Zimbabwe - Manufacturing Export Promotion Project

Document of FILE The World Bank FOR OFFICIAL USE ONLY Report No. P-3387-ZIM REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$70.6 MILLION TO THE REPUBLIC OF ZIMBABWE FOR A PROPOSED MANUFACTURING EXPORT PROMOTION PROJECT January 24, 1983 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. I,  CURRENCY EQUIVALENTS US$1.00 = Z$0.92 Z$1.00 = US$1.09 SDR 1.00 = US$1.24 ABBREVIATIONS AFC - Agricultural Finance Corporation CZI - Confederation of Zimbabwe Industries ERF - Export Revolving Fund UDI - Unilateral Declaration of Independence FISCAL YEAR July 1 - June 30  FOR OFFICIAL USE ONLY REPUBLIC OF ZIMBABWE MANUFACTURING EXPORT PROMOTION PROJECT LOAN AND PROJECT SUMMARY Borrower Government of Zimbabwe. Amount US$70.6 million, including capitalized front-end fee. Terms : Payable in 20 years, including five years of grace with variable interest rates. Purpose : The proposed loan would make available foreign exchange to finance priority import requirements of raw materials, spare parts, components, balancing equipment and export promotional services. Counterpart funds would be used to finance development projects in the Central Government budget. The project would increase the country's manufactured exports and generate additional employment. No appreciable risks to the export promotion project have been identified. Estimated (US$ Million) Disbursements Bank FY FY83 FY84 Annual 25 45 Cumulative 25 70 Appraisal Report None. Rate of Return : Not applicable. Map . IBRD 15480 R. 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.of  I  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPIJBLIC OF ZIMBABWE FOR A PROPOSED MANUFACTURING EXPORT PROMOTION PROJECT 1. I submit the following report and recommendation on a proposed Manufacturing Export Promotion Loan for the equivalent of US$70.6 million which would have a term of 20 years including five years of grace, with variable interest rates to the Republic of Zimbabwe. PART I - THE ECONOMY 2. The first Bank economic mission to independent Zimbabwe visited the country in September 1980. A Country Economic Memorandum (Report Num- ber 3234-ZIM) was distributed to the Executive Directors in April 1981. This description is based on that memorandum and on information obtained on subsequent missions. 3. Zimbabwe is a landlocked country of about 390,000 sq km, bordered by Mozambique on the east, Botswana on the southwest, Zambia on the northwest and South Africa on the south. The population as of December 1981, was estimated to be 7.7 million, 97 percent of whom are Africans. I The remainder consists of about 170,000 Europeans, 10,000 Asians and 23,000 people of mixed origin. The growth rate of the African population is esti- mated to be about 3.4 percent per year. The number of Europeans has been declining due to emigration, which has recently been occurring at an aver- age rate of about 1,700 persons per month. According to estimates based on pre-war data, 20 percent of the population is urban; but this is almost certain to understate the present extent of urbanization. 4. In 1980, per capita income was Z$470 (US$630, using the World Bank Atlas methodology). Estimates for 1981 suggest that real per capita income grew at about 4.6 percent, giving a 1981 figure of slightly under Z$500 per person. In spite of this good growth performance, distribution 1 The Government of Zimbabwe's nomenclature for population divisions is used throughout. The first census since 1969 was carried out in August 1982; the results are not yet available.  - 2 - of income and assets between Africans and non-Africans remains highly skew- ed. The Land Tenure Act of 1969 updated legislation of the 1930s and con- firmed division of the country's total land area into roughly two equal parts for European and African settlement, the Europeans possessing most of the best land. Given the difference between the size of the two groups, the division resulted in an allocation at independence of approximately 2.5 ha per African and 65.2 ha per non-African. The degree of disparity will begin to change now that majority rule has been achieved, but similar disparities exist in the distribution of other productive assets and in- come. Rough estimates made in 1979 of the differences in per capita income suggest that the average per capita income for Africans was about Z$110 (US$175) compared with roughly Z$5,500 (US$9,000) for non-Africans. 5. Following the Unilateral Declaration of Independence (UDI) in 1965, the international community imposed economic sanctions, and in 1973, a costly guerrilla war started. The sanctions were only partly effective. Between 1965, when they began, and 1974, real GDP grew at about 7 percent per year and per capita income at about 3.5 percent. Exports expanded, en- hancing the countryTs ability to import. Notably, the sanctions stimulated development of local import substitution capacity, so that by 1979 consumer goods were only about 10 percent of total imports, compared with 22 percent in 1964. Sanctions also encouraged the diversification of commercial agri- culture and the rapid growth of investment in and exports from the mining sector. 6. However, the economic situation changed for the worse between 1975 and 1979. The added effect of the guerrilla war, increases in the oil price and two droughts caused economic activity to decline, so that per capita income in real terms fell by 35 percent to its 1965 level. While the value of exports rose slightly even during this period, the dramatic increase in the cost of imports, in particular oil, caused the volume of imports to fall precipitously. Real investment and formal employment also declined significantly. 7. Despite these setbacks, the new Government inherited a well- diversified economy with good potential for growth. Agriculture, manufact- uring and mining are all important, contributing 18 percent, 26 percent, and 5 percent, respectively, of GDP in 1981, and together providing 52 percent of total formal employment. Agriculture and forestry account for more than 290,000 jobs or 28 percent of the total; manufacturing for 173,000 jobs and mining for 69,000. Most of the remaining formal employ- ment is provided by service sectors such as public administration, educa- tion and, in particular, domestic service. Mining and agriculture earn significant amounts of foreign exchange and supply most inputs for manufac- turing, which in turn accounts for between 30 and 35 percent of Zimbabwe's merchandize exports, mainly processed agricultural and mineral items. 8. Since independence, the economy has rebounded strongly as resump- tion of normal economic activity has been accompanied by an improvement in the terms of trade and expansion of external borrowing. Imports increased  - 3 - by 47 percent in 1980 and by 26 percent in 1981, facilitating increases in capacity utilization. Growth has been extremely strong in agriculture, which benefitted from good weather in 1980 and 1981. Consequently, overall real growth of the economy was about 11 percent in 1980, and over 8 percent in 1981. 