Liberia - Development Finance Company Project

RESTR ICTED Report No. DB-92a This report is for official use only by the Bank Group and specifically authorized organizations or persons. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. INTiERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF LIBERIAN BANK FOR INDUSTRIAL DEVELOPMENT AND INVESTMENT LIBERIA May 26, 1972 Development Finance Companies Department   APPRAISAL OF LIBERIAN BANK FOR INDUSTRIAL DEVELOPMENT AND INVESTMENT Table of Contents Page BASIC DATA ............................. SU1,4aRY ..-......................................... ............... ii I. INTRODUCTION ............... ..... * *.. II. THE ENVIRONMENT The Liberian Economy ............... 1 Recent Economic Developments .........2..4.9.6.0 ... S.. 1 The Manufacturing Sector .... ........ .............. 2 Industrial Promotion Institutions ........ O.... 3 Industrial Promotion Measures .............................. 3 Evaluation of Industrial Promotion ......... ........ . 4 Financial Institutions ..................................5 III. LBIDItS ROLE IN THE ECONOMY LBIDI as a Source of Financing . . ................ Characteristics of LBIDI's Operations . ...... 6 IV. THE COMPANY Ownership, Management and Organization .* ................. 8 Policies ................................S..*... ..... . 10 Relations with Government and Business ..* ................ 10 Resources ............ .................................... 11 V. PORTFOLIO AND FINANCIAL POSITION Portfol io .................................................. .12 Profitability and Financial Position ..... & . ................ 13 VI. OUTLOOK Business Prospects . ....... ..-.0.0. ................. 14 Forecast of Operations ..... ......... . 14 Resources Needed o..o.s.0.-0...-....... ...... 15 Financial Projections ................ 15 VII. CONCLUSIONS AND RECOMMENDATIONS ................... 16 This report is based on the findings of a mission consisting of Messrs. Dixon and Hidalgo which visited Liberia in December 1971.   ANNEXES 1. Sectoral Breakdown of Commercial Bank Loans 2. Manufacturing: Projects Approved under Investment Incentive Legislation 3. Summary of Loan Operations 4. Performance of LBIDI's Clients 5. Shareholders and Ownership Structure 6. Board of Directors and Executive Committee 7. Organization Chart 8. Operating Policies 9. Statements of Income for the Years Ended December 31, 1967 to 1971. 10. Balance Sheets as of December 31, 1967 to 1971 11. Projected Operations 1972-1976 12. Projected Income Statements 1972-1976 13. Projected Balance Sheets 1972-1976 14. Projected Sources and Uses of Funds 1972-1976 15. Estimated Disbursement Schedule for the Proposed Bank Loan   -i- LIBERIAN BANK FOR INDUSTRIAL DEVELOPMENT AND INVESTMENT BASIC DATA Year of Establishment: 1965 Ownership (as of December 31, 1971) Local Investors and IFC U.S. $ Percent Government of Liberia 2148,490 24.85% IFC 248,490 24. 85% Private Liberian Investors 13,020 1.30% Total 510,000 51.00% Foreign Investors International Trust Company 125,000 12.50% Bank of Monrovia 120,000 12.00% Instituto Mobiliare Italiano 120,000 12.00% Firestone Plantation Company 50,000 5.00% Liberia Mining Company 50,000 5.00% LAMCO joint venture 25,000 2.50% Total foreign investors 490,000 49.00% 1,000,000 100.00% Resources Position (as of December 31, 1971) U.S. $ '000 Equity 1,133 KfW loan at 4-1/2% 1,033 Government loan (repayable 1985-94) 1,000 Total Resources 3,166 Less: Net portfolio 1,640 Undisbursed commitments 8 Government notes (redeemable 1975-84) 1,000 Net fixed assets 26 Total committed 2,674 Resources available for commitment 492 DFCD January 31, 1972  -ii - Cormlitments of Loans and Investments 1969 1970 1971 (U.S. $ '000) Loans 7)43 197 185 Equity investments - - 26 Loans and investments disbursed 766 368 21)1 Earnings Record (Percentagns) Profits before tax and provisions to average total assets 3.1% 2.7% 2.7% Profits before tax and provisions to average equity 6.8% 7.7% 7.7% Net profit to year end share capital 3.8% 3.4% (13.5%) Financial Position (as of December 31, 1971 - Unaudited) Total debt/equity ratiol/ 1.6:1 Conventional debt to equity plus Lhe subordinated government loans 0.32:1 Reserves and provisions to loan and investment portfolio 17% Interest Rates and Charges (,ns of Decermber 31, 1971) Interest rate 9% Service charge (on amount outstanding) 1% Commitment charge 1/2% Administration fee (on initial amount) 1% Underwriting commission 2-3X' Guarantec fee 2% Penalty fee (on loans in arrears of over 3 months) 1% /Tlncludirig in debt the subordinated g)ovcrnrent loan, of '$1,(G0U,)O') reprcserntcd by Govcrnment of Liberia notes payable to T,]-131I1 iI 10 yearly equal installmcnts begimning in :].)72. DrCCD January 31, 197'  - iii - SUMMARY i. Since its establishment in 1965 with tha assistance of the Inter- national Finance Corporation, LBIDI has been the only source of long-term fi- nancing for industry in Liberia, but its volume of operations has been very low. LBIDI has, nevertheless, played a useful role; its investments have gone mostly to Liberian sponsored projects, and have had a positive effect on value added, employment and exports. ii. LBIDI's management has been strengthened in the past two years with the presence of a new General Manager, who has contributed to rectifying past errors in LBIDI's records and to setting up better operating procedures. LBIDIts staff has also been strengthened recently and is now adequate in number and quality to cope with increasing activities. iii. LBIDIts project appraisals are acceptable. Economic analysis was weak, but has improved; LBIDI has started to calculate the economic rate of return of projects as part of its appraisal procedures. Project follow-up has been spora- dic, and LBIDI has agreed with the Bank on steps to establish effective follow- up procedures. Accounting and disbursement procedures have improved and are adequate. LBIDI's lending terms and collateral requirements have been rigid, but its Board has recently approved more flexible guidelines for terms and col- lateral requirements. iv. LBIDI has recently made a commendable effort in loan recoveries, and loans in arrears have decreased from over 40% to under 5% of the total outstand- ing loan portfolio. LBIDI's failure to protect itself against the foreign ex- change risk on its loan from Kreditanstalt fur Wiederaufbau resulted in losses of $135,000 in 1971. However, LBIDI's financial position is sound: LBIDI has little debt, and risks of losses in its portfolio are amply covered by provi- sions and reserves. v. LBIDI has a substantial pipeline of projects under study. Given more dynamic management, more flexible lending practices and a greater degree of coordination with the Liberian Development Corporation, a Government agency res- ponsible for project promotion, LBIDI could achieve the $1 million annual busi- ness volume which was envisaged at the time of its establishment. While LBIDI can generate sufficient resources to finance its local expenditures, it will need about $1.5 million for import financing in the next two years. To cover this amount LBIDI has applied for loans to the African Development Bank and to the World Bank. vi. LBIDI is creditworthy for a Bank Loan; an appropriate amount would be $1 million. The terms of the proposed loan should be those normally applied to Bank loans to development finance companies, except that it is recommended that LBIDI receive concessional treatment or comnitment charges. A suitable free limit would be $50,000, with an aggregate free limit of $200,000. vii. LBIDI can play an important role in enhancing industrial development in Liberia, and stands a good chance of fulfilling this purpose with the proposed loan and with recent improvements in its management, staff and procedures. How- ever, LBIDI's success depends on the environment for industrial development. A UNIDO team is now preparing a program of assistance to small industries, and  - iv - the Government is revising the Investment Code. The Government and the Bank have agreed to review the scope and results of these efforts and supplement them if necessary with a wider study that would produce specific recommenda- tions to improve the environment for industrial development.  