Document of The World Bank FOR OMCIAL USE ONLY Reort No. P-3971-MAU REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT OF SDR 5.4 MILLION TO TEE ISLAMIC REPUBLIC OF MAURITANIA FOR AN LNDUSTRIAL AND ARTISAN DEVELOPMENT PROJECT March 5, 1985 This jOCmnent has a restricted distibuom and may be used by recipients oly in the peonasce of their offid subes. Ds contes may s oherwie be didosed wid""* World Bank atoriation. I CURRENCY EQUIVALENTS Currency Unit - Mauritanian Ouguiya (UM) US$1 - UM 8O Umi - US$0.0125 US$1 - SDRs 1.0256 SDR 1 - US$0.9749 MEASURES 1m2 - 10.76 sq ft lkm - 0.62 mile lkm2 - 0.38 sq. miles ABBREVIATIONS AND ACRONYMS BCM - Central Bank of Mauritania ("Banque Centrale de Mauritanie") BNDC - Mauritanian Bank for Development and Commerce ("Banque Hauritanienne pour le Developpement et le Commerce") CEPI - Center for Studies and Industrial Promotion("Centre d'Etudes et de Promotion Industrielle") CIFPB - International Center for Training in Banking ("Centre International de Formation a la Profession Bancaire") CFPP - Training and Professional Improvement Center ("Centre de Formation et de Perfectionnement Professionels") CGEM - Confederation of Hauritanian Employers ("Confederation Gfnerale des Employeurs Mauritaniens") CNI - Niational Investment Commission ("Commission Nationale des Investissements") FND - National Development Fund ("Fonds National de Developpement") lIE - Mauritanian Company for Industry and Equipment ("Mauritanienne des Industries et Equipements") 0TM - Mauritanian Carpet Bureau ("Office du Tapis Maurita-ien") SOGOGIM - Company for Apartment Build Lg Construction and Management ("Societe de Const uction et de Gestion TmmobiliAere") STB - Tunisian Barking Company ("Socifti Tunisienne de Banque") UMOA - West African Monetary Union ("Union Monetaire Ouest Africaine") FISCAL YEAR January 1 - December 31 FOR OMCLICL USE ONLY MAURITANIA INDUSTRIAL AND ARTISAN DEVELOPMENT PROJECT CREDIT AND PROJECT SUMMARY 'lorrower: Government of the Islamic Republic of Mauritania Beneficiary Agencies: Mauritanian Bank for Development and Commerce (BMDC) Mauritanian Carpet Bureau (OTM), and Training and Professional Improvement Center (CFPP) Ministry of Industry Amount: SDR 5.4 million (US$5.25 million) Terms: Standard Onlending Terms: 1. US$3.8 million of the credit would be relent by the Government to BMDC for 20 years, including 5 years of grace, at 7Z interest per annum. The standard IDA commitment fee of 0.5% would apply to BMDC. BMDC would onlend to final borrowers at an interest rate of 11% per annum. The Government would bear the foreign exchange risk against a 1% per annum fee paid by the final borrowers in addition to the interest rate. 2. Of the balance of US$1.45 million, US$1.2 million would be passed on by the Government as grants to (i) RMDC (US$430,000) for financing technical assistance and training; (ii) OTM (US$460,000) for support to artisan carpet weavers; (iii) CFPP (US$310,000) for accounting training. The remaining US$250,000 would be used by the Ministry of Industry to finance an industrial sector review. Project Description: The project would comprise five components, (a) A line of credit to finance private small and medium enterprises through BMDC. (b) Technical assistance to further strengthen BMDC's institutional capacity. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. is contents may not otherwise be disclosed without World Bank authorization. (c) Assistance to OTM to train and equip 300 additional artisan carpet weavers and to provide them with technical advice and marketing assistance. (d) Assistance to CFPP to train accountants working for the corporate sector. (e) Assistance to the Ministry of Industry to carry out a review of the industrial sector relating to both policy and institutional issues. Benefits and Risks: The benefits of the project would be (i) at the enterprise level to help create or expand about 20 small- and medium-scale enterprises which would employ about 750 additional workers and to create about 50 carpet weaving workshops for 300 additional artisans; and (ii) at the institutional level to further strengthen BMDC as a financial intermediary for industrial financing and to build up OTM's capability to develop and support artisan carpet weaving as well as to improve the accounting standards of the corporate sector. In addition, the project would assist the Government in carrying out a review of the policies and institutional set-up affecting the industrial sector. The main risk arising from the organizational weakness of some project institutions (e.g. OTM, CFPP), would be minimized by technical assistance included in the project and by regular IDA supervision. Project Cost Local Foreign Total -- - US$ 000's -- Line of Credit 1,900 7,600 9,500 Technical Assistance and Training to BNDC 210 320 530 Technical Assistance, Training and Equipment to OTM 145 315 460 Training of Accountants 172 