Mozambique - Rehabilitation Program Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 10791 PROGRAM PERFORMANCE AUDIT REPORT MOZAMBIQUE REHABILITATION PROGRAM (CREDIT 1610-MOZ) JUNE 26, 1992 ons Evaluation Department has a restricted distribution and may be used by recipients only in the performance of uties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS 1975 27.24 1986 40.43 1980 32.40 1987 (average) 289.44 1981 35.35 1988 (average) 528.60 1982 37.77 1989 (average) 747.10 1983 40.18 1990 (end Dec) 1040.14 1984 42.44 1991 (end Dec) 1853.15 1915 43.18 Source: Government of Mozambique. ABBREVIATIONS AND ACRONYMS I0M Bank of Mozambique )FC Development finance company TRELIMO Frente de Liberagao de Mozambique EDA International Development Association :MF International Monetary Fund )ED Operations Evaluation Department ?AE Program for Economic Adjustment ?CR Project Completion Report PAR Program Performance Audit Report ?U Procurement Unit tC Rehabilitation Credit tENAMO Mozambique National Resistance FISCAL YEAR ,overnment of Mozambique: January 1 - December 31 FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Drector-ceral Operatons Evaluation June 26, 1992 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Program Performance Audit Report on Mozambique - Rehabilitation Program (Credit 1610-MOZ) Attached, for information, is a copy of a report entitled "Program Performance Audit Report on Mozambique - Rehabilitation Program (Credit 1610- MOZ)," 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 omcial duties. Its contents may not otherwise be disclosed without World Bank authorization. FOR OFFICIAL USE ONLY PROGRAM PERFORMANCE AUDIT REPORT MOZAMBIQUE REHABILITATION PROGRAM (Credit 1610-MOZ) TABLE OF CONTENTS Page No. Preface . . . . . . . . . . . . . . . . . . . . . . . . . i Basic Data Sheet . . . . . . . . . . . . . . . . . . . . . . . . . iii Evaluation Summary . . . . . . . . . . . . . . . . . . . . . . . . vii PROGRAM PERFORMANCE AUDIT REPORT I. INTRODUCTION.................. ..... . 1 II. THE REHABILITATION CREDIT . . ... . . . .. .... .. . 3 The Specifics of the Credit . . . . . . . . . . . . . 3 The Results of the Credit. . ......... . . . 5 III. OVERALL ASSESSMENT OF THE REHABILITATION CREDIT..... . . . 7 Sustainability............. ..... . . 8 III. LESSONS ARISING FROM THE AUDIT....... .... . . . . 8 TABLES 1. Proposed and Actual Credit Allocation. ........ . . . 5 2. Macroeconomic Developments Before and After the Rehabilitation Credit............ ..... . . 6 PROJECT COMPLETION REPORT PART I - PROJECT REVIEW FROM BANK'S PERSPECTIVE . . . . . . . . . . 13 1. Program Identity . . . . . . . . . . . . . . . . . . . 13 2. Background . . . . . . . . . . . . . . . . . . . . . . 13 3. Program Objectives and Description . . . . . . . . . . 14 4. Program Design and Organization . . . . . . . . . . . 15 5. Program Implementation . . . . . . . . . . . . . . . . 16 6. Program Results . . . . . . . . . . . . . . . . . . . 18 7. Program Sustainability . . . . . . . . . . . . . . . . 18 8. Bank Group Performance . . . . . . . . . . . . . . . . 19 9. Borrower Performance . . . . . . . . . . . . . . . . . 19 10. Program Relationship . . . . . . . . . . . . . . . . . 19 11. Consulting Services . . . . . . . . . . . . . . . . . 20 12. Program Documentation . . . . . . . . . . . . . . . . 20 13. Covenant Compliance . . . . . . . . . . . . . . . . . 20 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Table of Contents (cont'd) Page No. PART II - PROJECT REVIEW FROM BORROWER'S PERSPECTIVE.... . . . . 21 PART III - STATISTICAL INFORMATION . . . . . . . . . . . . . . . . 22 1. Related Bank Loans/Credits . . . . . . . . . . . . . . 22 2. Project Timetable . . . . . . . . . . . . . . . . . . 22 3. Credit Disbursements . . . . . . . . . . . . . . . . . 23 4. Project Implementation . . . . . . . . . . . . . . . . 23 5. Project Cost and Financing . . . . . . . . . . . . . . 24 6. Project Results . . . . . . . . . . . . . . . . . . . 24 7. Status of Covenants . . . . . . . . . . . . . . . . . 25 8. Use of Bank Resources . . . . . . . . . . . . . . . . 26 ANNEXES I. Summary of Planned and Actual Allocation to Sectors/ Sub-sectors ... 28 II. Performance of Beneficiaries in Industrial Sector 29 PROGRAM PERFORMANCE AUDIT REPORT MOZAMBIQUE REHABILITATION PROGRAM (Credit 1610-MOZ) PREFACE 1. This is a Program Performance Audit Report (PPAR) on Rehabilitation Program, involving an IDA Credit in the amount of SDR 45.5 million to the Government of Mozambique, with the objective of assisting the Government in meeting the country's priority economic rehabilitation needs by financing a part of its 1985/86 program of imports of equipment, spare parts and raw materials, as well as related technical assistarice in key industry, transport and agriculture sectars. The credit was approved on June 18, 1985, and became effective on October 18, 1985. The credit was closed on March 31, 1989, one year behind schedule. Final disbursement was made on October 26, 1989. Cofinancing in the amount of US$23.0 million was provided by grants from Norway (US$3.0 million) and Italy (US$20.0 million). The Norway grant is closed but the Italy grant is still current. 2. The PPAR consists of the Program Performance Audit prepared by the Operations Evaluation Department (OED) and the Project Completion Report (PCR) prepared by the Industry and Energy Operations Division of the Southern Africa Department, Africa Regional Office The PPAR is based on the attached PCR, the President's Report, the credit documents, and on a study of Bank files. 3. The PCR provides a good account and assessment of the program experience, and discusses the performance of the Bank and the Borrower's executing agencies. The PPAR elaborates on particular aspects such as events leading up to Mozambique's joining the Bank and requesting this first credit, and the impact the credit had on the economy, on the Government's move toward a more internationally integrated economy and on improving the country's import procurement procedures. Three lessons arising from the audit, relate to the credit's targeting of financing to increase capacity utilization, but as part of a longer-term strategy of adjustment and the opening up of procurement procedures. 4. The draft PPAR was sent to the Borrower for comments but none were received. - iii - PROGRAM PERFORMANCE AUDIT REPORT MOZAMBIQUE REHABILITATION PROGRAM (Credit 1610-MOZ) BASIC DATA SHEET CREDIT POSITION (in US$ million) As of April 30, 1992 Credit Original Disbursed Canceled ReRaid Outstanding 1610 45.00 55.57 0.34 -- 61.87 CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS FY86 FY87 FY88 FY89 Appraisal Estimate 25.0 40.0 45.0 45.0 Actual 24.2 33.2 41.6 44.7 Actual as % of Appraisal (%) 96.8 83.0 92.4 99.3 Date of Final Disbursement: October 26, 1989 PROJECT DATES Original Actual Negotiations 05/85 09/85 Board Approval 06/85 06/85 Signing 07/85 07/85 Effectiveness 10/85 10/85 Loan Closing 03/88 03/89 - iv - STAFF INPUTS (staffweeks) IY85 FY86 FY87 FY88 FY89 FY90 FY91 TOTAL Preappraisal 4.8 4.8 Appraisal 21.9 21.9 Negotiations 6.1 6.1 Supervision 0.1 43.1 19.7 7.0 3.8 5.2 4.7 83.6 Other 0.3 0.3 Total 32.8 43.4 19.7 7.0 3.8 5.2 4.7 116.6 MISSION DATA No. of No. of Staff Month/Year Weeks Persons Weeks Preparation 11/84 2.8 10 21.6 Appraisal 02/85 2.8 6 16.8 Supervision I 07/85 2 4 8 Supervision II 09/85 1.6 1 1.6 Supervision III 11/85 2 3 6 Supervision IV 03/86 2 4 8 Supervision V 05/86 2 1 2 Supervision VI 11/86 2 2 4 Supervision VII 05/87 1.4 3 4.2 Supervision VIII 10/87 1 2 2 Supervision IX 02/88 0.4 1 0.4 Supervision X 06/88 0.4 1 0.4 Supervision XI 09/88 1 1 1 Supervision XII 05/89 0.6 1 0.6 Supervision XIII 11/89 0.2 1 0.2 Supervision XIV 05/90 0.2 1 0.2 Supervision XV 10/90 0.2 1 0.2 Supervision XVI 02/91 .1 1 .1 - v - OTHER PROJECT DATA Borrower: Republic of Mozambique Follow-on Project(s): Project: Second Rehabilitation Credit Nos.: 1841-MOZ and A033-MOZ Amount: US$88.60 Board Date: 08/04/87 Project: Third Rehabilitation Credit No.: 2021-MOZ Amount: US$90.0 Board Date: 05/18/89 - vii - PROGRAM PERFORMANCE AUDIT REPORT MOZAMBIQUE REHABILITATION PROGRAM (Credit 1610-MOZ) EVALUATION SUMMARY 1. This credit was the first Bank wariness between the Bank and the operation in Mozambique. It was Government which was broker, only after influenced by a series of events Mozambique, having overborrowed leading up to Mozambique's joining the irternationally, found itself having Bank in September 1984. Important to request a rescheduling of its among these events was Mozambique's international debt. This, in turn, "loose" colonial status which led to led creditors to push Mozambique to neglect of educational and social join the World Bank, which it did development in the colony and to its reluctantly. extreme economic dependency on Portuguese immigrants and on servicing 3. In light of this background, the surrounding areas of South Africa this first operation was a cautious and the Federation of Rhodesia and and limited credit meant to breed Nyasaland. These circumstances led familiarization, have a quick impact the newly independent Government to and stimulate dialogue which would play "catch up" with respect to lead to more complete adjustment educational and social development, operations in the future. 