Burundi - Development Bank (BNDE) Project

Document of FILE OPY mThe World Bank FOR OFFICIAL USE ONLY Report No. P-2116-BU REPORT AND RECOMMENDATION OF TIHE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF BURUNDI FOR A DEVELOPMENT BANK PROJECT June 23, 1977 This document has a resticted distribution and may be used by recipients only in the performance of their official dutes. Its contents may not otberwise be disclosed without World Bank authorIalIon.  Currency Equivalents Unit Franc Burundi (FBu) US$1 FBu 89.55 FBu 100 - US$1.12 Fiscal Year January 1 - December 31 ABBREVIATION BNDE - Banque Nationale de Developpement Economique  BURUNDI DEVELOPMENT BANK PROJECT Credit and Project Summary Borrower: Republic of Burundi Beneficiary: Banque Nationale de Developpement Economique (BNDE) Amount: US$3.4 million equivalent Terms: Standard Onlending Terms: -1. The Government would onlend US$3.0 million of the proceeds of the credit to BNDE at an interest rate of 5 percent per annum for a period substantially in conformity with the aggregate of the amortization schedules of the subloans. 2. The Government would make available to BNDE as a grant an amount not exceeding US$400,000 to finance technical assistance to the Industrial Development Unit to be created within BNDE. 3. BNDE would relend US$3.0 million of the proceeds of the credit. to subborrowers at an interest rate of at least 9 percent per annum. Amortization would be for a period not exceeding 15 years including appro- priate grace periods. 4. The foreign exchange risk would be borne by the Government. BNDE's subborrowers would pay a charge of 1 percent per annum to compensate the Government for taking the foreign exchange risk. Project Description: The project would assist- in_financing: (i) BNDE's foreign exchange requirements for its development finance operations during 1977-1978. (ii) two technical experts for BNDE's Industrial Development Unit. Final Date for Sub- prolect submission: September 30, 1979.  ii Free Limits: US$100,000 for individual subloans with an aggregate limit of US$1,000,000. Debt limitation covenant: Maximum debt/equity ratio 4:1 Estimated FY US$Million Cumulative Disbursements: (US$ million) 1978 0.5 0.5:- 1979 1.2 1.7 1980 1.0 2.7 1981 0.7 3.4 Technical Assistance: BNDE would recruit two experts in engineering and industrial economics/financial analysis (36 man-months) to assist in project appraisals and advise develop- ment enterprises on project preparation and implementation. Appraisal report: Report No. 1460-BU dated June 10, 1977; Industrial Development and Finance Department.  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMIIENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF BURUNDI FOR A DEVELOPMENT BANK PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Republic of Burundi for the equivalent of US$3.4 million on standard IDA terms to help finance the foreign exchange require- ments of the National Economic Development Bank of Burundi (BNDE) during 1977-1979. US$3.0 million of the proceeds of the credit would be relent to BNDE at an interest rate of 5 percent per annum for a period conforming substantially to the aggregate of the amortization schedules of BNDE's sub- loans. The balance would be made available to BNDE as a grant to finance technical assistance. PART I - THE ECONOMY 2. The last economic report on Burundi (504a-BU) was distributed to the Executive Directors on January 14, 1975. This was followed by an economic memorandum (885a-BU) distributed on October 24, 1975. An updating economic mission is scheduled for June, 1977. Country data are provided in Annex I. 3. On November 1, 1976, the Army dismissed the regime that had been in power since 1966 and suspended the Constitution. A new Government was appointed, and it has stated that it will pursue policies of sound economic management and national unity in respect of ethnic and regional differences. Project implementation and the preparation of new development projects are being accelerated. 4. Burundi is one of the 25 least developed countries as defined by the United Nations. It has a per capita income estimated at US$100 in 1975. Over the past five years GDP has grown by no more than 2 percent annually in real terms. Of a population of 3.7 million, only 115,000 are in wage employment; the remainder depends mainly on subsistence agriculture. The agricultural labor force is largely untrained, and the level of enrollment in formal education is one of the lowest in Africa. 5. The economy is dominated by the agricultural sector. Food crops account for over half of GDP; other crops, of which coffee remains by far the most important, account for a further 10 percent. In the 1974/75 coffee season, production reached a record of about 28,000 tons, 35 percent higher than the preceding year. The large harvest combined with a higher producer price resulted in a 62 percent increase in farmer incomes derived from coffee with consequent multiplier effects in both industry and services. Production  - 2 - in 1975/76 fell sharply to about 15,000 tons adversely affecting rural incomes, but in 1976/77 increased to 20,000 tons yielding about US$50.0 million of export revenues as a result of the markedly higher coffee prices in the world market following the frost damage of Brazil's coffee trees. Farmers' income improved when the Government adjusted the producer price from BuF 39 per kg in 1975 to BuF 64 per kg in 1976. 6. Burundi has become increasingly dependent on coffee for foreign exchange earnings; the share of coffee in total exports rose from 79 per- cent in 1965 to 87 percent in 1975. The higher coffee prices have greatly strengthened Burundi's balance of payments. By the end of 1976, reserves stood at a level equivalent to about eight months of merchandise imports. Rising import prices, combined with increased internal demand, caused, how- ever, a record 23 percent jump in the cost of living index for low income urban families during the year ended March 1975. Since then price increases have been moderate. 7. The level of investment has remained consistently low, averaging only 8 percent of GDP between 1970 and 1975. Domestic savings have amounted to only 5 percent of GDP over the same period, approximately equal to net capital inflows. Close to half of total gross capital formation was financed by external aid. 8. Due to higher coffee prices, government revenues in 1974 were 14 percent above the level attained in 1973, while current expenditures grew at only 9 percent. Thus, the Government's budgetary savings as a per- centage of total Government investment increased from 13 percent in 1973 to 28 percent in 1974. In 1975, expenditures increased 10 percent whereas revenues remained static, giving rise to a small current budget deficit. 