Guinea - Industrial Rehabilitation and Promotion Project

Documnent of The World Bank FOR OFFICLAL USE ONLY Report No. 11622 PROJECT COMPLETION REPORT REPUBLIC OF GUINEA INDUSTRIAL REHABILITATION MND PROMOTION PROJECT ( CREDIT 1234-GUI) FEBRUARY 3, 1993 Industry and Energy Division Country Department I Africa Region This document has a restricted distribution and may be used by; recipients only in the performance of their offcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EOUIVALENT Currency Unit = Guinean Franc (GF) i18 1992 US $ 1= GF 365 US $ 1 = GF 922 ABBREVIATIONS AND ACRONYMS ASP Admininstration du Secteur Public CCDE Centre de Creation et de Developpement de l'Entreprise CIDA Canadian International Development Agency CNCIH Credit National pour le Commerce et l'Industrie CNPIP Centre National pour la Promotion de l'Investissement Prive DCA Development Credit Agreement EDF European Development Fund ENELGUI Entreprise Nationale d'Electricite de Guin6e MI Ministry of Industry MSEME Ministry of Small Scale Enterprises ONAH Office National des Hydrocarbures ONPPME Office National pour la Promotion de la Petite et Moyenne Entreprise PCR Project Completion Report SME Small and Medium Enterprise TA Technical Assistance FISCAL YEAR January 1 - December 31  FOR OFFICLAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation February 3, 1993 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Guinea Industrial Rehabilitation and Promotion Proiect (Credit 1234-GUI) Attached is a copy of the report entitled "Project Completion Report on Guinea - Industrial Rehabilitation and Promotion Project (Credit 1234-GUI)" prepared by the Africa Regional Office. The Borrower did not prepare a Part II. The PCR is of inadequate quality. Although three of the four state-owned enterprises were reportedly rehabilitated prior to privatization, there is no discussion of the rehabilitation experience and outcome, nor is there any indication that the accounts of these enterprises were audited and their net worth established as required by Section 4.02a of the Development Credit Agreement. The PCR also lacks a meaningful account of the privatization process and results. The PCR contains factual and data errors particularly in respect of the rehabilitated enterprises and the amount disbursed from the line of credit. Halfway through implementation, the project was overtaken by events. The Government and the Bank decided to utilize a substantial part of project funds in support of the reform program and SAL I initiated in 1986. This was made possible partly because the project was facing difficulties in disbursing the funds allocated for the promotion of private sector investment. As the PCR rightly concludes, since the project's objectives and design changed radically during implementation, it would have been more efficient to undertake a full mid-term review or a complete reappraisal of project objectives and to respond to new challenges brought about by the far-reaching economic reforms. Overall, project performance is rated as unsatisfactory, with uncertain sustainability and only partial institutional impact. In the wake of this experience, the Bank and the Government of Guinea have embarked on two related projects namely Private Sector Promotion and Public Enterprise Sector, in 1990 and 1992, respectively. These later projects may well deepen the process started with Industrial Rehabilitation Project. An audit of this project may be carried out at a later date because it is the first in the industrial sector of Guinea. Attachment This document has a restricted distribution and may be used by recipients only in the performance of their official dutics. Its contcnts may not otherwise be disclosed without World Bank authorization.   FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT REPUBLIC OF GUINEA INDUSTRIAL REHABILITATION AND PROMOTION PROJECT (Credit 1234-GUI) TABLE OF CONTENTS PAGE NO. PREFACE .......................................... i EVALUATION SUMMARY ............................... iii PART I PROJECT REVIEW FROM THE BANK'S PERSPECTIVE 1. Project Identity ................................... 1 2. Background ..................................... 1 3. Project Objectives and Description ....................... 2 4. Project Implementation .............................. 3 5. Project Results ................................... 4 Rehabilitation/Privatization ........................... 4 Line of Credit and Assistance to SMEs ................... 5 Technical Assistance ............................... 7 Training ...................................... 8 6. Project Sustainability ............................... 8 7. Bank Performance ................................. 9 8. Borrower Performance .............................. 9 9. Consulting Services ................................ 9 10. Project Documentation and Data ........................ 9 PART II PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE. 11 (The Borrower has not submitted Part II) PART III STATISTICAL INFORMATION 1. Related IDA Credits ................................ 13 2. Project Timetable ................................. 14 3. Cumulative Disbursements ............................ 15 4. Project Implementation .............................. 16 5. Project Costs .................................... 17 6. Project Results ................................... 19 7. Status of Covenant in Credit Agreement ................... 21 8. Use of Bank Resources .............................. 22 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   - i - PROJECT COMPLETION REPORT REPUBLIC OF GUINEA INDUSTRIAL REHABILITATION AND PROMOTION PROJECT (Credit 1234-GUI) PREFACE This is the Project Completion Report (PCR) for the Industrial Rehabilitation and Promotion Project in Guinea, Credit 1234-GUI, for which SDR 16.0 million (US$19.0 million equivalent) was approved on April 24, 1982. The Credit was closed on December 31, 1992, after two extensions of the Closing Date. The last Credit disbursement was processed on February 4, 1992. A total amount equivalent US$ 223,246.73 will be canceled as soon as the initial amount on the Special Account is recovered. Parts I and III of the PCR were prepared by the Industry and Energy Division of Occidental and Central Africa Department, Africa Regional Office. A review of the Project from the Borrower's perspective was not submitted to IDA. The PCR does not, therefore, include Part II. The PCR is based on an IDA mission to Guinea, the Staff Appraisal Report, legal documents, supervision reports, and miscellaneous reports and correspondence in the project files.   - ijj - PROJECT COMPLETION REPORT REPUBLIC OF GUINEA INDUSTRIAL REHABILITATION AND PROMOTION PROJECT (Credit 1234-GUI) EVALUATION SUMMARY 1. Objectives. This Project was the first IDA operation in the industrial sector in Guinea. The objectives of the project, as described in the staff appraisal report (SAR), were to (a) create within the Ministry of Industry a capacity for industrial sector policy formulation and planning; (b) support the Government's efforts in transferring some of its responsibilities for national production, import substitution and employment creation from the public sector to the private sector; and (c) improve the performance of state-owned industrial enterprises through selective rehabilitation programs and relaxation of Government controls, thereby increasing foreign exchange earnings, employment creation and regional development (para. 3.01). 2. The project consisted of the following components: (a) rehabilitation of four state-owned enterprises through the provision of equipment, civil works, imported materials, engineering, technical assistance and training; (b) feasibility studies of two other state-owned enterprises (slate and ornamental stones); (c) a line of credit equivalent to US$ 8.8 million for private sector enterprises channeled through the Credit National pour le Commerce, l'Industrie et de l'Habitat (CNCIH); (d) technical assistance to CNCIH, and to the Ministry of Small and Medium Scale Enterprises; (e) three man-years of technical assistance (TA) to the Government to assist in the formulation of industrial policy and planning; and (f) financing for the foreign costs of the external audit of all IDA project components (para. 3.02). 3. Project objectives and design were modified during project implementation. In 1985, three years following the approval of the Project, the new government which replaced Sekou Toure's 25-year rule, introduced radical and far-reaching structural reforms which led to unprecendented changes in the Guinean economy. These changes included the dismantling of the banking system, which resulted in the liquidation of CNCIH; the liquidation/privatization of state-owned enterprises; and the banning of state controls on prices, wages and import and export licensing (para. 3.06). 4. The reforms had a significant impact on the IDA Project and led to considerable modifications in project objectives and design. The Project was given a new orientation which aimed at supporting on-going policy reforms to strengthen the financial sector, to improve institutional capacity and to promote the private sector. The scope of the T.A. component was broadened and the amount alloted to it was increased, through a reallocation from the slow disbursing components, to finance the extensive technical assistance which was necessary to assist the Government in the implementation of the reform program (para. 3.07).  - iv - 5. Implementation Experience. Project implementation did not proceed as smoothly as anticipated. Neither the Ministry of Industry, which coordinated the IDA Project, nor CNCIH, had the capacity to manage the Project and channel IDA funds to sub- borrowers. Technical assistance, provided to all implementing agencies, did not have immediate results and implementation did not improve. This may be partly because Government agencies were not committed to private enterprise development objectives, given their earlier political orientation. Commitments as well as disbursements continued to be slow (para. 4.01). 6. Foliowing the reform program and Guinea's transformation into a market economy, the Ministry of Industry had great difficulty in adopting the role of promoting, rather than controlling, the private sector. To a certain degree, the Project lost its sense of focus and direction and resulted in financing ad-hoc technical assistance activities related to the implementation of the reform program. 7. Following the modifications of the project and its objectives, project implementation became more difficult and all Government requests for financing required careful screening by IDA to assure that they were relevant Project's overall goal. Disbursements remained slow and the closing date had to be extended twice, from 1988 to 1991. In 1989, uncommitted funds from the line of credit were reallocated to technical assistance. The project took almost nine years to implement compared to the five originally planned. Although the depth of the dialogue between the Government and the Bank improved in the framework of structural and sectoral reforms, in retrospect, it would have been more efficient to undertake a full mid-term review or a complete reappraisal of the project, to respond to the new challenges brought about by the far-reaching economic reforms (para. 4.02). 8. Project Results. The bulk of the Credit was allocated to implement the 1985 reform program. These efforts included the restructuring of Guinea's financial sector, technical assistance for diagnostic studies and managerial and financial reviews of selected state-owned enterprises, which were a prerequisite to privatization, and for institution building of the various Government agencies involved in industry and SME promotion. This outcome constitutes a significant variation between planned and actual project objectives yet was a crucial input to Guinea's Structural Adjustment Program (para. 5.01-5.23). 9. The Credit also financed the rehabilitation of a selected number of state- owned enterprises, most of which were privatized after the reforms. The IDA line of credit, although significantly reduced, financed 54 small scale enterprises, for a total of SDR 4.4 million, in sectors such as agro-industry, wood-working and services. In the absence of recent information on these enterprises from BICIGUI (which took over the execution of the Project at the demise of CNCIH), it is not clear how many are still in operation, although a large number are in arrears. Technical assistance was also provided to BICIGUI as well as the Ministry of Industry which was responsible for the local administration of the Project (paras. 5.08-5.09). 