Report No. 1152a-SE Senegal: Appraisal of SOFISEDIT (SOCIETE FINANCIERE SENEGALAISE POUR LE DEVELOPPEMENT DE L'INDUSTRIE ET DU TOURISME) September 7, 1976 Development Finance Companies FOR OFFICIAL USE ONLY Document of the World Bank 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. CURRENCY EQUIVALENTS Currency Unit = CFAF CFAF 1 = uS$O.oOO US$1 = CFAF 225 ABBREVIATIONS ADB African Develop3nent Banik BCEAO Banque Centrale des Etats de l'Afrique de l'Ouest BIAO Banque Internationale pour l'Afrique Occidentale BICIS Banque Internationale pour le Commerce et l'Industrie du Senegal BNDS Banque Nationale de Developpement du Senegal BOAD Banque Ouest Africaine de D6veloppement BSK Banque Sen6galo-Koweit-ienne CCCE Caisse Centrale de Cooperation Economique DEXG Deutsche Eitwicklungsgesellschaft FNCB First National City Barik IFC International Finance Corporation KfW Kreditanstalt ffr Wiederaufbau PS0A Platre Sies Ouest Afric:ain SGBS Societe G6nerale de Bariques au S6n6gal SOFISEDIT Societe Financiere Sengalaise pour le teveloppement de l'Industrie et du Tourisme SONEPI Soci6t6 Nationale d'EtuLdes et de Promotion Industrielle USB Union Senegalaise de Banque pour le Cormmerce et l'Industrie SJFISEDIT's FISCAL YEAR October 1 - September 30 This report was prepared by Messrs. Philippe Beuzelin and Peter Edmonds on the basis of their mission to Senegal in December 1975. FOR OFFICIAL USE ONLY APPRAISAL OF THE SOCIETE FINANCIERE SENEGALAISE POUR LE DEVELOPPEMENT DE L'INDUSTRIE ET DU TOURISME (SOFISEDIT) Table of Contents Page No. BASIC DATA i-ii SUMMARY ................................................. iv-vi I. INTRODUCTION ............................................ 1 II. THE ENVIRONMENT ....... .......................... 1 The Economy ............................................. 1 The Industrial Sector ................................... 4 Government Industrial Policies .......................... 7 Tourism ................................................. 9 The Financial Environment ............................... 10 Interest Rates and BCEAO Rules .......................... 10 Development Banks ....................................... 12 Commercial Banks ........................................ 13 Financial/Promotional Institutions ...................... 14 III. THE COMPANY ............................................. 15 Background ....................... ....................... 15 Ownership ....................... ....................... 16 Board of Directors ................. .. ................... 16 Management ....................... ....................... 16 Organization and Staff .................................. 16 Policy Statement ...... ............ .. .................... 16 Interest Rates ..................... ..................... 17 Procedures ....................... ....................... 17 Promotional Activities ............... .. ................. 17 Auditors ........................ ........................ 18 IV. OPERATIONS AND FINANCE .................................. 18 Operations .............................................. 18 Financial Performance and Position ...................... 19 Portfolio ............................................... 19 Resources ............................................... 19 This document has a restricted distribution and may be usd by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. -2- Page No. V. PROSPECTS ...................... ................... 20 Business Outlook . ...................... * ................. 20 The Company's Strategy .... ................................ 21 Forecast Operations ................. .. .................. 21 Resource Requirements ............... . ............... ..... 22 Long-Term Interest Rates and Foreign Exchange Risk ...... 22 Forecast Financial Results ............. .. ............... 24 VI. CONCLUSIONS AND RECOMMENDATIONS ......................... 25 Conclusions .......... . ............ ........ . 25 Recommendations ......................................... 25 LIST OF ANNEXES 1. SOFISEDIT - List of Shareholders 2. SOFISEDIT - Board of Directors 3. SOFISEDIT - Organization Chart 4. SOFISEDIT - Statement of General Policy 5. SOFISEDIT - Loans Approved as of June 30, 1976 6. SOFISEDIT - Equity Investments as of June 30, 1976 7. SOFISEDIT - Financing Plans of Projects Approved as of June 30, 1976 8. SOFISEDIT - Economic Contribution of Projects Financed by SOFISEDIT as of June 30, 1976 9. SOFISEDIT - Summarized Balance Sheets 10. SOFISEDIT - Summarized Income Statements 11. SOFISEDIT - Resource Statement as of June 30, 1976 12. SOFISEDIT - Projects under Study as of June 30, 1976 13. SOFISEDIT - Projects likely to be Financed by SOFISEDIT between 1977 and 1980 14. SOFISEDIT - Assumptions for Financial Projections 15. SOFISEDIT - Projected Operations (1976-1980) 16. SOFISEDIT - Projected Income Statements (1976-1980) 17. SOFISEDIT - Projected Balance Sheets (1976-1980) 18. SOFISEDIT - Projected Cash Flow Statement (1976-1980) 19. SOFISEDIT - Projected Operating and Financial Ratios (1976-1980) 20. SOFISEDIT - Estimated Disbursement Schedule for the Proposed Loan BASIC DATA on Societe Financiere Senegalaise pour le Developpement de 1'Industrie et di- Tourisme (SOFISEDIT) Year of Establishment: 1974 Ownership (As of June 30, 1976) Million % of of CFAF Capital Government of Senegal 120 18.5 Banque Nationale de Developpement du Senegal (BNDS) 50 7.7 Union Senegalaise de Banque pour le Commerce et l'Industrie (USB) 50 7.7 Banque Centrale des Etats de l'Afrique de l'Ouest (BCEAO) 80 12.3 Banque Internationale pour l'Afrique Occidentale (BIAO) 50 7.7 Banque Internationale pour le Commerce et l'Indistrie du Senegal (BICIS) 50 7.7 Societe Generale de Banques au Senegal (SGBS) 50 7.7 International Finance Corporation (IFC) 50 7.7 Caisse Centrale de Cooperation Economique (CCCE) 50 7.7 Deutsche Entwicklungsgesellschaft (D3G) 50 7.7 Fidelity International Bank 10 1.5 Private Senegalese Investors 40 6.1 650 100.0 - ii - BASIC; DATA on Societe Financiere Senegalaise pour le Developpement de l']:ndustrie et du Tourisme (SOFISEDIT) Operations (CFAF million) 1/ 2/ 1975 1976 (6 months) (9 months) Approvals Loans 533.0 827.5 Equity Investments 72.0 14.5 TOTAL 605.0 842.0 Commitments Loans 370.0 133.0 Equity Investments 53.0 25.5 TOTAL 423.0 158.5 Disbursements Loans 204.0 137.2 Equity Investments 38.0 23.9 TOTAL 242.0 161.1 Operating Results Gross Income 56.0 39.0 Personnel and Administrative Expenses 52.0 43.0 Financial Expenses 1l0 7.0 Technical Assistance Costs 5.0 4.0 Net Profit (loss) (3.0) (15.0) 1/ April 1, 1974 to September 30, 1975. 2/ October 1, 1975 to June 30, 1976. - iii - BASIC DATA on Societe Financiere Senegalaise pour le Developpement de l'Industrie et du Tourisme (SOFISEDIT) 19.75i____ 1976 (6 months) (9 months) (CFAF million) Financial Position Total Assets 639.0 834.o Net Worth 607.0 593.0 Debt/Equity 0.04 0.39 Interest Rates Medium-term loans (up to and including 10 years) = 11-13% (12% average) Long -term loans = 12% Spread Medium-term loans = 3-5% Long -term loans = 3.25% 1/ April 1, 1974 to September 30, 1975. 2/ October 1, 1975 to June 30, 1976. DFCD August 1976 - iv - SUMMARY i. The Societe Financiere Senegalaise pour le Developpement de l'Industrie et du Tourisme (SOFISEDIT) was created in 1974 by the Govern- ment of Senegal to provide term financing for industry and tourism develop- ment. The World Bank Group participated actively for more than a year in the preparatory work for the creation of the institution and was also in- strumental in launching the company. SOFISEDIT's share capital is divided among the Government of Senegal and Senegalese public sector institutions, the Central Bank, commercial banks and foreign institutions including IFC. ii. In the early 1960's, Senega]L's industrial enterprises faced problems of excess capacity due to the loss of the West African market for manufactured products as local industries developed in the newly in- dependent nations. Despite this handicap, the industrial sector (defined to include manufacturing as well as mining, energy and production of con- struction materials) has grown consistently since independence; the sector's contribution to GDP at factor cost increased from 13% in 1960 to 17% in 1970 and 20% in 1974. During that period, industry developed in real terms at an annual rate of 5.2%, while the overall rate of growth of the economy was only 9.2%. Between 1975 and 1980, the industrial sector is expected to continue its development in real terms at an annual rate of about 7%. iii. Dlanufacturing accounts for about 12% of GDP in 1974 and for almost 60% of value added in the industrial sector. During the 1960-1974 period total value added in manufacturing increased at an annual rate of 4.7%. Activities that developed the most during that period were groundnut refining, food industry, textiles, paper and printing, chemical industries. During the coming years, manufacturing is expected to grow at an annual rate of 7%. The majority of modern enterprises in Senegal are foreign-owned. In order to encourage the development of Senegalese entrepreneurship, the Government created in 1969, the Societe Nationale d'Etudes et de Promotion Industrielle (SONEPI). Moreover, it is implementing a "Senegalization" plan to increase local participation in the management of enterprise. Major obstacles to the development of Senegal's manufacturing activities include the narrowness of the domestic market, the cost of power and water and the shortage of technical and managerial skills. The essential features of the Government industrial policies are the development of export-oriented industries, the implementation of large industrial projects and the promotion of Senegalese enterprises. iv. Tourism is considered one of the priority sectors in Senegal. In recent years, facilities and the level of activities in the sector have in- creased considerably. The number of rooms available for international tourism has increased from 300 in 1970 to over 2,000 in 1974, while tourist arrivals during this period rose from 36,000 to about 125,000. The Govern- ment's objective is to attract about 200,000 tourists a year by the end of the Fourth Development Plan in 1977. - v - v. SOFISEDIT has made a successful start to its operations and now employs twenty-one staff members. It is managed by a team of three persons, the President-Director General, his Deputy and the Director of Investments. The latter two who have been seconded by the World Bank to assist in starting the company, are training the staff which is of a good quality. Project appraisals are of a high quality and operating procedures are adequate. vi. From beginning of operations in March 1974 to June 30, 1976, SOFISEDIT has approved nineteen loans totaling CFAF 1,361 million and five equity investments totaling CFAF 86.5 million. Over that period, SOFISEDIT had a loss of CFAF 17.5 million mainly due to high start-up expenses and low revenue; however as of June 30, 1976 SOFISEDIT was sound and creditworthy. Although the amount of financing provided so far is still modest in comparison with total investment in industry and tourism in Senegal, SOFISEDIT is already emerging as a significant source of term finance for the industrial and tourism sectors. vii. Recent changes in policy by the Central Bank in removing automatic rediscount ceilings for individual banks and in setting sectoral priorities for the rediscounting of loans of up to ten years should enhance the demand for term finance from SOFISEDIT. Through its appraisal capabilities, SOFISEDIT should be able to clearly demonstrate the financial and economic merits of projects to the Central Bank and thereby enhance the probability of a project being rediscounted. Commercial banks however, without such appraisal capabilities, may be more hesitant in proposing projects for re- discounting where failure to secure a rediscount would result in their having to use their own short-term deposits to finance loans of up to ten years. For longer-term lending SOFISEDIT's interest rate and term compare favourably with competing institutions offering floating Eurodollar based rates. Thus SOFISEDIT's operations are expected to develop substantially. viii. SOFISEDIT had, as of June 1976, a pipeline of twenty projects under study amounting to a total investment of CFAF 6.1 billion. The potential SOFISEDIT investment in these projects amounts to CFAF 1.5 billion in medium- and long-term loans and CFAF 96 million in equity investments. In addition, it has a pipeline of CFAF 14.4 billion for 1977-1980. Forecast of SOFISEDIT's financing of these projects amount to CFAF 3.0 billion in loans and CFAF 200 million in equity investments. The company is expected to break-even in 1977 and thereafter has an attractive earnings potential. ix. SOFISEDIT's long-term lending based on commitments from inception to December 31, 1978 is expected to amount to CFAF 2 billion (US$8.9 million). Its existing resources will last until approximately December 1976 and there- after there will be a resource gap of US$5.9 million to December 31, 1978. A recommended Bank loan of US$4.2 million would meet approximately two-thirds of SOFISEDIT's long-term foreign exchange resource gap to December 31, 1978, and provide US$200,000 for technical assistance to SONEPI to carry out a study of the informal sector with the view of implementing a pilot small enterprise - vi - development project. The free limit for individual subprojects should be raised from $100,000 to $250,000 in recognition of the progress made in SOFISEDIT's appraisal capabilities. The aggregate free limit would be in- creased from $600,000 to $1.5 million. x. Subject to the conditions listed in Chapter VI, the project is suitable for a loan of US$ 4.2 million equivalent. APPRAISAL OF THE SOCIETE FINANCIERE SENEGALAISE POUR LE DEVELOPPEMENT DE L'INDUSTRIE ET DU TOURISME (SOFISEDIT) I. INTRODUCTION 1.01 SOFISEDIT was created by the Government of Senegal in 1974 for the purpose of providing term financing for industry and tourism develop- ment. The World Bank Group participated actively for more than a year in the preparatory work for the creation of the institution and was also instrumental in launching the company. It helped place about 25% of the company's capital: 8% were subscribed by IFC and 17% by foreign institu- tions at the invitation of the Bank Group. It also supplemented SOFISEDIT's initial resources by granting in May 1974 a loan (987-SE) of US$3 million; it seconded a Bank staff member to become the Deputy Director General of the company, and assisted in the recruitment of a Director of Investments. 