Document of The World Bank RETURN TO FOR OFFICIAL USE ONLY REPORTS DZSK OITEN ONE V t:C.K Report No. 1805 PROJECT PERFORMANCE AUDIT REPORT MOROCCO - BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE (LOAN 736-MOR) November 23, 1977 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only In the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT MOROCCO - BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE (LOAN 736-MOR) TABLE OF CONTENTS Page No. Preface Basic Data Sheet Highlights PROJECT PERFORMANCE AUDIT MEMORANDUM I. Introduction 1 II. Use of Bank Funds 1 Cancellations 1- 2 Sub-projects Financed 2 Public Sector Financing 2- 3 Economic Impact of Sub-projects 3 Performance of Sub-projects 3 - 4 III. Overall Operations and Profitability 4 Loan Operations 4 5 Capital Market Operations 5 Rediscountable Loan Operations 5 BNDE's Profitability 5- 6 IV. Institutional Objectives 6 Project Appraisal 6- 7 The Interest Rate 7- 8 Resource Mobilization 8 V. Conclusions 9 Annex I: Selected Financial Ratios Attachment: Project Completion Report I. Introduction A.1 Bank Group Operations A.1 The Environment A.2 II. Objectives and Expectations of the Bank Loan A.3 - A.5 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. (LOAN 736-MOR) - 2 - Page No. III. Evaluation of Institutional Developments A.5 Shareholders and Board A.5 - A.6 Management and Staff A.6 - A.7 Coordination A.7 Project Appraisal A.7 - A.8 Project Supervision A.8 IV. Evaluation of Financial Development and Expectations A.8 Interest Rate A.8 - A.9 Capital Structure A.9 - A.10 Resource Diversification A.10 Profitability A.10- A.11 Provisions Against Portfolio Losses A.11 Level of Operations A.12 Sectoral Distribution of Approvals A.12 Promotion of New Ventures A.13 V. Allocation of Loan Funds and Sub-Project Analysis A.13 Cancellations A.13 Sectoral Distribution A.14 Geographic and Size Distribution A.14 Financial and Economic Criteria A.14- A.15 Forecasts of Project Costs and Operations A.15- A.16 VI. Conclusions A.16 Appendix on four major projects financed under Loan 736-NOR A.17- A.24 Annexes: I. BNDE: Income Statement, Projected and Actual A.25 II. BNDE: Balance Sheets, Projected and Actual A.26 III. BNDE Operations: Projected and Actual A.27 IV. Subprojects Above the Free Limit A.28 Subprojects Below the Free Limit A.29 Economic Impact Sub-project Above Free Limit A.30 V. Sub-projects Above the Free Limit Projected and Actual A.31 VI. Sectoral, Geographic and Size Distribution of Projects Financed under Loan 736-MOR (as of December 31, 1974) A.32 PROJECT PERFORMANCE AUDIT REPORT MOROCCO - BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE (LOAN 736-MOR) PREFACE This report presents a performance audit of Bank Loan 736-MOR made to the Banque Nationale pour le Developpement Economique (BNDE). This loan, in an amount of US$35 million, was the fifth loan extended to BNDE, bringing total assistance to this institution to US$98 million. Since then, the Bank has made three more loans of US$24, US$30 and US$45 million to BNDE, in 1973 (Loan 890-MOR), 1974 (Loan 1061-MOR) and 1977 (Loan 1428-MOR) respectively. Loan 736-MOR was approved in May 1971; it was closed in January 1975 when US$ 32.8 million had been disbursed, the remaining US$2.2 million of the original US$35 million having been cancelled. A performance audit of the earlier (fourth) loan (660-MOR) to BNDE was made in July 1975. Due to the rapid commitment of Loan 660-MOR only fourteen months elapsed between that loan and the loan under review, causing the periods covered by the two loans to overlap. As a result, most of the issues raised under Loan 660-MOR remained valid under the loan covered by this audit. The present audit is based on a review of the attached Project Completion Report (PCR) prepared by the Bank's EMENA Regional Office, other relevant documents, discussions with Bank staff and discussions with BNDE staff and Government officials during a brief visit to Morocco. The assistance provided by them during the mission is gratefully acknowl- edged. The OED found the PCR comprehensive and factually correct. In view of the Bank's long association with BNDE this report deals with a few selected issues of economic significance. PROJECT PERFORMANCE AUDIT REPORT BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE (LOAN 736-MOR) BASIC DATA SHEET Amounts (in US$ mln) As of 9/30/77 Original Disbursed Cancelled Repaid Outstanding Loan 736-MOR 35 32.8 2.2 22.2 10,6 Project Data Original Plan Actual or Estimated Actual Board Approval May 18, 1971 Loan Agreement May 20, 1971 Effectiveness Aug. 23, 1971 Oct.20, 1971 Loan Closing June 30, 1975 Jan.28, 1975 Mission Data Month, No.of No. of Year Weeks Persons Date of Report Appraisal April/71 3 2 May 5, 1971 Supervision I Jan. /73 2 2 August 29,1973 Supervision II Oct. /73 2 2 October 5,1973 Supervision III Feb. /74 2 2 March 8,1974 Supervision IV Aug. /74 2 2 Sept. 27,1974 Supervision V May /75 2 days 1 June 12,1975 Follow-on Projects Loan 890-MOR of US$24 million, signed August 20, 1973 for BNDE VI (DFC) Project. Loan 1061-MDR of US$30 million, signed Dec. 20, 1974 for BNDE VII (DFC) Project. Loan 1428-MOR of US$45 million, signed June 16, 1977 for BNDE VIII (DFC) Project. PROJECT PERFORMANCE AUDIT REPORT MOROCCO - BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE (LOAN 736-MOR) HIGHLIGHTS Loan 736-MOR was the fifth loan which the Bank extended to the Banque Nationale pour le Developpement Economique (BNDE). When the loan was made in 1971, BNDE was already the leading source of long-term financing for Moroccan industry. It was a mature DFC, with satisfactory appraisal procedures and good financial management. Inadequate BNDE lending rates was a major focus of the discus- sions which preceded this loan. The loan period (1971-1974) was marked by an increase in BNDE long-term lending rate from 7% to 9%; this was followed by subsequent increases to 11% during subsequent years, thereby raising real interest rates to borrowers and temporarily increasing BNDE's spread, as intended. The increase in BNDE rates did enable BNDE to enter foreign markets and diversify its sources of foreign currency resources, as expected; but because of the structure of savings flows and the capital market, it has not improved BNDE's domestic resource mobilization capability to the extent hoped for. Other points of interest are: - financing of public sector projects (paras. 8-9 of the PPAM); - financing of large-scale projects (paras. 11 to 15 of the PPAM and 5.03 of the PCR). PROJECT PERFORMANCE AUDIT MEMORANDUM MOROCCO - BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE (LOAN 736-MOR) I. Introduction 1. Established in 1959, the Banque Nationale pour le Developpement Economique (BNDE) is the largest institutional source of long-term credit for manufacturing industry in Morocco. Its activities also extend to the mining and transportation sectors. A specialized financial institution (CIH) is now financing most of the country's housing and tourism projects which used to account for a substantial proportion of BNDE's lending before 1970 - more than 30% in 1968 and 1969. BNDE has been associated with the Bank Group since 1962 when the first loan was negotiated and IFC took a 25% equity participation. 2. Between 1971 and 1974 BNDE's operations accounted for a substan- tial part of total industrial investment in Morocco and over 30 percent of total investment approved by the Moroccan Investment Commission. BNDE's leading position within the industrial sector was further strengthened by its increasing role as an intermediary for medium-term commercial bank loans which may be rediscounted with the Central Bank if appraised and guaranteed by BNDE. In fact, BNDE has been involved with practically all manufacturing projects approved by the Investment Commission. 3. Because of its vital role in long-term financing for most indus- trial projects, BNDE's profile of operations reflects the evolution of private industrial investment in the country and more generally depends on the climate of the Moroccan economy. Political uncertainties which prevailed in 1971 and 1972 were responsible for a temporary dampening of private investment. Moreover, changes in investment legislation were expected at that time, encouraging a "wait-and-see" attitude on the part of investors and causing investment to turn sluggish until mid-1973. At this time disbursements under Loan 736-MOR were lagging by about six months. In August 1973 equity ownership legislation designed to "Moroccanize" industry, and a new investment incentives scheme were pro- mulgated which succeeded in restoring investors' confidence. Investment in manufacturing picked up at a fast pace thereafter and the project was closed in January 1975, five months before schedule. II. Use of Bank Funds Cancellations 4. Loan 736-MOR was marked by a sharp reduction in the amount of cancellations in comparison with previous loans. Indeed, BNDE was very - 2 - active in accelerating potential cancellations so as to be able to recommit the cancelled amounts before the terminal date of commitment imposed by the Bank. Thanks to this procedure, the final scale of cancellations (6.3%) under Loan 736-MOR was much lower than that registered under the previous loan (Loan 660-MOR) when cancellations amounted to 23%. Final cancellations which amounted to US$2.2 million resulted from delays in implementation beyond closing date and have been financed under alternative credit lines. 5. Total cancellations of sub-projects - including those for which funds were reallocated to other projects - amounted to US$11 million, equivalent to above 25% of accumulated commitments, a percentage barely inferior to the 27% recorded under the previous loan. Several reasons were at the origin of cancellations which took place before the closing date - including US$8.9 million of cancellations before the final date of project submission - among them reduction in original investment, change in financing plans and complete project withdrawing - 10 sub-projects were cancelled altogether - indicating a substantial appraisal effort which did not lead to disbursement. The 90-day rule imposed by the Bank on retro- active financing was responsible for US$1.3 million (13.5%) of these can- cellations as BNDE was generally not in a position to refinance the down payments - 20% of total cost on average - made by many borrowers when ordering necessary pieces of equipment. These down payments were normally covered by the companies' own equity. Sub-projects Financed 6. Allowing for cancellations and transfer, BNDE financed 64 projects out of the Bank loan, of which about one-third - in number as well as in volume - were new projects and the rest expansion projects. The sub-loans exhibited a very wide size range. Nineteen of them were above the free limit of US$500,000 accounting for more than three-quarters of the loan amount and averaging above US$1.3 million per sub-project. In sharp contrast, 45 sub- loans under the free limit averaged only about US$170,000. Data on sub- project costs are available only for projects above the free limit. Actual total cost of these projects amounted approximately to US$108 million, about 6% below estimated cost. 7. The four largest projects which encompassed the construction of a sugar refinery complex and the extension of two oil refineries and a tire factory, accounted for 43% of the loan amount. This further indicates the noticeably skewed distribution of sub-loans, although in view of the predominance of expansion projects, the size distribution of sub-loans may have little relationship with that of corresponding enterprises. Public Sector Financing 8. As a result of the increasing leadership assumed by the Moroccan Government in promoting the country's economic development, BNDE has been in recent years financing a growing number of large-scale public sector 3 projects. Most of these projects which call for a variable use of public funds are meant to develop basic industries (steel milling, refineries) or transportation services and are expected to trigger the development of secondary industries by the private sector. 