9. The substantial increase in imports in 1980-81 was financed with reserve drawdowns and short-term borrowings. This increase in imports and short-term borrowing, coupled with a slower than required rate of growth of exports, have resulted in a very serious balance of payments situation (paras. 31, 32, 33 and 34). 10. Some short- and long-run problems must be addressed if the country is to experience more equitably distributed growth. The major short-run problem is controlling domestic demand so as to reduce inflation (currently about 17 percent per year). Some needed policies are already being imple- mented. Sales and import taxes and interest rates have all been raised. The rate of expansion of the money supply was reduced from 22 percent in 1980 to 15 percent in 1981. The overall budget deficit as a percent of GDP has declined from its high of 14 percent in 1979/80. However, further re- ductions must be accomplished during the current (1982/83) budgetary exer- cise if stabilization efforts are to fully succeed. Significant longer- term problems concern the need to increase the level and quality of invest- ment, to expand domestic savings, and to adopt a wage policy consistent with the need to increase employment. Although these issues are inter- related, the Government recognizes that increasing employment and labor productivity are key to achieving its aim of growth with equity. 11. The Government is taking measures to address some of these prob- lems. It has published a three-year Transitional National Development Plan which sets course for the economy for the next three years (paras. 37 and 38). The Government is discussing with the IMF a stabilization program which stipulates a number of measures including: an exchange rate adjust- ment (as a result of the dialogue, the Government devalued the Zimbabwean dollar by 20 percent on December 9, 1982 in order to restore export com- petitiveness that had been eroded by large increases in labor costs and high domestic inflation); an adjustment in the basket of currencies on which the value of the Zimbabwean dollar is determined; a reduction in the budgetary deficit; limitations to wage and salary increases; and ceilings to short-term external debt and domestic credit. The negotiations are at an advanced stage and are expected to be successfully concluded shortly. In addition, the proposed export promotion program (paras. 39-50) is also designed to deal with some of the problems. 12. Should the measures Government is taking effectively deal with the above-mentioned problems, prospects for respectable growth and more equit- able distribution of income are quite good. Real increases in GDP could well average 5.5 percent per year in 1980-85. Thereafter growth could  - 4 - slow, perhaps, to an average of four percent per year, as investments are made in longer-gestating programs with a more even distribution of assets. Much of the burden of achieving these growth and equity goals must fall on the agricultural sector. In the past, the commercial farms accounted for most agricultural production. However, the development of smallholder agriculture has been assigned the highest priority. 13. Zimbabwe emerged from 15 years of sanctions and the war with relatively low external indebtedness. In December 1981, foreign debt totalled Z$948 million (US$1,318 million equivalent) and the country's gross international reserves equalled about Z$150 million, or an estimated two months of imports. The external debt figure was equivalent to about 24 percent of estimated GDP. The debt service ratio, which was about four percent in 1980, is estimated to have risen to 8 and 15 percent in 1981 and 1982, respectively. This rapid rise reflects the fact that nearly all Zimbabwe's present debt must be repaid in the next six years which will exert pressures on the short-term balance of paynents situation (para. 31). However, so long as the country avoids recourse to large amounts of short-term commercial borrowing, the debt service ratios should begin to decline after 1984 even with large amounts of additional external borrow- ing. In light of this and the country's potential for growth and expan- sion, Zimbabwe is creditworthy for Bank lending. However, given the coun- try's massive external resource requirements for the next few years and the expected high level of international interest rates and relatively hard repayment terms of non-concessionary borrowing, it is clear that Zimbabwe needs to receive part of its external assistance on concessionary terms. PART II - BANK GROUP OPERATIONS 14. Before 1965, the Bank made five loans totalling US$140.3 million benefiting Rhodesia -- two directly to the Government for agriculture (US$5.6 million) and power (US$28.0 million), two loans totalling US$87.7 million to the Central African Power Corporation (CAPCO), and a US$9.0 million loan to the Rhodesia Railways. As a guarantor of each of the loans, the United Kingdom serviced them after 1964. The loans for agriculture and railways have been repaid, and CAPCO resumed servicing its two loans after the lifting of sanctions on December 21, 1979. During FY81, the Bank and the Association approved a loan of US$50 million and a credit of US$15 million for the Manufacturing Rehabilitation Imports Pro- gram. The loan (1959-ZIM) and the credit (1120-ZIM) financed priority import requirements of raw materials, spare parts, and components and bal- ancing equipment needed to utilize idle capacity in the manufacturing sec- tor. The Bank also approved a loan (1944-ZIM) of US$42 million to finance import requirements of spare parts, track maintenance equipment and tools for the railways, equipment for the Central Mechanical Equipment Department and technical assistance. A summary statement of Bank Group operations and  notes on the execution of ongoing projects are provided in Annex II. Proj- ect implementation thus far is satisfactory and disbursements have kept to schedule. 15. IFC's first investment in Zimbabwe, approved by its Board in March 1981, was in the Wankie Colliery Company Limited, to help finance a project for producing coal for a thermal power station, now being con- structed, and other uses. The investment was in the form of a US$38 mil- lion loan (552-ZIM), of which US$20 million was for IFC's own account, and US$18 million comprised commercial bank participation in the loan. IFC was also responsible for arranging a further US$10.3 million of commercial bank financing related to a proposed loan by the Export-Import Bank of the United States (Eximbank). 