APPRAISAL OF LIBERIAN BANK FOR INDUSTRIAL DEVELOPMENT AND INVESTMENT I. INTRODUCTION 1.01 The Liberian Bank for Industrial Development and Investment (LBIDI) was established in 1965 with the assistance of the International Finance Cor- poration, which subscribed to 25% of LBIDI's share capital of $1 million. In 1965 LBIDI received a loar from Kreditanstalt fur Wiederaufbau of DM 10 mil- lion. LBIDI was unable to utilize the entire loan before it expired in 1971b. As a result LBIDI faces a shortage of resources, has been unable to process projects due to lack of funds, and has applied for loans to the African Devel- opment Bank and to the World Bank. This report appraises LBIDI for a loan of $1 million. II. THE ENVIRONMENT The Liberian Economy 2.01 An analysis of the economic situation of Liberia appeared in the report "Current Economic Position and Prospects of Liberia", dated June 11,1971 which was distributed to the Executive Directors under R-71-150. Liberia has a dualistic economy with a prosperous, foreign-dominated enclave sector of iron ore mines, rubber plantations, and logging operations which contribute about 40% of GDP and 90% of exports but employ only about 11% of the labor force. Alongside the enclave sector is a large underdeveloped and stagnating rural economy consisting primarily of subsistence farmers which employs two thirds of the labor force. The per capita GNP of $233 obscures the real poverty of the country. Income distribution is highly skewed. Two thirds of the 1.5 miUion population which is engaged in subsistence agriculture have an average per capita income of-less then $50. The remaining one third of the pop- ulation is engaged in the monetary sector of the economy (of which 10% are ex- patriates including a large number of Lebanese engaged primarily in trade) and have a much higher per capita income. 2.02 Mining is the dominant sector of the economy, accounting for over 30% of GD? and 75% of exports. Iron ore alone accounts for 95% of the total mining output. Agricultural output represents less than 25% of GDP, of which one third is accounted for by subsistence agriculture, one third by rubber, and the other third by the production of logs, coffee, palm oil, cocoa, rice, and other cash crops. Recent Economic Developments 2.03 The Liberian economy has experienced a moderate growth rate. The growth of GDP in real terms is estimated to have averaged nearly 4%, and in current terms about 6%, over the past three years. Most of this growth  originated in the enclave sector and there has been little growth outside this sector. Iron ore sales, however, fell in 1971 as a consequence of a recession and slowdown of steel consumption in industrialized countries. Iron ore prices may also have started to decline, after a price peak in 1970. Rubber has also been affected by a long-term deterioration in world prices. Log exports in- creased considerably in 1968 and 1969, helped by the near depletion of forest reserves in neighbouring Ivory Coast. However, some logging concessions have experienced difficulties because of poor transportation facilities and low e-x,o1L prices for logs. The Manufacturing Sector 2.04 The manufacturing sector in Liberia is small; its contribution to GDP and to employment in the monetary sector represents respectively 5% and 8% of the total. There are only about fifty industrial enterprises operat- ing in the country, many of which produce for the local market. Because of the small size of the market, most enterprises are either of less than optimum scale or operate at low rates of capacity utilization. These include a cement factory and other producers of construction materials, textiles, footware, chemicals, furniture, beverages, an oil refinery, and small mechanical work- shops. Export oriented industries are few, and include several sawmills for timber, fish and shrimp processing, and the production of explosives for min- ing operations. 2.05 On the basis of information collected by the Ministry of Planning from 24 industrial establishments, which show gross value of production and not value added, industrial production for the twelve months ended on June 30,1971, totaled about $33.5 million, of which half was contributed by the oil refinery. Of the other half, food and beverages contributed 50%, cement and other con- struction materials 13%, explosives 12%, wood and furniture 9%, textiles and shoes 9%, and paints, soaps, other chemicals and mechanical industries the re- maining 7%. 2.06 Annual growth in manufacturing output for the period 1964-1970 averaged better than 12%. However, most of the growth in the past two years is accounted for by the oil refinery. Statistics on fixed capital formation in this sector are not available. However, there are indications that annual industrial investment has been erratic and ranged between $1 and $3 million (see para. 3.10). Industrial development has been constrained by the small size of the market and by the shortage of indigenous skills. In contrast with the structure in many sub-Saharan countries, there are few small enterprises in the Liberian industrial and handicraft sector. With few exceptions, most in- vestments have been of medium size, generally ranging between $50,000 and $500,000 in capital cost. While non-Liberians have dominated commerce, about half of the industrial investment in Liberia has been in companies owned predominantly by Liberians. 2.07 Prospects for industrial investment in Liberia are limited because of the small size of the market and the limited prospects for regional economic cooperation in Western Africa in the near future0 However, industrial poten- tial is not negligible; further scope exists for import substitution in some  - 3 - industrial branches (flour milling, meat processing, beverages, textiles, foot- wear, furniture, handtools and agricultural implements, construction materials) and the availability of local raw materials offers possibilities in pulp and glass manufacturing, vegetable canning, and rubber and wood products. Other small scale projects in mechanical industries and handicraft could also emerge if industrial promotion institutions were more effective (see para. 2.08). Industrial Promotion Institutions 2.08 The Liberian Development Corporation (LDC) was created in 1961 as an independent Government agency reporting to the Department of Commerce and Industry with the four following main functions: (i) to identify and promote viable industrial projects, (ii) to review and recommend projects for incen- tivesunder the Investment Code; (iii) to issue guarantees to encourage banks lending to Liberian enterprises, and, (iv) to hold the Government's equity in- vestments in industrial and financial companies. LDC has 18 professional staff grouped into four departments: marketing, engineering, finance and agriculture. LDC holds the Government's shareholding in LBIDI, and the President of LBIDI sits on LDC's Board of Directors. LDC has not been a very effective organiza- tion. Its Board seldom meets more than once a year, and several senior staff members have left because of low salaries. LDC's feasibility studies have deteriorated in quality, and some enterprises established with incentives recom- mended by LDC may be enjoying benefits disproportionately high in comparison with their contribution to the economy. In addition, LDC's loan guarantee scheme has proven to be ineffective because it lacks sufficient funds. Al- though LDC expected to be strengthened in 1972 with assistance from UNIDO, its role and organization need to be reassessed. 