Morocco - Seventh and Eighth Banque Nationale Pour Le Developpement Economique (BNDE) Projects

Document of The World Bank FOR OMCIAL USE ONLY Report No. 6058-MOR PROJECT PERFORMANCE AUDIT REPORT MOROCCO SEVENTH AND EIGHT LOANS TO BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE (SNDE) (LOANS 1061-MOR AND 1428-MOR) February 10, 1986 Operations Evaluation Department 11%s docuaent has a resirleted distribulle and may be used by redpeuts only In the perfonance of their olial duties. Its contents my not otherwise be disclosed without World Bank autherzation. LIST OF ABBREVIATIONS BCP - Banque Centrale Populaire BdM - Banque du Maroc (Central Bank) BNDE - Banque Nationale pour le Developpement Economique CCG - Caisse Centrale de Guarantee CDG - Caisse de Depot and de Gestion CIH - Housing and Tourism Bank CNCA - Agricultural Credit bank ITPA - Industrial and Trade Policy Adjustment PCR - Project Completion Report PPAM - Project Performance Audit Memorandum PPAR - Projezt Performance Audit Report SAR - Staff Appraisal Report SSI - Small Scale Industries CURRENCY EQUIVALENTS Currency Unit - Dirham (DH) Average exchange rates 1975 1976 1977 1978 1979 1980 1981 1982 1983 1985 US$1 = DHi 4.05 4.42 4.50 4.10 3.80 3.80 5.10 5.90 6.80 8.81 As of June 30, 1985, US$1 = DH1O.29 FOR OFFICIAL USE ONLY THE WORLD BANK Washington. D.C. 20433 U.S.A. Office of Director-General Operatons Evaluatmn February 10, 1986 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Performance Audit Report on Morocco - Seventh and Eighth Loans to Banque Nationale pour le Developpement Economique (BNDE) (Loans 1061-MOR and 1428-MOR) Attached, for information, is a copy of a report entitled "Project Performance Audit Report on Morocco - Seventh and Eighth Loans to Banque Nationale pour le Developpement Economique (BNDE) (Loans 1061-NOR and 1428-MOR)" prepared by the Operations Evaluation Department. Attachment 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. FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT MOROCCO - SEVENTH AND EIGHTH LOANS TO BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE (BNDE) (LOANS 1061-MOR and 1428-MOR) TABLE OF CONTENTS Page No. Preface............................... Basic Data Sheets ............... ........................ 1i Evaluation Summary .......0.4.............................. iv PROJECT PERFORMANCE AUDIT MEMORANDUM I. BACKGROUND ..*....... ............................. I II. OBJECTIVES ...... ...... ............................... 2 III. INSTITUTIONAL PERFORMANCE ........................ . ....... 3 Operational Performance .............................. 3 Portfolio Quality ............................ 4 Financial Results .........................* ... 4 The 1980-81 Crisis .................................. 5 Organizational Matters ....o...................... ........ 6 Floating Interest Rates and Foreign Exchange Risks ........ 6 IV. UTILIZATION OF BANK FUNDS ........................*....... 8 V. EFFECTIVENESS OF THE BANK'S SUPERVISION ................... 9 VI. CONCLUSIONS ........ *...................o.......o......o....... 11 Attachment A - BNDE: Domestic Resource Mobilization 1962-83 ........ 13 Attachment B - BNDE: Foreign Resource Mobilization 1962-82 ......... 14 PROJECT COMPLETION REPORT 1. Introduction .................... .. ............... .. ....... 15 II. The Environment . ................ ...... ............ 16 III. BNDE .# . ......*to .... ............ .*... ...... ..... 18 IV. The Projects ............................ 0...................... 23 V. Conclusion ........... 0.......4.............................4..... 27 Annexes: I - Actual and Projected Operations 1974-81 .................. 30 11 - Projected and Actual Balance Sheets 1974-84 .................. 31 III - Projected and Actual Inne State-ents 1974-84 ............... 32 IV - Auited Cash Flow Statements 1974-81 ........................ 33 V - Key Financial Indicators .....*.... .................o....... 34 VI - Analysis of Projects by Manufacturing Sector ................. 35 VII - Analysis of Financing Approved 1974-81 . ................. 36 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. PROJECT PERFORMANCE AUDIT REPORT MOROCCO - SEVENTH AND EIGHTH LOANS TO BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE (BNDE) (LOANS 1061-MOR and 1428-MOR) PREFACE This is a performance audit of the seventh and eight Bank loans to the Banque Nationale de D4veloppement Economique (BNDE). Performance Audits on previous loans to BNDE were undertaken in 1974, 1975, and 1977 (Report Nos. SecM74-464, SecM75-550, and SecN77-829). Loan 1061-MOR for US$30 million was approved on December 19, 1974, became effective on May 31, 1975, and was closed on December 31, 1978, one year after the original closing date. Loan 1428-MOR for US$45 million was approved on May 19, 1977, became effective on December 21, 1977, and was closed on March 21, 1083, about a year and a half after the original closing date. In the latter case, US$10.3 million qf the loan was cancelled. A ninth loan to BNDE in the amount of US$70 million was approved in 1980 but became effective only in late 1982 when a satisfatory financial recovery plan was instituted. The Project Performance Audit Report consists of a Project Perfor- nance Audit Memorandum (PPAM) prepared by the Operations Evaluation Depart- ment and a Project Completion Report (PCR) prepared by the Europe, Middle East, and North Africa Projects Department. The PPAM is based on the attach- ed PCR issued June 22, 1983, the Staff Appraisal and Presidents reports, loan documents, the summary of the Board discussion, sector studies, economic reports, study of the project files and discussions with Bank and IFC staff. An OED mission visited Morocco in June-July 19851/ and discussed the effectiveness of the Bank's assistance with BNDE, Government agencies, and a sample of BNDE's clients. Thpla kind cooperation and valuable assistance in the preparation of this report is gratefully acknowledged. The PCR ably and candidly describes the project experience, high- lighting particularly issues relating to BNDE's floating rate borrowings and public sector lending. The PPAM comments further on these and other aspects of the project experience and draws lessons for future Bank operations. No comments were received from the Borrower. 1/ The audit was delayed because of staff constraints. PROJECT PERFORMANCE AUDIT REPORT NOR917CO - SEVENTH LOAN TO BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE (BNDE) (LOAN 1061-MOR) BASIC DATA SHEET (US$ millions LOAN STATUS Original Actual Loan amount 30.0 30.0 Disbursed 30.0 30.0 Cancelled - Repaid to IBRD 26.4 Outstanding to IBRD as of 10/31/85 3.6 CUMULATIVE LOAN DISBURSEMENT FY76 FY77 FY78 FY79 FY80 (i) Planned 11.0 22.0 30.0 30.0 30.0 (ii) Actual 10.8 20.8 25.7 28.2 30.0 (iii) (ii) as % of (i) 98.0 95.0 86.0 94.0 100.0 OTHER PROJECT DATA Original Loan Dates Actual Dates Negotiations - 10/74 Board Approval - 12/19/74 Loan Agreement Signed - 12/30/74 Effectiveness - 05/31/75 Closing 12/31/78 12/31/79 Borrover Banque Nationale pour le D6veloppement Economique Fiscal Year January 1 - December 31 MISSION DATA Month/ No. of No. of Date of Year Weeks Persons Manweeks Report Appraisal 07/74 3 2 6.0 11/27/74 Supervision I 08/75 1.5 2 3.0 09/05/75 Supervision II 12/76 2 2 4.0 02/18/77 Supervision III 07/78 1 2 2.0 08/02/78 Supervision IV /a 11/78 0.5 1 0.5 12/15/78 Supervision V /a 10/79 I 2 2.0 11/20/79 FOLLOW-ON PROJECT BNDE VIII (Loan 1428-MOR), approved on May 19, 1977, in the amount of US$45 million. /a In conjunction with supervision of BNDE VIII (Loan 1428-MOR). - lit - PROJECT PERFORMANCE AUDIT-REPORT MOROCCO - EIGHTH LOAN TO BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE (BNDE) (LOAN 1428-MOR) BASIC DATA SHEET (S millions) LOAN STATUS Original Actual Loan amount 45.0 34.3 Disbursed 45.0 34.3 Cancelled 10.7 Repaid to IBRD 28.3 Outstanding to IBRD as of 10/31/85 6.0 CUMULATIVE LOAN DISBURSEMENT FY80 FY81 FY82 FY83 (i) Planned 35.5 43.5 45.0 45.0 (ii) Actual 18.4 27.6 32.3 34.3 (iii) (ii) as % of (M) 53.0 63.0 71.0 76.0 OTHER PROJECT DATA Original Loan Dates Actual Dates Negotiations 04/77 Board Approval 05/19/77 Loan Agreement Signed - 06/16/77 Effectiveness 10/14/77 12/21/77 Closing 09/30/81 03/21/83 Borrower Banque Nationale pour le D6veloppement Economique Fiscal Year January 1 - December 31 MISSION DATA Month/ No. of No. of Date of Year Weeks Persons Manweeks Report Appraisal 12/76 2 2.5 5.0 04/25/77 Supervision I 11/78 1 1 1 12/15/78 Supervision II /a 10/79 1 2 2 11/20/79 Supervision Ill7b 06/80 1 2 2 07/31/80 Supervision IV /b 06/81 1 1 1 07/29/81 Supervision V / 05/82 1 3 3 06/0)/82 FOLLOW-ON PROJECT BNDE IX (Loan 2037-MOR), approved on July 14, 1981, in the amount of US$70.0 million. /a In conjunction with supervision of BNDE VII (Loan 1061-MOR). 7-b In conjunction with preparation or supervision of BNDE IX (Loan 2037-MOR). - iv - PROJECT PERFORMANCE AUDIT REPORT MOROCCO - SEVENTH AND EIGHTH LOANS TO BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE (BNDE) (LOANS 1061-MOR and 1428-MOR) EVALUATION SUMMARY Introduction Since its establishement in 1959, BNDE had become the predominant institutional source of long term financing for private industry in Morocco. With the assistance of the Bank and IFC, BNDE had already achieved by 1975 some maturity in its capacity to appraise projects. However, the institution was undergoing a period of very rapid growth, including major investments in large public sector projects, ana its loan portfolio was about ten times larger in 1977 than it had been at the beginning of the decade. The quality of its portfolio deteriorated throughout the 1970s, with arrears affecting about 34% of outstanding loans by 1980 compared to only 2% in 1968. In part, this resulted from environmental factors and the normal retirement of performing loans while problem projects remained in the portfolio; but it alsc reflected institutional weaknesses, in particular at the management level, an insufficient growth of staff to carry out follow-up work effective- ly, and the need for further improvements in the quality of both appraisals and follow-up (paras. 1, 2, 8). Objectives The general objectives of the loans under review were to provide resources for BNDE's continued financing of the industrial sector; to facili- tate the mobilization of foreign resources by BNDE through the confidence expressed by continued Bank lending; and to continue the institution building effort within BNDE. Industrial financing through BNDE was expected to help meet important objectives of Morocco's Third Plan, including increased export orientation, capacity utilization and employment creation in the manufactar- ing sector. The eighth loan also included a pilot project designed to initi- ate a program of assistance to develop small scale industries (paras. 4-7). Implementation Experience The loans were disbursed with a delay of about one year while a portion of the eighth loan was cancelled, in part due to the deterioration -v - of the economic situation. Bank lending to BNDE has been instrumental in raising BNDE's share capital and lending rates, anJ in curbing its lending to the public sector. Because of the arrears problem and losses due to floating rate borrowings in Eurocurrencies, BNDE suffered a severe liquidity crisis in the early 1980s. This led to the institution of a financial recovery pro- gram, which improved BNDE's profit margin, facilitated the payment of overdue guarantees, and resulted in the assumption by the Government of the major part of foreign exchange risks on all BNDE borrowings (para. 5, 6, 8, 10-14, 25, 26). Results The Bank and 1FC have continued to provide needed financial and institutional support to BNDE, especially since the early 1980s. BNDE's management and organization have been further strengthened in the last few years, and the institution has embarked on a major program of rescheduling and restructuring problem projects. BNDE's profits have increased measurably in recent years and the quality of its loan portfolio has improved, although 15% of outstanding loans were still affected by arrears in 1985. BNDE is tow seeking new horizons as regards resource mobilization, e.g., by accepting time deposits and creating a mutual fund out of its equity holdings, and a distinctive role as regards resource allocation, e.g., in restructuring operations or promoting more vigorously export-oriented industries. BNDE played a strong promotional role in initiating small scale industry lending, including the financing of a sector study. With respect to the utilization of Bank funds, the construction materials sector appears over-represented (53%), while a good number of the subprojects supported have encountered difficulties. The loans led to the creation of some 6,260 jobs at a cost averaging just under US$30,000 (paras. 13, 25-28, 31). Sustainability The financial recovery scheme instituted in 1982 augurs well for BNDE's future development. Nevertheless, the institution of floating lending rates and the passing on of the part of the foreign exchange risk not borne by the Government to subborrowers remain two important issues that deserve the Government's (and the Bank's) full attention in order to ensure the financial soundness of the institution. In terms of institution building, more emphasis could be placed during project appraisals on evaluating the management capability of sponsors, demand/supply forecasts, and marketing strategies, e.g., product position, price and quality comparisons, distribu- tion methods, credit policy. Supervision could be strengthened in terms both of number and quality of staff and streamlining of procedures. Also, there is need for additional recruitment, particularly of personnel with prior experience, to provide new perspectives (paras. 