268 440 Assistance to the Ministry of Industry _ 250 250 Total 2,427 8 753 11i180 Finaucing Plan IDA 297 4,953 5,250 FND 3,400 3,400 Subproject sponsors 1,900 400 2,300 EMC 100 - 100 CFPP 130 - 130 Total 2.427 8 752 11.180 - iii - Estimated Disbursements FY86 FY87 FY88 FY89 FY90 FY91 ________- US OOO's Annual 1,240 1,400 1,400 610 400 200 Cumulative 1,240 2,640 4,040 4,650 5,050 5,250 Economic Rate of Return: NA Staff Appraisal Report: No. 5359-MAU, March 1, 1985 M Map: IBRD 18714 INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE ISLAMIC REPUBLIC OF MAURITANIA FOR AN INDUSTRIAL AND ARTISAN DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed Development Credit to the Islamic Republic of Mauritania for SDR 5.4 million (US$5.25 million equivalent) to help financ. an Industrial and Artisan Development project. PART I - THE ECONOMY 2. A report entitled "Islamic Republic of Mauritania - Recent Economic Developments and External Capital Requirements" (2479a-MAU) dated June 4, 1979, has been distributed to the Executive Directors. Since then, a number of missions have visited Mauritaria to monitor the economic and financial situation and prospects of the economy. Updated country data are given in Annex I. The Land and its People 3. Mauritania bears many of the characteristics of the "Least Developed Countries"' in terms of its physical and human resources, despite a level of per capita income (US$460 in 1983) somewhat higher than that of the world's lowest. Three-quarters of the country is desert or semi-desert, the principal economic activity being livestock herding. Crop farming is generally limited to the sub-Saharan zone in the south, where rainfall is nonetheless sparse and irregular. Pockets of modern economic activity are found in the mining complex of Zouerate, the fishing center of Nouadhibou and the administrative capital of Nouakchott. These centers are geographically separated from the agricultural zones, and there is little economic interaction between them and the rural sector. 4. The three centers of modern economic activity account for a major share of the country's overall output, while livestock and crop farming, which support as much as 70 percent of the population, account on average for about 25 percent of total output. The mass of the population (total 1.6 million) suffers from an extremely low standard of living, as reflected in key social indicators: life expectancy at birth is estimated at 45 years, infant mortality is 132 per 1,000, only one in every three children of school-age attends primary school, and less than 20 percent of the population is literate in either of the two official languages, Arabic and French. -2- Past Economic Performance 5. Led by increases in iron ore production, Mauritania's GDP sustained an average annual growth rate of 8 percent during the 1960's. The economy experienced a sharp deceleration in growth in the mid-1970's, however, and a period of marked financial instability in the latter part of the decade. Principal factors were reduced world demand for iron ore, on which the country had been dependent for 70-80 percent of its export earnings, and the effects of severe and repeated drought on output in the rural sector. These factors were compounded by prolonged military conflict in the Western Sahara and a poorly conceived investment policy. The investment program was stepped up in the mid-1970's to rates approaching 40 percent of GDP with the support of heavy inflows of foreign assistance, particularly from OPEC sources and commercial lenders. These resources were used principally to finance the nationalization of the mining sector, ambitious projects in transport infrastructure and a few large industrial ventures which were to prove unviable. 6. The effects of depressed iron ore earnings, drought and a generally weak record of economic management in the mid-1970's brought the country to financial crisis by 1977. The Government's current expenditure requirements that year reached a level nearly double its receipts, producing a Treasury deficit equivalent to 16 percent of GDP. On the balance of payments the country suffered a severe drain on its reserves despite massive inflows of foreign grants and loans. The Government which took power in 1978 immediately adopted a stabilization program which called for rescheduling more than $200 million in debt service obligations, tight controls on the Government wage bill and a reinforced tax collection effort. The growth of the Government's current budgetary expenditure was curbed, and the earlier drain on the country's foreign reserves was arrested. Modest boosts in iron ore and fisheries production and the stimulus of a new investment effort temporarily enabled the economy to pull away from the stagnation which had characterized it since 1975 and to enjoy a brief three-year period of growth averaging 4 percent per annum during the period 1979-81. 