2.09 The Bureau of Industrial and Resource Development (BIRD) is an agency in the Department of Commerce and Industry in charge among other functions, of surveying Liberia's industrial potential and recommending plans for industrial development, studying world supply and demand situation for Liberian products, and facilitating contact between foreign industrial investors and their Liberian counterparts for the purpose of promoting industrial development and investment in Liberia. The Bureau has been understaffed, and some of its functions over- lap with those of LDC, with which there is no working contact. It would appear prima facie desirable to have only one Government institution in charge of industrial promotion in Liberia in order to use economically the scarce quali- fied staff available in the country. The Government is contemplating a possible merger between BIRD and LDC but any definitive decision should be preceeded by a study to determine what should be their role and organization. Industrial Promotion Measures 2.10 The Investment Code, issued in March 1966, provides tax benefits (generally a holiday from Liberia's 45% income tax for up to ten years), tariff protection from competing imports, and duty-free imports of equipment and raw materials for periods ranging from one to seven years. Incentives under the Code are believed to be too generous and a Cabinet Committee was appointed in 1971 to review the Investment Code, but no report has yet emerged. Annex 2 shows the number of projects in manufacturing approved for incentives each year since 1966 and their aggregate investment cost: they total )44 projects  -w-ith a total investment cost of $8.1 million, an average of $1.4 million per year. Incentives under the Code are granted by the Investment Incentive Com- -nittee, on the basis of recommendations by the Department of Planning for projects costing over $150,000, or by LDC for smaller projects. 2.11 Extension Services. Six industrial enterprises have been established in an industrial park near Monrovia under the direction of LDC. So far the only facility provided has been the land. The location of the park offers some seri- ous problems such as the lack of adequate access roads and communications facil- ities and a severe shortage of water. UNIDO is assisting LDC in the establish- ment of an extension service and a small industrial estate in the park. A three man UNIDO team is already in Liberia to undertake the studies and assistance needed, to develop a program of feasibility studies, and to assist small industries. Evaluation of Industrial Promotion 2.12 The industrial promotion institutions existing in Liberia could be much more effective, and their role and organization should be reassessed. During negotiations, Government representatives fully concurred in the need for such review and called attention to the initiatives already under way summarized in the preceding paragraphs. Agreement was reached that the Govern- ment and the Bank would review all these initiatives with a view to recommend- ing how they should be supplemented or modified so as to effect comprehensive improvement of the environment for industrial development. Supplementary studies would deal with the following main topics, among others: a) Determination of the major obstacles, prospects and integration possibilities for the industrial sector in relation to the resource endowment of the country; b) Analysis of the tariff structure in relation to industrial efficiency and incentives; c) Review of industrial performance under the existing promotion and incentive policies and examination of the benefits as against the losses tothe econony resulting from these incentives and the effort of the proposed modificationsto the Investment Code; wi d) Examination of the proposed reorganization of LDC and the possible reorganization of related agencies involved in industrial develop- ment; e) Establishment of an effective business extension service and loan guarantee scheme; f) Preparation, based on the above, and a set of integrated recom- mendations and a plan for their implementation.  - 5- Financial Institutions 2.13 In addition to LBIDI, the only source of long-term capital in Liberia, there are seven commercial banks, six of which are subsidiaries of foreign banks. The Agricultural Credit Corporation, a public sector institution responsible for short-term credit to agriculture, ran into financial problems and no longer operates. There is no central bank, and the U.S. dollar is legal tender. The larg- est bank (the Bank of Monrovia) performs some central banking activities sach as providing clearing facilities for the other banks, ensuring an adequate supply of currency notes, placing Liberian coins into circulation, and providing overdraft facilities to theGovernment. There are no Government regulations for commercial banking operations. As a result each bank establishes its own reserve requirements under guidelines decided by their parent institution. 2.14 Aggregate Balance Sheets for these banks show a considerable growth of private deposits (from $33.9 million in 1969 to $41.5 million in 1971) and a still more rapid growth in bank loans to the private sector (from $25.2 mil- lion at the end of June 1969 to $38.9 million at the same date in 1971). 2.15 Annex 1 shows the sectoral breakdown of commercial bank loans out- standing to the private sector. As of June 30, 1971, commerce and manufacturing account for 54%, construction for 4%, and agriculture for 6% of total loans. Personal loans account for an additional 16%. The large foreign consessions do most of their banking transactions with banks abroad, and their operations have therefore only a limited impact on the commercial banks' activities. 2.16 No statistics on the distribution of loans by term are available. However there are indications that individuals and enterprises with good cre- dit ratings have little difficulty in obtaining medium-term loans from the banking system. Credits with shorter maturities are often rolled over. Inte- rest rates are of theorder of 9-1/2 to 10% including commissions. III. LBIDI's ROLE IN THE ECONOMY LBIDI as a Source of Financing 3.01 LBIDI's influence on the Liberian economy has been disappointingly small due to its low volume of operations. When IFC participated in LBIDI's share capital in 1965, an annual level of approvals of $1 million was envisaged for the next few years. This level has not been achieved in any single year. Annex 3 shows LBIDI's volume of investments since operations began in 1967. They total $2 million, an average of $400,000 per year. A peak was reached in 1969, when investments approved reached $860,000, and a low in 1970 when they fell to $82,000. In 1971 LBIDI approved eleven investments totaling $266,000. The low level of operations in 1970 and 1971 seems due to several constraints: (i) insufficient management aggressiveness in the search for business, (ii) rigid collateral and security requirements (which resulted in cancellations of six projects for $260,000 in 1971) and matu-  - 6 - rities and grace periods not much longer than those of commercial banks, from which potential LBIDI clients were able to obtain medium-term loans, and (iii) lack of coordination with LDC and other public agencies, and (iv) in 1971, lack of resources after the cancellation of the un- committed balance on the KfW loan last September. Two projects for $356,000 were ready for presentation to LBIfDI's Board but could not be considered until LBIDI had resources; other pro- jects have also been turned down for this reason. 3.02 Annex 3 showsthe sector distribution of LBIDI's operations. Of the $2 million volume of investments approved since LBIDIts inception, industry (59% of amounts approved) is the leading sector, followed by agribusiness and livestock (28%) and by tourism, transport and other services (13%). Industrial loans have been predominantly for food processing, wood and furniture, while agricultural projects financed include palm oil, tobacco, poultry and rubber. Since no statistics on gross fixed capital formation by sector are available in Liberia, it is difficult to measure LBIDI's contribution to investment in the country. Private investment has averaged about $50-60 million annually in recent years, mostly in mining, while public investment has been around $10 million annually, with the major part going to infrastructure. Even with the predominance of mining and infrastructure in fixed capital formation, LBIDIfs contribution to total investment in industry and commercial agriculture has been small. 