises are published (PPAM, para. 8); - iv - - the benefits derived from the two IDA technical assistance credits TIB is using to finance feasibility studies (PPAM, para. 10); - the recent deterioration of TIB's portfolio as a result of adverse economic conditions in the country (PPAM, para. 13); - the cancellation and placement under receivership of one agro- industry sub-project appraised by the Bank before the credit was approved to TIB (PPAM, para. 11; PCR, para. 4.04(a)); and - TIB's commendable foreign resource mobilization effort (PCR, para. 5.06). - 1 - PROJECT PERFORMANCE AUDIT MEMORANDUM TANZANIA--TANZANIA INVESTMENT BANK (TIB) I (CREDIT 460-TA) A. Introduction 1. The Tanzania Investment Bank (TIB) was established in November 1970 as a wholly Government-owned institution to provide term financing for industrial, agricultural processing, tourism and transportation projects in the public and private sectors. The credit under review, for US$6 million, was approved in February 1974 and was the first of four lines of credit extended to date to TIB by the Bank Group, totalling US$61 million. TIB has also been entrusted with the administration of two IDA technical assistance credits (Credit 601-TA and Credit 1060-TA) granted in 1975 and 1980 to provide financing for preinvestment, feasibility, and efficiency-improvement studies for projects developed and run by parastatal companies. 2. Tanzania's economic scene has undergone substantial changes over the last ten years. Following the guidelines set forth in the Government's Arusha Declaration of 1967, the role of the public sector in the economy has gained foremost importance. In the industrial sector, particular emphasis had been placed on stimulating public investment and the regional dispersion of industry. In the mid-1970s, the Government's industrial policy, as re- flEcted in the Basic Industrial Strategy (BIS), gave priority to industries supplying basic consumer and widely-used intermediate goods (especially metal fabrication industries), in order to promote the structural transformation of the industrial sector, self-reliance and the use of domestic resources. 3. The performance of Tanzanian industry, particularly that of paras- tatals, has deteriorated significantly since the credit was made in 1974. The persistent shortage of foreign exchange for the importation of industrial inputs and spares, the decline in cash crop production (both an input for agro-industries and a source of foreign exchange), the weak management of parastatals, power failures, and what IDA perceives as a deficient price structure arising from pervasive Government controls, have resulted in severe underutilization of capacities and serious erosion of profitability. Pricing and foreign exchange policies have been subjects of continuing discussion between the Government and the Bank Group, but with no tangible results heretofore. 4. As ownership and control of most large industrial enterprises operating in the country were progressively transferred to parastatal corpora- tions, TIB became increasingly involved in the financing of public-sector projects, although it continued to support a number of smaller private-sector - 2 - units11. Although parastatals obtain the bulk of their funds through bud- getary allocations, TIB has developed into the principal banking institution in the country for industrial investment, operating alongside a number of parastatal holding companies under which public enterprises are grouped. Its disbursements account for about 8% of total fixed capital formation in the manufacturing sector. Two other financial institutions are providing term financing to manufacturing industries: the East African Development Bank (EADB) and the Tanganyika Development Finance Corporation (TDFL). The role of EADB, which was created with a view to promoting and financing large regional projects within the East African Community, has diminished considerably in recent years because of differences among the three member states. TDFL, on the other hand, provides funds mainly to medium-size private enterprises. There is, therefore, little overlap among these three institutions. In a sense, the creation of TIB represented an attempt to ensure that, within the central planning framework advanced by the Arusha Declaration, public enter- prises adhere to sound economic and financial investment criteria. B. The Institution 5. After a difficult start-up period during which the credit was placed on the IDA problem project list, TIB progressively met most of its institu- tional objectives. Major issues raised by IDA during the initial period included: TIB's internal accounting procedures, its excessive use of special funds procedures (under which risks associated with a particular project were passed on to the Government), and the size of TIB's provisions for doubtful investments. These issues were resolved subsequently to IDA's satisfaction (PCR, paras. 3.03 and 3.04). A fourth issue, related to TIB's apparent inability at the time to make significant changes in the design of projects submitted to it by parastatal enterprises, is discussed below (para. 10). Having started as a poorly staffed and heavily dependent on expatriates insti- tution, TIB now has a complement of qualified professionals, and Tanzanians occupy all middle and upper management positions. Because of the technical competence of its staff, TIB's informal views are sought after by the para- statals in project design. Also, TIB has been very successful in mobilizing close to US$150 million from an array of foreign financial institutions (PCR, paras. 3.05 and 5.06). 6. Appraisal. Over the years, TIB has been able to make investment decisions based on an independent evaluation on the technical feasibility and the financial and economic viability of the projects submitted by parastatal enterprises for financing. Project implementation requirements and training needs are areas which TIB discusses routinely in its appraisal reports. TIB 1/ In 1979, the private sector, comprising small and medium scale enter- prises, still accounted for more than two-thirds of the value added in manufacturing; all large industries, however, belonged to the public sector. - 3 - insists, as a condition of disbursement, that parastatals set up special units for project implementation and appoint qualified personnel. It is noteworthy that TIB comments on the appropriateness of the technology employed, ensuring in particular that the degree of sophistication of equipment matches available local technical expertise. TIB's appraisals often result in upward revisions in estimated project costs with implications for the design of financial plans. However, at times TIB's appraisals appear to be optimistic in asses- sing project implementation schedules and capacity utilization rates, by not taking sufficiently into account such important factors as managerial capa- bility and the regularity of supply of raw materialsL/. 7. Supervision. TIB supervises its projects regularly during the construction phase and keeps up-to-date records of work progress. Field visits usually take place on the occasion of board meetings in which TIB is represented. Yet, it does not adequately follow up on whether project costs might exceed budgeted amounts, nor does it deal promptly with cost overruns when they do occur. TIB's project supervision after projects have been physically completed has also been less action-oriented. Most of TIB's projects in operation have experienced serious difficulties stemming both from inadequate management and extraneous constraints due to the state of the economy. Recently, however, TIB has intensified its supervision effort over projects experiencing difficulties, with emphasis on problem solving, and has assisted three problem projects in making substantial improvement in their operations. In certain instances, TIB has impressed on the Government the need for changes in top management. But, in general, poor management reflects the pervasive shortage of such talent in the public sector, a deficiency which TIB has been trying to alleviate by providing technical assistance. In recent years, TIB has taken the lead in initiating programs of managerial personnel training for the staff of the parastatals through extensive training abroad, annual seminars and short courses. It appears, however, that there has not been adequate emphasis on training in technical and management methods (e.g., production planning, work methods, process engineering, preventive main- tenance, materials selection), i.e., training specially related to production management.! TIB's analysis and reporting of extraneous constraints is 1/ Commenting on the report, TIB emphasized that optimistic appraisals in the past reflected the general confidence in the economy that prevailed at the time. TIB's new lending strategy now emphasizes project reliance on local raw materials as lending criteria (see Attachment A). 2/ One should note, however, that TIB has been financing technical training for six persons under the first technical assistance credit and for one under the newly effective second credit. Commenting on the report, TIB further indicates that, while its emphasis in the past was on training in project monitoring, it has recently been shifting its attention towards managerial and technical training as is evidenced by its providing a few sponsorships for individual on-site training and organizing group seminars for chief executives (see Attachment A). largely confined to an enumeration of factors affecting project operations (e.g., price controls, lack of foreign exchange, power cuts, indequate supply of agricultural inputs). Although these items are discussed with the manage- ment of the parastatals and occasionally with the concerned ministries, TIB refrains from discussing the more general policy framework that underlines these problems--at least formally--with Government officials. As a result, TIB's impact remains limited. 8. Another source of concern lies in the delay, often up to two years, with which the audited accounts of public enterprises are published. This state of affairs results partly from the lack of qualified accountants in the country. The problem has been addressed under the Bank's technical assistance credit to TIB, part of which TIB is using to finance a training program within the Tanzania Audit Corporation (the only audit company accred- ited with parastatals). However, delays also appear to reflect a lack of resolve on the part of the management of parastatals to have their accounts prepared in time which, in turn, underscores the limited role financial accounts have come to play as a management tool. Although TIB has tried to impress on its clients the importance of timely audited accounts as a manage- ment tool, this is an area where it could have exercised its influence more strongly. 