7. The improved performance of the economy could not be sustained, however, in the face of a fallback in mining production and the recurrence of drought. Iron ore production fell by more than 20 percent in 1982-83 to a level only 65 percent of that registered 10 years earlier. With rainfall only about 20 percent of normal levels in the 1983/84 season, the livestock herd suffered major losses, and cereals production met less than 10 percent of total demand. Aggregate output of the economy fell by 2.2 percent in 1982, rose by 6.6 percent in 1983 (due to distress sales and offtake in the livestock sector and other exceptional factors) and stagnated in 1984. In the absence of sustained growth, per capita incomes today are essentially unchanged in real terms from those of a decade ago. -3- 8. The failure of the mining sector to underpin growth of the economv in the 1980's marks a major reversal of expectations at the outset of the current Five-Year Development Plan period, 1981-85. On the assumption of gradual recovery in the world steel industry and a consequent near-doubling of Mauritania's ore production, mining was expected to resume it's role as the economy's motor of growth through at least the first half of the decade and to ensure the domestic resources to effect the development strategy adopted for the 1980's: to eventually shift the base of the economy from its exhaustible mineral resources to alternative, renewable sources of growth - irrigated agriculture, livestock and fisheries. The need to ensure future mining capacity and at the same time to diversify the economy has resulted in Mauritania's maintaining its record for some of the highest rates of investment registered among developing countries. Gross capital formation averaged $240 million annuallv through a peak period, 1981-83, or 35 percent of GDP. Continuing high levels of investment have reflected the completion of large projects in the transport sector begun in the late 1970's and, simultaneously, the execution of the $500 million Guelbs mining project, Gorgol Irrigation and other major projects undertaken in the framework of the 1981-85 public investment program. Additionally, a spurt of private sector investment in fisheries was made in the early 1980s in response to Government initiatives to promote national exploitation of these formerly foreign-controlled resources. 9. Given the performance of the mining sector and drought-induced shortfalls in rural production, Mauritania's inability to maintain satisfactory rates of growth have sharply aggravated its exceptional dependence on foreign resources to meet consumption as well as investment requirements. Whereas the external current account deficit had been held in check at an average 22 percent of CDP in the 1979-81 period and the overall balance of payments maintained in approximate equilibrium, Mauritania's external position has substantially weakened since 1982. Despite a strong rise in earnings from fish exports (estimated at $135 million in 1984 closely rivalling earnings from iron ore of $150 million), the current account deficit expanded to an average 33 percent of GDP in 1982-83. Though in part the result of exceptionally heavy foreign-financed mining investment, the expansion of the deficit was unmatched by a corresponding increase in capital inflows, forcing a massive drawdown of Central Bank reserves (cumulative $77 million in 1982-83). In 1984 the payments crisis was modestly eased by a decline in cereals imports, replaced by exceptional receipts of food aid, and a reduction in other general imports induced by a downward adjustment of the ouguiya exchange rate of 19 percent in relation to the US dollar. Further losses in official reserves were nonetheless incurred (US$33 million), and by end-1984 payments arrears on external medium and long-term debt had mounted to an estimated $95 million. The Recovery Program and the Current Outlook 10. Mauritania's balance of payments and budgetary situation thus remains extremely weak, requiring continuing adjustment measures over -4- the medium term and heavy support from abroad in the form of financial and technical assistance and food aid. The gradual depreciation of the ouguiya during 1984 was one of a series of recovery measures in the areas of exchange rate and price policy, fiscal administration, the public enterprise sector, the banking system and the public investment program towards reducing external and domestic imbalances to sustainable levels and maximizing the modest prospects for the economy in the medium term. Such measures are being pursued in the context of the Government's Economic and Financial Recovery Program. In January 1985 the Government reached agreement with the IMF on a proposed Stand-By arrangement for SDR 12 million. In accordance with this agreement, it undertook in February 1985 a further 19 percent effective devaluation of the ouguiya in domestic currency terms and increases in cereals prices at both producer and consumer levels ranging from 12-50 percent. The Government also agreed to raise interest rates to levels which are positive in real terms and to restrict credit expansion. The IMF Stand-By would be put in place following successful negotiations with Arab and Western bilateral creditors to fill the projected 1985 financing gap of $200 million. 