1.02 It is expected that SOFISEDIT's first Bank loan will be fully committed by the end of 1976. This report reviews the company's perform- ance and outlook, and recommends a second Bank loan of $4.2 million, with the following objectives: (i) to provide term financing on appropriate terms to enterprises in industry and tourism for projects in Senegal, which have been well conceived on economic, financial and technical grounds; (ii) to continue to support the growth of SOFISEDIT as a leading development institution in Senegal through strengthening its resource base, its project appraisal capabilities, internal organization and procedures. (iii) to provide technical assistance to SONEPI to carry out a study of the informal sector with a view to develop a pilot small enterprise project. II. THE ENVIRONMENT The Economy 2.01 The latest comprehensive Bank Economic Report on Senegal (212-SE) is dated August 15, 1973. A special study on the financial situation of Senegal (778-SE) was published in June 1975. A basic economic mission is scheduled to take place toward the end of 1976. -2- 2.02 Senegal covers an area of about 76,000 square miles (200,000 square kilometers) in the most western part of the sahelian belt. The country's climate is typical of the area: a long dry season (up to nine months in the North) and limited rainfall in many regions which is subject to considerable annual fluctuations, particularly in the North and the Center. The vegetation is characterized by fine grassland in the North, open forest in the center and subtropical forest in the South. 2.03 Senegal's population totaling about 5.0 million inhabitants is currently growing at an annual rate of some 2.7%. It is predominantly rural; some 70% of the country's inhabitants make their living in agricul- ture and livestock and another 5% in fishing. About 70% of the population live in villages of less than 10,000 inhabitants. 2.04 Between 1960 and 1974, GDP increased by about 2.2% per annum in real terms, as compared with a population growth of 2.1%. In the first five to seven years after independence, the slow growth was due to the difficult process of adaptation to the more limited economic, political and administrative role of the country as compared to its pre-independence role as the capital of French West Africa. The economic stagnation that prevailed in subsequent years was due mainly to unfavorable weather con- ditions, with severe drought occuring four times between 1967 and 1973. A good rainfall in 1974 brought a sharp expansion of groundnut production during the 1974/1975 crop season. This increase coupled with the conti- nuation of high export prices for groundnut products and phosphates had a favorable impact not only on the groundnut processing industry but also on other sectors of the economy as we]Ll as on the overall financial perform- ance during 1975. However, more recently, a sharp decline in the world prices of groundnuts and phosphates has had a very negative impact on the country's economy despite the record 1975/76 harvest. 2.05 GNP per capita in 1975 was approximately $370. However there is a wide discrepancy between the per capita income of the 70% of Senegal's population living in the rural sector estimated at about a fifth of per capita income of the indigenous urban population. 2.06 Agriculture plays a significant role in Senegal's economic life, as it employs about 70% of the labor force. Although accounting for only 25% of GDP, it has high leverage on the economy through its impact on exports and the size of the domestic demand for locally-produced goods and services. Groundnuts is by far the most important cash crop, accounting for 35% of exports. Commerce is also a significant activity accounting for more than 21% of GDP, while industry represents also 21%, construction 4%, transport about 7% and other services including the Government also 21%. 2.07 The distribution of recorded employment among the various sectors is as follows: February 1972 Seasonal and Permanent Temporary Total Agriculture, fishing, and livestock raising 2,303 1,039 3,342 Mining 1,352 392 1,744 Manufacturing 13,225 4,188 17,413 Construction and public works 2,150 1,205 3,355 Electricity, water, and gas 2,809 806 3,615 Commerce, hotels, and restaurants 9,590 3,547 13,137 Transport and communications 7,034 4,953 11,987 Banking and insurance 2,170 20 2,190 Services 3,336 144 3,480 TOTAL 43,969 16,294 60,263 Source: Ministere des Finances et des Affaires Economiques, Direction de la Statistique, Situation Economigue du Senegal 1973. Manufacturing accounts for 29% of recorded employment, commerce, hotels and restaurants 22% and transport and communications 20%. 2.08 In 1970, 1971 and 1972 Senegal had balance of payments current account deficits of CFAF 5.8, 8.9 and 4.2 billion respectively. In 1973, the deficit increased sharply to CFAF 21 billion due to a number of unfavor- able factors. Production during the 1972/1973 and 1973/74 crop seasons was adversely affected by severe drought conditions, which resulted in a 30% reduction in the volume of exports in 1973 while the terms of trade remained at their depressed level. At the same time, the bad harvest necessitated emergency imports of food grains. As a result, while during the preceding years the overall balance of payments recorded surpluses as the merchandise trade deficits were more than covered by net inflows on transfers, capital accounts and net receipts from services, in 1973 it registered a deficit of CFAF 9.8 billion. In 1974 and 1975 the current account deficit was more in line with preceding years, due to a better harvest and increase in the price of phosphates, Senegal's second largest export product. However, the overall balance still had a deficit of CFAF 0.9 billion in 1974 and 3.4 billion in 1975. The 1976 overall balance of payments is not expected to show a con- siderable improvement. 2.09 The Fourth Development Plan (July 1973-July 1977) presently being implemented, was revised at the beginning of 1975. Total investments during that period that were initially planned to be about CFAF 181 billion are now expected to reach CFAF 324 billion, a 79% increase due to a net increase in the number of projects and higher than expected project costs. Investment targets for industry have been revised upwards by 37%, from CFAF 20.1 billion -4- to CFAF 27.5 billion, while for tourism there was a 29% readjustment from CFAF 17.8 billion to CFAF 23 billion; however it is considered unlikely that these targets will be fully achieved. The Industrial Sector 2.10 Following independence, in the early 1960's, the industrial sector in Senegal (defined to comprise manufacturing as well as mining, energy and production of construction materials) faced serious difficulties, due to the loss of important export markets for manufactured products as local indus- tries developed in other West African countries. Nevertheless, the annual rate of growth of the sector reached 5.2% between 1960 and 1974. Its share of GDP at constant factor cost increased from 13% in 1960 to about 20% in 1974. The paragraphs below present information on manufacturing and min- ing, followed by a review of the Government industrial policies. 2.11 Manufacturing. The evolution of value added in manufacturing between 1960 and 1974 is as follows: Value Added in Manufacturing Sector at Factor Cost at Current Prices (In billion CFA francs) 1960 1974 Groundnut oil production 3.90 6.89 Foodstuffs and beverages 4.20 10.77 Textiles, leather 1.71 5.14 Fabricated metal products and equipment 1.56 2.41 Tobacco, matches 1.06 0.87 Construction materials 0.70 0.97 Wood Industries 0.57 0.58 Chemical Industries 0.50 6.63 Paper and Printing 0.30 1.15 TOTAL 14.50 35.41 % of GDP at factor costs 10.9 12.0 Source: National Accounts. 2.12 In 1974 foodstuffs and beverages accounted for about 30% of value added in manufacturing; metal products, machinery and equipment for 7%; textiles and leather for 15%. Production of groundnut oil for 19%. - 5 - 2.13 During the 1960-1974 period, total value added in manufacturing increased at an average annual rate of 6.6% or 4.7% in real terms. The manufacturing activities that experienced the fastest growth were: grotnd- nut refining, food industry, textiles, paper and printing, chemical in- dustries. The significant increase in the share of chemicals is mainly due to the establishment of an oil refinery and of a fertilizer plant, but also to the price increase of oil. 2.14 Between 1969 and 1975 the value of production by manufacturing in- creased at an annual rate of 5.4% in real terms. The evolution between 1960 and 1974 of the value of production by manufacturing enterprises is presented below: Value of production in manufacturing, at current prices (in billion CFA francs) 1960 1974 Ed,-ible Oil 14.75 45.23 lVoodst.ufEs and beverages 11.29 35.76 T i.].'S, aleather 4.09 18.02 abcic ated mnetal1 products and equipment 5.45 9.09 1,11 3CCo' m ;mitches 1.88 3.49 Con;truc.tion Materials 1.58 3.71 Wood lndustries 1.28 2.29 Chemical Industries 1.16 27.25 Paper & Printing 0.85 3.81 TOTAL 42.33 148.63 2.15 The number of manufacturing enterprises in the modern sector (i.e., with over 20-30 workers) by sector of activity is as follows: Number of Activity Enterprises Foodstuffs and beverages 85 Transport Equipment, drydocks, garages 58 Metal Products, machinery 39 Paper and printing 34 Chemical Industries 34 Textile and leather 28 Electrical Equipment 27 Wood Industries 24 Other metallic industry 6 Groundnut Oil Production 5 Tobacco, matches 2 TOTAL 342 Enterprises in the food industry account for about 25% of the total. -6- 2.16 Most modern enterprises in Senegal are foreign-owned. It is estimated that 85% of industrial assets are still owned by French inves- tors. Less than 10% of the 342 enterprises in the modern sector are owned by Senegalese. In 1969, the Government created the Societe Nationale di Etudes et de Promotion Industrielle! (SONEPI) for the purpose of encour- aging Senegalese entrepreneurship. The Government has made several equity investments in industrial companies, and is also buying participation in key industries i.e., phosphate mines, groundnut refineries, etc. It en- courages foreign investment but also seeks opportunities for Senegalese- owned enterprises and joint Senegalese-foreign ventures. 2.17 The Government is implementing a "Senegalization" plan according to which by 1981 all labor and supervisory jobs in new and existing indus- trial enterprises, with the exception of top management and of experts of unusual skills or qualifications, should be filled by Senegalese. Enter- prises have been requested to submit to the Government a timetable for the training of Senegalese and their replacement of expatriate staff. 2.18 Industry is heavily concentrated in Dakar and the Cap Vert region. About 80% of industrial production and employment are in this area. Some industries are also located in Thies and Sine Saloum. Because of the dif- ference in infrastructure and the difiEiculty in finding skilled manpower in the interior decentralization of industry is not likely to occur in the near future; however the Government has emphasized the importance of achieving a regional balance in industrial development and has provided encouragement for such decentralization under the Investment Code (see paras. 