'he credit thus starving other necessary longer- was essentially a variation of a DFC term productive endeavors of operation; the end-uses of the credit resources. They also led to a near were identified at appraisal but the collapse of the economy when the Central Bank, not a DFC, was to Portuguese immigrants suddenly left in disburse the foreign exchange 1974-76. In addition, FRELIMO's according to a positive import list. almost casual choice of socialism as In addition, the primary use of the its developmental ideology caused credit was to be for icreasing divisiveness between FRELIMO and capacity utilization rather than for RENAMO, within the country and between investment, as is the case in a normal Mozambique and its staunchly right DFC operation. The policy content of wing neighbors South Africa and the credit was limited; it supported a Rhodesia. Government-drafted program for economic action (PAE) which though 2. These circumstances, plus a vague, represented a first movement perception that the Bank was a toward a more internationally "capitalist" institution, led the integrated economy. In addition to Mozambique Government to shun joining the stabilization measures in the PAE, the Bank for nearly a decade after the credit supported some specific independence. On twn occasions, one at producer price reforms and a complete independence In June 1975 and the overhaul of Mozambique's import other after Zimbabwe joined the Bank procurement system. in 1981, it appeared as if Mozambique would join and the Bank "geared up." 4. The Rehabilitation Credit These "false starts" led to a mutual accompanied a significant turnaround -viii - in Mozambique's economic fortunes. 6. By itself the credit was not Before the credit, prior to 1986, sustainable. It was direzted at virtually every measure of economic increasing capacity utilization rather welfare and efficiency (GDP growth, than at financing adjustment so as to investment and consumption levels, increase economic efficiency. exports, imports, etc.) was aeclining However, the credit ir.itiated precipitously. This changed Bank/Government dialogue and, along significantly after Tho credit, with some useful studies financed beginning in late 1986 and continuing under the credit, supported the strongly throu-h 1987 and 1988. This Government's move toward a more and associated credits were important market-based economy. This Led to in this turnaround. Although a Government adoption of a more preliminary step in a structural adjustment-oriented reform program and adjustment process and, tl-are-.ore, a has resulted in two follow-up, short-term palliative, the credit .justment-type Bank lending financed increases in imports which operations. Thus sustainability, enabled increases in the utilization though not eXpressly associated with of existing capital stock. However, this credit, was an integral part of the credit was important for the the process embarked on under this longer run because it supported the credit Pnd under the program and Government's signal, initiated by dialogue initiated by it. joining the Bank and negotiating this -redit, that policy changes more 7. Three lessons arise from this consistent with a market-based economy audit. One concerns the usefulness of were in the offing. Important in this "quick fix"-type credits in tentative, respect was the credit's emphasis on uncertain situations such as existed the need for additional reforms beyond between the Bank and Mozambique in those included in the PAE and in this 1984/85. The experience of this credit. credit suggests that such operations can be very useful in improving 5. The credit was a modest Bank/Government familiarity and in operation which was successful beyond initiating an adjustment process, as what was expected of it. Its emphasis long as it is made clear at the outset on increasing capacity utilization that delaying acceptance of a more caused a highly visible turnaround in full adjustment agenda will not result the economy and strengthened the in any more "quick fix" operations. Government's initial, tentative The second lesson concerns how such a embrace of adjustment. In addition, "quick fix" lending operation can be it led to more productive viewed in the context of true Bank/Government dialogue on and structural adjustment. It appears commitment to structural adjustment that such lending can be viewed as ,nd to the Bank's central role in this financing the social costs of erocess. Although initially viewed as adjustment, or preventing unemployment a "technical" adjustment, the credit's and bankruptcies, as long as true emphasis on revamping, really opening adjustment and further lending to up, Mozambique's import procurement finance it will clearly and procedures was also an important definitively follow. The third lesson element of the credit's success. This relates to the importance of this set the stage *so that future credit's focus on improving import structural adjustment policies could procurement procedures. Although this operate in an appropriate manner, was initially viewed as a technical or - ix - administrative requirement, the successful alteration or opening up of import procurement procedures constituted an important and necessary step in the structural adjustment process. As a result, this change in procurement procedures will yield significant longe:-run adjustment benefits. PROGRAM PERFORMANCE AUDIT REPORT MOZAMBIQUE REHABILITATION PROGRAM (Credit 1610-MOZ) I. INTRODUCTION 1.1 Developments in Itozambique prior to the approval of this Credit influenced the timing and essence of the operation. Three major developments were of most significance. First, the colonial relationship between Mozambique and Portugal did not stress social development, something which caused the newly independent Government to overstress it at the expense of more balanced growth. Second, the exodus of Europeans, mainly Portuguese, at independence was more massive and more traumatic in Mozambique than elsewhere in Africa. Finally, FRELIMO's choice of socialism as its developmental ideology was relatively costly in that it engendered hostile reactions from within and from neighboring countries. 1.2 Mozambique was a very loosely administered area where individualism reigned. A "social ethic" did not emerge, and Portuguese immigrants viewed Africans essentially as they viewed land, water and other productive resources; to be used to produce income but not to be trained or educated as free-standing individuals. The Mozambican-Portuguese cared little about economic ties to the motherland and focused instead on making a living mainly by servicing the needs of the surrounding areas, primarily South Africa and the landlocked Federation of Rhodesia and Nyasaland. As a result, the Mozambican economy became heavily service-oriented and quite highly dependent on these other localities. In addition, the lack of domestic expenditures for social services, especially for education, left the Mozambican economy entirely dependent on these Mozambican- Portuguese. 1.3 This picture of colonial complacency and well-being was disrupted mainly by one native Mozambican, Dr. Eduardo Mondelane, who'd passed through the local mission school system to go on to South Africa and then to the U.S.A to get a PhD. in Sociology. In the mid-1960s, Dr. Mondelane founded FRELIMO as a resistance group. He reasoned that Portugal would cut the colony loose rather than pay sustained and substantial security costs to protect what was viewed as group of errant Portuguese citizens in Mozambique. Acting on this belief, Dr. Mondelane, joined by Mr. Samora Machel, founded FRELIMO in the mid-1960s. Although Dr. Mondelane was killed in Dar-es-Salaam by a letter-bomb in 1969, it was FRELIMO's pursuit of independence, coupled with a change in government in Portugal, which ultimately led to Mozambique's independence in June 1975. 