16. The Bank is identifying and preparing projects for power, rail- ways, manpower development and training, agriculture, rural development, forestry, and industrial development through a development finance com- pany. A Small Farm Credit project, approved by the Board in September 1982, will provide the Agricultural Finance Corporation with funds for seasonal loans and for medium- and long-term loans for equipment and farm improvements, as well as technical assistance. A Petroleum Fuels Supply Technical Assistance project was also approved in September 1982. A Power project, approved by the Board in December 1982, will enhance electric generating capacity through extension of the Hwange Thermal Power Station. It also includes construction of a transmission line, technical assistance and training. Projects to improve Zimbabwe's road transport system and support rural afforestation are expected to be presented to the Board in February 1982. 17. The Bank has reviewed the agriculture, energy, urban, education and manpower, population, health and nutrition, and telecommunications sec- tors, for which reports either have been completed or are being written. 18. Since Bank lending to Zimbabwe is very recent, Bank Group exposure is still very low. At the end of 1981, the Bank accounted for six percent and IDA and the Bank combined, for about eight percent. PART III - MANUFACTURING SECTOR 19. Manufacturing contributes over 25 percent of Zimbabwe's gross domestic product, a share which has progressively increased over the past 15 years. The sector is relatively well diversified and sophisticated, producing almost 90 percent of the manufactured goods consumed in Zimbabwe. The most important are processed food, metals and metal prod- ucts, drinks, tobacco, and transport equipment. Almost 75 percent of manu- facturing capacity is concentrated in the metropolitan areas of Harare and Bulawayo.  -6- Performance 20. Zimbabwe-s manufacturing output grew rapidly -- more than four percent yearly in real terms -- between 1965 and 1974. However, with the intensification of the war, manufacturing output fell 13 percent between 1974 and 1978. With the general economic recovery, the performance of the started improving after the war. The sector increased its output by 11 percent in 1979 and 15 percent in 1980. However, due to foreign exchange shortages, there was a slow down in 1981 -- output in that year increased by 10 percent. 21. Manufactured Exports. Within the sector, priority is given to manufacturing exports which have generally been about 30-35 percent of total exports since the mid-60s. The former grew, in current terms, at Table 1: ZIMBABWE-Industrial Structure, Fiployment and Growth of Manufacturing Industries, 1967-79 (in current prices) Annual Value Added (VA) Employment (L) Growth Rate (%) (0ooD no.) 1967-1979 Industry Group (%) (Industry) 1967 1974 1978 1979 1967 1975 1978 1979 VA L |Foodstuffs (incl. stockfeeds) 13.1 10.1 13.9 13.7 12.5 20.9 22.6 22.7 14.0 5.1 'Drinks & Tobacco 14.8 10.0 11.8 10.7 7.7 11.6 12.2 11.4 10.5 3.3 (Tobacco Products) (5.6) (3.1) (3.6) (4.0) (4.0) (5.0) (5.3) (5.2) (10.3) (2.2) Text-iles (incl. ginning) 7.7 8.4 8.7 9.4 8.8 14.9 15.0 16.0 15.5 5.1 I (Cotton Ginming, Weaving, etc) (6.0) (6.4) (7.1) (7.7) (6.3) (10.7) (11.0) (11.7) (15.9) (4.9) fClothing & Footwear 9.8 8.1 6.5 6.9 11.8 18.7 15.6 16.9 10.3 2.9 Cheaicai & Petroleum Products 10.9 11.8 11.9 10.8 5.3 8.9 8.6 8.7 13.4 4.2 letals & MAetal Products 20.2 28.8 28.7 29.0 17.6 40.9 34.3 36.3 17.1 6.2 (Basic Metal Products) (7.3) (11.6) (15.0) (15.6) (6.5) (14.7) (13.1) (13.8) (21.0) (6.5) (Fabricated Metal Products) (9.1) (11.5) (10.9) (10.8) (8.2) (21.0) (17.4) (17.5) (15.2) (6.5) Total Manufacturing (Z$ mil) 157.4 477.0 602.2 724.7 86.3 156.0 139.3 147.4 13.6 4.6 Source: Census of Production, 1978/79 (Central Statistical Office, Harare, Zimbalwe)  - 7 - about 7.6 percent per year for 1965-79, and by about 9.5 percent per annum for the 1980-81 years. During the seventies, ferro-alloys, iron and steel constituted 51 percent of total manufactured exports. Other important manufactured exports include machinery, transport, radio/TV and electrical equipment and cloth and clothing articles. Growth in the sector's exports is expected to come from sources like textiles and clothing, chemicals, domestic hardware, machinery, transport and electrical equipment subsec- tors. Constraints 22. There is in the neighboring countries and overseas demand for a number of Zimbabwe's manufactured items like textiles, clothing, footwear, furniture, pharmaceuticals, toilet preparations, transport equipment, iron and steel, non-ferrous metals and metal products. The demand is not being met, although Zimbabwe has substantial idle capacity already in place in respect of all the items demanded. The constraint to expanding manufac- tured exports in the short run mainly is lack of continued and timely ac- cess to foreign exchange to import needed inputs, spare parts, components Table 2: ZIMDABWEA-verall Growth of Marufacturing Sector, 1967/1974/1979 (in Current Prices) Absolute Levels Annual Growth Rates (%) 1967- 1974- 1967- Description Unit 1967 1974 1979 1974 1979 1979 Net Capital Expenditure Z$mil 15.2 102.2 50.7 31.3 -16.1 10.6 Average Nu3nber of Eiployees (L) (000) 85.4 148.0 147.4 8.2 0 4.7 Wages and Salaries Paid (W) Z$nil 74.2 193.1 309.4 14.7 8.0 12.6 Gross Value Added (VA) Z$mil 157.4 477.0 724.6 17.2 6.0 13.6 Gross Output Z$mil 403.3 1,198.6 1,771.6 16.8 5.2 13.1 Gross Profit (VA-W) Z$mil 83.2 283.9 415.2 19.2 3.7 14.3 Production Voluue (1964=100) Index 107.7 213.2 202.1 10.2 -4.0 5.4 Labor Productivity (VA/L) Z$Mil 1,844.0 3,222.0 4,916.0 8.3 7.8 8.5 Labor Earnings (W/L) 7$mil 867.0 1,305.0 2,0991.1 6.0 9.8 7.7 Profit/Value Added (I-W/VA) (M) 52.9 59.5 57.3 - - - Sources: Census of Production, 1978/9, Mnthly Digest of Statistics, July 1980, and National Accounts of Zlmbabwe Rhodesia, 1978 (compiled and issued by the Central Statistical Office, Zimbabwe).  -8- and balancing equipment. The proposed loan would assist in overcoming the very high degree of uncertainty concerning foreign exchange availability, which often deters exporters from committing themselves to significant export contracts. 23. Initially, because of sanctions against the Rhodesian Government and later, because of foreign exchange shortages, much of the equipment in use today is obsolete and urgently needs to be replaced. In some indus- tries, capacity is inadequate. In the medium term, therefore, substantial investments are needed for expanding existing industries capacity. This problem will be addressed by the proposed DFC project. 