10. Sustainability. The Project financed important studies on the privatization of state-owned enterprises amd assisted in the restructuring of Guinea's financial sector. These  aspects have the potential to be sustainable. However, as far as institution building is concerned the sustainability of measures introduced and contributions made by the Project is questionable. While extensive technical assistance and training were financed through Credit proceeds, it is difficult to assess their impact on the performance of the Ministry of Industry. Following the reforms, the institutional and political context changed significantly and subsequent Government reshuffles brought considerable modifications in the organization the Ministries concerned, as well as the Central Bank. The depth of the dialogue between the Government and the Bank improved in the framework of structural and sectoral reforms and continue in the context of the IDA Private Sector Promotion Operation, which is in execution (para. 6.01). 11. The transformation of the Ministry of Industry's (MI) philosophy from one of central control to a market orientation proved difficult. MI has not been able to play the the role required to make the measures introduced by the Project sustainable. Neither could it be achieved through expatriate consultant-local counterpart relations. The Ministry's mission is now one of regulation and policy formulation rather than execution and it may take some time for it to feel confident in this new role. At this stage, however, it lacks the capacity to design and implement growth-oriented industrial policies and private enterprise development programs (para. 6.01). 12. Conclusions and Lessons Learned. The Project's objectives and design were changed radically during implementation. Nevertheless, judged against the conditions which existed in Guinea when the Project became effective, significant progress has been achieved in improving the country's economic environment. The Project contributed to this success, but only in preparing the ground for further reforms. The process is far from completed and most measures introduced by the Project are not conclusive. The Project's most noticeable contribution, namely the restructuring of the banking sector, cannot be considered a complete sucess. Primary banks remain weak, non-profitable and financially insecure. Most of the new banks, carry unproductive portfolios and are faced with high level of arrears and with resource shortages. 13. Another weak outcome of project efforts is Government's failure to improve the investment climate in Guinea. Private operators remain skeptical about the stability of the macro-environment and the safety of investments. It is also unclear whether staff training and expatriate expertise has appreciably improved skills and administrative procedures in the ministries and agencies monitoring the industrial sector. Overall, despite extensive technical assistance, these institutions remain weak. The previous confusing and difficult institutional and legal environment still has its effects on economic patterns and the business community's attitudes. Nevertheless, the support provided by IDA to Government efforts to accelerate implementation of the reform program resulted in the disengagement of the state from productive economic activities and initiating an embryo of a private sector development program. Government policies and attitudes toward the private sector have started to shift from discrimination to acceptance and further support. 14. The main lessons learned from this experience are the following:  - vi - (a) In designing projects of this type, more attention should be given to analyzing the strengths and weaknesses of target institutions, including their ability to manage, efficiently, the different components included in the Project. Project objectives should be measured against local institutional capacity to implement the Project; (b) Local project management capacity must be fostered in order to ensure that institution-building takes place; (c) Commercial Banks should be pressured to be more rigorous in supervision of their sub-borrowers as well as in their collection practices; and (d) In retrospect, given the open-ended re-orientation that the Project asumed following the reforms, it would have been more efficient to undertake a full mid-term review or a complete reappraisal of project objectives and to respond to new challenges brought about by the far-reaching economic reforms.  PROJECT COMPLETION REPORT REPUBLIC OF GUINEA INDUSTRIAL REHABILITATION AND PROMOTION PROJECT (Credit 1234-GUI) PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE 1. PROJECT IDENTITY Name : Industrial Rehabilitation and Promotion Project Credit No. Credit 1234-GUI RVP Unit : Africa Region Country Department I Country The Republic of Guinea Sector Industry 2. BACKGROUND 2.01 Guinea is blessed with natural resources which make it one of Africa's most richly endowed countries. It is in particular a major producer and exporter of bauxite and other minerals. It also offers strong agricultural potential resulting from abundant land resources and rainfall. At independence in 1958, the country was a leading exporter of bananas and other agricultural commodities to European markets. Yet, the country is now considered among the least developed countries in Africa. 2.02 Under the regime of Sekou Toure (1958-1984), the private industrial sector was displaced by a pervasive network of state-owned enterprises in manufacturing, which operated through an elaborate system of administered prices, which held monopolies over all exports, over most trading and over most industrial activities. The official sector was functioning under an elaborate and ineffective system of administered prices and emphasis on state enterprises failed to produce the desired modernization and industrialization of the economy. A poor incentive structure pushed the dynamic agricultural sector into subsistence production. Following the sharp drop in agricultural production, Guinea had become by the mid-1970s a net importer of food and increasingly relied on bauxite exports. 2.03 The performance of state-owned manufacturing enterprises deteriorated throughout the 70s. Production levels decreased to 10-30% of capacity, due to worn out equipment and lack of spare parts and raw material. In an effort to improve their performance, the Government reappraised its industrial policy to focus on: (a) rehabilitating all state-owned enterprises; (b) increasing production; and (c) reorganizing and providing public manufacturing enterprises with greater managerial autonomy.  - 2 - 2.04 In 1979, Guinea requested the Bank's assistance to rehabilitate state-owned, manufacturing enterprises and to promote SMEs. The Industrial Rehabilitation and Promotion Project was the first Bank involvement in the industrial sector in Guinea. 3. PROJECT OBJECTIVES AND DESCRIPTION 3.01 The objectives of the project, as described in the staff appraisal report (SAR), were to: (a) create within the Ministry of Industry a capacity for industrial sector policy formulation and planning; (b) support the Government's efforts in transferring some of its responsibilities for national production, import substitution and employment creation from the public sector to the private sector; and (c) improve the performance of state-owned industrial enterprises through a selective rehabilitation and relaxation of Government controls and thereby furthering their objectives of foreign exchange earnings, employment creation and regional development. 3.02 The project consisted of the following components: (a) rehabilitation of four state-owned enterprises through the provision of equipment, civil works, imported materials, engineering, technical assistance and training; (b) feasibility studies of two other state-owned enterprises (slate and ornamental stones); (c) a line of credit equivalent to US$ 8.0 million for private sector enterprises channeled through the Credit National pour le Commerce, l'Industrie et de l'Habitat (CNCIH); (d) technical assistance to CNCIH, and to the Ministry of Small and Medium Scale Enterprises; (e) three man-years of technical assistance to the Government to assist in the formulation of industrial policy and planning; and (f) financing for the foreign costs of the external audit of all IDA project components 3.03 The line of credit was initially for an amount of US$8.8 million. The maximum repayment period was set at 20 years with 10 years of grace for industrial rehabilitation sub-projects and to a maximum of 15 years with an eighteen month grace period for private sector SMEs. The maximum rate of interest was 13%, with final sub-borrowers assuming the foreign exchange risk. The inflation rate between 1978 and 1982 was estimated to be an average of 3.7 percent per annum. 3.04 Furthermore, in order to improve the economic and financial rates of return in the manufacturing sector, the Government was expected to adopt adequate procedures for imports, as well as for procurement and disbursement, to provide foreign exchange and to liberalize price controls. 3.05 The project was co-financed by CIDA, the OPEC Fund and the European Development Fund (EDF). The OPEC Loan of US$11 million, was to be administered by the Bank. Project Reorientation 3.06 The death of Sekou Toure in 1984 ended a quarter century of mismanagement which brought Guinea to the brink of economic collapse. The new regime introduced a radical program of reforms which led to extraordinary and unprecedented changes and which  transformed Guinea into a free-market economy. These changes included the dismantling of the banking system, the liquidation/privatization of most state-owned enterprises and the banning of state controls on prices, wages and import and export licensing. 3.07 As the Government's new policy focussed on privatization/liquidation of state- owned enterprises, rehabilitation of state enterprises was no longer a Government priority. The IDA Project was re-oriented to support on-going policy reforms aimed at strengthening institutional capacity, private sector promotion and the financial sector and help strengthen the Banque Internationale pour le Commerce et l'Industrie-Guinee (BICI-GUI), which replaced CNCIH after its liquidation in 1985, as the financial intermediary of the IDA Project. The technical assistance component was re-oriented to finance the recruitment of additional resident advisers to accelerate the implementation of the Adjustment Program and provide support to the Government in its efforts to privatize the Office National des Hydrocarbures (ONAH) and to restructure ENELGUI, both state-owned enterprises in the energy sector. Furthermore, this component was to finance staff evaluation and training needs in the Ministries of Industry, Small Scale Enterprise and the Central Bank to identify areas where skills needed strengthening. 3.08 In order to address new priorities, Credit proceeds had to be reallocated from slow-disbursing components, such as the line of credit to the technical assistance component to enable it to finance the growing Government need for technical assistance to help ie implement its privatization program and its banking sector reform. Total funds reallocated reached SDR 5.7 million, e.g. about 34 percent of IDA financing. 3.09 OPEC Loan. The OPEC Loan (Loan 274-P) was explicitly designated to finance the rehabilitation of state-owned enterprises. However, following the decision of the Government to disengage itself from the manufacturing sector and to privatize state-owned enterprises and since OPEC loans cannot finance privatization, the unutilized balance (36% of the total loan) was re-directed to the agriculture and education sectors. 4. PROJECT IMPLEMENTATION 4.01 Project implementation did not proceed as smoothly as desired. Neither the Ministry of Industry, which coordinated the IDA Project, nor CNCIH, the financial intermediary, had the capacity to manage the Project and channel IDA funds to sub- borrowers. Technical assistance was provided to all implementing agencies to strengthen their capacity but did not have immediate results, as the Borrower was not adequately committed to the private enterprise development objectives. Commitments and disbursements were slow. Following the reform program and Guinea's transformation into a market economy, the Ministry of Industry had great difficulty adopting a role which would promote, rather than control, the private sector. Soon after the reforms, the Project lost its sense of focus and direction and in the end financed ad-hoc technical assistance activities related to the implementation of the reform program for which the Government lacked the necessary financial resources.  - 4 - 4.02 In the absence of clear objectives, project implementation became even more difficult and all Government requests for financing required careful screening to assure that they were relevant to the Project's overall goal. Disbursements remained slow and the closing date had to be extended twice, from 1988 to 1991. In 1989, uncommitted funds from the line of credit were reallocated to technical assistance. The project took almost nine years to implement compared to the five originally planned. Although the depth of the dialogue between the Government and the Bank improved in the framework of structural and sectoral reforms, in retrospect, it would have been more efficient to undertake a full mid-term review or a complete reappraisal of the project, to respond to the new challenges brought about by the far-reaching economic reforms. 