1.4 The new Government in Portugal announced that Portuguese-Mozambicans who did not come back to Portugal within a certain time frame could not come back thereafter. In addition, tbey cut off all colonial expenditures and transfers to Mozambique as part of a new, inward-looking strategy. The effect was to leave any Portuguese who stayed in Mozambique completely on their own. The result was that nearly all of the Portuguese, about 230,000 out of 250,000, left Mozambique to return to Portugal between 1974 and 1976. In addition, no transitional aid - 2 - flows had been arranged which could be used to hire replacements for the departing Portuguese. Mozambique, which had been completely dependent on these Portuguese was, by independence, left without them or any replacements. The economic effect of this was widespread and devastating. 1.5 The departure of these Portuguese was made more onerous by FRELIMO's choice of socialism as their developmental ideology. This choice did not result in any significant cutbacks in aid from Western economies and it did stimulate some aid flows and technical expertise from the socialist block. There were major costs, however. The most significant political one was the enmity that the choice of socialism caused vis-A-vis rightists, externally in South Africa and Rhodesia, and internally amongst an opposition called "RENAMO." Economically, costs arose because of alterations in producer incentives and in production possibilities within the Mozambican economy. 1.6 The pursuit of socialism provides a significant explanation for why Mozambique did not join the World Bank immediately after gaining independence in June 1975. Mozambicans, taking a different view from their close allies, the Tanzanians, felt that the World Bank was a "capitalist" or at least an unsympathetic institution which would force them off their socialist path. This view was held firmly and nearly universally within Mozambique until 1980 when Zimbabwe joined the World Bank and began urging Mozambique to join in order to take advantage of loans and technical expertise needed to !mprove Mozambique's ports and the railways from Zimbabwe to them. Although informal overtures were made at that time, Mozambique's joining the Bank took several more years. During the interim, the civil war worsened, the economy deteriorated and external debt increased excessively. This led to a recognition of the need for debt rescheduling and an accommodation to international financial pressure to join the World Bank. Even then, in 1984, Mozambique joined the World Bank warily and somewhat reluctantly. 1.7 In reality, mostly negative economic developments since independence left Mozambique with little choice but to join the more mainstream international economy. The colonial economy had grown relatively rapidly, usually at between 4.5 and 6.5 percent per year. In the 1960s and early 1970s, much of this growth consisted of the sort of inefficient manufacturing of consumer goods which requires a fair amount of investment, foreign exchange and protection. Before that, the economy was based on a large subsistence agricultural sector, some (European) state farming and agro-processing establishments, railway, port and electric and water services for South Africa and the Federation of Rhodesia and Nyasaland and remittances from 80,000 gold and mineral mine-workers in South Africa. In general, the government budget was small, particularly as it applied to expenditures for education and social services. 1.8 The 1974-76 exodus of the Portuguese, the shift to socialism, a prolonged drought and the civil war with RENAMO changed this. Nonsubsistence GDP fell drastically between 1973 and 1976 and did not recover to its pre-1973 levels until the late 1980s. Initially, these declines were due to the exodus of the Portuguese. Later on, the problem was exacerbated by significant cutbacks in remittances as labor force reductions in South African mines reduced the number of Mozambican mine-workers there. In addition, floods and then a prolonged drought decimated agriculture. The nonsubsistence portion of agricultural - 3 - production, particularly export crops such as sugar, cotton and oil seeds, collapsed. The same drought, supplemented by the widening and more intense civil disturbances, fundamentally disrupted subsistence agriculture. The civil disturbances also reduced foreign exchange earnings from exports of electricity to South Africa and from transport and port services provided to the former Federation. Real foreign exchange earnings from exports generally fell from 1973 until 1987, by which time they had fallen to about one-fourth of their highest real levels. 1.9 During this period of decline the Government, reacting to colonial neglect, continually expanded the size of the budget generally and of educational and social expenditures in particular. The latter consisted of significant increases in both recurrent and capital expenditures and, although initially financed primarily by aid, was, by the early 1980s, increasingly being financed by Central Bank money creation. These contradictory developments, a declining domestic economy and rising educational and social expenditures, landed the Government of Mozambique in a serious predicament so that by 1984 the Government of Mozambique's situation had become unsustainable. External debt had mounted, the potential for inflation was increasing, and the black market value of the domestic currency, the Metical, had fallen tremendously below its official rate. Expenditure cutbacks and declines in living standards had become inevitable. As the deterioration continued, there was no alternative left but to reschedule external debt. This led the Government to formulate a new economic action plan and to join the World Bank in September 1984. Immediately following this, discussions began on the Rehabilitation Credit (RC), the first operation for Mozambique, which was approved by the Board in May 1985. II. THE REHABILITATION CREDIT The Specifics of the Credit 2.1 The credit represents a very careful and conservative first lending operation. It was an adjustment credit only in a very loose sense of the term. The credit was to support the Government's Program for Economic Adjustment (PAE) which, though vague and platitudinous, was accepted by the Government as a precursor to a rescheduling exercise. 2.2 In its conception, the Rehabilitation Credit was like a DFC operation in that the credit was to be targeted toward certain specific uses. However, it was to be the Bank of Mozambique (BOM) rather than a DFC which was responsible for borrowing and targeting the credit. In addition, the allocation of the credit to end-users was identified at appraisal, using as the primary criterion, the intensity of foreign exchange needs required to increase capacity utilization. The policy components of the credit consisted of supporting the macroeconomic aims of the PAE, that is, its stabilization policies, as well as certain pricing and procurement reforms. Given that this was the first World Bank lending operation, the procurement reforms were no small matter. 2.3 Past Government policies in Mozambique had suppressed the impact of market incentives, increased the budgetary emphasis on education and social services and increased public sector wages and employment. Non-wage earnings such as interest payments, profits, trading margins, etc., were suppressed so that individual initiatives resulted in little gain. Budgetary deficits, finances from abroad or, increasingly in later years, with money creation and Bank credit, provided subsidies for inefficient productive endeavors. The tendency for individuals to avoid the regimentation of the formal economy by undertaking black market or informal activities led to even greater discrepancies between market and regulated prices. Thus the exchange rate, which was officially 42.44 meticais per dollar in 1984, was at that time actually trading at 1,500 meticais per dollar on the black market. 