24. Because of the country's continuing unfavorable balance-of- payments situation, the Government has not yet dismantled the restrictions on imports (largely through foreign exchange controls), which were insti- tuted during the pre-independence period. As Zimbabwe's external position Table 3: ZIHA3E-Index of Volune of Manufacturing Production, 1975-1981 (1964=100) Paper Chemi- Cloth- Wood Print- cal & Norn- Metals Trans- Drink ing & & ing & Petro- Metallic & port & Foot- Furni- Pub- leum Mineral Metal Equip- Period Food Tobacco Textiles wear ture lishing Products Products Products ment Total 1975 212.5 163.7 282.2 150.6 184.1 177.9 219.1 276.6 305.0 128.7 211.2 1976 224.3 169.2 257.1 142.8 169.9 162.1 194.5 238.9 281.6 101.2 199.1 1977 244.7 158.2 259.1 137.4 143.8 152.6 192.0 194.1 244.1 96.2 187.4 1978 234.7 159.8 252.6 124.8 141.9 162.1 192.8 155.3 241.4 83.9 182.5 1979 252.3 165.7 174.1 138.8 177.1 181.7 199.0 193.7 277.4 95.8 202.1 1980 267.6 197.1 320.2 163.9 223.0 212.1 239.7 225.8 307.9 117.8 232.1 1981 292.9 182.5 363.0 211.4 236.6 242.0 278.9 272.4 323.9 159.0 255.2 Source: Monthly Digest of Statistics, June 1982, Central Statistical Office, Harare.  improves however, the Government intends to increasingly substitute tariffs and other fiscal measures for the quantitative controls. Despite current constraints however, a number of industries such as textiles and clothing, iron and steel are, from all indications, operating efficiently. Zimbab- wean prices are competitive with those of similar manufactured goods in other countries at about the same level of development and significant ex- port orders have been placed with Zimbabwean firms. Efficiency overall should improve with the increased capacity utilization and greater exposure to foreign markets the proposed project will afford. Incentives 25. In addition to protection through tariffs, the Government provides other investment and export incentives; namely (i) exemption from double taxation of income; (ii) a 100 percent initial income tax allowance for fixed investment in manufacturing; and (iii) special depreciation allow- ances on fixed assets. Although prices are controlled, the Government endeavors to set them at levels which give adequate returns to producers. Manufacturing industries receive a rebate of import duty (equal to the dif- ference between the actual duty paid and the lower rate prescribed) on im- ported raw materials used for local processing. A total drawback of import duties paid on raw materials, for export production is granted on the ex- port of the finished product. Supporting Institutions 26. The Ministry of Industry and Energy Development is responsible for overall coordination of the Government's policies and programs concerning the manufacturing sector. In addition, the Ministry of Manpower and Social Affairs, through government-sponsored workers committees and labor legis- lation, has an important role, particularly in ensuring an equitable share of income for workers while fostering harmonious relations between labor and management. It also enforces occupational safety standards. 27. Zimbabwe has many financial, promotional and other institutions supporting manufacturing activities. A full range of commercial banking facilities are available at most of the branches of the commercial banks. These facilities are supplemented by four merchant banks which specialize in providing long-term capital to large business organizations. In addi- tion, six financial institutions specialize in medium-term finance and leasing facilities. An Industrial Development Corporation (IDC), estab- lished by special act of Parliament in 1963, assists the development of in- dustries by providing finance, and advice on technical, marketing, financi- al, accounting and administative matters and project preparation. In order to support emerging African businessmen in small-scale enterprises and to expand existing labor-intensive industries, two other financial institu- tions have recently been set up: the Development Finance Company (DFC), a wholly-owned subsidiary of IDC, and the Funds for Emergent Business Com- panies (FEBCO) Ltd., owned by the Reserve Bank of Zimbabwe and the four commercial banks in the country. Two other institutions -- Small  - 10 - Industries Advisory Service (SIAS) and the Institute of Business Develop- ment (IBD) -- have also been operating in this field for several years. Finally, there is IPCRON Ltd., an independent and privately-owned develop- ment finance corporation, which assists industry and plantation agricul- ture. Previous Bank Participation 28. In March 1981, the Bank and the Association approved a loan of US$50 million and a credit of US$15 million to Zimbabwe, and the OPEC Special Fund gave a loan of US$10 million administered by the Bank, in order to assist the Government in rehabilitating the manufacturing sector. The funds enabled Zimbabwe to import raw materials, spare parts components and balancing equipment, needed to utilize idle capacity in the sector overall. The loan and credit were fully disbursed by March 31, 1982, three months ahead of schedule (Annex IV shows the list of industries which bene- fitted). 29. According to an initial assessment, the loan and credit assisted importantly in increasing manufacturing production levels in some indus- tries and minimized deterioration in others. Overall, there was an in- crease of 10 percent in the volume of manufactured goods during the loan/ credit period (calendar year 1981 compared with 1980). However, the foreign exchange allocated was insufficient to meet the total requirements of the sector, and consequently, the overall sectoral problem of capacity underutilization still persists. PART IV - THE MANUFACTURING EXPORT PROMOTION LOAN 30. Although the Government originally requested a follow up to the previous loan and credit, it subsequently was agreed that the proposed operation should focus on promoting manufacturing sector exports. Prepara- tion and appraisal missions visited Zimbabwe in November 1981, and March 1982, respectively. During this time, a program for policy and administra- tive improvements was developed as part of the dialogue between the Govern- ment and the Bank. Negotiations were held in Washington December 20-22, 1982; the Zimbabwean delegation was led by Mr. Bryan Walters, Secretary to the Treasury, Ministry of Finance, Economic Planning and Development. Background 31. Zimbabwe faces a serious balance of payments situation, mainly because of (a) a substantial increase in imports; (b) slower than anticipa- ted growth rate of exports; and (c) heavy debt service payments. Projec- tions for 1983 indicate an overall balance of payments deficit of over Z$300 million -- an increase of about 140 percent between 1981 and 1983. Following the aftermath of the war of independence, the country faced large pressing needs for rehabilitation and reconstruction, in addition to  - 11 - Table 4: ZIMABNE-Balance of Payments Projections for 1982 and 1983 (Z$ million) 1980 1981 1982 1983 Exports, f.o.b 929 1,002 1,121 1,220 Imports, f.o.b 844 1,059 1,147 872 Trade Baiance 485 -57 -26 +348 Services (net) -199 -359 -379 -373 Unrequited Transfers (net) -40 -23 -56 -85 Current Account Balance -153 -439 -461 -110 Capital Account Balance -2 +227 +328 -197 Net Errors & Omissions +91 486 - - OVERALL BAIANCE -64 -126 -133 -307 Source: COZ Treasury, March 1982 projections. pent-up demand from domestic consumers. Consequently, imports went up by 47 percent and 26 percent in 1980 and 1981, respectively. Due to the foreign exchange shortage, the Government has been forced to severely cut back on imports such that they are expected to increase by only eight percent in 1982. While exports grew at about ten percent per annum over the same period, nevertheless, the rate is far below what is required to maintain a reasonable external balance. 