9. During the loan negotiations, BNDE agreed to keep its lending exposure to public sector projects from the proceeds of the loan within a US$6 million limit. Besides several public sector projects which called for BNDE financing in an amount less than the prescribed limit, two companies - SAMIR and SCP - received financing out of the Bank's loan in excess of US$6 million for the expansion of their oil refineries. These companies were owned by the Moroccan Government in a proportion just under 50% - 49.998% and 49.9%, respectively - and, in consequence, were considered as part of the private sector. Such percentages were due to the fact that in both cases foreign partners were involved who would have refused to participate in enterprises controlled by the Moroccan Government but who, however, welcomed as large a public financial contribution as possible. SCP's ownership pattern has not changed since it received its loan from BNDE; on the other hand, all private participations in SAMIR's equity were subsequently repurchased by the Government. This development highlights the difficulty for the Bank to control the eventual contribution of its funds to public sector financing and emphasizes the ambiguity of a 50% public ownership criterion to define public sector projects. Economic Impact of Sub-projects 10. A formal link between the low rate of interest charged by BNDE and the capital intensity of sub-projects financed is difficult to establish, owing to the fact that rebates on capital costs might bear little weight on investors' decisions compared to other incentives such as fiscal advantages, tariff barriers and other protection against competing imports. The pre- dominance of highly capital-intensive expansion projects may simply reflect Morocco's industrial strategy emphasizing large-scale projects based on the country's raw material resources. In any case, their high proportion was largely responsible for the relatively small amount of employment generated and consequent high capital cost per job created, about US$72,000 for projects above the free limit. Performance of Sub-projects 11. A financial rate of return (FRR) was computed by BNDE for all projects above the free limit, 10% being used as a cut-off mark. However, as no ex-post FRR's have been computed at sub-project completion, it is not possible to express a definite opinion on the sub-projects' impact. Most projects financed out of the Bank loan are in good financial position and perform generally well. A notable exception is SUCRAFOR, a sugar refinery complex which received a loan of US$8.2 million from BNDE, of which US$6 million was from the Bank's loan. BNDE also made an equity participation. 12. BNDE had informed the Bank before Loan 736-MOR had been approved., that it wished to make a loan for this project in excess of US$3.5 million which Bank loan agreements stipulated as a maximum for any sub-loan. The project was intended to assist the Government's goal of increasing domestic sugar production. Because of the large size of the proposed sub-loan, the Bank itself appraised the project and concluded that, despite the use of the latest technical methods, the project would probably yield an economic return of only 10.9%. This return was nevertheless acceptable and, in view of the high priority attached to the project by the Government, BNDE's strong pledge to finance it, as well as by the advanced status of procure- ment of imported equipment, the Bank agreed to waive the normal US$3.5 million limit on sub-loans. 13. However, the project has made substantial losses since it began operations in 1972 mainly because the agricultural production in the region did not increase as expected. The Moroccan Government has been increasing its share of equity after debts had been written off and expects to be able to improve the situation within the next few years. As far as BNDE was con- cerned, its equity participation was used to write off outstanding arrears on interest and the loan has been rescheduled. 14. The Bank made its own appraisal of two other projects, the two oil refineries operated by SAMIR and SCP. The field mission sent by the Bank concluded that these two projects were acceptable, although it would probably have been preferable not to carry them out simultaneously, Contrary to the Bank's usual practice, no economic rate of return was calculated in this case because of high fluctuations in petroleum product prices; the project evaluation was based on the use of partial indicators. 15. In the case of these two projects, as in the case of the sugar factory, the amounts provided by BNDE exceeded the amounts withdrawn from the Bank's loan and the balance was provided to BNDE by the Kuwait Fund. Hence, it should be stressed that these projects were instrumental in making BNDE seek alternative sources of foreign capital to complement the Bank funds. III. Overall Operations and Profitability Loan Operations 16. Operational forecasts made at appraisal reflected the upsurge in BNDE's lending activities at that time. Loan 660-MOR had been committed more quickly than forecast and, moreover, a large number of projects were already under study for financing under the forthcoming credit line. In consequence, it seemed justified to predict a high level of operations at least for the first two years, 1971 and 1972. A lower level of activity was expected for the subsequent years (1973 to 1975). - 5 - 17. While the volume of operations for four years (1971 to 1974) came relatively close to projected levels, commitment and disbursement scheduled were affected by unexpected variations in the pace of the Moroccan economy. Because of the slowdown in private industrial invest- ment experienced in 1971 and 1972, direct loan approvals and commitments fell short of expectations until 1973. Operations in 1974, on the other hand, far exceeded projections, although by that time inflationary pressures started to pick up and operational results should be discounted accordingly. Yet, even allowing for the inflationary effect, cumulated approvals and commitments for 1971 to 1974 largely fulfilled expectations. Capital Market Operations 18. During negotiations, the Bank had been encouraging BNDE to make more equity investments than in the past, highlighting the importance of capital market operations for a mature DFC. Limited progress nonetheless was expected on this front owing to the fact that the more attractive investment opportunities were at that time reserved for the Govenrment and the Societe Nationale d'Investissement (SNI). Operations, however, were much higher than projected levels as the Government reduced restric- tions it had placed upon BNDE's access to equity operations and BNDE became increasingly conscious of the promotional role it could play. As a result, BNDE's equity portfolio steadily increased from DH 21 million in 1969 to DH 60 million by 1974, representing then more than 9% of total assets. Rediscountable Loan Operations 19. Most industrial projects called for mixed long- and medium-term financing; consequently, growth in long-term direct lending by BNDE was accompanied by a similar evolution in rediscountable medium-term commer- cial bank loans, which involved substantial appraisal work by BNDE on behalf of the Banque du Maroc. While this type of activity was expected to level off during the 70s, the amount of approved credits doubled between 1970 and 1974 and again afterwards between 1974 and 1976. 20. In conclusion, due to the increase in its volume of operations, BNDE's total assets grew at an annual rate of 25% between 1970 and 1974, reaching a level relatively close to predictions. The distribution of liabilities between domestic and foreign sources was, on the other hand, significantly different from the projected figures: while by 1974 foreign borrowing had only reached 60% of projected level, domestic borrowing from non-government sources was more than seven times higher than forecast. BNDE's Profitability 21. More than 85% of BNDE's income during the 1971-74 period was derived from earnings on direct loans, the balance being divided among commissions on rediscountable loans, income from equity investments and - 6 - commitment fees. Gross income fell short of projections between 1971 and 1973, while 1974 results exceeded the appraisal estimate, following a similar evolution in the size of BNDE's portfolio. 22. Total expenses were consistently above projected levels, the gap reaching 17% by 1974. The difference was accounted, to a large extent, by higher than expected personnel costs and the necessity of creating specific provisions for doubtful equity investments to cover the expanding equity investment portfolio. 23. Between 1971 and 1974, BNDE registered a somewhat lower profit- ability than expected, as evidenced by the following selected average financial ratios: 1/ 1971 - 1974 Forecast Actual Income from long-term loans as % of average long-term loan portfolio 7.51 8.13 Gross income as % of average total assets 7.23 7.69 Cost of term debt as % of average term debt 5.18 5.59 Total expenses as % of average total assets 5.01 5.79 Profit before taxes and provisions as % of average total assets 2.24 2.08 Profit before taxes and after provisions as % of average equity 19.8 16.9 Profit after taxes and provisions as % of average equity 14.8 14.4 24. Gross profit (after provisions)/average equity ratio was almost three percentage points below predicted levels - down from 19.8% to 16.9%. The difference was largely due to a higher proportion of unseasoned equity investments in BNDE's portfolio which had brought only limited returns until then - 4.7% on average - and required the creation of adequate provisions. IV. Institutional Objectives Project Appraisal 25. Sub-projects' evaluation conducted by BNDE focused on technical and financial aspects. It encompassed the computation of financial rates of return and preparation of projected profits, sales, and when relevant, exports. Nominal and effective rates of protection, as well as forecasts 1/ Annual ratios can be found in Annex I. - 7 - of employment generated and foreign exchange savings were also computed. Owing to the importance of tariff barriers and fiscal advantages in Morocco, profitability can be misleading in evaluating the economic justification of industrial projects; BNDE is now computing an economic rate of return for most projects, thus substantially improving its project screening procedure. 