9. TIB's Role in Project Preparation and Selection. TIB does not strictly promote projects, but it may get involved in their preparation. Such involvement, however, varies greatly from case to case. With a few excep- tions, project identification does not originate with TIB but with parastatals and their holding companies. But because of the lack of appropriate exper- tise, most parastatals have to commission outside consultants (either foreign companies or the Tanzanian Industries Studies and Consultancy Organization [TISCO]) to prepare project feasibility studies. Therefore, the degree of TIB's involvement in project preparation depends largely on whether or not it can provide financing for such studies and, by extension, on its having access to technical assistance funds. 10. As already noted, TIB has been the recipient of two IDA credits designed to provide financing for feasibility studies; it has also received funds for the same purpose from SIDA. By making use of these resources, TIB has been able to finance feasibility studies for about 20% of the projects it eventually supported1/. In the remaining cases, TIB may get involved in project preparation, but usually at a much later stage and only informally. In some instances, by the time the project is submitted to TIB for appraisal, the Government has already committed equity funds and the enterprise may even have ordered the equipment, thus making it difficult for TIB to suggest any significant changes in design. Although TIB has maintained its independence 1/ In these cases, TIB approves the consultants' terms of reference and follows closely on the execution of the study. - 5 - over project investment, these practices defeat an important purpose of TIB's institution, namely, the exercise of an independent quality control function over project investment decisions. C. Use of Bank Funds 11. The credit was fully disbursed by January 1981, two and one-half years behind the original closing date. Delays in final disbursements, amounting to 17% of the credit, resulted from the substitution of one sub- project for another already approved. The credit supported six sub-loans, all sponsored by Government-controlled firms and well above the US$100,000 free limiti!. The sectoral distribution and geographical dispersion of the sub-projects was satisfactory. The projects generated some 3,000 jobs at an average cost per job created of US$36,900, which suggests a relatively high capital intensity. Economic and financial rates of return calculated at appraisal were satisfactory (PCR, para. 4.02). However, the performance of these sub-projects turned out to be disappointing, paralleling that of the industrial sector as a whole. Due to a combination of factors, including shortage of foreign exchange, management deficiencies, scarcity of skilled labor, and insufficient supplies of agricultural inputsi/, capacity utiliza- tion has been low, in some instances extremely low, and their profit record very poor (see Annex I to this memorandum). One agro-industry sub-project, the Tanzania Navy Bean Company, had to be cancelled and the company placed under receivership. Interestingly, the Bank had appraised this project prior to the extension of the credit and subsequently suggested that it be financed by TIE out of the credit (PCR, paras. 4.04 and 6.03). D. TIB's Overall Operations 12. TIB's operations are detailed in paras. 5.01 to 5.06 of the PCR. TIB's portfolio grew much faster than projected at appraisal. Total assets increased from TSh 156 million (US$21.8 million) as of June 1974 to TSh 1,036 million (US$125.8 million) as of June 1980, or at an average rate of 46% p.a. in nominal terms and 29% p.a. in real terms. Equity participations have been marginal as a result of TIB's policy and the low requirements of the paras- tatals due to their access to Treasury funds. Net profits also exceeded projections both in nominal terms and as a percentage of average total assets. But because of the low leverage, return on equity has remained low (PCR, para. 5.05). 1/ Sub-project data are found in Annexes 2, 3 and 4 to the PCR. 2/ Two agro-industry sub-projects have suffered from shortages of raw materials that appear to reflect a growing imbalance between domestic prices and the export value of processed products (based at the pre- vailing official exchange rate) and, thereby, a deficient agricultural price policy. 13. The quality of TIB's portfolio has deteriorated in recent years as a result of the adverse economic conditions of the country. As of March 31, 1981, 14' .)f the outstanding amount of principal and interest were in arrears over three months, involving some 37% of TIB-financed projects (see Annex II to this memorandum). TIB has increased provisions for possible losses to 4% of the outstanding portfolio, which is considered adequate by its auditors. To alleviate the plight of its customers most affected by the lack of foreign exchange, TIB has recently accepted the Bank's suggestion to grant selectively l-ans (partlv from Bank funds) for working capital. TIB has also come to appreciate the 71eed to de-emphasize growth and to pay greater attention to Loan recovery. To this end, it created recently a portfolio management unit to intensify its efforts in collection of arrears. Further, to help its customers identify and solve technical and management problems, TIB has commissioned a study designed to single out particular factors responsible for the decline of productivity in public sector industrial enterprises. In addition, TIE has financed with funds from IDA technical assistance credits a number *f -mpany-specific studies designed to make concrete recommendations 'o improve frfductin efliciencv, E. Conclusions 14. TIB has grown into a elL-organizec institution with competent management and staff and good project appraisal and supervision capability, although there is room for further improvemnent. TILB's foreign resource mobilization effort has been commendable. The sub-orojects financed under the credit appear to have been well-conceived but suffered subsequently from the shortage of foreign exchange, the general deterioration of the economy, and the paucity of experienced managers in the public sector. Although these problems are not confined to the projects financed under the credit, manage- ment difficulties, to a certain degree, could have been anticipatedi". TIB's response to this critical situation has basically been to commission studies for the identification of the causes of inefficiency and to provide recommen- dations for remedial action. TIB has also initiated extensive training programs for the managerial staff of the parastatals, but the pressing need for production management and engineering training (para. 7) has eluded both the Bank and TIB. To help alleviate some of the economic difficulties the country faces, TIB recently adopced a strategy whereby it will reject projects relying heavily on imported raw materials, will focus more on export-oriented projects, and will put greater emphasis on rehabilitation/balancing projects over new projects. 1/ Commenting on the report, TIB states that it would not have been pos- sible to anticipate the shortages of raw materials and foreign exchange when the sub-projects financed under the credit were appraised. TIB fur- ther mentions that optimistic appraisals reflected the general feeling, supported by available data on local production, that the economy was on its upswing (see Attachment A). - 7 - 15. The credit was one of the first operations of the Bank Group which involved a state-owned financial intermediary for the purpose of extending assistance mainly to small-medium size projects undertaken by public sector enterprises. The fact that even a limited number of projects promoted by parastatals is now subjected to TIB-s scrutiny ensures that these funds are allocated to well-conceived project sA-. But much more needs to be done in order for TIB to have the requisite impact on the quality of appraisals and resource allocation in the country. TIB should be encouraged to get involved at a very early stage of the project cycle to a much greater extent than heretofore, in order to make it possible for it to contribute more to the conceptualization, design, and market analysis of the projects sponsored by parastatals. 16. TIB has evolved into a reasonably efficient development bank, and this should be attributed to TIB's quality of management and the Government's support. In this regard, IDA's positive role through extensive technical assistance programs and close supervision, particulary the emphasis it placed on establishing and maintaining TIB-s autonomy, should also be stressed. TIB's satisfactory institutional development, particularly if viewed in the face of severe environmental constraints, is encouraging and appears to justify IDA-s decision to support a DFC catering to the needs of public enterprises. However, IDA-s original expectations concerning TIB's impact on project selection in the industrial sector have met with very modest success. Although TIB participates in the Government's planning committees as well as in the Budgetary Allocation Committees for parastatals,2/ its influence on the pattern of investment in the public sector and on the operating efficiency of the parastatals is still limited. Factors adversely affecting the perfor- mance of parastatals, such as the pervasive cost-plus pricing practices which are not related to standard cost accounting and get routinely ratified by the price commission, have been left largely unaffected by IDA's association with TIB, even though economic discussions with the Government regularly broached the subject. Finally, while TIB appears to have gained over the years suffi- cient independence in its decision-making process as to be in a position to reject projects on economic grounds, parastatals have often evaded economic criteria by turning to other, less scrutinizing sources of financing. In order to enable TIB develop into an effective public sector DFC, there is need for the Government to define in clearer terms TIB's role in the invest- ment decision-making process and in the financing of projects sponsored by 1/ TIB-s influence over project selection and design hinges to a large extent on its access to resources for financing feasibility studies (para. 10). However, most of TIB-s foreign exchange resources come from aid institutions and have little or no fungibility in their end-use. 2/ These committees scrutinize and approve parastatal investment programs and allocate public resources to specific projects. - 8 - parastatals. There is also need to strengthen further the bank-client rela- tionship between TIE and its parastatal sub-borrowers, in order to enable TIB to have greater impact on their operations and performance. 