2.4 The macro elements of the PAE focused primarily on reducing fiscal deficits and money and credit expansion and realigning the exchange rate in order to restore some credibility and value to the domestic currency. A second, more micro focus of the program was to improve public sector management so as to control budgetary expenditures and raise the efficiency of publicly owned investments. This credit and credits from other sources would contribute to the PAE by supplying foreign exchange for importing inputs in order to increase capacity utilization, thus increasing short-term operating eff'-ciency of these public enterprises. 2.5 Although the RC was in support of emergency rehabilitation measures, it was a first step toward adjustment. Requirements for structural adjustment were noted and discussed between the Bank and the Government in the context of future lending operations. The President's Report for this credit notes, in a subsection entitled "Additional Measures Required," that changes must occur to the pricing, exchange rate, and investment regimes, and to economic institutions in the fiscal, monetary and input and output marketing realms as part of future lending operations. Thus, this first credit is clearly seen as an emergency rehabilitation one with a limited adjustment agenda, but aimed at mutual familiarization and establishment of policy dialogue. 2.6 Since the allocation of the credit was identified at appraisal, it was possible at the time of Board presentation to signify how much credit was to go to what sectors and individual enterprises. Table 1 presents planned and actual sectoral allocations. - 5 - Table 1 - PROPOSED AND ACTUAL CREDIT ALLOCATION Proposed Actual US$ 'm % US$ 'm % Industry 29.5 66 37.4 66 Transport 9.6 21 12.2 22 Agriculture 5.0 11 5.0 9 Program Implementation 0.9 2 1.6 3 TOTAL 45.0 100 56.2 100 Sources: President's Report and PCR. 2.7 Although the amount of the credit in dollar terms increased from US$45 million to US$56 million, due to hard currency exchange rate fluctuations, the relative allocations did not change significantly. By far the majority of the credit, and of the increase in the dollar value of the credit, went to industry. Thus, this sector got 66 percent of the credit even though, as noted above, it was an inefficient, foreign exchange intensive sector. The Results of the Credit 2.8 The Rehabilitation Credit accompanied a significant turnaround in Mozambique's economic fortunes. The three years leading up to 1986, the credit's first impact year, were disastrous (Table 2). GDP growth was significantly negative, the investment/GDP ratio fell to one-third of its former levels and the significance of the fiscal budget shrank. The primary reasons for this deterioration were huge declines in exports and net capital inflows and, therefore, imports. Table 2 - MACROECONOMIC DEVELOPMENTS BEFORE AND AFTER ThE REHABILITATION CREDIT 1983 1984 1985 1 1986 1987 1988 1989 GDP Growth (%) -15.5 -18.3 -13.0 1.8 5.3 5.5 4.0 Investment/GDP 19.3* 10.5 6.9 5.6 15.9 21.2 22.4 Fiscal Expend./GDP 41.2 35.6 20.9 28.6 27.8 29.8 30.9 Fiscal Revenue/GDP 25.1 20.5 12.9 13.3 16.0 19.8 23.8 Fiscal Deficit/GDP 16.2 15.1 8.0 15.3 11.8 10.0 7.1 Real Export Growth (%) -40.4 -36.4 -3.5 -3.0 9.4 11.4 4.2 Real Import Growth (%) -19.6 -14.2 -16.1 12.4 1.3 6.3 4.8 Grants + Net MLT (US$ 'm) 431.7 120.4 86.6 134.3 250.5 264.0 365.4 (*) 1982. Sources: Various President's Reports and 1990 CEM. 2.9 Things began to turn around in 1986 when grants plus MLT inflows and imports began to rise. Recovery was even stronger in 1987 and 1988. The most tangible reasons for the recovery were the debt rescheduling and the rise in grants and MLT inflows induced by the Recovery Credit. Policy changes were not directly influential in this recovery, but intangibles, such as the Government's move away from socialism and the evidence of increased international support, as signaled by the Recovery Credit, were important. 2.10 Also significant was a rapidly spreading view that more changes were coming. As noted (para. 2.5), the Recovery Credit transparently qualified its support for the PAE by indicating that additional reform measures were required at a later date. Indeed, improved, more effective dialogue was a major aim of the operation. There is evidence that this too was a successful element of the operation. A solid indication of this is the extent to which policy changes, were included in the 1987 follow-up operation, or Second Recovery Credit. Following effective dialogue, a fairly stiff policy agenda, including further devaluations, trade and foreign exchange allocation regime reforms, reforms to the pricing and distribution policies, tightening of fiscal policies, including reductions of subsidies to public corporations, and sectoral reforms in the agricultural and transport sectors were all included. As a result, the follow-up or Second Rehabilitation Credit was concerned less with rehabilitation and more with adjustment. - 7 - III. OVERALL ASSESSMENT OF THE REHABILITATION CREDIT 3.1 The attention paid above to the events surrounding the first Rehabilitation Credit was necessary to indicate the atmosphere in which the Credit was formulated. The Mozambican economy was in a very precarious situation. Mozambican civil servants were extremely frustrated; they were trying to implement an ideology- -socialism- -which seemed to be working elsewhere but which was not working in Mozambique. For nearly a decade they had shunned joining the World Bank because of its "capitalist" reputation. However, suddenly Government officials were forced to join the Bank by creditor pressures and because of circumstances, such as the civil war, flooding and drought, which appeared to be beyond their control. 3.2 There was wariness on the Bank side as well. Two previous "false starts" once at independence in 1976 and the other time in 1981, after Zimbabwe's joining of the Bank, had caused the Bank to "gear up" without achieving any tangible results. In a limited sense, therefore, Mozambique's somewhat anticlimactic joining of the Bank in September 1984 had left the Bank unprepared to move quickly with an adjustment operation. 3.3 Furthermore, it was clear that Mozambique was indeed being pressured by events to join the Bank rather than joining by its own free will. In Mozambique there were still pockets of opposition or reticence to joining, although there was also support from important sources. Thus, an overall tentative air existed which suggested that the Bank proceed cautiously and somewhat conservatively with its first operation. 3.4 In light of this, the Rehabilitation Credit was a modest operation which was successful beyond what was expected of it. It accompanied a Governmental swing toward a more market-based economy and it turned around Mozambique's economic fortunes. It also initiated sustained Bank/Government dialogue concerning the needs for adjustment. This dialogue led the Government to formulate a more far-reaching and concrete reform program and to two follow-up operations by the Bank, one in 1987 and in 1989. These operations were of a much more genuine adjustment nature. 3.5 The Rehabilitation Credit also fomented additional reforms through its small technical assistance component and through its focus on changing Mozambique's import procurement procedures. The technical assistance component essentially financed two studies, one in industry and one in transport, to update past studies. Of more significance was the introduction of a more rational, competitively-oriented import regime. This would enable future trade and foreign exchange reforms, when implemented, to have a greater impact on domestic competition. Thus, a competitive or least-cost import regime was institutionalized by the Rehabilitation Credit. Before the RC, imports were arranged or negotiated between parties in a way which led to considerable departures of prices from their international norms. -8- Sustainability 3.6 It is probably in the area of sustainability that the credit exceeded expectations. This is not to say that the operation itself was sustainable. It focused primarily on providing foreign exchange for imports to increase capacity utilization. This "quick fix" approach is inherently not sustainable when coupled with an excess foreign indebtedness problem. This is because a debt overhang problem arises when external borrowing has been used to support excessive national consumption. Lending into such a situation in order to increase capacity utilization represents a continuation of this bad practice, unless the lending is accompanied by structural changes which will increase the share of factor income invested productively. While the US$56 million disbursed under the credit did not directly finance sustainable investment, the attendant debt rescheduling, the adoption of a more international economic orientation and the initiation of a serious policy dialogue leading to adoption of a more concrete structural adjustment program helped the Government adopt a sustainable process of adjustment. IV. LESSONS ARISING FROM THE AUDIT 4.1 One important lesson arising from the audit is that in tentative situations such as existed in Mozambique, in which the credit is a "starter" one which finances consumption, the Bank must ensure that the operation is seen as a preliminary step in the adjustment process. Several of the Bank staff who worked on this initial operation were familiar with the policy dialogue which had occurred in neighboring countries of Tanzania and Zimbabwe and, therefore, with the direction the Bank would be taking in Mozambique. The need for further changes--really the initiation of adjustment--was made clear by the Bank to Mozambique early on the dialogue and as an internal part of the Rehabilitation Credit. As a result, there was an understanding amongst Government and political officials in Mozambique that the credit represented a first step in changing to a more internationally integrated economy. 