16-24). - vi - Finrings and Lessons The institutional objectives of the loans under review might have been better met had the Bank taken a stricter approach to such issues as interest rate and exchange rate risks accepted by BNDE, staffing requirements and speedy resolution of BNDE's management difficulties. Although the objec- tives of the loans were largely achieved, inadvertently the costs of the foreign resource mobilization effort and the heavy involvement in public sector financing have been high. Institution building did not progress as speedily as expected. The experience of the loans under review is instructive in many respects: (a) the experience typifies the inimical effects of the lack of continuity in top management, inadequate coordination between top and middle management, and insufficient growth of seasoned cadres on the stability and the overall performance of an institution; (b) even "mature" development banks require tireless vigilance to maintain and improve appraisal and super- vision standards, particularly when experiencing rapid growth and/or a deteriorating economic climate; (c) care should be taken to ensure that a general government guar-,atee program does not result in dilution of appraisal standards; (d) when supporting projects sponsored by public sEctor enter- prises, it is important to develop an effective bank-client relationship between the DFC and its parastatal subborrowers in order to enable the financial institution to provide guidance, to instill financial discipline, and to have an impact on their operations and performance as warranted; (e) understandings between the financial intermediary and the Government should be unambiguous and adhered to; (f) borrowing at floating rates and lending at fixed (centrally controlled) rates may impair a DFC's financial viability and thereby discourage resource mobilization; (g) when the Government bears the foreign exchange risk only partially, the balance should be passed on to the subborrowers in order to protect the financial position of the DFC; if this is not acceptable, then arrangements would have to be instituted to effec- tiveLy insulate the DFC; (h) the Bank should take a more critical stance on key issues affecting a DFC's institutional development and overall perfor- mance in the course of its appraisal and supervision work, possibly with more linkage between institutional/policy reforms and repeater operations (paras. 29, 32-34). FROJECT PERFORMANCE AUDIT MEMORANDUM MOROCCO - SEVENTH AND EIGHTH LOANS TO BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE (BNDE) (LANS 1061-MOR and 1428-MOR) 1. BACKGROUND 1. The Banque Nationale >our le Ddveloppement Economique (BNDE) was established in 1959. About 48% of BNDE's share capital is owned by the Moroccan Government or its agencies, 27% by private interests in Morocco, and 25% by foreign financial institutions (including IFC's 6% share). By 1975, BNDE had received six Bank loans totalling US$121.5 million. Following the seventh and eight loans, the subject of this report, BNDE received a ninth Bank loan of US$70 million in 1982, and acted as an apex institution for the first and second Bank loans made for small scale industries (US$25 million in 1979 and US$70 million in 1981, respectively). BNDE was also the direct recipient of a Swiss franc 80 million IFC-syndicated loan in 1983; a similar US$40 million equivalent loan package arranged by IFC was approved on June 25, 1985. 2. BNDE has been the predominant institutional source of long term financing of private industry in Morocco, as well as an important source of funding public sector industrial projects. Despite increasing medium term financing commitments by commercial banks, BNDE was estims i to have financed 23% of industrial investment in 1981 versus 13% for all commercial banks (the largest share in investment financing, 45%, being promoters' own funds)./ In addition to its direct financings. BNDE evaluates on behalf of the Central Bank applications from commercial banks for rediscount-ing of medium term loans, potentially enlarging further its influence on industrial financing. 3. BNDE's lending operations have paralleled investment trends in the Moroccan economy. Following large increases in the mid-1970s, real gross investment declined markedly in recent years; it fell by more than 25% in real terms in 1978, stagnated in 1979, and declined by a 3.7% annual average rate during the first half of the 1980s. The manufacturing sector has been primarily based on import substitution, and its share of GDP has been relatively constant at about 17% since the early 1970s, while that of the industrial sector, which includes mining and construction materials, increased from 27.5% of GDP in 1974 to 34.0% in 1982. GDP grew at an average 4% annual real rate in the early 1960s, 5.6% in 1968-72, and then accelerated to 7.5% during 1973-77, following the implementation of an ambitious public investment program. However, weakening phosphate markets, declining capitai 1/ World Bank Report No. 4957-MOR, Financial Sector Study, December 12, 1984. -2- inflows, a stagnant agricultural sector, and the global recession cut the GDP growth rate to a 3.2% annual average in 1977-82. In 1983-84, the annual GDP growth rate averaged about 2.3%. 2/ II. OBJECTIVES 4. The general objectives of both loans under review were: (a) to provide resources for BNDE's continued financing of the industrial sector; (b) to facilitate the mobilization of other foreign resources by BNDE through the confidence expressed by continued Bank lending; and (c) to continue the institution building effort within BNDE. But, -in addition, the seventh loan (a) specified that industrial financing through BNDE would be expected to help seet objectives of Morocco's Third Plan, including increased export- orientation, capacity utilization and employment creation by the manufactur- ing sector; and (b) set specific institutional goals and measures for BNDE, including a broadening of its ownership structure, an increase in its engineering staff, a strengthening of appraisals (including better analysis of procurement aspects and calculation of investment costs per job created), as well as more thorough annual potfolio reviews and exclusion of estimated provisions from its equity base. 5. During negotiations for the eighth loan, BNDE agreed to a further increase in both engineering and financial/economic staff, which would help to strengthen both appraisal and supervision work. The eighth loan also included a pilot project designed to initiate a program of assistance to develop small scale industries (SSI). A US$5 million component of the loan was set aside for financing labor-intensive SSI, with the hope of generating low cost employment opportunities, especially for the urban poor. An SSI sector survey was to be carried out under Bank/BNDE supervision and financed by BNDE with Bank funds available for foreign costs if needed. During negotiations for each of the loans, an increase in BNDE's lending rate was agreed upon, both to improve its financial prospects and to reflect more accurately the real cost of capital for Morocco. Also, to preserve a reasonable debt/equity structure, a doubling of BNDE's share capital took place shortly after approval of each of the Bank loans. 6. The Bank's 1977 Performance Audit on the fifth loan to BNDE (Report No. 1805, para. 27) and the 1977 staff appraisal report (SAR) expressed concern over a few cases of large scale public projects where BNDE's appraisal was "less than satisfactory," mainly due to late presentation of projects for its financing. A remedy was implied in BNDE's decision not to participate in any projects brought to it for financing after engineering or construction contracts had been signed. The Bank was also concerned that recent generous government incentives might attract inexperienced investors 2/ World Bank Report No. 4893-MOR, Morocco: Industrial Incentives and Export Promotion, January 11, 1984. -3- to the fishing sector, and thus precluded the use of the Bank loan for this sector. As it turned out, this was a good decision as 80% of BNDE's port- folio in this sector is now in arrears. 7. One of the long term Bank objectives, mentioned in the appraisal reports for the two loans under review, was for BNDE to "diversify its resources and to reduce its reliance on Bank funds" (SAR, para. 5.02). The 1977 SAR went further, mentioning the desirability for BNDE to "assist in increasing the general flow of foreign capital into Morocco" (para. 5.04). Nevertheless, the Bank was concerned when BNDE began borrowing at floating rates in the Eurodollar market in 1976, since BNDE was accepting an interest rate risk by relending such funds long term at fixed rates. A Supplementary Letter (no. 3) connected with the eighth loan obligated BNDE to consult with the Bank before incurring any floating rate borrowing beyond the limited amount forecast. The SAR commented that a prolonged experience of high LIBOR rates would be followed by compensating increases in world and Moroccan fixed interest rates. Nevertheless, the fact remains that increases in fixed rates have only a very gradual impact on average returns on long-term loans. III. INSTITUTIONAL PERFORMANCE Operational Performance 8. BNDE experienced a rapid expansion through most of the 1970s with its outstanding loan portfolio growing from about DH2CO million at the beginning of the decade to nearly DH2 billion by 1977. In contrast to the steady DH450 million of loan approvals forecast in the Bank's 1974 appraisal, BNDE's actual approvals jumped from DH436 million in 1974 to an average of DH724 million annually over the next three years, due in part to a buoyant private inve.itment climate but mainly due to increased BNDE financing of large public sector projects. In the mid-1970s, the respective shares .f private and public sectors in BNDE's lending were 45% and 55% respectively. The share of the private sector, however, kept rising during the late 1970s and early 1980s and reached 85% of total lending. 9. While the forecasts in the 1974 SAR were too pessimistic, the 1977 SAR was over-optimistic: BNDE's loan approvals dropped to a DR384 million annual average in 1978-79 (versus DH850 million forecast) due to general economic conditions and the overall decline in investment, especially in the public sector. Loan approvals then rebounded strongly (but still below forecasts) to DH658 million in 1980 and DH964 million in 1981, followed by another decline in 1982-83 (DH321 million annual average), and a modest recovery to DR506 million in 1984. The results for the last three years represent an even greater decline in real terms, considering an average annual increase in the GDP deflator of 8.1% over the period. Over the 11 years ending in 1984, equity investments were a minor element in BNDE's new financings, averaging only about DH9 million per annum. -4- Portfolio Quality 10. During the appraisal of the seventh loan, the Bank noted that, at the end of 1973, 9% of BNDE's loan portfolio was affected by arrears of three months or more. This represented a substantial increase since the low 2.1% figure at the end of 1968. However, most of the companies wit arrears were thought to be experiencing only temporary difficulties. Nevertheless, by 1975, 12.2% of the loan portfolio was affected by arrears, although the 1977 SAR judged that the portfolio was still "reasonably sound" (para. 5.13). The situation deteriorated rapidly in the late 1970s. By the end of 1980, 34% of BNDE's loan portfolio was affected by arrears, with public sector companies accounting for more than half. Since 1982, BNDE has rescheduled loans whose outstanding amounts represent about one-fifth of its portfolio; nonetheless, at the end of February, 1985, 15% of its outstanding loans were still affected by arrears of three months or more. 11. While the main reason for the large number of problem projects in BNDE's portfolio is the unforeseen deterioration of export markets and domestic economic performance, cases can nevertheless be cited of management, financial and technical weaknesses in projects that more thorough appraisals might have detected. The prevalence of guarantees by the government-owned Caisse Centrale de Guarantee (CCG), particularly for public sector projects, may have encouraged BNDE to be insufficiently concerned about project risks in some cases. Also, more thorough follow up, in the sense of early identi- fication of the sources of difficulties faced by projects, might have per- mitted recovery actions to be initiated for some projects before those difficulties became severe. 