32. Exports are limited by three factors: (i) the international re- cession, which has depressed demand for minerals, causing a decline in vol- ume and value of Zimbabwe's mineral exports (projected export earnings in Table 4 above do not take into account the expected recovery in 1983); (ii) a severe drought, which affected almost the entire country, and will cut agricultural production drastically and reduce exports of such items as beef and cotton for which domestically held stocks are depleted; and (iii) manufactured exports, which are constrained because of a lack of foreign exchange. 33. Regarding external borrowing, expectations were that nearly all government borrowing would be long term (i.e., over 12 years). However, the Government's efforts to attract sufficient long-term external financing have not been very successful. Nearly all government and other borrowing has been short term (under five years) and expensive. Large repayments will be inevitable in 1983, giving rise to outflows on the capital account  - 12 - which will cause a serious deterioration in the overall balance of payments situation. It appears that the debt service ratio could rise from the estimated 15 percent to 30 percent for the 1982-85 period. 34. Current account deficits can no longer be financed by reserve drawdowns and short-term borrowings, because gross reserves are expected to fall to a very low level of one month's imports by the end of 1982; and ability to borrow additional short-term funds is constrained because of the serious debt service implications. It is clear that the Government will not be able to meet the substantial debt service and other transfers, and at the same time maintain 1982 import levels. The Government has, there- fore, projected a very severe (about 21 percent) cutback in imports in 1983. We, however, expect a cut back of a lower magnitude. This, however, may be counterbalanced by the expected recovery in export performance in 1982, thus resulting in a net balance of payments position as projected in Table 4. Since foreign exchange allocation for industries manufacturing for the domestic market is already very low, more cutbacks in imports will further hurt the export capability of the country. Unless the Government can attract large amounts of longer-term loans and expand manufactured out- put, exports will be severely constrained for several years to come. The proposed Export Promotion Project, therefore, is designed to address this problem. Objectives of the Export Promotion Loan 35. The immediate objective of the proposed project is to expand Zimbabwe-s manufactured exports by introducing a number of policy and administrative improvements and providing foreign exchange for imported inputs needed by manufacturers. Zimbabwe has the capacity, already in place, for expanding its manufactured exports -- an effective administra- tive framework, a well-developed manufacturing industry, unutilized capa- city, entrepreneural skills and a relatively large skilled labor force. Thus, the project would be expected to meet with a favorable reponse in terms of production and exports. 36. Equally important, the project would set the stage for initiating, at an appropriate time a broad-based adjustment program required to address important macro-economic issues (some of which are referred to in para. 10). Such a program, however, would necessitate substantial groundwork and extensive preparation. The project would reinforce the process of adjust- ment in the underlying policy framework set in motion with the Manufactur- ing Rehabilitation Imports Program Loan and Credit. Of course, such a shift presupposes careful consideration of available policy options. The Bank expects to have an input in this process primarily through economic and sector work whicn would include relevant studies focusing on resource allocation, investment incentives, issues relating to wage and employment policies, as well as issues relating to the Government's land settlement program.  - 13 - 37. At present, Zimbabwe's economy is in transition -- from a closely controlled war-oriented system to one relying largely on market forces. In this context, the Government in November 1982 published a three-year Tran- sitional National Development Plan (1982/83-1984/85), which sets a course for shifting the economy away from direct controls and quantitative restrictions. The Plan, for example, notes that the quantitative restric- tions on imports and the country's rapid industrialization, which took place behind protective barriers, brought benefits -- but was costly in terms of a decline in manufactured exports, as a proportion of total ex- ports; uncertainty about foreign exchange for imported industrial inputs which inhibited producing for export to highly competitive external markets; and decisions biased in favor of capital and import-intensive investments and production and against labor, a surplus production factor. 38. The Plan's targets for overall growth, employment, labor produc- tivity and domestic savings appear to be overly optimistic in the light of current economic conditions. Notwithstanding, in it the Government has set out important policy directions -- including an outward-looking, export- oriented industrial strategy -- which the proposed project would support. In addition, the Government recently announced an "investment code" de- signed to reassure and facilitate private, foreign as well as domestic, investment. It spells out (i) investment priorities which include, inter alia, investment in "activities in which generation of exports within a reasonable period is possible"; (ii) legal provisions; (iii) exchange con- trol regulations; (iv) taxation rules; and (v) arbitration procedures. 