5. PROJECT RESULTS Rehabilitation/Privatization of State-Owned Enterprises 5.01 Four state-owned enterprises had originally been selected for rehabilitation, to improve their managerial as well as their financial performance. Rehabilitation programs were to finance civil engineering, equipment and raw material. Only three enterprises, SONACAG Tile, SONACAG Granite and Seredou-Labe, were rehabilitated. All three enterprises were subsequently privatized, in early 1986. The fourth enterprise, SIPAR- LABE, was dropped from the list of enterprises to be rehabilitated. 5.02 Following the 1985 Reform Program and the Government's decision to disengage itself from most industrial activity, IDA resources were reallocated to finance technical assistance for the Government's divestiture program. Given the need for rapid implementation of the reforms, consultants were, therefore, hired to assist in the process. The search for private investors and partners focussed on foreign firms because of the weakness of the domestic private sector and the need for early completion of the reforms. 5.03 Societe Nationale des Carreaux et Granit (SONACAG). This project included: (a) rehabilitation of a Granite Quarry; (b) equipment, technical assistance and market study for ornamental stone and slate production; and (c) rehabilitation of a floor tile factory. A limited amount of training of Guinean technical staff was provided in the turn-key contracts, and assistance in establishing accounting systems was provided under the auditors contracts. 5.04 The SONACAG tile factory, completed in November 1985, was mothballed the following December, despite an early agreement that the plan would be put into operation under a technical assistance contract, pending its privatization. Privatization of both tile and quarry factories was completed between February and July 1987. 5.05 Station Autonome de Seredou: Rehabilitation of quinine plantation and factory. In 1986, at the request of the Government, social infrastructure as well as replacements and spare parts were added to the rehabilitation plan. The estimated rehabilitation reached US$5.7 million, exceeding budgeted funds by 30%. The rehabilitation was delayed, as it was decided to involve private investors. Finally, since the available  - 5 - balance in the Credit for this component, including contingencies, was US$3.6 million, the Government and IDA decided not to go ahead with the rehabilitation and dropped SEREDOU from the list of enterprises to be rehabilitated. The enterprise was privatized in February 1987. 5.06 SIPAR LABE. A turn-key contract for SIPAR LABE, an essential oils enterprise, was signed and disbursements began in early 1985. The enterprise was privatized in February 1988. Line of Credit and Assistance to SMEs 5.07 In addition to a line of credit for sub-loans to Small and Medium Scale Enterprises (SMEs), the Credit provided assistance to the financial intermediary, CNCIH and its successor BICIGUI, as well as to an investment promotion agency to promote SMEs in Guinea, the Centre de Creation et de Developpement de I'Entreprise (CCDE). 5.08 Line of Credit. Until early 1986, the IDA U$ 8.8 million line of credit remained undisbursed. Slow appraisals from the Office National pour la Promotion de la Petite et Moyenne Entreprise (ONPPME) and commitments from CNCIH and BICIGUI made the IDA line of credit one of the least successful features of the project. At the end of 1984, only three sub-projects had been submitted by CNCIH to IDA for approval for a total of US$217,516. In February-March 1985, it became clear that the prospects for adequate use of the line of credit were gloomy. Despite official statements to the contrary, the macro- economic environment was not yet compatible with harmonious development of the private sector. Disbursements started only after BICIGUI took over and benefitted from a subsidy of US$1 million. Ten sub-projects amounting to US$1 million were then approved. 5.09 By the end of 1989, only SDR 2.4 million of the line of credit was utilized for financing subprojects. A total of 54 sub-projects were financed over the course of project implementation for small sub-projects, in agro-industries as well as service sectors. The majority of the sub-loans were very small, ranging from SDR 3,000 to SDR 140,000; the majority were below SDR 50,000. The financial intermediary has not provided IDA actual information on these enterprises. It is, therefore, not possible to assess how many of these small enterprises are still in operation. 5.10 Lending Terms. Commitment and Procedures. In 1988, three other lines of credit were introduced in the country. Two from the French cooperation, a CCCE line of credit similar to IDA's and a line of credit from the Ministry of External Relations (accord cadre). The third line of credit was from the EEC. The IDA line of credit was not the most attractive and was the slowest to disburse. IDA sub-loans had a higher interest rates than the other lines of credit. Furthermore, under the IDA Credit, the sub-borrowers assumed the foreign exchange risk, which in the other lines of credit was assumed by the Government. Given the eagerness of entrepreneurs to access to long-term credit and to foreign exchange, at almost any cost and as BICIGUI managed two of the other lines of credit, IDA funds were the last to be utilized.  - 6 - 5.11 Sub-loan disbursements lagged behind commitments. Sub-project quality remained low and eligibility criteria such as the 10 percent minimum internal rate of return, and debt:equity ratios were, in most cases, not observed. To a large extent, sub-loans went to inward-oriented small agro-businesses and service activities. Most sub-projects had no or low export potential. Foreign exchange earnings objectives were never attained. Arrears on the sub-loans reached 90 percent at the end of 1991 and was nearly 100 percent in mid- February 1992. 