2.23-2.27). 2.19 Gross domestic investment in manufacturing which averaged only CFAF 2.3 billion annually in 1962-1967 has recently increased considerably; in 1972 it exceeded CFAF 6 billion. 2.20 Manufacturing is expected to grow at an annual rate of 7% in the next Eive years. Activities that are expected to develop more rapidly are textiles, construction materials and fish canning. Major obstacles to the development of Senegal's manufacturing sector are the narrowness of the domestic market in which the already low level of income is subject to important fluctuations originating in the agricultural sector, the cost of power and water the small scale of a number of manufacturing enter- prises, and a shortage of technical and managerial skills. 2.21 Mining. The share of mining, essentially phosphates, in Senegal's GDP (at constant factor cost) increased from 0.2% in 1960 to 2.2% in 1974, and value added in mining is expected to increase at an annual rate of about 12% and to account for almost 3% of GDP by 1980. -7- Government Industrial Policies 2.22 The main objectives of the Government for industry as expressed in the Fourth Development Plan are to: . obtain at least a 6.5% increase of industrial pro- duction at constant prices; . encourage private entrepreneurship through tax and custom duty advantages; . encourage decentralization to help regional develop- ment; . train and promote local entrepreneurs so that they participate in the country's industrialization effort; . promote agro-industries and mining industries; , give high priority to labor intensive industries to help solve the unemployment problem in urban areas; *develop export oriented industries; . develop the air, sea and rail transportation network to facilitate the shipment of products for exports. 2.23 The Investment Code, enacted in 1962 was revised in 1965 and 1972. It guarantees to foreign investors the free repatriation of their invested capital and earnings. Moreover it grants special advantages to two catego- ries of enterprises: the "priority enterprises" and the "concessionaire firms". Priority enterprises are defined as those investing at least CFAF 40 million or creating employment for at least 40 nationals. These requirements are cut in half for enterprises settling outside the Cap Vert region. The main advantages offered to priority enterprises include tax holidays, import duty exemptions, state participation in infrastructure expenditures for water and electricity, and special tariffs for water and electricity consumptions. 2.24 To qualify as a "concessionaire firm", an applicant must fulfill the conditions of a "priority firm " and its investment program be considered particularly important for the development of the country. In addition to the advantages offered to a priority firm, the concessionaire firm may be granted a long-term plan (up to 20 years) of fiscal and/or customs duties exemptions. 2.25 A new Investment Code adopted in the Spring of 1972, extends the fiscal and customs advantages, presently granted to large industrial firms only, to agricultural and tourism enterprises, as well as to small- and medium-size locally-owned firms. -8- 2.26 Nearly all firms established since 1962 (the date of the old Investment Code) in the manufacturing sector have been granted Investment Code benefits, either in the form of a priority agreement or Convention Status. By the end of July 1975, 177 firms had received Investment Code concessions. 2.27 Senegal's tariff system inherited from the colonial regime has not been revised and simplified, while a large number of changes have been introduced in a very ad hoc manner. The result is a complicated system with numerous special cases and exceptions. There are four types of duties, ranging from 4 to 25%, several of which can be imposed on the same import transaction. 2.28 Most of the levies applied to Senegalese exports resemble those on imports discussed above. Only a limited range of goods actually bear export duties, and 90% of export tax receipts are from groundnut products, especially crude and refined oil. 2.29 In Senegal, two types of .import controls are in use: a general control of all imports from countries other than the EEC and the Franc Zone and controls relating to specific products. The general control of non-EEC and non-Franc Zone imports operates through the fixing of an annual quota of total imports from these countries. 2.30 Industrial, commercial and agricultural enterprises are subject to a flat 33.3% tax on net profits. 2.31 In 1965 a law was introduced giving the Government the power to control the prices of all goods and services. At that time the prices of some locally produced foodstuffs, petroleum products and certain services were controlled under the new law. In 1968, all prices and margins were frozen as an anti-inflationary measure in connection with devaluation of the French franc to which the CFA franc is tied. Gradually there has been a general relaxation of price controls except for about 20 products for which the frozen prices and margins are strictly observed. These are di- rectly related to the cost of living of the Senegalese population. 2.32 An industrial duty free zone in Dakar has been created. So far, several enterprises have been accepted for settlement in the Zone. Moreover, with the assistance from KfW, an industrial zone will be established near Dakar, specifically for small enterprises. 2.33 SONEPI was created in 1969 by the Government to assist in the development of local enterprises, particularly small- and medium-size companies. It has a fund for equity investments and a fund to guarantee loans granted by banks to enterprises. Detailed information on SONEPI is presented in paragraphs 2.57 and 2.58. -9-_ Tourism 2.34 Senegal's assets for the development of international tourism include attractive beaches, pleasant climatic conditions from mid-November to mid-June, a rich folklore and reasonable accessibility from Western Europe and America. The Government is putting high priority on the develop- ment of the sector and apart from participating in the financing of hotels has provided incentives to hotel investors through the Investment Code. 2.35 Estimates of number of tourists visiting Senegal for 1970, actual data for 1972 and 1974, and projected results for 1977, the last year of the Fourth Development Plan, are as follows: Annual Rate 1/ of Growth 1970 1972 1974 1977 1970/72 1972/74 1974/77 Hotel capacity (suitable for international tourism) Number of rooms (units) 300 900 2,000 4,944 73% 49% 35% Number of beds (units) 489 1,400 3,610 8,900 69% 61% 35% Tourist Arrivals (thousands) 36.0 69.4 124.7 213.0 39% 34% 19% Hotel Bednights (thousands) 133.0 255.8 651.4 1,900.0 39% 59% 43% Estimated Gross Income Derived from Tourism (CFAF billion) 0.9 1.8 5.8 12.5 Net Foreign Exchange Earnings (CFAF billion) - 1.1 3.6 7.5 Estimated Direct Employment (units) 377 1,700 2,500 6,180 1/ Fourth Development Plan revised objectives. 2.36 Tourist arrivals increased by about 10% a year between 1968 and 1970 and by 39% between 1970 and 1972. The sudden and sharp upturn during the 1971/72 season was reflected in overcrowded hotels, hectic activities of tour operators and a marked increase in new hotel construction. Between 1972 and 1974 tourist arrivals continued to grow at a high 34% a year; an annual growth rate of 19% is expected between 1974 and 1977 when about 213,000 tourists would visit the country. -- 10 - 2.37 Hotel bed occupancies in Dakar average 55% corresponding to room occupancies of 75% due to the low dc,uble occupancy factor (1.5) attributable to the large portion of business-motivated travel. Even higher occupancy levels are attained in the vacation villages along the coast. Gross income from tourism represented about 2% of merchandise exports in 1970, 3.1% in 1972 and about 6.5% in 1974. This proportion is expected to increase to about 20% by 1980. 2.38 Initially the Fourth Development Plan called for investment in tourism of CFAF 17.8 billion between July 1973 and July 1977. In 1975 this forecast was readjusted upward to CFAF 21 billion. As the number of pro- jects that were anticipated during that period has been reduced from 60 to 54, the anticipated rise in total investments is due to higher construc- tion costs. 2.39 A plan for the tourism development of the Petite-Cote area was appraised by the Bank in December 1975, and the proposed project will be presented for Board approval during FY1977. The plan forecasts that by 1980 about 650 beds will be available in this area, 2,500 by 1983 and 5,000 beds by 1990 when the two phases of the project are expected to be completed. The total cost of the infrastructure works for the first phase that extends from 1976 through 1983 is expected to reach about US$16.8 million (net of taxes), including a 250-bed pilot hotel to be built in the early stages of the first phase. The Financial Environment 2.40 Senegal is a member of the West African Monetary Union established in 1962 and composed of six countries with a common central bank, the BCEAO. Established banking and credit institutions in Senegal include four commer- cial banks (BICIS, BIAO, SGBS, USB), an agricultural development bank (BNDS), two medium- and long-term finance development banks (SOFISEDIT and BSK), and with relatively limited roles, SONEPI and SONAGA. FNCB has recently begun operations in Senegal offering medium- and long-term finance. Interest Rates and BCEAO Rules 2.41 Interest rates and credit distribution are controlled by BCEAO through the discount system. BCEAO initiated in 1975 a number of fundamental reforms including: (1) tying the Monetary Union's interest rate policy more closely to the money markets in Europe to reduce the flow of local savings out of Senegal, as well as the incentive for foreign enterprises to obtain cheap local finances; - 11 - (2) linking the credit allocation available through discounting to national sectoral needs; (3) forming a regional money market where liquid funds of the financial institutions could be placed; (4) encouraging the national enterprises to seek access to credit. 2.42 Rates of interest charged by banks on short- and medium-term lending are controlled by BCEAO primarily through the discount rates; banks charge clients varying spreads over the discount rate depending on the risk involved. Since July 1975 BCEAO has offered a preferential discount rate of 5.5% for agricultural short-term financing, national SSE's (defined as SSE's with outstanding borrowings below CFAF 20 million) and loans to individuals for housing. The discount rate was increased from 5.5% to 8% for all other operations and the maximum term of discounts was increased from seven to ten years. The spread allowed on such short- and medium-term discounts varied between 3% and a maximum 5% dependent on credit risk. Interest rates offered on term deposits vary from 3.25% to 6.50% depending on size and term, and are also fixed by BCEAO. 2.43 Prior to January 1, 1976 BCEAO determined an annual discount ceiling for each country, within the Monetary Union and then allocated discount ceil- ings to individual banks and enterprises. BCEAO has now introduced a revised system whereby the individual discount ceilings to banks will be withdrawn; instead, in conjunction with Governments in each member country, priority sec- tors for discounting will be delineated. A BCEAO review committee will evalu- ate the suitability of a project for discounting against these priorities. Discounts to banks by BCEAO will not be automatic and BCEAO may only offer partial discounts in both term and amount depending on the sectoral priorities of the projects. BCEAO discounting limits for medium-term loans, which are generally used to finance local costs and cover the import component of an investment where external finance is not available, will continue at existing levels i.e., up to 90% of project cost for national SSE's, 65% for industrial enterprises and 50% for other projects. There will also be a further require- ment that banks must utilize their own liquid resources for investments before seeking discounts at BCEAO. 2.44 The effects of these changes in the BCEAO discounting procedures are not yet apparent; however, it is considered likely that in the absence of automatic discounts, the commercial banks will be hesitant to propose projects requiring discountable funds for 7-10 years in case BCEAO refuses their application and they have to use their own short-term deposits to finance the projects. This may result in financial institutions with medium/ long term resources receiving an increased demand for their funds. Financial institutions with strong evaluation/appraisal capability should be able to - 12 - demonstrate through their analyses why their projects are of high economic priority to Senegal and therefore improve the likelihood of their receiving discountable funds from BCEAO. 