26. The quality of BNDE's evaluations submitted for Bank approval was generally satisfactory. In most cases, comments focused on the occasional lack of adequate market study to sustain the project's viability. The need for improvement in evaluating prospective markets was already stressed in the Bank's appraisal report. 27. The extent of BNDE's influence on the formulation of projects has been relatively small. This has been increasingly the case under subsequent loans, particularly, although not exclusively, with larger projects and those in the public sector where other government agencies have explicit responsibility for project formulation. In many cases, financing requests from project sponsors reach BNDE at quite an advanced state of the project's planning process - sometimes even after procurement or construction arrange- ments had already been made. The Interest Rate 28. As a result of discussions in connection with this loan, the Government agreed to permit BNDE to increase its lending rate above 7%. Hitherto, the Government had provided a "rebate" of up to 2% to BNDE when- ever its borrowing costs exceeded 5% in such a way that BNDE was guaranteed a minimum spread of 2%. The Bank believed that an increase in BNDE's lending rate would be justified, firstly, on the grounds that the general level of interest rates in Morocco was relatively low, although in view of the low rate of inflation in Morocco (3% p.a. at the time of appraisal) a lending rate of 7% corresponded to a positive real rate; and, secondly, in order to increase BNDE's spread and thus enable it to increase its borrowing from market sources. The Government agreed to permit an increase in BNDE's lending rate although it was concerned about the effect of the increase on industrial investment. 29. BNDE's rate was first increased from 7% to 9% in two steps. How- ever, these changes did not affect the effective rate paid by borrowers since the Government granted them a "rebate" to offset the increased lending rate while at the same time it ceased to pay the 2% rebate previously paid to BNDE. In other words, the net effect of the change was that the Govern- ment 2% rebate was paid to the borrowers instead of to BNDE in order to enable them to pay BNDE's increased lending rate. It was not until BNDE's lending rate was increased to 10% in April 1975, and eventually to 11% in June 1977, that the effective rate to borrowers increased. The 2% rebate is still being paid to practically all industrial investors whose projects are approved by the Government. - 8 - 30. One result of the change by which the rebate was paid to the borrowers instead of BNDE was that, being no longer directly dependent on a Government subsidy, BNDE was better able to prepare and carry out long-term plans for domestic resource mobilization. This additional financial independence did not significantly affect the substantial influence of the Government on BNDE which reflects the major role it plays in the whole economy. Resource Mobilization 31. One of the major reasons for an increase in BNDE's lending rate was to improve its borrowing capability by increasing its interest spread. However, partly because the Government was, prior to 1971, subsidizing BNDE's borrowing cost up to 2 percentage points, and partly because the increase in the lending rate was followed by a general rise in interest rates in Morocco, this did not occur to any significant extent. In 1975, the interest spread 1/was no greater than it was in 1971, i.e., 2.5%, and in 1976, it declined further to 1.8%. In practice, however, the domestic market for BNDE's bonds is a market largely controlled by the Government. All BNDE bond issues carry a government guarantee and are, in effect, indistinguishable from Treasury bonds (15 years, 7.5%). Each year, the Government determines the scale of public borrowing from the market and the total is shared between the Government itself and a few long-term lending institutions including BNDE. 32. The great majority of BNDE's bond offerings are subscribed by insurance companies and by the Caisse de Depot et de Gestion (CDG), a public fund management institution. CDG is under legal obligation to invest most of its deposits in public securities; the same is true of the insurance companies' legal reserves. Hence, BNDE's private savings mobilization effort has remained minimal. On the other hand, at the rate previously applied on long-cerm bonds (6.25% until 1974, 7.5% thereafter), it might not have been possible to mobilize a comparable amount of domestic savings. 33. The increase in BNDE's lending rate did, however, enable BNDE to enter foreign capital markets, although the objective of having BNDE decrease its dependence on Bank funds during the fifth loan proved optimistic. Because the Government placed a 7% ceiling on BNDE's capital costs which it was subsidizing before 1971, BNDE was for a long time restricted to foreign credit on concessional terms. Not until 1975 when its lending rate went up to 10% was it able to mobilize foreign currency funds from other sources (Saudi Rial bonds, euro-dollar loans). Thus, given the increasing needs of the Moroccan economy for foreign resources, the increase in BNDE's lending rate was necessary and reflected Morocco's incorporation into the international capital market. By 1976, BNDE had reduced the pro- portion of its debt with the Bank to about one-third of its total foreign debt, thus achieving a long-sought Bank objective. 1/ Defined as the difference between income from long-term loans as percentage of average long-term loan portfolio and the cost of debt as percentage of average term debt. - 9 - V. Conclusions 34. Because of the important position it holds within the long-term industrial credit sector, BNDE has always been directly affected by the Government's macroeconomic decisions, credit policy, allocation of domestic savings and foreign borrowing policies. The 1971-76 period covered by Loan 736-MOR saw BNDE's financial independence enhanced by the Government's decision to liberalize its interest rate policy and hence to enable BNDE to enter the local capital market. Nevertheless, the increasingly leading role played by the Government in sponsoring large size industrial projects in Morocco does limit BNDE's potential impact on the promotion and concep- tion of such projects. 35. Most of the objectives specified for the loan at the time of approval have been fulfilled, if not within the period of the loan, at least during subsequent years. BNDE has succeeded in mobilizing substantial amounts of resources, in foreign and local currency, to supplement the Bank's assistance. As a result of higher revenues, it has been quite successful during recent years in tapping several alternative sources of foreign capital - mainly OPEC and euro-dollar funds - at very reasonable rates, thus demonstrating its creditworthiness in international capital markets. It also enjoys a freer access to the local money market, recently enlarged by higher saving rates. This has induced BNDE to depart from its exclusive role of foreign currency provider and to expand its local currency operations, most notably its equity investments which account today for a substantial proportion of its portfolio. Operations Evaluation Department ANNEX I MOROCCO - BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIqUE (LOAN 736-MOR) SELECTED FINANCIAL RATIOS 1971 1972 1973 1974 1975 1976 Income from long-term loans as % of average long-term loan portfolio 7.47 8.13 8.17 8.47 8.87 9.16 (Forecast) (7.55)(7.49) (7.45)(7.55) Gross income as % of average total assets 7.08 7.69 7.79 7.94 8.43 8.68 (Forecast) (7.33)(7.22) (7.14)(7.28) Cost of term debt as % of average term debt 5.00 5.00 5.48 6.08 6.41 7.40 (Forecast) (5.19)(5.14) (5.17)(5.20) Total expenses as % of average total assets 5.30 5.79 5.82 6.04 6.35 6.90 (Forecast) (5.23)(5.05) (4.93)(4.93) Profit before taxes and provision as % of average total assets 1.98 2.16 2.17 2.01 2.14 2.01 (Forecast) (2.13)(2.19) (2.22)(2.35) Profit before taxes and provision as % of average equity 16.5 18.3 18.1 20.7 24.0 22.4 (Forecast) (17.4)(19.1) (20.2)(21.8) Profit after taxes and provisions as % of average equity 12.2 13.3 14.0 17.2 18.2 15.9 (Forecast) (13.3)(14.1) (15.0)(15.9) I - A.1 - COMPLETION REPORT ON BANQUE NATIONALE POUR LE DEVELOPPMENT ECONOMIQUE Loan 736-MOR I. INTRODUCTION Bank Group Operations 1.01 This completion report reviews the situation of Loan 736-OR to BNME. Banque.Nationale pour le Developpement Economique (BNDE) was incor- porated in 1959 at the instigation of the Moroccan Government. The Bank's association with BNDE was initiated in December, 1962 when the first loan of US$ 15 million was negotiated. Four additional loans were granted to BNDE during the 1966-1971 period for a total amount of US$ 82.5 million. The fourth loan (660-MOR) was closed June 30, 1973 and a completion report issued in October 1974. The fifth loan, No.736-MOR, which is the subject of this report, was signed on May 20, 1971 and closed on January 28, 1975, when US$ 32.8 million had been disbursed and US$ 2.2 million cancelled. As the fourth and fifth loans overlap, the conclusions of the present report do not substantially differ from those of the previous one. 1.02 Subsequently the Bank made two more loans to BNDE for US$ 24 million in 1973 (Loan 890-MOR) and for US$ 30 million in 1974 (Loan 1061-YOR) bringing total Bank lending to US$151.5 million. Bank Group financing also includes IME participation of 14.7% representing 95,641 shares subscribed in 1962.1! 1.03 Loan 736-MOR was approved by the Board on May 18, 1971, for US$ 35 million, and became effective on October 20, 1971. The interest rate was 7$,the Bank's standard rate at that time. As BNDE had improved its appraisal capability, the free limit was raised from $300,000 to $500,000 with an aggregate free limit of $7.0 million and with the understanding that sub-loans financed by the Bank loan should not exceed $3.5 million per sub-loan in the absence of special justifications agreed to by the Bank (see para 2.03). 1( At end 1971 IFC held 95,641 out of BI T's 648,000 outstandin shares of par value DH 50.0 i.e., 14.7% of the share capital; out of 10,000 shares originall$ subscribed to by IFC, 66,213 shares were sold. IFC also received 11,654 shares as stock dividends. - A.2 The Environment 1.04 Real GDP averaged a growth rate of 5.6% in 1968-72. In 1973 real growth slowed down to 3% but picked up in 1974 reaching 10%. During 1974 fixed investment rose by 34% in real terms, compared to 3% only in 1973. The structure of real GDP was dominated until 1973 by agriculture (28%) while manufacturing accounted for 11-12%. Manufacturing industry accounted for 11.5% of GDP (in current prices) in 1974 versus 13.3% in 1973; it grew by 21% in 1974 versus 12% in 1973 in current prices. The relative decline owes to the major increase of the mining sector with the quadrupling of phosphate rock prices. In 1972 manufacturing output (in constant 1960 prices) was accounted for 32% by food processing, 28% by textiles and 16% by metal industries, among others; in 1973 these percentages were 31.6%, 27.4% and 14% respectively. In 1974 the *hare of textiles dropped to 25.3%. 