17. TII3s wide experience with the sub-projects it finances could provide useful inputs to the formulation of economic policies on such impor- tant issues as investment priorities, price controls, export incentives and protection. Yet, TIB-s contribution to the country-s policy making process has been limited, despite the fact that its management is knowledgeable and perceptive. TIE has conducted seminars drawing participants from parastatals, ministries and other relevant institutions, where developmental issues have been addressed and concrete resolutions presentedi. These seminars, how- ever, have had limited impact on the Government s industrial policies. The Bank has raised financial and industrial policy issues with the Government in the context of its macro-economic dialogue. For more sharply focussed impact, the Bank might also consider linking future lending to TIE to a dialogue with the Government on specific industrial policy issues, incliding ways to improve the efficiency of parastatals2/. 1/ For instance, TIB recently organized a widely-attended seminar on export incentives. 2/ In this regard, there is a precedent in connection with parastatals in the agricultural sector. Specific policy changes designed to improve the efficiency of agricultural sector parastatals and to promote agri- culture-based exports were agreed between the Bank and the Government on the occasion of the Export Rehabilitation Program supported by the IDA Credit 1133-TA of April 1981. - 9 - ANNEX I PROJECT PERFORMANCE AUDIT REPORT TANZANIA--TANZANIA INVESTMENT BANK (TIB) I (CREDIT 460-TA) PERFORMANCE OF SUB-PROJECTS (1980 data unless otherwise indicated) Ratio of Net Profit Capacity (Losses) Sector Util. (%) to Sales (%) Comments Tanzania Navy Agro- -- -- Poor results due mostly Bean Company industry to inadequate management led to cancellation of project. Tanganyika Dyeing Textiles 50/1 (85) Low capacity utilization and Wearing due to mechanical break- Mill Ltd. downs, shortage of spare parts, inadequate better supplies and high staff turnover. Mwanza Tanneries Tannery 9/1 (106) Poor performance due to Ltd. mechanical breakdowns and insufficient availability of hides. Tanita II Agro- 29 n.a. Low capacity utilization Cashewnut industry due to shortage of con- tainers and raw nuts. Sabuni Manu- Detergents 531 (18) Commercial production facturing Ltd. started in March 1981. Mbeya Cement Co. Cement -- -- Project still under implementation. 1/ January - May 1981. 2/ January - June 1981. - 10 - ANNEX II PROJECT PERFORMANCE AUDIT REPORT TANZANIA--TANZANIA INVESTMENT BANK (TIB) I (CREDIT 460-TA) STATUS OF PORTFOLIO Arrears (Principal and Interest) (as percent of amount outstanding) Percentage Total Outstanding of Projects Balance 3-6 6-12 1-2 Over 2 with Arrears (TSh million) months months years years Total (Percent) As of June: 1977 312.2 3.0 1.4 1.6 0.7 6.6 43 1978 389.2 3.6 2.1 2.5 1.3 9.4 44 1979 534.0 3.8 2.9 3.5 2.5 12.7 36 1980 653.3 3.6 2.4 2.0 4.7 12.8 30 1981 807.6 3.8 2.1 3.7 4.1 13.8 37 - 11 - ATTACHMENT A COMMENTS RECEIVED FROM BORROWER TANZANIA INVESTMENT BANK F 0 Box 9373 Dar es Salaam United Republic of Tanzania C . INVESTMENTS Date 30th January, 1982 rcephone 28581 Qu, Ref TB/ORG/59/B Your Ref Mr. Shiv S. Kapur, Director, Operations Evaluation Department, The World Bank, 1818 H Street N.W., Washington, DC 20433, U.S. A. Dear Sir, RE: PROJECT PERFORMANCE AUDIT REPORT ON TANZANIA INVESTMENT BANK (TIB I (CREDIT 460 - TA) On behalf of Mr. J.C. Rubambe, the General Manager, who is away on a trip outside the country, I would like to thank you very much for your letter dated November 20, 1981 with which you attached first draft of the project performance audit report on the first credit to Tanzania Investment Bank. We have gone through the draft report and we are in agreement with the very useful views and comments made regarding TIB as an institution and the environment under which we operate in. We, however, would like to make the following specific comments and clarification on some of the .areas of the report as here-under:- Section 6 - Appraisal: It is true that appraisals appear to be optimistic in assessing project implementation schedules and capacity utilization. This was actually the case in 1974 through 1977/78 when the credit was actively being allocated to projects and it was at a time when the economy was said to be moving well. Factors like managerial capability and regular supply of raw materials and construction inputs were then available as foreign exchange was sufficiently available. The Tanzania Investment Bank management has observed overtime the various factors facing project implementation schedules and capacity utilization of various client companies and has taken steps to correct the situation. There is now in existence a new strategy for financing projects, which spells out among other things the need to generate/conserve foreign exchange through use of local raw material inputs; consolidation and rehabilitation of existing enterprises and even raw material import support. /2.. Official Correspondence should be addressed to the General Man--jer -12- Mr. Shiv S. Kapur; The World Bank, Washingtond DC 20433, UIs A January 30, 1982 Also appraisal work, is more thorough in terms of screening the various factors which may affect implementation schedules, while capacity utilization rates and periods for implementation of new projects which qualify as per the new criteria have been extended accordingly. Section 7 - Supervision: The Bank's supervision work is generally done through site visits which are condcted at least every quarter by the Follow-up Officers. Field visits done on the accession of client board meetings form supplemental supervision apart from the regular reports on progress during construction stage and at operational phases. Once projects have been completed in implementation, clients file in completion reports which are normally assessed and commented on by the Bank. The T1B has also noted the inadequacies in management fields for our client companies. Whereas our initial training emphasis in the past was in project evaluation and monitoring; increasingly we are shifting (emphasis) into managerial and technical training as evidenced by the few sponsorships for individual inplant training and for group seminars for chief executives. Our analysis and reporting of extraneous constraints which affect performance of our client companies are normally reported to various policy making organs of government in different ways. Specific letters on the factors and suggested remedial actions are sent to the Holding Parastatals, Parent Ministries and also to our Parent Ministry. Again broad factors and policy constraints like pricing, utility problems etc. do feature in our TIB - Client Seminars every year in form of resolutions and are sent to all concerned ministries and government bodies for action.' Judging from the aforementioned actions, we therefore do take up issues of policy nature with the relevant authorities and in some cases changes have taken place as a result of these actions. Item 8 - Delays of Pccounts from Client Companies: You have rightly pointed out in your draft that there is delay in submission of published accounts from public enterprises partly due to lack of qualified accountants in the country. TIB is always trying her best in impressing on the client company boards of the importance of timely audited accounts as a management tool. Item 10 - Financng of Feasibility Studies: The TIB's Technical Assistance to project sponsors/promoters for studies aims at involving the Bank right from project initiation to eventual loan finance if the project proves viable. The Bank therefore actually prepares the terms of reference for the feasibility studies and also participates in the tender evaluation and selection of consultants. In one or two cases approvals of the consultants or even selection was made by the World Bank, in which case TIB endorses them. - 13 - Mr. Shiv S. Kapur, The Wrold Bank, Washington DC 20433, U.SAA. January 30, 1982 During evaluation of loan requests as they come from project sponsors, TIB follows set criteria to establish among other things, the financial economic viability and technical feasibility of the projects. This process of evaluation is done very independently and without any pressures. Projects which do not satisfy our criteria for financing, even if promoted by public institutions and might have received equity from government are not funded by this Bank. TIB's independence over project investment decisions has always been maintained over the years. The TIB has in the past financed feasibility studies whose results proved marginal as per our criteria for financing investment projects at appraisal stage and therefore declined to extend term loans to them. Item 14 - On Conclusions: We would like to draw your attention to our comments under section 6 regarding TIB's optimism in the appraisal work during the currency/time of the credit referred to under this evaluation report. The available data on local production for both food and cash crops and indeed on imports of essential inputs indicated that the economy was on its upswing hence our optimism in the appraisal projections for those projects approved during 1976 - 1976. The foreign exchange position had improved and imports of raw materials and construction inputs were available then. It would not have been possible to anticipate shortages at that time. The Bank however did notice the deteriorating trend of the economy and the effects it is causing to our operations. Appropriate measures have therefore been devised and are currently being implemented. Item 15 - On Conclusions: In order for TIE to be able to exert greater impact on the quality of appraisals and resource allocation in the country, we participate in the planning committees of the government, and in Budgetary Allocation Committees for parastatals. These committees scrutinize and approve