2.45 The on-lending rates for long-term funds are indirectly influ- enced by BCEAO through its membership on the boards of development banks mad long-term finance institutions although the cost of such funds from external sources, is normally the major determinant of the on-lending rate. -\ tax (Taxe de Prestation de Services) is charged by Government on internal Lncome at a rate of 9.29% and is collected by the banks. SOFISEDIT's loans are exempted from such tax until 1980. Development Banks 2.46 In addition to SOFISEDIT, there are three other banks offering term finance for development. BNDS operates predominantly in the agricul- tural sector (see para. 2.47). BSK and FNCB offer term finance for indus- trial and tourism projects; however as of December 1975 both banks have limited project appraisal capabilities and both are offering funds from Eurodollar sources at floating interesst rates (see para. 5.13). X.47 Banque Nationale de Developpement du Senegal (BNDS). BNDS, estab- lished in 1964, has a share capital of CFAF 2.4 billion owned by the Sene- galese Government (73%), CCCE (16%), BCEAO (6%) and three other institutions (5,). Short-term loans represent about 84% of total portfolio, while medium- term loans account for 13% and long-t:erm loans for 3%. As of September 30, 1975, its medium- and long-term loan portfolio amounted to approximately CFAF 6.3 billion, while equity investments totaled CFAF 852 million. Approxi- mately 65% of BNDS operations are in the agricultural sector, 15% in industry and the remaining 20% in trade, mortgage financing and individual loans for household equipment and automobile. BNDS provides about 60% of the short-term groundnut crop credit, the rest being/ supplied by the commercial banks. After suffering a loss of CFAF 61 million in 1970/71, BNDS has had modest profits every year. In 1975, it made a net profit of CFAF 42 million. BNDS employees total 250. 2.48 Banque Senegalo-Koweitienne (BSK). BSK was created in 1974 as a ioint venture between Senegal and Kuwait. It has a share capital of CFAF 1 billion owned by the Senegalese Government (20%), a private Senegalese Investor (30%) and the Kuwait Foreign Trading and Contracting Company (KFTC) (50%). Although BSK was created as an investment/development bank, it is authorized to carry out commercial bank activities. In September 1975, BSK's sight deposits totaled CFAF 764 million and term deposits CFAF 1.1 billion. At that same time, BSK short-term loans outstanding amounted to CFAF 466 mil- lion. 2.49 So far, BSK has approved two medium-term loans; one of US$900,000 to a company that is to build an hotel in the Saint-Louis area. The loan which has an interest rate of LIBOR +- 3% was made for 10 years with a 3-year grace period. The other loan of CFAE' 1 billion with a 10-year maturity was made to a company that will operate in the industrial duty-free zone. - 13 - Commercial Banks 2.50 Senegalese commercial banks have used their short-term deposits predominantly for short-term lending; their medium-term lending has been financed by the small amount of term deposits attracted and more generally by rediscounting at the Central Bank. Because rediscounts up to a certain annual ceiling for each commercial bank, tended to be automatic until 1976, in depth project analyses were not normally required and consequently the commercial banks have only limited project appraisal capabilities (see para. 2.43). 2.51 Union Senegalaise de Banque pour le Commerce et l'Industrie (USB). USB, was established in 1961 to take over Credit Lyonnais' activities in Senegal. Its share capital of CFAF 1 billion is distributed among the Government (32% directly and 19% held by BNDS), Credit Lyonnais (37%) and three German, Italian and US banks (about 4% each). As of September 30, 1975 sight deposits at USB amounted to CFAF 10.8 billion and term deposits CFAF 2.3 billion. At that same time its short-term loans outstanding totaled CFAF 10.9 billion while medium- and long-term loans amounted to CFAF 804 million. 2.52 USB was granted two lines of credit from KfW (CFAF 300 million) and the African Development Bank (CFAF 400 million) to finance small- and medium-size projects in industry and services. USB has had difficulties in utilizing these lines of credit. 2.53 Banque Internationale pour le Commerce et l'Industrie du Senegal (BICIS). With a share capital of CFAF 750 million, BICIS is 37% owned by the French Banque Nationale de Paris (BNP) and 51% by Societe Financiere pour les Pays d'Outre-Mer (SFOM) which has among its shareholders BNP, Bank of America, Banque Lambert, Dresdner Bank and Banca d'America e d'Italia. Private Senegalese shareholders own the remaining 12%. As of September 30, 1975, BICIS sight deposits amounted to about CFAF 11.5 billion while term deposits were CFAF 2.2 billion. At the same time its short-term loans outstanding amounted to CFAF 9.7 billion while medium- and long-term loans were CFAF 2.2 billion. 2.54 Societe Generale de Banques au Senegal (SGBS). SGBS is a subsi- diary of French Societe Generale. It has a share capital of CFAF 825 million, 10% of which is owned by private Senegalese investors. As of September 30, 1975, sight deposits at SGBS amounted to CFAF 9.8 billion and term deposits were CFAF 1.6 billion. At that same time total loans outstanding amounted to CFAF 11.2 billion. 2.55 Banque Internationale pour l'Afrique Occidentale (BIAO). With a share capital of CFAF 66 million BIAO is owned by First National City Bank (49%) and the French Compagnie Financiere France Afrique. As of June 30, 1976, sight deposits at BIAO amounted to CFAF 9.7 billion and term deposits were CFAF 3.3 billion. At that same time, short-term loans amounted to CFAF 11.4 billion while medium- and long-term loans were CFAF 1.2 billion. - 14 - Financial/Promotional Institutions 2.56 These institutions are the Societe Nationale d'Etudes et de Promotion Industrielle (SONEPI), the Societe Nationale de Garantie et d'Assistance au Commerce (SONAGA) and the Societe Nationale de Promotion du Tourisme (SNPT). 2.57 The Societe Nationale d'Etudes et de Promotion Industrielle (SONEPI). SONEPI was established in 1969 as a predominantly public cor- poration with a share capital of CFAF 55 million of which the Government has 24%, BNDS 23%, the Central Bank 18%, USB 4%, and the other commercial banks 2% each; the remaining 25% is evenly distributed among seventy com- panies established in Senegal. SONEPI's primary objective is the develop- ment of small- and medium-scale industrial enterprises controlled by Sene- galese. To this end, SONEPI makes feasibility studies of selected indus- trial projects, seeks Senegalese investors to sponsor feasible projects it has identified, and assists them in project development, organization and management, improvement in methods of production and in providing finance and acts as technical counselor of the Government for policies regarding Senegalese entrepreneurship. SONEPI has also been used by the Government to analyse industrial projects applying for incentives under the Investment Code. 2.58 Assistance to Small Senegalese Enterprises. SONEPI's assistance has been given in the three following forms: (a) Equity Participations and Guarantees. To ease difficulties for small Senegalese enterprises to have access to credit from commercial banks SONEPI was endowed at the end of 1970 by FAC, Caisse Centrale and the Government with two funds totaling CFAF 50 million: an "equity participation fund" and a "guarantee fund". This amount was subsequently in- creased to CFAF 100 million of which CFAF 75 million for the participation fund and CFAF 25 million for the guaran- tee fund. These funds are almost fully committed. KfW is in the process of making CFAF 85 million available for the participation fund. (b) Management Training. SONEPI's role in training Senegalese entrepreneurs is particularly interesting. A specific de- partment with five professionals under the guidance of a UNIDO expert gives technical assistance to about sixty en- terprises; special training courses of ten weekly morning or evening sessions are also organized for entrepreneurs in order to give them an elementary knowledge of business management, including shop organization, bookkeeping, and calculation of costs. All applicants for equity participa- tions and guarantees from SONEPI must enroll in these courses. - 15 - (c) Industrial Estates for Small-scale Industry. SONEPI has so far created a small industrial estate in Thies where ten small enterprises are now established. These com- panies have experienced difficulties, mainly because of lack of continuous assistance but they are now improving. Another industrial estate is to be created soon in Dakar, to be followed by one in Kaolack. The objective is to have an industrial zone in each regional capital before 1980. 2.59 Other Institutions. Two other institutions were created by the Government: (a) Societe Nationale de Garantie et d'Assistance au Commerce (SONAGA) which gives accounting assistance and manages a guarantee fund for loans to Senegalese-owned commercial and transport enterprises; and (b) Societe Nationale de Promotion de Tourisme (SNPT) which manages the port- folio of Government's minority participations in hotel companies in Senegal, and undertakes feasibility studies of hotel projects. 2.60 In order to learn more about the Small Scale Entreprise sector in Senegal, and in particular about firms in the informal artisanal sub- sector, the loan to SOFISEDIT includes $200,000 for assistance to SONEPI to develop for the future an integrated scheme for assisting small scale Senegalese entrepreneurs. With the advice and assistance of the IBRD the resources will be used by SONEPI to: (1) consolidate and evaluate the re- sults of ongoing statistical studies of the small scale sector being carried out by ILO and the Government; (2) draw up alternative methods to meet the financial and technical assistance needs of local entrepreneurs; (3) design and test Et small pilot project to deliver in a controlled environment the necessary inputs. Given the work in progress in Senegal, the Bank and SONEPI estimate that a study/pilot project, as described above and lasting two years can be implemented for CFAF 60 million. The Bank will finance about three quarters of this amount (i.e. $200,000) with the remaining CFAF 15 million borne by the Government. The Bank contribution will be passed on by SOFISEDIT to SONEPI with the Government responsible for the commitment fee, interest and principal repayment. III. THE COMPANY Background 3.01 SOFISEDIT was created by the Government of Senegal in March 1974 to provide term financing for industry and tourism development. The World Bank Group assisted the Government in establishing the new institution: IFC made an equity investment of about US$230,000 and the Bank granted a US$3 million loan during that same year. To recruit the initial staff and to find office space took several months and the company did not start operations until November 1974. - 16 - Ownership 3.02 SOFISEDIT has an authorized share capital of CFAF 650 million (approximately US$3 million) subscribed by the Government of Senegal and Senegalese public sector institutions (34%), the Banque Centrale des.Etats de l'Afrique de l'Ouest (12%), three private commercial banks operating in Senegal (7.7% each), Caisse Centrale, DEG and IFC (7.7% each), private Senegalese investors (6%) and Fidelity Bank (1.5%). A list of current share- holders is provided in Annex 1. Board of Directors 3.03 The Board consists of twelve members listed in Annex 2. The Chairman of the Board Mr. Ibrahima Nldiaye, is also SOFISEDIT's President and Director General. He was selected by the Senegalese Government. Directors represent the Central Bank, the Ministries of Finance and of Planning, IFC, DEG and CCCE, the four commercial banks, and BNDS. The Board meets four times a year and reviews all projects. Management 3.04 Mr. Ndiaye, SOFISEDIT's President and Director General was pre- viously head of the Office of Post and Telecommunications in Senegal. The Deputy Director General, Mr. Mombru, is a member of the Bank DFC Department originally seconded to SOFISEDIT for a two-year term. The Director of Invest- ment, Mr. Jetha, had been recruited by the Bank for that specific assignment also for a two-year term. Messrs. Mombru and Jetha have contributed signifi- cantly to the good start made by SOFISEDIT. At the request of SOFISEDIT and the Government, their secondment which was due to expire in mid-1976 has