Cameroon - Small and Medium Scale Enterprise Project

Document of The World Bank FOR OmCL USE ONLY Report No. 5040 PROJECT COZOLETION REPORT CAMEROON - SMALL AND MEDIUM SCALE ENTERPRISE PROJECT (CREDIT 575-CH) April 12, 1984 Western Africa Regional Office Industrial Development and Finance Division Ibis document bh a restrictd distribouon ad may be ued by recipients ody in the performance of their official duties. Its contents may not otherwise be disclosed wihout Werld BaRk authorition.  FOR OMCIL USE ONLY PROJECT COMPLETION REPORT CAERROON - SMALL AND MEDIUM SCALE ENTERPRISE PROJECT (CREDIT 575-CM) TABLE OF CONTENTS Page PREFACE .................................................... KEY PROJECT DATA * ......... .......................ii HIGHLIGHTS iii.................. . ........................j I. INTRODUCTION ........................................... 1 II. THE ENVIRONNXNT ................*..............oe.. * 1 A. The Industrial Sector .......... ......... . 1 B. Industrial Policy ..................1............... C. SNE Promotion ............................ 2 D. The Financial Sector ...... ........................ 2 E. Prospects .......... ; ...................... 3 III. PROJECT INSTITUTIONS ...................... ........ 3 A. Banque Camerounaise de Developpement ........ 3 B. Technical Assistance Agencies . .. 5 IV THE PROJECT ...... ............. - ............... 6 A. Objectives ... ........... ....... .......... 6 B. Description ..................-.--... 6 C. Project Implementation 8.......................... 8 D. Resls ........... *t....* .... 9 V. LESSONS LEARNED ...................* .... 10 LIST OF ANNEXES Annex I Cumulative Disbursements ...........12 Annex II Overall Review of Subprojects Approvals .... 13 Annex III Main Indicators of the Subprojects Financed .14 Annex IV Geographic and Sectoral Distribution of the Subprojects ............................ 15 Annex V BCD Term and Sectoral Distribution of Loan Approvals ...... .. ........16 Annex VI Comments Received from Borrower .. 17 This docwment has a restricted distrbuin and may be used by recpets only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  -i i PROJECT COMPLETION REPORT CAMEROON - SMALL AND MEDIUM SCkLE ENTERPRISE PROJECT (CREDIT 557-CM) PREFACE This is a Project Completion Report (PCR) of IDA credit 575-CM of S 3.0 million to the Banque Camerounaise de Developpement (BCD) for the financing of a Smal- and Medium Scale Enterprise (SME) Project in Cameroon. This project, cofinanced with the French Caisse Centrale de Cooperation Economique (CCCE), was approved in July 1975 and became effective in July 1976. The clos.ng date was December 31, 1980, but the credit was only closed in January 1983, and $220,000 were cancelled because of the late cancellation of some already approved subprojects. A second line of credit to BCD, Bank loan 1920 CM, was approved in November 1980 and became effective in October 1982. The PCR was prepared by the West Africa Projects Department and is based on findings of a post-implementation evaluation of the project undertaken by CCCE in May 1981, a BCD review carried out in 1982, an IDA mission to Cameroon in October 1982 and subsequent discussions with CCCE in Paris. While the PCR format and content follow IDA guidelines, its findings and conclusions are shared by CCCE. The assistance provided by BCD and CAPME staff in the preparation of this PCR is gratefully acknowledged. Comments received from the Borrower are reproduced as Annex VI. This project has not been audited by the Operations Evaluation Department.  - ii - PBDJECT CttULEUrDI REPORT CAMEROON - SMAL AND MEWrM SCALE ENTERPRISE PROJECT (CREDIT 575-CM) -EY PROJECT DATA Item Appraisal Actual or Expectation Current Estimate Total Project Cost (U$ million) 13.2 13.0 Ufnderrun or Overrun (Z) 1.7Z 1/ Credit Amount (US$ million) 3.675 Disbursed 7/11/82 98.5Z Cancelled (US$223,980 on January 21, 1983) 6.0Z Repaid to Outstanding to - Date Physical Components Completed 7111/82 1J Proportion Completed by Above Date (2) 100 98.32 OTHER PROJECr DATA First Mention in Files or Timetable 7/26/73 Government's Application 9/18/73 Negotiations 5/2/75 Board Approval 7/01/75 Credit Agreement Date 7130175 Effectiveness Date 12/01/75 2/02/76 7/30/76 Closing Date 12/03/80 2/ 12/31/81 12/31/81 3/ Borrower United Republic of Cameroon Executing Agency .'anque Camerounaise de Developpement Fiscal Year of Borrower July 1 to June 30 Follow-on Project Name 4/ SHE II Loan Number 1920 CM Amount (US$ million) 15 Loan Agreement Date Sept. 30, 1981 Exchange rate CFA Francs to US$1: As of Oct. 1974: 250; as of Oct. 1982: 350; as of Feb. 1983: 355 MISSION DATA Mouth No. of No. of Nanweeks Date of Year Weeks Person Report Preparation 2-3/74 n.a. n.a. u.a. 6/10174 Appraisal 10/74 3.0 5 15.0 5/15/75 Total 3.0 15.0 Supervision I 2/76 1.6 2 3.2 2/5/76 Supervision II 10/76 1.9 2 3.8 12/23/76 Supervision III 10/77 1.6 3 4.8 11/21/77 Supervision IV 3/78 1.6 2 3.2 3/10/78 Supervision V 10/78 2.0 1 2.0 11/28/78 Supervision VI 10/79 1.4 2 2.8 11/20/79 a Supervision VII 10/80 1.3 1 1.3 11/12/80 Total 11.4 21.1 COUNTRY EXCEAIE PATES Name of Currency Commmauti Financiare Africaine Franc (CFAF) October 1974 Exchnge rate: US$l - 250 October 1982 US$1 - 350 February 1983 US$1 - 355 11 SHE financing of US$223,980 was cancelled by mutual agreement between IDA and Cameroonian authorities. 2/ As shown in Credit Agreement. 3/ Final Disburseomnt date. 4/ Continuation of assistance to SME's.  - iii - PROJECT COMPLETION REPORT CAMEROON - SNALL AND MEDIUM SCALE ENTERPRISE PROJECT (CREDIT 575-CM) HIGHLIGHTS IDA Credit 575-Cl was one of the first SEE projects financed by the Bank Group, and the first IDA project of this type in Africa. It was designed as a Pilot Project aimed at promoting the establishment and expansion of privately owned Cameroonian small and medium scale enterprises. In addition to supporting productive investments, the project was to enhance the role of Banque Camerounaise de Developpement (BCD) as an effective development institution, improve and coordinate technical assistance to SMEs, and provide information, both to Government and IDA, on ways to improve policies and programs for SMB promotion. The investment component of the project was cofinanced by the French Caisse Centrale de Cooperation Economique (CCCE). The technical assistance component was financed by the Government and the United Nations Development Program (UNDP), and involved three technical assistance agencies: the Centre National d'Assistance auix Petites et Noyennes Entreprises (CAPNB), a Government SME Promotion Agency, and, two French technical assistance organizations: Societe d'Aide Technique et de Cooperation (SATEC), and, Association pour la Formation des Cadres de l'Industrie et de l'Administration (AFCA). The project was appraised jointly by IDA and CCCE in 1974 and approved in July 1975. Project effectiveness was delayed for one year pending recruitment of forei3n experts for BCD (only two were finally recruited and one resigned in mid term), and completion of the audit of BCD's accounts. Because of a shortage of UNDP resources, US$500,000 was reallocated from the IDA line of credit to finance half of the cost of technical assistance from July 1977 to December 1978 (the other half being financed by CCCE). Finally, project implementation was slowed down by poor coordination among the three technical agencies and between them and the development bank. However, following intense supervision by IDA and CCCE, the lines of credit were fully committed by the end of 1979, and disbursed by June 1982, except for $220,000 which were cancelled in January 1983 (following the cancellation by BCD of * already approved subprojects). Taking into account its experimental nature, the project has on balance achieved a substantial part of its limited objectives. The lines of credit of IDA and CCCE have financed 35 enterprises (instead of the 77 projected) in 20 different industrial branches or subsectors and created 461 jobs at an average investment cost per job of just under US$10,000. Overall, the technical assistance delivery system for SNEs has improved and some progress has been made in the strengthening of BCD, in particular by establishing a good appraisal capability for SIE projects.  - iv - In November 1980, the Bank Group extended a second line of credit of US$15.0 million to BCD which also received a line of credit of US$4.5 million from the OPEC Fund; this line is being administered by the Bank. The preparation of the second project was used as a vehicle to implement a comprehensive reform of BCD's organization and operations. A major objective of this project is to further expand the provision and improve the coordination of technical and financial assistance to Cameroonian SMEs Among the lessons learned from the Cameroon SME I project, the most important is that SME promotion is a complex and risky undertaking and that very close supervision is crucial to improve the survival rate of the enterprises financed. The choice of a development bank as an intermediary proved to be justified if only because of the lack of interest of commercial banks for SHEs. As to technical assistance, the arrangements should be well defined and as simple as possible to avoid conflicts between the agencies concerned. Finally, although cofinancing might be highly desirable to increase the resources available to a financial intermediary, its application in the context of a pilot project can be cumbersome and add to the difficulties of the intermediary.  PROJECT COMPLETION REPORT CAMEROON - SMALL AD hEDIU4 SCALE ENTERPRISE PROJECT (CREDIT 575-CN) I. INTRODUCTION 1.01 This project responded to a request made by the Government of Cameroon to IDA and the Caisse Centrale de Cooperation Economique (CCCE) for technical and financial assistance to implement a program of promotion of Small and Medium Scale Cameroonian Enterprises. The project was designed as a Pilot Project aimed at promoting the establishment and expansion of privately owned Cameroonian small and medium scale enterprises. In addition to supporting productive investments, the project was to enhance the role of Banque Camerounaise de Developpement (BCD) as an effective development institution, improve and coordinate technical assistance to SMEs, and provide information, both to Government anc IDA on ways to improve policies and programs for SME promotion. 1.02 The project was appraised jointly by IDA and CCCE in 1974 and approved in July 1975. The Board of IDA approved a line of credit of $3.0 million to the United Republic of Cameroon for relending to the Banque Camerounaise de Developpement. II. THE ENVIRONMENT A. The Industrial Sector 2.01 Cameroon is one of Western Africa's most diversified countries with a wide range of ecological conditions, ethnic groups and cultures. Its main opportunities for development lie in the expansion of agricultural (cocoa, coffee, cotton), livestock and forestry production; the exploitation of energy and mineral resources Coil, bauxite, iron ore); and the processing of agricultural, forestry and mineral products for domestic conaumption and export. 