39. The proposed Export Promotion Project would support this export- oriented strategy by reducing constraints which now impede manufactured exports. Specifically, the project includes measures for: (i) streamlining import licensing and foreign exchange allocation procedures; (ii) providing export incentives; (iii) instituting export credit facilities; and (iv) appropriate management of exchange rate and trade regime. Policy and Administrative Measures 40. Foreign Exchange and Trade Regime. Until recently, the value of the Zimbabwean dollar was determined by the Reserve Bank of Zimbabwe with reference to the movement of a basket of other currencies. In 1981, the Zimbabwean dollar depreciated by about 12 percent against the US dollar (which is the currency with the largest weight in the basket), but appreci- ated by 13 percent against the South African Rand, and by a smaller margin against some western European currencies. In light of this development and the deteriorating balance-of-payments situation, and since South Africa and  - 14 - western Europe are major competitors of Zimbabwe in the important neighbor- ing export markets, the Government, on December 9, 1982, devalued the Zimbabwean dollar by 20 percent. In addition, the Government has agreed that it will remain vigilant and continue to manage the exchange rate and other incentives in a manner which ensures the competitiveness of Zimbab- wean exports (Annex IX, para. 13). 41. In connection with the Manufacturing Rehabilitation Imports Pro- gram Loan and Credit, the Government undertook to carry out an effective protection study, in accordance with the terms of reference agreed between the Bank and the Government, in order to determine the effects of the trade regime and other incentives on the industrial efficiency and external com- petitiveness, and develop recommendations to improve both. The study is proceeding well and is expected to be completed as scheduled by March 31, 1983. The Government agreed to furnish to the Bank a report on the con- clusions and recommendations arrived at and to allow reasonable opportunity to exchange views with the Government prior to adoption and implementation of recommendations in the report. The Government will establish a mechan- ism for implementing the agreed recommendations of the study (Annex IX, para. 14). 42. Foreign Exchange Allocation. Following economic sanctions, the Zimbabwe authorities instituted an elaborate and tightly-managed foreign exchange allocation system to ensure effective use of a scarce resource. The Reserve Bank indicates to the Government the expected foreign exchange availability, on which basis the Treasury allocates a global sum of foreign exchange to the Ministry of Industry and Energy Development on a quarterly basis. The Ministry is then responsible for allocating specific amounts for various end uses and issues import licenses in accordance with the Gov- ernment's economic priorities. Within the manufacturing sector, priority has been assigned to exports. 43. The Government has taken initiative to review the system of foreign exchange allocation to ensure that it appropriately serves the needs of the post-independence period. For that purpose, the Government hired the consulting firm of Coopers and Lybrand to study the present sys- tem and make recommendations for change. The Government at present is re- viewing the consultants draft report. Meanwhile, the Government will take interim measures to minimize delays and uncertainty which now affect ex- porters. Firstly, to ensure an even and continuous flow of manufactured exports, foreign exchange allocations to registered manufacturing exporters will be automatic and on a replenishment basis, whereby exporters would be entitled to a replenishment license equal to the value of the import con- tent of their exports (Annex IX, para. 6). Secondly, to ensure quality and competitiveness, where relevant, importation will be permitted of the materials that are domestically produced, but of insufficiently high qual- ity to be used in manufacture of exports (Annex IX, para. 6). Thirdly, to reduce costs and ensure competitiveness, all registered exporters would be permitted to import their requirements directly. (At present, only those manufacturers registered by 1965 are permitted to import directly, the  - 15 - others purchase their imports locally from commercial importers, Annex IX, para. 6.) 44. Export Incentive Scheme. Until mid-1980, an export incentive scheme was in operation under which exporters of manufactured goods (having at least 25 percent domestic value added) received a bonus payment equal to five percent of the FOB value of exports. The scheme was suspended in 1980 pending a review of its effectiveness. The Government recently introduced a revised export incentive scheme based on actual export performance as follows: (a) a basic flat rate of seven percent of the FOB value of con- signments of qualifying exports; and (b) an incremental performance rate of five percent of the value of export performance achieved for a period over and above the performance registered for a similar period during the pre- vious year (Annex IX, para. 8). The incentive is designed to cover exporters non-tradable costs associated with establishing external markets. This is particularly important for Zimbabwe, in view of its isolation for several years from normal international trade. (For fiscal reasons, this is much less than the 16 percent export allowance which South Africa gives to its exporters.) The incentive is designed to reorient manufacturing production towards exports. In that sense, it is necessary, regardless of the measures the Government already has taken to improve the competitiveness of the country's exports. Because of the small amount involved (estimated to be less than one percent of the current budget), the incentive is not expected to adversely affect resource allocation to other sectors, and initially will have only a marginal impact on the budget. Eventually, the net effect is expected to be substantially positive, because increased exports would increase government revenues which would more than offset the export allowance effect on the budget. 45. Export Credit. In order to expedite receipt of export earnings, the Government requires that all export proceeds be repatriated within 90 days of shipment. This requirement limits any expansion of exports, espe- cially to neighboring countries, some of which are able to obtain credit of up to 180 days or more from exporters in other countries. 46. There are no institutional arrangements which would allow Zimbab- wean exporters to provide credit to their customers on terms comparable to those offered by their competitors. Currently, exporters of machinery and transport equipment rely on arranging credits through commercial banks with the approval of the Reserve Bank. Establishing institutions to provide ex- port credit should await creation of the proposed Development Bank. Mean- while, the Reserve Bank will relax the present restriction on such credit, viz that the initial down payment must not be less than the value of the import content of the export order. Down payments will be agreed between Zimbabwean exporters and foreign purchasers on a case-by-case basis (Annex IX, para. 10). 47. Confirmed Letters of Credit. Letters of Credit opened by impor- ters from some neighboring countries have to be confirmed by overseas banks acceptable to the Reserve Bank of Zimbabwe. Since this results in loss of  - 16 - export orders, it is not advisable to suggest relaxation of the procedure. However, the Reserve Bank will review the justification of continuing the requirement in each of the countries concerned, with a view to limiting its coverage and thereby increasing export potential (Annex IX, para. 11). 