11. Successful implementation of the Government's Economic and Financial Recovery Program, supported by the international community, is critical to the medium-term outlook for the economy. With disciplined economic management and well-conceived measures to exploit Mauritania's limited resources, modest but sustained growth in output is possible. Rural sector production should recover moderatelv from drought-induced lows of 1984. Although international iron ore markets are not expected to recover significantly through the 1980's, it is possible for SNIM to continue to improve the cost effectivenss of its operations. In the livestock sector, some time will be needed to reconstruct the herd following the heavy mortality and accelerated offtake over the past two years. In the period ahead, irrigation development will 4ncreasingly contribute to food supplies, even though cereals production will remain highly vulnerable to the effects of drought. In the fisheries sector, now a major source of foreign exchange and budgetary revenue, growth could remain strong for another 3-4 years, but would then level out if resources are not to be over-exploited. Under favorable assumptions, overall growth of the economy through the remainder of the 1980's could average 3.5 percent annually, or 1.0 percent ahead of the projected rate of population growth. 12. Mauritania's longer term d2velopment strategy must take into account the country's very limited natural resource base and prospects for its supporting rising standards of living. Compounding the implications of overall population growth is the fundamental economic and social change taking place throughout Mauritania as a result of a decade of severe drought and attendant rural emigration. The growth of Mauritania's urban centers, at some of the most rapid rates registered in West Africa, is clear evidence of the need to give high priority to those sectors such as light industry which offer maximum scope for expanded income and employment opportunities. - 5 - PART II - BANK GROUP OPERATIONS IN MAURITANIA 13. As of FY84 the Bank Group has had 19 operations in Mauritania for a total of US$212.6 million. Of these, two are Bank loans for mining operations (US$66 million for MIFERMA in 1960, and US$60 million to SNIM in 1979 for the Guelbs Iron Ore Project). The other 17 are IDA credits totalling US$86.9 million. Of the IDA operations, five have been in the transport sector, six in the rural sector, two for education, two have been technical assistance projects for economic planning and there have been separate projects for urban and rural development and petroleum exploration. IFC has no operations in Mauritania. The Bank Group's presence in Mauritania was fairly substantial in the early 1970's, and in 1970-72 it was the third largest a donor providing about 18% of Mauritania's external capital assistance. Since then, external financial assistance to Mauritania from other sources has increased rapidly and at present, the Bank Group's share in Mauritania's external capital assistance amounts to about 8.0%. 14. Until the mid-seventies Bank Group strategy for Mauritania focussed on financing traditional projects mainly in agriculture, transport and education. Since the mid-seventies this assistance has been broadened increasingly to address the institutional weaknesses of country economic management, investment planning and project implementation which h..d manifested themselves during the last decade. In 1978. the Association assisted the Government in designing a financial and economic rehabilitation program for which the first Technical Assistance Project (FY77) provided the expertise. Assistance for the formulation of macro-economic policy, a medium and long-term development strategy, and investment programs is being continued under a Second Technical Assistance Project (FY82), which is also helping to develop a pipeline of feasible investment projects other than mining (iron ore) on which the country can no longer solely count for sustained economic growth. The objective of this assistance is to institute a much more thorough evaluation of investments than occurred in the past especially to avoid large, capital intensive projects with low productivity and unsatisfactory rates of return. Priority will now be given to projects aiming at the rehabilitation and maintenance of existing infrastructure, and encouraging only those new investments that demonstratively promise a high rate of return. 