9. Burundi faces a formidable set of disadvantages, including excessive dependence on coffee as the single export for foreign exchange, long and inefficient transport links for external trade, rudimentary in- frastructure, and a largely untrained labor force. In the past, civil strife has disrupted development and diverted resources. The lack of a coherent development strategy was an obstacle in overcoming these defi- ciencies. In the past year some encouraging measures have been taken to address these problems. A Ministry of Planning has been established, improvements are being made in financial administration and a number of agricultural projects are under preparation. The Ministry of Planning, whose staff is being strengthened with IDA assistance, has embarked on the preparation of a comprehensive development plan and is initiating and moni- toring new projects and coordinating external aid. 10. The short term prospects for the economy are favorable, as coffee prices are expected to remain at substantially higher levels than before 1976. In the longer term, if the Government continues to focus on develop- ment and strengthen its administration, it may achieve steady, albeit slow, improvement in per capita incomes. If mining of Burundi's nickel deposits proves feasible the prospects over the next ten years would be  - 3 - much better. However, although such a development appears technically pos- sible, the commercial viability of exploiting these deposits has yet to be established. Regional development in Central Africa will also be important to Burundi's economy. On September 20, 1976 Burundi, Rwanda and Zaire signed a convention establishing the "Economic Community of the Countries of the Great Lakes". The Community, which has its seat in Gisenyi, Rwanda, aims interalia at stimulating and intensifying intra regional trade and cooperation in a wide range of activities. Preparation of a regional power project and a cement factory are underway and discussions are being held to facilitate the circula- tion of persons and goods within the Community. 11. Disbursments of official loans and grants have averaged US$16.7 mil- lion p.a. during 1974-75, the main contributions coming from Belgium, the UN agencies, IDA and the European Development Fund. Technical assistance has accounted for about half this aid. In the 1971-75 period, total net foreign capital inflows amounted to about US$70 million, of which US$57 million was in grants. On December 31, 1975, Burundi's external medium and long-term debt amounted to about US$14.6 million excluding undisbursed amounts. Of this the Bank and IDA together hold 30 percent. Debt service averaged 4.0 percent of export earnings during 1972-75, with the Bank Group receiving 26 percent of all debt service payments. Due to the large grant element in external assis- tance, the Bank Group will probably continue to hold a high proportion of Burundi's debt as well as be the recipient of a large share of its debt service. Notwithstanding the low debt service ratio, however, the country because of its poverty is not able to absorb any borrowing on commercial terms. External aid should finance a high proportion of total project costs, including part of the local expenditures, and it should be on grant or very concessional terms. PART II - BANK GROUP OPERATIONS IN BURUNDI 12. Since independence, eight credits have been made to Burundi, total- ing US$30.7 million. The first credit for US$1.1 million, was made in 1966 for the rehabilitation and extension of Bujumbura's water supply system. A credit of US$1.8 million was made in 1969 for the improvement of coffee production by smallholders, followed by a second credit of US$5.2 million for the same purpose in November 1975. The latter project is cofinanced by the Kuwait Fund and Belgium in an aggregate amount of about US$1.8 million. A credit of US$5.9 million for a highway maintenance project of 1974 was based on an engineering and highway maintenance study financed with a US$380,000 credit of 1970. A Technical Assistance credit of US$1.5 million was made in 1976 to help strengthen planning, statistical services and project preparation and a US$6.0 million credit for a Fisheries Development Project in 1976, to increase fish production in Lake Tanganyika and prepare rural development projects. The Fisheries Project is cofinanced by a US$1.2 million loan from the Abu Dhabi Fund. A US$10.0 million credit was made in April, 1977 to help finance a primary education project. Project execution  - 4 - is generally satisfactory. Annex II contains a summary statement of IDA credits as of April 30, 1977 and notes on the execution of ongoing projects. 13. The future lending program aims in particular at increasing agri- cultural productivity to improve the nutrition and living standards of the impoverished rural population. In September 1976, a mission visited Burundi to discuss a possible rural development project including the establishment of agricultural development centers in several parts of the country. The project is being prepared by the Government of Burundi with assistance of our Resident Mission in Eastern Africa. We will continue our assistance for expanding and improving the road network, a prerequisite for rural development, and have appraised a second road project in February, 1977. In addition, we expect to expand our assistance to Burundi to improve primary and technical educa- tion as well. We expect also to continue our assistance to improved planning, project preparation and project implementation, and expect to provide funds for project management and technical assistance in our lending operations. Finally, we expect to provide further assistance to industrial development in Burundi by supporting the activities of the Banque Nationale de Developpement Economique. PART III - INDUSTRIAL AND FINANCIAL ENVIRONMENT Manufacturing 14. Manufacturing in Burundi is at an early stage of development. The principal manufacturing activities include coffee processing, beer and soft drinks, building materials, textiles, shoes and furniture. Most of the enterprises are located in Bujumbura, the capital. About 4,000 people are employed in manufacturing, generally less than 50 persons per unit. Thus far investments in manufacturing have been modest, and averaged about US$1.5 million per year since 1972. In 1975, value added by the manufacturing sec- tor amounted to an estimated US$23.5 million equivalent which accounted for 7.9 percent of GDP. 15. The growth of the manufacturing sector is hampered by the overall constraints to economic development in Burundi, in particular the limited market resulting from the low purchasing power of the population, and the high cost of transportation resulting from the inadequate road network. Moreover, Burundi has a lack of accumulated capital and experienced per- sonnel at all levels. 16. The overall objectives of the Government's industrial develop- ment strategy are to earn foreign exchange for its import needs and to stimulate employment. It hopes to achieve these objectives by limiting imports through import substitution and expanding the processing of agri- cultural products. To this end the Government is actively promoting the establishment of factories for the processing of rice and tea, and meat and vegetables; it is also considering the construction of a flour mill, a tannery and a textile factory, and the manufacture of agricultural tools  -5- such as hoes and machetes. The production of pharmaceutical products, in- secticides, bricks and ceramic tiles is also envisaged. Part of the financing required for these projects is expected to be provided by the private sector. Due to the limited number of Burundian entrepreneurs the Government encourages foreign investment and management. The provision of foreign assistance for this purpose should act as a catalyst for a thus far relatively sluggish private sector. 