been extended by one year to mid-1977 so that they can continue the training and development of the staff. Organization and Staff 3.05 SOFISEDIT's staff totals twenty-one of whom three are managers and six professionals. SOFISEDIT's organization chart is attached as Annex 3. It includes an Investment D)epartment, headed by Mr. Jetha, in charge of project appraisal, implementation and follow-up, and an Adminis- trative Services/Accounting Department supervised by the Deputy Director General. The Investment Department iincludes two economists, two financial analysts and one engineer. The Administrative Services/Accounting Depart- ment includes one accountant and one assistant accountant. The existing staffing and organization is adequate for the expected level of operations until 1979. Policy Statement 3.06 SOFISEDIT's policy statement attached as Annex 4 was prepared with the Bank Group's assistance. It limits the normal company's finan- cial commitment (loans and participations) in favor of a single enterprise - 17 - to 20% of the company's paid-up share capital and reserves. Moreover, SOFISEDIT's participation in the share capital of a single enterprise does not normally exceed 15% of the company's own share capital and reserves and total investments in the form of equity participation may not exceed 75% of the company's share capital and reserves. Interest Rates 3.07 Rates charged by SOFISEDIT on loans for industry and tourism vary between 11 and 13 percent for medium-term loans, the average rate being at 12%. For long-term loans the rate was raised to 12% in June 1976. To these are added a commitment charge of 0.85% on the undisbursed portion of the loan. The Government has assumed the foreign exchange risk on the first World Bank Loan to SOFISEDIT which so far has been the only foreign borrowing, and will also assurme it under the proposed second loan. Procedures 3.08 SOFISEDIT's procedures for project appraisal, procurement and dis- bursement have been spelled out in writing and are part of the Company's Operational Manual. They are detailed and quite adequate. Procedures for follow-up are in the process of being prepared. The manual also includes internal accounting procedures. 3.09 (a) Appraisals. SOFISEDIT's project appraisals are of a very good quality. This has been one of the main factors that has permitted the company to make a good start and to be recognized as a sound institution by the Senegalese Government, and the banking and business community. 3.10 (b) Follow-up. SOFISEDIT's portfolio consists of projects under construction or projects which have only recently become operational. SOFISEDIT visits its projects regularly and the promoter is required to keep the company informed of the status of project implementation. 3.11 (c) Procurement and Disbursement. Although SOFISEDIT does not usually require competitive bidding, the project promoters are requested to solicit offers from various suppliers from which the company and the pro- moter select the most favorable. Before SOFISEDIT disburses its financing, it requires that the promoter first pays its share of the investment. Funds are then disbursed against presentation of invoices. Promotional Activities 3.12 Since it started operating at the end of 1974 SOFISEDIT has con- centrated in appraising projects that were already at fairly advanced stages of preparation. Consequently, it did not have the time nor felt the need to be actively engaged in promotional activities. The situation is already somewhat different and the need for devoting staff resources to these activi- ties is starting to be felt. SOFISEDIT's management has prepared and submitted - 18 - to the Bank a program of promotional activities which will be partly oriented toward small-scale enterprises. Auditors 3.13 SOFISEDIT's accounts are presently being reviewed and audited by Fiduciaire France-Afrique, a leading audit firm in Senegal. The quality of the first audit that was related to the accounts of the company as of September 30, 1975 is satisfactory. IV. OPERATIONS AND FINANCE Operations 4.01 From inception to June 30, 1976, SOFISEDIT has approved nineteen loans totalling CFAF 1,361 million and five equity investments totaling CFAF 86.5 million. At the same date, loans totalling CFAF 503 million had been committed and CFAF 341.2 million disbursed whilst equity investments totaling CFAF 78.5 million had been committed and CFAF 61.9 million disbursed. 4.02 Annexes 5 to 8 provide details on the projects including overall financing plans and economic rates of return. Sixty-eight percent of the projects' total costs are financed by loans, twenty-seven by equity and five percent by internal cash generation. SOFISEDIT loans approved represent approximately 42% of total lending and 28% of overall project costs. SOFISEDIT equity investments in the above projects amount to approximately 5% of total equity approved. Of the nineteen projects approved, thirteen are new proj- ects, five are for expansion of existing facilities and one is for moderniza- tion. Ten projects are in industry, seven in tourism, one in fisheries and one in mining. The projects range in size from total costs of CFAF 9 million to CFAF 725 million. 4.03 The nineteen projects will create 1,130 new jobs at an average cost/ job of US$19,000. The expected value added per year in production amounts to CFAF 2,222 million and the annual net gain in foreign exchange for Senegal is estimated at CFAF 1,769 million. Economic rates of return of the projects financed range from 11% to 50%. The average maturity for medium-term loans is approximately seven years and for long-term loans ten years. 4.04 Under the first US$3 million Bank loan No. 987-SE, five projects have already been approved for a sum amounting to US$1,852,000. An amount of US$370,000 has been approved to partially finance the cost of the two expatriates currently working with SOFISEDIT (see Organization and Staff). The sum of US$502,000 was approved for the PSOA project which is a process to make chemical plaster from a phospho-gypsum by-product of a local fertil- izer manufacturing plant. PSOA's financial rate of return is forecast at 17% and the economic rate of return 23%. The third project for which a sum of - 19 - US$400,000 was approved is for a new 50 double room hotel being sponsored by a Senegalese majority-owned company which has a forecast financial and economic return of about 12%. The fourth project (US$305,000) is for the expansion of a brewery and soft drink factory. The projected economic rate of return is above 50%. The fifth project (US$275,000) concerns the expansion of a textile company using locally produced cotton. Forecast financial and economic rates of return are about 30%. A sixth project (US$530,000) in the hotel sector is under review. Financial Performance and Position 4.05 Annexes 9 and 10 show SOFISEDIT's Balance Sheets and Income State- ments as of September 30, 1975 and June 30, 1976. The accounts for the first eighteen months of operations (March 1974 to September 30, 1975) show a loss of CFAF 2.5 million which was mainly due to high personnel costs being incurred. Professional staff members were more than required by the level of operations; however, no further professional staff are expected to be hired until 1979. Also, inflation in Senegal in 1974 of approximately 25% resulted in SOFISEDIT having to increase salaries significantly to remain competitive with other institutions. Personnel costs represented 60% of the total costs of CFAF 58 million during this start up period. A further CFAF 16 million was spent on fixtures and the fitting out of SOFISEDIT's offices. Financial costs during this period amounted to only CFAF 0.5 million due to the limited use of debt to finance the operations. 4.06 For the period October 1, 1975 to June 30, 1976 the accounts show a further loss of CFAF 15 million, mainly due to continuing high personnel costs. Income from loans increased significantly during that period and accounted for 55% of income versus 4% during the preceding eighteen-months period. 4.07 As of June 30, 1976 SOFISEDIT is in a creditworthy position, with a net working capital of approximately CFAF 342 million. With the portfolio being still small the debt/equity ratio of SOFISEDIT is insignificant. Portfolio 4.08 The projects in the portfolio are either under construction or just beginning operations and as a consequence, it is too early to evaluate their performance. As of June 1976, there was no evidence to indicate any of the projects might encounter serious problems in the near future, and as a consequence, therefore, no provisions have been made. Resources 4.09 SOFISEDIT's resources as of June 30, 1976 totaled CFAF 1,202 million (US$5.3 million) (Annex 11). They were CFAF 610 million equity subscription of which CFAF 100 million was subscribed in foreign exchange and the first Bank loan of US$3 million. At that date, the company had used CFAF 482 million for loans, equity investments and fixed assets and committed CFAF 178.5 million. Resources available for commitments amounted to CFAF 541.2 million (US2.4 million) of which CFAF 371.8 million (US$1.6 million) in foreign exchange. - 20 - V. PROSPECTS Business Outlook 5.01 The business climate prevailing in Senegal is conducive to indus- trial investments. The country's political stability, the Government's encouragement of private investments, substantial incentives for foreign and local investors have been and will probably continue to be favorable factors. Serious efforts are being made to encourage the development of export-oriented industries as evidenced by the creation of the Industrial Duty Free Zone. As the production cost level is high and the exchange rate is tied to the French Franc, the development of these industries can be stimulated only by special incentives which the Government is considering. Other constraints that may affect the growth of the industrial sector in coming years include Senegal's extreme dependence on groundnut production which results in wide fluctuations in the level of domestic demand, the narrowness of the domestic market and the shortage of technical and managerial skills. 5.02 Developments on the international economic scene have had both favorable and unfavorable impacts on Senegal's economy; in 1974 higher costs of imports were counterbalanced by a sizeable increase in the prices of phosphates and groundnuts. However, the recent decline in the world prices for these commodities has created problems for the Government. The longer term prospects for the Senegalese economy are good. 5.03 Forecast industrial and tourism investments for the period 1976-1980 and the expected financing to be provided by SOFISEDIT are as follows: /I /2 Forecast Investments (1976-1980) SOFISEDIT's Financing (CFAF million) /3 Amount % of Total Industry Tourism Total (CFAF million) Investments 1974/75 6,089 4,660 10,749 242 2.25 1975/76 8,298 7,191 15,489 658 4.25 1976/77 7,361 8,455 15,816 1,032 6.52 1977/78 8,465 9,131 17,596 1,199 6.81 1978/79 9,735 9,861 19,596 1,365 6.97 1979/80 11,195 10,650 21,845 1,624 7,43 /1 Revised projections of the Fourth Development Plan through 1976/77. The industrial investment increases by 15% per annum and investment tourism increases by 8% per annum through 1979/80. /2 Disbursements on loans and equity investments. /3 Includes manufacturing, mining, construction materials. - 21 - 5.04 SOFISEDIT's contribution to the development of industry and tourism is expected to increase gradually between 1974/75 and 1979/80. 5.05 Industrial activities that are expected to expand in coming years include mining, textile and construction materials, fish canning, metal products and machinery. In order to be successful most important industrial investments would have to be export-oriented. The Company's Strategy 5.06 The major constraints that SOFISEDIT is facing in its role of devel- opment bank are basically those faced by the industrial sector itself. The major obstacles include the shortage of qualified local entrepreneurs aggra- vated by an absence of capital accumulation by interested project promoters. The result is that the sector continues to be dominated by foreigners and that the development of a Senegalese industrial base is very difficult to achieve. 5.07 In view of the above constraint SOFISEDIT's strategy, as outlined in a document submitted to the Bank, will include assistance to Senegalese entrepreneurs where appropriate during project preparation and through the financing of projects. The time and effort expanded by SOFISEDIT at present in assisting particularly the smaller Senegalese entrepreneurs should be care- fully weighed against the need for SOFISEDIT to quickly build up its portfolio and achieve profitability. SOFISEDIT will also carefully coordinate its assistance to Senegalese entrepreneurs with SONEPI (see paras. 