3.03 A rough idea of LBIDIfs contribution can be obtained by comparing LBIDI's lending to that of commercial banks. LBIDI's loans outstanding at the end of 1971 represented between 7% and 10% of total commercial bank loans to agriculture, industry and commerce. A more meaningful estimate is the propor- tion of projects approved by the Investment Incentive Commission which have been financed by LBIDI; of 44 projects approved by the Commission with an over- all investment of $8.1 million, LBIDI has financed only seven with a total capi- tal cost of $2.28 million, or 28%. Characteristics of LBIDI's Operations 3.03 Size. Annex 3 shows the distribution of LBIDI's loans by size. LBIDI has served mostly small scale firms, with only five of 49 loans exceeding $100,000 ind accounting for 75% of LBIDI's loan portfolio), and 30 loans for less than $10,000. Most small loans have been granted to rubber farmers. Others have financed small coffee or cocoa farms. Despite their small size, rubber loans are not too onerous for LBIDI since both the technical appraisal and the subsequent loan collections are handled by the Rubber Planters Association, an independent group promoted by large rubber concessions who want to encourage the growth of small rubber farms and, hence, their raw rubber supplies. However, LBIDI is not equipped to process a large number of small agricultural credits.  -7 - 3.04 Geographical Distribution. Since Liberian industry is concentrated in the vicinity of Monrovia, most of LBIDI's investments were for enterprises located in the area, although a large loan was granted to a logging company in the eastern region, near the Ivory Coast. Investments in agribusiness show a more balanced distribution, with loans to rubber farms located near the large foreign-owned plantations, and a large palm oil plantation in the north. 3.05 Nationality of Borrowers. A positive aspect of LBIDI's operations is that over two-thirds of its financing has gone to Liberian sponsored compa- nies (see Annex 3). The remaining investments have gone to joint ventures with a minority Liberian participation. 3.06 Clients' Performance. Annex 4 summarizes important aspects of the economic and financial performance of LBIDI's eleven largest investments, which accounted for almost 94% of LBIDI's outstanding portfolio. Of the ten invest- ments in operation, five had returns of over 15% in 1970, one of 12%, and four are not performing well and had returns on investment below 7%. (See para. 5.03). 3.07 Exports. Over half of LBIDI's projects are export oriented, with exports accounting for over 50% of production (Annex 3), while a third are for import substitution and the balance for services. LBIDI calculates that exports by its clients exceeded US$6 million in 1970, which represents 11% of total exports of Liberia during the year, excluding mining. This is a sa- tisfactory proportion considering the much smaller share of LBIDI in overall investment in the country. 3.08 Employment. The average investment per job created by LBIDI's 11 largest projects is $U,600 (see Annex 4), which is quite low, showing that LBIDI has invested in relatively labor intensive projects. LBIDI has esti- mated that since the start of operations in 1967 the projects it has financed have created a total of about 1,300 jobs, of which about 800 were in manufac- turing and represented over 5% of employment in that sector. 3.09 To sum up, LBIDIts volume of operations has been low. It is note- worthy, however, that most of LBIDI's investments are: (a) projects which involve a high proportion of Liberian value added (logging, food processing and agribusiness); (b) export oriented; (c) in Liberian sponsored companies; and (d) quite labor intensive.  - 8 - IV. THE COMPANY Ownership, Management and Organization 4.01 Ownership. There have been no material changes in ownership since the Company's inception in 1965. Annex 5 shows LBIDI's shareholders. Of LBIDI's capital of US$1 rmillion, the Government of Liberia and IFC hold 25% each, and private Liberian investors 1% (class A shareholders). Financial institutions, Firestone Plantations and two mining companies (class B share- holders) own the remaining 49%. 4.02 Board of Directors and Executive Committee. The Board of Directors is made up of the eight members listed in Annex 6, four of which represent class B shareholders, and four, class A shareholders. The Government has two seats in the Board, while IFC and private Liberian shareholders have one each. Mr. A.A. Khosropur resigned as IFC's representative and Mr. P.M. Mathew was elected to the Board on December 15, 1971. Mr. Stephen Tolbert, brother of the President of Liberia and a successful businessman, was recently appointed Secretary of the Treasury and Chairman of LBIDI's Board; he has been a Board member since 1969. 4.03 Most members of the Board of Directors take a strong interest in LBIDI's affairs. The Board, which has been meeting twice a year, has delegated to an Executive Committee power to approve investments up to $100,000, and to exercise most of the Boardts other powers when it is not in session. Since 1969 the Executive Committee has had five members (see Annex 6) with three members constituting a quorum. Decisions require the affirmative vote of all members present at the meeting, and any member present may refer to the full Board any project or issue he considers important. The non-voting Chairman of the Committee is the President of LBIDI and its Secretary is the General Manager. The Committee met eight times in 1970 and nine times in 1971. .04 Management. Mr. C. Parker was appointed President of LBIDI in May 1970; he had been the acting Chief Executive since July 1969. The General Manager is Mr. R. Chellappah, who was recruited with the help of the Bank Group and appointed in May 1970 by LBIDI's Board. Mr. Chellappah's appointment has recently been ex- tended for one more year, with an option to renew it for a further year. The President and the General Manager constitute the Senior Management Team of the Bank, and must reach agreement on all matters relating to policies, organization and operations of LBIDI. In case of difference of opinion their views must be reported to the Board or Executive Committee. 4.05 Mr. Parker has been with LBIDI since its inception. He has benefited from Mr. Chellappah's experience, and the management team works well together. Mr. Chellappah, formerly with the Bank of Ceylon, has done an excellent job in rectifying past errors in LBIDI's accounts and in setting up operating proce- dures, and has only recently begun sharing with Mr. Parker the supervisory res- ponsibility for project appraisal work. LBIDI has agreed with the Bank's view  that the General Manager should be fully involved in investment operations. This will be possible since adequate records and procedures are now esta- blished and LBIDI's staff has been strengthened (see para. 4.06) 4.06 Staff and Organization. Annex 7 shows LBIDI's Organization Chart. Its staff totals 17 o. whom nine are professionals. In addition to Messrs. Parker and Chellappah there are a Project Director, a Project Appraisal Mana- ger, a Project Analyst, a Compt-roller and an Accountant, and two Peace Corps volunteers doing work in loan supervision and recoveries. Among LBIDI's staff only Mr. Chellappah and the two Peace Corps members are non-Liberians. LBIDI has agreed with the Bank's view that LBIKI should take advantage of Mr. Chellappah's presence 'o hire and train qualified Liberian staff members who can provide continuit1r of management upon Mr. Chellappah's departure and handle the forecast increase in operations. To that end, it has recently hired a Project Director, who will coordinate appraisal anf follow-up work and a new Project Appraisals Manager who wilI be responsible for LBIDIPs appraisals; LBIDI is actively seeking another professional staff member. LBIDI's staff appears now sufficient in number and quality to cope with increasing activi- ties. 4.07 Procedures. Project appraisals are quite good, particularly on market, organizational and financial aspects. Until recently economic analysis was weak, and included only a few qualitative remarks which stressed the positive factors in a project without trying to weigh them against the nega-tive ones. The Bank had expressed concern that, although there is no evidence that this has happened in the past, the lack of quantitative analysis might lead LBIDI to finance pro- jects which are financiallly viable but which rely heavily on protection from imports. To guard against this, LBIDI has started to calculate the economic rate of return on projects as part of its appraisal procedures. LBIDI agreed during negotiations to undertake this calculations for all investments over $50,000. 