12. BNDE's equity portfolio has remained rather static over the last few years, as the level of aggregate investments is close to the policy limit-- BNDE's own paid in share capital. Few sales of portfolio shares have been made as yet, although steps are now being taken in that direction. At the end of 198 , BNDE had investments in 43 companies, of which 31 were operating profi-ably and had generated dividends amounting to 6% of the aggregate acquisition cost of equities. Financial Results 13. BNDE is in part insulated from weaknesses in its loan portfolio since about half of it (including some private sector projects) is guar- anteed. However, payments on guarantees have been subject to major delays (para. 14). BNDE's administrative expenses, already quite modest at 1.2% of its average total assets in th early 1970s, fell to a low 0.7% by the end of the decade and remain at this level. However, financial expenses, partic- ularly the impact of floating rate borrowings, shrank BNDE's spread on borrowed funds and contributed to the financial crisis of the institution in the early 1980s. BNDE's average cost of debt grew from about 5% in 1973 to 10% in 1981. Increases in its long-term fixed lending rate over the years, which just exceeded 10% in the early 1980s, have had a very slow impact on its average income on loans. The vanishing spread on borrowings was accom- panied by increasing financial leverage, as BNDE's long-term debt to equity ratio grew from 7.0 in 1973 to 11.2 in 1981, despite having more than quadrupled its paid-in share capital over the period. As a result, BUDE's profits before taxes and provisions, 3/ which had grown from about DHIO million in 1973 to DH42.5 million in 1978, declined to about DH39 million in each of the next three years, before virtually disappearing (DH250,000) with the jump in LIBOR rates and borrowings in 1981. Profits have since gradually improved, following an increase in the average return on the loan portfolio to 12% and a decline in the cost of debt to 8%, to an average DH52 million in the three years ending in 1984, accounting for about 16% of average equity. Profits, of course, have been much less on an inflation-adjusted basis (PCR, Anaexes III and V). The 1980-81 Crisis 14. BNDE experienced an unexpectedly strong rebound in loan demand in 1980-81, just at the time that its spread on borrowed funds was disappearing and arrears were becoming most severe. CCG had yet to make sIgnificant pay- ments to BNDE on its guarantees. BNDE was also facing exchange losses on interest payments on some foreign borrowings which were not covered by the Government and had yet to confirm arrangements for the Government to take exchange risks even on Bank loans. BNDE's debt service ratio fell below 1.0, and it also lacked resources to disburse committed loans. In violation of Supplemental Letter No. 3 under the eighth Bank loan, BNDE resorted to addi- tional floating rate borrowings abroad (in Swiss francs) wi:hout consulting the Bank. Its debt/equity ratio also exceeded the level covenanted with the Bank. 4/ Effectiveness of the ninth Bank loan was postponed until a financial recovery program was instituted, including improvement of BNDE's profit margin on loans by increasing lending rates and instituting front end fees; payment on guarantee commitments by CCG; and an agreement for Govern- ment to take the major part of foreign exhange risks on all BNDE's borrowings (see para. 20). Subsequently, but in relation to the above program, BNDE's Board passed a new Policy Statement in June, 1983, which limited BNDE's public sector financing approvals to 25% of total agprovals in any year, and tied floating rate borrowings to 25% of total debt. _/ 3/ BNDE's provisions include general allocations to reserves beyond the level of expected losses on its portfolio. Thus, profits before--rather than after--provisions and taxes is a more meaningful indicator of financial performance. An accounting practice of separating provisions for bad debts from general reserves would be more appropriate. 4/ BNDE's domestic and foreign resource mobilization effort during 1962-83 is reflected in Attachments A and B, 5/ The Bank's suggestion at the time was to limit floating rate borrowings to 15% of total debt. -6- Organizational Matters 15. Board. BNDE has a large Board of 19 Directors on which the Moroccan private sector is somewhat underrepresented, having only three seats (16% >f the total), despite holding about 27% of BNDE's share capital. The Board meets four times a year and its size appears to be a prima facie disadvantage. However, this is mitigated by delegation of greater authority to a seven member Executive Committee that meets monthly and a Management Committee which meets more frequently. 16. Management and Staff. BNDE's present senior management is of proven capability and the institution has some competent staff. Even aside from the 1980-81 crisis, however, the institution has not always been as quick to anticipate or implement needed improvements as might have been hoped. For example, despite low overall administrative expenses, the gowth and quality of supervision staff has not kept pace with the size of the port- folio (seven professionals now look after some 550 companies). Programming and budgeting has been slow to develop, and the first experience with computerization is only now about to begin. While BNDE's staff about doubled in the 10 years ending in 1982 when it had 109 professionals, there is need for new recruitment, especially of more personnel with substantial prior experience (e.g., in banking or industry) who might provide invigorating new perspectives. 17. Project Work. BNDE's analyses for project appraisals or restruc- turing and rescheduling of existing loans is of uneven quality, and more emphasis could be devoted to evaluation of sponsoring companies' management, demand forecasts and marketing strategies (e.g., product position, price and quality comparisons, distribution methods, advertising and promotional campaigns, credit policy, etc). Supervision needs to be strengthened as well. Under the second IFC syndicated loan approved in June 1985 (Report No. IFC/P-665), ENDE has agreed to prepare a timebound plan for institutional strengthening, including improvements in BNDE's follow-up methods and an increase in the size of supervision staff. Floating Interest Rates and Foreign Exchange Risks 18. When the inflation rate varies significantly and unpredictably as it has in Morocco in recent years, a case can be made for a financial system to use floating rathe.r than fixed lending rates. By and large, borrowing enterprises are more capable of protecting themselves agains- inflation than are long-term fixed rate lenders, since final product prices tend to increase commensurately with the general rate of inflation. In such an environment, fixed rates would in essence provide unintended subsidies to the largest debtors within an industry. On the other hand, if nominal interest rates were to include an allowance for a pre-specified expected inflation rate that does not in fact occur, then long-term fixed rate borrowers are unfairly penalized. - 7 - 19. In Morocco, the commercial banking system has been fairly well protected against unexpected increases in domestic inflation. Demand deposits pay no interest and, until recently, the controlled interest rate structure did not respond rapidly to inflation rates. Even to the extent that rates did respond, the bulk of commercial bank lending was short-term, which could be rolled over at higher rates when inflation increased. Thus, the bulk of inflation "taxes" were borne by depositors while enterprises with long-term fixed rate borrowings, such as BNDE's clients, were important beneficiaries. 20. To better insulate the system from unintended transfers of the above nature, the Bank's study on Industrial Incentives and Export Promotion (paras. 4.51-4.53) as well as the Financial Sector Study (Report No. 4957-MOR, December 12, 1984, paras. 5.25-5.42) recommended that a system of floating borrowing and lending interest rates be implemented in Morocco, and the issue was taken up in connection with the Bank's Industrial and Trade Policy Adjustment (ITPA) lending. The Government has recently taken steps to make the interest rate structure more flexible and more responsive to inflation developments by establishing regular six month reviews of that structure. Also, to strengthen the Government's own financial position in the light of its large losses from accepting the exchange risk on foreign borrowings, in addition to the commission of 1% already collected from the ultimate borrowers on the Government's behalf, a Foreign Exchange Risk Fund is to be created to which the specialized institutions (including BNDE) would contribute. 6/ At the same time, the share of the foreign exchange risk which is borne by financial intermediaries (like BNDE) has been increased from 1.5% to 2% of foreign loans outstanding, and this constitutes the upper limit of the risk for these financial intermediaries. 21. In the light of these developments, two of BNDE's policies need to be reviewed. The first relates to the institution's acceptance of the exchange risk not covered by the Government. Similar to the above discussion of domestic inflation, an argument can be made that industrial enterprises, particularly in export industries, are better able than BNDE to protect themselves against a depreciating Moroccan dirham. Therefore, this exchange risk should ideally be passed on to BNDE's clients in order to protect the financial position of BNDE; also, it is important to introduce clients to this type of risk-taking in the event the Government diminishes further its share of these risks. At this juncture, the Government has expressed its intention to eventually pass on the entire risk to the subborrowers. 7 In the meantime, BNDE needs to be assured of full protection. 22. A second BNDE policy which needs to be reviewed is the limitation on floating rate borrowings (para. 14), which was adopted as a stopgap 6/ Report No. P-3707-MOR, industrial and Trade Policy Adjustment Loan, May 6, 1985, para. 66 and Annex TV B, para. 32. 7/ Report No. P-4075-MOR, Industrial and Trade Policy Adjustment Loan, May 6, 1985, para. 66. -8- measure in a time of crisis, but which does not appear to be a satisfactory long-run solution to the underlying resource intermediation problem. Fixed rate international private placements (and especially bond issues) are not generally as easily available as floating rate borrowings, and may sometimes turn out to be more costly (inclusive of exchange risk). In such circums- tances, limiting floating rate borrowing goes direttly counter to foreign resource mobilization objectives. 23. Passing on the risk of interest rate fluctuations to subborrowers was discussed in the early 1980s but was set aside, apparently because of the Government's desire not to burden entrepreneurs with additional risks and not to depart from its policy of centralized control over interest rates. Given the recent evolution of the regulatory climate, it may be appropriate to once again consider such alternatives as: direct allocation of floating rate resources to large enterprises that can accept such risks (some of BNDE's clients have even borrowed directly abroad at floating rates); or a pooling alternative such as a general floating rate on BNDE's loans based on a fixed spread over its average resource costs, which might also result in lower fluctuations in rates that could be more easily borne by smaller enter- prises. As a response to expected inflation, assuming a fixed real interest rate, the nominal interest rate risk would tend to offset the exchange rate risk. Thus, there might be an advantage to borrowers for both of these risks to be passed on to them simultaneously rather than either in isolation. 24. With regard to both exchange risks and floating interest rates, BNDE has special considerations which can justify distinguishing its policies from those of commercial banks. It might be expected to take the lead on such issues, demonstrating foresight, innovation and administrative sophisti- cation, and becoming a model for future arrangements made by the Moroccan financial system in general. IV. UTILIZATION OF BANK FUNDS 8/ 25. Loan 1061-MOR. The closing date for this loan was postponed for one year primarily because of cancellation of eight authorized projects and a late reallocation of funds to new projects. The cancellations were due to non-observance of the 90-day rule in many cases, as well as abandonment of some projects by sponsors. The loan helped finance 38 projects, of which 11 export-oriented, with aggregate investment costs of about US$115 million, resulting in the creation of an estimated 3,867 jobs at an average cost per job of US$29,700. Cost overruns were infrequent, and most projects have operated successfully. More than one-third of the US$30 million Bank loan was used to finance four large cement projects. Despite over-optimistic forecasts for the Moroccan construction industry compared to the realizations of recent years, only one of these projects (a new enterprise at Temara in 8/ For details see PCR, paras. 4.03-4.12. -9- which BNDE also has an equity investment) has had substantial difficulty meeting its financial obligations. The loan was rescheduled and again fell into arrears, but prospects have recently improved due to a new market-sharing agreement among cement producers. Five other small construction-related as well as two textile projects are in arrears and/or were rescheduled. A light-bulb producer suffers from severe technical and management problems; a tomato juice exporter failed to find a market; and one fishing boat burned (though the loan was recovered from insurance). 