2.58, 2.59 and 2.60). 5.08 SOFISEDIT's strategy should also include the continuing develop- ment of its relations with the business community and other financial insti- tutions, so that SOFISEDIT may actively promote projects and mobilize local savings into productive investments. SOFISEDIT should continue to actively seek and develop relationships with alternative sources of foreign exchange to the Bank (para. 5.12). Internally SOFISEDIT must continue to expand the development finance expertise of its staff. Forecast Operations 5.09 As of June 30, 1976 SOFISEDIT had a pipeline of twenty projects under study amounting to a total investment of CFAF 6.1 billion. These are presented in Annex 12. The potential SOFISEDIT investment in these projects amounted to CFAF 1.5 billion in medium- and long-term loans and CFAF 96 mil- lion in equity investments. Five of the projects requiring a total invest- ment of CFAF 2.5 billion are for tourism; the remainder include projects in the chemical, textile, fishing, leather and food industries. Fifteen of the projects will have Senegalese majority ownership. Four of the projects are in the small-and medium-scale range requiring individual total investments of less than CFAF 100 million. Only four of the projects are expansions of existing business. There is another pipeline of projects presented in Annex 13 which might be financed by SOFISEDIT during the period 1977-1980; it in- cludes 34 projects involving a total investment of CFAF 14.6 billion. The - 22 - possible investment by SOFISEDIT in these projects amounts to CFAF 3 billion in loans and CFAF 200 million in equity investments. If these investments materialize, SOFISEDIT will have rapidly developed its position as a major source of term finance to the industrial and tourism sectors of Senegal. Resource Requirements 5.10 Assumptions for SOFISEDIT's forecast requirements are shown in Annex 14, while Annexes 15 to 19 show SOFISEDIT's operations and financial performance through September 30, 1980. 5.11 SOFISEDIT's existing sources of foreign exchange as of June 1976, to finance long-term loans, amounted to CFAF 692 million and included a CFAF 100 million foreign exchange equity subscription plus the first Bank loan of CFAF 592 million. SOFISEDIT's long-term lending requirements based on commitments, from inception to December 31, 1978 amount to CFAF 1,996 million. SOFISEDIT's existing resources will last until approximately December 1976 and thereafter there will be a resource gap of US$5.9 million to December 31, 1978. Of the proposed Bank loan, US$4 million would meet approximately two-thirds of SOFISEDIT's long-term foreign exchange resource gap to December 31, 1978, and a third will have to come from other sources. 5.12 SOFISEDIT has made some progress in seeking alternative external sources of funds other than the Bank and BCEAO. It has approached BOAD and EIB and both institutions have reacted favorably to its request. They have in principle accepted to provide financial assistance to SOFISEDIT in a near future. KfW is also considering a loan to SOFISEDIT to finance small entre- preneurs in an industrial estate to be created in Dakar. Long-Term Interest Rates and Foreign Exchange Risk 5.13 Up to June 1976, SOFISEDIT charged an interest rate of 10.5% plus commitment fee of 0.85% on long-term loans to the industrial and tourism sectors with the Government carrying the foreign exchange risk. This rate was inconsistent with prevailing medium- and long-term rates, and therefore SOFISEDIT increased its long-term interest rate to 12% (plus a commitment fee of 0.85%) on the following grounds: (a) Comparison vis-a-vis Medium-Term Discount Rates. In Senegal tourism projects tend to require funds for more than 15 years whereas many of the indus- trial projects require funds for 8-12 years. For industrial clients requiring 10-12 year money it is important that the long-term rates be consistent with the medium-term discount rates so that indus- trial investors are not deterred by too high long- term interest rate into seeking discounted funds up to ten years from the Central Bank on unrealis- tically tight debt service coverage ratios. In - 23 - fact 12% should not impair SOFISEDIT's competitive position with these industrial investors. Also, in recent instances where commercial banks have been refused discounts by the Central Bank for clients who would have been charged 11% on such funds, they have increased the rate to between 12% and the maxi- mum 13%, when required to use their own funds. (b) Long-Term Finance Market. The competition to SOFISEDIT in the long-term finance market is begin- ning to increase. BSK has recently provided long- term Eurodollar financing on two tourism projects at a floating rate of LIBOR plus 2-3% with the foreign exchange risk being passed on. FNCB has recently entered the market to offer similar long- term Eurodollar financing. The LIBOR rate has varied rapidly between 7.0% and 13.75% over the last two years. Two other banks offering long-term foreign exchange funds are believed to be considering enter- ing the Senegalese market. At 10.5% SOFISEDIT was offering term resources at a little below market levels; however at 12% SOFISEDIT's long-term rate should be competitive over the life of the loans, with rates offered from Eurodollar sources. (c) Inflation - Real Rate of Return. The Bank's general assessment of inflation for the period 1975-1980 is about 7.5%-8%. The new 12% interest rate would therefore provide a significant positive real rate of interest. (d) SOFISEDIT's Profitability. The SOFISEDIT Forecast Profit and Loss Statement (Annex 16) indicates that even by applying a 12% interest rate plus 0.85% commitment fee from June 1976, the institution will not become profitable until 1977 and not cover start up losses until 1978. Given the increase in the cost of Bank loans from 7.25% to 8.90%, it was neces- sary to raise the lending rate to 12% to maintain a spread similar to that under the first loan. 5.14 In line with Central Bank policy of granting lower discount rates on short-and medium-funds to SSEs, SOFISEDIT intends to continue charging a preferential rate of 11% for long-term funds to small-scale Senegalese enterprises. 5.15 The foreign exchange risk on the first Bank Loan to SOFISEDIT was borne by the Government. For the proposed second Loan, in view of industrial investors' very limited experience of the risks involved in borrowing foreign - 24 - exchange and the possible adverse influence on SOFISEDIT's operations of pass- ing the risk on Bank funds to SOFISEDIT's borrowers, the Government proposes to continue bearing the risk. Forecast Financial Results 5.16 The forecasts show SOFISEDIT losses increasing to CFAF 20 million in 1976 before recovering to a small CFAF 2 million net profit in 1977; thereafter net profits should show a steady growth, reaching CFAF 144 mil- lion by 1980. These start-up losses are not large enough to significantly reduce the equity base of SOFISEDIT or seriously impair the financial sound- ness of the institution. The net profit rises from 0.1% of average total assets in 1977 to 2.9% in 1980 whilst over the same period net profit on average net work, rises from 0.3% to a satisfactory 9.9%. The forecast profitability of SOFISEDIT through 1978 will be lower than that forecast in the initial appraisal report. This is mainly due to the high personnel and administrative costs being incurred by SOFISEDIT in the initial years of operation (see para. 4.05). In 1976 administrative expenses are at the very high level of 8.7% of average total assets but are forecast to fall to 1.8% by 1980. 5.17 Present projections of the Company's financial performance indicate that SOFISEDIT will exhaust its debt capacity in FY 78, under the existing debt/equity limit of 3.1, at a time when it will have only just become prof- itable. In order for SOFISEDIT to continue to expand its operations there- after, either its paid-in share capiltal will have to be increased or its debt/equity limit raised. If the shareholders, in particular the Senegalese Government, are ready to finance a share capital increase during FY 78, it will not be necessary to increase the debt limit at that time. However, the projections in the Appraisal Report conservatively assume that shareholders will require SOFISEDIT to operate profitably for two successive years (FY 77 and 78) before subscribing to a major share capital increase. This issue was discussed with SOFISEDIT's management: and the Bank agreed to temporarily raise SOFISEDIT's debt/equity limit to 4:1 between October 1, 1977 and June 30, 1979 to allow operations to expand. SOFISEDIT's management agreed to the principle of a share capital increase, the amotnt and timing of which would be determined on the basis of the FY 78 accounts. 5.18 The debt service coverage of SOFISEDIT remains tight throughout the projection period, reaching only 1.5 by 1980. Both the Central Bank and World Bank will be expecting repayments of funds on collection. Failures to collect loans on due dates could result in a liquidity squeeze for SOFISEDIT as the limited working capital now allowed by the Central Bank before discounting re- duces SOFISEDIT's ability to cover non-payment of loans from current assets; however, having required banks to use! their short-term liquidity before redis- counting, it is probable that BCEAO will be flexible on repayment deferral requests. - 25 - VI. CONCLUSIONS AND RECOMMENDATIONS Conclusions 6.01 After a slow start due to difficulties in finding appropriate staff and adequate office space SOFISEDIT is now in the process of establi- shing itself as an important factor on the financial scene in Senegal. It now has a nucleus of qualified and motivated staff and the quality of its appraisal reports has been noticed both by the banking community and Govern- ment officials. It has developed very good relations with the Government. 6.02 There is still room for developing closer contacts with the Senegalese business community in order to be more aware of their needs and look for imaginative solutions to their problems. The promotion function needs to be systematized and developed, and appropriate measures are being taken to that effect. 6.03 Three factors enhance SOFISEDIT's potential role. Firstly, as a source of long-term finance (above ten years) SOFISEDIT's fixed interest rate of 12% should be competitive over the life of the loan, with insti- tutions offering floating Eurodollar based rates. Secondly, SOFISEDIT offers a project appraisal expertise superior to that available from other financial institutions. Through such appraisals SOFISEDIT should be able to clearly demonstrate the financial and economic viability of projects and thereby enhance the probability of a project receiving rediscounted funds from the Central Bank under the new procedures. Thirdly, the removal of automatic rediscounting could deter commercial banks from considering projects requiring term finance of up to ten years; this should increase the demand for such term funds from SOFISEDIT. Thus SOFISEDIT's operations are expected to develop substantially over the next five years. Although due to high initial overheads, SOFISEDIT will not reach profitability until 1977, the institution is financially sound. Thereafter, the earniags poten- tial is attractive. Recommendations 6.04 A second loan of US$4.2 million is recommended to meet approximately two thirds of SOFISEDIT's needs in foreign exchange for financing of enter- prises in industry and tourism, and provide $200,000 for assistance to SONEPI to develop an integrated scheme for assisting small-scale Senegalese entre- preneurs. The loan would finance the CIF cost of imported goods, the foreign costs of services and the foreign component of civil works. The foreign exchange risk, on Bank funds would be borne by the Government. The free limit would be raised from $100,000 to $250,000 in recognition of the progress made in SOFISEDIT's appraisal capabilities. The aggregate free limit would be increased from $600,000 to $1.5 million. - 26 - 6.05 During negotiations, agreement was reached and assurances were obtained on the following main points: (i) the foreign exchange risk to be borne by the Govern- ment on all sub-loans and iinvestments made by SOFISEDIT (para. 5.15); (ii) SOFISEDIT efforts to find alternative sources of foreign exchange (para. 5.12); (iii) the need and the timing of a major increase in SOFISEDIT's paid-up share capital (para. 5.17). (iv) the Government will bear the foreign exchange risks and the total financial charges relating to the US$200,000 to be used by SONEPI (para. 2.60). ANNEX 1 SOFISEDIT List of Shareholders (As of June 30, 1976) Millions % of of CFAF Capital Government of Senegal 120 18.5 Banque Nationale de D6veloppement du Sen6gal (BNDS) 50 7.7 Union Senegalaise de Banque pour le Commerce et l'Industrie (USBCI) 50 7.7 Banque Centrale des Etats de l'Afrique de l'Ouest (BCEAO) 80 12.3 Banque Internationale pour ltAfrique Occidentale (BIAO) 50 7.7 Banque Internationale pour le Commerce et l'Industrie du Senegal (BICIS) 50 7.7 Societe Generale de Banques au Senegal (SGBS) 50 7.7 International Finance Corporation (IFC) 50 7.7 Caisse Centrale de Cooperation Economique (CCCE) 50 7.7 Deutsche Ehtwicklungsgesellschaft (DEG) 50 7.7 Fidelity International Bank 10 1.5 Private Senegalese Investors 40 6.1 650 100.0 DFCD August 1976 ANNEX 2 SOFISEDIT Board of I)irectors (As of June 30, 1976) Chairman: Mr. Ibrahima Ndiaye, SOFISEDITT's President and Director General Members: Messrs. Mamadou Mousta.pha M'Bengue, Ministry of Finance Moustapha Ndiaye Ministry of Planning Famara Ibrahima Sagna BNDS Amadou Sow USBCI Ady Niang BCEAO Joseph Paolini, CCCE Majib NtDaw BIAO Pierre Vial Mcontpellier SGBS Frangois Chastang BICIS Georg Heuss DEG Not nominated IFC Observer: Faly BA SONEPI DFCD August 1976 ANNEX 3 SOFISEDIT Organization Chart (As of June 30, 1976) President and Director General I. Ndiave Deputy Director General J. L. Mombru __I Administrative Director of Services/Accounting Investments I. Jetha Staff - Managerial = 3 Technical Economic [Tinancial - Professional = 6 Stud ies St es Studies - General Services = 2 - Secretarial = 3 - Other = 7 Total 21 DFCD August 1976 ANNEX 4 Page 1 SOFISEDIT STATEMENT OF GENERAL POLICY 1. OBJECTIVES AND OPERATIONAL CRITERIA 1. The company will assist in the development of soundly managed enterprises in Senegal in all the productive sectors of the economy, includ- ing tourism, mining, agro-industries, services and engineering. The company will not, however, engage in financing projects concerned exclusively with agriculture production or housing. 