5.12 Foreign Exchange Risk. The issue of foreign exchange risk generated a lengthy debate between IDA and the Government. The under-valuation of foreign currency at the official exchange rate was already a major constraint to foreign investors. Shortages of foreign exchange were impinging upon equipment renewal in the manufacturing sector. At the time of project design, attempts were made to set up a mechanism for providing the foreign exchange proceeds at a premium which would reflect the extent of overvaluation of the Guinean syli. The Government did not agree, arguing that it would be interpreted as an implicit devaluation. At a later stage, the borrower claimed that the foreign exchange risk had reduced the rate of return to investment, sub-project profitability and the attractiveness of IDA sub-loans. 5.13 While it is possible that the foreign exchange risk issue had a negative impact on the utilization of the line of credit, there is still no evidence that it is the cause of the high level of arrears on sub-loans. As repayments of sub-loans from other lines of credit are not significantly better, the high level of arrears is rather the product of the poor economic environment and banking practices in the country. 5.14 Repayment of Arrears. As early as the first quarter of 1989, IDA supervision missions identified a collection problem. By the end of 1988, the delinquency rate had reached 70 % at the time of debit presentation. An average of 35 of sub-loans were overdue by ninety days. Only 30% of installments were repaid on time. IFC, a shareholder of the financial intermediary, had provisioned as much as 50 percent of its investment. In early 1989, BICIGUI undertook substantial measures to improve and strengthen the monitoring of its borrowers and IDA subloans. An EEC consultant was later assigned to all donor-funded subloans and local staff were designated to follow-up collection. Despite all these efforts, there has been no improvement. 5.15 Technical Assistance to the Financial Intermediary. Improvement in CNCIH's lending procedures and financial autonomy of state enterprises were conditions of project effectiveness. CNCIH's internal structures were reorganized and training opportunities identified for the staff. A resident consultant on development credit was financed under the project for two years (1984 and 1985). Unfortunately, this technical assistance had little effect on the performance of CNCIH and it became clear that the project appraisal and monitoring capabilities of CNCIH could not be significantly strengthened. Providing assistance to rebuild CNCIH would be a long term and expensive endeavor with limited guarantee of success. 5.16 A comprehensive restructuring of the banking system led to the liquidation of former State-controlled primary banks and of public enterprises. CNCIH was closed in late  - 7 - 1985. BICIGUI, the subsidiary of BNP, a major French banking group, took over the role of financial intermediary for the IDA line of credit. The consultant on Development Credit was transferred to BICIGUI for one year (1986). Disbursements started only after BICIGUI benefitted from a TA fund of US$1 million for credit delivery, management of up-country branches and training. Expatriate experts pre-financed by BNP were already in the field prior to the release of IDA funds in February 1987. 5.17 Investment Promotion Institutions, Investment promotion and support in Guinea, had developed haphazardly under the tutelage of various ministries and government agencies. Despite various programs of technical assistance, they remained largely inoperative. A consultant on project evaluation assisted the ONPPME for three years (1984, 1986). In addition, the Project provided a financial analyst for two years (1985 and 1986) before the liquidation of ONPPME. 5.18 To fill the gap created by the liquidation of ONPPME, a new investment promotion center was created, the Centre de Creation et de Developpement de l'Entreprise (CCDE). However, limited progress has been achieved in making CCDE a legal entity. Its role and mandate are still not fully accepted by the Government. The funding source of staff salaries and operating costs of CCDE is still tentative. Credit 1234-GUI financed the renovation of the building that is housing CCDE, and operations are being currently funded through external resources. A re-assessment of the strengths and weaknesses of both CCDE and Centre National pour la Promotion de l'Investissement Prive (CNPIP) to eliminate possible duplication of efforts in underway under the Private Sector Development operation. Technical Assistance 5.19 The Credit financed extensive technical assistance, including: four expatriate advisors for SME-related positions; an advisor to head the Ministry of Industry's Bureau d'Etude; one advisor designated to each of the divisions for financial analysis, management and accounting; expatriate consultants to assist in sub-project identification and evaluation; and TA for studies, for training fellowships and seminars on industrial policy and project preparation. While at appraisal the technical assistance component was estimated at US $ 1.6 million equivalent, the actual amount which financed technical assistance at project completion, represented over US $ 9.0 million equivalent. 5.20 In the Ministry of Industry, TA aimed at analyzing alternative industrial strategies and bringing about realistic industrial sector policies. The credit financed an industrial economist who also faced major adaptation problems and failed to win support for his ambitious work program. His census of manufacturing industries had to be abandoned. He resigned in August 1984 and his replacement arrived at the end of the year. The new terms of reference included industrial policy and planning with emphasis on incentive terms, trade policies, project analysis and industrial survey work. Most of the new tasks were oriented toward coordinating visiting consultants' missions for sector and feasibility studies. The census of the manufacturing, state enterprises, modern private sectors and informal economy was carried out in that context. The work program was integrated in the Bank/UNIDO sector work to assist the Government in formulating a new industrial policy.  - 8 - 5.21 As mentioned in paragraph 3.07, technical assistance took on a new dimension with the advent of the structural adjustment program. The focus shifted to privatization of a large number of state enterprises and banking sector reform. 