26. Loan 1428-MOR. Subproject cancellations occuring after the final date for subproject authorizations resulted in cancellation of US$7.7 million of this loan. In part this reflected the unexpected economic slowdown in 1979 which discouraged some promoters, but also some failures to reach clear understandings with clients before the completion of BNDE's appraisal/approv- al process at the time. Another US$3.0 million was cancelled because of the unexpected strengthening of the US dollar during the implementation period. The loan financed 32 larger BNDE projects (but only one export-oriented) and 38 SSI projects (8 by BNDE and 30 by BCP). The large projects assisted created 2,390 new jobs at an average cost of US$27,200. Subproject performance was far less successful than under Loan 1061-MOR, as 12 of the larger BNDE projects are now in arrears and 7 others have been rescheduled. Ten of these problem projects are related to the construction sector (including four brick producers), two are cold storage units, two flour mills, and the others are in soft drinks, chicken feed, pharmaceuticals, textiles, and a large silver mine. The main problems include management, markets and marketing, technical, and delays in government payments. 27. SSI Component. The US$4.6 million of the loan allocated to 38 SSI subprojects helped create about 1,600 jobs at an average cost per job of US$4,300. While half of the BNDE-financed SSI projects performed well, two now have major problems due to lack of markets for solar panels and over- investment in buildings by a hardware producer, while two other egg producers are in arrears because of liquidity problems. Excessively tight repayment schedules contributed to SSI arrears under this pilot project. As noted in the PCR (para. 4.12), BNDE played a strong promotlonal role in initiating SSI lending, including the financing of a sector study which proved useful in designing the first integrated SSI project in Morocco.9/ V. EFFECTIVENESS OF THE BANK'S SUPERVISION 28. The Bank Group's institution-building assistance to BNDE and its work on the industrial and financial sectors in Morocco has been substan- tial. IFC has been involved as a Board Director of BNDE and through two recent syndicated loan operations. The Bank has provided detailed advice and 9/ For more information on the subproject experience in SSI see also the Project Performance Audit Report for Loan 1687-MOR (forthcoming). - 10 - assistance as part of its appraisal and supervision activities, and it step- ped up its involvement when BNDE needed financial redress. A senior develop- ment bank consultant sponsored by the Bank has undertaken several missions to Morocco since 1982, and has helped the institution with management, policy, programming and budgeting, and organizational matters. The previously men- tioned Bank studies (paras. 2, 3, 20) provided numerous recommendations to correct the policy distortions in favor of import-substitution versus export industries and to improve the efficiency of the financial system. A number of important improvements related to these two studies were discussed and agreed upon with the Government in connection with the Bank's two Industrial and Trade Policy Adjustment Loans of 1984 and 1985.10/ Finally, the Bank has deepened its understanding of SSI and artisan activities in Morocco, and has identified measures needed to improve the policy climate and the financial and technical assistance delivery systems in a recent study of these sectors.11! 29. In general, the Bank's advice and assistance to BNDE seems to have reflected appropriate priorities. With hindsight, it is all too easy to criticize the prevailing attitudes of the late 1970s, when no one fully foresaw the coming era of high nominal and real interest rates in US dollars and the impact that would have on BNDE with its floating rate borrowings. However, the Bank might more legitimately be critiqued for being too lenient with BNDE at times in a number of areas (e.g., exchange risk, needed increases in staff), perhaps partly because of the established idea that BNDE had reached maturity as an institution and partly because the Bank believed (perhaps rightly) that its own ability to induce needed changes (e.g., as tegards past management difficulties) was limited. Because of the need to strengthen enforcement of controllable measures that go to the source of potential problems, it is perhaps best for the Bank to avoid loan conditions that treat only the symptoms of problems (e.g., a minimum debt service ratio). 30. One possible omission of emphasis might be mentioned in connection with the Bank's advice in recent years. In commenting on BNDE's arrears problems, the Bank rightly focussed on the importance for BNDE to improve its follow up work and increase the staff it devotes to this activity, although BNDE has been slow to implement the needed changes. However, it is obvio-j that "preventive supervision" begins with good appraisals; and despite BNDE's admitted maturity, improvements are still possible in this crucial area of its work. In recognition of this point of view, a Bank consultant recently spent a few weeks reviewing BNDE's appraisal methodology in selected large industrial projects. 10/ Report No. P-3707-MOR, January 6, 1984, paras. 74-80; Report No. P-4075-M0R, May 6, 1985, paras. 64-66. 11/ Report No. 5056-MOR, Morocco - Small Scale and Artisanal Industry, November 27, 1984. - 11 - VI. CONCLUSIONS 31. BNDE continues to be a dominant influence in the financing of industrial investment in Morocco. Over the last decade, it has experienced a period of rapid growth, a plunge into the financing of public sector projects with untoward consequences, a serious deterioration of portfolio quality as the economic climate turned unfavorable, a liquidity crisis resulting from sharp increases in the costs of its floating rate debt as well as the arrears situation and management weaknesses, and finally a slow but steady recent recovery. For the future, it is seeking more than renewal; it hopes to expand its scope of activities, particularly as regards resource mobilization (e.g., by creating,a mutual fund out of its equity portfolio and by accepting time deposits), and it plans to create distinctive new foci for its development role (e.g., by engaging in restructuring operations). 32. It may not be very useful to lament, with the benefit of hindsight, past failures to foresee such bearish developments as interest rate movements and weak markets for the enterprises BNDE financed. Nevertheless, the insti- tutional objectives of the loans under review might have been better satisfi- ed had the Bank taken a stricter approach to such issues as interest rate and exchange rate risks accepted by BNDE, staffing requirements for more effec- tive subproject supervision, and speedy resolution of management difficulties within BNDE. 33. The objectives of the loans were largely achieved, albeit inadver- tently the costs of foreign resource mobilization and the heavy involvement in public sector financing have been high. On the other hand, institution building did not progress as speedily as expected. The financial recovery scheme instituted in 1982, including the improvement of BNDE's profit margin and the agreement that the Government take the major part of the foreign exchange risks in all BNDE borrowings, augurs well for BNDE's future develop- ment. Nevertheless, the institution of floating interest rates and the passing on of the part of the foreign exchange risk not borne by the Govern- ment to subborrowers are two important issues that deserve the Government's, as well as of the Bank's full attention, in order to ensure the financial soundness of the institution. 34. The following summarizes the main lessons learned from the experience under the two loans under review. (a) The experience exemplifies the inimical effect on the stability and overall performance of an institution of frequent changes in top management and the resulting uneven leadership, of the inadequate coordination between top and middle management, and of the insuffi- cient growth of middle level managers. (b) Although poor subproject performance can be ascribed to a degree to factors beyond the control of a lending institution, there is need for greater effort during subproject appraisals to review more - 12 - carefully management capability and technical designs, to assess more realistically project costs, to allow for adequate price and physical contingencies, and to develop more realistic financing plans, implementation schedules and cash flow projections. Calculations of economic rates of return at a very early stage of project appraisal could more meaningfully serve as a management tool for improving project design and decision-taking. Providing feedback from earlier project experiences into the appraisal process on a subsector-by-subsector basis could considerably strengthen appraisal work. Also, care should be taken to ensure that a general government guarantee program does not result in dilution of appraisal standards. (c) Early action to identify client problems and to develop solutions should be undertaken on a continuing basis as part of normal follow-up work. (d) When supporting projects sponsored by public sector enterprises, it is important that an effective bank-client relationship be developed between the DFC and its parastatal subborrowers in order to enable the lending institution to provide guidance, to instill financial discipline, and to have an impact on operations and performance when circumstances warrant such intervention. (e) A development bank is ill-equipped to accept the risks from floating interest rate borrowings when it onlends long-term at fixed rates, as changes in its lending rate have only a very slow impact on its average return on loans. A satisfactory resolution of this resource intermediation problem, which goes counter to long-run resource mobilization objectives, could involve some form of passing on such risks to subborrowers by instituting floating lending rates. (f) No deviation seems justified regarding the Bank's standard recommendation that development banks should not accept foreign exchange risks or, if they do, they should be effectively protected. Attention needs to be focussed on the institutional arrangements made to implement this policy. Understandings with the Government on this matter should be unambiguous and should be strictly observed. When the Government accepts exchange rate risks only partially, the balance of the risk should be passed on to subborrowers, both to protect the financial position of a development bank and to introduce enterprises to the practice of accepting such risks, should the Government at some time end its insuror's role. (g) Generally, the Bank should take a more critical stance on key issues affecting a DFC's institutional development and overall performance in the course of its appraisal and supervision work, possibly with more linkage between institutional/policy reforms and repeater operations. - 13 - ATTACHMENT A BNDE: DOMESTIC RESOURCE MOBILIZATION 1962-83 Amount Interest Term to Maturity Source Year DR '000 Rate (years) Government 1962 20,000 2% 15 1968 10,000 2%. 15 1975 10,000 2% 30 1975 50,000 6.5% 20 Caisse des Depots 1975 50,000 6% 5 (Government Agency) 1975 20,000 6.5% 5 Commercial Ba-iks Certificates of Deposit 1982 214,290 10.5% 5 1983 300,000 10.5% 5 Bonds 1971 20,000 6.25% 15 1972 20,000 6.25% 15 1973 20,000 6.25% 15 1974 20,000 6.25% 15 1974 70,000 7.5% 15 1975 100,000 7.5% 15 1976 40,000 7.5% 15 1977 100,000 7.5% 15 1978 100,000 7.5% 15 1978 100,000 7.5% 10 1979 50,000 7.5% 10 1979 50,000 8.5% 15 1980 200,000 8.5% 15 1981 250,000 10% 15 1982 330,000 11.5% 15 1983 100,000 11.5% 15 Source: BNDE - 14 - ATTACIMENT B BNDE: FOREIGN RESOURCE MOBILIZATION 1962-82 Amount Interest Rate Source Currency (millions) Year (%) Grace Period Total Maturity IBRD USS 15 1962 5.5, 6.0 2 yrs, 4 mos 17 yre, 10 mos 17.5 1966 6, 6.25, 6.5, 7 2 yre, 8 mos 17 yre, 2 oe 15 1968 6.5, 7 2 yrs, 2 moa 16 yre, 8 mos 15 1970 7 l yr, 10 mos 15 yrs, 4 mos 35 1971 7.25 2 yre, I -m 12 yre, 7 mos 24 1973 7.25 1 yr, 7 mos 11 yrs, 7 moe 30 1974 8 2 yre, 6 mos 15 yrs 45 1977 8.2 2 yte, 5 mos 13 yre, 11 mos 70 1981 9.6 4 yr., 6 mos 15 yre USAID US$ 3 1970 4 3 yre, 8 moe 22 yre, 8 mos Banque Nationale French Franc 50 1971 6.93, 7, 7.15 2 yre, 5 aos 9 yre, 5 mos de Paris 80 1974 6.5 2 yrs, 2 oes 10 yr. 300 1975 6.9, 7.2, 7.5 6 moe 6 yr. Banque European Units of 15 1980 13.5 3 yre, 9 mos 9 yre d'Investissement Account Kuwait Fund Kuwaiti Dinar 0.85 1972 4 2 yre, 3 moes 9 yre, 9 mos 2.4 1974 4 4 yrs, 3 mos 13 yre, 9 mos 6 1975 7 3 yr., 10 mos 15 yrs, 4 moe 8 1980 7 7 yr. 18 yrs, 6 moe Abu Dhabi Fund UAE Dirham 70 1976 5.5 1 yr, 9 mos 12 yrs, 9 moe Banque Africaine Urits of 4 1974 7 3 yre 12 yre. 6 mos de Developpement itccount 3 1976 8.5 2 yrs, 5 mos 11 yre, 11 mos 5 1978 8.5 2 yre, I mo 11 yr., 7 mos 10 1982 8.5 3 yre, 4 nos 12 yre, 11 mos Export Finance (Norway) Krone 42 1974 6.9 6 mos 12 yre OPEC Fund US$ 2 1979 6.75 5 yrs 15 yre 5 1982 4.5 5 yre 10 yra Kreditanstalt Mark 11.9 1979 2 10 yrs, 1 mo 30 yre, 1 o Islamic Development Islamic Dinar 10 n.a. n.a. n.a. n.a. Bank IFC Swiss Franc 80 1983 8.25, 8.75 3 yrs 8 yre International Bonds Saudi Rial 100 1975 8.5 3 yrs 8 yrs Private Placementa Saudi Rial 100 1978 8.125 7 yrs 10 yre Yen 10,000 1978 7.7 4 yrs 8 yre International Floating Rate US$ 40 1976 Libort n.a. I yr, 6 mos 5 yr. US$ 125 1977 Libort n.a. 2 yrs 6 yrs Swiss Franc 38 1980 SF Libort 3/4% n.a. 10 yrs Swiss Fra,tc 20 1980 SF Libort 3/4% n.a. 1 yr Swiss Franc 100 1981 SF Libort 3/4% n.a. 1 yr Swiss Franc 100 1982 SF Libort 1-1/8% 3 yrs 6 yre Source: BNDE PROJECT COMPLETION REPORT MOROCCO, SEVENTH AND EIGHTH LOANS TO BANQUE NATIONALE POUR LE DEVEWPPEMENT ECONOMIQUE (BNDE) LOANS 1061-MOR AND 1428-MOR June 22, 1983 Regional Projects Department IDF Division Europe, Middle East and North Africa Region -15 - PROJECT COWPLETION REPORT BANUE NATIONALE POUR LE DEVELOPPEENT ECONOMIQUE Loans 1061-MOR and 1428-4OR 1. INTRODUCTION 1.01 Banque Nationale pour le Diveloppement Economique (BNDE) was founded in 1959 at the initiative of the Moroccan Government. The Bank Group's association with BNDE was initiated in 1962 when the first loan of US$15 million was negotiated, and an IFC participation of 14.7% in the share capital, representing $1.5 million was subscribed (IFC's participation represented 5.9% of BNDE's share capital as of December 31, 1982). The Bank has made nine loans to BNDE amounting to US$254.7 million, net of cancellations, including the ninth loan of US$70 million approved by the Board in 1981. 