17. The Government promulgated an Investment Code in 1967. Under it investments exceeding US$34,000 equivalent for existing enterprises and US$56,000 equivalent for new enterprises must be submitted for approval by the National Investment Commission. The Commission is headed by the Vice Minister in charge of planning and is authorized to grant tax advantages for periods ranging between five and fifteen years depending on the significance of the project to the national economy. Tourism 18. Burundi's natural features include picturesque Lake Tanganyika, which borders the country from Bujumbura to its southern frontier with Tanzania, and scenic mountains in the interior. These constitute good long- term potential for tourism particularly if Burundi is integrated into East African tourist circuits, but because of the country's limited infrastructure, tourism has not been developed thus far. The Government is anxious to stimulate tourism and has plans to improve recreational facilities in the capital and in the interior. It is also considering the opening of a wildlife park. However, apart from a new hotel which is currently being constructed in Bujumbura (see paragraph 31), these plans are not expected to be realized in the near future. Financial Environment 19. The banking system includes the Central Bank (Banque de la Repub- lique de Burundi), three commercial banks which are largely foreign owned (Banque de Credit de Bujumbura, Banque Commerciale du Burundi and Banque Belgo-Africaine), the Banque Nationale de Developpement Economique (BNDE), the Government owned Savings Association, the Postal Checking System and the Social Security Fund. 20. The Central Bank formulates credit and monetary policies and man- ages the country's international reserves. A primary objective of the Gov- ernment's generally cautious monetary policy has been to keep the balance of payments in equilibrium and domestic prices stable. These objectives have been achieved.in that foreign reserves have steadily increased and price rises have been relatively limited as compared to those of other African countries. However, these cautious credit policies may also have contributed to the fact that industrial development opportunities have not been not fully exploited. Although the Government intends to maintain a conservative approach, it will permit the Central Bank to expand credit facilities for the development of the manufacturing sector.  -6- 21. The Banque de Credit de Bujumbura was established in 1922 with a share capital of FBu 75.0 million which is mainly Belgian owned. In 1976, the Banque de Credit had outstanding loans, mainly on short-term, totaling US$13.0 million equivalent. The Banque Commerciale du Burundi was established in the early fifties, also with a share capital of FBu 75.0 million of which 51 percent is held by the Financial Corporation for Overseas Countries, a company based in Geneva, 22 percent by the Government and 27 percent by local investors. In 1976, the Banque de Credit had outstanding loans amounting to US$24.5 million, mainly to finance coffee exports. The Banque Belgo-Africaine was established in 1949 with a share capital of FBu 36.0 million of which 60 percent is Belgian owned and 30 percent held by the Government of Zaire. The Banque Belgo-Africaine is mainly active in short term financing and in 1976, had outstanding loans totaling about US$4.5 million equivalent. The only other major source of loan funds is the Savings Association established in 1964. Its deposits totaled US$3.3 million equivalent as of September 30, 1976, most of which consisted of compulsory savings and term deposits of civil servants and military personnel. Its activities concern mainly the medium and long-term financing of housing and personal loans. The Interest Rate Structure 22. Interest rates in Burundi are generally low. There is little dif- ferentiation between interest rates on savings with varying maturity. Savings deposits in the commercial banks and the Savings Association yield only 3 percent interest. The commercial banks have the possibility of investing surplus funds in one year treasury bonds but their yield is only 4 percent. 23. Short term loans by the commercial banks generally carry a 9 percent per annum interest rate; if rediscountable at the Central Bank the rate varies between 5.75 percent for export financing and 7.5 percent for other purposes. Medium and long term loans which represent only 10 percent of total bank credit are mostly extended by BNDE and the Savings Association. Interest rates on these loans are even marginally lower than on short term loans and vary between 5 and 9 percent. The weighted average interest rate for BNDE loans is 8.3 percent for medium term and 8 percent for long term loans. 24. The Government has kept interest rates for lending at a low level as a means to stimulate investment and because at the present level of Burundi's development a low interest rate structure is unlikely to distort the pattern of resource allocation. It fears that because of the economic dis- advantages of Burundi, in particular the small size of the market and the limited number of feasible projects, higher interest rates would adversely affect the financial rate of return on investments and thereby discourage potential investors. These fears are not wholly justified as for several projects under preparation, the financial rate of return has been estimated at 20 percent or more. Moreover, it appears from discussions with local entrepreneurs that the risks involved in industrial enterprises, in partic- ular the uncertainty of access to regular supplies of raw materials and equipment and the lack of skilled manpower, cause far greater concern than the level of interest.  -7- 25. In addition, the interest rates for lending are only slightly higher than the rate of inflation in Burundi, which was about 7 percent in 1976 for consumer goods and is expected to remain at this level during the next few years. Thus, to make interest rates for lending more positive in real terms an upward adjustment of the present level seems justified (see paragraph 40 below). PART IV - THE PROJECT 26. A report entitled "Appraisal of the Banque Nationale de Developpe- ment Economique (BNDE)" (Report No. 1460-BU, dated June 10, 1977) is being circulated separately. Following exploratory discussions with BNDE in October 1975, the project was appraised in October-November 1976. Negotiations were held in Washington from May 31 to June 3, 1977. The Burundi delegation consisted of Messrs. Jean Ndimurukundo, economic counselor at the Ministry of Economy and Finance,and Bonus Kamwenubusa, President of BNDE. Background 27. BNDE was established in 1967 as a limited liability company to assist in the economic development of Burundi by providing financing to productive enterprises in the agricultural, industrial, artisanal and tourism sectors and to housing. Its initial share capital of FBu 60 million has been increased twice, lastly in 1975, to PBu 160 million or about US$1.8 million equivalent. The Government and other Burundian public institutions are the main shareholders with 45 percent of BNDE's share capital, followed by the Deutsche Entwicklungs Gesellshaft and the (French) Caisse Centrale de Cooperation Economique (each 16.5 percent), the Brasseries du Burundi (6.4 percent), the Banque Belgo-Zairoise, a commercial bank not operating in Burundi (6.3 percent) and the three local commercial banks (9.3 percent combined). Management and Organization 28. BNDE's Board of Directors consists of twelve members of which six represent the Government and the public sector. The Caisse Centrale, the three local commercial banks, the Brasseries du Burundi and the Banque Belgo- Zairoise each occupy one of the six remaining seats. The Board members,who are experienced executives,meet at least five times a year and have to approve all loans made by BNDE. The Chairman of the Board is well qualified and has been President of BNDE since 1970.  - 8- 29. The President of BNDE is assisted by a Director-General presently seconded by the Caisse Centrale. The Bank's three departments (Personnel, Administration and Small Equipment Loans, Accounting and Loan Recovery, and Industry, Handicraft and Housing Loans) are each headed by an Assistant Manager. The BNDE staff of 38 employees is efficient and includes ten pro- fessionals, three of whom are experts provided by foreign aid including the Director-General, the Assistant Manager for the department of Accounting and Loan Recovery and a technical assistant for organization and management. 