4.2 The second lesson concerns the fact that it was an advantage that disbursements from the credit were directed or targeted so that they had an immediate and visible impact. Thus, the DFC-type format of this credit, but with a foreign exchange targeted, through a positive disbursement list, toward increasing capacity utilization rather than new investments, was fortuitous given the circumstances of this first credit. In effect, in Mozambique where there were strong indications that additional adjustment-type policy changes would occur, financing increasing capacity utilization could be viewed as a highly visible financing of the social costs of adjustment which would increase growth and prevent the onset of labor layoffs and bankruptcies in the short term. 4.3 The third lesson from this audit concerns the credit's success in improving and opening up Mozambique's external procurement system. This issue is covered in paragraph 5.2 of the PCR. At the outset, this procurement issue was vieued essentially as a technical or administrative matter. But as the changes took place, it became clear that changing the procurement system laid the -9 - foundation for the trade, foreign exchange allocation and price liberalizations which were to be recommended later on. Thus it was that an early recognition of the noncompetitive nature of import procurement led to the adoption by Mozambique of import procedures which were consistent with liberalizations which were later to be proposed in subsequent adjustment operations. - 11 - PROJECT COMPLETION REPORT MOZAMBIQUE REHABILITATION PROGRAM (CREDIT 1610-MOZ) June 26, 1991 gy Operations Division apartment Efice - 13 - PROJECT COMPLETION REPORT MOZAMBIQUE REHABILITATION PROGRAM (Credit 1610-MOZ) PART I - PROJECT REVIEW FROM BANK'S PERSPECTIVE 1. Program Identity Program Name: Rehabilitation Program Credit No. : 1610-MOZ RVP Unit Africa Region Country Mozambique Sector : Multi-sectoral Sub-sectors : Industry, Agri ulture and Transport 2. Background 2.1 Since i.t gained independence in June 1975, Mozambique has been beset with financial and economic difficulties which can be traced back, in part, to the socio-economic conditions it inherited at independence and the difficult security situation. These factors, combined with policy shortcomings associated with the Government's approach to economic development, contributed largely to the critical situation in which Mozambique found itself in the eighties. 2.2 At independence, the economy of Mozambique was built around five main activities: subsistence agriculture; basic processing of agricultural commodities (principally cashew nuts, prawns, cotton and tea) for export; migrant labor working in the coal and gold mines of South Africa; providing transit services to South Africa and to the land-locked countries of Rhodesia (now Zimbabwe), Zambia and Malawi; and an incipient high cost industrial sector based on imported raw materials and spare parts. Independence, after a ten year armed struggle. brought in its wake a mass exodus of the better educated and more prosperous inhabitants. Despite external technical assistance and high priority given to education, lack of skilled and semi-skilled workers continues to be a major constraint to the country's development effort. .2.3 Given the serious setbacks to the productive sectors, due to the departure of the European settlers, the Government accelerated in 1977 the pace of intervention in the private sector. At the direction of the Party, the Government adopted a series of centralizing measures that injected large sums of money in the public sector and had the side effect of depriving family farms and producer cooperatives of necessary resources. This, combined with the successive natural calamities and the internal security problems, contributed to the critical food shortage in the countryside. The poor performance of the state farms, which were expected to generate investment resources, also affected the performance of the industrial sector. The internal security problems liKewise killed off the transit services and the major agro-processing industries. 2.4 To remedy these problems and to reach acconodation with the country's creditors, and also in line with the directives of the Fourth Congress. - 14 - the Economic Action Program (PAE) proposed that smallholder farmers should receive training in appropriate techrology and management, in addition to farm implements, seeds, and consumer goods. Producer prices were to be adjusted to ensure sufficient production incentives and industrial rehabilitation was to focus on firms producing incentive goods (textiles, shoes, garments, tools, household goods, and agricultural implements). The PAE also proposed measures regarding public finance, employment, wages and prices, and credit to address the balance of payments and budgetary difficulties, and the large deficits of state enterprises. The Government started implementation of the PAE in 1984 and requested Bank assistance to support its emergency rehabilitation efforts. 3. Program Obiectives and Description 3.1 The main objective of the project was to provide assistance to the Government in the rehabilitation and maintenance of those investments and economic services which were expected to generate some immediate production response. The IDA Credit was to help meet the country's priority economic rehabilitation needs by financing part of the Government's 1985/86 program of imports of equipment, spare parts and raw materials, as well as related technical assistance in the key industry, transport, and agriculture sectors. 3.2 IDA and the Government had identified specific beneficiary institutions and activities to be supported in the three sectors on the basis of demonstrated needs for inputs requiring foreign exchange and the capability to increase production rapidly. Technical assistance was also to be provided to strengthen institutional and technical capacity and to help the Government carry out policy and sectoral studies. The sectoral allocation of the IDA Credit of SDR 45.5 million (US$45 million at the rate prevalent at the time of appraisal) and the key items to be financed are summarized below. Sector or Raw Materials Equipment Technical Activity & Spare Parts & Tools Assistance Total -------------US$ million------------------ Industry 23.50 4.00 2.00 29.50 Transport 8.23 0.70 0.65 9.60 Agriculture 2.20 2.80 - 5.00 Program Implementation - 0.05 0.85 0_9g TOTAL 33.95 7.55 3.50 45.00 3.3 Industry. Thirty three manufacturing enterprises were selected, out of the country total of 300 larger enterprises, as beneficiaries of the credit in the industrial sector. 3.4 Transport. An allocation of US$9.6 million was made for the maintenance of commercial vehicles and locomotives, which had long been neglected due to shortage of foreign exchange. - 15 - 3.5 A&riculture. The allocation for agriculture (US$5 million) was to benefit mainly the smallholder farmers and partly the medium scale commercial farmers and cooperatives. 3.6 Technical Assistance and Studies. The allocations for industry and transport included amounts for technical assistance (industry US$1.9 million and transport US$550,000) and studies (US$100,000 each). 