2.02 At the time of appraisal, Cameroon's industrial sector accounted for only 12% of GDP and had been growing at a rate of 8.6% p.a. between 1966 and * 1974. Based on processing of local resources and import substitution, mainly for the domestic market, the modern industrial sector was characterized by the predominance of large firms, the importance of foreign ownership and management, and a heavy concentration in Douala. There were very little data available on the SNE sector which was nevertheless perceived as the most dynamic and the most promising in Cameroon. The promotion of SNEs was also considered as an important objective of the Government in order to further develop Cameroonization. B. Industrial Policy 2.03 The economic system of Cameroon, officially described as "Planned liberalism", gives in principle to private initiative the major role in making investment decisions but within a general policy framework designed by the Government. The main instruments of this policy are the development plan and  -2- the incentive system, characterized by high levels of protection and generous fiscal incentives, granted primarily through the Investment Code and to a lesser extent through the membership of Cameroon in the Central African Customs Union (TIDEAC). The appraisal report had remarked that the application of the various existing policy measures could be vastly improved and rationalized, and as a first step, the Government had agreed under the project to simplify and accelerate the procedures for the SMEs to obtain the benefits of the investment code. This measure helped to expedite the processing of the SME projects financed by BCD. C. SME Promotion 2.04 There are in Cameroon several definitions of SMEs, and, enterprises meeting these definitions could have access to different benefits, essentially exemption of custom duties on imported equipment and reduced tax rates under the Investment Code and the Tax Code. Also, SMEs defined as majority Cameroonian-owned enterprises with a maximum credit ceiling of CFAF 25 million with the Central Bank, and, equity below CFAP 50 million, could be eligible to the preferential rediscount rate of the Central Bank (at that time 4.00% instead of 5.50% for the normal rate). 2.05 In addition to these various incentives, there were in Cameroon a number of agencies in charge of promoting SMEs: one development bank (BCD), and three technical assistance agencies: the Centre d'Assistance aux Petites et Moyennes Entreprises (CAPME), a Government promotion agency, and two French agencies, the Societe d'Aide Technique et de Cooperation (SATEC) and the Association pour la Formation des Cadres de l'Industrie et de l'Administration (AFCA) which had been operating in Cameroon since the late 1960's and had been providing SME's with technical assistance. Finally, since the guarantee of the loans to SIEs was already regarded as a crucial aspect of SNE promotion, during the preparation of the project, IDA and CCCE had assisted the Government in creating a Guarantee Fund (FOGAPE) which was established by Decree in April 1975 under the auspices of BCD. This Fund was to guarantee automatically the SME loans granted by BCD under the project. 2.06 The appraisal report had emphasized that there was a need to coordinate more closely the various agencies involved, to speed up the procedures and to improve the follow-up. These objectives were to be pursued under the project. D. The Financial Sector 2.07 As a member of the Franc Zone, Cameroon shares a common currency (CFAF) and Central Bank (BEAC) with four other francophone countries, Chad, Congo, Gabon and the Central African Republic. Credit policies for these countries are determined and implemented through national offices of BEAC. Credit expansion within each country is controlled by setting country ceilings and global refinancing allocations, and monitored through rediscount operations. 2.08 Interest rates in Cameroon are regulated by the Central Bank for all lending operations, including non-rediscountable loans, and are determined in relation to its own rediscount rates. BEAC has two basic rediscount rates which in 1975 were 4.00% for so-called privileged operations (such as crop  -3- financing, social housing and SMEs) and 5.50% for normal operations. Final on-lending interest rates to various sectors-are fixed with reference to these basic rediscount rates. (A Credit Distribution Tax and a Tax on Services increase the final rates by approximately 1.5 to 2.0 points). In 1975 interest rates applicable to the Project Beneficiaries ranged from 6.75% to 8.75% for "privileged borrowers" and 8.75% and 10.25% for "normal borrowers" (for medium term credits, net of taxes). By comparison, the Project provided for a unique final rate of 11% (Para 4.02). 