48. Import Duty Drawbacks. The Government permits manufacturers to draw back import duties on materials used in production of exports. The system is working well, and although import duties on raw materials are low, it is a significant demonstration of the importance attached to ex- ports. This incentive will be continued. 49. Export Revolving Fund. The Ministry of Trade and Commerce main- tains a small export revolving fund (ERF) at the Reserve Bank to meet ad hoc allocations of foreign exchange for imports of raw materials, etc., needed for meeting unforeseen export orders over and above normal basic al- locations (Annex VIII). In order to streamline the procedures for allocat- ing foreign exchange, all foreign exchange allocations for manufacturing exports including the proceeds of the proposed loan (para. 54), will be channelled through the Export Revolving Fund and be subject to the Fund's procedures. However, the condition that export proceeds must be repatri- ated within a maximum period of 180 days from the date of allocation -- the period varies inversely with the import content of the export -- is too re- strictive, and as a result, the ERF is of limited usefulness for the pur- pose of facilitating additional exports. The restriction will be removed forthwith so that each case will be determined on its own merits. Foreign exchange allocations for manufacturing exports from the country's own ex- port earnings shall not be less than the average of the quarterly alloca- tions for the previous year. 50. Interest Rates. Following a comprehensive review by the Govern- ment, interest rates, which in Zimbabwe historically had been low, were doubled last year. The commercial prime rate now is 13 percent, and the cost to the Government of long-term borrowing is up from about eight per- cent a year ago to 12.75 percent. Although these rates still are not posi- tive in real terms (inflation is currently estimated at about 17 percent per year), the recent increases are substantial and reflect the interaction of market forces. Moreover, they are sufficiently high to discourage ex- porters from unnecessarily holding stocks and will not be reduced for the duration of the project (Annex IX, para. 12). Allocation of the Manufacturing Export Promotion Loan 51. Almost all of the US$70.6 million of the loan would finance prior- ity imports of raw materials, components, spare parts, and balancing equip- ment needed by registered manufacturing exporters. Consumer goods would be excluded. For this reason, an amount of not more than US$1 million would be set aside for financing the foreign exchange costs of export promotion services, including market evaluation, advisory and consulting services and technical and research publications. The Government will submit for Bank approval, a list of specific items to be financed as a condition for  - 17 - disbursemnent under this category of expenditure. The Bank loan would finance about 15 percent of the US$450 million in foreign exchange required by the manufacturing sector for current imports during the proposed loan period of one and a half years, and about 40 percent of the estimated US$183 million foreign exchange required by the manufacturing export subsector, for the same period. To ensure adequate funding, the Government will make a quarterly allocation of foreign exchange equal to at least the average of the quarterly allocations during the previous year (Annex IX, para. 7). Proceeds of the Bank loan would be available only to exporting industries. To permit maximum flexibility, no industry-by-industry allocation is proposed. 52. Counterpart Funds. The Zimbabwean dollar equivalent generated by the loan would be credited to a special account in the Reserve Bank of Zimbabwe to finance development projects in the Central Government budget. Transfers from the project account would be made by the Government periodi- cally and reported to the Bank (draft Loan Agreement, Section 3.03 (a) and (b)). Procurement 53. Procurement by private firms in Zimbabwe would follow their normal procurement procedures, which are satisfactory to the Bank. The commercial sector in Zimbabwe is sufficiently diversified and competitive to ensure efficient procurement. However, all purchases in excess of US$4 million would be through international competitive bidding. Contracts for such purchases would be subject to ex-post review, in which a brief report con- taining evidence that each contract was let in a manner satisfactory to the Bank would be submitted prior to or with withdrawal requests. Over 75 per- cent of the transactions are expected to be through normal commercial chan- nels. Few individual transactions would likely exceed US$4 million or attract international interest. Disbursements 54. The proposed loan would reimburse the Export Revolving Fund at the Reserve Bank for the foreign expenditure cost of eligible imports against full documentation, including copies of invoices, and evidence of shipping and payment. The commercial banks would submit documents to a special unit to be set up in the Reserve Bank of Zimbabwe, provided: (i) such goods were procured in member countries, Switzerland and Taiwan; (ii) such goods were used to manufacture exports; (iii) each eligible invoice was of a minimum value US$5,000 equivalent; and (iv) invoices in respect of contracts in ex- cess of US$4.0 million equivalent have been accompanied by an evaluation report of bids or quotations received certified by the Ministry of Industry and Energy Development. The exclusion of items costing less than US$5,000 equivalent would not create any hardship, as these items can be covered by the country s own resources. Disbursements would be completed within 18 months from effectiveness. In order to facilitate the initial activities, US$15 million out of the proceeds of the proposed loan will be deposited in  - 18 - the Export Revolving Fund upon effectiveness of the Loan Agreement. The account of the revolving fund will be replenished by the payment of subse- quent claims for reimbursement of expenditures, which will be fully docu- mented by the Borrower. The initial deposit will be documented at the end of the disbursment period. Accounts Audit and Evaluation 55. The project account would be audited by auditors acceptable to the Bank and certified copies of the relevant financial statements submitted to the Bank by June 30, 1984 (draft Loan Agreement, Section 3.03(c)). The Borrower would maintain records adequate to monitor project implementa- tion. Furthermore, not later than six months after completion of the proj- ect, the Government would prepare and furnish to the Bank, a completion report on the costs and benefits resulting from the operation (draft Loan Agreement, Section 3.03(c)). 