5.22 Following the closure of the line of credit in December 1989, project activities were implemented as free standing technical assistance. Commitments of funds responded to emerging TA needs. The Credit financed technical assistance to the Ministry of Planning until the Project's closing date. Such flexibility in the allocation of funds had advantages in allowing the Government to respond to pressing demands which could not otherwise be satisfied. Its main disadvantage, however, was that it allowed project components to be too open-ended. Training 5.23 Although Government agencies, particularly the Ministry of Industry received extensive training, it is difficult to assess the impact of such programs. Such is also the case of the on-the-job training. Apart from individual training given by experts, the training financed by the Project was unsatisfactory. It is unclear whether training and expatriate know-how has appreciably improved skills and administrative procedures in the ministries and agencies monitoring the industrial sector. This category lacked a clear definition from the outset. There was neither a well-articulated strategy nor an agreed long-term training program. The "training, trips and fellowships" category was too open-ended and was finally stopped. 6. PROJECT SUSTAINABILITY 6.01 The transformation of the Ministry of Industry's philosophy from one of central control to a market orientation proved difficult. The ability of self-monitoring by the Borrower was critical in the implementation of the Project. MI was incapable of playing the role required to make the measures introduced by the Project sustainable. Neither could it be achieved through expatriate consultant-local counterpart relations. Its mission is now one of regulation and policy formulation rather than execution and it may take some time for it to feel confident in this new role. 6.02 Institutions lacked the capacity to design and implement growth-oriented industrial policies and private enterprise development programs. Basic skills were to be built through training and fellowships. During project preparation, the Bank sought first to clarify administrative responsibilities within government agencies. The Ministry of Small and Medium Enterprises (MSME) was responsible for enterprise development and private sector promotion. The Ministry of Industry was entrusted with project coordination responsibilities, rehabilitation of state enterprises and sector related studies. Autonomy was to be granted to parastatals. Under the MSME, the ONPPME was hindered by bureaucratic requirements for approval of permits needed by private entrepreneurs.  9 7. BANK PERFORMANCE 7.01 Bank supervision was adequate but effective monitoring of project implementation was complicated by the rapidly changing environment. It did assist the Borrower to focus on critical areas and to adopt a mid-course reorientation of project objectives. Given the economic and political conditions, Bank staff were concerned with making timely adjustments to achieve the greatest impact. The Bank reacted appropriately and in a timely way to emerging issues including Government shortcomings and management of consultants. 8. BORROWER PERFORMANCE 8.01 The Borrower was not genuinely committed to private enterprise development objectives, which may have contributed to the slow pace in project implementation. The many changes that occurred during implementation did not help improve its performance.. Reporting requirements to IDA were met with great delays. Bank dialogue with the Government, however, improved in the context of the reform program. 9. CONSULTING SERVICES 9.01 The performance of consulting services has varied. Divergence of perceptions within the Government and some of the consulting firms on the type of assistance needed and the role of expatriate experts plagued the project in the first two years. The IDA-financed expert, after completing his first year, resigned over conflicts regarding his role and responsibilities. In some cases, the contribution was significant and instrumental in helping the Government formulate industrial strategy and policy. In other cases, such as technical assistance to Government agencies in project appraisal was not as satisfactory as desired. In one case, a consultant's weak performance went unchallenged. A particular instance is the consultant's report recommending the creation of CCDE, which contained unrealistic proposals. 10. PROJECT DOCUMENTATION AND DATA 10.01 During the first three years of project implementation, documentation such as the SAR and legal documents appeared to be adequate. However, following the significant re- orientation of the Project, the SAR was no longer relevant and was not a very useful reference document. The DCA, which was amended eight times to reflect the changes in project design, and supervision and Back-to-Office Reports (BTOs) were the only documents which had a more or less accurate picture of the project objectives and the evolution of the Project. Given the absence of progress reports by the Borrower, it is not possible to have an accurate picture on local costs incurred by the Borrower for implementation of the Project. Furthermore, as the financial intermediary did not submit to the Bank a review of the actual/current status of enterprises financed under the Line of Credit, it is not possible to analyze the effectiveness of IDA financing to SMEs.   - 11 - PROJECT COMPLETION REPORT REPUBLIC OF GUINEA INDUSTRIAL REHABILITATION AND PROMOTION PROJECT (Credit 1234-GUI) PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE The Project Completion Report was sent to the Borrower for comments but none was received.   - 13 - PROJECT COMPLETION REPORT REPUBLIC OF GUINEA INDUSTRIAL REHABILITATION AND PROMOTION PROJECT (Credit 1234-GUI) PART III: STATISTICAL INFORMATION 1. Relatod Bank Loans and/or Crodits Loan Title Purpose Approval Status 1. Crodit 1659-GUI To initiate key macroeconomic 02/11/86 Closod on 12/31/88 First Structural policy changes, support the Ajustment Crodit Govornment's economic rocovery program, and allow economic activity to expand while reforms are implemented. 2. Credit 6207-GUI The crodit would support a 05/31/90 In progress Private Sector series of roforms aimed at im- Promotion Proj. proving the investment climate in Guinea.  - 14 - 2. Project Timetable Item Date Planned Date revised Actual Date Identification 11/12/1979 - 11/12/1979 Preparation - Project Brief - - 05/30/1980 Appraisal Mission 06/08/1981 - 06/06/1981 Credit Negotiations 01/12/1982 - 01/12/1982 Board Approval 04/12/1982 - 04/12/1982 Credit Signature 08/24/1982 - 06/24/1982 Credit Effectiveneav 08/31/1982 - 02/23/1983 Credit Closing 12/31/1988 12/31/1989 12/31/1991 Project Completion - 06/30/1992  -15 - 3. Cumulative Estimated and Actual Disbursements FY83 FY84 FY85 FY80 FY87 FY88 FY89 FY90 FY91 FY92 USI million Appraisal estimate 0.80 4.80 8.60 12.70 15.e66 19. 