1.02 BNDE is the main institution providing long-term loans and equity funds to the industrial sector in Morocco. Since 1977, it has also started the promotion and financing of small scale enterprises (SSI) at the instigation of the Moroccan Government, and with the Bank's assistance through the SSI pilot component ($5 million) of Loan 1428-MOR. As an outcome of this pilot component, two separate SSI projects were approved by the Board in 1979 (Loan 1687-MOR) and 1981 (Loan 2038-MOR). Approximately 75% of BNDE's approvals have been to the private sector since the approval of the seventh BNDE Loan (1061-MOR. in 1974. BNDE's operations remain concentrated in food processing, textiles, construction materials, leasing, and transportation. 1.03 Loan 1061-MOR of US$30 million was approved by the Board on December 19, 1974, and became effective on May 31, 1975. This seventh loan to BNDE is described in Appraisal Report 585-MOR dated November 27, 1974, and in the President's Report P-1537-+OR of December 4, 1974. Loan 1428-MOR approved by the Board on May 19, 1977, totalled $45 million, including the $5 million pilot component for SSI. This eighth loan to BNDE is described in Appraisal Report 1505a-MOR of April 25, 1977, and in the President's Report P-2032-MOR of May 6, 1977. As of May 1983, Loan 1061 MOR had been fully committed and disbursed; Loan 1428-NOR was closed in March 1983 with a total of $10.7 million cancelled at BNDE's request (para 4.06). 1.04 BNDE co-operated fully in the preparation of the PCR, and has provided a substantial amount of the data used in this report. -16 - II. THE ENVIRONMENT A. Economic Developments 2.01 In the mid 1970's, Morocco responded to the rise in the price of phosphate, its main export, by sharply increasing investment expenditures as part of a policy to stimulate growth and employment. As a result, GDP grew at 6.7% p.a. during the period 1972-77, with the industrial sector leading at 8.1% p.a. The surge in phosphate demand, however, proved temporary and the concurrent sharp increase in government investment expenditures started to put severe pressure on both the balance of payments and the government budget* by 1977, the resource gap and the Treasury deficit had reached 20.4% and 17.6% of GDP. The resource gap was financed largely through massive external borrowings. 2.02 An austerity program was established in 1978, which reduced the resource gap and the Treasury deficit to 13.7% and 9.7% of GDP respectively by 1979. The Government investment program was severely cut with many projects left uncompleted or postponed, imports and private credits were restricted, and tax measures were introduced to raise current revenues. In spite of this program, the external position of Morocco remained very tight in part as a result of the 1979 increase in oil prices. 2.03 In 1980, the IMF and the Moroccan Government negotiated a three-year stabilization program. The Government's efforts to stabilize the economy were, however, hampered by several factorst (i) a severe drought in 1980-81 reduced agricultural value added by about 20% and entailed substantial imports of cereals; (ii) the significant appreciation of the US$ vis-a-vis the Dirham in 1981 raised the local currency cost of imported commodities as well as of debt service payments; (iii) the rise in international interest rates further increased the debt service burden; (iv) a further decline in 1982 of world market prices for phosphates affected export earnings adversely; and (v) renewed pressure to increase military spending, as well as to expand the provision of social services and consumer subsidies to meet the needs of a rapidly growing population, affected the budgetary position. These factors led to a rise in the current account deficit and the debt service ratio, and the Government's dependence on heavy international borrowing continued in 1981. B. The Manufacturing Sector 2.04 The manufacturing sector's share in GDP has been stable at about 17% since 1969 and employment in the sector accounts for 8% of total employment. with about half of the jobs in the modern sector and half in small-scale and artisanal industry. Value added, which expanded quickly at 7% p.a. in real terms for most of the early and mid-seventies, is now estimated to be growing at less than 4%. In terms of value added, the largest sectors are food, beverages and tobacco (33%), textiles, clothing and leather (19%), wood, paper, rubber and cement (18X), chemicals and petroleum refining (17%) and metallurgy. Engineering and mechanical industries still occupy a minor place (111). Industrial production is thus heavily concentrated on consumer goods (about 53% of the total), with capital goods representing less than 8%. - 17- 2.05 The devalopment of the manufacturing scators during the 1970s was cnaracterized by an inward-looking policy which encouraged investment in import substituting activities, serving the domestic market needs for consumption goods and basic intermediates. Excessive protection in the form of high duties and/or stringent import licensing, combined with unnecessary taxation of imported inputs, has not been conducive to efficiency and has introduced bias against manufacturing exports. 2.06 Manufactured exports started to emerge as an increasingly dynamic sector only during the mid and late 1970s, in particular because of the introduction of an export code in 1973, subsequently reinforced by additional export incentives in 1978. Since 1979, manufacturing exports (in particular phosphoric acid and clothing) have risen steadily by 23% p.a. As a result, the share of manufacturing in total exports increased to an average 38% in 1979-81, from 25% in the mid-seventies. Exports are constrained, however, by inadequate fiscal and tariff policies and an overvalued Dirham. The Fund and the Bank are currently discussing with the Government policy improvements in that respect. C. The Financial Sector 2.07 Morocco's financial sector comprises fifteen commercial banks, five specialized institutions and two savings banks. Medium and long-term financing are provided to private investors principally by three institutions, the agricultural credit bank (CNCA), the housing and tourism bank (CIH) and the industrial bank (BNDE). The Banque du Maroc (BD4) is Morocco's central bank. The Casablanca stock exchange plays a limited role. The domestic market is dominated largely by the Government, and access to it is a function of the Treasury's own borrowing needs and those of a few major public sector enterprises. Low interest rates and Long maturities characterize the bond market, and the resulting absence of an active secondary market discourages purchases of such instruments by individual investors. 2.08 Morocco's fifteen commercial banks had total assets of about $4.4 billion at the end of 1981. The degree of concentration is high, with two banks accounting for 44% of total assets and six other banks for another 47X. The banking network is well developed and the total numoer of branches amounted to 611 in 1981. The commercial banks are efficiently and profitably run, their management i- of good quality, and they are generally free of major government interference. 2.09 Commercial banks provide predominantly short-term loans; they supplied 85% of short term financing in 1979-81. The banks tend to limit their medium and long-term lending operations and several of them did not reach in the recent past the mandatory minimum ratio of 4.5% set for such lending. Medium and long-term loans outstanding have stagnated since 1978, since their share in such credit outstanding steadily declined from 18% in 1978 to 14% in 1981. The relatively small amount of medium term lending is, however, supplemented by the financial instruments (bond issues principally) available to the specialized institutions (in particular, BNDE). 2.10 Outstanding medium and long-term credits to the private sector amounted to DH7.3 billion (1.1 billion) at the end of 1981, of which the -18 - specialized institutions provided 86%. Such credits to industry were about DH1.t2 billion ($300 taillion) at end 1981; BNDE's share was 78%, with the rest distributed between commercial banks (about 84) and foreign suppliers' credits. Other sources of medium and long term financing to industry comprise leasing and equity participations. Leasing is offered by three companies and, althou.a litaited to DH274 million ($51 million) at end 1981, was expanding rapidly (+301 in 1981) . Equity participations in industry are made mainiy by ODI ana BNDE, their investment portfolio standing respectively at DH480 million ($90 million) and DH120 million ($22 million) at the end of L981. IlI. BANQUE NATIONALL POUR LE DEVELOPPERENT ECONOMIqUE (BNDE) A. Ownership and Control 3.01 As agreed wim the bank, BNDE doubled its capital to DR14u million in Decemoer 1977. The Moroccan Government directly controls 34k, and indirectly anotner 16% througn publicly controlled institutions. Consequently, Government control tas increased since 1976 from 381 to 50Z, principally through Caisse de Depot et de Gestion (CDG), which was not previously a tiNDE snareholder. Tne increase in Government ownership is not expected to iniluence BNDE's policies and management; furthermore, CDG's presence in BNOE's board in the person of its competent and hignly regarded uirector-General constitutes a positive development. Private stareholders hold 18Z, local institutions 9Y, toreign private banks 17%, and IFC 6% of the equity. 3.02 8NDE has 19 Board members. Eight of these are officials of the Moroccan Government, seven represent for-ign shareholders including IFC, three represent the Moroccan private sector, and one is the President of BNDE who is nominated in ertect by the Government. The Board is responsible for the overall policy of BNDE and oversees all aspects of BNOE's activities. B. Management and Policies 3.03 When Loan 1061-ROK was appraised, Mr. Mustapha Faris, former Minister of Finance, was BNDE's Presicent. Under his leadership, BNDE grew very rapidly in line with the economic growth of 1974-77 but also as a result of two important but in restrospect questionable decisions, namely, to increase more -apidly than in the past the share of BNDE loans to the public sector, ana to iinance this expansion through increasing recourse to Eurocurrency funds at variable interest rates. The risks BNDE took in implementing this obj:ctjve were tirsc that BNDE did not nave the leverage nor the appraisal capability to influence the public sector enterprises it financed nor the possii3ility to condition its financing to requirea cnanges in Government poiicies and investment priorities Lpricing, tariff and fiscal policies, management, distribution and marKeting strategy, etc.). Secondly, BNDE's i-xed interest rate policy and the lack of clear understanding with the Treasury on the ioreign exchange risk on BNDE's Eurocurrency borrowings left bNDE insutficiently protected. 