parastatal investment programs and allocate resources to project for implementation. Again, the TA facility for financing feasibility studies ensures that projects which eventually come to the Bank for loan finance have been thoroughly studied and all aspects and implications if implemented are evaluated. It is our considered opinion that a lot is being done on the part of TIE in trying to improve the quality of our appraisal work and also in ensuring that national resources are allocated in the best manner in order to produce the best results in the most efficient way, extraneous factors notwithstanding. - 14 - Mr. Shiv S, Kapur, The World Bank, Washington DC 20433, U.S"Ao January 30, 1982 Item 16 - On Conclusion: TIB operates independently in project investment and selection process within the broad policy guidelines of the government. The Ministry of Planning and Economic Affairs is the arm of the government which deals with overall national resource allocation and can therefore support other projects which in the national interest warrant implementation. Item 17 - On Conclusion: TIB's relationship with other institutions, parastatals and relevant ministries has always been very good. Formal and informal dialogues have always been conducted on issues requiring joint actions. The TOB - Client Seminars which are conducted once every year draw participants from all relevant institutions, parastatals and ministries. Topical developmental issues are discussed in these seminars with concrete resolutions being drawn and circulated to all parties for action and implementation. Judging from our experience in these forms of communication specific national economic policy issues have been addressed to and TIB's contribution and impact in the development process of Tanzania has been enhanced. We hope our comments above will assist you in formulating your final conclusions on this assignment. We look forward to receiving a copy of the final performance audit report on Tanzania Investment Bank. Yours faithfully, TANZANIA INVESTMENT BANK A.W. Mosille for: GENERAL MANPGER /dfm. - 15 - ATTACHMENT B PROJECT COMPLETION REPORT TANZANIA - TANZANIA INVESTMENT BANK (TIB) (CREDIT 460-TA) I. INTRODUCTION 1.01 The Tanzania Investment Bank (TIB) was established in 1970 as a public sector statutory corporation 100% directly and indirectly owned by Government to provide finance to public and private sector productive industrial and agro-industrial enterprises in Tanzania. The Tanzanian Government requested Bank Group assistance for TIB shortly after its establishment. At the time of a Bank preappraisal mission in December 1971, TIB had grown rapidly to become the major term lending institution in the country, and had already established contacts with a number of multilateral and bilateral donors regarding lines of credit. The preappraisal mission made several recommendations for strengthening TIB's operations but concluded that TIB did not need Bank Group resources for some time. A follow-up mission in February 1973 ascertained a need for Bank funds and an appraisal was conducted in May 1973. 1.02 The credit under review, 460-TA, was made available in 1974 as a first line of credit to TIB in an amount of US$6 million. Its primary objectives were to assist TIB, through provision of foreign exchange funds and support to strengthen the institution in financing the development of productive enterprises in Tanzania in furtherance of the corporate purposes of TIB. An additional specific purpose of the credit was to make funding available for TIB to provide further financing for expansion of the Tanzania Navy Bean project. Principal provisions in the credit agreement included a free limit of US$100,000 with an aggregate free limit of $1.5 million, a debt to equity ratio limitation of 3:1, and a requirement that TIE take steps satisfactory to IDA to protect itself against foreign exchange risk. The credit, based on an appraisal report dated January 14, 1974 (Report number 283a-TA), was approved on February 5, signed on February 13, and became effective as scheduled on April 18, 1974. 1.03 The credit was 83% disbursed as of the initial closing date of June 30, 1978. The substitution of the large Mbeya Cement Company subproject for a withdrawn subproject has delayed final disbursements. The closing date, extended twice, is now June 30, 1980 and the credit is expected to be fully disbursed in the near future 1/. In spite of the delays in completing final disbursement, TIB committed funds faster than anticipated which resulted in the approval of a second line of credit (a Bank Loan) in an amount of $15 million in October 1975. This second line was essentially fully committed within 19 months from the date of effectiveness and was followed by a third line of credit for $15 million approved in December 1978 (fully committed) and a fourth line of credit of $40 million (including a Bank administered EEC Special Action Credit of $15 million) approved in August 1979. Commitments under the fourth line of credit are proceeding more rapidly than anticipated. TIB's commitment of these lines of credit and the relationship and dialogue between TIB and the Bank have been very satisfactory. 1/ $74,000 remains to be disbursed against an outstanding letter of credit. - 16 - II. TANZANIA MACRO-ECONOMIC INDUSTRIAL AND FINANCIAL OBJECTIVES 2.C1 Following the Arusha Declaration of 1967, the Government nationalized much of Tanzania's industry and by 1974 the public sector accounted for an estimated 75% of value added and 90% of new capital formation within the industrial sector. In terms of number, however, 430 out of the '500 registered manufacturing establishments employing 10 or more personnel remained private companies. As a whole, the manufacturing sector accounted for 10% of GNP with output increasing 8% per annum during the 1968-1970 period. A few large parastatal companies, particularly the National Development Corporation (NDC), which were asked to manage the nationalized companies, accounted for a significant portion of the public sector investment and output. However, since the parastatal sector was unable to develop administrative capability to adequately monitor and coordinate the control systems which were instituted in conjunction with the increased public ownership, a number of these companies performed poorly and some consequently experienced financial difficulties. Few enterprises had adequate numbers of experienced senior and middle level managers, adequate project evaluation capabilities for the preparation of new projects, or sufficient internally generated funds available for new investment. Many of the easier import substitution opportunities had been exhausted and little export oriented industry had developed. Low productivity and efficiency due to both macro and micro-economic factors was a major problem. 2.02 An overall objective of Tanzania's Second Plan (1970-1974) was to raise the investment ratio to about 28% of GDP, an annual growth rate of investment of 10%. Parastatals, representing 50% of gross fixed capital formation in 1971, were the major vehicle for public sector investment. In the 1973/74 development budget, emphasis was placed on the promotion of small industries and on the processing of agricultural products for primarily domestic markets. Government's policy was to stimulate public sector industrial investment, particularly outside the Dar es Salaam and Tanga areas, with TIB playing an important role both in supplying capital and independently checking on the quality of parastatal investment. Government encouragement to private investors was more limited, as the Dividend and Surpluses Act, which gave the Finance Minister control over dividend declarations for specified companies, tended to encourage expansion of existing foreign and domestic investments but to discourage forming new ones. The Government's Basic Industrial Strategy for which the implementation record was somewhat inconsistent, emphasized structural transformation, self reliance and the use of domestic resources for domestic needs. Stress was placed on the development of heavy industries and import substitution although attention was also given to export oriented agricultural processing industry. 2.03 TIB was rapidly becoming the major source of long term debt financing for the majority of the large new industrial projects in Tanzania. The Tanganyika Development Finance Company, Ltd. (TDFL) 1/ owned by the 1/ The Bank has since made an $11 million line of credit available to TDFL and is in the process of appraising it for a second line of credit. - 17 - bilateral aid agencies of U.K., Netherlands, Germany and by TIB (30%) had, until recently, only lent to privately owned projects and because of its small capital base its activities were restricted to projects with total assets of less than Tsh 4 million. The East African Development Bank, to which the World Bank also provided a line of credit, could not invest more than 38.75% of its new loans in Tanzania 1/ and, by its charter, was unable to lend for projects in tourism, transport and commercial agriculture. The National Bank of Commerce, the only commercial bank in the country, had turned its medium and long term loan portfolio over to TIB and discontinued its term lending thereafter. 