1.05 BNDE remained the main source of long-term finance for industry in Morocco and continued to play a major role in the development of the manufacturing sector. At the time of appraisal of loan 736-MOR it was estimated that BNDE supported more than 75% of the projects approved by the Investment Commission of !brocco. These were for the most part privately initiated projects. However, private investment stagnated from 1971 to mid- 1973 as a result of the political uncertainties experienced in 1971 and 1972, and because investors adopted a "wait-and-see" attitude in the expectation of"fMoroccanization" legislation and new investment incentives, both of which were enacted in August 1973. The new incentives program, the third Five Year Development Plan (1973-77), a better economic performance in 1973 and 1974 accelerated the pace of investment. These factors were determinant in BNDE's institutional and operational performance in the 1971-1974 period covered by this report. - A.3 - II. OBJECTIVES AND EXPECTATIONS OF THE BANK LOAN 2.01 The Bank granted this fifth loan to BNEE primarily with the objective of providing part of the foreign exchange resources to finance the import component of BNDE's loans to industrial projects during the 1972-1973 period. Another important objective was to continue Bank assistance in strengthening BNDE as an effective development institution. The loan came about when the Fourth loan (No. 660-MOR), which was signed only fourteen months earlier, had been rapidly committed, and BNDE was faced with an urgent need of funds in the light of increased demand for investment capital. As BNDE continued to rely heavily on Bank Group financing, a primary objective sought at the time of appraisal was to have BNDE diversify its resources and reduce its dependence on the IBRD. In relation to this resource diversification objective two constraints were identified in the appraisal reportst (i) In Morocco the banking system and the Government mobilize private and corporate savings and BNDE was precluded from entering the local money market to secure long term funds. (ii) BNDE's lending rate was fixed by the Government at 7%. Although the Government subsidized BNDE for borrowing costs exceeding 5% and up to 7%, the interest ceiling of 7% inhibited BNDE from securing more expensive resources and increased its reliance on concessionary funds. 2.02 The Government agreed with the Bank to remove restrictions on BNDE with regard to domestic resource mobilization, and to let BNDE increase its interest rate to 8% starting in July 1971 and to 9% in January 1972. The subsidy of the cost of BNDE's borrowings was to be reduced to the equivalent of BNDE's borrowing costs exceeding 6% and up to 7% after July 1971. When the rate went to 9% the subsidy was to be removed altogether The basic objective of the Bank was to have borrowers bear the effective cost of funds lent to them and to have all forms of subsidies removed. Performance with - A.4 - regard to this objective is detailed in Chapter IV. 2.03 On BNDE's and the Government's request an agreement was reached with BNDE which allowed it to exceptionally finance one sugar refinery project (SUCRAFOR), and two oil refineries (SAMIR and SCP), for a maximum of US$ 6 million per project. All three projects were private with minority Government participation. It was also agreed that prior to any financial commitment on its part the Bank would directly appraise these projects and that BNDE would seek co-financing for SAMIR and SCR the large refinery projects. The possi- bility of direct Bank financing of SUCRAFOR was ruled out as the status of its implementation had already led to advance contracting and procurement. 2.04 At the time of appraisal (April 1971) the Bank noted that BNDE's role in equity investments and promotional activities was seriously lagging and stressed the need to expand that role. In order to achieve that objective the Government agreed that within the limit of financial prudence, BNDE would have a free hand in seeking and obtaining new investment opportunities. This objective of greater institutional impact from BNDE is discussed in Chapter IV. 2.05 tjith regard to organization and management, improved internal coordination was the principal matter identified as requiring continued attention. The Bank's preoccupation in this regard was timely. As the appraisal report pointed out, no staff member or organizational entity was specifically designated to coordinate appraisal work, though the Director of the Credit Department has helped to bring about a measure of coordination. An indirect consequence of this lack of coordination in supervision work was that feedback from supervision reports that could have enhanced the know-how of the appraisal units, did not systematically flow to them since supervision reports were not disseminated outside the responsible department. Two other weaknesses in the appraisal procedures of BNDE were highlighted. Firstly, while recognizing the professional caliber of the engineers in the Develop- - A.5 - ment Department the report also revealed that their considerable experience was mostly in textile and food processing projects thus implicitly admitting weaknesses in other sectors. At the same time, no specific objective to remedy this situation was set. The second weakness alluded to in the report concerns the marketing and organizational aspects of appraisal reports, which were found to require continued attention. 2.06 Specific financial expectations contained in the appraisal report relate to profitability, debt/equity ratio, dividend payments, diversification of resources, proportion of IBRD debt to total resources and generally the financial viability and creditworthiness of BNDE. In this respect BNDE was to increase its share capital to DH 30 million by the end of 1972 in order to maintain its debt/equity ratiol/ within the agreed limit of 5.5:1. The previous debt/equity ratio limit of 4.5:1 was relaxed in view of BNDE's sound portfolio, its expected level of borrowing and its ability to maintain a reasonable debt service ratio. Performance of BNDE in relation to these expectations is treated in detail in Chapter III. 2.07 Operationally, the report also identified the following areas, which needed emphasis: (1) the need to decrease the exposure in the textile sector, (2) dispersal of industry to new areas to spread geographical distribution,() financing of more export-oriented and competitive industries, (4) requirement of a minimum 10% financial rate of return and calculation of an effective rate of protection, (5) improvement in the supervision of projects. III. EVALUATION OF INSTITUTIONAL DEVELOPMENTS Shareholders and Board 3.01 As of April 19, 1971 (the date of the appraisal report), the 400,000 outstanding shares of BDE were owned 43% by Moroccan Government and public institutions; 15% by private Moroccan institutions; 16% by 1/ As defined in the Loan Agreemet equity includes that portion rH 40 million Government loan which matures. after Bank loans maturities. - A.6 - foreign financial institutious; 25% by IFC and 1% by Moroccan individuals and Moroccan subsidiaries of foreign insurance companies. As agreed with the Bank, BNDE's share capital was increased to I 32.4 million in December 1971 resulting into a more broadly based ownership structure. Thus Moroccan individuals increased their participation to 17% while the Governmental share was reduced to 38%. IFC did not subscribe to this increase and its share fell to 14.7%. This development was noteworthy in that it reflected private Moroccan's confidence in BNDE. This structure of ownership was somewhat changed when the share capital was doubled to DE 70 million, and IFC's participation was further reduced to about 7% since it did not make any subscription. 3.02 There have been no basic changes in the representation on the Board of Directors; 8 directors represent the Government; 11 others are divided among various foreign and Moroccan private interests. Management and Staff 3.03 At the time of appraisal BNDE was headed by a President and General Manager, Mr. Bargach, seconded by a Deputy General Manager. In June 1972 a second Deputy General Manager was appointed. On September 11, 1972 BNDE's Board approved a reorganization which divided BNDE's activities into-two operating groups with clearly defined tasks. The first one included three Departments: Legal,Administration and Follow-up, Financial Management, and Promotion. The second one handled all project work shared by three Depart- ments: Technical Appraisal and Follow-up, Economic Studies, and Projects and Equity Investments. Each group was headed by a Deputy General Manager. A Coordination Committee provided a close link with the General Manager. These changes which were brought about following close consultations with the Bank, were determinant in fostering greater coordination and cohesion among BNDE's staff. On December 18, 1972 Mr. Mustafa Faris, for-er Finance Minister, replaced Mr. Bargach as President and General Manager. - A.7 - 3.04 Towards the end of 1974 BNDE had a professional staff of 48 compared to 43 when the loan under review was appraised. The staff was generally well qualified, adequately experienced and had been working effectively as a team, particularly since the reorganization referred to above. While the economic and financial staff has posed no problem, recently the lack of engineers has become a major preoccupation since the increase in BNDE's activities in 1973/74 (see para 3.07). Coordination 3.05 Improving internal coordination has proved to be the most difficult to achieve, partly because of personalities, and partly because of the organi- zational set-up which separates the engineering, financial and economic aspects of the appraisal and supervision process. The way -BNDE had been organized also required rather cumbersome procedures with respect to disbursement and supervision. In early 1975,these procedures were being streamlined to accelerate the pace of disbursement while improving supervision and control. These problems nevertheless require close attention. The concentration of engineering competence in the textile and food processing fields which reflected the sectoral distribution of BNDE's portfolio had changed as BNDE covervimore subsectors and new engineers (mining, agronomy) Jo:nedthe technical department. As for the feedback problem and the organizational and marketing analyses of projects, considerable progress has been registered,largely attributable to the competence and drive of the new general manager, Mr. Faris and to a greater degree of informal cooperation among the staff. Project Appraisal 3.06 The organizational, economic and marketing aspecteof project appraisal benefitted from the managerial restructuration of 1972 and the appointment of a second Deputy General Manager in charge of the technical, economic and financial appraisal