30. Although BNDE's management is competent, the current staffing does not permit BNDE to make the necessary technical economic and financial appraisals of industrial projects nor to play a promotional role in the industrial sector. BNDE's appraisals of industrial projects, mostly small scale enterprises, are presently carried out by the Industry Division of the Ministry of Economy and Finance and are reviewed by BNDE. To enable BNDE to play a leading role in the industrial expansion of Burundi, BNDE intends to establish an Industrial Development Unit responsible for the pro- motion, appraisal and monitoring of industrial projects. The Unit would be staffed by two experts in engineering and industrial economics/financial analysis, and their counterparts (Section 2.11 (a) and (b) of the draft Project Agreement). It would cooperate with the Industry Division in the preparation of feasibility studies and project appraisal. It would also advise industrial promoters on project preparation and implementation. The establishment of the Industrial Development Unit and the employment of the two experts are a condition of credit effectivenesss (Section 6.01 (c) and (d) of the draft Development Credit Agreement). Policy Statement 31. BNDE's objectives and its investment and financial policies are stipulated in its Statutes and Rules of Procedure adopted at its establish- ment in 1967. BNDE will consolidate these policies in a Policy Statement (Section 2.10 of the draft Project Agreement) to which it will add the fol- lowing statements: (a) BNDE will not accept the foreign exchange risk on foreign borrowings; (b) BNDE's maximum intervention in any individual enter- prise or project will be limited to 20 percent of BNDE's paid-up share capi- tal and reserves; (c) BNDE's term debt will not exceed four times the total amount of its unimpaired subscribed share capital, surplus and reserves, and (d) BNDE will make provisions for losses on its portfolio. The adoption by BNDE of a Policy Statement satisfactory to the Association is a condition of credit effectiveness (Section 6.01 (f) of the draft Development Credit Agreement). Operations and Financial Results 32. Between January 1971 and September 1976 BNDE approved 322 medium and long term loans totaling about US$12.4 million equivalent, and four equity investments amounting to US$300,000 equivalent. Forty seven percent of the total amount of medium and long term loans and 89 percent of the equity invest- ments were for two specific projects for which BNDE is acting as a financial  - 9 - channel and supervising agency. The first project concerns the construction of a hotel of international class in Bujumbura with funds made available to BNDE by the African Development Bank in an amount of US$3.8 million equiv- alent. The hotel would be owned by the Societe Hoteliere et Touristique du Burundi, in which BNDE has also made an equity investment of FBu 23 million (about US$250,000 equivalent). The Government holds 43 percent of the share capital of the Societe Hoteliere, 32 percent is held by local private in- vestors and 16 percent by foreign investors (mainly Italian). The second operation concerns a Fisheries Project financed by the Abu Dhabi Fund for Economic Development and an IDA credit (No. 626-BU; see Annex II) for which BNDE is the designated intermediary for about US$3.0 million. Under this project, BNDE has contracted to relend these funds to the Regional Develop- ment Society (RDS), a parastatal agency which executes the project. The repayment of principal and the payment of interest on BNDE's loans to the Societe Hoteliere and RDS are fully guaranteed by the Government. 33. Of BNDE's other loans, about US$3.7 million (or 29 percent) was approved for small industrial enterprises and US$2.9 million (or 22 percent) for housing. The relatively high portion of lending for housing is explained by the fact that housing development was one of the first sectors in which BNDE became active. The size of the average loan for industrial projects was relatively small and amounted to about US$120,000 equivalent. 34. About 5,000 short term loans totaling US$11.0 million equivalent were approved during the same period. Most short term loans (about 4,500) were for small equipment and were for limited amounts totaling about US$1.0 million. About 145 short term loans were for crop financing and accounted for US$10.0 million or 90 percent of total short term lending. 35. The quality of BNDE's loan and equity portfolio is generally satis- factory. Arrears of US$124,000 affect about 24 percent of BNDE's total out- standing portfolio, a relatively high figure. However, the risk of loss is limited as most of the affected portfolio is for housing for which there is adequate security. Net profits recorded between 1971-1975 have been low, ranging between 1 and 4 percent of average equity (about US$30,000 in 1971 and US$69,000 in 1976), due mainly to BNDE's fixed administrative costs which are high in relation to its assets. Profits on equity are expected to grow progressively in the next few years as BNDE's loan and equity portfolio will be increasing substantially while administrative expenses will grow more slowly. BNDE's net profits are expected to increase to about US$280,000 equivalent in 1981 representing 9.2 percent of average equity, which is acceptable. Administrative expenses are expected to decline from about 3.6 percent of average total assets in 1976 to a more acceptable level of 1.8 percent in 1980. 36. In view of the expected increase in the size and number of its operations, BNDE will prepare detailed procedures for project appraisal and supervision. The adoption of such procedures, satisfactory to the Association,  - 10 - is a condition of disbursement of the proceeds of the credit allocated to the financing of subloans and investments (Section 2.03 (a) (i) of the draft Development Credit Agreement). For all projects submitted to the Association for approval, BNDE will calculate an internal financial rate of return and for projects that are import substituting, it will also calculate an economic rate of return (Section 2.02 (b) of the draft Project Agreement). Finally BNDE will prepare a standard loan agreement regarding medium- and long-term sub- loans. Approval by the Association of such a standard loan agreement would be a condition of disbursement against subloans and investments (Section 2.03 (a) (i) of the draft Development Credit Agreement). Prospective Operations and Resource Requirements 37. BNDE's past activities have not been fully in line with its objec- tives as a development bank. Initially, BNDE was mostly engaged in providing financing for housing development, crop financing (mostly for coffee exports) and consumer equipment, a function which is also partially being fulfilled by the local commercial banks. This situation is explained by the fact that because of Burundi's slow moving economy, development-oriented investment opportunities for BNDE were limited. The Burundian authorities want to correct this situation and use BNDE as an instrument for industrial development. Since 1975, BNDE has been actively seeking investment opportunities and has gradually built up a pipeline of projects for the next five years, including about twenty medium to large projects, the total cost of which is estimated at about US$36.0 million equivalent. About US$24.0 million or 66 percent would be for large projects including recycling of metal scrap, the manufacture of glass products and the processing of peat, flour and sugar. BNDE will also continue to finance housing with funds solely provided by the Government for this purpose. However, the share of BNDE lending for housing relative to its total operations is expected to decline substantially. 