2.0 The performance of the industrial sector in 1974-75 was seriously affected by an economic crisis in Tanzania brought about by a drought and sharp increase in the price of imports. The absolute amount of investment in manufacturing, which had increased in real terms until 1971, declined in 1972 and thereafter. Problems with low productivity and output relative to investment increased. TIB was quite successful in playing the role envisaged for it by Government, with its commitments representing approximately 20% of total investment in the industrial sector in recent years and its effective project evaluation capabilities improving the quality of new investment decision-making by parastatals. Recently TIB's role with respect to quality control objectives has been enhanced through TIB sponsored client seminars, improved supervision of projects particularly those experiencing difficulties, Pnd a continued upgrading of its project appraisal capabilities. III. TIB THE INSTITUTION 3.01 The following issues and recommendations were discussed in the context of the appraisal and/or negotiations: (a) Interest Rates: The rate of interest to be charged by TIB on its sub-loans was the most difficult issue to resolve. IDA agreed that TIB should not be required to charge uniform interest rates so long as its minimum rate was acceptable. The Government and TIB in turn, finally agreed that TIB's minimum interest rates on loans out of its ordinary resources would be not less than 9% (since raised to 10%); (b) Limitations on TIB Ihvestment: IDA proposed that TIB increase its limitation on total TIB equity investment from 10% to 100% of its net worth, maintain a debt to equity ratio not higher than 3:1, and limit its exposure in one project or business to 20% of TIB's net worth and 60% of the project's long term assets. TIB increased its limitation on total equity 1/ A significant constraint, due to a lack of new investment opportunities in Uganda where EADB was also supposed to invest 38.75% of its new loans. - 18 - investment to 40% of its net worth, adopted the 3:1 debt to equity ratio and agreed to amend its policy statement to limit exposure in one project or business to 20% of TIB's net worth. However, it maintained its maximum exposure in one project at 75% of the project's fixed assets and capitalized services,with the provision that it should not exceed 60% under normal circumstances; (c) TIB's Role in Promotion and its Independence in Decision-making: During appraisal IDA had expressed concern with respect to TIB's active promotion of new investments by parastatals whose own commitment to the investment might be unclear and to the independence of TIB's decision-making 1/ in view of Government's ownership and control of TIB's Board of Directors. Prior to negotiations, however, IDA decided that TIB's promotional role was acceptable as TIB could not take a controlling interest in its investments and that TIB and its management were adequately independent; (d) Special Operations: TIB readily agreed with IDA's position that TIB special operations, on which it did not take credit risks, should be clearly separated from its ordinary operations and should be used for those projects which the Government wished to have implemented and which did not meet TIB's normal criteria; (e) Recruitment of a Director of Operations: IDA proposed that a new Director of Operations, satisfactory to IDA, should be recruited to fill the vacancy as a condition of Board presentation. TIB stated that SIDA had agreed to provide a successor to the last incumbent and TIB would inform IDA when SIDA had made the replacement; and (f) Size of Loan: Originally, a loan of $5 million, including $1 million for financing local currency requirements, was proposed. The amount of the loan was subsequently increased to incorporate a component for the Navy Bean Project which the Bank had itself appraised earlier but had not financed because of low international prices of navy beans at the time of appraisal. 3.02 Minor friction developed between TIB management and the appraisal mission when TIB criticized the mission for discussing with other parastatals what TIB's promotional role in projects should be and the mission expressing concern that TIB management apparently viewed the mission as relatively unimportant in the IDA/IBRD decision-making process and therefore withheld some requested information, limited the mission's access to top management and ignored some of the mission's advice. Thereafter, however, relationships between TIB management and the Bank improved considerably and have since been very satisfactory and cordial. 1/ TIB was the first DFC lending primarily to the public sector, for whom the Bank was considering a line of credit following modification of DM2.64 in January 1972 to allow Bank lending to such institutions. - 19 - 3.03 Although commitment and disbursement of the credit proceeded faster than originally estimated, some worrisome problems arose during supervision and the project was treated as a problem project during the December 1974 problem project review because of four main problems: (a) Audit and Reporting Requirements: TIB's internal accounting was deficient, the position of Director of Finance had not been filled since the departure of the first incumbent, and TIB had not fulfilled an informal assurance given during negotiations to make needed revisions to its 1973 draft audit report; (b) Special Funds Procedures: These procedures were poorly established and TIB was believed to be abusing its position by asking the Government to take risks on projects that clearly met TIB's own lending criteria; (c) TIB's Portfolio and Provisions for Losses: About one third of TIB's portfolio consisted of investments in three projects which seemed likely to result in losses. TIB's provisions for possible loss were small and appeared inadequate; and (d) TIB's Influence on Project Decisions: Most of TIB's projects were Government sponsored and for which the Government normally committed equity funds prior to TIB appraisal, making it difficult for TIB to reject such projects or even to make significant changes in design. After 1974, TIB made rapid and effective improvements and subsequent supervision missions encountered relatively minor problems in internal accounting, supervision of problem projects, quality of the portfolio and project preparation procedures. 3.04 Present Status of TIB: TIB grew much more rapidly than anticipated at the time of appraisal in terms of operations, total assets and staffing. From an institution which was relatively poorly staffed with professional Tanzanians and heavily dependent on nine expatriate staff at both management and technical levels in 1974, TIB has developed into a smoothly functioning development bank and one of the most effective and respected institutions in Tanzania. It now has 44 professional staff and Tanzanians man all upper and mid level management positions. TIB runs a well organized staff development program which has enabled it to upgrade the skills of most of its professional staff. It has developed a particularly effective Operations Department in terms of appraisal and supervision capability. Because of the acknowledged technical competence of this department, TIB's informal views are now often incorporated into parastatal project design. TIB is thus contributing substantially to the quality of resource allocation in the country. The quality of accounting internal control and the annual audits has improved since 1976 and is now satisfactory. TIB has developed an active - 20 - Planning and Development Department which plays an effective role in promoting projects through working in conjunction with parastatals, administering IDA and SIDA technical assistance funds for feasibility and capacity utilization studies, TIB client seminars and organizing training courses for the benefit of the professional staff of parastatals. TIB has also commissioned a study for measurement and improvement of productivity in public sector enterprises and for inventory control practices for selected firms. 3.05 TIB total assets of about Tsh 1 billion as of June 30, 1979 and its FY79 approvals of Tsh 310 million make it one of the largest and fastest growing development banks with which the World Bank Group is associated in Eastern Africa. While TIB continues to lend predominantly for public sector large and medium scale industry, it has recently expanded its lending to private sector companies, and for foreign exchange working capital loans to client companies whose operations have been adversely affected by their inability to obtain adequate foreign exchange during present countrywide shortages. TIB has done an unusually good job of mobilizing resources from other foreign lenders and has obtained lines of credit from SIDA, NORAD, KfW, ADB, CIDA, the Netherlands and Finland as well as the Bank Group. 3.06 TIB and IBRD/IDA have maintained a constructive dialogue throughout their relationship and Bank staff have been of some assistance during this period of rapid, effective development of TIB. After substantial delays and deficiencies in terms of quality in initial audit reports during the first two years, TIB has since provided adequate, generally comprehensive and timely information to IBRD/IDA in compliance with audit and informational requirements. IV. ALLOCATION OF THE CREDIT 4.0l The proceeds of IDA Credit 460-TA were used, as shown in Annex 1, to finance six subprojects all of which were above the free limit. The Bank approved a seventh subproject which was withdrawn by TIB and subsequently financed from other sources. TIB has since made supplementary loans to three of the subprojects. One subproject application, the Tanzania Shoe Company, was rejected due to an inadequate economic rate of return. IDA in its review of the subproject applications made constructive suggestions relating to TIB's appraisal methodology in most of the appraisals which have assisted TIB in improving the quality of its appraisals generally. Five subprojects carried interest rates of 10% and one of 11%. While a 9% minimum interest rate was agreed to during negotiations, TIB subsequently raised its minimum interest rate to 10%. In practice TIB has actually been charging 11% on its recent loans. Some loans to private sector projects have been made at 12%. This compares with an estimated 1979 inflation rate in the GDP deflator index of 8-1/2% in Tanzania. - 21 - 4.02 Economic characteristics of the six subprojects financed under the credit are summarized in Annex 2. They include two agro-industrial projects and one each in textiles, tanning, detergents and cement. Four subprojects are outside the Dar es Salaam area and all six are majority owned by Tanzanians. Three subprojects are new and three involve expansion. Three subprojects are export oriented and four, in accordance with Tanzania's basic objectives, utilize primarily domestic raw materials. About 2,990 jobs were created at a relatively high average cost per job of $36,900 1/. Three subprojects had forecasted economic and financial internal rates of return (after tax) of above 25% while three projected economic and financial rates of return below 20%. 