departments. kith a better definition of their responsibilities, department heads focused more on their respective areas and provided increased supervision of staff work. To meet the demand - A.8 - of increasing activities noted in 1974, and as agreed with the Bank during negotiations for the seventh loan,in June 1975, BNDE has recruited four more financial analysts and two engineers to strengthen project appraisal. Project Supervision 3.07 Because of staff constraints in the technical department where the few available engineers concentrated on appraisal work technical follow- up has been done in detail mainly for projects which were experiencing difficulties. The situation worsened with the departure of three engineers between December 1972 and September 1973 leaving only three engineers. However, management had recognized these weaknesses and is now recruiting new engineers. The introduction of a Project Monitoring System has been the occasion for BNDE to review its supervision methods and reporting system. The new format of supervision reports that BNDE is expected to adopt in the near future will provide for more useful information to management. It should be noted that BNDE has been regularly sending supervision reports to the Bank as agreed. These reports have usually been of good quality and show a close follow-up by BNDE on problem projects. IV. EVALUATION OF FINANIAL DEVELOPMENTS AND EXPECTATIONS Interest Rate 4.01 BNDE's rate increased to 8% in July 1971 but BNDE continued to receive a reduced maximum subsidy of 1%. In January 1972 the rate charged by BNDE rose to 9% and direct subsidy to BNDE was ended. However, borrowers were entitled to subsidies either in the form of 2% interest rebate and/or capital grants for fixed asset expenditures. A general review of the interest rate structure and investment incentives policy was undertaken with IMF assistance and resulted in August 1973 in the abolition of capital grants. However, all BNDE 's borrowers continued to be entitled to a direct Government rebate of 2% on interest paid to BNDE. The end result is that the effective - A.9 - interest rate paid by BNDE's borrowers amounted to 7% in 1974. In view of the slow inflation rate of 3% prevailing in Morocco at the time of appraisal, and the necessity to maintain BNDE's profitability while allowing it to secure more expensive resources the Bank's position appears reasonable in retrospect. Subsequently however, as inflation rates grew in Morocco, the need to increase the effective rate charged by BNDE became more apparent. Thus during negotiations for the seventh loan to BNDE the Bank convinced the Government and BNDE that an increase was justified. In July 1975 BNDE's rate was increased to 10% resulting into an effective rate of 8%, a 1% increase over the previous rate. Capital Structure 4.02 Total long term debt remained below the forecast level owing mainly to a lower foreign debt; domestic borrowings, however, increased five-fold from DH 26.7 million in 1971 to DH 145.7 million in 1974, versus DH 19.8 million expected that year. As a result, total long-term debt to equity generally remained below the forecasted levels, except in 1974 when it reached 9.2 to 1, owing largely to domestic borrowings. In respect to understandings regarding the opening up of the local resource market to BNDE, an increase in BNDE's domestic borrowing between 1971 and 1973 was made possible by four bond issueal/ guaranteed by the Government totalling DH 40 million, of 15- year terms and carrying an interest rate of 6.25%. The' rate on bonds has been further increased to 7.5%. As agreed with the Bank, the debt equity ratio of 4.5:1 was allowed to increase to 5.5 and was expected to remain within those bounds through 1975. The share capital increase of 1E 12.4 million achieved in December 1972 was designed to help maintain the agreed limit. In actual terms, it has remained.below 5.0 to I in 1971 and 1972. In 1973 and 1974, however,*it reached 5.3 to 1 and 7.1, respectively, and the Bank agreed with BNEE that a share capital increase was called for to remai within the agreed limits. In June 1975 BNDE's share capital was therefore 1/ These were in addition to DH 10 million in 3-to-9-month bond issues authorized in 1961 and regularly renewed by the Finance Ministry. - A.10 - doubled to IF 70 million and fully paid in, and the debt equity ratio was estimated at 3.1.:1/ Resource Diversification 4.03 IBRD financing accounted for 75.2% of total BNDE outstanding term borrowing at end 1970, and one explicit objective of loan 736-MOR was to reduce this dependency and increase the mobilization of alternative resource.- Though a slight increase of IBRD's share in BNDE"a outstanding term debt was registered in 1971, a sustained decline started in 1972 as BNDE's resource mobilization effort paid off; thus from 75.3% in 1971 the IBRD share dropped to 69.8% in 1972, to 60.6% in 1973, 48*3% in 1974 and 34.3% by June 1975. In August 1975 BNDE issued 8 notes in Saudi Rials of 100 million (DH 110 million) which were fully subscribed by 13 Lebanese, Kuwaiti and Saudi banks, and also signed a third loan from the Kuwait Fund for KD 6 million (D 85 million). As BNDE has increased its share capital, and its reserves and resources, the share of Bank Group funds in BNDE's outstanding resources has declined even further, thus achieving a long sought Bank objective. Profitability 4.04 BNDE's actual profitability level,although satisfactory, remained below expectations at the time of appraisal of Loan 736-MOR (see Annex 1 for details). Gross income levels were generally closer to those fore- cast except in 1973 and 1974 when personnel costs went higher than projected due to the need for BNDE to remain competitive in attracting good quality staff. Profit before taxes which was projected to more than double from DH 6.3 million in 1971 to DH 13.8 million in 1974, actually reached only DH 5.4 and IR 10.7 million in 1971 and 1974, respectively. This was mainly due to higher provisions against equity investments. Net,income levels were closer to 1/ Including DH 70 million of Government subordinated loan as quasi-equity and excluding DH 10.7 million in provision against loan risks as agreed with BNDE. - A.11 - expectations owing to actual taxes being somewhat lower than those projected. Returns on share capital and equity, while lower than projected, particularly after the share capital increase in 1972, nevertheless steadily increased from 22.5% and 12.2% in 1971 to 28.6% and 17.2% in 1974, respectively. 4.05 The good profitability performance expected by the Bank was thus achieved. As net profit steadily increased, this enabled BNDE to increase its dividend rate from 7% in 1971 to 8% through 1974. This helped BNDE to more than double its capital, secure important new loans and decrease its dependence on Bank Group funds. Provisions Against Portfolio Losses 4.06 Historically BNDE never created specific provisions against doubtful loans although, in order to take the maximum tax benefit, it made annual appropriations of income to a global "general reserve for loan risks". The total amount of such reserves was treated by BNDE as part of its equity and the Bank, both for this loan and the previous one, had accepted this treatment, since it was felt that BNDE's risk on its portfolio remained very small. on December 31, 1970, reserves and retained earnings amounted to 7% of BNDE's long-term portfolio as against loans in arrears of 2.3%, and no likely losses. Arrears of principal and interest in excess of three months increased from about D 1.5 million in 1968 to Ir 8.4 million by 1972 and DH 10.8 million by end 1973. Portfolio affected by major arrears increased from 2.3% in 1970 to 5.5% in 1972 and 9% in 1973. The worsening situation of arrears was mostly attributable to the textile sector which went through a difficult period and accounted for 46% of total arrears. The share of textiles in BNDE's portfolio has gone down (see below). In 1973 BNDE and the Bank agreed that specific provisions, estimated on a case-by-case review of BNDE's portfolio, would be excluded from equaTy in calculating agreed debt/equity limitations. As a result the 1974 aud1t report estimated after a case-by-case review of loans that DR 10.7 million in provisions against potential losses on loan portfolio should be set aside as above. - A.12 - Level of Operations 4.07 BNDE's actual and expected levels of operations at the time of appraisal are shown in Annex 3. Loan approvalsand commitments in 1971 and 1972 did not reach expectations, principally owing to the uncertain political climate and resulting investment slump experienced by Morocco in 1971-1972. Following an improved investment climate in 1973-1974 approvals and commit- ments picked up quickly to reach record levels at end 1974 and in mid-1975. Actual approvals of I 436.4 million in 1974 alone were 17% above total approvals for the 1971-1973 period. Cumulated approvals of DR 809.5 million for 1971-1974 surpassed expectations by 30%. Disbursements were, however, generally below expectations owing to delays in project execution during 1971-72. Equity investment approvals, which were not expected to grow substantially, amounted to two to four times the forecast levels. Dis- bursement on equity investments reached DH 34.5 million in 1973 versus expectations of DE 18.5 million. Generally expectations at the time of appraisal have thus been more than fulfilled although with a lag stemming from unpredictable political developments. Sectoral Distribution of Approvals 4.08 BNDE has made a notable effort to diversify its loan and investments in manufacturing sub-sectors. At end 1971 BNDE investment approvals in textiles and foo, industries represented 5.5% and 40% of its total approvalsV of DR 264.7 million; these percentages dropped considerably in 1972 reaching 1.9% and 3.5% but only to increase again in 1973 to 25.8% and 10.8% respectively. In 1974 textiles and foods accounted for 8.8% and 14.3% of total BNDE approvals respectively. When measured against direct loans alone the exposure in food and textiles has dropped substantially. In respect of this loan a marked drop in commitment in textiles has been achieved as expected. At any rate the textile sector has been reinforced by new balancing units and has weathered difficulties experienced earlier. 