2. The company will extend its assistance on the basis of economic and financial criteria only. Enterprises that submit projects to the company shall be required to have efficient management, be technically sound, have satisfactory market prospects for their production, be able to generate an adequate financial return on the investment and generally to contribute to the economic growth of the country in accordance with the objectives of the Governments Development Plan. 3. The company will extend all kinds of assistance, financial and other. The company will invest in the capital of enterprises and will subscribe to issues of shares and other securities; it will endeavor to assist in broadening the ownership bases of industry in Senegal by assisting in public share issues. It will grant medium- and long-term loans, for periods depending on the type of project involved, with an appropriate grace period. The company may also furnish guarantees. It will not engage in refinancing operations. II. INVESTMENT POLICY 4. The company's assistance in the form of loans or participations or both forms combined may not normally amount to less than CFAF 2 million. 5. The total amount of loans granted by the company together with its participations and any other commitments of a financial nature in favor of a single enterprise will not normally exceed 20% of the company's paid-up share capital and reserves. 6. The company's total investments in the form of equity participa- tions may not exceed 75% of the company's share of capital and reserves. 7. As a general rule the company will limit its equity participation in any one enterprise to a maximum of 15% of its own share capital and reserves. ANNEX 4 Page 2 8. Generally, the company will not assume managerial responsibilities in enterprises it assists and will limit its share participations to 25% of the share capital of any given enterprise. It may, however, by unanimous decision of the Board, 'exceed this percentage and even assume managerial responsibility if this is justified by the circumstances or the nature of the enterprise. 9. When deciding upon the amount and form of financial assistance it will provide, the company will take into account all the financial requirements of the project and the financial situation of the enterprise in question. In principle, the company will not finance more than 50% of the total cost of the project. It may, however, exceed this limit if there is special justification, such as in the case of an expansion project. 10. The company will endeavor to maintain a balanced portfolio by distributing its loans, participations and other commitments geographically and amongst all the sectors of industrial and economic activity within the range of its objectives. III. FINANCIAL POLICY 11. The general aim of the company's financial policy is to maintain the value of its own capital, to manage its funds in such a way that it is at all times able to meet its obligations and to achieve earnings that enables it to form adequate reserves and distribute reasonable dividends to its shareholders. To this end the company will: - maintain a satisfactory balance between the maturities of its own obligations and those of the loans it grants; - not incur debt having an original maturity of more than one year, in excess of the limits imposed by the Banking regulations; - take adequate steps to protect itself from exchange risks in respect of those of its borrowings that are repayable in foreign currencies; - require appropriate security for the loans and guarantees it grants; - fix its interest rates, commissions and other charges at a level that reflects the cost of capital in Senegal and that will enable it to obtain a satisfactory return; - make adequate provisions against potential losses and build up reserves to a level consistent with sound financial practices, taking into account the size and quality of its portfolio of loans and investments as well as the need to pay adequate dividends to its shareholders. ANNEX 4 Page 3 IV. ORGANIZATION 12. The company will strive to develop and maintain a solid and well- balanced organization with qualified mianagement. It will give special and continuous attention to the training of its professional staff both locally and abroad. 13. The company will supervise the execution of projects it finances so as to protect its interests and to assist in the execution to the maximum extent possible. 14. The company's own accounts will be kept in accordance with gen- erally accepted international accounting principles. The company will en- gage the services of an independent firm of professional and independent auditors to audit its annual accounts. DFCD August 1976 ANNL_X 5 SOFISEDIT l/ Loans Approved as of June 30. 1976 (CFAF million) Distribution of 21 New Total Amount of Share Capital % Name of Date of Project or Project Sofisedit Loan 3/ Interest Senegalese Borrower Approval Activity Expansion Location Cost Approved Outstanding M aturity Rate Sofisedit Private Govt. (years) Trefileries de Dakar 3/10/75 Metallic Industry New Cap Vert 725.0 80.0 80.0 5 8.00% 85.o 15.0 - - Hotel Lagon SIHICA 3/10/75 Tourism New Cap Vert 265.0 50.0 31.2 7 8.00% 99.9 - 0.1 - PSOA 3/10/75 Constructi-n Materials New Cap V-rt 385.0 120.0 100.0 5 & 10 12.25% 80.0 - 20.0 - 10.50% Touring-Senegal 3/10/75 Tourism New Casamanco 377.0 120.0 120.0 7 & 10 13.75% 84.0 - 16.0 - 10. 50% SENSCIE 8/22/75 Construction Materials New Cap Vert 79.3 10.0 10.0 5 8.00% 23.5 - 76.5 - SOPESINE 8/22/75 Fishery New Saloum 460.0 86.0 - 6 13.75% 51.0 9.5 39.5 - SNPT (N'Dangane) 8/22/75 Tourism New Saloum 380.0 90.0 - 7 12.00% - - - 100 SNPT (M'Boro) 8/22/75 Tourism Remodeled Thies 55.0 18.0 - 7 12.00% - - - 10 PINSER 8/22/75 Industry New Cap Vert 32.5 15.0 - 7 10.50% 10.0 - 90.0 Relais Fleuri 1/29/76 Tourism Expansion Casamance 11.8 9.0 - 4 13.00% 100.0 - - Boulangerie (M'Bour) 1/29/76 Bakery Expansion thies 110.0 48.0 - 10 10.50% - 25.0 75.0 SOBOA 1/29/76 Food Expansion Cap Vert 204.5 70.0 - 5 11.00% 97.0 - 3.0 Carriere de DIACK 1/29/76 Mining New Thies 50.0 33.5 - 5 12.00% 49.0 - 51.0 SOCITOUR 4/15/76 Tourism New Casamance 442.0 120.0 - 13 10.50% 27.2 - 72.8 Eaux Minerales 4/15/76 Food New Thies 266.0 120.0 - 7 & 10 10 .50% 35.0 - 64.0 12.00% ISLIMA 4/15/76 Textiles Expansion Cap Vert 127.0 63.0 - 5 13.00% 65.0 - 35.0 SUN0DALL 4/15/76 Shoes New Cap Vert 188.0 78.0 - 7 12.00% 31.0 - 69.0 SICOPHAR 4/15/76 Textiles New Cap Vert 355.0 110.0 - 10 10.50% 21.7 6.9 71.3 Vacances Cap-Skirring 6/28/76 Tourism Expansion Casamance 350.0 120.0 - 6 12.00% 22.0 - 18.0 TOTAL 4,863.1 1,360.5 341.2 1/ April 1, 1974 to June 30, 1976. 2/ In chronological order of approval. 3/ Indicate maturity as it is in loan agreement. DFCD August 1976 ANNEX 6 SOFISEDIT 1/ Equity Investments asof June 30. 1976 (CFAF million) Distribution of 2/ New Total Sofisedit Share Capital Share Capital % Name of Date of Project or Project Equity Investment of the Senegalese Total Borrower Approval Activity Expansion Location Cost Approved Disbursed Enterprise Foreign Sofisedit Private Govt. Benefit Trefileries 3/10/75 Metallic New Cap Vert 725 37.5 37.5 250 85.0 15.0 - - 241 SOPESINE 8/12/75 Fishery New Saloum 460 19.0 19.0 200 51.0 9.5 39.5 - 181 Societe d'Amenage- ment de la Petite Cote 8/22/75 Tourism New Cap Vert - 15.0 3.7 150 - 10.0 - 90.0 - Boulangerie 1/29/76 Bakery Expansion Thies 110 7.0 1.7 28 - 25.0 75.0 - 205 SICOPHAR 4/15/76 Textiles New Cap Vert 355 8.0 - 115 21.7 6.9 71.3 - 43 TOTAL 1,650 86.5 61.9 1/ April 1, 1974 to June 30, 1976. 2/ In chronological order. DFCD August 1976 ANNEX 7 SOFISEDIT 1/ Financing Plans of Projects Approved as of June 30, 1976 (CFAF million) New Total Share Capital Borrowings Name of 2/ Project or Project Working Fixed Other Senegalese Self- Commercial Suppliers' Project Activity Expansion Cost Capital Assets Foreign Sofisedit Private Govt. Financing Sofisedit Banks Credit Other Trefileries de Dakar Metallic Industry New 725.0 58.0 667.0 212.5 37.5 - - - 80.0 315.0 - 80.0 Hotel Lagon SHICA Tourism New 265.0 5.0 260.0 54.9 - 0.1 - - 50.0 110.0 - 50.0 PSOA Construction Materials New 385.0 4.4 380.6 100.0 - 25.0 - - 120.0 140.0 - - Touring Senegal Tourism New 377.0 5.0 372.0 29.0 - 46.0 - - 120.0 117.0 - 65.0 SENSCIE Construction Materials New 79.3 6.0 73.3 4.7 - 15.3 - - 10.0 27.6 6.7 15.0 SOPESINE Fishery New 460.0 16.0 444.0 102.0 19.0 79.0 - - 86.0 114.0 60.0 - SNPT (N'Dangane) Tourism New 380.0 8.0 372.0 - - - 200.0 - 90.0 90.0 - SNPT (M'Boro) Tourism Remodeled 55.0 1.0 54.0 - - 19.0 - 18.0 18.0 PINSER Miscellaneous New 32.5 1.7 30.8 1.0 - 9.0 - - 15.0 7.5 Relais Fleuri Tourism Expansion 11.8 2.8 9.0 - - - - - 11.8 - Boulangerie (M'Bour) Bakery Expansion 110.0 2.0 108.0 - 7.0 21.0 - - 48.0 34.0 SOBOA Food Expansion 204.5 - 204.5 - - - - 104.5 70.0 30.0 Carriere de DIACK Mining New 50.0 - 50.0 - - - 16.5 33.5 - - SOCITOUR Tourism New 442.0 20.0 422.0 35.0 - 65.0 - - 120.0 189.4 - 32.6 Eaux Minerales Food New 266.0 7.0 259.0 25.2 - 44.8 - - 120.0 76.0 - ISLIMA Industry Expansion 127.0 13.0 114.0 - - - - 64.0 63.0 - SUNUDALL Industry New 188.0 24.0 164.0 15.5 - 34.5 - - 94.0 44.0 SICOPHAR Industry New 355.0 8.6 346.4 25.0 8.0 82.0 - - 110.0 130.0 - Vacances Cap-Skirring Tourism Expansion 350.0 - 350.0 - - - - 50.0 120.0 - - 180.0 TOTAL 4,863.1 182.5 4,680.6 604.8 71.5 421.7 219.0 235.0 1,379.3 1,442.5 66.7 422.6 1/ April 1, 1974 to June 30, 1976. 2/ In chronological order. DFCD August 1976 ANNEX 8 SOFISEDIT 1/ Economic Contribution of Projects Financed by Sofisedit as of June 30, 1976 Net Annual Net Annual Total Value Added Value Foreign Foreign New Number of of Annual of Annual Exchange 2/ Exchange 3/ Economic Name of Project of Fixed Assets jobs + Production + Production + Earnings+ Savings + Rate of Project Activity Expansion (CFAF million, created (CFAF million) (CFAF millicn) (CFAF million) (CFAF million) Return . Trefileries Metallic Industry New 667.0 97 1,137.0 332.3 - 687.6 45.0% Lagon SHICA Tourism New 260.0 57 90.0 65.3 74.0 - - PSOA Industry New 380.6 54 144.5 99.7 - - 23.6% Touring-Senegal Tourism New 372.0 50 167.2 94.7 155.6 - 11.2% SENSCIE Industry Expansion 73.3 34 412.6 48.3 - - - SOSEPINE Industry New 444.0 104 1,053.0 386.4 1,053.0 - 49.0% SNPT (N'Dangane) Tourism New 372.0 57 217.0 121.4 193.0 - - SNPT (M'Boro) Tourism Expansion 54.0 16 53.1 22.5 33.1 - - PINSER Industry New 30.8 23 32.4 19.2 19.0 - 38.0% Relais Fleuri Tourism Expansion 9.0 11 34.5 16.5 - - Boulangerie Industry Expansion 108.0 30 174.3 53.6 - - 49.6% SOBOA Industry Expansion 204.5 - - - - - 50.0U Carriere DIACK Industry New 50.0 83 281.0 73.1 - SOCITOUR Tourism New 422.0 60 302.9 140.3 240.9 - Eaux Minerales Food New 259.0 24 175.0 83.0 - 62.5 11.6% ISLIMA Textiles Expansion 114.0 44 370.7 139.4 - 370.7 30.0% SUNUDALL Caoutchouc New 164.0 141 808.7 145.9 - 333.5 - SICOPHAR Textiles New 346.4 24 238.0 139.0 - 55.0 25.0% Vacances Cap-Skirring Tourism Expansion 350.0 220 681.0 240.9 - 496.0 - TOTAL 4,680.6 1,129 6,372.9 2,221.6 1,768.6 2,005.3 1/ Results expected in third year of operations. 