4.03 Subproject financial performance is summarized in Annex 3. Total TIB financing, including supplementary loans for three of the subprojects, was more than double the value of the funds provided under the first line of credit and represented about 12% of total project cost (24% if Mbeya Cement Company is excluded). All six subprojects experienced overruns ranging from 9% to a high 80% for Sabuni Industries and averaging 26% over appraisal estimates. Delays in implementation averaging 18 months, due to various causes including delays in receipt of materials and equipment and generally slow construction, affected all six subprojects, and contributed substantially to overruns particularly in the case of Sabuni Industries which was delayed more than three years and Tanzania Navy Bean Company and Mwanza Tanneries which were two years Lehind schedule. Most recent year actual profits lagged behind appraisal estimates for all four subprojects which are in operation and only one, Tanita II cashewnut, is presently making a profit. The Navy Bean project is under receivership and a second project, Mwanza Tanneries, is experiencing serious difficulties which could result in its future classification as a problem project. New estimates of rates of return are not available but would be lower than appraisal estimates (Annex 2) in most, if not all of these subprojects. As of March 31, 1980 two subprojects were Tsh 16.6 million in arrears (Annex 4) representing 24% of the amounts outstanding on the six projects. About 65% of the total TIB financing is outstanding at that date and only one loan, Sabuni Industries, has been rescheduled. 4.04 Brief descriptions of the six subprojects financed under the credit and their present status can be summarized as follows: (a) Tanzania Navy Bean Company: The Tanzania Navy Bean project represented a large expansion of a NAFCO owned subsidiary to grow and process navy beans for the export market. Plans called for 30,000 acres of beans under planting and an additional 30,000 acres to be farmed by outgrowers. 1/ Average cost per job is $11,630 if Mbeya Cement Company, which was much the largest subproject (TIB financed only 8% of total project cost) and which had a $189,500 cost per job created, is excluded. - 22 - The project had been originally appraised by the World Bank Group and the amount of the IDA credit was increased for the purpose of allowing TIB to make a loan for this project out of the credit. Tanzania Navy Bean Company failed for a number of reasons including inadequate management, low yields of only one third of planned levels, less acreage development, and lower prices for the final product than anticipated. Accumulated losses through 1978 were about Tsh 18 million and the company has been placed under receivership by TIB. TIB hopes to recover its loans and accrued interest in full (but not a previously provided for equity investment of Tsh 200,000), as part of the company is in the process of being sold and Government guarantees are expected to cover the remainder. (b) Tanganyika Dyeing and Weaving Mills (Sunguratex): Sunguratex, a Texco subsidiary, is a manufacturer of cotton cloth products primarily for the domestic market using local cotton. TIB financed a 60% expansion in its dyeing and weaving capacity. Sunguratex expects to operate at 68% of capacity in 1980 because of shortages of foreign exchange for imported raw materials, although management believes it could easily market 100% of capacity production if it could be produced. After operating profitably in 1978, the company experienced a loss in 1979 due to a forced change in the production mix to export 50% of production some of it at a loss, and because of delays in Government approval of increases in controlled prices. (c) Mwanza Tanneries Ltd.: Mwanza Tanneries is a National Development Corporation project for the manufacture of 7.5 million square feet of finished leather products from domestic raw hides. The company is experiencing serious liquidity problems and is not able to operate its finishing section. Parts of the plant have not been installed and the company has been incurring large cash deficits from operations creating a shortage of funds for procuring essential spare parts and raw materials. Mwanza Tanneries is in arrears of more than six months to TIB and may have to be designated a problem project in the future. (d) TANITA II Cashewnut Ltd.: TANITA II is one of five cashewnut processing plants (the only one in the Dar es Salaam area) owned and operated by the Cashewnut Authority of Tanzania. Locally grown cashewnuts are processed and packaged for export. The company began operations in February 1979, 13 months behind schedule. TANITA II did not operate in January-February 1980 because of unavailability of metal tins which a local manufacturer was unable to supply due to inadequate foreign exchange for imported raw materials. Operations are also affected by water shortages and frequent power cuts. This subproject was initially turned down by the Bank during its review on the basis of inadequate financial rate of return, but was later approved following correspondence and an increase in the export price for cashewnuts. (e) Sabuni Industries Ltd.: Sabuni Industries plans to manufacture soapless detergents for the local market from imported raw materials. Construction has been completed but initial pilot runs scheduled for March/April - 23 - 1980 have been delayed because of unavailability of imported raw materials. Despite large overruns and a three year delay in implementation, the company would be profitable if adequate foreign exchange were made available for imported raw materials. (f) Mbeya Cement Company: This project is a 250,000 ton per annum dry process cement plant in southwest Tanzania. Implementation, originally expected to be completed in January 1980 is proceeding smoothly and is expected to be completed by August 1980. Despite some initial doubts, this subproject is now expected to be economically successful due to the shortages of cement in Tanzania and the problems thus created for implementation of new projects generally. (g) Morogoro Tanneries Ltd.: This project, originally approved under Credit 460-TA was withdrawn and replaced by Mbeya Cement. It was subsequently financed by TIB from other sources. 4.05 For the four lines of credit to TIB, which total $61 million (an additional $15 million EEC Special Action Credit is being administered in conjunction with the fourthline of credit), $51 million has been committed and $30 million has been disbursed as of July 16, 1980. In addition, IDA has made available to Tanzania two technical assistance lines of credit, totalling $17 million, which are administered by TIB. Experience with TIB regarding commitments, disbursements and procurement has been satisfactory. The second line of credit is 90% disbursed and may be fully disbursed by December 31, 1980, the closing date specified in the loan agreement. Under the first two lines of credit, TIB has financed 21 subprojects with a total investment cost of Tsh 2.33 billion. About 9,300 jobs were created at an average cost of $33,500 ($14,200 if Mbeya Cement is excluded). 4.06 Economic characteristics of the 15 subprojects financed under the second line of credit are shown in Annex 5. They include three transport projects, two projects in the agro-industrial, textiles and metal processing areas and one each in cement, tanning, tourism, paper,plastics and detergents. Five subprojects were new, seven were expansions, and three represented supplementary loans to previous TIB projects financed under the first line of credit. All projects were majority owned by Tanzanians. Eight subprojects depended primarily on domestic raw materials and seven were expected to generate significant exports. As of March 1980, TIB classified nine of these subprojects as in operation without major problems, five under implementation but basically on schedule and three behind schedule. None were classified as problem projects. V. OPERATIONS AND FINANCE Operations 5.01 As of March 1980 TIB had approved, net of cancellations, 172 loans totalling Tsh 1.4 billion of which 65% had been committed and 50% had - 24 - been disbursed. It had also approved 16 equity investments totalling Tsh 64 million in ten enterprises including Tsh h0 million 1/ in TDFL. TIB's low level of equity investments is a result both of TIB policy and relatively low requirements for equity funds for TIB's parastatal clients who obtain equity funds from the Treasury. Over the 1974-1979 period, TIB's total approvals grew 24% per annum in current terms, much faster than the essentially no growth situation which had been forecast in the appraisal for the first line of credit. However, all of this growth was experienced during the 1974-1977 period, particularly as a result of a 92% increase in fiscal year 1977. Approvals increased insignificantly in 1978 and actually declined in 1979 to a level somewhat below 1977. TIB's ability to achieve rapid growth while maintaining satisfactory project processing capability and quality control in a difficult environmental context is an indication of good management performance. 5.02 TIB's loan and equity operations are analysed in Annex 7. A majority of the loans are for less than Tsh 5 million, but the 28% which are larger than Tsh 10 million account for 71% of the total value. Over 50% of the number of loans (over 70% by value) have a maturity of more than seven years and an 11% interest rate. Manufacturing accounts for 45% of the number of loan approvals, with the remainder well diversified including 15% in agro-industrial projects, 10% in tourism, 6%-8% in transport and storage, engineering and in forest products, and a few projects in the fish products, mining, construction, power and communications sectors. Portfolio 5.03 As of March 31, 1980 TIE had a total ordinary 2/ loan portfolio of Tsh 599 million of which Tsh 64 million, involving 32 companies and 30% of the value of the portfolio, was in arrears of more than six months. Among these, TIB has classified eleven companies, representing loans of Tsh 85 million, of which Tsh 49 million is in arrears, as problem projects. While the quality of the overall portfolio has deteriorated somewhat recently, TIB does not view the present arrears, with the exception of the problem projects, as a serious problem at this juncture because the arrears are often an indirect result of the overall foreign exchange shortage in Tanzania for the import of raw materials and spares. If the national foreign exchange shortage continues to force companies in the TIB portfolio to operate at below breakeven levels for extended periods of time, however, it is likely to have significantly adverse future effects on TIB's portfolio and profitability. Most companies in arrears, including all of the problem projects, are parastatals which are strongly encouraged by TIB to evaluate operational problems, take remedial measures, and in some cases to select consultants to carry out capacity 1/ Inclusive of income notes. 