4 Benefits and Risks 56. The proposed project supports Zimbabwe's export promotion drive and tackles a serious constraint to expanding exports -- scarcity of foreign exchange. It would provide manufacturers with foreign exchange needed to expand their exports and help make them more competitive in international markets. The export promotion services would help them learn, adjust and develop the skills needed in international trade to which they have limited exposure because of the country's protracted isolation from the international community. The principal benefits of the project would be: increased manufactured exports, estimated at US$135 million annually; and additional employment of about 3,000 jobs utilizing capacity which otherwise would be idle. The assistance would facilitate important administrative and policy improvements affecting exports. It would also set the stage for broader policy improvements. 57. Given the Government s ability to administer the project and Zimbabwean manufacturers ability to use it to expand exports and employ- ment, there are no appreciable risks in the project per se. PART V - LEGAL INSTRUMENTS AND AUTHORITY 58. The Draft Loan Agreement between the Republic of Zimbabwe and the Bank, the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement of the Bank are being distributed to the Executives Directors separately. 59. Special conditions of the project are listed in Section III of An- nex III.  - 19 - 60. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 61. I recommend that the Executive Directors approve the proposed loan. A.W. Clausen President . Attachments Washington, D.C. January 24, 1983  - 20 - ASiN EX I TABLE 3A Page 1 of 5 ZIMBABWE - SOCIAL INDICATORS DATA SHEET ZIMBABWE REFERENCE GROUPS (WEIGHTED AVE%GES LAND AREA (THOUSAND SQ. XM.) - MOST RECENT ESTIMATE)- TOTAL 390.6 MOST RECENT MIDDLE INCOME MIDDLE INCOME AGRICULTURAL 73.4 1960 /b 1970 /b ESTIMATE /b AFRICA SOUTH OF SAHARA NORTH AFRICA & MIDDLE EAST GNP PER CAPITA (US$) 240.0 340.0 630.0 1053.2 1253.6 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 1333.2 1093.0 783.2 610.1 713.5 POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (THOUSANDS) 3605.0 5308.0 7396.0 URBAN POPULATION (PERCENT OF TOTAL) 12.6 16.9 23.0 28.3 47.3 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 17.4 STATIONARY POPULATION (MILLIONS) 63.7 YEAR STATIONARY POPULATION IS REACHED 2100 POPULATION DENSITY PER SQ. KM. 9.2 13.6 18.3 54.7 35.8 PER SQ. KM. AGRICULTURAL LAND 52.6 73.7 97.4 129.9 420.9 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 45.4 46.5 47.4 46.0 44.3 15-64 YRS. 51.8 50 8 50.0 51.1 52.4 65 YRS. AND ABOVE 2.7 2.7 2.6 2.8 3.3 POPULATION GROWTH RATE (PERCENT) TOTAL 4.0 3.9 3.3 2.8 2.8 URBAN 5.7 6.8 6.4 5.2 4.6 CRUDE BIRTH RATE (PER THOUSAND) 55.4 55.4 54.2 47.2 41.2 CRUDE DEATH RATE (PER THOUSAND) 16.5 14.0 13.0 15.7 12.2 GROSS REPRODUCTION RATE 3.9 3.9 3.9 3.2 2.9 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. 18.6/c 507.0 USERS (PERCENT OF MARRIED WOMEN) .. .. 14.0 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 76.0 93.0 92.0 90.7 100.4 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 110.6 96.2 108.5/d 93.9 108.5 PROTEINS (GRAM4S PER DAY) 77.8 68.4 74.4/1 54.8 71.9 OF WHICH ANIMAL ANO PULSE 20.4 21.0 20.4/d 17.0 18.0 CHILD (AGES 1-4) MORTALITY RATE 23.4 17.2 11.8 23.9 15.1 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 49.2 53,2 54.5 51.0 56.9 INFANT MORTALITY RATE (PER THOUSAND) 117.5 94.6 74.3 118.5 104.3 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. .. .. .. 59.1 URBAN .. ,. .. .. 83.1 RURAL .. .. .. .. 39.8 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. .. URBAN .. .. RURAL .. .. .. POPULATION PER PHYSICIAN 4793.9 6372.1 7027.2/_ 14185.2 4015.5 POPULATION PER NURSING PERSON 1013.7/e 1098.1 1172.7/j 2213.2 1802.2 POPULATION PER HOSPITAL BED TOTAL 249.0/f 294.5 371.3/E 1036.4 641.7 URBAN .. 71.8 .. 430.8 538.3 RURAL .. 1025.0 .. 3678.6 2403.3 ADMISSIONS FIR HOSPITAL BED .. 30.5 24.5/j '' 25.5 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL .. .. URBAN .. .. RURAL .. .. AVERAGE NUMBER OF PERSONS PER ROOM TOTAL .. .. .. URBAN 0 .8 0.7 .. RURAL .. .. .. ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL .. .. .. URBAN .. .. .. RURAL .. .. ..  - 21 - ANNEX I TABLE 3A Page 2 of 5 ZIMBABWE - SOCIAL INDICATORS DATA SHEET ZIMBABWE REFERENCE GROUPS (WEIGHTED AVE7i,GES - MOST RECENT ESTIMATE)- MOST RECENT MIDDLE INCOME MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b AFRICA SOUTH OF SAHARA NORTH AFRICA & MIDDLE EAST EDUCATION AUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 96.0 100.0 104.0 83.3 88.7 MALE 107.0 114.0 109.6 96.1 104.5 FEMALE 86.0 86.0 95.5 80.4 72.0 SECONDARY: TOTAL 6.0 8.0 14.7 15.3 39.7 MALE 7.0 10.0 17.2 19.4 49.3 FEMALE 4.0 6.0 12.2 11.3 29.0 VOCATIONAL ENROL. (% OF SECONDARY) 17.0 .. 4.2 4.7 10.1 PUPIL-TEACHER RATIO PRIMARY 37.7 .. 39.0 38.6 34.1 SECONDARY 21.0 22.0 23.0 23.4 23.7 ADULT LITERACY RATE (PERCENT) 39.4/e .. 74.0 35.6 43.3 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 22.2 23.5 29.8/i 31.9 17.8 RADIO RECEIVERS PER THOUSAND POPULATION .. 27.3 42.0 71.8 131.3 TV RECEIVERS PER THOUSAND POPULATION 1.7 9.4 9.8 17.9 44.1 NEWSPAPER ('DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 24.7 15.6 15.5 19.1 31.5 CINEMA ANNUAL ATTENDANCE PER CAPITA .. .. .. 0.6 1.7 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 1363.8 1868.9 2441.6 FEMALE (PERCENT) 30.4 30.1 28.9 36.5 10.6 AGRICULTURE (PERCENT) 69.0 64.0 60.0 56.5 42.4 INDUSTRY (PERCENT) 11.0 13.0 15.0 17.7 27.8 PARTICIPATION RATE (PERCENT) TOTAL 37.8 35.2 33.0 37.0 26.0 MALE 53.3 49.7 46.6 46.9 46.2 FEMALE 22.7 21.0 19.2 27.2 5.6 ECONOMIC DEPENDENCY RATIO 1.3 1.4 1.5 1.3 1.9 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS .. HIGHEST 20 PERCENT OF HOUSEHOLDS .. LOWEST 20 PERCENT OF HOUSEHOLDS .. LOWEST 40 PERCENT OF HOUSEHOLDS .. POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. .. 507.0 279.2 RURAL .. .. .. 200.6 178.6 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. .. 523.9 403.6 RURAL .. .. .. 203.6 285.6 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. .. .. 22.1 RURAL .. .. .. .. 30.9 Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1978 and 1980. /c 1972; Id 1977; /I 1962; /f 1963; /g 1976; If 1974. May, 1982  -22- ANNEX I 07 5Ct5.I7IIATP Page 3 of 5 4tota: kitlh-o1h cr. "ets re draw fe. coc..oa.. reaelly f:td4.i these aaroeta i..d eial,it sh-Ld eiea he .aind tht they cay sac he ietc- ra.ciosa.I, y c .ee..c tee scoot of the t-a ... of errcecdi .ddiatnoed orer c.e. Cy differn ccnni.i raleti "Ith "Ine. M.t data. te..tr. Chat... ... ae.L - -accmnh orer of eC,tt.. itdtoete trettle, end c .e.ena ..ct.. L. o ifrcaaheteeccn ie The referenc -ycic Cre (L) the ee- Incry ara- of the calf. etc . ctry ar 2 anb 0o ettseea ica ees.icmte h -conrydr, ad the .bj ecoaer acetSC "ligt Inc>. cl