2.09 At the time of appraisal there were five commercial banks operating in Cameroon, most of them subsidiaries of French banks. Because of the risks and costs involved in lending to SMEs, these commercial banks financed mainly long standing customers. The technical assistance planned under the project (for preparing loan applications) and the establishment of the Guarantee Fund, were, however, expected to encourage commercial banks to finance SME Projects. E. Prospects 2.10 The appraisal report indicated that there was in Cameroon substantial scope for industrial expansion on the basis of both further import substitution and processing of agricultural products for export markets. New investments would however be facilitated if steps were taken to improve Government industrial policies. As to SMEs, it was felt that entrepreneurial talent which exists in Cameroon could be developed through a package of technical, financial and managerial assistance to be provided under the IDA/CCCE Project. The appraisal report recognized however the difficulties and the risks involved in lending to SMEs and admitted that "a substantial effort would be needed to produce a flow of credit-worthy dossiers for financing promising enterprises run by qualified managers", hence the pilot nature of the proposed project. III. PROJECT INSTITUTIONS 3.01 The project lending component was to be implemented through Banque Camerounaise de Developpement, while the technical assistance to SMEs was to be provided by two expatriate agencies, SATEC and AFCA, under the coordination of CAPME, the Government SME Promotion Agency. A. Banque Camerounaise de Developpement Background 3.02 BCD was established in 1960 with the broad mandate to provide financial and technical support for implementation of all economic development projects in Cameroon. As a result BCD has been active in all sectors of the economy, providing short, medium and long term loans as well as taking equity participations, giving guarantees and financing both private and public companies as well as individuals. BCD, however, does not engage in commercial banking. Ownership, Management and Organization 3.03 BCD's share capital was increased from CFAF1.0 billion to 1.5 billion in 1975. It was entirely paid up and owned by *the Government (75.8%), the  -4- French Caisse Centrale de Cooperation Economique (15.5%), the Central Bank (8%) and Bremer Landesbank, a German Bank (0.7%). BCD was administered by a Board of twelve members and managed by a Director General and Deputy Director General appointed by the Government upon proposal from the Board. BCD's organization comprised three departments: Credit, Finance and General Administration. In addition to its headquarters in Yaounde, BCD had six regional offices in the major provincial cities. In 1975, BCD had a staff of 138 of which only 17 were professionals, including two expatriates seconded from CCCE. Appraisal and Follow-up 3.04 According to the appraisal report, "BCD's appraisals sufficed for prudent banking, assessing the credit risk to BCD but did not serve to allocate funds to sound projects"... "In the large majority of cases, applicants' technical and financial plans are merely accepted without question by the staff". As to follow-up, it was limited to the review of the annual financial statements of the large borrowers. The technical assistance component of the project aimed at correcting these deficiencies, by establishing an SME Project appraisal and follow-up unit to be staffed in part by foreign experts. Operations and Financial Performance 3.05 In 1974, loan approvals of BCD had amounted to CFAF 7.5 billion; agricultural credits (mainly crop financing) accounted for approximately 50% of the total, industrial lending about 20%, and, housing and social credits (consumer durables) 30%. Over 90% of BCD's industrial lending (in volume) was to large scale enterprises mainly in energy, transport and public works. By comparison, BCD's approvals in 1982 were CFAF 30.7 billion but the sectoral distribution of BCD's lending was very similar to vhat it was in 1974, agriculture representing 51% and industry about 20%. However since 1980, BCD no longer finances housing and consumer durables and has become much more active in financing commerce and Government contracts. 3.06 Although BCD is not a profit-oriented institution, its profitability has increased regularly between 1970 and 1975, mainly because its administrative and financial expenses increased more slowly than its financial income. As to the indebtedness of BCD, it was very reasonable with an overall debt equity ratio of 2.1 to 1 as of June 30, 1974. Arrears represented only 5.1% of portfolio and loans affected by arrears only 11.6% of total loans outstanding. Overall the financial situation of BCD was considered very sound. Under the project, BCD was to engage independent auditors to audit its accounts every year. Prospects 3.07 BCD's operations were expected to grow steadily from 1975 to 1980, the most important contribution being from lending to large scale industry, and, under the IDA/CCCE project, from lending to SHEa. Overall, industrial lending wias expected to grow at 12% a year to some CFAF2-5 billion in 1980, term lending representing 60% of the total. SME lending was expected to triple under the project. Rediscount from the Central Bank was to provide the bulk of BCD's resources. Under the project, the total debt equity ratio was  -5- to be maintained at under 4:1 through FY79. Overall, BCD was expected to "maintain its financial soundness while executing the project". B. Technical Assistance Agencies SATEC 3.08 "Societe d'Aide Technique et de Cooperation" is a French Government- owned aid agency, controlled by CCCE, which had been operating in Cameroon since 1968. With a staff of nine (and with the assistance of its Paris office when needed), SATEC's main function was to prepare credit requests and applications for benefits under the Investment Code, for Cameroonian entrepreneurs. SATEC was also supposed to provide its assistance through project implementation and start up. CAPME would normally take over technical assistance after four months of operation, but in practice SATEC often continued to provide assistance as CAPME was unable to do so. As of 1975, SATEC had been involved in 88 projects (representing total investments of over CFAFi.0 billion) of which 17 were in operation, 23 under construction or awaiting approval of financing and 16 under study. Only 12 projects were no longer operating. 