38. BNDE's financial requirements for the period 1977-78 have been estimated at about US$10.0 million with a foreign exchange component of about US$8.0 million. As of January 1977, BNDE had about US$1.0 million available in foreign exchange. BNDE is negotiating with the Caisse Centrale de Coopera- tion Economique, the Kreditanstalt fur Wiederaufbau and the European Invest- ment Bank to obtain lines of credit totaling about US$3.7 million. The UN Capital Development Fund has committed about US$280,000 to assist BNDE in the development of small scale industrial enterprises. If these funds are obtained, BNDE would still have a foreign exchange gap of about US$3.0 mil- lion. The Central Bank has agreed to provide BNDE with the funds needed for local cost financing. Proposed Credit and Onlending Terms 39. To cover BNDE's remaining estimated foreign exchange require- ments, an IDA credit of US$3.4 million is recommended, of which an amount not exceeding US$400,000 would be used to finance the cost of two experts for the Industrial Investment Unit to be established within BNDE (see  paragraph 30). The IDA funds available for project financing would represent 22 percent of BNDE's foreign exchange requirements during 1977-78. 40. As discussed in paragraphs 22-25, the Government of Burundi main- tains interest rates at a low level as a means of stimulating investments in industrial enterprises. After intensive discussion with the Government, it does not seem feasible to achieve a substantial modification in the country's interest rate structure at this stage. As a first step the interest rate for medium and long term lending would be set at least at the maximum level prevailing for short term loans and the proceeds from the proposed IDA credit used for subloans and investments, therefore, would be relent by the National Economic Development Bank at not less than 9 percent per annum interest. This would be a modest increase over the current average interest rate of about 8 percent for medium and long term financing. A further upward adjustment can only be achieved following the revision of the entire interest rate structure in Burundi and we intend to pursue our dialogue with the Government on this subject. 41. The Government would assume the foreign exchange risk. In line with its position regarding the level of interest rates, the Government feels that this risk cannot be passed on to the ultimate borrower since it would discour- age possible investors. However, BNDE's borrowers would be required to pay the Government a fee of 1 percent per annum to compensate the Government for assuming this risk. 42. BNDE's maximum debt/equity ratio would be 4:1, which would be stipu- lated in BNDE's Policy Statement (see para. 30; Section 3.04 of the draft Project Agreement). Because of the increase expected in BNDE's lending activ- ity, BNDE will need to increase its share capital in about five years to be able to respect the maximum debt limit. To this end, BNDE will undertake all action necessary to increase its authorized share capital when its debt/equity ratio reaches the proportion of 3.5:1 (Section 3.06 of the draft Project Agreement). From the computation of the debt/equity ratio will be excluded all loans contracted and extended by BNDE which are fully guaranteed by the Government of Burundi. 43. The Government would onlend the proceeds of the credit to BNDE at 5 percent per annum interest, for a period substantially conforming to the aggregate of the amortization schedules of the subloans. This would permit BNDE a spread of 4 percent, sufficient to cover its administrative expenses and the risks incur-red in its operations and to allow it to make a profit. Amortization of each subloan would be over a period not exceeding 15 years (Section 2.02 (d) of the draft Project Agreement). The free limit for in- dividual subloans is US$100,000 equivalent, and US$1,000,000 in the aggre- gate (Section 2.03 (d) of the draft Development Credit Agreement). The technical assistance component of the IDA credit estimated at US$400,000, would be made available by the Government to BNDE as a grant.  - 12 Auditors 44. BNDE's accounts are presently reviewed by the Government's account- ing office and one external accountant provided by a private shareholder. This review does not meet Bank Group requirements in that it is not suf- ficiently independent. However, there is no independent auditing firm in Burundi. The Central Bank, which has been training a group of auditors, has agreed to carry out BNDE's audits until such time as qualified independent auditors will be available in Burundi. Procurement and Disbursement 45. Procurement will be handled through normal commercial channels. Disbursements will be made against 100 percent of foreign expenditures of imported items; 80 percent of expenditures in Burundi francs for goods supplied from the territory of Burundi but previously imported through normal trade channels and 65 percent of expenditures in Burundi francs for civil work contracts. The credit is expected to be disbursed in about four years. Economic Benefits and Justification 46. BNDE's impact on the economic development of Burundi has thus far been limited; it has provided mainly term financing for agriculture crops, housing and consumer equipment. Since about a year BNDE has been seeking to expand its role in industrial development in conformity with its objectives and has taken steps to reorient its activities in this direction. The pro- posed IDA credit together with the contributions of other foreign aid institu- tions, would assist BNDE in achieving its objectives and constitute an impor- tant part of the foreign exchange needed for industrial investment. The proj- ects proposed for BNDE financing would contribute substantially to conserving foreign exchange revenues and stimulating employment. The technical assist- ance provided by the credit to assist the Industrial Development Unit would greatly improve BNDE's technical capabilities, improve the selection of sound projects and provide developing enterprises with technical advice regarding prospective investments. Risks 47. A risk of the project is that the planned operations would not materialize as soon as predicted and BNDE would not be able to use a sub- stantial portion of the credit for lending to productive enterprises during the period of the project. For several of the development projects BNDE intends to help finance, potential investors are still being sought. The Industrial Investment Unit to be established by BNDE is expected to play an important role to encourage such investors to assure that viable projects will be undertaken. Naturally, it remains possible that Burundi's economic  - 13.- disadvantages affect the profitability of such projects. However, the cur- rent economic situation in Burundi is improving, in particular because of the country's increased revenues from high coffee prices as a result of which an increase in economic activity may be expected. In spite of these risks, the project is well justified as the realization of the Government's plans to stimulate industrial development could mean a substantial improvement in Burundi's socio-economic climate which would constitute an important step towards economic development. PART V - LEGAL INSTRUMENTS AND AUTHORITY 48. The draft Development Credit Agreement between the Republic of Burundi and the Association, the draft Project Agreement between the Associa- tion and the National Economic Development Bank, the Recommendation of the Committee provided for in Article V, Section 1 (d) of the Articles of Agree- ment of the Association and the text of a draft resolution are being dis- tributed to the Executive Directors separately. 49. Special conditions of the project are listed in Section III of Annex III of this report. 