4.o8 LBIDI's follow-up work has been weak. Some projects were visited by LBIDI during construction, but lack of technical expertise minimized the value of such visits. There is no supervision for companies in operation, except for those in serious trouble, and thus follow-up work has not been useful in povid- ing management with advance notice on problem cases. LBIDI has reporting require- ments in its loan contracts but has not been enforcing them until recently. 4.09 LBIDI agreed with the Bank that effective follow-up was essential to allow LBIDI's management to take pertinent action on problem cases, and to pro- vide feedback information for LBIDI's operations. During negotiations, LBIDI has agreed to visit the offices of the party carrying out each project, or the site thereof, at least once a year, and as often as required in problem cases. Following such visits LBIDI staff will prepare comprehensive reports for consider- ation by management. LBIDI has also undertaken to request assistance to LDC when special engineering or agricultural expertise will be needed to carry out LBIDI's follow-up work.  - 10 - >iO 1t LBIDI's books are now better kept, and errors made in the past have c;een corrected. Control of disbursements has improved recently. However, LBIDI Is niow suffering the consequences of past negligence. Four loan agreements in- vl-iving Kreditanstalt funds failed to protect LBIDI against the exchange risk and, as a result of the revaluation of the German Mark LBIDI suffered losses of $155,000 in 1971. Policies 4,11 LBIDI's Policy Statement is shown in Annex 8. It precludes LBIDI from financing enterprises in the public sector, and sets the following expo- sure limits: (a) a maximum of 10% of LBIDIts resources may be invested in a single enterprise, (b) a maximum of 10% of LBIDI's equity may be invested in the share capital of a single enterprise, and (c) total equity investments are limited to 100% of LBIDI's own equity. LBIDI's Policy Statement also provides guidelines for LBIDI's operations and activities. It is noteworthy that it allows LBIDI to consider agricultural projects associated with or contributing to manu- facturing enterprises. LBIDI has operated within the framework of its Policy Statement, except that it assumed the foreign exchange risk under the KfW loan, as mentioned in para. 4.10. 4.12 LBIDI charges interest rates of 10% on loans outstanding plus a commiitment charge of 1/2% and an administration fee of 1% of the amount of the loan granted. Since 1971 LBIDI adds a 1% penalty charge for loans in arrears of over three months. Total charges on loans and security requirements are com- parable to or somewhat higher than those charged by commercial banks. Maturities, which have averaged about five years, and grace periods have occasionally not been long enough to allow borrowers to service their debt comfortably. Collateral requirements were too strict and applied rigidly without due regard to the indi- vidual features of the project and the borrower. On balance, LBIDI appears to have been inflexible and cautious in its lending practices with respect to matu- rities, grace periods and collateral requirements. While some caution was under- standable in view of the poor repayment performance of several of its borrowers (see para. 5.01), it also meant that, when they could, borrowers often preferred to deal with commercial banks for medium-term loans and come to LBIDI only if they were unable to obtain a commercial bank loan or when they needed a parti- cularly long-term loan which LBIDI was willing to grant -to more established sponsors. LBIDI is now aware of this problem and its Board has approved in prin- ciple more flexible guidelines for lending terms and collateral security require- ments. Relations with the Government and Business 4.13 In the past few years there was frequent high level political inter- vention in LBIDI's affairs which jeopardized LBIDI's effortts to recover some delinquent loans. There are indications that this situation has changed with the new Administration, which has stressed that the economy of the country needs to be run more efficiently than in the past and that financial and economic con- siderations must prevail over personal ones. The Government is also likely to expect an improvement in LBIDI's perfornance and level of operations.  - 11 - 4.14 LBIDI's relations with LDC have not been as close as they should be; there are no regularly scheduled meetings to coordinate activities, and LBIDI's President seldom attends LDC's Board meetings. Coordination with LDC and with other Government agencies responsible for industrial promotion is important to LBIDI because it would enable LBIDI to contact project sponsors when projects are first being formulated and to ensure that appropriate investment incentives are recommended to the Investment Incentive Committee. During negotiations the Government and LBIDI agreed with this view and decided that the following mea- sures will be taken to enhance cooperation between LBIDI and LDC: (a) Bimonthly working meetings of staff of LBIDI and LDC will be scheduled for exchange of information on the respective activities; and (b) In cases when LBIDI's needs for technical appraisal and follow- up of projects warrant it, LBIDI will request assistance from LDC, and LDC will be agreeable to assist LBIDI by supplying engineering and agricultural expertise needed to carry out LBIDI's work. 4.15 In recent months there have been discussions in Liberia concerning the possible absorption by LBIDI of the presently inactive Agricultural Credit Corporation (ACC) with the purpose of utilizing economically the country's scarce managerial and technical talent in the financing field. The Finance Minister, who is also LBIDI's chairman, has wisely objected to the timing of the proposal on the grounds that LBIDI still has enough problems in dealing with its original scope of work and is not equipped to handle a large volume of short term agri- cultural lending. Although the proposal for the merger seems to have been aban- doned for the immediate future, the Bank should watch the situation closely. 4.16 LBIDI's image in the business commanity is not yet good, but has im- proved. Clients object to LBIDI's collateral requirements and, as usual with most development banks, to the amount of detailed information they have to supply and to the time it takes to finally obtain financing. Resources 4.17 On December 31, 1971, LBIDI's resource position was as follows: US$1000 Equity 1,133 Government Loan (repayable 1985-94) 1,000 KfW loan at 4-1/2% 1,033 Total resources 3,166 Less: Net Portfolio 1,640 Undisbursed commitments 8 Government notes (redeemable 1972-81) 1,000 Net fixed assets 26 Total Commitments 2,674 Resources available for commitment 492  - 12 - 4.18 In 1965 LBIDI received a DM10 million loan from KfW; this amount was considerably in excess of LBIDI's needs, particularly since LBIDI found it more advantageous to commit at no cost its own equity funds than the 4-1/2% KfW loan. As a result LBIDI was unable to commit the whole KfW line of credit before it expired and, in August 1971, the uncommitted balance of DM6 million was reallo- cated to another project in Liberia at the Government's request. The $1 million G6vernment loan is subordinated to other debt as well as to share capital, is interest free, and is to be repaid by LBIDI over 10 years beginning in 1985. As agreed at the establishment of LBIDI, the loan was relent to the Government at 6-1/2% interest, and was to be redeemed to LBIDI over 10 years beginning in 1975. The Government undertook to consider earlier redemption of the loan if LBIDI's business required it. On March 3, 1972, the Government agreed, despite its tight budgetary position, to start redemption of the loan in August 1972. V. PORTFOLIO AND FINANCIAL POSITION Portfolio 5.01 Two years ago arrears in LBIDI's loan portfolio had risen to an un- acceptably high level. As of June 1971, loans in arrears corresponded to over 40% of the total loan portfolio outstanding. A strong effort by LBIDI since September to improve the arrears situation has been highly successful. Only 13 loans with an amount outstanding of $79,200 (4.7% of LBIDI's loan portfolio) were in arrears by more than three months at the end of 1971. The actual amounts in arrears were $33,500 in principal and $8,800 in interest. This is a remark- able improvement. Of the 13 loans in arrears, one, the Lancelot Holder poultry project, accounts for two-thirds of the total; the others are small loans, most of which are for about $2,000. 