3.04 Mr. AbdelKader Bensiimane, also a former einister of Finance, succeeded Mr. Faris in January 1978 as President of BNDE. Until 1981 the previous objectives of expansion, in part through unduly large loans to public -19- - sector projects, were continued. When by end-1981 the value of the Dirham decreased and the interest rate of Eurocurrency loans exceeded considerably BNDE's fixed interest lending rate, BNDE faced a major financial crisis. Increasing shortcomings in BNDE's organization structure, the worsening of tne economic climate after 1977, the pressure resulting from a rapid increase in administrative work and supervision following the doubling ot BNDrOs portfolio from 1975 to 1977, compounded by the subsequent departure of some senior staff and the demise of the economic department, resulted in a gradual deterioration of BNDE's output and profitability. Since the departure of BNDE's Chief Economist in 1978, BNDE has been operating without clear sectoral objectives. It had no long-range planning, no training programs nor operational manuals, and a weak organizational structure. In the context of the approval and eftectiveness of the ninth loan, the Bank strengthened considerably its supervision of BNDE. It also made a senior consultant available to BNDE to advise on organizational and procedural changes. As a result and with the help of the Treasury, BNDE took a series of measures and presented to the Board a reorganization plan and a new Policy Statement to overcome these shortcomings. These changes have just been approved. They have fundamental implications for BNDE and its future role in Morocco. However, their implementation is complex and will require a long transition period during which subtantial Bank assistance and supervision will be required. 3.05 BNDE's staff has doubled in the last ten years and has grown by about 45% in the last five years. At end-1982 BNDE had a total staff of 231 including 109 professionals. The staff, however, has suffered from Lhe lack of adequate middle management and uneven leadership. Few officers have a direct and clear knowledge of industry, of company management, or of industrial promotion. A major effort will be needed to reassess the potential of the existing staff, address its training needs, and recruit experienced industrial experts. This matter is also on the agenda of the Bank supervision plan of bNDE in the coming two years, which will include considerable technical assistance especially with respect to training of top and middle management. C. Operations 3.06 In addition to providing medium and long-term loans and equity investments, BNDE plays an important role in the approval of medium-term loans by commercial banks to the manufacturing sector. Initially extended by commercial banks at their own risk, these loans are presented to the Central Bank (Banque du Maroc) for rediscounting, if approved by BNDE. 3.07 During the period of rapid economic growth in 1974-77, BNDE's direct annual commitments doubled to reach DH717 million k$1b3 million) in 1977 (Annex D. As noted above, BNDE's growth in operations changed dramatically as a result of a shift in the level of 3NDE's public sector lending. Until 1974, 8NDE's annual loan approvals to public sector industry represented about 20% of total loans. In 1974-77 these approvals reached 50. with a peak ot 64% in 1975. The substantial slowdown in the economy in 1978 and 1979 resulted in a postponement of many investment decisions; commitments in 1979 dropped to a low of DH267 million ($70 million). This was followed by another sharp increase in 1980 and 1981, with commitwents in 1981 reaching a level of DH755 million ($L57 million). Total equity participations approved from 1977 to 1981 were only 2% of total approvals. -20 - 3.08 Of the above, SSI accounted for an increasing share of BNDEts total commitments, from DHI.9 million ($0.5 million) in 1978 to DH33.1 million ($6.9 million) in 1981. BNDE also acted as the project manaeer of the SSI-I loan (1687-MOR), and reviewed SSI projects submitted for Bank financing by commercial banks for a total of D1173 million ($40 million) during the 1978-81 period. Portfolio 3.09 BNDE's total outstanding loan portfolio as of December 31, 1982, amounted to DHJ2,716 million ($433 million) out of which D1,397 million ($223 million) or 51% is covered by Government guarantees as to repayment of principal and interest. These guarantees are extended by the Government for BNDE loans to public sector enterprites and private sector enterprises investing in priority sectors (such financing is often asked by public sector enterprises after all major investment decisions have already been made, and the role of BNDE is limited to a resource transfer agency). The remaining portfolio is secured by collateral and floating charges. This compares with a loan portfolio of DH909 million ($217 million) at the end of 1975, with 52% covered by Government guarantees. The equity portfolio has remained relatively small, increasing from DH72 million in 1975 to DH 120 million in 1981. The return on this portfolio has been very low, only 5% including dividends and capital gains in 1982. 3NDE is currently reviewing its equity investment portfolio in an etfort to improve the situation. 3.10 BNDE's arreats situation has been a source of concern, and reflects inadequate supervision of loans, and in the case of puolic sector investments also BNDE's inability to bring its expertise to bear both during appraisal 9nd implementation. The following table summarizes BND.'s arrears on principal and interest for the period 1975-1981: (D million) 1975 1976 1977 1978 1979 1980 1981 Total Loans Outstanding 909 1340 1912 2228 23b7 247u 2609 Total Arrears 45 68 78 114 159 247 331 % in Arrears 5.0 5.1 4.1 5.2 6.7 10.0 12.7 3.11 This table also snows the very rapid expansion of BNDE's portfolio, whicn more than doubled in the period 1975-77. This increase coincided with large BNDE commitments in public sector projects (55% of BNDE's commitments in 1974-76) . The public sector investments have faced serious financial and technical difficulties, and the resulting difficulties in obtaining repayment (even though such repayments were euaranteed by the Government) have brought about half of the steep increase in arrears (from 5% in 1975-77 to nearly 13% of the outstanding loan portfolio at the end of 1981) . Ever since it lent to BNDE, the BanK had expressed certain reservations about BNDE's desire to lend to the public sector. The Bank felt that BNDE staff could not cope or did not have the experience with the type of projects undertaken by public sector industry, their size, and the complex policy issues associated with them. Limits were set in the two Bank Loan Agreements on the maximum amount of the loans to be available to public sector projects (40A ot che loans). During the period under review, tae Bank became increasingly worried by the type of -21 - public sector projects financed by 5NDE. There was increasing evidence that several of these projects were financially unable to service their debt and/or had doubtful economic justifications. It was also clear that BNDE could not face the appraisal responsibijity required to ensure that these investments were sound. During appraisal of BNDE-IX, agreements were reached with BNDE to re-evaluate five large public sector projects in difficulty, and to adopt with the Government remedial actions satisfactory to the Bank 1/. The Bank also exercized pressure on BNDE to set in its new Policy Statement a maximum exposure limit on its loans to the public sector, and to subject public sector investments to the same appraisal and supervision standards as for private sector projects. This has now been agreed and a limit of 25% has been adopted. E. Financial Performance 1975-1982 3.12 BNDE's financial statements and key financial indicators are detailed in Annexes II through V. The actual growth of assets and gross income were in general in line with actual results. However, profits were much lower than projected, mainly due to higher borrowing costs. 3.13 Profitability: More than 90% of BNDE's gross income continues to come from interest on direct loans. Income before taxes and reserves was stable from 1978-82 at approximately 16% of total equity, except for a sharp decline in 1981. BNDE's administrative expenses remained low and were 0.7% of total assets in 1982. BNDE's first borrowing in Eurocurrency took place in 1976. The table below summarizes BNDE's exposure in LIBOR - indexed floating rate Eurocurrency loans and relates this exposure to key profitability indicators. BORROWINGS A B . C D TOTAL LIBOR % LIBOR % I I Z (Dirham million) 1976 1,107 180 16.3 9.1 6.6 2.5 20.8 1977 1,777 716 40.3 9.7 7.9 1.8 16.8 1978 2,134 643 30.1 9.9 7.9 2.0 19.9 1979 2,094 517 24.7 10.0 8.4 1.6 16.7 1980 2,279 .612 26.9 10.3 9.0 1.3 16.6 1981 2,713 730 26.9 10.8 10.6 0.2 0 A; Income on portfolio * average portfolio outstanding A: Cost of debt - average outstanding amount of long term debt C: Average interest spread, A - B D: Gross profit - equity The drop in BNDE's income in 1981 was mainly due to an increase in BNDE's floating rate Eurocurrency borrowings on which BNDE was exposed to both 1:1 A general review of the liability of the Caisse de Garantie with respect to BNDE portfolio covered by Government guarantees also took place in 1982. A satisfactory plan has been agreed. -22 - interest and exchange rate risks. BNDE's average spread at end-1981 had fallen to 0.2%, from 2.0% in 1978. Cost of LIBOR indexed EurodoLlar borrowings increased from 13% in 1978 to over 20% in 1980-81. 3.14 The Bank had strongly encouraged BNDE to diversify its resources at a time (before 1972) when IBRD was about the sole foreign lender to BNDE. The diversification objective was quickly achieved in tne seventies. The proportion of Bank funds decreased from 42% of total resources outstanding in mid-1974, to 20% at end-1976, and o% at the end of 1982. The Ban realized early that an excessive exposure in Eurocurrency funds was very risky. During negotiations of Loan 1428-4R in April 1977, while NDE did not agree to a fixed limit of variable interest resources in relation to total resources, BNDE agreed in a Supplemental Letter to maintain at all times a reasonable proportion between floating rate and fixed rate borrowings, and to consult with the Bank on any substantially new resource mobilization plan than the agreed one. No such consultation however took place until appraisal of BNDE-IX, when it was already too late to prevent a crisis. Conversely, it appears that the Bank did not adequately follow up on the implementation of the agreement. 3.15 In 1982, two important measures were taken by 13NDE in consultation with the Bank to correct the situation. First, BNDE's lending rates were increased in April 1982 to 13% for new projects and to 14% for extensions, compared to a single rate of 12% before. This was followed by another increase in November 1982 to 14% for all new projects, and to 15% for leasing. In addition, the Government agreed to review BNDE's lending rates periooically to ensure a minimum spread of 2.57. Secondly, the Government agreed to absorb the foreign exchange risk (principal, interest and commissions) on all of BNDE's previous and future toreign borrowings (BNDE will collect a 1% front-end "foreign exchange risk fee" from the sub-borrowers on the Government's behalf). Total exchange rate gains and Losses incurred on BNOE's borrowings were calculated from the beginning of BNDE's operations, and DR97 million was paid by the Government to BNDE in 1982. These measures allowed BNDE to report a profit of DH43 million ($6.8 million), before taxes and allocation to reserves, in 1982. 3.16 Financial Positiont BNDE's total assets increased by 411% in DH and 297% in $ terms over the 1974-81 period, from DR658 million ($159 million) at the end of 1974 to DH3,365 million ($631 million) at end-1981, with the main increases taking place in the period 1975-77, and in 1980-81. At end-1981, long-term debt to equity ratio was 11.2 at end-1981, exceeding the 10:1 limit agreed to by BNDE in prior IBRD loan agreements (however, this ratio was reduced to 10:1 at end-1982) . In addition, BNDE's liquidity position was tight due to high short term borrowings and a high level of arrears (see Annex V) . 3.17 Tne observation already made with respect to BNDE's financial troubles resulting from its borrowings in Eurocurrency, and the deterioration of its portfolio due to loans to nor-profitable public sector firms and due to weak supervision of the entire portfolio, are sufficient to explain the rapid deterioration of BNDE's financial position by end-1982. It is not necessary to detail in this PCR the negotiations which took place between BNDE, the Treasury, the Central bank and the Bank to redress the situation since these aspects took place in the context of BNDE-IX. In summary, however, one should -23 - state that the financial aspects of these discussions covered principally BNDE's interest rate spread, the foreign exchange risk, the 1983 lending program and financial budget. On the basis of these agreements and of the recently approved IFC syndicated loan of $40 million equivalent to BNDE, BNDE's financial prospects are now quite satisfactory - with acceptable profitability, debt/equity, liquidity, and provisions and dividend forecasts. 