15. Following a comprehensive review of the public sector enterprises financed under the first Technical Assistance project, assistance was also provided to the Interministerial Committee for the Rehabilitation of Public Enterprises in the preparation of a medium-term rehabilitation program for the public enterprise sector. This program sets forth measures to increase the efficiency of the existing enterprises through selective actions of rehabilitation, privatization and liquidation and outlines rehabilitation programs for several of these enterprises including actions on pricing policies, personnel adjustments, streamlining of management and appropriate maintenance of equipment. In support of this program a Public Enterprise Technical -6- Assistance and Rehabilitation Project is scheduled to be presented to the Board of Executive Directors during FY85. 16. To back-up the Government's efforts to address Mauritania's severe balance of payment problems, tight fiscal situation and its Inability to service its public debt problems, our country and economic sector work has been intensified and will include sector papers on fisheries, education, energy and urban development. Provided that the IMF Standby arrangement is approved and satisfactory progress is made in the implementation of economic recovery measures, a Consultative Group meeting will be organized to obtain donor support for the Recovery Program. 17. Professional training of Go-ernment officials remains an essential ingredient of IDA assistance to overcome the acute shortages of trained local staff at all levels, which constitute a major difficulty in project implementation. Through project aid and technical assistance, efforts have been made to strengthen vocational training for the modern industrial sector and farmers' training, in parallel with broadening access to primary education. Nonetheless, shortages of pupils completing secondary and vocational schools with satisfactory results remain critical and explain the low productivity of employees in the modern sector. As a consequence technical assistance should continue to be an important part of project financing. 18. Assistance to the education sector is being provided under the Second Education Project (FY82) which aims at expanding access to primary education, improving vocational training in the modern industrial and commercial sectors, and training of lower secondary school teachers to replace a substantial number of foreign technical assistants on expensive contract basis. Future IDA assistance should continue to focus on the need to reduce technical assistance personnel. The Government recently requested the Association to assist the Government Education Reform Committee in the review of key sectoral issues, a clear definition of overall long term objectives, the formulation of policies, the preparation of an investment program to increase efficiency of education and training, and the reduction in recurrent costs to lower the large share of education (30%) in the national budget. Additional sector work is being initiated for this purpose. 19. Assistance to agriculture, especially irrigation and livestock, will be continued since this sector is still considered Mauritania's principal source of growth over the longer term, despite its weak base and extreme vulnerability to drought, and the high cost of investments caused by difficult physical conditions, limited transport infrastructure, and the high level of technical assistance needed. Through the Second Technical Assistance to the Rural Sector project - 7 - (FY83), rural institutions will be strengthened and efficient incentives developed by addressing such fundamental issues as input and product pricing, subsidies and land tenure. A Small Scale Irrigation project (FY85) will continue IDA assistance to the on-going irrigation program and finance the establishment of 75 command areas of 20-25 ha each, emphasizing the participation of beneficiaries in construction, maintenance and operation to keep investment costs down. A Second Livestock project (FY86), would improve livestock production, strengthen services and - based on encouraging experience in Niger and Mali - establish pastoral cooperatives on an experimental basis with grazing rights allocated to identifiable land areas. This would enhance renewable resource management through greater involvement by the pastoralists themselves. In the fisheries sector, wbich could be an X important source of future growth, a sector study has been prepared to assist the Government in the elaboration of a sector strategy. The objective is to enable Mauritania to capture a larger share of the benefits currently reaped by foreign trawlers operating along the coast. Once this strategy is in place, a fisheries project could be considered. 