5.02 Of LBIDI's portfolio of $1.88 million outstanding on December 31, 1971, eleven investments for $1.74 million account for over 90% of the total. A brief analysis of their situation and prospects constitutes, therefore, a reasonable evaluation of LBIDI's portfolio. These 11 investments are as follows (in $tQOO). Amount Outstanding as of December 31, 1971 Company Activity Loan Equity Total 1. WAAC Palm Oil Plantation 407 50 457 2. Mesufish Shrimp & Fish Processing 378 - 378 3. Maryland Logging Timber 366 - 366 4. LPSC Port Storage - 153 153 5. Liberia Amusements Movie Theaters 88 - 88 6. LIPCO Furniture Production 81 - 81 7. Coconut Grove Bowling Alle 75 - 75 8. Lancelot Holder Poultry Farm 51 - 51 9. Liberian Cement Cement - 26 26 10. WATCO Transport 47 - 47 11. Fresh Foods Food Processing 42 - 42 1,535 229 1,764  - 13 - 5.03 Annex 4 presents detailed information on the performance of these eleven investments. Five (Mesufish, LPSC, LIPCO, Liberian Cement and Fresh Foods) offer no cause for concern; two others (Liberia Amusements and WATCO), although irregular in debt service in the past, are profitable and paying back, and one, a palm oil plantation (WAAC), is not yet in operation. Of the three others, Maryland Logging is incurring heavy losses because of the fall in export prices and high transport costs )j but LBIDI's loan is guaranteed by the parent company in Holland and is being repaid regularly. Coconut Grove and Lancelot Holder are experiencing difficulties and, although LBIDI's loans are well secured, some loss appears possible. The weak spots in LBIDI's port- folio at present are mostly in its small loans of which eioht, for $19,100, are in arrears of over one year; prospects for recovery are not good and LBIDI may lose most of the amount. 5.04 Summing up, LBIDI's serious risks in its portfolio include two rela- tively large loans for $126,000 of which LBIDI might lose as much as 50%, and eight small loans for $19,100 which could be entirely lost. Potential losses are amply covered by provisions of $190,000 and reserves of $133,000 (see para. 5.06). Profitability and Financial Position 5.05 Financial Results. Annex 9 shows LBIDI's income statements and Annex 10 its Balance Sheets from 1967 to 1971. After very modest profits in previous years (not more than 3% on equity) LBIDI made an operating profit of $20,000 in 1971 before extraordinary losses of $155,000 as a consequence of the revaluation of the German mark and of its failure to protect itself against the foreign exchange risks. LBIDI therefore suffered a net loss of $135,000 for the year. Administrative expenses in 1971 were at the same level as 1970 and represented 3% of total assets. LBIDI's profitability will not reach a respect- able level until operations increase substantially. 5.o6 Financial Position. Due to the low level of operations in 1970-71 and to short maturities of loans outstanding, loan collections exceeded dis- bursements and LBIDI's loan portfolio decreased by $43,000 during 1971. LBIDI's leverage is very low, and long-term debt equals only 32% of equity plus the subordinated Government loan. LBIDI has a strong liquidity position, with a net working capital of $500,000, and a sound financial position with reserves and provisions equivalent to 17% of its outstanding portfolio and amply cover- ing potential losses. j The sponsor believes the company will only become profitable when a veneer mill is established to process the logs locally, and has been searching for a suitable technical partner in Europe.  - 14 - 5.07 Auditors. LBIDI's accounts are audited every year by Cooper Brothers & Company. The auditors had made no qualification on LBIDI's accounts until their 1970 audit when they pointed out that no share certificates had been re- ceived for any of the equity investments made by LBIDI. By the end of 1971, LBIDI had the share certificates for three of its four investments and expected to obtain certificates for its fourth investment in 1972. VI. OUTLOOK Business Prospects 6.01 Prospects for industrial investment in Liberia are limited (see para. 2.06) but further scope exists for import substitution in some industries and the availability of local raw materials offers some possibilities in pulp and glass manufacturing, vegetable canning and rubber products. Potential exists for additional agribusiness projects (oil palm, coffee, cocoa, and rice) although prospects for rubber plantations are uncertain in view of the fall in world prices. A promising area for Liberian entrepreneurs is the supply of services to the mining and plantation enterprises. Only one such enterprise has been financed by LBIDI: WATCO (West African Transport Company) providing transportation ser- vices to LAMCO (Liberian-American Mining Company), but other opportunities are open in transportation, laundry services, bakeries, meat supply, etc. 6.02 LBIDI's project pipeline at the end of 1971 included 22 projects re- quiring investments of $800,000. Four projects for $400,000 were ready for Board action, 11 for about $300,000 were at an advanced stage of appraisal and seven more for $100,000 at a preliminary stage. In addition, for projects with a total capital cost of $750,000 have been studied by LDC and will be referred to LBIDI for financing in 1972; they are in agribusiness, pharmaceutical pro- ducts, tiles and cosmetics. Five other projects with an aggregate investment of $1.7 million (salt, roofing materials, foam rubber, agricultural hand tools and soluble coffee) are at an advanced stage of review by LDC and have a fair chance of execution within the next two or three years. Although the above possibilities include some potential casualties, these could be replaced by other projects. Forecast of Operations 6.03 LBIDI has based its forecast of operations on loan approvals of $1 million for 1972 increasing by 10% annually. Although it is difficult to quan- tify LBIDI's business prospects, its experience in 1969, when commitments were near the $1 million level, as well as the general outlook and project pipeline described above indicate that LBIDI's projections are attainable. The achieve- ment of these projections requires more dynamic management, which is now thought to be likely because the new Administration's interest in having LBIDI play a more important role in the economy. Moreover the General Manager, who has spent most of his time establishing internal procedures, will now have more time to  - 15 - look for new business. More flexible lending practices and better coordina- tion with LDC than in the past will also help efforts to increase operations. 