3.7 Program Implementation. An amount of US$900,000 was allocated from the credit to finance the establishment of a Procurement Unit (PU) in the then Ministry of Commerce to help implement the key procurement and distribution activities associated with the credit. 4. Program Desixn and Organization 4.1 Desig . In view of the economic and financial crisis prevailing in Mozambique, the program was designed in a way that its benefits would be visible in a short time. While considerable progress was needed towards improving the country's institutional and macro-economic policy framework, the first actions taken by the Government under the PAE indicated willingness to follow a pragmatic approach in resolving the country's economic difficulties. Given this scenario, the design of the project as a quick disbursing operation providing foreign exchange to carefully selected beneficiaries in the key sectors was generally appropriate. In order to compensate for the limited implementation capability, the Bank Group had placed emphasis at the design stage on simplification and clarification of operating arrangements. 4.2 Organization. The Bank of Mozambique (BOM) was designated by the Government to be the institution responsible for coordination, monitoring and supervision of program implementation, and for preparing disbursement applications; a senior official of BOM was also appointed as the Program Manager. A Procurement Unit was established in the Ministry of Commerce, with staff seconded from the major state-owned trading firms, as well as expatriate advisers in procurement, accounting and logistics. A Mozambican official was appointed as the Coordinator. The Unit was responsible for, inter alia, review and approval of: (a) lists and specification of goods and technical services to be purchased; (b) methode to be used in procuring such goods and services; (c) award of contracts; and (d) methods for the distribution of such goods. The modus operandi of the system was as follows. In the industrial sector, the selected beneficiaries would submit lists of raw materials, spare parts and equipment to the responsible Ministry or Secretariat who would in turn submit them to the trading firms and the PU for review and approval. The PU would follow the procedures set forth in the "Guidelines for Procurement under IBRD Loans and IDA Credits". Contracts estimated to cost more than the equivalent of US$250,000 were to be awarded only after IDA's approval. 4.3 While the roles and responsibilities of the above-mentioned entities were clearly defined at the time of appraisal and certain remedial measures built into the design and organization, it was not possible, considering that this was the first Bank Group operation in Mozambique, to foresee all the bottlenecks that cropped up and affected the speed of implementation. The establishment of an - 16 - adequately staffed PU was the most critical step contributing to program implementation. Another Lmportant step was %he detailed identification ci the beneficiary activities ar. the entities. The weaknesses in design related to: (a) the basic flaw of division of the management and implemertation functions between BOM and the Ministry of Commerce; (b) ;ailure to design a mechanism to cut down the bureaucratic procedures for approval of consultancy contracts (this is still an issue for large consultancy contracts); (c) failure to foresee the time required for procurement packages involving both technical assistance and spare parts and equipment; and (d) failure to recognize the limited capacity of BOM to handle the special accounts. 5. Program Implementation 5.1 The Credit became effective within three months of the date of credit signing. In order to expedite implementation. IDA had approved on May 31, 1985, a Project Preparation Facility for US$400,000 to finance the costs of procurement consultants before credit effectiveness and of purchasing essential office equipment, furniture and vehicles for the Procurement Unit. IDA had also agreed to provide retroactive financing up to US$1.7 million for purchase of seeds for the 1985/86 season. Nevertheless, program implementation got off to a slower start than expected; this was mainly due to inadequate understanding of Bank Group's procedures, and delays in providing local counterparts to the expatriate advisers in PU. But it was also due to the time required to prepare bid specifications, and for the competitive procurement process. 5.2 Procurement and Allocation of Credit. In relation to procurement, the major focus of IDA's supervision effort during the program implementation period was on establishing procurement capability. IDA provided PU with detailed guidelines in this regard and also held a seminar in Maputo to familiarize the staff of PU, the trading concerns and eligible enterprises with these procedures. After the initial teething troubles, program implementation proceeded at a reasonable pace. Most of the initially identified entities had already prepared lists of their procurement needs with specifications and likely suppliers. Staffing of the PU was strengthened. PU prepared and obtained IDA's approval of standard biddine documents for international competitive bidding, limited international bidding, and international shopping procedures. During implementation, the PU handled 675 contracts for SDR 45.2 million (US$56.1 million) under the credit. The average contract size was US$85,000. ICB was justified in only 6 cases and LIB in 14 cases. There were 13 TA contracts. It was worth noting that the PU carefully followed IDA guidelines and there was no case ef misprocurement. 5.3 Cofinancing. Cofinancing for the program was provided by grants from Norway and Italy in the amounts of Kr 20 million (US$3 million) and Lit 30 billion (US$20 million) respectively. Both grants were administered by IDA. The Norwegian Grant was integrated with the IDA credit and was utilized almost fully. The Italian Grant was signed on December 18, 1986, and became effective -n March 22, 1988, after considerable delay in appointment of two Italian procurement consultants (in additions to the three advisers) who were to work with the PU and handle tied procurement under the grant. The grant is not yet closed; as of February 15, 1991, the total amount of the grant, including - 17 - investment income of Lit 6.5 billion, was Lit 36.5 billion, of which Lit 24.3 billioa was disbursed and the balance was committed. 5.4 The major variances between planned and actual project implementation were as follows. Firstly, following the continuous depreciation of the US dollar during the implementation period, the US$ equivalent of the credit amount increased from US$45 million to about US$56 million. This necessitated the allocation of the additional US$ amount and the addition of a few more enterprises in the list of eligible sub-sectors/sectors. Annex 1 provides a detailed comparison of planned and actual allocations; a summary is provided below. Secondly,without altering the focus of the program, IDA agreed to the Mozambican authorities' request to make a few changes in the number of beneficiaries in the sugar sub-sector and the transport sector and to make consequential reallocations among the beneficiary enterprises and activities. Thirdly, the closing date had to be extended by one year to March 31, 1989 partly because of the need to allocate the additional IDA funds and partly due to delays resulting from the sequential nature of those procurement packages involving both technical assistance and spare parts and equipment. Planned Allocation Actual Allocation Increase (Amount in US$ million) Amount % INDUSTRY 29.50 37.36 7.86 27 TRANSPORT 9.60 12.17 2.57 27 AGRICULTURE 5.00 5.00 - PROGRAM IMPLEMENTATION 0.90 1.58 0.68 75 TOTAL 45.00 56.11 11.11 25 5.5 Although the Program Credit was designed to be a quick disbursing one, actual commitments and disbursements fell behind schedule for a number of reasons. Firstly, the eligible enterprises and the trading firms, which had long been used to procuring goods on sole source basis, were slow to adapt to the new and untried procurement system. Secondly, the staffing of both the PU and the BOM was initially weak and there were problems of coordination between the Unit and the Program Manager. Thirdly, the Mozambican procedures for approval of consultancy contracts and the BOM procedures for Special Account administration, were lengthy and bureaucratic. Fourthly, for a period, there were problems with confirmation of letters of credit issued by Equator Bank, as some European banks were not familiar with or had no correspondent relationship with it. Finally, part of the delay is also attributable to the frequent turnover of IDA staff responsible for supervision of the credit. However, most of these reasons were of a procedural or logistical nature which, in future operations, should be amenable to improvements. 