50. Conditions of disbursement are that a) BNDE would adopt detailed procedures satisfactory to the Association for appraisal and supervision of projects financed by BNDE and b) BNDE would adopt a standard Loan Agree- ment for manufacturing and tourism projects satisfactory to the Association. The following are additional conditions of credit effectiveness (Section 6.06 of the draft Development Credit Agreement): a) BNDE would adopt a Policy Statement satisfactory to the Association; b) BNDE would establish an In- dustrial Development Unit and employ an engineer and an industrial economist/ financial analyst for the staffing of said Unit; and c) the Borrower and BNDE would sign a subsidiary loan agreement. 51. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association.  - 14 - PART VI - RECOMMENDATION 52. I recommend that the Executive Directors approve the proposed credit. Robert S. McNamara President by J. Burke Knapp Attachments June 23, 1977  0Ng x Pare I of 4 papa TABLE 3A BURUNDI - SOCIAL INDICATORS DATA SHEET LAND AREA (THOU KNI21 BURUNOI REFERENCE COUNTRIES 419701 TOTAL 27.8 MOST. RECENT AGRIC. 16.0 1960 1970 ESTIMATE NALAWI SIERRA LEONE URUGUAY " ______ - -------- _ _ __ __-___ _- ___-_-__-__--_ __; - -------_____ GNP PER CAPITA (US$S 50.0 70.0 100.0 80.0 150.0 960.0 POPULATION AND VITAL STATISTICS _______________________________ POPULATION (RID-YR, MILLION) 2.8 3.4 3.7 4.5 2.6 2.7 PCPULATICrN DENSITY PER SIJUARF KM. 99.0 121.0 134.0 38.0 37.0 15.0 PFF SQ. KM. AGRICULTUPAL LAND .. 206.0 219.0/a .. .. 18.0 VITAL STATISTICS AVERAGE BIRTH RATE I/THOU) 48.3 47.9 48.o 49.3 44.8 22.1 AVERAGF DEATH RATE (/THOU) 30.6 28.0 24.7 28.1 23.5 9.2 INFANT MORTALITY RATE I/THOU) 150.O/A 138.0 .. .. 183.0 42.6 LIFE FXPccTANCY AT BIRTH tYRSI 33.5 38.5 39.0 38.5 41.0 69.3 GRCSS REPRODUCTtnN RATE 2.6/b 2.8 2.8 3.2 2.9 1.4 POPULATICN GROWTH RATE tlS TOTAL 2.1 2.0 2.1 2.6 2.1 0.7 URBAN .. 2.0&b_ .. 7.0 3.9 1.2 URBAN POPULATION (2 OF TOTAL) 2.2 /&a 2.2 b . 5.0 / 13.7 78.1 AGE STRIJCTURE IPERCENT) 0 TO 14 YEARS 46.8 L 45.0 .. 43.94 42.0 28.3 15 TO b4 YEARS 49.0 t7 52.0 0 .. 52.1 7E 55.0 63.5 65 YFARS AND OVER 4.2 a. 3.0 e .. 4.0 3.0 8.2 AGE DEPENnENCY RATIO 1.0 /A 0.9 a0.9 0.8 0.6 ECONnMIC DEPENDENCY RATIO 1.0 1.1 /d *.9 h ' 1i'- 1.0 FAMILY PLANNING ACCEPTORS (CUMULATIVE, THOU) .. .. .. USERS (Y OF RARRlEO WOMEN) .. .. . .. rbPLJYMFNT TOTAL LAeOR FORCE (THOUSAND) 1500.0 1700.0 .. 2300.0 1060.0 1020.0 LABOR FORCE IN AGRICULTURE tSI 90.0 86.0 .. 88.0 74.0/b 17.C UNFMDLOYEO I Y OF LABOR FORCE) .. .. .. .. 2.3Z 8.0 /b INCCME DISTRIBUTION I OF PRIVATE INCOME REC D HY- HIGHEST 5% OF HOUSEHOLDS .. .. .. 29.5 36.2/c 19.C /c HIG-EST 202S OF HOUSEHOLDS .. .. .. 52.9 62.R7; *7.7 LS.FST 202 OF HCUSEHOLDS .. .. .. 5.7 LrWEST 40t OF HOUSEHOLDS .. .. .. 15.0 7. 7& 14.2 ZC: DISTRIBUTION OF LAND OWNERSHIP S CwNErn dY TCP 10 OF OWNERS .. .. .. r nWNEJ 4Y SMALLEST 10 OWNERS .. .. .. HFALTH ANn NUTRITION POPULATICN PER PHYSICIAN b6CCCJ.o 59000.0 45990.0 75250.0 17110.0 880.0 PCPULA'ICN PFR NIIRSING PFRS ' .. 750n.C 7090.0 .. 2590.0/d 3340.0 POPULATICE PER HOSPITAL SEE 730.0 7o0.0A 810.0 11 640.0 104^.0 170.0 PEP CAPITA SUPPLY OF - CALCRIES (2 OF REQUIPEMENTS) - 82.0 100.0 88.0 93.0 97.0 1 07.0 PROTSIN IGRAMS PER DAYi 47.0 61.0 62.0 54.0 49.0 9t.0 -OF WHICH ANIMAL AND PULSE 28.0 40.0 .. 9.0/d 16.0 64.0 DEATH rATE (/THOU) AGES 1-4 .. .. .. .. .. 1.3 EDUCATIOCN ADJUSTED FNRCLLMENT RATIO PRIMARY SCHOOL 19.0 4 28.0 4 21.0 p 36.0 34.0 /e 110.0 SECONDARY SCHOOL 1.0 : 2.0 z 2.0 7 2.0 9.0 ZS 59.0 YEARS OF SCHCOLING PROVIDED (FIRST AND SECOND LEVEL) 13.0 13.0 13.0 14.0 12.0 12.0 VOCAT IONAL ENROLLMENT (2 CF SECONDARY) . 35.0 24.0 .. 3.0 3.0 21.0 ADULT LITFPACY RATF tT) .. 10.0 .. *- 15.0 91.0 HOUSING PE-SONS PER ROOM (AVERAGE) .. .. .. 1.948 2.1 4 * OCCUPIED CWELLINGS WITHOUT PIPED WATER (S) .. .. .. 78.0 /e*f ACCESS TO ELECTRICITY (2 CF ALL ClWLLINGS) .. .. .. A.0/*-*f RUPAL OWELLINGS CONNECTED TO ELECTRICITY (21 .. .. .. CONSUMPTI nN RADIO RECEIVERS (PEP THOU POP) .. 18.0 25.0 20.0 16.0 346.0 PASSENGER CARS IPER THOU POP) 0.8 1.0 1.0zi 2.0 9.0 45.0 ELECTRICITY (KWH/YR PER CAP) 5.0 - 6.0 6.0 32.0 77.0 762.0 NEwSPRINT (KG/YR PEP CAP) ,. .. .. .. 0.1 7.2 SEE----------NOTES-------------AND---------DEFI------------ITIONS----__------__-ON-------REVERSE-------------- SEE NnTES AND DEFINITIONS ON REVERSE  Fag. 2 Of 4 pages Vein.. onbarlsa notad, data for 1960 r.far to any yea barvoa 1939 and 1961, for 1970 bet-e 1968 ad 1970, ad for Moor Recent tecimate b.twee 1973 and 1975. Uruguay baa bean esitd sea bjaciv coatey 0- oruBadi baaaae it L. a a-all cossny, pcforaily dependent -,ariunuo whc aascie *eaiv ih lee of deve.lopnt. stIUNsI 1960 I.1965: /b 1957; Ic Cmoss Of baj-bore; j4 6-12 ad 13-18 year. of age repetively; /a 1962. 1970 I 1965-70; /b Comun of aja-bror; / Population aged 15-59 ad 60 yeas ad -at.. tepeotivaly; Id Ratio of ppulatioe under 15 ad 60 and ovr to labor forca ago 15-64; L. Including tota hospinal aed medical centor.- If 6-12 and 13-18 years of ago repootivaly. KOST HRECNT ESTIKATE: Ia 1972; Lb 1969-71 avrage; L. 1971; /d 6-12 ad 13-18 pare. Of ago ree..pctinly. MALAWI 1970 Ia1966; lb Ratio Of population under 15 and 65 aod ever to total labor forco Ic Covrage of data unhoow; Id 1964466; /a 1967; If Urban only. SIERRLA LEONE 1970 I Ratio of population undar 15 and 65 and over to coral labor force; lb A. p-rootago of rtota workieg population; Ic 1967_68, oncluding Woater Pronince; /d Including nidivaa ; -, 5-il ad 12-18 yea.- of age -eperti,ely; T? 1967, Frotown only; La 1967-69. URUGUAY0 1970 / Ratio of populotion ondar 15 ad 65 ad ovr to total labor force; lb Mont-vid- only; Ic 1967. R6, Auguo t 24, 1976 ImnTrrOSdS OF SOCIAl DIDICATOR Land Area (thou on2) " io e- Pouaio iiddbyesr spotfu Totl Ttaloufae aeacoprining land araa ad inland watrro..aaadfc graduate nurse,, "1trined" - or ycer"'id" euse,a OOric - Mot rooot etiao o gricultural area uaad ta-porarily Or as.aillary peroonnel with training or -aparieo. pornaneoly for crope, P..ocorre, arbat & kitcben gardans or to lito lt tio.pjgpflffitajl bad - Population dividedby oun1br of hospital baed fallow. .O6311B61.IOpOM~~~~~~~~~~~IC and printo geteral and specialized hospital and rebabilitation ontorn; -olude cursing hbw and eatabllehe,muts for iNP ct cait (US$) - GNP Pet capita cotinarta or current earket prices. cuatodial and preventivo corn. caclae y seen. conorion mothd as World Bomb Atlas (19TJ-75 beWie) Piront u yo aoieI o eurmt)-Co,tdfn snergy 1760, 1270 ad 1970 data. equivale~~~~~~~~~nt Pof netffoodrsupplies avilablin outr prcan spita per doy; available suppliescars d-.mtiu production, lxprts loon qrta, pooulation ood vital utatietico and cbanges in stork; ne supplies -aclde animal feed, seeds, quantities forulation- dy.mlIn - As Of JuY first: if not available, used in fond processin ad losses in distribution; requirements were -ve-ge of I.ncod-year eatiscoet.; 1960, 1970 and 1975 data. estimated by P.A0 hosed on physiological needs for norm1al mtivity - POPII:~~Ii- dl" It Or -q--r- I.. - Mid -~ad health considring esviroesmtal tuperatars, body wtighto, age end ruclaton ocetc meP tnaI h-Mi-year Population Pet aqure klob- so diatributiona of population, and a3.owieg 10% fw a-ste at household meulter d.. (10 tbcaos sf tOta ares le"vel. Popula1tion 1 dni.d - per sqae .o atc,ln -Cmutdasaoe o - Protein content Ofpe agricultural laud only. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ supl Of food is defined as Vital statistics a~~~~~~~~~~~~boel. requirmatst for all countries establihid by USDA Econosic bItlrtatitica Rsearcb Services porovde for a mwitnu alloanc of 60 gream of total Cr Po birth rtscottbund - A-nual live birthe Per tbousand of mid- protein per day, and 20 grass of ainal and pulse proctein, of whIch 10 Cyea= oplton -a-year arithmetic averages endIng in 1960 and 1970, grain ohould be anim,al protein; thmas standards era lower, than thoes of aodn fiv .