1/ IV. THE PROJECTS A. Objectives 4.01 The objectives of Loans 1061-MOR and 1428-MOR were to provide assistance to the industrial sector of Morocco. Loan 1061-*WR was committed in 1975-77 at a time when the economy had expanded rapidly. Loan 1428 nUR was committed in 1978-80 during the interim Austerity Plan (1978-80) which the Governmenc initiated in order to redress the deteriorating economic situation. The $30 million Loan 1061-MOR and the $45 million Loan 1428-140R were specifically designed to: a. Provide funds to BNDE to finance medium-sized industrial projects. The Bank loans provided about 15% of BNDE's resources during the period mid-1975-1979. b. Facilitate the mobilization of other foreign resources by BNDE throueh the confidence expressed by the Bank by continued lending to BNDE. c. Provide for the first time in Morocco Bank assistance to SSI (through a $5 million pilot component under Loan 1428-MOR); the promotion of such labor intensive industries was considered of great importance due to the prevailing high unemployment rate. d. Assist with the institution building of BNDE, in order to prepare BNDE for its assigned major role in financing industrial projects. B. Cofinancing 4.02 Over the period under review, 1975-1979, BNDE received several loans from various Moroccan and foreign institutions, including two LIBOR indexed Euro-dollar Dorrowings contracted through commercial banks in 1976 and 1977 for a total amount of $165 million. C. Use of Loan 1061-4OR 4.03 The $30 million loan assisted in the financing of 38 projects, with a total value of $114.9 million, and employing about 3,900. The average maturity of BNDE loans for medium-sized projects under loan 1061-MOR was 7 years, including an average grace period of one year. The results achieved are summarized below (details in Regional files)- 1/ BNDE most recent projections have been presented in IFC Appraisal Report T457 and the President's Report P543, 1983. - 24 Loan 10b1-MOR ($1 = DR 6.27*) Number of Projects Assisted 3d Number of Export Projects 11 Employment Created 3,867 Cost of Projects ($million) 114.9 Foreign hxchange Cost of Projects ($million) 49.1 Investment Cost per Job Created () 29,700 Average Internal Rate of Return 23.44 * End-1982 exchange rate. 4.04 Out of 38 projects financed by Loan 1061-MOR, 36 are operational and no serious difficulties have arisen with the major (above the free limit) projects financed under the Loan. Seven other smaller projects were in arrears as of December 31, 1982 of which two are companies operating profitably, three are companies operating at a loss and two are companies under litigation. Most of the projects were completed within BNDE's cost estimates. Economic rate of return calculations are not available. The results indicated above are considered satisfactory, and in line with other development banking loans made in the Region. 4.05 Disbursements followed closely the estimates made at the time of appraisal until June 1977, when cancellations of earlier commitments and reallocation of funds to new projects necessitated that the closing date be extended by one year to December 31, 1979. The loan was fully disbursed at that date. BNDE has expressed some concern about the delays encountered in some cases in receiving authorizat-ons of withdrawals, disbursements and notifications of disbursements from the Bank, which created perturbations in their daily accounting operations. This has oeen corrected. D. loan 1428-MOR 4.06 The $45 million loan assisted in the financing of 32 larger and 36 SSI projects with a total value of $68 million and employing about 5,000. Cancellations amounted to $10.7 million, of which $3.0 million was due to foreign exchange fluctuations and $7.7 million for 8 projects cancelled at BNDE's request after the last date for submission of projects to the Bank, thus preventing BNDE from re-utilizing the amount cancelled for other commitments. This loss of available resources illustrates BNDE's need to strengthen its follow-up, particularly at the stage of project implementation, to identify problems and propose solutions at an early stage of the project cycle. BNDE has become increasingly aware of the need to improve its supervision and will double the number ot professionals of the Follow-up and Recovery Department before the end of 1983 (as part of the agreement reached with the Bank group during negotiations of a $40 million loan syndicated by IFC, in May 1983). Similar to that for loan 1061-MOR, the average maturity of BNDE subloans for medium-sized projects was seven years, including an average grace period of one year. However, for SSI the average maturity of BNDE subloans was only four years, which resulted in cash difficulties for several SSI projects during their first years in operation. The Bank has recently - 25 - agreed with BNDE that for the SSI II Project (effective since February 1983), the normal maturity of subloans would be eight years. The results acnieved are summarized below (details in Regional files): Loan L428-MUR (US$1 DH t.27* ) Medium sized industry ($40 million) Number of projects assisted 32 Number of export projects 1 Employment created 2,390 Cost of projects ($million) 65.1 Foreign exchange cost of project ($million) 19.9 investment cost per job created ($) 27,200 Average internal rate of return 20.4% SSI ($5 million) Number of projects assisted 38 Employment created 1,584 Cost of projects ($million) 6.8 Investment cost per job created ($) 4,300 * End-1982 exchange rate. 4.07 All projects financed under Loan 1428-MOR, either in the traditional or SSI sector, are operational and no serious difficulties have arisen with any of the major projects financed, although 6 projects (out of 70) are in arrears due to technical and financial difficulties. Total arrears reached $0.73 million as of December 31, 1982 affecting a porttolio of $1.7 million. Most of the projects were completed within BNDE's cost estimates. Economic rate of return calculations are not available. The above results, both for medium and small-scale industries, are considered satisfactory, and in line with similar figures from other development banking loans made in the Region. 4.08 Total disbursements under Loan 1428-MOR amounted to $34.3 million. A total of $10.7 million was cancelled for reasons detailed in para 4.06. Disbursements were slower than expected at the time of the appraisal, mainly because of the economic slowdown experienced in Morocco during the 1978-80 Austerity Plan (para 4.01) which deferred the realization of several projects. As a result the original closing date had to be postponed to March 21, 1983. E. Impact of BNDE on Industry 4.09 BNDE has made a substantial contribution to financing private industry and its share in total investments in industry (as measured by approvals including rediscountable loans by commercial banks which must be approved by BNDE) has increased regularly during the 1977-81 period as detailed in the table below. - 26 - Investments in Industry and Transport and BNDE Share 1/ (D million) INDUSTRY 1977 1978 1979 1980 1981 Private Sector Mines and Energy 199.4 9,.$ 12.4 3.5 162.9 Petroleum 23.5 8.6 105.6 - - Textiles 424.0 226.5 178.6 404.0 420.5 Food Processing 206.9 184.8 246.5 332.5 294.4 Electrical/14e- chanical 226.1 263.9 132.2 258.5 215.9 Chemicals 712.3 338.5 365.5 581.0 607.9 TOTAL 1,792.2 1,118.1 1,040.8 1,i75.5 1,701.6 Of which BNDE 483.9 288.3 333.1 800.8 901.9 % (27%) (25.8X) (32%) (50.7%) (53%) Public Sector 2/ 666.4 43.9 17.2 109.4 88.9 Of which BNDE 133.3 3.8 11.7 59.7 49.8 % (20%) (8.7%) (68%) (59%) (56%) Industry total 2,458.6 1,162.0 1,058.0 1,684.9 1,790.5 Of which BNDE % 25.1 25.2 33.1 51.0 53.2 TRANSPORT 913.50 909.00 329.52 635.50 695.50 Of which BNDE % 39.8 47.5 41.7 8.0 45.9 1/ Figures refer to approvals and not to investments actually realized 2/ Excluding investments by Government owned agencies Source; Ministry of Industry and BNDE. BNDE's key role of major supplier of medium and long-term financing to industry is still more apparent when looking at disbursements: Outstanding medium and long-term credits to industry were about DH 1.62 billion ($300 million) at end 1981, and BNDE's share was 78%, with the rest distributed between commercial banks and foreign suppliers credit. Within industry, BNOE's most active lending sectors were textiles, food processing and electrical and mechanical industries during the 1977-81 period. 4.10 A break-down of the sectoral distribution of the 70 larger projects financed under Loans 1061-MOR and 1428-MOR is given in Annex VI. In view of the relatively small amount involved and the diversity of projects financed, no such analysis was made for SSI. Of the 70 manufacturing projects financed, construction materials was the largest beneficiary (53%) in particular due to the financing of three large cement plants; it is unlikely that this heavy -27 - concentration in one sector will be repeated. Other main beneficiaries of BNDE financing under Loans 1061-MOR and 1428-MOR were food processing (15%) followed by textiles (11%) and chemicals (6%). BNDE financed an average of 27% of the total project cost, the rest being provided by equity funds, rediscountable loans from commercial banks, and suppliers credits from abroad. An analysis of all tinancing approved by BNDE in the period 1974-1981 is given in Annex VII. F. Development of Small Scale Industries (SSI) 4.11 A total of 38 projects have been approved under the SSI-pilot component of loan 1428-MOR, involving $4.6 million of Bank funds. About 1,600 jobs were created at an average cost of $4,300. The main beneficiaries were food processing a%d textiles, and 53 % of the borrowers were in the Casablanca area. The SSI component of Loan 1428-MOR was committed more rapidly than anticipated and this success led to the first SSI-I Project of $25.0 million (Loan 1687-MOR) to morocco which was signed on April 29, 1979 and committed rapidly as well. However prospects for commitments under the SSI II Project of $70.0 million (Loan 2038-MOR, effective since February 1983) are uncertain, and BNDE management feels that the scope for SSI is now limited as the most likely profitable opportunities have been taKen up already. 4.12 As part of the SSI component of Loan 1428-MOR, a study was undertaken to (i) make an inventory of the characteristics, economic needs and growth potential of SSI; (ii) recommend a specific definition for SSI; and (iii) propose an action and implementation program of technical assistance to SSI. The study, financed by BNDE's own funds, was realized by qualified consultants and reviewed by the bank. It provided an effective tool to design the first SSI project (Loan 1687-MOR). In fact, one should credit BNDE for its strong commitment and support to the promotion of the first SSI project in Morocco. BNDE agreed to assign experienced staff to this effort and it played, together with the Treasury, a major role in promoting SSI long-term financing techniques with commercial banks. V. CONCLUSION 5.01 The two loans under review cover the period from 1974 to 1981. This period has also been one of considerable changes in Morocco's political and economic environment. During that time, BNDE's assets increased five-fold (Annex II), reflecting a considerable drive by management and the authorities to promote industrial investments and to give BNDE a central role in financing long-term investments, whether in the private or the putlic sectors. BNDE, with Bank assistance, also took a laudable initiative in developing small scale industries in Morocco (paras 4.11, 4.12). In addition, BNDE diversified its sources of financing, although a too great exposure in floating rate loans proved very costly (para 3.13). 5.02 The tirst part of the period under review was a period of vigorous industrial growth during which BNDE was barely able to face demand for its financing. The growth in BNDE's operations, at that time increasingly in the - 28 - public se-tor (para 3.03), was not accompanied by an adequate growth in personnel and, more importantly, by a recruitment and organization policy in line with the long-term needs of the industrial sector (paras 3.04, 3.05). In particular, while BNDE continued to pay satisfactory attention to the technical and financial aspects of private sector projects, there was comparatively insufficient attention paid to public sector projects in general and to directing BNDE's limited resources to top priority sub-sectors. By 1978-80, when norocco experienced severe Dalance of payment problems, it became clear that special institutional efforts were needed to promote key sectors in Morocco, such as the capital goods sector and in general exports. With no economic department to plan a strategy which could alert the Government on policy changes needed, and on associated promotional needs, BNDE was not able to fultill its developmental functions in this area (para 3.04). 5.03 At the same time, BNDE's internal organization was weakening in part as a result of the frequent changes in BNDE's presidency in the 70's. Indeed, between 1971 end 1978 BNDE's top management changed four times, contributing to a lack of long-term stability and implementation of consistent policies (para 3.05) . 5.04 At the time the Bank appraised BNDE-IX (1980), it was clear that major changes and reforms were urgently needed. On one hand, the push for growth which had been promoted since 1974 nad resulted in imprudent exposure in international capital markets. There were also administrative issues which resulted in a lack of clear understanding between BNDE and the Treasury on the Treasury's responsibility for guaranteeing public sector loans in default, and in covering BNDE's foreign exchange risk. Perhaps even more importantly, there seems to have been a gradual parting between BNDE's objectives and the objectives of the industrial sector. Increasingly fewer BNDE staff members had first hand exposure in industry; BNDE expected clients to come to it rather than BNDE going out in the field to learn first hand of the real needs of industry, not only in finance but also in technical assistance, promotion, marketing, export assistance, etc. (para 3.05) . 