2/ Those loans on which TIB takes the credit risk. - 25 - utilization studies. TIB has also taken steps to improve collection procedures through intensive supervision visits and use of promissory notes. In its 1979 accounts, TIB increased the provision for possible losses on the loan and investment portfolio to Tsh 12.4 million representing 2% of the portfolio, which is believed adequate because of the parastatal status of these accounts and the active TIB involvement in preparing remedial measures. Equity investments, with the exception of the TDFL holdings, are not significant. No dividends have been received and no equity investments appear subject to probable additional writeoffs at this time. Financial Condition 5.04 Financial Position: TIB's comparative balance sheets for the 1974- 1978 period (Annex 8) show that TIB grew much more rapidly than forecast in terms of the size of its portfolio, total assets and net worth. During the period, total portfolio increased in current terms at an average annual rate of 36% and total assets at 43% compared to forecast growth rates of about 21%. Despite this growth, TIB's financial position remained very sound due to large successive increases in TIB's equity base financed mainly out of grants from SIDA and NORAD, which resulted in a drop in the already low debt to equity ratio from 1 to 0.5. TIB has maintained a sound liquidity position throughout the period with net current assets increasing from Tsh 30 million in 1974 to about Tsh 410 million by 1979 and satisfactory debt service coverage which was 1.7 in 1979. 5.05 Profitability: TIB's financial performance during the five years 1974-1978 compares favorably with appraisal forecasts (Annex 9) with net profits exceeding forecast by increasing amounts in all years after 1974. Net profits grew at a 65% annual rate in current terms compared to the forecast 27% and, by 1978, exceeded forecast levels by more than 300%. A comparison of actual with forecast ratios (Annex 10) shows that the principal reasons for this improved performance are the considerably higher volume of operations, good control of administrative costs, and a lower financial cost for TIB funds, particularly due to a remarkable increase in the levels of paid in equity (para. 5.04), which resulted in a larger than anticipated spread. Net profits remained a modest 2.3% of total assets in 1978-79, only slightly higher relative to total investment than forecast and were actually lower (3.6%) than projected during the appraisal of the first line of credit as a return on TIB net worth. It will be difficult for TIB to raise the return on net worth to more attractive levels unless increased financial leverage can be achieved through financing future funding requirements primarily through long term debt. 5.06 Resource Mobilization. TIB's rapid growth has been facilitated by its successful resource mobilization efforts. As of March 1980, it has received total foreign exchange resources of Tsh 1.76 billion (US$215 million) of which Bank Group funds constitute 31%. SIDA has contributed about US$50 million equivalent through four lines of credit. Other foreign donors include - 26 - NORAD, ADB, KfW, CIDA, the Finnish and Netherlands Governments and recently, the EEC as a part of the fourth IBRD line of credit. TIE has di:rectly raised few domestic currency resources other than through its paid-in capital and funds generated from operations although substantial present foreign currency resources will become future local currency resources for TIB on a recycled basis because these resources are on a 'grant' basis. TIB continues to hold adequate uncommitted resources for future lending operations and, moreover, has entered into discussion with the Nordic Investment Bank, Swedish Commercial Bank, Manufacturers Hanover and BADEA with respect to mobilizing additional resources from new sources. VI. CONCLUSIONS 6.01 Although Government objectives relating to the industrial and macro-economic sectors generally, particularly those relating to low productivity and management efficiency, have not been fully realized, its objectives with respect to TIB's role in furthering the more general sector objectives have been well served. The parastatals have performed their planned function of implementing a significant portion of new sector investment largely as envisaged and TIB has played an increasingly important role in mobilizing and channeling the debt financing for these projects and in exercising independent quality control on the decision-making process both informally through an expression of views based on its recognized technical competence and through the appraisal process. While the heavy import substitution orientation of many recent investments is in general accord with Government objeciives, it has become a cause of increasing concern, due to the impact of growing foreign exchange constraints on the operations of a number of these projects. TIB has recently begun to contribute more directly to improving productivity and efficiency through an active program of TIB client seminars, intensive supervision with a problem solving orientation of projects experiencing difficulty, and funding capacity utilization studies for specific industries and general efficiency related studies for the sector in the areas of productivity and inventory control. 6.02 Institutional objectives relating to TIB have also been largely fulfilled as TIB has developed into a well managed, highly respected institution within the Tanzanian context and into one of the largest and more rapidly growing development banks in the Eastern Africa Region. Originally identified weaknesses relating to heavy dependence on expatriates, a lack of depth of Tanzanian staff, weak internal accounting and audit functions and an inadequate operations department have been largely eliminated primarily due to the effectiveness of TIB's management, with some assistance generated by an ongoing and constructive dialogue with IDA/IBRD. TIB has also dispelled initial IDA concerns through its development of a useful project development - 27 - and promotion capability and its demonstrated exercise of adequate independent decision-making. The Government and the Bank view TIB as a very effective channel for the continued financing of new public industrial sector investment in Tanzania and it is developing an increasing relevance to private sector investment as well. IDA has contributed directly to the institutional development of TIB through providing assistance in upgrading the quality of project appraisals, strengthening TIB technical assistance and promotional services to its clients with the aid of the technical assistance credits, and augmenting TIB leverage in its dialogue with Government on TIB policies and independence in such areas as interest rates. 6.03 Objectives relating to the additional funding included under the first line of credit for the Tanzania Navy Bean project have obviously not been met as that project has proven nonviable and is being liquidated. With respect to this project, however, it should be acknowledged that the Bank Group was instrumental in urging TIB to finance it out of the first line of credit, the amount of which was actually increased specifically for this purpose. The six sub-projects financed under the first line have a mixed record of success due particularly to implementation problems and the macroeconomic environment and have clearly not lived up to the expectations at the time of appraisal. However, TIB's supervision of them has become increasingly effective and, with the availability of adequate foreign exchange for imported raw materials and spares some of which TIB itself may be able to provide as an exceptional measure, their future prospects should improve. Industrial Development and Finance Division Eastern Africa Projects Department August 11, 1980 - 28 - ANNEX 1 TANZANIA TANZANIA INVESTMENT BANK List of Subprojects Financed Under Credit 460-TA (US$'000) Date Total Amount Amount Amount Name of Subproject Number Authorized Authorized Cancelled Disbursed Morogoro Tanneries A-1 11/74 1073.9 1073.9 Tanzania Navy Bean Company A-2 1/75 1502.4 958.2 544.2 Tanganyika Dying & Weaving Mills A-3 2/75 1470.6 14.8 1455.8 Mwanza Tanneries Ltd. A-4 2/75 1470.6 - 1470.6 Tanita II Cashewnut A-5 9/75 482.5 - 482.5 Sabuni Manufacturing Ltd. A-6 12/75 1073.9 - 1073.9 Mbeya Cement Co. A-7 10/75 973.0 - 973.0 1/ Totals SQ46-9 2046--9 6000-0 1/ 1/ Including us$ 74,000 which is expected to be disbursed for Mbeya Cement Co. in the near future against an outstanding letter of credit. TANZANIA TANZANIA INVESTMENT BANK Economic Characteristics of Subprojects Financed Under Credit 460-TA (Tsh'000) New or % Tanzanian Employment % Raw Materials From 7 Sales Rates of Return Name of Subproject Economic Sector Location Expansion Ownership * Created Domestic Sources Exported Per Appraisal EIRR FIRR Tanzania Navy Bean Co. Agro Industrial Arusha Expansion 100% 470 90+% 86% 35% 33% Tanganyika Dying & Textiles Dar es Weaving Mills Salaam Expansion 51% 228 70% 6% 10.5% 27% Mwanza Tanneries Ltd. Tannery Mwanza New 100% 229 24% 2/ 52% 2/ 27% 18% Tanita II Cashewnut Agro Industrial Dar es Expansion 100% 1,300 100% 100% 12.1% 9.2% Salaam Sabani Manufacturing Detergents Tanga New 100% 250 1/ 8% 0% 30% 27% Ltd. Mbeya Cement Co. Cenent Mbeya New 100% 411 2/ 100% 0% 14.7% 11.6% 2,888 * Tanzania Ownership is entirely public 1/ At full capacity 2/ Per Appraisal £ANZANIA TANZANIA INVESTMENT BANK Financial Characteristics of Subprojects Financed Under Credit 460-TA (Tsh '000) Total Latest year Net Profit/Total Total Project Cost TIB for which Data Net Profit Project Cost (%) Name of Subproject Appraisal Actual Overrun Financing is Available Appraisal Actual Appraisal Actual Tanzania Navy Bean Company 17,342 26,700 9,358 12,070 1978 16,520 (5,000) 95% (19%) Tanganyika Dying I/ & Weaving Mills 52,653 60,000 7,347 18,000 1/ 1979 20,374 (5,285) 39% (9%) Mwanza Tanneries Ltd. 41,073 59,164 18,091 16,000 1979 3,427 (9,627) 8% (16%) Tanita II Cashewnut 40,950 44,498 3,548 5,000 1979/80 1,511 1,055 2/ 4% n.a. i Sabuni Manufacturing Ltd. 27,000 48,700 21,700 24,200- 1979 4,366 - 3/ 16% 3/ o Mbeya Cement Co. 524,825 646,180 121,355 50,000 1980 (31,732) - 3/ (6%) - 3/ Total 703.843 885.242 181399 107 201 1/ Including supplementary loans. 2/ Factory began operations in February 1979 and accounts were not available. 