3.09 Originally financed entirely by French Bilateral Aid, SATEC benefitted from an increasing financial support from the Government which represented 50% of its total funding in 1974. In the following two years, SATEC was expected to help create 65 new enterprises representing a total investment of CFAF2.0 billion and 875 new jobs. SATEC's staff was to become increasingly "Cameroonized" and SATEC's activities were to be coordinated more closely by CAPME. AFCA 3.10 "Association pour la Formation des Cadres de l'Industrie et de l'Administration" is a French private non-profit organization which started operating in Cameroon in 1962. Financed until 1971 by French bilateral aid, AFCA concentrated on training middle and upper level managers in Government and industry. AFCA had also a special unit, AFCA/PME, which worked only with Cameroonian artisans and small entrepreneurs, providing them with training and consulting services. With a total staff of 11, AFCA had trained almost 500 artisans and small entrepreneurs through its general management courses. It had also helped establish an Artisanal Credit Cooperative and organize several artisanal exhibitions. Under the project, AFCA was expected to expand its activities by conducting six new courses every year, trying to establish new credit cooperatives and providing continuing support to its clients. The emphasis of AFCA's activities was to remain on artisans and small entrepreneurs. These activities were to be coordinated with SATEC by CAPME. CAPME 3.11 "Centre d'Assistance aux Petites et Moyennes Entreprises" is a Government agency created in 1969 to provide technical assistance to artisans and SNEs, to promote new investments, to recommend industrial policy measures to the Government, and to coordinate all SME technical assistance activities in Cameroon. Assisted by UNDP and ILO, CAPME started its activities in 1970, but remained little active until 1972, except for the establishment of a  -6- workshop which was to provide machine tool training and repair services for artisans and SlEs. In 1973, a new Director General was appointed, additional technical assistance was provided by UNDP and UNIDO, and a study on the role, organization and staffing of CAPKE was undertaken by UNDP. Under the IDA/CCCE Project, CAPME was expected to closely monitor and coordinate the activities of SATEC and AFCA. It was also supposed to initiate systematic collection and analysis of data on the SME sector, study the impact of existing economic policies on the development of SMEs and advise the Government accordingly (Para 4.03). The appraisal report was however silent on CAPME'S organization, staff and budget. Technical Assistance Coordination 3.12 Although the appraisal report stated on several occasions that CAPME was to monitor and coordinate the activities of SATEC and AFCA, very little was said on the ways to achieve this objective, except that CAPME had been consulted on the two-year program prepared by SATEC and AFCA, and, that draft cooperation agreements to be signed between CAPME and SATEC, and between CAPKE and AFCA, had been finalized during negotiations. Moreover, no mention was made of the fact that CAPME was located in Douala whereas the main offices of SATEC, AFCA and BCD were located in Yaounde which was to make the coordination by CAPME even more difficult. IV. THE PROJECT A. Objectives 4.01 The IDA/CCCE project was to assist BCD in financing the establishment and expansion of privately-owned Cameroonian small and medium scale enterprises. In addition to supporting productive investments, the project was to enhance BCD's role as an effective development institution, improve and coordinate technical assistance to SMEs, and provide information on ways to improve policies and programs for SME promotion. 3. Description 4.02 The project consisted of an IDA line of credit of US$3.0 million, and, of a CCCE line of credit of the same amount, to provide term resources for the financing of sound small scale enterprises project. Technical assistance to CAPME and to BCD was to be financed by UNDP and the Government. Over a two-year commitment period the project was expected to finance 77 subprojects, 60 "small projects" with total investments below CFAF38 million and 17 "medium scale projects" with total investments above CFAF38 million. Approximately 80% of these projects were to be assisted by CAPME, SATEC and AFCA. Subloans were to be made on the basis of BCD's appraisal according to two categories: Ca) loans up to CFAF50 million and (b) loans exceeding CPAP30 million. The financing plans iwere expected to be approximately as follows:  -7- Long/medium-term loans Owner's IDA CCCE BBAC Contributlon Total -Smaller subprojects 40% 40% - 20% 100% (Loans under CFAF 30 m.) Larger subprojects 20% 20% 30% 30% 100% (Loans over CFAF 30 i.) It was later agreed that the Central Bank participation would not be mandatory. The project provided for an individual free li.it of US$60,000 and aggregate free limit of US$1.5 zilllon. The onlending terms to final borrowers were specified as follows: Onlending rate of IDA and CCCE Funds from Government to BCD 5.00% BCD's Spread 2.75% Taxes 2.00% Guarantee or foreign exchange risk fee 1.25% Final onlending rate 11.00% This rate was slightly higher than BCD's rates on term loans at that time (9%) but lower than the rates of the commercial banks (13%) which had been lending only "token amounts" to SMEs. It was expected to be positive in real terms over the project life (inflation was estimated at 7 to 8% p.a.). 