6.04 Annex 11 contains LBIDI's forecasts of operations through 1976, esti- mating total commitments for 1972-1976 at $6.3 million. Forecast commitments for 1972 and 1973 total $2.15 million including $1.45 million (67%) for import financing and $0.70 million (33%) for local procurement. Resources Needed 6.05 To meet the $1.45 million import component for 1972 and 1973, LBIDI hopes to receive $1 million from the Bank and $0o5 million from the African Development Bank. The $0.7 million that is expected to be needed for local pro- curement will be available from the sale of equity investments and net loan collections ($0.4 million), profits and depreciation ($0.2 million), and the $0.2 million Government notes to be redeemed in 1972 and 1973 (see para. L.18). These sources are sufficient for LBIDI to meet commitments for local procure- ment and also to invest $0.13 million in a proposed new building to accommodate its staff. 6.06 After 1973, LBIDI will need to have recourse to additional foreign borrowing to finance the import content of its forecast commitments. Domestic needs will continue to be met from internal cash generation and redemption of the Government's promissory notes. 6.07 Disbursements. The proposed Bank loan would finance the CIF cost of direct imports and/or an agreed percentage of imported goods purchased from domestic distributors. Financial Projections 6.08 Annexes 12 through 14 give LBIDIts 1972-76 projected income statements, balance sheets, and sources and uses of funds. The substantial increase in pro- ject operations and a decrease in administrative expenses from 3% of average total assets in 1970 to 2.3% in 1976 will have a major effect on LBIDI's earnings, which are expected to evolve as follows: Total Revenue Net Profit (Loss) of % of Average as % of as % of Total Assets Share Capital Average Equity Actual: 1971 7.6 (13$5) (11.0) Est: 1972 7.9 8.7 7.0 1973 8.2 10.7 8.1 1974 8.6 12.6 8.7 1975 8.9 14.3 9.1 1976 9.3 16.4 9-5 LBIDI does not forecast any dividend payments through 1976. If the results shown above are realized LBIDI could start paying dividends of perhaps 6% in two or three years.  - 16 - 6.09 The projected Balance Shoets anticipate that LBIDI's loan and equity portfolio would more than double over a five year period, from $1.8 million in 1971 to $4.4 million in 1976. Although LBIDI's leverage will increase substan- tially, its debt/equity ratio will be only 1.2:1 at the end of 1976, substan- tially below the 3:1 limit apt in its Statutes. 6.10 Debt service coverage will be ample during the period 1972-1976. Annual interest payments on LBIDI' borrowings would remain below gO% of in- terest income, and the ratio of loan collections to principal repayments by LBIDI will range between 1.4 and 2.6. If LBIDI continues keeping in balance the maturities on its debt and the repayments on its lendings, this ratio should not drop below 1.3 through the life of the proposed Bank loan. VII. CONML&BIONS AND RECOMMENDATIONS 7.01 LBIDI, while playing a useful role in Liberia, has had a disappoint- ingly small inpact on the Liberian economy. It has also suffered from internal weakness. However, there have been some significant improvements in the past year, particularly in management, record keeping, operating procedures, project appraisal and loan recoveries. LEIDI is now in a sound financial position. 7.02 There is sufficient demAnd for term financing in industry and agri- business so that LBIDI could achiove the $1 million of business volume per year which was envisaged at the time of its creation. To remedy remaining weaknesses and to increase its volume of operations, LBIDI agreed with the Bank on measures which should bring a noticeable improvement in LBIDI's operational performance. LBIDI has strengthened considerably its Liberian staff during the past few months, and its Board has given management more flexible guidelines regarding lending terms and collateral requirementa. Agreements have been reached with the Bank on improving LBIDI's econoziic analysis of projects, on the establishment of an effective follow-up system, and on the need for clover cooperation with the Liberian Development Corporation and other Government agencies concerned with industrial promotion. 7.03 In addition to its internal improvementa, LBIDI's success in the long run also depends on a better environment for industrial development. The present efforts by the Government and UNDO will be supplemented by the Bank if necessary to make comprehensive, speoific recomnendations for changes in industrial policies and existing institutional arrangements for industrial promotion. 7.0h LBIDI is the only institution providing long-term capital in Liberia, and since its KfW loan was cancelled in August 1971 it has been in a critical resource situation. Unless it obtains funds from the Bank and the African Develop- ment Bank, it may not be able to remain active. LBIDI is a credit worthy borrower for the proposed Bank loan of $1 million which, together with the envisaged $0.5  - 17 - million loan from the African Development Bank, should cover LBIDI's import financing commitments for the next two years. The loan would be disbursed as estimated in Annex 15. The terms of the proposed loan should be those normal- ly applied to Bank loans to development finance companies. However, since LBIDI has not had the opportunity to build-up its operations to an adequate level, it is recommended that LBIDI receive concessional treatment regarding commit- ment charges. Accordingly, the normal commitment fee should not be charged un- til specific projects are authorized for withdrawal. 7.05 The Bank should require prior approval of each project using $50,000 or more of the proceeds of the proposed loan. An appropriate aggregate free limit would be $200,000, which would ensure that at least 80% of the amount of the loan would come to the Bank for approval.   Annex 1 LIBERIA Sectoral Breakdown of Commercial Bank Loans ($ million) 1969 1970 1971 June 30 Dec. 31 June 30 Dec. 31 June 30 Mining 2.4 2.4 2.5 0.3 0.1 Construction 2.0 2.1 2.3 2.2 1.7 Commerce and Manufacturing 8.9 15.5 13.9 20.3 20.7 Agriculture 1.4 1.2 0.3 1.3 .2.6 Transportation 0.5 0.3 0.7 0.3 0.2 Personal Loans 4.2 2.8 3.9 4.1 6.3 Other 5.8 4.6 4.1 7.7 7.3 25.2 28.9 27.7 36.2 38.9 Source: Quarterly Statistical Bulletin of Liberia, 'November 1971. DFCD January 14, 1972  Annex 2 LIBERIA Manufacturing Projects Approved Under Investment Incentive Legislation (in U.S. $) Total Capital Year Number of Projects Investment 1966 4 682,400 1967 9 1,080,854 1968 10 2,476,675 1969 9 1,846,400 1970 5 906,385 1971 7 1,123,000 Total 44 8,115,714 Source: 1971 Annual Report, Liberia Development Corporation DFCD May 22, 1972  Annox 10 LIBERIAN BDANK FOfl PIDUSTRIAL DRIELOP1WENT A!4D IWNVST{ENT Balance Sheets as of December 31, 1967 to 1971 1967 1968 . 1969 3.970 1971 ASSETS: Current Assets Cash and time deposits 823 185 399 198 272 Accrued incone from loans and notes 72 150 131 146 68 Investment in Treasury bills 85 143 193 200 159 Other current assets 5 3 I4 44 Total current assets 985 481 727 588 50Ol Portfolio Loans and Advances 107 709 1, 494 1,685 1,662 Equity investments 84 175 142 1141 168 191 8814 1,636 1,826 1,830 Less: Provisions 10 34 77 138 190 Total Portfolio 181 850 1,559 1,688 1.6Ik) Other Assets Fi>xcid assets (nct) 5 6 8 _h 26 Discoiuited Governinetb notes 1,000 1,000 1,000 1,000 1,000 Total other assets 1,005 1,006 1,008 1,01l4 1,020 2 LTL 2,337 3,2914 3,290 LO. LIAABILTTTE.rS AID EO'JIT-T Currcn'. Liabilities Alccounts playable 5 3 150 8 4 Total current liabilities 5 3 150 8 4 Lonm-term debt Goverm,ment loan 1,000 1,000 1,000 1,000 1,000 Ki(f loan - 141 910 1,015 1,033 Total long-term debt 1,000 1,1141 1,910 2,015 2,033 Shareho der 's FTbuity Share capital 1,000 1,O00 1,000 1,000 1,000 Rescrves and surplus 156 193 2314 267 133 1,156 1,193 1,234 71,267 1,133 TOTAL LIABILITT.ES &ND bQUITY 2,161 2,337 3,29li 3,290 3,170 DFCD March 27, 1972  Annex 9 LIBERIAN BAIIK FOR INDUSTRIAL DEVELOPMET AND INVESTMENT Statements of Income for the Years Ended December 31, 1967 to 1971 (n U.S. $ 10X0) 1967 1968 1969 1970 1971 Investment Income Interest and commissions on loans 4 29 84 138 138 Interest on promissory notes 65 65 65 65 65 Interest on time deposits 42 21 14 14 14 Interest on discount on notes 12 13 21 21 21 Other income 1 13 14 10 Gross income 124 141 198 248 247 _ating Expenses Interest and commitment charge 6 7 22 49 48 Administrative expenses 59 76 86 99 100 Depreciation -- 1 2 4 5 Provisions for doubtful loans 10 24 43 39 74 Total operating expenses 75 108 153 191 227 Operational inconme before extraordinary items 49 33 45 57 20 Less: Extraordinary losses - - 23 1 Net income (loss) 49 33 39 34 (135) Operationral Profit as % of Average Net "'Torth 4.3 2.8 3.7 1;.7 1.8 Net Income (loss) as %, of Share Capital 4.9 3.3 3.9 3.4 (13.5) Administrative E-xpenses as % of Average Total Assets 2.7 3.3 3.1 3.0 3.0 DFCD March 27, 1972   ANNEX 8 Page 3 8. Liberian Bank for Industrial Development & Investment's Own Management and Staff The Liberian Bank for Industrial Development & Investment will build and strengthen its own management and staff so as to achieve a well balanced organization, including financing and economic analysis, technical, accountancy and legal services, and supervision of previously concluded investments. 