0 Actual 0.80 2.04 4.67 7.68 10.58 12.68 14.38 18.48 18.76 19.18 Dato of final disbursement: February 4, 1992.  - 16 - 4 Projoct Impl. ntation Appraisal Indicators Rovisod Indicators Actual a. Rehabilitation of state Because of Govornm.nt's Threo state enter- enterprison. privatization program prises were rehab- rehabilitation of state ilitated. enterprises stopped. b. 3 man-years of consult- Completed ancy for the formulation of industrial policy and strategy for public and private sector development. c. The completion of two Completed feasibility studies for state entorprises, namoly, ornamental stones and slate. d. Promotion of private Because the line-of- Completed but at a enterprises through the credit was slow disburs- significantly lower provision of long-term ing, it was reduced to amount. credit for capital in- SDR 8.0 m equivalent. vestments. *. Strengthening of CNCIH's CNCIH was liquidated Completed capacity to manage following the restructur- evaluate, and supervise ing of the banking system. state enterprisoo. BICIGUI become tho IDA financial inter- mediary. f. External audits of project Completed expenditures to dotormine the not worth of state entorprises.  - 17 - 5. Project Costs and Financing A. Total Project Costs Appraisal Estimates Actual Project Components Local Foreign Total Local Foreign Total (US3 Million) Industrial Rehabilitation 2.6 18.5 21.1 - 11.4 11.4 Private Sector Subprojects 5.0 13.6 18.6 n.a. 14.8 14.8 Technical Assistance 1.1 3.1 4.2 - 9g1 9.1 Consulting Services - 1.6 1.6 - 4.6 4.6 Total Costs (Net of Taxes) 8.7 36.7 45.4 - 39.9 39.9 B. Project Financing (US Million) Sources of Funds Planned Final IDA 19.0 20.7 OPEC Fund 11.0 7.1 EEC 6.5 656 CIDA 1.2 1.2 France 6.4 Total Sources of Funds 36.7 39.9 - - - - - -- - - - - - - - - - - - - - - - -- -- - - - - - - -- - - - - - --  - 18 - C. IDA Project Costs Appraisal Project Components Estimates Revised Actual (USS m) (SDR m) (SDR m) Rehabilitation of State Enterprises 7.5 3.1 3.1 Technical Asat. and Equip, for SME & Fin. Intermediary 1.6 6.7 7.9 Bldg. Matls., Equip., Vehicles 1.1 1.8 1.5 Private Sector Sub- Projects 9.8 86. 3.4 19.0 18.6 16.9 1/ Ba wl cn l fl nj i aof=zzzaAcn 1/ Balance will be cancelled folloving justifications for Special Account.  - 19 - 6. Project Rosults Listing of Subprojects Financed under the Credit Subproject IDA Credit Number Name of Sub-borrower Sector of Sub-loan Amt. SDR SDR Credit 1234-GUI _______________ A-001 Transports Germaine Transportation 11,646.44 A-002 Boulangerie Kissidougou Bakory 163,798.64 A-603 Briquetterio Soikoundinne Cement Blocks 8,036.46 B-C-1 Transport Cherif Diallo Transport 98,426.34 B-C-2 Soc. Gun. Produits Laitiors Milk Products 157,924.67 B-C-3 Boulangerie Koursma Bakery 66,603.89 B-C-4 Fabrique Mousse Diallo Manufacturing 69,303.64 B-C-7 Fumage Poisson Sow Smoked Fish 82,670.20 B-C-8 El Jadj Sory Tounkars Transportation 60,772.41 B-C-9 Dr. Negue Barry General Medicine 8,689.67 6-C-10 Hadj S-kou Fofana Cold Storage 17,044.20 B-C-12 El Hadj Mamadou S. Barry Transportation 43,840.36 B-C-13 Mamady Kaba Bakery 64,266.77 B-C-14 Sony Fofana Poultry Farm 64,623.39 B-C-16 Diallo A. Oumar Matress Mnfg. 134,730.13 B-C-16 Ly Thierno Ibrahima Carpentry/Welding 63,214.20 B-C-17 Camara Mohamed Lamine Cold Storage 92,088.13 B-C-18 Menluisorie Aly Sylla Carpentry 67,096.16 B-C-20 Cisse Souloymane Animal Feed 66,608.67 B-C-23 ICG not available 140,868.82 B-001 Tointurerio Raky Fabric Coloring 32,629.86 B-003 Boulangerio do Boke Bakery 86,697.71 B-006 Fare Avicole Day* Kaba Poultry Farming 30,103.77 a-O06 Forme Avicole de Kindia Poultry Farming 32,738.36 B-607 Ahmed Koita Block Mnfg. 14,422.32 B-f8 Mamadou Kolon Diallo Import/Export Trade 42,446.61 B-009 Societe Elec. Gen. Electr. Contracting 63,847.08  - 20 - 6. Project Results Listing of Subprojocts Financed under the Credit Subproject IDA Cr-dit Number Name of Sub-borrower Sector of Sub-loan Amt. SDR B-10 Menuiserie Soumah Woodwork 29,191.48 B-11 Menuiserie Abou Youla Woodwork 23,668.10 B-12 Menuiserie Fall Woodwork 17,934.36 B-13 Cabinet Medical Badio Medicine 37,180.10 B-14 Sako Hamide Tailoring 17,436.65 B-16 Briquettario Bah Battories 20,813.69 B-18 Cabinet Dentaire Donzo Dentiotry 17,423.92 8-17 Ecole Priv-e ECA Education 38,144.74 8-18 SGTI Computer Services 7,207.43 8-19 Dr. Diallo Oumar General Medicine 3,819.94 a-20 Cabinet Medical Tours Medicine 11,300.80 B-21 Fabrique Trombone Bangoura Manufacturing 42,477.65 H-22 Ferwe Avicole Diallo Poultry 11,232.87 B-23 Menuiserie Boubakar Tounkara Woodwork 37,369.60 B-24 M. Bah Sidy Poultry Forming 13,182.28 8-30 Badanco Building Services 17,463.68 6-31 M. Soumooro Loti Carpentry 24,771.71 B-33 Kinisitherapie Yansone Medicino 32,869.26 B-34 Boubakar Souare Bakery 33,549.41 B-36 Kany N'Faly Camara Poultry 6,999.92 B-36 Mamadou Oury Diallo not available 48,648.68 8-37 Soguiop Coco Lamah *t Aboubakar Bongou Optician 13,002.66 8-39 Sora *t Assoc. not available 140,868.82 2,394,223.97  - 21 - 7. Compliance With Credit Conditions Deadline Section Covenant for Compliance Status 4.01 Audit of accounts and Met with financial statoments Annually some delays  - 22 - 8. Use of Bank Resources A. Staff Inputs Stage of Projoct Cycle Staff W--ks Appraisal through Effectivenous 9060 Supervision 171.1 TOTAL 261 .1 === B. Mission* Stage of Month/ Number of Days in Specialization Performance Project Cycle Yoer Persons Field Reprosented 1/ Status 2/ Identification 11/79 1 12 00 1 Appraisal 06/81 4 21 OO/E/IO 1 Supervision I 10/82 1 11 FA 1 Supervision II 02/83 1 7 00 1 Supervision III 10/83 1 14 00 1 Supervision IV 02/84 1 13 00 2 Supervision V 11/84 2 22 OO/E 1 Supervision VI 03/85 2 8 OO/FA 3 Supervision VII 05/85 3 9 E/OO na. Supervision VIII 08/86 2 1S 00 n.s. Supervision IX 11/85 1 00 2 Supervision X 02/86 1 14 00 n.s. Supervision XI 09/86 3 7 E/OO n.s. Supervision XII 01/87 1 13 E na. Supervision XIII 0/87 3 21 E/OO n.a. Supervision XIV 10/87 2 6 FA/O0 2 Supervision XV 03/88 1 15 E 2 Suporvision XVI 03/89 2 18 FA/O0 2 Supervision XVII 02/91 1 9 E na. Supervision XVIII 09/91 1 9 00 n.m. 1/ 00 = Oporations Officer 2/ 1 * Problem-fre or minor problems E = Economist 2 = Moderate problems IO a Industrial Officer 3 = Major problems FA = Snr. Fin. Analyst n.a. = Not available - STO did not include Performance Rating.