-ys overage coding ic 1971 for moot rsconr siae 75 gr- of total protein and 23 grann of enism protein as an average Crde dooth rate per thousad - Annual destho Per tbouaad of mid-year for tim onrld, propo..ad by PAD in the Third World Pond l,-v-y. populatio; ten-year oithosoti averagesncding in 1960 an 90 n Prcpt rtei upyfo nem n us rtenspl ffo fiv-year avrage ending in 1975 for nest recant eatinat. drivd fom nlilead ulss i grssferody D-th r e I/ - nnua doths pe thousad in age group 1-1. Thybmeraiiroi,Lbkon)- Annua deaths of infants undsr one per j'id71.:t1 flI~jK1F5Is age group; Suggested go an indiv-t-r Of mel- iji-rage iiP.,h1 tho. nutrition. Life~-tscv t bith (rs)- Avorage unher Of year of life rosoin- IngIt birth;ueually five-yeor averago ending in 1960, 1970 and Education 1975 for drelvpicg couctrios. hau - ]Dr-llenct of all ugon as Irl rg~ft,, ra te - Average nunb-r of live daughtere a oa ill t inlu-e ni ao-nace SiFr ii3u riep-du-tiv- period if h. experience presont age- 6-fl1 yar but edjustd for difforant lengthe Of prinary eduateion; spevific fertility, ratno; usually five.-ya av-rag ending in 1960, for countries with univrsal. education, enollment nay .ereod 100% 197 IOc 791 171 for develo.ping v-trinle. cince en pupils: are bolos or above th. Official nohuol Ag.. Popa Ico tcou frat 1950- tota -7 Comoud annual5 grwhrae fsi- A.uos nollmant ratio - secondarschol -fCcap~uted a above; osgood- Yrar Pup. to or15-1 1960-7 ad17-5creuaton requires at leant fou par uf apprve-d pniony instruc- Pooluti on gro-th rote (9) - uban - Conputed like growth rote Of itotl tins; provides genral, vocational Or teacher training instruction for opvp.tonltu; different definitions f urb-anroon eq affect ceqmpar- pupils of 12 to 17 yearn of age; vorrespondenc -ouec crc gener-13y biit to di acg ouatn.- excluded. Uranppuato (9o 1oa) - Antic of urban to total population; dif- Yerar of schooling provided. (flrnt end ocodnlevels) - TotaIl pearo of fei-t.dofinitione of urban arson nay of fnt -oop-rbility Of data schooling; at secodary iee, vocaiona Lnt otan may be partia.lly aneong osuntrls-. or copletely secluded. Amem ru.tteOr.,an) -Child-r (i-lb years), worbing-age (l5-64 peare), Vocational mrol IontN ,%f secodarY) - Vocational institutions include r.tire I n vs pm- ntage of nid-yea, population. tchoical, industrial or Otter pwogran thiob operate independently or Ag2 dp_;mL_rti R pupa O P n~-i under 15 and 65 and over to as deparint of ecodar inetituti-es 0. ,Thr-o n 6up Adult literc at M - literts a&.lts (able to reed and aite) an per- F,co-i~~ cnd -t. -t-An ppm etion under 15 and 65 and ovr atage of total adult populotioc aged 15 years cod over. .or r~ gru -1 oas anil or p c e u uu o) - ucienunber of tim a-oPtor Iof birth-cntrol devices under aunpicee of notiona fanily k~pg; n~ygg(-Aeosneo fproaprro nocpe Plaio progrue IIce inception. COEIWtlonal iftSlTIn in urban areas; d.ellingso nunlude non-pernanat falt oaniog - vees ( of narind -nme) - P-eretages of srried strutures and unoccupied parts. women of chil d-beaing ags (15-4l. yearn) who use birth-vcctrol de- 0eowid dbce.Lns wthotpie water tV - UOcupied con-vaiona desl- vi t llerned onnon in -a age gro-p. tg inweadralareawthou inieoousd ppdwar facilities as Percentage of all occupied dee1ldvgs. f-I.. .-and - F.Ord-Il ..ti, por .... icludinuLe.. to elsectricit %4ofrtall dwellings) -Conventional dwnlllngn dtih Tots but orcothsuad fuI-alyatv oroe nluigeetricity in l Ivng qatrasperoent of total deellings in sa'ha ai6dfAP-iidunmsploYed but ecolding h-uswlve, otudents, sin.; anI`alcos de finitiono in various coutries cr0 not conparable. Ruaawlinscnetd in e1aotricity I Coeqeuted oo above for rural f.or fce in a icultir ) - Agrinultural labor force (in faredng, NWeW W "" only fO'.try(r_t.g nd fatog) as percentage Of total labor fern.. U.lyd%Of labor force) - aOop1oyed cr0 usually defined as perusons Cnut are a. d an llg in take aJob, Out of a job on a give day, roevAUpn hupo)-iltpso eeionfrrdcbod revined rot of a Job, and seeking wohfraseiidnib, at ngnral pubi per)thousad Of population; esoudem unllomesed per iod cot -.veding one week; nay not ho coparabls botwse cOu5 reCeivern in countries ad in yearn stan regietration of radio nets aes tries duo tu different definitions Of unemployed and eource of data, in effect; data for recent years eq nut be cnaparable since anet OmNu- e.g.9, Ploponot offlos etotieti-s, sauplo -rys, epul5or.y a--tries aboliehed lIceeig ploynnt insurance i ae te -Psogrcrsoans cnsor stn EssB~ as Et-DD e-persons emlde - -lnos ceeeas andmltary..setn Invon distribution - Parcsotags Of private incoom (both in oneb ad 6ta lftpro;e:cus -bm.,hres dmlItw bid) roceIv d by richest 5%, rIchest 20%, poorest 20%, and poorest flactri.iA jyAF_9/p_gsa) - Annual consuaption Of industrial, fieomr- 10% of boneobolds. EflI7if~~.1.2 PelFiiT1vtile tricIY . inblseettThours per capita; gsn- Dl,triuti.nof lan -,rI1p - -C -tRs Of and -d by aalthctrel1y hSosd on produiction data, without allowen for losses in grids Oletrihtd o,c.t 3 f landoursi -rPero.ae fln wndb slheibut afloing for lporta and esuprts Of electricity. 105 and poorest lOt of land owners. lo. intma) - Per capita annual onosueptman In biogro,, H..Ith an d K.t,ition ~~~~~~~~~~~~eatinad from domssetic productioun plus met i.pc-te of newepriti. Popultirff~~ia.-Populat.ion dilidsd by nunber of pratIcing ~b I-i1iq.4il11e.Wfrea. medical school at univerity leve.  ANNEX I Page 3 of 4 pages ECONOMIC INDICATORS GROSS NATIONAL PRODUCT IN 1974 ANNUAL RATE OF GROWTH (M. constant prices) US$ Mln. % 1970-74 1974 ONP at Market Prices 323.8 100.0 4.1 Gross Domestic Investment 35.8 -11.0 2.1 19.8 Gross National Saving 18.3 5.6 Current Account Balance -17.5 - 5.4 Exports of Goods, NFS 31.9 9.8 1.9 - 8.6 I3ports of Goods, NFS 51.6 15.9 1.6 - 1.0 OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1974 Value Added USI Mln. S Agriculture 192.2 61.8 Industry 35.8 11.5 Services 83.0 26.7 Unallocated - _ Total/Average 311.0 100.0 GOVERNMNDT FINANCE General Governeent (BuF B ln.) X of GDP 1974 1974 1970-74 Current Receipts 3.21 12.6 12.2 Current Expenditure 2.91 11.3 11.5 Current Surplus --71T 1.3 - .7 Capital Expenditures 2.20 8.6 9.5 External Assistance (net) 1.91 7.5 8.6 MDNEY, CREDIT and PRICES 1970 1912 1973 1974 J76 Ttsillion BuF outstanding end periodf) Money and Quasi Money 2.20 2.54 3.03 3.61 3.42 5.13 Bank credit to Public Sector .86 .82 .94 .96 1.24 1.12 Bank Credit to Private Sector .93 1.20 1.45 2.73 1.32 1.62 (Percentages or Index Numbers) Money and Quasi Money as % of GIW 11.5 12.2 13.3 13.2 General Price Index (1970 a 1oo) 100.5 107.8 114.3 132.5 153.0 163.5 Annual percentage changes int General Price Index - .3 3.7 6.0 15.9 15.5 Bank credit to Public Sector - 9.2 10.0 14.6 2.1 28.7 Bank credit to Private Sector 54.1 2.5 20.8 88.3 -51.5 NOTE: All conversions to dollars in this table are at the average exchange rate prevailing during the period -covered. 1/ Bank estimates. 2/ Including investment financed directly by external agencies. not available not applicable EACP II - C June 10, 1977  ANNREX I Page 4 of 4 pages 7RUD5 PADIDITS AND CAPITAL FWWB BALANCE OF PAYDNIS MRMCANIE8 EXPORTS CAYhRAGE 1973-75) 1972 1974 1975 US $ Hln % iillions US $) Exports of Goods, NF8 29.2 31.9 35.6 Coffee 26.5 83.1 Imports of Goods, NFS 38.2 51.6 71.7 Cotton 1.3 4.1 Resource Gap (deficit - -) 0 -97 -3.6- Skins 1.5 4.7 Tea 0.7 2.2 Interest Payments (net) -1.7 - 1.6 - 1.9 Workers' Remittances -10.7 -12.1 Other Factor Payments (net) - 0.5 Net Transfers 13.2 16.4 All other comodities 1.9 5.9 Balance on Current Account -~T?7 -T7TS -lT7 Total 31.9 100.0 Direct Foreign Investment EXTERNAL DBBT DECUIBER 31, 197t Net MLT Borrowing Disbursements 0.5 1.5 8.9 US $ Nln Amortization 1.6 0.7 1.6 Subtotal -11 89 Public Debt, incl. guaranteed 14.6 Capital Grants 8.8 9.5 Non-Guaranteed Private Debt Other Capital (net) 6.0 Total outstanding & Disbursed 14.6 Other items n.e.i 4.5 -14 20.9 Increase in Reserves (+) 4.0 - 8.7 13.0 DEB SEVICE RATIO for 1975- International Reserves 18.8 14.5 27.5 (end year) Public Debt, incl. guaranteed 5.6 Non-Guaranteed Private Debt -Total outstanding & Disbursed I3RD/I & LIDI?G. A&ri 30. -1U7 1111ioP US$): miD IX_ RATE OF EXCHANGE Throu..h Feb. 1973 Since May 3, 1976 Outstanding & Disbursed 5 2 US : 1 00 S 1. 