9. Prevention of Control The Liberian Bank for Industrial Development & Investment will prevent any one person or company or group of affiliated persons or companies from gaining effective control of the organization. 10. Noncompetition with Commercial Banks The Liberian Bank for Industrial Development & Investment shall not accept deposits nor compete with commercial banks in its loaning activities. 1i. Reserve-Policy The Liberian Bank for Industrial Development & Investment will build reserves consistent with sound financial practice, including reserves for bad debts and investments and supplementary reserves. 12. Foreign Exchange Risk The Liberian Bank for Industrial Development & Investment shall not assume the foreign exchange risk in respect of relending of any non- Liberian moneys borrowed by it. 13. Modification or Amendment of this Resolution Before this Resolution setting out the policies of the Liberian Bank for Industrial Development & Investment shall be modified or amended, any proposed modification or amendment will be circulated among the mem- bers of the Board in a manner permitting ample time for the due consider- ation of such proposal by the individual members, taking into account the desirability of consultation by any member with the shareholders whom he represents. DFCD May 26, 1972  ANNEX 8 Page 2 B. Investment in the fam of both loan and equity by the Liberian Bank for Industrial Development & Investment shall normally not exceed 50% of the total assets of enterprise. In the form of equity alone the Liberian Bank for Industrial Development & Investment's partici- pation shall not exceed 25% of the equity of the enter- prise. 3. Definition of Private Enterprise The Liberian Bank for Industrial Development & Investment shall finance only enterprises that are privately owned and managed. The existence of a government or other public interest in an enterprise will, however, not necessarily preclude an investment or loan by the Liberian Bank for Industrial Development & Investment providing the government's interest as measured by voting power or control of the management of the enterprise is not predominant and especially if the government's equity investment is intended only to be temporary, pending its selling out to private interest. 4. Management of Enterprises The Liberian Bank for Industrial Development & Investment shall refrain from taking a controlling interest in any enterprise or any other interest which would give it primary responsibility for the management of such enterprise. 5. Promotion of a Capital Market The Liberian Bank for Industrial Development & Investment shall conduct its operations so as to assist in the investment of both private Liberian and foreign capital in Liberian industry. In order to encourage the development of a capital market, it will revolve its own portfolio whenever it can do so on satisfactory terms. 6. Soundness of Enterprises to be Financed The Liberian Bank for Industrial Development & Investment will finance undertakings which are soundly managed and which appear, on careful investigation to be economically viable. It will watch the operations of such undertakings and will give technical assistance to management when necessary. 7. Geographic Distribution of Financing The Liberian Bank for Industrial Development & Investment will select projects, subject to sound investment criteria, on as broad a geographical basis as possible.  ANNEX 8 LIBERIAN BANK FOR INDUSTRIAL DEVEIOPMNT AND INVESTMENT Operating Policies (as of December 31, T971) The Liberian Bank for Industrial Development & Investment will carry on its business in accordance with the following policies which the Board of Directors will adopt by resolution at its first meeting. 1. Purposes and Types of Activity The Liberian Bank for Industrial Development & Investment shall assist in the economic development of Liberia. To this end, it will encourage the development of private pi1oductive enterprises in the country by providing medium- and long-term loans (up to a maximum of fifteen years) and equity financing. It may also sponsor and underwrite new issues of securities and guarantee loans and commitments of their inves- tors. The Liberian Bank for Industrial Development & Investment will consider private investments in industrial projects, agricultural projects associated with or contributing to manufacturing enterprises, Services, Handicrafts, Extractive Industries, and Tourism. The Bank will not engage in re-funding or re-financing operations previously arranged, as part of the term loan to be financed by the Bank. The Bank will not engage in financing commercial transactions, including imports or exports. 2. Diversification of Financing The Liberian Bank for Industrial Development & Investment will diversify its financing (except for the temporary investment of liquid funds in short-term securities) among different types of enterprises and types of financing. Therefore, it shall observe the following limits. A. Investment in loans and equity participation in any one enterprise shall not exceed an amount equivalent to 10% of the Liberian Bank for Industrial Development and Investment's total resources. Investment in the equity of any single enterprise shall not exceed 10% of the Liberian Bank for Industrial Development & Investment's paid-in share capital and free reserves. The aggregate value of all investments, computed at cost, in the equity of all enterprises shall, at no time, exceed the aggregate of the paid-in share capital and free reserves of the Liberian Bank for Industrial Development & Investment.   Annex 7 LIBERIAN BANK FOR INDUSTRIAL DEVELOPMENT AND INVESTMENT 2K&mnization Chart (As of April 30, 1972) Chairman: Mr. S. Tolbert EXECUTIVE COMMITTEE Chairman: Mr. S. Tolbert _~~~~~~~~~~~~~~~~~~~~~~~ PRESIDENT GENERAL MANAGER P.C. Parker R. Chellappah _PD COMPTROLLER - H. Turay MN. Titus Appraisals Follow-up oan Recoveries Account n Management and Staff Management 2 Professionals 7 Non-Professionals 8 Total 17 DFCD May 22, 1972  Annex 6 LIBERIAN BANK FOR INDUSTRIAL DEVELOPMENT AND INVESTMENT Board of Directors (As of April 30, 1971) Interest Class of Name represented Shares Mr. Stephen,Tolbert Government of Liberia A Mr. Frank J. Stewart Government of Liberia A Mr. P.M. Mathew International Finance Corporation A Mr. Ernest Dennis Private Liberian Shareholders A Mr. G.G. Marini Intituto Mobiliare Italiano B Mr. Henry N. Conway International Trust Company B Mr. J,P. Carmichael Firestone Plantations Company B Liberia Mining Company Mr. Ellis E. Bradford Bank of Monrovia B Executive Committee (As of April 30, 1971) Mr. Stephen Tolbert Mr. Frank J. Stewart Mr. Henry N. Conway Mr. Ernest Dennis Mr. J.P. Carmichael DFCD May 24, 1972  Annex 5 LIBERIAN BANK FOR INDUSTRIAL DEVELOPMENT AND INVESTMENT Shareholders and Ownership Structure (As of December 31, 1971) Class A No. of Shares % Government of Liberia (LDC) 24,869 24.9 International Finance Corp. 244,869 24.9 Private Liberian Investors 1,262 1.2 51,000 51.0 Class B International Trust Company 12,500 12.5 Bank of Monrovia 12,000 12.0 Istituto Mobiliare Italiano 12,000 12.0 Firestone Plantation Comepany 5,000 5-