3/ Project still under implementation. TANZANIA TANZANIA INVESTMENT BANK 1/ Arrears Position- on Subprojects Financed Under Credit 460-TA (as of March 31, 1980) (Tsh'000) Amount Arrears Total TIB Outstanding 3-6 6-12 1 to 2 Total Name of Subproject Approvals at March 31 Months Months Years 2 Years Arrears Tanzania Navy Bean Co. 12,070 14,505.4 2,261.9 1,803.5 3,350.1 3,203.0 10,618.5 Tanganyika Dying & Weaving Mills 18,000 3,398.0 - - - - - Mwanza Tanneries Ltd. 16,000 17,708.0 2,826.5 2,385.0 755.5 - 5,967.0 Tanita II Cashewnut 5,000 4,202.8 - - - - - Sabuni Manufacturing 24,200 15,793.1 R E S C H E D U L E D Ltd. Mbeya Cement Co. 50,000 13,127.1 - - - - - Total A,10~~~ ~ $± .AL±~4j5.6 3.,203.0 16.,585 .5 1/ Principal and Interest 2/ Including approved but undisbursed amounts. TANZANIA TANZANIA INVESTMENT BANK Economic Characteristics of Subprojects Financed Under Loan 1172-TA Rates of % Raw Materials Return Economic New or % Tanzanian Employment From % Sales Per Appraisal Total Name of Subproject Sector Location Expansion Ownership Created Domestic Sources Exported EIRR FIRR 2/ Project Cost (Tsh million) "A" Subprojects 1/ Sabuni Industries- Detergents Tanga Supplementary 100% 0 8% 0% 30% 27% 48.7 Tanzania Coastal Shipping Dar es Expansion 100% 21 100% 0% 45% 20% 6.0 Shipping Salaam Tanganyika Tegry Plastics Dar es Expansion 100% 53 0% 0% about 20% 17% 11.3 Plastics Ltd. Salaam Southern Cashewnut Agro- Southern Expansion 100% 4,500 90+% 100% 11.6% 11% 234.6 Development Project industrial Region Aluminum Africa Ltd. Metal Dar es Expansion 100% 104 n.a. 20% 17% 17% 124.1 processing Salaam Tanganyika Dyeing & Textiles Dar es Suppkementary 75% 0 40%-100% 10,000 27% 46% 15.6 Weaving Mills Ltd. Salaam MOPRICO Agro- Morogoro New 100% 184 100% 0% 12.5% 9% 33.6 Multipurpose Oil -ill industrial Kibo Paper Industrie Paper Dar es Expansion 100% 114 most 0% 13.8% 16% 25.3 Salaam Mwanza Tanneries Tanneries Mwanza Supplementary 100% 15 80% 20% 66% 18% 12.1 Tabora Spinning Mill Textile Tabora New 100% 843 100% 50% 19.8% 12.8% 222.5 New Africa Hotel Ltd. Tourism Dar es Expansion 100% 108 80+% 20% 18 % 11.3% 45.8 Salaam Mbeya Cement Company Cement Mbeya New 100% 411 100% 0% 14.7% 11.6% 646.2 "B" Subprojects Tanzania Auto Parts Auto Parts Dar es New 100% n.a. 0% 0% n.a. n.a. 5.3 Salaam Quality Garage Automobile Dar es Expansion 100% n.a. 0% n.a. n.a. 0.7 Salaam Tanzania Aviation Ltd. Airline Dar es New 100% 31 65% 51% 14.3% 17.5% 16.1 Salaam .39B 1.442 1/ Economir-characteristice:perh praisalsfor-aubloans under Credit L.60-TA. 2! During this period, TIB calculated most FIRR after tax. TANZANIA TANZANIA INVESTMENT BANK A Comparison of Actual and Forecasted Operations (1974 - 1979) (Tshs millions) Year ending June 30 1974 1975 1976 1977 1978 1979 Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual APPROVALS Loans 50.0 97.1 50.0 128.5 60.0 153.4 60.0 309.5 60.0 339.7 - 306.2 Equity - 7.2 - 0.7 - 10.6 - 5.8 - 4.5 - 3.5 TOTAL APPROVALS 50.0 104.3 50.0 129.2 60.0 164.0 60.0 315.3 60.0 344.2 - 30 COMMITMENTS Loans 65.6 54.3 58.3 131.4 56.7 120.8 60.0 43.1 60.0 226.8 - 310.0 Equity 3.4 5.2 - 0.7 - 10.6 - 3.8 - 2.0 - 3.5 TOTAL COMMITMENTS 69.0 59.5 58.3 132.1 56.7 131.4 60.0 46.9 60.0 228.8 - 3 3 5 DISBURSEMENTS Loans 58.0 39.0 52.2 70.3 51.0 77.6 58.3 142.1 59.3 92.6 - 159.0 Equity 3.4 4.8 - - - 0.5 - 1.7 - 5.1 - 0.5 TOTAL DISBURSEMENTS 61.4 43.8 52.2 70.3 51.0 78.1 58.3 143.8 59.3 97.7 159.5 (Note: Actual may not include cancellations) EAPID - 34 - ANNEX 7 TANZANIA TANZANIA INVESTMENT BANK Analysis of Loans Approved- as of March 31, 1980 (Tsh'000) Number % Amount % A. Size Up to Tsh 2.5 million 50 31 62,558 4 Tsh2.51-Tsh5 million 32 20 121,204 8 Tsh5.01-Tsh7.5 million 21 13 136,728 10 Tsh7.51-TshlO million 12 8 104,358 7 Over Tshl0 million 44 28 1,023,649 71 Total 159 100%O-/ 14847 100%/ B. Maturity Up to 5 years 25 16 102,738 7 5.1-7 years 47 30 315,363 22 7.1-10 years 61 38 691,569 48 Over 10 years 26 16 338,827 23 Total 159 100% 1,448,497 100% C. Interest Rate 7% 1 1 7,000 1 8% 4 2 6,605 1 8.5% 15 9 51,002 3 9% 20 13 78,467 5 9.5% 3 2 9,500 1 10% 29 18 160,856 11 11% 83 52 1,059,147 73 12% 4 3 75,920 5 Total 159 100% 1,448.,497 1 0%. D. Subsector Manufacturing 72 45 733,448 50 Agriculture and Agricultural Processing 24 15 263,831 18 Tourism 16 10 87,745 6 Engineering 10 6 80,705 5 Transport & Storage 12 8 115,802 8 Fishing & Fish Processing 5 3 14,900 1 Forest & Wood Industries 10 6 66,366 5 Construction 3 2 22,500 2 Mining 4 3 17,700 1 Power 1 1 7,500 1 Communications 2 1 38,000 3 Total 159 100 1_,448,497 100% 1/ Excludes Agency Operations TANZANIA TANZANIA INVESTMENT BANK A Comparison of Actual and Projected Balance Sheets (1974 - 1979) (Tshs'000) As of June 30 1974 1975 1976 1977 1978 1979 Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual ASSETS Current Assets Cash & Short Term Investments 29,825 23,400 23,919 66,800 44,267 75,300 51,322 114,800 66,334 279,493 - 391,145 Other Current Assets 48 8,600 2,824 12,700 3,446 2 4,00 29,000 2 49218 Current Assets 31,973 32,000 26,743 79,500 47,713 96,400 55,329 143,800 70,894 306,048 - 440,363 TIB Loans 81,016 54,200 127,894 122,200 166,717 186,300 203,623 300,700 233,048 407,175 - 549,381 NBC Portfolio 44,618 46,600 31,817 38,100 20,063 29,400 11,635 6,100 7,710 1,256 - 1,131 Equity Investments (net) 4,600 6,400 4,600 6,400 4,600 6,900 4,600 7,600 4,600 6,611 - 6,738 Less Provisions for Losses - (300) - (1,200) - (2,500) - (5,100) - (2,294) - (3,682) Investment in TDFL - 15,000 - 17,900 - 17,900 - 19,000 - 25,000 - 40,000 Net Fixed Assets 2 1,900 2,655 2 2,569 2 2 2,082 - 2,560 Total Long Term Assets 132,464 12 0 166,966 185,600 193,949 240200 222,368 330,400 248,097 439,830 596,128 TOTAL ASSETS 164,437 155&800 193,709 26510024~1&66 33,g 277.697 474.200 31,9 JZ j L LIABILITIES AND EQUITY Current Liabilities 1,145 2,000 1,738 5,100 2,425 9,800 2,942 12,200 3,187 23,250 - 30,842 Long-Term Liabilities NBC 44,618 46,600 31,817 38,100 20,063 29,400 11,635 6,100 7,710 1,300 - 1,131 Other 63,915 29,200 103,118 6 138,818 9 178,652 153,500 219,185 233,316 - 341,505 Total Long-Term Liabilities 108,533 75,800 134,935 101,000 158,881 119,900 190,287 159,600 226,895 234,616 - 342,636 Net Worth Paid-in Capital 50,000 50,000 50,000 70,000 70,000 92,700 70,000 100,000 70,000 100,000 - 100,000 Grants - 23,700 - 81,100 - 101,800 - 182,800 - 352,030 - 506,438 Retained Earnings 4,75 4,300 7,036 7,900 10,356 1,0 14,468 19600 - Total Net Worth 54759 78,000 57,036 159,000 80,356 206,900 8 302,400 88909 4882012 - 663,013 TOTAL LIABILITIES AND EQUITY 164.437 155.80 193,70 265,100 241 662 336 600 277,697 41Oa22 Z45,878 1036491 EAPID TANZANIA TANZANIA INVESTMENT BANK A Comparison of Actual and Forecasted Income Statements (1974 - 197 (Tshs'000) Year ending June 30 1974 1975 1976 1977 1978 1979 Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual ftMast Actual REVENUE Income From Short-Term Investments 1,134 522 1,120 855 1,416 3,211 1,993 3,176 2,462 8,585 - 11,571 Income From TIB Portfolio 4,824 3,411 9,245 9,594 12,948 12,596 16,205 23,416 19,035 37,159 - 57,182 Income From NBC Portfolio 4,323 4,537 2,904 3,271 1,971 2,853 1,205 813 735 319 - 162 Dividend Income 80 - 96 - 368 - 368 - 368 - - -0w Other Income - 15 - 87 -1,40 1,960 - 1- 1999 TOTAL REVENUE 8 8 135 360 771 29 365 22 600 g - 70,914 EXPENSES Administrative Expenses 2,573 2,751 2,856 3,139 3,065 5,336 3,263 5,357 3,529 4,941 - 6,175 Depreciation 266 204 263 229 236 221 199 242 201 2% - 292 Interest & Commitment Expenses 5,130 3,244 6,357 3,052 7,796 4,876 9,408 6,729 11,410 11,109 - 19,143 Provisions - 286 - 884 -1,322 - 2 3,302 - 3,965 TOTAL EXPENSES -116 6-I755 1266 140 19at - 29Z5 INCOME BEFORE TAXES 2,392 2,000 3,889 6,503 5,606 8,305 6,901 14,399 7,460 28,596 - 41,339 Income Taxes 834 1 2 3,788 2 7,289 3 14,371 - 20, NET PROFIT 1,362 1,166 2,277 3,523 3,320 4,517 4,112 7,110 4,441 14,225 - 20,593 EAPID TANZANIA TANZANIA INVESTMENT BANK A Comparison of Actual and Forecast Financial Ratios (1974-1979) Year Ending June 30 1974 1975 1976 1977 1978 1979 FW.ecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Income Statement Elements as a of Average Total Assets Gross Income 7.2 6.1 7.5 6.6 7.7 6.7 7.6 7.3 7.6 7.9 - 8.0 Less: Financial Expenses 3.5 2.3 3.6 1.5 3.6 1.6 3.6 1.7 3.8 1.8 - 2.2 Administrative Expenses 2.0 2.1 1.7 1.6 1.5 1.8 1.3 1.4 1.3 0.9 - 0.7 Gross Profit 1.7 1.6 2.2 3.5 2.6 3.2 2.7 4.2 2.5 5.2 - 5.1 Less: Provisions - 0.2 - 0.4 - 0.4 - 0.6 - 0.5 - 0.5 Tax 0.7 0.6 0.9 1.4 1.1 1.3 1.1 1.8 1.0 2.4 - 2.3 Net Profit 1.0 0.8 1.3 1.7 1.5 1.5 1.6 1.8 1.5 2.3 - 2.3 Income From Loans and Cost of Long-Term Debt Income on Long-Term Loans as 7 of Average Long-Term Loans 9.0 8.4 8.5 9.9 8.6 8.2 8.7 9.3 8.7 10.5 - 12.0 Cost of all Long-Term Debt as % of Average Total Debt 5.8 4.3 5.2 3.5 5.3 4.4 5.4 4.8 5.5 5.6 - 6.6 Spread 3.2 4.1 3.3 6.4 3.3 3.8 3.3 4.5 2.2 4.9 - 5.4 Net Profit and Dividends Net Profit as % of Average Equity 2.5 1.8 4.1 3.0 4.8 2.5 5.0 2.8 5.1 3.6 - 3.6 Dividends as % of Average Equity Portfolio 2.5 - 2.1 - 8.0 - 8.0 - 8.0 - - - Debt to Equity Ratio Long-Tem Debt,'quity 2.0 1.0 2.4 0.6 2.0 0.6 2.3 0.5 2.6 0.5 - 0.5 Debt Se eerage Debt Service Coverage 1.2 8.8 1.5 15.0 1.9 1.4 2.5 1.7 3.2 2.6 1.7 TANZANIA TANZANIA INVESTMENT BANK A Comparison of Actual and Projected Sources and Uses of Funds Statements (1974-1979) (Tsh'000) As of June 30 1974 1975 1976 1977 1978 1979 Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual SOURCES Profit after Tax 1,362 1,166 2,277 3,523 3,320 4,517 4,112 7,110 4,441 14,225 - 20,593 Non Cash Charges 266 490 263 1,113 236 1,543 199 2,0 201 3,598 - Cash from Operations 1,628 1,656 2,540 4,636 3,556 6,060 4,311 9,990 4,642 17,823 - 24,850 Loan Collections: TIB Portfolio 2,421 2,808 5,325 2,300 12,177 13,500 21,428 27,700 29,908 (13,875) - 16,794 NBC Portfolio 24,546 24.198 12,801 8,500 11 754 8,700 8,428 23,300 3,925 4,844 - 125 Foreign Borrowings (net of repayments) 63,915 29,200 39,203 33,700 35,700 27,600 39,834 63,000 40,533 79,816 - 108,189 Increase in Share Capital + Grants - 23,700 77,400 20000 43,400 - - 169,230 - 15,0 Total Sources 92,510 81,562 59,869 126,536 83,187 99,260 74,001 212,290 79,008 257,838 - 304,3f6 USES Increase in Fixed Assets 690 360 688 300 150 - 140 (100) 430 (18) - 478 Disbursements of Loans: - domestic currency 9,700 39,000 ) 13,000 70,300 ) 15,300 77,600) 17,500 142,100 ) 17,800 92,600 ) - 159,000 - foreign currency 48,325 ) 39,203 ) 35,700 ) 40,834 ) 41,533 ) - Equity Investments 3,400 20,200 - 2,900 - 500 - 1,800 - (5,011) - 15,127 Repayment of NBC Loan 24,546 24,198 12,801 8,500 11,754 8,700 8,428 23,300 3,925 4,800 - 169 Total Uses 86,661 83,758 65,692 82,000 62,904 86,800 66,902 167,100 63,688 92,371 - 174,774 Increase (decrease) in Net Working Capital 5,849 (2,196) (5,823) 44,400 20,283 12,200 7,099 45,190 15,320 165,467 - 129,592