4.03 The maturities of the loans were expected to range from 7 to 15 years, including 2 to 3 years of grace. As part of its overall study on SEEs (Para 3.11), CAPNE was to undertake a review on the sources and costs of credit to SNEs and, "the conclusions of this study were to provide a firmer basis for future iLterest rate policy in Cameroon as well as possible future Bank Projects'. This study was never made (the completion of such a study was not included in the legal Agreements). 4.04 Under the technical assistance component, UNDP was to finance three expert positions (two financial analysts and one industrial engineer) to establish within BCD an SEE Projects Appraisal Unit. These experts were to be appointed for two to three years, starting at the end of 1975.  -5 C. Project Implementation 4.05 The project became effective on July 30, 1976, one year behind schedule because of delays in recruiting the experts for BCD. Ultimately only two experts, instead of three, (an industrial engineer and a financial analyst) were recruited. The financial analyst resigned in March 1978 and was not replaced. IDA, CCCE and the Government agreed that, instead, the contract of the industrial engineer would be extended. 4.06 Reallocation of $500,000 from the IDA credit was decided in early 1978, to finance technical assistance costs from July 1, 1977 to December 31, 1978, after UNDP decided to end its financing, because of its overall financial difficulties. 4.07 Project implementation was slowed down by poor coordination between CAPME, SATEC and AFCA, and between the technical assistance agencies and BCD. Cooperation agreements were finally signed between CAPME and SATEC and CAPIE and AFCA in 1978, and the situation improved somewhat, although it became clear after the appointment of a new Director General of CAPHE, in 1978, that CAPME intended to put an end to the existing arrangements and to remain the sole technical assistance agency for SEsB. The technical a-sistance program ended as planned in December 1978 (except for the industrial engineer in BCD whose contract was extended until the end of 1979 under Bank financing). Subsequently, the SATEC/PKE unit left Cameroon whereas AFCA continued to assist CAPME at his request. In order to improve coordination with BCD, CAPHE opened a branch in Yaounde in 1979, at the suggestion of IDA and CCCE, and bi-monthly coordination meetings were held between CAPME, FOGAPE and BCD. 4.08 Despite these start up problems, and following intense supervision by IDA and CCCE (in particular in early 1978 a two-week mission by an IDA staff member and a consultant helped BCD in preparing loan requests), commitments progressed rapidly and by November 30, 1979, 90% of the line of credit had been committed and 50% disbursed. 4.09 Following a request of the Government in November 197B, Bank staff began to prepare a second project (for RBnk rather than IDA financing) designed to continue and expand the support to SNEs extended under the first project. However, the financial situation of BCD had deteriorated to the point that the Bank decided in March 1979 to suspend the preparation of this project pending major reforms of BCD's operations. At that time, arrears represented 22%, and loans affected by arrears 44% of BCD's portfolio. Provisions had to be increased by CFAF 2.4 billion, and, for the first time-in several years BCD experienced a substantial loss of CFAF2.2 billion. As a result, BCD's equity base was reduced from CFAP3.6 billion to less than 1 .0 billion, the overall debt equity ratio jumped to 25 to 1, and the term debt eauity ratio to 8.3 to 1 (far above the 4 to 1 ratio agreed upon under the IDA Credit). Finally, in 1978, BCD contracted two Eurocurrency loans on very unfavorable terms and without protecting itself against the foreign exchange risk (in violation with IDA Legal Agreements). Following the report of a Government appointed fact-finding committee, the senior management of BCD (Director General, Deputy Director General, Director of Credit, and, Financial Director) was replaced, a new auditor was appointed to perform a long form audit of BCD (the cost of this audit was financed retroactively under the  -9- second Bank project) and a comprehensive plan of reform was agreed to between the Government and the Bank. The second Bank project (US$15.0 million) was approved in November 1980. D. Results 4.10 Compared to appraisal, the nwuber and the distribution of subprojects financed under the IDA and CCCE lines of credit were the following: Appraisal Estimates Results Number Investment Number Investment (CFAF 000's) (CFAF 000's) Small enterprises 60 870 14 357. (investments below CFAF38 million) Medium