5.6 Industrial Pricing. In order to ensure the financial viability of eligible enterprises in the industrial sector, many of which in the past were incurring losses due to price control and low capacity utilization, a covenant in the credit agreement required the Government to take measures to ensure that prices were established at levels which were at least equal to actual costs, including appropriate allocations for administration, interest payments, - 18 - maintenance and depreciation. To assist the Government in this area, an IDA mission visited Mozambique to review the situation and advised the Government on the alternatives and the methodology to be used in industrial pricing. It was only after constant prodding by IDA missions that the Government was able to confirm having adopted a more realistic and flexible policy. The reasonableness of the policy was also confirmed by the management of the enterprises in discussions wi..h an IDA mission and by much improved financial performance (see Annex II). 5.7 Studies. The two studies scheduled under the program viz., a review of recent developments in the industrial sector and an updating of the transport sector studies carried out in the past, were undertaken by consultants acceptable to IDA and assisted the Government in establishing its institutional and investment priorities in the sector. 6. Program Results 6.1 The program accomplished its objectives of rehabilitation and maintenance of investments and economic servicas ir the key sectors of industry, agriculture, and transport by providing foreign exchange for part of the Government's 1985/86 program of imports of equipment, spare parts and raw materials as well as related technical assistance. Following the depreciation of the US$ in relation to the SDR, the amount of the IDA credit increased in steps from $45 million to $56.1 million equivalent. The number of beneficiary enterprises in the approved sub-sectors was increased from the original 33 to 41. The required improvements were achieved in each of the three sectors. 6.2 Accurate and up-to-da^e figures for assessing the full impact of the program are not available. However, overall agricultural and industrial performance and outputs improved during 1986-88, and enterprise profitability and liquidity reached acceptable levels for companies participating in the program. One area in which the impact of the program was clearly visible was the improvement in the capacity to procure goods and services on a competitive basis. The establishment of the Procurement Unit and the training of Mozambicans in procurement matters were positive achievements in the area of institution building. The Mozambican authorities were so satisfied with the performance of this unit that they incorporated it into a broad ranging Import Coordination Unit which would handle procurements under other IDA credits as well as those under bilateral credits where procurement rules were comparable. On the negative side. some of the credit funds were used to make improvements at an antiquated bicycle factory, but which still produces low quality goods. Problems also arose because of the ineligibility of some equipment for support in rehabilitation because of the country of origin of original equipment. 7. Program Sustainability 7.1 This was an emergency rehabilitation credit, designed to meet the critical foreign exchange needs of the productive sectors and of the transport sector, in the first Bank Group operation in Mozambique. Given the emergency, and the background to this first loan, it was not considered appropriate to seek - 19 - any significant sectoral or structural changes conditioned to the credit. However, since it was in support of the Government's Economic Action Program, the stage was set for starting a policy dialogue between the Government, the IMF and the Bank on both macro-economic and sectoral issues resulting in the Second and Third Rehabilitation Credits albeit after a two year delay. Hence in this sense the program should be considered to have achieved its objectives and to have established a basis for sustainable growth. 8. Bank Group Performance. 8.1 Bank Group performance throughout the program cycle remained satisfactory. The appraisal was well-focussed; it identified the beneficiary enterprises in the industrial sector and specific activities in the transport and agriculture sectors, foresaw the implementation limitations, and tried to build into the program measures that would address this problem. During the course of implementation, IDA staff provided all the assistance needed, and this was quite considerable, in reviewing procurement matters, and assisted the Mozambican authorities in resolving a number of issues affecting program implementation. 8.2 The main lessons of experience that may be of relevance to other IDA- financed projects in Mozambique are: firstly, because of limited implementation capacities, Mozambique would continue to need considerable technical assistance for program/project implementation for a number of years; secondly, because of the interaction of more than one authority in decision making and the prevalence of lengthy bureaucratic proceduree, simplified mechanisms need to be in place before the start of implementation and the division of management and implementation responsibilities should be avoided, as far as possible; thirdly, efforts should be made within the Bank Group to keep the turnover of staff responsible for supervision to the minimum and lastly, that on a country basis solutions are required for weak performance in handling special accounts and in audit arrangements. 9. Borrower Performance 9.1 Borrower's performance during program preparation was adequate. The needs for strengthening the borrower's implementation capacity were recognized at the appraisal stage and efforts made to reinforce the operating arrangements with the help of sharply focussed technical assistance measures. However, a number of snags, developed in the course of implementation which contributed to delays in completion of the program. The Procurement Unit had to train its staff to undertake the project. The Bank of Mozambique handled all banking issues but staffing constraints led to a painfully slow performance. Moreover, the Bank experienced great difficulty in getting the Borrower to comply with covenants, including the audits. 10. Program Relationship 10.1 Throughout the period of program preparation, appraisal, and supervision, IDA's relationship with the various ministries and institutions involved with the program remained excellent. - 20 - 11. Consulting Services 11.1 The performance of the consultants in the Procurement Unit was very good and they made a worthwhile contribution to program implementation. The short-term consultants engaged by enterprises to provide technical assistance in identifying appropriate spare parts and equipment and their suppliers was satisfactory. 12. Proaram Documentation 12.1 The program documentation was quite strong on procurement matters with the result that procurement went ahead satisfactorily but there were delays in improving the procedures for fixing prices of industrial products. Both the President's Report and the Credit Agreement provided adequate framework during program implementation. 