1/ Including rediscounted medium term loans - A.13 - Promotion of New Ventures -.09 The share of operations in new ventures which amounted to 52% of total BNDE approvals at end 1971, declined considerably in-1972 to a 16.5% following the general investment slump stemming from the political events of 1971-72. At end 1973 a steady increase started with operations in new ventures accounting for 44% of total approvals, and was sustained in 1974 with 56%. The extent to which BNDE's own promotional efforts led to this spurt of activity cannot be fully established since 1973 and 1974 saw the implementation of new projects from the 1973-77-Development Plan and the commissioning of a new investment code designed to attract more investments into the country. V. ALLOCATION OF LOAN FUNDS AND SUB-PROJECT ANALYSIS Cancellations 5.01 BNDE had committed the entire amount of the loan by December 1974, six months behind the appraisal estimate, but, owing to unpredictable circum- stances mostly beyond its immediate control, BNDE cancelled some $2.2 million representing 6.3% of the total loan (see Annex 4 for details). Reasons for cancellation included sponsors' reluctance to invest or to satisfy conditions agreed with BNDE; overestimate of foreign exchange require- ments; scaling down of investment programs; delays in implementations. A marked improvement was noted over the previous performance on Bank loan 660-MOR , for which cancellations amounted to $3.5 million or 23% of the total loan of $15 million. The progress resulted from closer follow-up by BNDE and cancellation of uncertain-projects being now replaced before the terminal date of commitment. - A.14 - Sectoral Distribution 5.02 Annexes 4 and 5 contain the details on the financial and economic data available for each of the sub-projects financed under.the Loan. Annex 6 provides the sectoral, geographic and size distribution of these sub-projects. The sectoral distribution shows a relative concentration on the food processing and energy (oil) sub-sectors mostly on account of the SUCRAFOR (food) SAMIR and SCP projects (energy) referred to earlier. In the past BNDE's financing of the energy sector has been insignificant. As for food processing and textile industries, they constitute the main-stay of private industry in Morocco. Geographic and Size Distributions 5.03 The Casablance-Mohammedia industrial zone remains the main pole of industrial investment in Morocco and as such has increased its relative share of BNDE investments from 30.8% in 1972, to 66.7% in 1973 and 71% in 1974. In regard to this loan, when major publicly financed projects in transportation (e.g.j COMANAV and Royal Air Maroc) and in the energy sector (e.g. sCp, SAMIR) are taken out, BNDE investments tend to be relatively well distributed. The geographical distribution,while generally reflecting the location of industry in Morocco,is wider compared to that of the previous loan. This redistri- bution results from new incentives selectively granted to industries.located inland outside the traditional industrial zones. The size distribution shows that 65 sub-loans of $1.5 million or less accounted for about 60% of commitments. It is noteworthy that 4 projects alone accounted for 40% of the Loan commitments (see Appendix on these 4 projects). Financial and Economic Criteria 5.04 As agreed, BNDE had continued to apply strict project criteria including calculation of the financial rate of return and the nominal and effective rates of protection. Projects financed above the free limit were estimated to generate internal financial rates of return ranging from 10% to 47%. Few projects financed by BNDE had a rate of return of less than 10%. - A.15 - ..05 As regard financing of more export-oriented and competitive industries the available data do not permit any conclusive statement. Out of 19 projects which were financed over the free limit, data were available on only 5 projects generating some exports. However, most of tne 19 projects are import substituting industries. Only 6 out of the 19 projects were estimated to have effective protection rates ranging from 60% for a textile project to 107% for a tire manufacturing project; the remaining projects had relatively low protection rates ranging from .7% to 20%, an indication of relatively satisfactory competitiveness. The available data also show that about 1500 jobs created in 15 "A" projects cost on average $77,545 per job, a high figure stemming from the predominance of expansion schemes in the.sample, and highly capital intensive projects such as Royal Air Maroc, the refineries, etc. Forecasts of Project Costs and Operations 5.06 As shown in Annex 5, actual project costs generally fall within BNDE's original estimates. Where cost overruns have occurred BNDE's super- vision, division was able to predict them on time for close monitoring allowing the staff and the promoters to work out alternative project designs where feasible,and new financing. In many cases promoters were to be blamed for late effectiveness (i.e., refusal to satisfy BNDE's conditions) of their loans leading to delays in implementation and cost overruns. 5.07 Concerning the financial projections the available data show a generally satisfactory realisation of expectations. Three big projects, SUCRAFOR, General Tire and SNCE/SOCEA show major losses that are traceable to factors beyond their managements' control,and which BNDE could not foresee. These factors include lag in Government contract (SNCE), lack of respon3lve- ness of farmers in project area to switch from traditional crops to new cne- - A.16 - (SUCRAFOR-- see Appendix), unexpected competition (General Tire). All three projects are being closely supervised and are expected to fare better in 1975. No project appears to be in serious difficulty. (See footnotes to Annexes 5 and 6, and Appendix). Factors leading to profit levels being below expectations include accelerated depreciations and accounting practices whereby company financial statements apparently fail to reflect the actual results of operations. Actual sales figures were generally within the expected levels and in some cases surpassed them; however, this good approximation of sales is not reflected in company declaration of profits to BNDE. VI. CONCLUSIONS 6.01 In retrospect the Bank's objectives and expectations as spelled out at the time of appraisal of this Loan were appropriate and timely. While subsequently unpredictable political events and economic developments beyond either the Bank's or BNDE's control played some role in affecting the full achievement of these objectives, the record as shown in this report was satisfactory, and in a fe, cases surpassed expectations. BNDE gives credit to its relationships with the Bank which, it felt, enabled it not only to increase its resource mobilization both domestically and internationally, but also to increase its institutional impact and effectiveness. EMENA/IC&DFC September 30, 1975 - A.17 - MROCCO - BNDE LOAN 736-MOR Appendix on four major projects financed under Loan 736-MOR SUCRAFOR Background 1. The project consisted of a fully integrated sugar refinery complex to be built in Eastern Morocco at Zai6. The total cost of the project, excluding working capital, was estimated at the time of appraisal, at EH 108 million to be financed as follows: EH '000 Equity 40.,000 Equipment grant 5,000 BNDE 42,000 Other 21,000 108,000 SUCRAFOR's share capital of IH 40 million was owned about 61% by two major European sugar producers, 17.5% by Moroccan individuals, 10.7% by BNDE and 10.76% by COSUMAR, a local sugar producer. BNDE's loan of JE 42 million in foreign exchange was to be refinanced I1 30 million from the Bank loan and DH 42 million from a Kuwait Fund loan which BNDE subsequently sought and obtained as agreed with the Bank. The Government strongly supported this project because of its location in a relatively depressed region, and consequently its socio-economic impact. The amount involved in BNDE's financing was very high but the Caisse Centrale de Garanties guaranteed the loan, as required by BNDE's Policy Statement, and the Bank exceptionally agreed to finance the project for a maximum of $6 million. 2. As agreed with BNDE, this project was directly appraised by the Bank in May"'June 1971. The integrated sugar refinery complex had these features: - A.18 - (i) the cultivation of sugar beets and cane was being intro- duced for the first time in the emigration prone region of Eastern Morocco where climate and soil met the required conditions. (ii) for the first time in Morocco beet and sugar would be processed in the same unit. (iii) the integration was total, i.e., from plantations to refined sugar, including,processing of production waste to distil alcohol. (iv) sugar was a surplus commodity and protection was expected to be high. 3. As agreed with BNDE, the Bank's appraisal mission also made these observations on BNEE's own appraisal of the project. (i) cultivable land areas were overestimated thus leading to optimistic production forecasts for both sugar cane and beet by BNDE. (ii) financial projections made by BNDE, though acceptable within the framework of the assumptions made, had to be revised to reflect observations in (i) and others made by the mission with regard to production costs, factory efficiency, selling prices and output mixes. (iii) the weakest point in BNDE's appraisal report resided in the absence of a convincing economic justification (there was "no economic cost benefit analysis"). Subsequently, however, an economic return of 10% was calculated by the Bank. 4. On the technical studies of the report (undertaken by foreign sponsors) the mission noted they had been thoroughly and correctly covered as regard the refinery proper. In this respect no changes were made in the estimated capital costs. Two major uncertainties noted by the Bank mission - A.19 - concerned: (i) prices paid to farmers, which had to be competitive enough to attract producers and low enough to benefit SUCRAFOR (ii) acceptable selling prices of refined sugar for SUCRAFOR to to be profitable while remaining competitive# B. Performance (i) Construction 5. The refinery complex was constructed on schedule as expected with a cost overrun of 8.2% financed by the sponsors. Cancellations of US$516,000 was partly the result of an overestimate of foreign exchange requirements and utilization of the Kuwait Loan, for part of the foreign exchange cost. (ii) Major Problems encountered 6. A major problem confronted the project. The introduction of sugar cane and beet cultivation was not as successful as planned. Whereas a supply of 130,000 to 140,000 tons of sugar beets was necessary to break even, only 81,000 tons and 78,000 tons were produced in 1971/1972 and 1972/1973 respectively. In 1973/1974 beet production was 88,000 tons versus 200,000 tons anticipated that year, whereas cane production, which was expected to start that year with 60,000 tons, reached only 10,000 tons. The poor agricultural performance was traceable to two main factors: (i) the Eastern. Region is emigration prone and agricultural labour is scarce there; this limits the areas of land that can be opened for cultivation. (ii) prices paid to local farmers were not competitive enough to make them shift from more lucrative crops in the limited cultivated areas; speculative agriculture characteri.-.s this region and although prices have been increased, they still remained largely uncompetitive. Technically there was also a lag in the irrigation program but this was partially compensated by better productivity. Thus beet yields have - A.20 - increased from 25 ton/hectare to 33 tbn/hectare. As for the factory, it has been operating well, albeit under the optimum capacity owing to lack of raw materials. 