enterprises 17 1650 21 1959.7 'investments above CFAE38 million 77 2520 35 2316.9 While inflation was partly responsible for the smaller number of subprojects, the lack of small investment opportunities was also an important factor. About 3/4 of these subprojects are located in Douala and Yaounde, and the rest in the Center South East (13%) and in the Northern Region (13%). Approximately 20 different industrial branches or subsectors are represented, the most important being agro-industries and food processing. Although no specific target was established under the project, the cost per job created has been much lower ($10,000 on average, and $9,000 for small scale subprojects) than the industrial average in Cameroon estimated at well above $20,000. As of May 1981, when CCCE conducted a field survey in preparation for the project completion report, 20 of the thirty-five projects were -in * operation, ten were just about to start, and five had ceased their activities. The twenty operating subprojects accounted for an annual turnover of CFAF1 .7 billion, value added of CFAP777 million and a total investment of CFAF1.3 billion. 4.11 Although it is difficult to draw far-reaching lessons from the limited experience provided by this pilot project, the following preliminary conclusions may be drawn from the CCCE Completion Report and CCCE visits to 13 of the 20 enterprises that were in operation in May 1981:  - 10 - Ci) In general, the expansion of existing enterprises proved less risky than the creation of new ones, and, small enterprises using relatively simple technology stand a greater chance of success. (ii) The personality and experience of the promoters are very important factors which were not given enough importance during subproject appraisal. In fact, "character lending", as under commercial banking practices, often can be more accurate and effective than mechanically applied financial and economic criteria. (iii) Because of inadequate supervision by CAPME and BCD, the design of already approved subprojects has been changed unilaterally by the promoters and in a few cases there has even been some diversion of funds. (iv) The lack of working capital is the most frequent complaint voiced by project beneficiaries and there is evidence that in several cases, both grace and repayment periods (which on average were respectively 6 months and 7 years) of BCD loans were too tight; in fact a few sub-borrowers were forced into default before their project could generate an income. (v) Finally, all but four of the thirty-five enterprises promoted under this project rely heavily or exclusively on imported equipment raw materials and sometimes management. This raises serious questions as to the economic merit of many of these enterprises but also as to their long-term survival. Experience elsewhere in Africa shows that, in the event of a national foreign exchange shortage, industrial raw materials are among the first categories of imports to be cut back. This results in the underutilization of a production capacity financed with foreign loans which nevertheless have to be serviced. V. LESSONS LEARNED 5.01 The main justification of this pilot project was to learn more about SME promotion and financing in a country which has a true entrepreneurial potential and in that respect the project has fully achieved its objectives. Among the lessons learned, the first one is, clearly, that SME promotion is a complex and risky undertaking. In this regard, the results expected from the project at the time of appraisal were probably overoptimistic. For example, it was unrealistic to believe that it would be possible to promote and supervise 77 projects in two years, while experimenting with a new system of delivery of technical and financial assistance to SMEs. Moreover, because of the difficulties faced by the project, the attention focussed on approvals of new subprojects in order to draw down the lines of credit within the deadlines, probably at the expense of the supervision of already approved subprojects. The low survival rate of the enterprises financed has clearly demonstrated the need for better subproject appraisal and closer supervision, especially during the first two years of implementation.  - 11 - 5.02 Despite the financial difficulties experienced by BCD (which were totally independent from its SME promotion activities), the choice of a development bank as financial intermediary proved to be justified if only because of the continuing lack of interest of commercial banks for SMEs. The project helped improve BCD's appraisal capability. Moreover, the preparation of the second project served as a vehicle to implement a major reform of the institution, including a massive capital increase. It is however true that much remains to be done to build BCD into a solid industrial development bank. This is why the strengthening of BCD's financial position, organization and management are important objectives of the ongoing Bank project. 