000 uW.u O n Bding ucin Uhdisbursed - d BuF 100 - US $ 1.14 BuF 100 . US $ 1.1130 From March 1973 to May 2, 1976 US $ 1.00 = BuF 78.75 BuF 100 a US$ 1.27 1/ Ratio of Debt Service to Exports of Goods and Non-Factor Services. not available not applicable UACP II - C June 10, 1977  ANNEX II Page 1 of 3 pages THE STATUS OF BANK GROUP OPERATIONS IN BURUNDI A. Statement of Bank Loans and IDA Credits to Burundi (as of April 30, 1977) Amount Loan or US$ million Credit (less cancellations) Number Year Borrower Purpose Bank IDA /2 Undisbursed One loan /I and three credits fully disbursed 4.8 3.0 - 467-BU 1974 Burundi Highway Maintenance - 5.0 3.6 593-BU 1975 Burundi Second Coffee Improvement - 5.2 4.4 613-BU 1976 Burundi Technical Assistance 1.5 1.4 626-BU 1976 Burundi Fisheries Development 6.0 6.0 679-BU /3 1977 Burundi Education 10.0 10.0 TOTAL: .......................... 4.8 30.7 25.4 of which has been repaid to the Bank and others 4.6 0.1 TOTAL now outstanding 0.2 30.6 Amount sold ................ 3.0 of which has been repaid 2.8 0.2 TOTAL now held by the Bank and IDA 0.0 30.6 TOTAL undisbursed 25.4 25.4 /1 Extended in 1957 to the Belgian Trust Territory of Ruanda-Urundi for the improvement of the BuJumbura-Muramvya road and the expansion of the Lake port of Bujumbura. Repayment is guaranteed by the Kingdom of Belgium. Last payment is due on July 15, 1977. /2 Prior to exchange adjustments. /3 Not yet effective. B. Statement of IFC Statements There have been no IFC investments in Burundi.  ANNEX II Page 2 of 3 pages C. ProJects in Execution 1/ Credit No. 467-BU Highway Maintenance Project: US$5.0 million of March 27, 1974; Effective Date: August 22. 1974; Closing Date: December 31, 1978 The Highway Maintenance Project is the first phase of a long-term program to establish an efficient highway maintenance organization. The project consists of the purchase of maintenance equipment, spare parts, fuel and construction materials, the construction of a workshop and con- sultant services for technical assistance and training, a study on the development of the road sector and feasibility studies. The project is co-financed by the UNDP (US$1.05 million for technical assistance), Germany (US$1.33 million) and Belgium (US$400,000). Execution of the project is generally satisfactory. Procurement of equipment is underway to mechanize maintenance units being established under the project. The construction of a workshop in Bujumbura (financed by Germany) has been completed. Consultants financed under the credit have carried out a road study in preparation of a future road construction project. Credit No. 593-BU Second Coffee Improvement Project: US$5.2 million of December 5, 1975; Effective Date: October 7, 1976; Closing Date: March 31, 1981 The Project is a continuation of the first Coffee Improvement Project (US$1.8 million Credit No. 147-BU of April 11, 1969). It is being cofinanced by the Kuwait Fund (US$1.2 million) on a parallel basis and by Belgium (about US$600,000). The Kuwait Fund finances the construction of ten coffee washing stations, and Belgium assists in the carrying out of a coffee research component. Project execution is satisfactory. Credit No. 613-BU Technical Assistance Project: US$1.5 million of March 19, 1976; Effective Date: July 13, 1976; Closing Date: June 30, 1980 This project provides financing for hiring long term advisers and short-term consultants to assist in planning, collection of statistics and project preparation. So far two long term advisers (a senior economic adviser and a statistical expert in the Ministry of Planning) are in post. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purpose to present a balanced evaluation of strengths and weaknesses in project execution.  ANNEX II Page 3 of 3 pages The Credit also finances an expert to study the possibilities for industrial use of Burundi's peat resources. An expert to advise the Government on the processing of nickel ore is also being recruited. Several short-term studies relating to the preparation of projects in the agricultural sector are being financed. Credit No. 626-BU Fisheries Development Project; US$6.0 million of June 11, 1976; Effectiveness Date: February 22, 1977; Closing Date: June 30, 1982 This project is designed to increase the production of fish through the provision of training, equipment and materials to fishermen and to improve the distribution of fish throughout Burundi. The project also provides for the preparation of an integrated rural development plan for the coastal region along Lake Tanganyika and the implementation of pilot development activities. The project is cofinanced by a US$1.2 million loan from the Abu Dhabi Fund for Arab Economic Development. Key staff has been recruited and project execution is underway. Credit No. 679-BU Education Project: US$10.0 million of April 28, 1977 Terminal Date of Effectiveness: July 28, 1977 Closing Date: March 31, 1983 This project assists the Government in continuing and consolidating the reform of primary education. It aims at substantially expanding primary school enrollments and improving equal opportunity for education. It provides technical and material assistance to the Rural Education Bureau responsible for the execution of the reform of primary education as well as for teacher training. Although the credit is not yet effective, key staff is already in post and has made a start on project implementation.  ANNEX III Page 1 of 2 pages BURUNDI NATIONAL ECONOMIC DEVELOPMENT PROJECT (BNDE) SUPPLEMENTARY PROJECT DATA SHEET I. Timetable of Key Events (a) Bank reconnaissance/identification mission: October 1975 Initial discussion of a possible line of credit for BNDE: March 1976 (b) Time taken to prepare project: March - October 1976 (c) Appraisal Mission: November 1976 (d) Negotiations: May 31 - June 3, 1977 (e) Planned date of effectiveness: November 1977 II. Special Association Implementation Action None III. Special Conditions (a) BNDE to establish and maintain with qualified staff an Industrial Development Unit responsible for the promotion, appraisal and moni- toring of industrial projects (condition of credit effectiveness; para. 30). (b) BNDE to employ two experts in engineering and industrial economics/ financial analysis to assist BNDE in carrying out the tasks of the Industrial Development Unit and train counterpart staff (condition of credit effectiveness; para. 30). (c) BNDE to adopt a Policy Statement satisfactory to the Association (condition of credit effectiveness; para. 31). (d) BNDE to adopt detailed procedures satisfactory to the Association for appraisal and supervision of projects financed by BNDE and a standard form of loan agreement satisfactory to the Association regarding subloans for manufacturing and tourism (conditions of disbursement; para. 36).  ANNEX III Page 2 of 2 pages (e) For projects to be submitted to the Association for approval BNDE will calculate an internal financial rate of return and for projects that are import substituting also an economic rate of return (para. 36). (f) BNDE to include in its Policy Statement a provision that the debt/equity ratio will not exceed the ratio of 4:1 (para. 42). (g) Borrower and BNDE to sign a subsidiary loan agreement for the IDA funds passed on to BNDE (condition of credit effectiveness; para. 50).