2/ Value of exports in F.O.B. prices less value, in C.I.F. prices, of raw materials imported tD manufacture exports. 3/ Value of production in C.I.F. import prices less value, in C.I.F. prices, of raw materials imported to produce goods and refund of foreign exchange borrowings. + When fully in operation. DFCD August 1976 ANITEX 9 SOFISEDIT Summarized Balance Sheets (CFAF million) 1/ 2/ 1975 1976 ASSETS Current assets 356.5 351.8 Portfolio (net) Loans 203.0 359.0 Equity investments 38.0 62.0 Total (net) 241.0 421.0 Technical Assistance Loan to Government 21.0 Fixed assets (net) 21.0 61.1 Total Assets 639.5 833.9 LIABILITIES Current liabilities 6.o 9.5 Borrowings IBRD 26.0 231.7 BCEAO Others Total Borrowings 26.0 231.7 Share capital 610.0 610.0 Reserves (2.5) (17.3) Total Equity 607.5 592.7 Total Liabilities 639.5 833.9 1/ As of September 30,1975. 2/ As of June 30, 1976. DFCD August 1976 ANNE X 10 SOF ISEDIT Summarized Income Statements CFAF million) 1975 / 1976 / DICOME Income from loans 2.2 21.4 Dividends _ _ Income on S/T investments 53.3 17.7 Total income 55.5 39.1 EXPENSES Borrowing cost 1.0 6.9 Personnel cost - 30.6 Administrator expenses 52.0 12.5 Depreciation - - Technical assistance 5.o 4.2 Total expenses 58.0 54.2 Profit (loss) before provisions (2.5) ( 15.1) Provisions 0 0 Net profit ( 15.1) 1_J April 1,1974 to September 30, 1975 2_J October 1, 1975 to June 30, 1976 DFCD August 1976. ANNEX 11 SOFISEDIT Resource Statement as of June 30, 1976 (CFAF million) OF WHICH TOTAL FOREIGN EXCHANGE RESOURCES Share capital (paid in) 610.0 100.0 Borrowings (net of cancellations and repayments): IBID 591.8 591.8 Total resources 1,201.8 691.8 USES Fixed assets 61.1 Loans outstanding 359.0 180.0 Equity investments (paid-out) 62.0 Total uses 482.1 180.0 Undisbursed commitments 178.5 140.0 Provisions for losees Total uses and commitments 660.6 320.0 Ressources available for commitments 541.2 371.8 1_J US $ 3,000,000 - 370,000 D 225 CFA/1$ = 591,750,000 CFAF DFCD August 1976. ANNEX 12 SOFISIDIT Projects Under Study as of June 30. 1976 New Total Projected Cost and Financing Name of Name of Project or Projected (CFAF million) Proiect Activity Promoter Expansion Cost Financed by: Majority Projected Dates Loans Capital (Senegalese) Approvals Beginning of Soflsedit Other Sofisedit Other or Foreign by Sofisedit Construction Hotel NINA Tourism Yaya Kane New 280 120 95.5 - 64.5 Senegalese September 76 Froid-TOUBA Cold Storage Alla SENE New 100 45 35.0 5 15.0 Senegalese September 76 End 76 ICOTAF Textiles ICOTAF Expansion 600 120 380.0 - 100.0 Foreign September 76 End 76 ISENCY Bicycles CFAO New 150 70 10.0 - 70.0 Foreign SENEPESCA Fishery Mr. SOW Expansion 50 50 - - - Senegalese Bougies Auto Miscellaneous YASBACK New 163 80 41.0 - 42.0 Senegalese POLYSEN Plastic Mr. N'DAO New 54 24 - - 30.0 Senegalese September 76 End 76 Eclair-Afrique Miscellaneous Mr. CISSE New 120 50 - 10 60.0 Senegalese Hotel DIAMA Tourism New 250 120 - - 130.0 Rubans Tresses Miscellaneous Mr. M'Baye New 25 11 7.5 1 5.5 Senegalese September 76 End 76 Stylos Billes Miscellaneous Mr. LOPIS New 77 35 18.0 - 24.0 Senegalese IPAFRIC Fishery Mr. DIAGNE New 900 70 350.0 50 430.0 Senegelese SOSEPREC Fishery SOSEPREC New 450 90 210.0 150.0 Senegalese Tannerie SERAS Leather SERAS New 455 120 180.0 - 155.0 Senegalese September 76 End 76 Domaine NIANING Tourism NIANING Expansion 150 50 70.0 30 - Foreign Hotel SORES Tourism SORES New 400 120 100.0 - 180.0 Senegalese BOUCOTTE Tourism DELMAS New 1,400 120 680.0 - 600.0 Senegalese Elevage Poulet Food New 100 50 17.0 - 33.0 Senegalese Crayons Bois Miscellaneous Government New 135 60 15.0 - 60.0 Senegalese September 76 End 76 SURGEL Fishery SURGEL Expansion 250 120 70.0 - 60.0 Foreign TOTAL 6,109 1,525 2,279.0 96 2,209.0 DFCD August 1976 ANNEX 13 SOFISEDIT Proiects Likely to be Financed by Sofisedit betneen 1977 and 1980 Probable Cost and Fi-sociog of Projects Probability of Likely Tsc,e uS Some of (CFAF million) Project Realisotien ypor of Project Activity Promoter Location Total FiPanoed by: and Fina.clog by I/ Approovl Cost iLosn Capital Sofisedit by Sofiedit Slfinedit Other Sofisedit Other S.l.E.S. Chemic.al Prod. Beron. Cap-Vert - - - 50 - 3 1977 Modo S.A. Teotile Van Gils Cap-Vert 700 120 280 - 300 2 1977 Disques Phtno Chemical Prod. Lo Cap-Vert 80 40 10 - 30 2 1977 Motel St-Loois Tourism Slne St-Lonic 80 30 - - 50 3 1977 Montage de pompon Mechbuics Somh L-oga 40 2 - - 2 1 1977 Sotiba Te-til, Cap-Vert - 120 - - - 3 1977 Fncus Chemical Prod. Cap-Vert - 120 - - - 3 1977 amido- (Maniac) Chemical Prod. Mbacke Top-Vert 120 50 30 10 3D 2 1977 Choo. Cm..tr:sotioc Mat. Mbakce Cap-Vert 70 35 5 - 33 2 1977 Peinture Chemicul Pred. Saec Cap-Vert 32 20 - - 12 3 1977 Tra6 ft ion fruits & legemes Food Dieye Cap-Vert 50 20 10 5 15 2 1977 B-ulamgerie Senegal Food Miscellaneous Senegal 180 70 65 20 25 3 1977-1978 M-uble- ou se-ri Weed BB.a CTp-Vert 100 50 15 - 35 4 1977 Isinr Tron-forms- tion urdores -eougerc I Chemical Prod. Soadip Kaolack 400 120 230 - 15D 1 1977 B-ouctte Tourism Usim Cosamonce 1,442 80 762 40 560 2 1978 lo de N'gr Tourist: Soadip Cop-ve-t 1,046 120 577 - 649 1 1978 Hotel KRUPP Tourism KRUPP Petite- Cote 1,300 120 180 - 1,000 2 1978 Hotel OPES Tourism SORES St-Loois 500 120 275 - 125 3 1978 Froid mie. Food M'baye Thies 75 30 10 7.5 22.5 3 1978 Froid Louga Food Diop Louga 21 10 5 - 6 1 1978 Froid K-alack Food Diakhate .aclack 52 20 12 5 15 1 1978 Froid K-l-ack 11 Food A.N'daw Kaolack 57 23 14 5 15 1 1978 Froid Tanba Food N'Diave Tombs 50 25 5 - 20 1 1978 Conserverie de Viande Food Seta Cap-VPet 60 30 5 - 25 4 1978 Consetre de Tomutee et de Jos do Fris F.Pood Sefa Fle-e 200 85 40 15 60 3 1978 Chaino frigo-tfi- q-e Mechanic S.onepi Cap-Vert 215 85 60 15 60 3 1978 Sac s do srande conteenacc Textile S-cenat Cap-Vert 210 100 40 - 7D 2 1978 Bougies Aoin Fleotriece Mat. Manutent.hAfritine Cop-Vert 225 110 40 - 75 2 1978 tiuo ordur-s nenugeres Chemical Pred. Soadip St-Lotis 400 120 230 - 150 1 1978 Hotel Petite-Cote Tourism Pagena Sali 1,200 120 780 - 300 3 1979 Yateriei Audio- Electre- Vi3-U1 mechanics - Petite-Core 800 90 460 30 220 2 1979 Tr-nsfo.ruti-o toxicitc huile- tics Food - Senegal 3,000 600 - - - 4 1979 Hotel Mme PEYTAVIN Toorie M.ne Peytevin Cap-Vert 2i0 100 50 - s5 2 1979 Hotel PINELLI Toeritm Pinelli Penite-Cite 1,500 120 880 - 500 1 1979 TOTAL 14,405 2,923 5,075 202.5 4,619.5 f75: high; 3: mediu; 1: Ino. DFs D 1 ANNEX 14 page 1 SOFISEDIT Assumptions fcr Financial Projections 1) Approvals Loan approvals for fiscal years 1976 and 1977 are based on the project pipeline. Thereafter there will be a 15% growth per annum (including an inflation adjustment). Equity approvals to increase CFAF 10 million per year from 1976. All approvals are net of cancel- lations. 2) Commitments Two thirds of all loans committed in the year of approval; one third the following year. All equity investments committed in the year of approval. Uncommitted approvals as of September 30, are: Loans: Medium-term CFAF 148 million Long-term CFAF 15 million Equity: CFAF 19 million 3) Disbursements Loans: Medium-term - 25% in year of commitment, 65% in the following year and 10% in the year after. Long-term - 75% in year of commitment, 25% the following year. Equity: 100% in the year of commitment. Undisbursed Commitments as of September 30, 1975 are: Loans: Medium-term CFAF 166.5 million Long-term CFAF 0 million Equity: CFAF 15.0 million 4) Average interest rates Medium-term (discountable): 12% Long-term loans: 10.5% to June 1976 thereaf'ter 12% 5) Average loan maturity Medium-term: 7 years including 1 year grace Long-term: 12 years including 2 years grace ANNEX 1. page 2 6) Average cost of debt Medium-term discounts 8% Long-term loans: 1st IBRD loan 7.25%) 2nd IBRD loan 9.0 %) Assume 7.75% average Other loans 7.5 %) 7) Return on short-term investments: 7% 8) Return on equity portfolio: 5% per annum, beginning 3 years after year of investment. Equity investments are sold over three years after three years grace period. 9) Provisions for losses - 1% of annual disbursements, two years after disbursement (increasing to 2% in 1980). 10) Increase in administrative expenses - Personnel 5% p.a. in 1979 and 1980, 1 additional professional at CFAF 4 million. - Other costs increase 5% p.a. 11) In 1979 the share capital is increased by CFAF 650 million to CFAF 1,300 million. 12) SOFISEDIT is tax exempt until 1980. DFCD August 1976 ANNEX 13 SOFISEDIT Projected Operations (CFAF million) Year to September 30th 1975 1976 1977 1978 1979 1980 APPROVALS Loans: Medium-term 338 386 434 506 581 668 Long-term 195 539 606 697 802 922 Equity investments 72 100 110 120 130 140 TOTAL 605 1,025 1,150 1,323 1,513 1,730 COMMITMENTS Loans: Medium-term 190 403 419 482 555 636 Long-term 180 375 583 666 767 882 Equity investments 53 119 110 120 130 140 TOTAL 423 897 1,112 1,268 1,452 1,658 DISBURSEMENTS Loans: Medium-term 23 243 391 433 494 630 Long-term 180 281 531 646 741 85)4 Equity investments 38 134 110 120 .130 140 TOTAL 241 658 1,032 1,199 1,365 1,624 1J April 1, 1974 to September 30, 1975. DFCD August 1976 ANNEX 16 SOFISEDIT Projected Income Statements (CFAF million) Year to September 30th 19751/ 1976 1977 1978 1979 1980 INCOME Medium-term loans ) 17 55 103 152 205 Long-term loans ) 3 36 87 155 231 312 Dividend income - - - 2 6 11 Income on S/T investments 52 16 4 2 9 9 TOTAL 55 69 146 262 398 537 EXPENSES Borrowing Cost Medium-term ) _ 17 54 72 77 Long-term ) 16 50 98 147 201 Personnel Costs )52 43 45 48 54 61 Administrative expenses 21 22 23 24 25 Depreciation - 4 4 4 4 4 Technical Assistance 5 5 5 - TOTAL 58 89 143 227 301 368 Profit before provisions (3) (20) 3 35 97 169 Provisions 0 0 (1) (6) (17) (25) Net Profit (3) (20) 2 29 80 144 L/ April 1, 1974 to September 30, 1975. DFCD August 1976 ANNEX 17 SOF ISEDIT Projected Balance Sheets (CFAF zmillion) _ Year to September 30th 1975-/ 1976 1977 1978 1979 1980 (Actual) - ASSETS Current assets 356 88 30 30 236 30 Portfolio (net) Medium-term loans 23 266 654 1,061 1,473 1,951 Long-term loans 180 461 982 1,593 2,254 2,966 Equity investments 38 172 282 395 485 546 Total (net) 241 899 1,918 3,049 4,212 5,463 Technical Assistance (Government Loan) 21 42 63 63 63 63 Fixed assets (net) 21 17 13 9 5 1 TOTAL ASSETS 639 :1,o46 2,024 3,151 4,516 5,557 LIABILITIES Current liabilities 6 6 6 6 6 6 Borrowings IBRD/Others 26 413 961 1,575 2,245 2,970 BCEAO _ - 448 912 877 1,049 Total Borrowings 26 413 1,389 2,487 3,122 4,019 Share capital 610 650 650 650 1,300 1,300 Reserves (3) (23) (21) 8 88 238 Total Equity 607 627 629 658 1,388 1,532 TOTAL LIABILITIES 639 1,046 2,024 3,151 4,516 5,557 1] April 1, 1974 to September 30, 1975. DFCD August 1976 ANNEX 18 SOFISEDIT Projected Cash Flow Statement (CFAF million) Year to September 30th 1975- 1976 1977 1978 1979 1980 (Actual) SOURCES Current assets 272 54 - - 206 Borrowings: IBRD/Others 26 387 557 646 741 854 BCEAO (net) - - 428 484 (35) 72 Loan collections: Long-term - - 9 32 71 129 Medium-term - - 3 24 76 143 Equity collections - - - 6 38 76 Net Profit + Depre- ciation + Provisions (3) (16) 7 39 101 173 Capital 610 40 - - 650 - Current liabilities 6 - - - - TOTAL SOURCES 639 683 1,065 1,231 1,642 1,753 USES Fixed assets 21 - - - - _ Technical assistance 26 26 26 - - - Disbursements: M4edium-term loans 23 243 391 433 494 630 Long-term loans 180 281 531 643 741 854 Equity investments 38 134 110 120 130 140 Repayments: IBRD/Others - - 9 32 71 129 Current assets 356 - - - 206 - TOTAL USES 639 683 1,065 1,231 1642 1,753 j April 1, 1974 to September 30, 10i75. DFCD August 1976 ANNEX 19 SOFISEDIT Projected Operating a;id F-inancial Ratios (1976-1980) Year to September 30th 1976 1977 1978 1979 1980 1) Income statement elements as of average total assets Gross income 8.2 9.5 10.1 10.4 10.7 Financial expenses 1.9 4.4 5.9 5.7 5.5 Administrative and personnel expenses 8.7 5.0 2.9 2.1 1.8 Provisions - - 0.2 0.4 0.5 Net profit (2.4) 0.1 1.1 2.2 2.9 2) Net profit as % of average net worth (3.2) 0.3 4.5 7.8 9.9 3) Term debt/equity ratio 0.7 2.2 3.8 2.2 2.6 LI) Debt/service coverage - 1.1 1.2 1.4 1.5 5) Average cost of resources 1.9 4.4 5.9 5.7 5.5 6) Average income from the loan portfolio 11.4 12.0 12.0 12.0 12.0 . DFCD August 1976 ANNEX 20 SOFISEDIT Estimated Disbursement Schedule for the Proposed Bank Loan (Amount $1000) 1977 First quarter 200 Second quarter 250 Third quarter 400 Fourth quarter 550 1978 First quarter 600 Second quarter 550 Third quarter 400 Fourth quarter 350 1979 First quarter 300 Second quarter 200 Third quarter 100 Fourth quarter 100 1980 First quarter 50 Second quarter 5
Groupe de la Banque mondiale · Staff Appraisal Report
Senegal - Investment Promotion (Second SOFISEDIT) Project
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Organisation
Groupe de la Banque mondiale
Type de document
Staff Appraisal Report
Pays
Sénégal
Source
Banque mondiale