5.03 As to technical assistance, the tripartite arrangement proposed under the IDA//CCCE Project proved to be difficult to implement since, on the one hand, CAPME was eager to take over as quickly as possible the activities of the foreign technical assistance agencies, and, on the other hand these agencies -were trying to preserve their autonomy. It would have been preferable at the time of appraisal to define more precisely the relationships between CAPME, SATEC and AFCA and to agree on a precise timing for CAPME to take over the activities of SATEC and AFCA. Nevertheless, the technical assistance delivery system for SMEs has improved under the project, and CAPIE is more effective than it was at the beginning of the project, despite some persistent weaknesses inherent to its bureaucratic status. Finally, FOGAPE, the Guarantee Fund, has proved to be a useful addition to the SME Promotion system and is being strengthened under the second Bank Project. 5.04 Finally, although cofinancing might be highly desirable to increase the resources available to a financial intermediary, its application (pari passu financing of each subproject) in the context of a pilot project added to the confusion of BCD, especially when the institution started to experience serious difficulties. Nevertheless, joint corrective action sponsored by IDA and Caisse Centrale led to a major rehabilitation of BCD and paved the way for the continuation of the promotion of SEEs undertaken under the first project.  -12 - ANNEX 1 CAXEROON SME I PROJECT COMPLETION EPEORT CUKULATIVE DISBURSEMENTS (US 000's) Appraisal Actual as a x of IBRD Fiscal Year Estimates Actual Appraisal Esrimates 1976 S00 1977 1,200 - 1978 2,100 5*00.. 24 1979 3,000 1,350 45 1980 - 1,620 - 1981 - 2,460 1982 - 2,780 1983 - 2,780* $220,000 were cancelled in January 1983  - 13 - ANN.T TT J J CAMEROON SME I PROJECT COMPLETION REPORT OVERALL REVIEW OF SIBPROJECT-APPROVALS* (CFAF OOO's) Number Investment BCD Loan Repayoent Recsord Subproject approved 41 2478,4 1497,0 - Subproject cancelled -6 -161,5 -118,3 - Subproject disbursed. 35 2316,9 1378,7 - Subproject.-cancelled - - during disbursement u5 -423 175,4 146 uenpaid Ongoing projects 30 .1893,9 1203,3 - Projects having ceased.activities -2 67,4 53,0 28,1 . uimpaid ) Projects under 10 761,9 447,1 . 95,2 construction unpaid ) (7 projects) * As of May 1981 Source: Caisse Centrale de Coopiration Economique  - 14 - ANNEX III CAMEROON SME I PROJECT COMPLETION PEPORT MAIN INDICATORS OF THE SUBPROJECTS FINANCED (CuAP 000's) Investment Sales Added. Cash Jobs value floy created 1. Boulangerie KAF 50.3 72,G 35,0 18,0 34,0 2. Boulangerie Moderne 39.3 104,0 50,0 25,0 30,0 3. Boulangerie du Progres 43,7 42,0 20,0 8.0 20,0 4. Boulangerie de l'Amitie* 35,0 - - - - 5. Boulangerie d'Otele 48,5 60,0 28,0 10,0 23,0 6. Boulangerie de Yagoua* 36,0 - - - - 7. Boml-verie de Kousserie 37.5 50,0 24,0 -10,0 24,0 q. Soglace (ice cream)* 70,0 - - - - 3. Tsobgni (chicken far,m)* 31.4 - - - - 10. Nganso (pig farm)* 48.0 - - - - 11. Sexacam (pig farm)* 265,0 - - - 12. Fomi Yaourt (yoghurt)** 15,0 - - - 13. Claceman (edible ice) 44,4 13,2 3,2 7,0 1S 14. Icabem (cinAmv- hlocks) 19,3 - - - _ 15. Faiencam (china) 28.3 2,0 5,0 2,0 15 16. Hbeuti Fonga (tiles)* 86,6 - - - - 17. Menuiserie Moderne (woodwork)* 64,0 - - - - 18. Omnimeubles (furniture) 42,7 120,0 45,0 12,0 43 19. Sofecam-Ouambo (sawnill)** 308,9 - - - - 20. Modern Furniture (furniture) 66.4 195,0 123,0 60.0 25 21. SA3C (carts) 34.8 20,0 10,0 5.0 10 22. Batimetal (metalwork)** 65,0 - - - - 23. Fontalcam (foundry) 23,4 6,0 4,0 4,0 8 24. Promital (wheelbarrow) ** 44,0 - - - - 25. Fercamart (mittresses) 43,3 36,0 13,0 8,0 14,0 Z6. Chauscam (shoes) 159,0 200,0 120,0 25,0 50.0 27. Jeanny confection (clothing) 16,0 13,3 9,4 4,4 10,0 28. Confection Lumiere (clothing) ** 21,6 ? ? - 13,0 29. Tissages et Broderies - 16.0 'du Nord (weaving) 40,0 30 8 18 30. Nobilier-Camerounais (foam) 227,0 220,0 60,0 30,0 55.0 31. Socapol (foam) 119,7 252,0 108,0 60,0 24,0 32. Flammeche (candles) 46,7 140,0 49,0 14,0 15,0 33. Cosiafric (cosmetics) 69,2 129,0 40-,0 20,0 15,0 34. Solain (laundry) * 40,0 - - - - 35. Camgraphic (print shop) * 10.9 - - - - TOTAL . .................... 2316,9 1,714.5 776.6 313.4 461.0 * Project having ceased activities **Project under construction  -15- ANNME IV CAMEROON J QIE I PROJECT COMPLETION REPORT GEOGRAPHIC AND SECTORAL DISTRIBUTION OF THE SUBPROJECTS FINANCED South West South East Douala and coastal Yaounde Center North Total Bakeries Number 4 - I - 2 7 Tnvestment 16893 - 48,5 - 73,5 290,3 Agro Industry Number 2 1 '2 1 6 Iuvestment 85,0 31,4 313,0 - 44,4 473,8 Construction Materials Number 2 3 1 - - 3 Amount 114,9 - 19,3 - - 134,2 Wood Processing umber 1 1 1 4 Amount 42,7 66,4 64,0 308,9 - 482,0 Metalwork -Number 3 - 2 -. 5 ) Amount 102,2 - 108,3 - - 210,5 Textile, leather Number - - 3 - 1 4 Amount - - 196,6 - 16 212,6 Niscelleanous Number 3 2 - 1 6 Amount 342,9 130,6 - 40,0 513,5 Total Numiber 15 2 12 1 5 35 Amount 856,0 9798 880,3 308,9 173,9 2316,9  AIR=E V 6- 16 - CAMROO 5145 I PROJECT COMPLETION REPORT L TEM A1iD SECTORAL DISTRIBUTION OF LOAN APPROVALS (CFAF 000's) 1975 1979 1982 ST MT/LT ST ETALT ST MT/LT Agriculture 4,400 70 5,768 4,730 12,463 3,166 SME and Artisans 694 3,279 1,542 5,471 283 5,530 -Commerce 190 196 1,154 360 103 1,384 -Government Contracts - - - - 7,277 - Housing 68 1,674 - 1,836 - - Consumer durables & cars. 875 125 - 1,135 - - Miscellaneous - 19 29 230 29 436 Total 6,227 5,363 8,493 13,762 20,155 10,510 (l &  -17 - ANNEX VI COMMENTS RECEIVED FROM BORROWER TRANSLATION J March 9, 1984 ATT: Mr. Shiv S. Kapur Director, OED Re: PCR on Cameroon Small- and Medium-Scale Enterprises (Credit 575-CM) Following your letter of January 10, 1984, we would like to inform you that we have no comment on the above-mentioned project. Yours sincerely, Banda Metogo Valere Director General Banque Camerounaise de Developpement j