20. In the energy sector, our assistance consists of supporting the Government's search for hydrocarbons through the Petroleum Exploration Promotion Project (FY82) and carrying out an energy assessment to recommend strategies and policies aimed at improving energy demand management, develop indigenous energy resources, strengthen institutions, and identify specific areas for follow-up technical assistance, based on which a future operation could be developed. The Association is also helping Mauritania to evolve an overall strategy for the urban sector. Urbanization has grown dramatically in recent years while appropriate measures to adjust to this development have not been taken. Sector work is being carried out to gather detailed knowledge of the urban requirements and to examine the wider urban policy issues in the context of Mauritania's overall development aspects. This sector work may lead to the design of an urban project later in this decade. To assist in Mauritania's efforts to diversify employment and sources of income, financing was provided to encourage private enterprise through the Mauritanian Bank for Development and Commerce (Credit 888-MAU) and to promote artisanal carpet-weaving activities. - The proposed project would further pursue these objectives and through studies develop appropriate policies for improving subsector performance and possibilities of further expansion of the manufacturing sector. PART III - THE SECTORAL ENVIRONMENT A. The Industrial Sector 21. Structure. The industrial sector (artisanal activities excluded), whose share of the country's GDP at factor cost and in real terms was 20.8% in 1983, is dominated by mining operations. In 1983, -8- the mainly government-owned National Company for Mining Industries which produces iron ore employed 34% of the industrial sector's labor force of about 18,000 and contributed to 50X of its output. The same year the construction industry, consisting of one government-owned company and 31 private enterprises, mostly small, whose total fixed assets amounted to about UM 290 million, accounted for 27% of output and 54Z of employment in the industrial sector. 22. Manufacturing is still embryonic. Although the sector received 35% of investment in the industrial sector in 1983, its 30 enterprises accounted for only 12% of its labor force and for 23Z of its output. Of the 30 manufacturing enterprises in operation that year, two - a sugar refinery and a steel mill - were government-owned. Six of the 28 private firms received financing under the first IDA line of credit to BMDC (Cr. 88B-MAU). The production of food and beverages, household chemicals and construction materials accounted for about 80% of total private investment and 83% of the employment that it generated. 23. Performance. Mining output which has declined from 1980 to 1983 before returning in 1984 to the 1980 level is not expected to increase significantly in the next several years. The manufacturing sector is still in its infancy and handicapped by several factors, in particular, the inadequacy of infrastructure and human skills. In 1983, available information would indicate a low capacity utilization of below 50%. However, some improvement in these respects is in sight. In the Nouakchott area a new port is presently under construction; a new power plant is expected to start operations in 1988 and the rehabilitation of power and water utilities, to be financed under the IDA Public Enterprises Rehabilitation Project, is expected to increase the water supply by about 50% by 1987. Since the late 1970's, the government's Training and Professional Improvement Center ("Centre de Formation et de Perfectionnement Professionel" - CFPP) has been providing training to public and private sector employees, especially in accounting (paras 60 and 61), but it does not have the means to address the overall needs of the industrial sector. Furthermore, in the specific area of accounting, the ILO assistance to CFPP, financed by the IDA Second Education project (Cr. 1214-MAU), was phased out in March 1983. In order to support Government's efforts to improve the management of existing enterprises, the training of accountants already employed in private and public enterprises will be financed under the proposed project (paras 66 and 67). 24. Industrial Policies. The growth of industrial activities (mining excluded) on which the Government largely relies to diversify the economy, is constrained by the limited resource base of the country and by the small domestic market fragmented over a vast territory. However, there is potential for further development, in particular, for the production of goods whose high transport costs favor the domestic producer (e.g. building materials), or which provide inputs to, or process the outputs of fishing and agriculture. In addition, the influx -9- of refugees into the towns has provided a source of labor which, witb some encouragement and training, could be used in light industry. The Government's policy for the industrial sector, outlined in the 1981 - 1985 Fourth Development Plan, therefore emphasizes the prorotion of small- and medium-scale industrial enterprises. Rec.gnizing, however, the need to reform its own enterprises first, the Government is confining its role to the rehabilitation of public enterprises, leaving the development of liiht industry to private initiative. 