5.05 The Bank appears to have been slow in becoming aware of this gradual deterioration. In any case, tne bany should not have agreed to a ninth loan before BNDE was able to produce a corporate and economic plan well in line with Morocco's needs. In fact, this was ultimately the line taken by the Bank, which withheld effectiveness of the loan for more than a year until late 198; when 6NDE was finally ready to present to its shareholders a satisfactory plan of renabilitation. It will take some time, however, before BNDE has been completely rehabilitated. Full credit must be given to the present President Director General for instituting the required reforms, and for his close cooperation with the bank and its consultant regarding this matter. 5.06 In spite of this critical view, BNDE remains the maost important financial institution in Morocco. First, it has a solid experience in financing and appraising long-term investments, and this experience can relatively easily be further enhanced through training and adequate recruitment. Second, with appropriate support, it should be able to become again the leader of the financ .al community with respect to private sector investments. This aspect will take some time, and will require the restructuring of BNDE's supervision and technical assistance department and - 29 - basically the introduction of a new spirit in BNDE's attitude towards its clientele- an outward and assistance oriented view of its role. Third, BNDE should aim at becoming an active partner and advisor to the Government in policy making as well as in the implementation of sectoral policies. This will require also training, recruitment, and the determination of BN)E's management to design a strategy and action program clearly in line with Morocco's industrial priorities. However, the role of BNDE in the public sector remains an open question which is difficult to resolve. For the time being, given BNDE's general weakness, we have advised BNDE to keep a low profile in this field until it has strengthened its own organization. 5.07 Given BNDE's importance and potential, the Bank should continue to assist BNDE in these difficult restructuring objectives. The Bank's supervision effort should continue, over the next two years, to exceed the normal assistance given to other DFCs. - 30 - Annex I MOROCO - BAMQUE NATIONALE POUR LE DEVELPPEMENT ECONOMIQUE Actual and Projected Operation 1/ 1974-81 (DH millions) 1974 1975 1976 1977 1978 1979 1980 1981 Approvals Projected 2/ 463.2 460.0 458.0 710.0 815.0 915.0 965.0 1015.0 Actual 448.0 748.2 704.0 827.1 319.5 465.8 680.8 96A.1 Commitment Projected 2/ 383.2 460.0 458.0 610.0 665.0 715.0 815.0 865.0 Actual 371.6 624.4 626.1 717.2 344.7 266.7 511.3 754.7 Disbursements Projected 2/ 198.8 364.4 505.6 510.0 610.0 665.0 715.0 765.0 Actual 125.4 464.7 518.0 715.1 490.9 371.9 366.1 484.5 Medium Term Rediscountable Loons Projected 2/ 110.0 110.0 110.0 350.0 300.0 350.0 400.0 400.0 Actual 181.7 293.4 374.9 369.8 171.9 201.6 290.4 351.1 1/ Including SSI. 2/ Projections 1974-76 according to SAR No. 585-MOR (BNDE VII). Projections 1977-81 according to SAR No. 1505a-MOR (BNDE VIII). BNDE December 1982 -31- I ANNEX II 0 5C0 5459 0 S- É *0 - . 2~ 2 * È-4 - a 0*45 S- OCq9 *4 * 5 -. - 440- $ .8. - 4 4 i~:ij UN -- S- * . e .. 5.a a -f N . 54 40 0 .0550 5 0 n i n4,Ø fl5 5. m C - ~ANGUE NATIDNALE PUR LE DEVELPPEHENT ECONOMIOUE Proected* and Agtual Inem Stateent£ 1974-1984 (millions of DN) 1974 1975 1976 1977 197 . 1979 1950 1981 1982 1983 1914 ProL £&g. ftgj. ägL Prol. % ftgja kgS pg-g. 6gg. p &. A&. gft £6g- £6- £6. *6g lnt.rest a Commisin on: Diroct loans 39.2 36.7 57.5 60.9 87.2 97,9 142.2 152.6 183.4 201.6 224.7 226.7 262.5 24S.6 296.6 266.3 306.0 328.0 341.3 Rediscounted loans 1.8 2.0 2.0 2.5 2.1 3.4 3.5 5.2 5.2 6.7 4.5 6.2 5.0 5.0 5.5 5.0 5.3 1 5.7 ) 4.7 Comissions - 2.4 - 2.9 - 4.6 2.7 4.9 3.2 4.2 3.7 3.4 4.2 3.6 4.7 6.7 5 11videds 1/ 3.6 3.0 4.8 3.3 5.6 3.5 4.7 3.8 5.3 4.6 6.0 5.3 6.7 4.6 7.5 5.3 5.9 0.7 7.1 Other Incom 0.9 0.7 0.9 1.2 0.9 2.6 0.8 1.9 0.8 5.4 0.9 6.7 0.9 5.4 0.9 5.6 6.4 8.9 18.2 GrsLinme 24 AL.A U2 2aj RL 112.0 154..- 1J 19J 254 S6LA UA4 nu2 all ~gg4 2A Mg ~3I. Chares on borrowings 24.7 25.4 39.6 42.7 61.2 72.8 103.3 115.1 142.2 157.8 161.9 188.1 183.8 203.4 205,9 262.0 260.5 260.4 279.9 Comulssions - 1.1 - 1.2 - 1.2 1.8 1.5 1.6 3.7 1.4 1.6 1.8 1.1 1.6 1.0 - P~rsonnel cost a salaries 4.3 4.3 5.1 5.1 6.2 7.0 8.0 8.1 8.8 9.6 9.7 10.7 10.6 11.0 11.7 14.8 15.5 18.1 21.5 Other adinistrative expenses 1.2 2.0 1.5 2.0 1.8 2.8 2.2 4.4 2.5 4.2 2.7 6.8 3.0 5.2 3.2 6.7 7.0 7.1 5.6 Deorecatiof/rtiMation 0.7 0.7 1.8 1.8 1.4 2.3 3.8 3.8 4.1 4.9 3.7 4.7 3.3 4.7 3.2 4.2 4.7 4.5 4.8 Provision for: Inve.t~nts / 0.6 0.6 0.6 0.5 0.3 3.0 0.6 0.0 0.6 1.6 0.6 0,9 0.6 0.0 0.6 0.1 8.1 5.1 1.3 Doubtful loans 2/ 2.2 - 2.5 - 2.5 - - - - - - - - - - TotaLExjes~s 152 Lu t A1. ELA 252 WII 119.7 12.9 15§" M 12"å 109S 2 2~ u" lu.1 u" u"L2 ~21 kA POFIT EF=R TAgEu 5/ Lg jd ALd ALA UJ. ni U2 uj IA UJJ 2uj " AuA 20. 2j aj A .1 um j xtraordinary profits (losses) - - - - - - - - - - - - - - - - 8.0 (4.3>) 10.8 Less:- allocation to special reserves on loan - 5.3 - 6.8 . 10.9 15.8 24.4 20.4 25.6 25.0 7.6 29.2 7.8 32.9 0.0 42.4 46.2 32.8 - provision for rediscounted loans - 0.1 - 0.2 - 0.3 8.2 0.5 0.2 0.4 0.2 0.2 0.2 0.3 0.2 0.0 0.3 0.3 0.3 - tax deductible dividend revenue - - - - - - 3.5 - 4.0 - 5.0 - 6.0 - 7. - - - - TAXARLE PaPT Lu 11 14. jg. 2 n j 2 Ug il J aj I DA uj ni 0 kl LI LA Mi Income tax 4.0 1.4 4.4 3.9 5.8 4.4 7.0 3.8 5.8 7.1 14.1 14.7 19.5 17.2 23.3 0.1 - 1.8 12.5 #ETP IT / LA 2 L L3" LA § j 2A ZU jDå 22- UJ ni u i41 w UJ Proviston returned earnings LI I l 22 I LA L2 LI 5.2 7.3 9.4 9.5 12.5 14.7 14.4 0.1 Investnt reserve 3.2 0.2 5.5 0.7 9.8 9.8 1.2 0.7 1.0 1.5 2.4 2.2 3.3 2.4 3.9 0.0 .egal reserve 0.9 0.2 1.0 0.3 1.2 0.3 0.6 0.3 8.5 0.5 1.0 0.6 1.4 0.6 1.6 0.0 alvidends 2.6 2.6 3.8 4.1 5.6 5.6 6.3 5.6 9.8 9.8 11.2 11.2 11.2 11.2 11.2 0.0 Retained earnnines 1.1 2.2 0.2 2.2 (0.4) 2.7 3.2 2.9 (0.8) 0.8 5.9 0.7 11.5 0.1 15.7 0.1 LA La ni4 za ujA mA ni LA nå1. i". uj. AL2 ni 1Li ni L.I Totals my not agree because of rounding. Pro.ections for 1974-76 based on NDE VIZ SAR go. 585-UD. Projections for 1977-81 based on 0NDE VIll SAR No. 15085a-lM. / Including copital gains. 3/ Provisions for depreciation of equity Investmnt are considered as charges to intmn, unlike provisions for lon risk% dich are treated as allocation of profits (from 1977 projecttons onhards). ,/ Under Noroccan fiscal lam this would be the normal inte tax bas but SIDE is all*d exCetionally to dOeduct up to One-seventh of direct lan income and allocate that niewnt to the Special Reserve Loan risks. Since 1975 MDE allocates only one-ninth. S/ Including tax deductible dividend revenue udfich is added back (for 1977 projections onards). Source: ND MOROCO - RANQUE NATIONALE POUR LE DEVELOPPEMENT ECONONIQUE Audited Cash Flow Statements 1974-81 (DR millions) 1974 1975 1976 1977 1978 1979 1980 1981 RESOURCES Internal Resources Net cash generation 10.6 15.9 22 33.9 40.3 28.1 26.5 4.1 Loan collections 63.8 73.6 87.8 132.5 175.4 232.6 283.0 345.9 Increase in current liabilities 1/ 7.1 24.8 21.9 31.9 36.3 94.0 14.0 - Increase in share c-ipital - 32.5 - 70.0 0 0 0 0 Increase in term debts 188.6 484.5 311.2 782.0 639.2 286.9 365.0 638.4 Increase in short-term borrowings 38.5 - 197.6 0 0 - 153.4 32.1 Sales of assets - - 0 0 0 0 0 0 TOTAL RESOURCES 308.6 631.3 640.5 1,050.3 891.2 641.6 842.0 1,020.5 APPLICATIONS Disbursements Loans 199.9 453.1 508.9 715.1 490.9 372.0 386.0 484.5 Equity investments 2/ 5.5 11.8 15.0 13.7 7.5 2.5 19.8 3.8 Debt Repayment 86.9 142.9 3/ 78.8 88.2 196.8 252.5 379.0 489.7 Fixed & Other Assets 0.8 5.9 1.3 7 2.5 0,6 0.9 2.0 Increase in current assets 1/ 12.8 17.6 28.0 62.6 135.4 - 38.7 17.8 Dividends 2.6 - 5.6 5.6 4.2 1.4 11.2 0 Write-offs & other investments - - 2.9 164.4 53.9 12.6 6.4 22.7 TOTAL APPLICATIONS 308.6 631.3 640.5 1,050.3 891.2 641.6 842.0 1,020.5 1/ Excluding short-term portions of debts and loans. 2/ Including equity bonds. 3/ Including DH 56 million in short-term borrowings. BNDE December 1982 MOROCCO - BANQUE NATIONALE POUR LE DEVELOPPEENT ECONOHQU. Mey Financial Indicators 1974 1975 1976 1977 1978 1979 1980 1981 Profitability Indicators Net profit as Z of average net worth 7.2 8.) 5.6 4.1 4.2 5.8 5.6 0 Profits before tax I/ as X of average net worth 19.9 23.3 17.9 20.8 18.6 15.7 16.1 0 Cash 4aividend as % of net profit 28.0 30.0 77.8 83.9 101.8 80.3 51.7 n.a. Cash dividend as % of par value share 8.0 8.0 8.0 8.0 8.0 8.0 8.0 n.a. Book value of share as % of par value share 162.4 139.3 156.3 188.3 161.9 168.7 187.5 186.9 Operational Income Gross income as % of average total assets 8.0 8.4 7.3 9.1 9.2 9.3 9.1 8.6 Administrative expenses as % of average total assets 1.2 1.1 1.1 0.8 0.8 0.7 0.8 0.8 Financial expenses as X of average total assets 4.8 5.3 4.7 6.5 6.6 7.2 7.0 7.8 Administrative expenses/professional staff member (US$ '000) 34.5 36.7 46.4 >2.2 63.9 74.2 52.6 57.4 Dividends as 9 of average equity portfolio 4.9 4.7 4.6 3.9 4.6 5.1 4.3 n.a. Income from loans as % of average loan portfolio 8.5 8.9 7.9 9.7 9.9 10.0 10.2 10.6 Volume of approvals/professional staff member (Us '000) 3,153.4 4,286.8 4,093.5 1,737.0 2,515.2 Cost of debt as X of average debt 5.6 6.1 6.7 7.9 8.2 9.0 9.0 9.7 Year-end professional staff (number) 49 60 51.0 68 68 72 83 93 Financial Structure Indicators Total debt/year-end net worth 11.2 9.8 9.2 9.2 9.9 10.4 9.1 9.2 Long-term debt/year-end net worth 9.3 9.1 7.2 8.9 9.9 9.7 7.8 8.0 IBRD debt as % of total long-term debt 48.3 25.4 20.7 10.7 7.7 8.7 9.4 8.0 Debtlequity (IBRD agreement) 2/ 7.1 5.1 8.9 9.9 9.7 11.2 10.0 Provisions for losses on equity investments as % of equity portfolio 8.0 7.4 7.4 3.8 3.5 J.4 2.8 2.9 Provisions for losses on loans as % of loans outstanding 2.0 1.3 n.a. 0.8 0.7 0.1 n.a. n.a. Special reserve for loan risks as % of loan portfolio 5.0 3.4 3.2 2.2 2.8 2.9 4.2 4.0 Interest coverage ratio 1.4 1.4 1.3 1.3 1.3 1.2 1.2 1.0 1/ Before allocation to Special Reserves for loan risks and for rediscounted loans. / Limited to maximum 7:1 and equity including DH 63.5 million in quasi equity (BNDE VII); raised to 10:1 excluding quasi equity (BNDE VIII). BNDE December 1982 - 35 - Annex VI BANQUE NATIONALE POUR LE DEVELOPPENENT ECONOMEQUE ANALYSIS OF PROJECTS BY MANUFACTURING SECTOR Loans 1061 MOR and 1428 MOR (excl SSI) (DH million) No Total Cost % BNDE Loan % Food Processing 11 L88.2 16.7 46.2 15.2 Textiles 12 97.3 8.6 34.1 11.2 EMIs 9 45.9 4.1 13.1 4.3 Chemicals 5 52.2 4.6 17.8 5.8 Construction Materials 18 633.2 5b.1 160.3 52.6 Other 1/ 15 111.7 9.9 33.1 10.9 TOTAL Manufacturing 70 1,128.5 100 304.6 i0O 1/ Including Leasing Source: BNDE EMENA/ IDF May 1983 ;WR00X.. BO.QU t .TIOILW POUR L DUVEWh.."I' ;e01TW dauLYSIS e FIwITOING APPROVM: 1 1981 ( DH mnillione ) 9L7; 197 6 19 7 7 .8. 9 19 1 98 1 j.. *amt .)o A.,j N ~ ow No Aaowund Lo ltunt flo Amoun jo .mownt ho Amounft Tu L of FkrAncing Direct long - ter= loa 45 389.1 .9 600.6 68 613.4 63 650.7 35 201.3 36 276.3 64 4745 01 751.9 Direct mcdixm -torr. 1on 13 47.3 16 1343 17 32,1 24 172.7 20 111.5 28 178.3 16 184.1 22 212.5 Indirect lons 159 11,7 257 293.4 266 374.9 265 369.. 191 171.9 196 201.6 416 290.4 396 351.1 Equity investm-nts 9 11.6 9 13.4 10 t.5 4 3.7 4 6.7 4 11,.2 5 22.4 2 3.7 Conventions BIIDE - Bnrque~ 27 19 177 67.5 127 73.5 T03'.L 226 6.. }31 j,.0 .7. .3.63 jkO7Jä9 396 1,j36.2 2j. d.1 2L 693. 69Q1,050.) 63Q 1d2. Totg1 fintcinrof Proiuot 226 1,795.4 331 2,372.2 363 2,.236.9 376 2,.,6.f.6 25C 1,033.7 293 1,622.3 678 2,361.5 630 2,868.6 7omgf din& -ot.... . Up to 3 years - 1.5 - ~ -. - 2 1.5 - .. 2 2.9 3 6.3 , to 5 yc:.rs 13 47.3 15 132.6 18 79.1 24 172.7 26 110 28 186.8 16 130.* 19 206.2 6 t: 3yare 35 96.1 37 126.1 51 223.0 4 223.7 :,2 157 37 13.3 55 238.3 ý>7 299.1 9 ti 12 years 7 94.2 6 j2.2 15 3.3.4 1-. 317.1 2 36.3 2 73.5 6 206 13 242.8 Over 12 yeors 3 196.3 6 331.7 1 50.0 1 110 1 8 1 60 1 27 1 210 W*L 53 436.4 65 73,4.8 85 65.5 37 923.5 63 312.3 64 454.6 10 658,6 103 964.4 sie ,of_ jirot }oaIs Below D 0.75 :aillio. 7 3.6 1 n.7 . .. .. 6 1.6 2 0.3 7 2. 2 0.6 Dn 0.75 - 5 million 37 3é.9 39 77.. 54 159.9 55 15...9 102,' 44 113.7 42 119.2 72 145.5 DH 5 10 illion 7 54.6 11 7'.,7 15 102,6 13 9.k.4 66.5 7 54 1 129 17 113.3 C .Above DH 10 million 7 293.3 14 571., 16 433.0 49 57.:.2 7 142.3 11 2.6 13 407.5 12 705 Tr-;"., 5, 436.4 65 73.3 5 695.5 87 823.5 63 312.0 64 454.5 80 658.6 103 964.4 Purposeof Pi_nancig New ontreprises 92 3-9.5 160 400.1 220 392.4 200 676.7 15N 102,0 200 220.3 "'2 491 .,35 647.8 12Onion 13-, 270.2 171 633.6 143 4>6.5 176 520.2 104 309.4 93 372.1 236 567.9 195 744.9 .OZ.. 226 622 }31._.01 . 36k .Tp1.2 316 .16 2 4.1. 223. 679., 621,0.3 630. 1a32 Orr.ship.frepriso Lnanoo Matorl..y publio 1 322.8 36 665,7. 3 520.2 17 437.3 5 33.5 16 190 13 273 5 325.6 Znjority private 212 306.9 295 376.0 320 558.7 359 75).6 2 3 452.9 277 4.7., 665 765.9 625 1,067.1 T iL 226 62 )31. 1,0ß_1,! 36r ,lb 16 126.) 2 j 2P 6.-..9 68 .15.2 6}30 92V .ationalityof Rec.ien' Prdonn try ~ o.ac 210 535.1 300 1,021.7 353 1,063.0 361 1,144.1 250 45.7 286 659.1 672 1,0343 629 1,39.7 Pedcmir.nn freign 11 44.6 23 20.0 10 15.9 15 52.6 8 34*4 7 18.3 6 24.6 1 3 IR , 226 629.7 331 1,041.7 363 1,T78.9 376 1,196.9 258 491.4 293 677.4 678 1,058.9 6 0 1,392.7