13. Covenant Compliance 13.1 The major covenants related to annual audit of project and special accounts, industrial pricing and appointment of expatriate advisers in the Procurement Unit. These were adequately complied with although there were considerable delays in respect of audits and industrial pricing, and in supplying evidence of compliance. - 21 - PROJECT COMPLETION REPORT MOZAMBIQUE REHABILITATION PROGRAM (Credit 1610-MOZ) PART II - PROJECT REVIEW FROM BORROWER'S PERSPECTIVE Parts I and III of the PCR were sent to the Borrower on March 28, 1991 for comments, but no reply was received. - 22 - PROJECT COMPLETION REPORT MOZAMBIQUE REHABILITATION PROGRAM (Credit 1610-MOZ) PART III: STATISTICAL INFORMATION 1. Related Bank Loans/Credits Loan/Credit Year of Title Purpose Approval Status THIS CREDIT IS THE FIRST BANK INVOLVEMENT IN MOZAMBIQUE 2. Proiect Timetable Date Date Date Item Planned Revised Actual - Identification 11/84 11/84 11/84 - Appraisal Mission 2/14/85 2/14/85 2/14/85 - Credit Negotiations 5/85 5/85 5/6-9/85 - Board Approval 6/18/85 6/18/85 6/18/85 - Credit Signature 7/85 7/85 7/23/85 - Credit Effectiveness 10/18/85 10/18/85 10/18/85 - Credit Closing 3/31/88 3/31/89 3/31/89 - Credit Completion 6/30/88 9/30/89 9/30/89 - 23 - 3. Credit Disbursements Cumulative Estimated and Actual Disbursement (in SDR million) Credit 1610-MOZ FY86 FY87 FY88 FY89 Appraisal Estimate 25.0 40.0 45.0 45.0 Actual 24.2 33.2 41.6 44.7 Actual as % of Estimate 96.8 83.0 92.4 99.3 Appraisal Estimate - SDR 45.5 million. Actual - SDR 45.2 million Actual as I of Estimate - 99.3% Cancelled - SDR 345,155.70 Date of Final Disbursement - October 26, 1989 4. Project Implementation Actual or Indicators Appraisal Estimate PCR Estimate Establish Establish a Procurement Unit (PU) A PU was a Procurement in the Ministry of Comerce to established, Unit help implement the key procurement fully staffed and distribution activities associated and made with the Credit. operational - 24 - 5. Proiect Cost and Financinx A. Project Costs Appraisal Estimate Actual .............................SDR millions*..................** * Industry - Equipment & Goods 27.78 27.94 - Technical Assistance 2.02 1.26 Transport - Equipment & Goods 9.04 7.42 - Technical Assistance 0.66 0.22 Agriculture - Equipment & Goods 5.05 4.21 Program Implementat4on * Equipment & Goods 0.05 0.17 - Technical Assistance 0.86 0.68 Studies . 0.06 Special Account -** 3.18 1/ Total 45.50 45.20 conents: 1/SOR 3.18 million to be allocated when audit reports are in. e. Project Financing Source Planned (credit) Revised Final conent ............*SDR million*********** IDA 45.5 45.5 45.2 (a) Convnents: (a) SOR 345,155.70 of the credit was cancelled. 6.Proiect Rts A. Direct Oenefits: Not applicable B. EcgMic Imact: Not applicable C. Financial Impact: Not applicable - 25 - D. Studies Purpose as defined Impact Study at Appraisal Status of study Technical Assistance To provide CIM at this Completed The TA Program for the conception and stage of its development has accomplished implementation of a and expansion with suitable its objectives and management information management information system CIM is showing system for Compania which will promote increased efficiency and Industrial Da Matola (CIM) administrative and production productivity increases. efficiency in general accounting, stock management and human services management. 7. Status of Covenants Credit Agreement Subject Status CA.4.01(a) The Borrower shall maintain or cause to Complied with and NorAg be maintained records and accounts 3.01 adequate to reflect in accordance with sound accounting practices the operations, resource and expenditure in respect of the project of the departments or agencies of the borrower responsible for carrying out the project or any part thereof. CA.4.01(b.i) Have the accounts refered to in para.(a) of Complied with and NorAg this Section including the Special Account after some delay 3.01 for each fiscal year audited, in accordance with appropriate auditing principles applied, by independent auditors acceptable to the Association. Ca.4.01(b.fi) Furnish to the Association, as soon as Complied with and NorAg available, but in any case not later than after some delay 3.01 four months after the end of each such year, a certified copy of the report of such audit by the said auditors, of such scope and In such detail as the Association shall have reasonable requested. CA.4.02. The Borrower shalt take alt necessary measures Complied with and NorAg to ensure that prices for goods produced by 3.01 such Eligible Enterprises are established at levels which are at least equal to actual production costs, including an appropriate allocation for administration, interest payments, adequate maintenance and depreciation. Italian Grant The Borrower shall have the records and Complied with Agrament(IGA) accounts referred of the goods to be after some delay IGA.4.05(b.i) financed out ofthe proceeds of the Grant audited each fiscal year, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to Italy, Mozambique, and the Association; - 26 - Credit Agrement Subject Status IGA.4.08 Promptly after the proceeds of the Grant Italian Grant is have been fully disbursed, Mozarbique shall still being disbursed prepare and furnish to Italy and the and therefore, such Association a report, of such scope and in report is not prepared yet such detail as Italy and the Association shalt reasonably request, on the execution of the Italian Program, the benefits derived and to be derived from the proceeds of the Grant and the accomplishment of the purposes of the Grant. 8. Use of Bank Resources A. Staff Input- (staff weeks) Stages of Project Cycle Revised Final, Comments Thru Appraisal - - 21.9 Appraisal thru Board Approval 6.1 Board Approval thru Effectiveness - - 7.7 Supervision 76.0 Total 111.7 MOZAMBIQUE REHABILITATION CREDIT (CR. 1610-MOZ) PROJECT COMPLETION REPORT B. MISSIONS Stage of Number Days in Performance Project Cycle Month/Year of Persons Field Specialization a/ Rating Status b/ Identification 11184 10 14 M, M, E, Ed, I, T, En, En, L, M Appraisal 2/85 6 14 Eng, Adt, Ag, E, Ed, P. Supervision 7/85 4 10 Ln, P, Tng, D 1,1 9/85 1 8 E 11/85 3 10 Op, P, Ag 2,2 3/86 4 10 Op, P, Op, Ag 1,1 5/86 1 10 E 11/86 2 10 Op, P 1,1 5/87 3 7 Op, Adt, Adt 1,1 10/87 2 5 M, F 2/88 1 2 F 1,1 6/88 1 2 F 9/88 1 5 F 1,1 5/89 1 3 F 1,1 11/89 1 1 F 1,1 5/90 1 1 F 1,1 10/90 1 1 F 2/91 1 1 F a/ M Management; E = Economist; Ed = Educationalist; I = Industrial Economist; T = Transport Specialist; En = Energy Economist; L = Legal; Eng = Engineer; Adt = Audit; Ag = Agriculturist; P = Procurement Specialist; Ln = Loan Officer; Trg = Training Specialist; D = Disbursement Officer; Op = Operations Officer; F = Financial. b/ Development impact, overall performance. - 28 - ANNEX I PROJECT COMPLETION REPORT MOZAMBIQUE REHABILITATION PROGRAM CREDIT SUMMARY OF PLANNED AND ACTUAL ALLOCATION TO SECTORS/SUB-SECTORS (US$ Millions) --- ---------- -- I-------I -------- I---------I ------- I------- SECTORS j NO.OF I RAW | SPARE |EQUIPMENT I TA I TOTAL I FIRMS IMATERIALSI PARTS I I I P A P A P A P A P A P A INDUSTRY Food & Tobacco 11 14 - 1.0 1.3 2.5 1.7 1.8 - 0.1 3.0 5.4 Beverages 1 1 0.5 1.3 1.2 1.2 1.3 3.1 0.2 0.4 3.2 6.0 Shoes 6 5 2.8 2.3 0.2 0.2 0.1 0.1 0.1 0.1 3.2 2.7 Textiles 1 3 3.3 2.5 1.0 0.9 - 1.3 0.3 - 4.6 4.7 Hygiene Goods 3 5 0.5 0.7 - - - - - - 0.5 0.7 Bicycles 1 1 1.3 1.7 0.4 - - 0.1 0.4 0.3 2.1 2.1 Motorcycles 1 1 0.7 0.8 0.2 0.3 - - - - 0.9 1.1 Agr.Implements 1 1 0.2 0.4 0.1 0.2 0.2 0.1 - - 0.5 0.7 Repair Heavy Eq.1 1 - - 2.0 1.6 - 0.4 0.9 0.9 2.9 2.9 Paints 1 1 0.6 1.4 - 0.1 - - - - 0.6 1.5 Glues 1 1 0.4 0.8 - - - - - - 0.'. 0.8 Tires 1 1 2.8 2.8 0.3 0.3 - - - - 3.1 3.1 Batteries 1 1 0.2 0.2 0.1 0.1 - - - - 0.3 0.3 Sugar 3 5 1.0 0.2 2.4 2.5 0.7 2.0 - 0.7 4.1 5.4 Studies 0.1 - 0.1 - SUB-TOTAL 33 41 14.3 16.1 9.2 9.9 4.0 8.9 2.0 2.5 29.5 37.4 TRANSPORT Vehicles Trucks 13,452 - - 6.4 7.1 0.3 0.3 0.3 - 7.0 7.4 Locomotives 80 32 - - 1.9 4.0 0.4 0.1 0.2 0.6 2.5 4.7 Studies 0.1 0.1 0.1 0.1 SUB-TOTAL 8.3 11.1 0.7 0.4 0.6 0.7 9.6 12.2 AGRICULTURE Seeds(tons) 1500 1500 1.7 1.7 0.5 0.5 2.0 2.0 0.8 0.8 5.0 5.0 PROGRAM IMPLEMENTATION Consultancies, Equipment and Studies 0.1 0.4 0.8 1.1 0.9 1.5 TOTAL 16.0 17.8 18.0 21.5 6.8 11.7 4.2 5.1 45.0 56.1 P=Planned Allocation A=Actual Allocation * Bags - 29 - MOZAMBIQUE ANNEX II REKABILITATION PROGRAM CREDIT PERFORMANCE OF BENEFICIARIES IN INDUSTRIAL SECTOR BENEFICIARIES SALES PROFIT/LOSS 1986 1987 1988 1986 1987 1988 (Mt. millions) (Mt. millions) Food & Tobacco Matola 1,48.4 738.2 65.1 224.6 Agricola 120.8 2,161.6 41.5 175.7 Empresa 1,008.8 1,947.5 35.0 150.0 Probeira 22.9 117.4 4.4 28.7 Mobeira 703.9 1,471.6 193.2 (8.0) Docimal 972.1 3,613.4 309.1 391.3 Loumar 824.7 1,271.1 97.6 83.4 Ceres 1,517.2 1,525.0 153.9 179.8 CIM Matola 2,695.4 6,851.7 83.8 4.6 Shoes Borracha 703.0 816.1 243.9 81.0 Faoril 239.8 541.7 22.5 15.4 Zaurita 134.4 475.6 4.9 54.8 Textiles Textafrica 499.4 2,469.6 4,342.6 9.4 176.9 169.3 Hygiene Goods Fosfereira 62.0 38.4 (11.3) 3.9 Agr. Implements FMEV 105.6 203.2 19.8 12.8 Heavy Equip. Repair STEIA 480.0 889.5 (91.6) (326.0) Sug&ar Incomati 1,482.0 283.8 Mafambassie 2,715.0 645.9 Paints & Glue Pintex 312.1 750.0 67.2 125.3 Facol, 42.0 349.9 7.9 59.1 Tires & Battery Mabor 1,200.3 4,454,1 95.6 74.2 Tudor 153.2 1,136.6 2,513.3 (12.0) 255.0 17.2