7. The financial situation resulting principally from low production levels and sales has been precarious with losses of about rl 4.0 million (before depreciation) in 1974 compared to I 7.3 million in 1973, and a negative working capital of DH 21.5 million. Lthough some improvemenT. occurred in 1974, financial situation remains insatisfpctory. Conclusions 8. The agricultural problems faced by SUCRAFOR were generally fore- seen but their actual magnitude was unexpected. Moreover they are beyond SUCRAFOR's management control. BNDE has been instrumental in pushing for a solution and currently is participating in a new share capital increase of IE 5 million and a rescheduling of 1974 loan payments in order to restructure company finances. A new management team has taken over recently to give impetus to new efforts being deployed. The Government is giving top priority to sugar refinery projects and is currently reassessing its policies with a view to increas- ing'sugar selltrgprices and prices paid to farmers, supplies of raw materials to SUCRAFOR from surplus areas etc. The objective is to revitalize SUCRAFOR but also to prepare the ground for five new sugar projects that are in the pipeline. In this respect more cultivable lands are to be open for beet and cane production. An effective increase in the prices of beet and cane from DH 76 and DE 59 to DH 96 and DR 65 per ton, respectively, is expected to lead to higher levels of production when coupled with an on-going intensification of the irrigation program. As for the labour problems, seasonal workers will be used in the future to offset chronic local shortages. SUCRAFOR is expected with these measures to break even financially in 1978 and to be profitable thereafter. - A.21 - SCP and SAMIR (Oil refinery Projects) Background 1. These two capacity expansions of existing refineries were simul- taneously appraised by the Industrial Projects Department in August 1971. The estimated cost of the expansion of SOP's capacity by 400,000 tons annually amountec to DH 85 million, of which IK 31 million was in foreign exchange. The SAMIR expansion of capacity from 1 million tons to 2.15 million tons consisted mainly of removing a bottleneck in the refinery complex at an estimated cost of DH 76 million, of vhich EH 40 million wa in foreign exchange. Authorizations from this Loan were $3.5 million on each project. Other financing included suppliers' credits, internally generated cash and rediscounted loans. 2. The conclusions of the Bank's appraisal report were generally favorable. The appraisal mission's findings were principally that both projects were well conceived and financially and economically justified. The appraisal mission did not attempt to calculate either the effective rate of protection or the internal economic rate of return because of high fluctuations in world prices for each petioleum product. However, the mission demonstrated that local refining by SAMIR was competitive with imports, and that SCP's refined products were less costly than imports. In the latter case savings were generated from crude oil transportation through a depreciated pipeline in the end a cheaper alternative to trans- porting finished products. The mission made some recommendations to the companies as well as to the Government regarding technical conceptions and design, marketing, and pricing policies. The mission also commented on BNEE's appraisal of large size projects. The comments were conveyed to Mr. Bargach then BNDE's General Manager, who was very receptive. Performance 3. Both projects were implemented on schedule without any cost overruns. The SCP investment program was subsequently scaled down resulting into - A.22 - cancellations of $687,000. Both projects are operating profitably and the financial expectations have been largely exceeded. GENERAL TIRE OF MOROCCO Background 1. The General Tire and Rubber Company of Morocco was created in 1958. The Bank refused in 1963/64 to finance General Tire, under BNDE I, because of what we considered excessive protection (monopoly). At the time of appraisal of the present project, the company was 52% owned subsidiary of GTR of Ohio (USA), while the Government owned 42% of the Company's capital of I 25.2 million. The proposed project involved a production capacity expansion of 50% (from 363,000 units to 540,000) including a diversification of product line to manufacture radial tires. Total cost was estimated at IH 31.5 million, excluding worldng capital, of which IH 14 million, in foreign exchange, to be financed by BNDE, DH 11.5 million from cash generation and DH 6.0 million from a rediscountable loan. The forecasted profitability was a 22% internal return. The effective rates of protection on the two main types of tire to be produced were estimated at 55% and 77%. Performance (a) Construction 2. The project was implemented with a 9-month delay partly due to misunderstandings between BNDE and USAID on the matter of procurement. Although BNDE tried to solve the problem by having the Bank increase its original commitment from $2.1 million to $2.85 million in August 1972, the 90-day rule precluded such financing subsequently. As a result $565,000 were cancelled after the investment program was reduced. (b) Operations 3. Actual production and sales were below the projected levels in 1971-1973, with the gap increasing in 1973, due to the following factors: (i) Delay in implementation - A.23 - (ii) Unexpectedly tough competition from Goodyear, a-new tire manufacturer installed in 1971 in Morocco, which took 15% of the tire market leaving 69% to GT in 1973 compared to the 83% it held in 1972. It was projected that by 1975 OTR would have 84% of the tire market, after allowing for the Goodyear production. (iii) Unexpected increase in raw materials prices (oil) that were not entirely passed on to customers because of price controls affecting the tire industry; although prices were increased y 25% in 1974, this was insufficient for GTR to break even. (iv) Though the tire market is protected by quotas, OT is unable to sell to existing auto assembly plants which are still allowed to import tires. These imports were expected to be replaced by GTR's production. (c) Financial Situation The Company's financial performance did not measure up to expectation as shown in Annex V. A tax audit undertaken in 1974 led to payment of back- taxes thus increasing the deficit for that year in spite of a 13% increase in sales revenu over the previous year. The financial situation remains unsatisfactory. Conclusions 4. The market prospects for GTR were overestimated, and the higher unexpected raw materials prices and the continued imports by local auto assembly worsened the picture. However, a solution is in sight. BNDE has impressed upon the Government the need to review current policies in order that (a) tire prices be further increased to absorb higher production costs and (b) local assembly plants be required to purchase locally manufactured tires. Prospects are good that both of these objectives will be achieved. General Tire is also actively exploring alternative export markets, to solve - A.24 - its pressing problems, through the worldwide marketing network of the parent company, GTR of Akron (Ohio, USA). Whether GTR's tires would be internationally competitive has not been demonstrated. RN&A/IC&DFC September 30, 1975 BNBE: INCOME STATEMENTS, PROJMCTED AND ACTUAL (Million of Dirhams) 1971 1972 1 j~ 197 Proj. Act. Pro . Act. Proj. Act. Pro. Act. INCOME Interest on direct loans 18.9 18.6 25.2 24.7 32.5 29.5 38.3 39.0 Interest on rediscountable loans 1.2 1.4 1.6 1.9 1.4 1.8 1.5 2.0 Dividends 0.9 1.0 1.1 1.7 1.6 2.7 1.9 2.8 Commitment fees and other income 1.0 0.5 1.1 0.9 1.1 1.2 1.1 0.9 Total Income 22.0 21.5 29.0 29.2- 36.6 3E 2 42.8 44.7 EXPENSES Charges on borrowings 12.5 11.8 17.0 16.6 21.9 19.8 25.5 26.5 Personnel costs 2.1 2.4 2.2 2.9 2.3 3.6 2.4 4.3 Other administrative charges 1.0 1.0 1.0 0.9 1.0 1.0 1.1 1.9 Depreciation and amortization - 0.3 - 0.6 - 1.0 - 0.7 , Provision for losses on- equity investments 0.1 0.6 0.1 1.0 0.1 0.9 - 0.6 1 Total Expenses 15.7 16.1 20-3 22.0 2!.1 26.3 29.0 34.0 Profit before taxes 6 5.4 8.7 7.2 11.3 8.9 13.8 10.7 Income taxes 1.4 0.9 2.2 1 2.8 1.3 .3_71.4 NET POFIT 4.9 4.5 5.9 8.5 7.6 10.1 9 APPROPRIATION: General reserve for loan risks 1/ 2.5 3.4 3.9 5.4 Legal and other reserves 3.1 0.k 4.2 0.4 5.4 0.5 6.4 0.4 Dividends 1.5 1.4 1.6 1.4 2.4 2.6 2.4 2.6 Unallocated 0 0.2 0.7 0.7 0.7 0.6 . .9 3 109$.31 1/ At the time of appraisal for loan 736-MOR, BNDE did not create specific provisions for doubtful loans; global reserves against loan risks were, however, accumulated through annual appropriations of profits and treated as part of BNDE's equity. EMENA/IC&DFC Allit, 1975 - A.26 - g o aLANME SEETS, PROMCTED AND ACTUAL (umn or Dirfst) 2!urre nste Casb and short-term Ivestements 22.0 19.3 32.0 18.8 32.0 19.3 32.0 28.2 Reoivables amd others 6.0 12.1 6.0 16.6 6.0 22.9 6..' 26.3 TO Current Assets 73 . _ I Unstlat Portfolio ees oatstanding 281.9 279.h '390.9 328.3 A81.9 393.0 532.9 529.1 Rquity investments 280 32.2 34.5 47.2 41.1 54.5 3.5 59.9 .Iss provision for loss =n equity investment (2.8) (Q.2) (2.9) (3.2) (3.0) (4.2) (3.0) (15.5)1. Debectures and Goverment bonds - 1.0 - 1.1 - 1.3 * 1.5 Fixed Assets 3 9 . . 36 ' 37 3 3. Daerred Charges 0.6 0.7 - 0. - 1.4 WAL AS S1 h&6 13 3 561.6 490.9 6 6 Wmlibilties bart4em borrowings - 19.6 9.2 - 19.2 - 57.7 D1vidend and taxes payable 2.9 2.3 3.7 2.7 5.2 3.8 6.1 4.o Other Current liabilities 17.2 16.0 25.8 . U 26.9 26.L Total C~ru 20.1 2.9 29.5 23.6 J kU U -2- lang-twum Deo Foreign debt 213.7 203.7 316.8 239.8 403.4 25i.0 5. 2 Goverment loans 40.0 40.0 40.0 40.0 T0.0 74.0 . o.o Other domestic borrowings 26.7 26.7 24-.L h4.4. 22.1 60.8 19.8 145.7 Mchange gains due to 0oement 2.3. hare capital 20.0' 20.0 30.0 32.4 30.0 32.4 30.0 32.L Reserves ad retand earnigs 18 1. 25 Y9 29.6 24* ~ 4 TOAL LIABILITIES AND EQUITT 3.0 461-2 k 61.6 LL91- 61h-I jV.c Principal & Interevt over 3 months (Iooo's) - 6.8 - 7.0 . 10.8 - * Portfolio affected (%) - n.e. - 5.5% - 9% - - Met Profit to share capital 2&.8% 22.5% 21.9% 18.2% 28.3% 23.5% 33.8% 28.64 aet Profit to average equity 17.2% 12.2% 18.9% 13.3% 20.1% 1L.0% 21.8% 17.2. Dividends 7.5% 7% 8% 7% 8% - 8% 8% a Total term debt/equity 7.0:1 7.1:1 7.1:1 6.5:1 7.8;1 6.8:1 7.7:1 9.2:1 Debt/equity (IBRD Agreement) 3.9z1 4.0l 4*s1 4.8:1 5.131 5.3:1 5.2:1 7.1:1 _V Including W 10.7 million provision for losses in loan portfolio. At the time of appraisal for loan 736-MOR ENDE did not create specific provisions for doubtful lonsal global reserves against loan risks were, however, accumlated through annual appropriations of profits and treated as part of RNDE's equity. Starting in 1974 an estimate of provisions against potential losses is made by a case-by-case review by the auditors. Mna/c&DFC September, 1975 BNDE OPERATI)NS: PROJECTED AND ACTUAL (Millions of Dirhams) 1971 1972 1973 1974 Proj. Act. Proj. Act. Proj. Act. Proj- Act. I. Direct Loans Approvals 170.0 113.3 150.0 112.8 15o.o Wh. 150.0 436.4 Net Approvals 154.0 110.2 145.0 87.8 - 147.0. - 436.4 Comitments 160.0 148.9 135.0 89.4 135.0 143.9 135.0 360.0 Disbursements 103.0 96.3 155.o 97.9 146.0 117.5 131.0 200.0 II. Equity Investments Investments approved 8.5 17.9 3.0 8.9 2.0 8.3 2.0 11.6 Commitments 8.5 17.9 3.0 8.9 2.0 8.3 2.0 6.8 Disbursements 5.9 12.3 6.3 14.9 6.3 7.3 2.0 - III. Redisgountable Mediun-ten Credits Approvals 80.0 134.0 60.0 65.0 60.o 71.0 60.0 181.7 Comnitments 80.0 134.0 60.0 67.0 60.0 71.0 60.0 181.7 Outstanding, end of period 214.3 - 196.9 - 195.6 - 190.6 - EMENAAC&DFC August, 1975 MORDCCO BNDE -Loan 736-HDR Subprojects Above the Free Limit Project Amount Cancell- Amount Reasons for Comletion Date Estimated Financial Plan (Original) No. Name Activity Location Committed ations Disbursed cancellatio O Project coat 1 NDE Other Equity/ Actual (F0 (quter) (DH .000) . Loans Loans 2 int. Cach Cost b/ 7-5H,657 T (H, -65 7 (DHIOOO) )-1 Sucrafor (n) Food Zato 6,000 516 5,484 f 1972 1972 108,000 12,000 21,000 15,000 116,8501/ A-2 Samir (a) Energy Moham 3,513 -- 3,513 - 4/1972 1/1973 109,206 30,000 50,648 28,558 95,724 A-3 SCPA (a) Energy Sidi-Kacem 3,500 687 2,813 b 2/1972 2/1972 72,760 25,000 32,580 15,180 60,000 A-h R.Air Maroc (a) Transp. Casa 1,200 187 1,013 b 1970 1970 0,105 6,000 25,200 8,905 40,105 A-5 Sodim (n) Mining Zeida 2,h00 1,108 1,292 d 0/71 1/72 45,500 12,000 23,120 10,380 53,0006/ A-6 Asafil (n) Textile Sari 1,000 378 622 g 03/72 4/72 15,872 5,000 2,000 8,872 7,36 T/ A-7 Ondu:ar (a) Packing Casa 700 190 510 a 01/72 9,000 3,500 809 4,691 1 1-3 M. Leasing II (q).Leasing Casa 800 -- 800 - - 11,500 h,000 - 7,500 U,500 A-9 0. Tire (s) Chem Casa 2,851 565 2,286 a & b 04/71 01/72 31,516 14,000 6,000 11,516 26,1502/ A-10 Filroc VII (a) Textile Rabat 652 -- 652 - 03/72 4/73 6,000 3,000 - 3,000 6,340 A-11 Cocena (n) Housing Fez 987 382 605 1 03/72 04/72 12,160 4,600 1,440 6,120 9,865 A-12 Cinento Agadir (e)Construct. Agadir 2,575 1,318 1,257 g & f 04/73 01/74 30,7L2 12,000 7,000 11,72 31,207 A-13 S:CE-!OCEA () CeWnt pipe Bef Ksri 820 410 410 b 01/73 01/73 14,118 5,000 1,000 8,118 11,061 P-1L Shell (a) Energy Mob 536 161 375 g 01/73 03/73 10,000 2,500 2,000 5,500 6,291 0-15 X. Leasing II Leaqing Casa 763 -- 763 - - - a-16 Cofitax Textile Fez 598 346 251 b 04/74 03/7 3,89 2,509 - 1,394 1/ 1 a-17 Comanav III () Transp. Casa 859 -- 859 - 04/72 37,380 12,000 6,000 19,380 37,380 A-1 Maghrebail Leasing Casa 955 45 910 g - - 5,750 h,000 - 1,750 5,750 , )-19 SuCe HI (W) Ceunt pipe Bouk 889 32 565 s 9,575 4,5oo 1,500 3,975 i0 00 Subtotals 31,598 6,615 24,983 Key to CancellationsNotes a. 90 da rule 1 Including working capital b. reduction f original investment program Mostly rediscounted medium term loans frm c mercial banks c. financed partially or entirely from equity Including where applicable equipment premium d. procurement of locally available equipment ecluding working capital 9. project withdrawn SeApni f. finamed from other credit lines Cost overrun of DH 7.5 million due to underestimation of interest g. delay in implementation beyond closing date during construction and cost of civil engineering. Being financed h. coat savings on imported machinery from equity i. cost savings combined with suppliers, credit / Project still under construction - Delayed by disagreement among j. procurement from countries not eligible for IBRD financing partners that led to a lag in equity refunding - Moroccan partner is financing the whole project now from equity 8/ Information not available 2/ See Appendix 0 Information not avaLlable FepemoeI PP5 - A.29 - myrU IV SKIDJ E - Lou 736-ER AUnt 2 Bubpojec Beow te Fee LmitPage 2 Proje~ A~uit Canceu- Amunt eeonn for Nase Activli LffatAonm Co~emttem ationm Digburse egnel)^tion ®sv#n (W'a0 Wwr WM 3.1 . afrit s ..b 1l40 6 km6 g N-2 Car. et Eat. 120 120 -- o p B-3 M.K.A. Appianes Mham 300 61 239 g B- Staip III 2W - 200 - B-5 c--a 5m 500 - Prao~ rejeot g aW G ~o b6 % ~ b KM ~ - MYA~* R ddeft reced BUDE loans iw 12 10e -8 Minot 3. MegdoIl Food iJ0. 5 135 b B-9 Maroc BLjoux 10 100 -- ' B-10 BerUct Mar. Mech. 160 3 157 3-11 Fru~m v 200 25- 175 B-12 ladi B. Azou 96 87 9 b B-13 otlas Pood Food 190 86 106 b 3-111 Sotraf 220 220 - P i D-15 Pbulina Za~l*h road 360 31 329 £ B-16 Commor 160 160 - 0 ad~ faned tro. equity B-17 CoplaUtio 220 29 191 a g 3-18 sala 160 19 41 d B-19 .n 121 89 32 b 3-20 Proro 1m 12 8 B-21 Mulite III Textiles Caa 500 - 500 . B-22 BrIquet. Cher. Contruct. 318 - 318 . 9-23 Der 11 Kitab PubUah. 180 80 100 6-2 Nouv. Sonatam 280 1a 139 B-25 Left II 160 50 110 B-26 Narc T au Pipes ~entm 360 14 3b6 b 3-27 om Trmnap. Caa 310 - 300 . 9-28 SO 92 -92 - B-29 Orame Moulin Food Fes 363 - 3k3 - 5-30 piltax Text. 150 150 -- re* 21amaoa trm egtw B-31 So*ta 128 37 91 b 8-32 CTWMLigne Transp. Cal' 2x - 236 - B-33 Brotserie Afrien Textile 29 21 108 B-34 Blanchiseeries Service 4 6 -- B-35 .~aghreb Couleure Chacal 75 58 17 £ D-36 salaa 1B 139 - g B-37 Procia 52 52 .- £ B-38 aroc Löaming 1-II Leauing Ca« b29 - 129 - B-39 Roral marocaLne 12n - 128 - B-0 Snoe Pipec 370 60 d B-Ul nin it2i 18 B-42 STAM III Cone./Agri. Melnaesc 322 66 256 - B-43 Frigos Moderaneu 72 72 8-4 Contreplaquec ood Sebon 429 e29 - Prm e drm 3-1.5 SICE Ii Pipes Alt Outdn 294 50 2h44 B-46 Briq. I~llia Conet. 311 107 204 c e h B-47 Moulna sanda Food 25 3 180 g 3-48 Tanlon 91 15 76 B-49 Le Triangle 8 - 86 - B-50 Am1iquant ?ar. 53 53 - £ B-51 Briq. Konitra Const. 179 - 179 B-52 ropates Food 155 - 155 - B-53 Orbonor IX Textlee Can 16 -- l06 - B-54 Briq. Borrish Conet. 226k 6l lM B-55 Fru~ VI 176 1a 75 £ B-56 8*ria 119 15 -,106 B-57 BMtaariG Afr. Ttiles 107 c0 - e i,m., e 3-58 Dalet IV Nach. 176 139 35 B-59 Le son Lalt d 70 35 35 £ ub-total nr" projecta 12,299 4,617 7,792 -ttal *A" projeote 31,598 6,615 26,983 hMW 63,0 1,032 32,775 gE to cancl stiong a. 90 day rulc b. reduction of original investment progran c. financed partially or entirely from equity d. procr~nt of locally available equipment e. project vithramn f. iiunaoe f.a other credit line, g. del~ in Lpleentation beyond closing date h. c cOsavInks an i~prted annr7 1. aest eavir4 combined with supplirer' crefit j. procurement ro countries not eUgible for IBRD financing 1/I t uacoco BnS - Loan 736-MM Economic Impact Sub-project Above Free Limit Incentive Protection Employment Estimated Proj. Name Activity Received Nom/Eff Generated FRR OBSERVATIONS No. 1-i Sucrafor Food 1-2-3-5-9-io 23/49 2/ 251 10% 1/ A-2 Samir Energy -2/ 20 13 A-3 SCP Energy - - 20 11 A-4 Ram- Transp. 1/ - 130 10 A-5 Sodim Mining - 0.3/-1 140 11 A-6 Asafil Textile - 30/60 198 20 A-7 Ondumar Packing - 42/93 97 19 A-8 M Leasing IX Leasing - . - A-9 0. Tire Chemical 1-3-4 2/-7 66 22 A-10 Filroo VII Textile - 20/107 60 25 A-11 Cocema Housing 47/78 96 - A-12 Cimenta Constrct. 1-2-3-4-7-9 6/10 1 16 12 A-13 SNCE/SOCEA Cement Pipe 1 - 4 14/20. i) 10 A-14 ShellOil Energy . - - 47 A-15 M. Leasing nz Leasing - 0 A-16 Cofitex Textile 5 - 20 25 A-17 Comanav III Transp. - 200 10 A-18 Maghrebail Leasing - - - A-19 SNCE III, Cement Pipe - 14/20 101 20 Key to incentives NDteS 1 free of import duties tax free provisions 2 registration tax reduced refined sugar only; for raw sugar 86/32 3 free of license tax foreign exchange savings estimated at 4 accelerated depreciation about rH 58.1 million (us$ 13.0 million 5 equipment premium approximately) 6 selectivity premium 4/ Idem EH 11.6 million (US$ 2.4 Million) 7 interest rebate Economic return estimated at 10,9% 8 reimbursement service tax 9 stabilization of fiscal regime 10 guaranteed payment of dividends SF'IA/IC & DFC Sente-Nber 1975 M)ROCCO t BNDE Loan 736-MN)R Sub-projecta Above the Free Limit Projoctod and Actual (DH '000) Project Forecasted Profite Actual Profits Forec Actual Sales No. Name 1972 19733 174 1 1972 197973 9M A-1 Sucrafor* (1,940) (3,913) 225 (128) (7,326) (3,979) 24,848 33,724 43,309 1,412 21,552 21,746 A-2 Samir 4 2,433 360 1,937 178 1,802 3,200 153,500 158,850 166,361 170,925 225,587 737,494 A-3 scP * 1,230 1,500 1,400 2,330 3,643 2,262 94,280 99,860 106,360 298,373 307,030 587,466 A-4 R. Air Maroc 2,612 4,625 6,975 1,558 2,781 48 175,660 195,900 212,880 178,191 222,583 255,786 164,109 198,131 225,778 A-5 Sodim.1/ (53) 1,044 1,075 171 2,242 23,700 28,045 28,045 31,930 54,586 A-6 Asafil 2/ 290 669 840 589) 156) ( 30) 10,200 20,400 20,400 579 7,117 9,166 - 1,200 A-7 Ondumar * 487 816 1,175 3.943 4,808 5,658 A-8 M. Leasing II 3,310 3,780 4,0o40 1,819 1,733 2,219 22,390 25,860 28460 24,173 24,815 27,275 A-9 0. Tire * 6,332 8,005 9,048 3,164 (1,117) (2,729) 108,600 115,100 120,550 69,514 64,hl3 83,895 A-10 Filroc VII 1,540 1,950 2,415 1,802 2,659 2,588 25,000 28,000 31,000 30,000 36,000 38,295 3,610 5,705 A-11 Cocema ( 534) ( 234) 424 171 Q8 1,469 3,224 4,241 2,856 9,450 A-12 Ciments 889 814 866 1,266 453 358 16,175 16,680 21,750 15,451 17,351 28,417 3,062 A-13 SNCE-SOCFA }/ -- 122 5 20 -- A-3 SCESCA 77 12 50 - - (1,1400) -- 10,263 11,973 -- 6,909 6,907 A-1 Shell -- 9,622 10,776 11,193 10,131 308,751 331,876 312,886 522,450 A-15 M. Leasing XI *I A-16 COFITEX -- 1,165 1,535 1,106 1,681 1,1oi 27,200 28,300 29,735 29,861 30,527 2,878 10% 10% A-17 COMANAV III -- 1,965 4,354 823 2,455 3,662 111,882 316,043 103,511 104,353 180,117 A-18 Yaghrebail -- 33 226 3 205 1,084 4,610 1,164 3,614 A-19 SYCE 1114/ 1406 1,451 1,562 3,931 12,352 37,174 143,603 81,525 VWotes *See Appendix *'information not available 1/ Unforeseen fluctuations in international prices -of lead and zinc; witki better priees company finices w(ro 18a)(lUd2r 6) (3,7 w9i 2W5 i,: mp8 ,3 I1 2 2w al2 2 -I 1Delay in project implementation stems fr1m disagreement between part.2rs -Moroccan partner has taken over and paid all arrears and 1975 prospects are good 3Delays in Government contract2 and resulting delay in expected payments 9NDE is closely following up 1/Proj ected and actuals are not comparable F74FN4AITC & DFrr 1,5 271 68 15,6)9590 1,801819 225325,861610 981122,7 - A.32 - BAMUE NATIONALE POUR LE DEVELOPPEMENT ECONDMIqUE A X VI Sectoral, Geographic and Size Distribution of Projects Financed under loan 736-MOR (as of December 31, 1914) No. of Amount of Sectoral Loans Loans ($000) Percent Textiles 7 2,946 8.4 Food Processing 1/ 14 7,428 21.3 Construction Industries 5 2,840 8.1 Civil Engineering 8 2,888 8.3 Transportation 6 2,496 7.2 Mechanical 6 856 2.5 MLning 1 1,292 3.7 Financial (leasing) 4 2,947 8. Petroleum industries 4 6,971 20.4 Miscellaneous 14,228 12.1 69' 34,892 Z/ 100.0 Geographical Casablanca 32 11,865 31.0 Rabat 7 3,715 10.6 Marrakech. h 403 1.1 Fea 4 1,604 4.6 Meknes 6 1,216 3.5 Tanger 2 388 1.1 Agadir 1 1,309 3.8 Kenitra 2 525 1.5 Mohammedia 1 3,513 10.0 Beni Mellal 1 91 0.3 Oujda 1 215 0.6 Berrechid 1 224 0.6 Zaio 1 5,484 15.7 Sidi Kacem 1 2,813 8.0 Safi 1 1,000 2.9 Essaouira 1 135 0.4 El Jadida 1 41 0.3 Taroudant 2 351 1.0 69 34,892 100.0 Purpose of Investment New Enterprise 24 10,817 31.0 Extension 45 24 075 69.0 69 34,892 100.0 size (US$'000) 01 - 500 52 9,612 27.6 501 - 1000 10 7,570 21.7 1001 - 1500 3 3,614 10.4 1501 - 2000 - - - 2001 - 2500 1 2,286 6.6 250L - 3000 1 2,813 8.0 3001 - 3500 - - - 3501 - 4000 1 3,513 10.0 hotM - 4500 - -- 4500 - over 5,484 15.7 69 34,892 100.00 1/ Including US$5.5 million for SICRAFOR 2/ Does not reflect subsequent cancellations EMENA/IC&DFC September, 1975
Groupe de la Banque mondiale · Project Performance Assessment Report
Morocco - Fifth Banque Nationale Pour Le Developpement Economique (BNDE) Project
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Organisation
Groupe de la Banque mondiale
Type de document
Project Performance Assessment Report
Pays
Maroc
Source
Banque mondiale