25. Although the 1979 version of the Investment Code was improved on IDA's recommendations during the first project, it is still biased in favor of large-scale investment. Only investments over UM 10 million (or about US$125,000) are eligible for such benefits as exemption from import duties and income tax and other advantages. The Government has accordingly agreed to IDA's suggestion that the UM 10 million minimum be abolished, a step that would reduce the bias against small industrial investments and instead, encour-ge them. This measure has been approved by the Council of Ministers and :ts enactment by the Military Council would be a condition of effectiveness (Section 6.01 (d), draft Development Credit Agreement). 26. Mauritania which belongs to the West African Economic Community and to the Economic Comunity of West African States cannot, according to the rules of these institutions, restrict imports from fellow member countries. Neither does it officially limit imports from other countries. However, besides a high tarif protection which ranges from 56% to 104% for industrial products, the Government has since 1982 discouraged imports which could threaten existing industries by not granting relevant requests for import licences. With respect to pricing, the Government administers a system of controls which allows free marketing of a few luxury products, sets specified margins over costs for other products, and sets the prices of about 30 primary products. 27. The Government has agreed to IDA's view, shared by a UNIDO-financed study of the industrial sector completed in October 1984, that excessive protection coupled with price control may further increase price distortions and misallocation of resources besides weakening the efficiency of existing enterprises. In order to help the Government remedy this situation the proposed project would finance technical assistance to the Ministry of Industry which would carry out an industrial sector review with a view to establishing an adequate industrial data base, and identifying the necezsary changes in the incentives system (Section 3.02 and Schedule 2 para E (1) respectively, draft Development Credit Agreement). 28. Promotional Institutions. Two institutions and two commissions have responsibilities in connection with industrial development. The Center for Studies and Industrial Promotion ("Centre d'Etudes et de Promotion Industrielle"- CEPI), within the Ministry of Industry, is intended to erovide assistance to new entrepreneurs at all - 10 - stages of the project cycle, to carry out feasibility studies, appraise new projects, and process applications for benefits under the Investment Code. A private institution, the Confederation of Mauritanian Employers ("Confederation Generale des Employeurs" - CGEM) assists new private investors. The aim of the National Commission for Industry chaired by the Minister of Industry, is to improve the environment for industries and thus to encourage industrial development. The National Investment Commission ("Commission Nationale des Investissements" - CNI), chaired by the Minister of Plan, meets periodically to decide whether projects presented by new investors, are eligible for benefits under the Investment Code. 29. Although on IDA's recommendation the role of CEPI and of the CNI has been redefined in order to shorten the review of projects seeking the benefits of the Investment Code, this process is still cumbersome. In addition, the promotional institutions have so far achieved very little in promoting industrial development because of the scarcity of suitably qualified administrative and technical staff, and more importantly, the lack of a clear definition of their roles that would avoid duplication and make the best use of the available staff. At the Government's request, the assistance noted in para 27 would also help (i) design an adequate institutional set up for industrial promotion, define the respective roles of CEPI, CGEM, CNI and of the two development banks and propose institutional cooperation arrangements between them; (ii) formulate an action plan for the reorganization of CEPI, including a possible participation of private entrepreneurs in CEPI's ownership and management and define its needs for technical assistance and training; and (iii) standardize project appraisal procedures for all institutions involved in industrial promotion. Draft terms of reference of this technical assistance have been agreed on. The recommendations resulting from the technical assistance studies would be reviewed by IDA with a view to making appropriate suggestions for implementation (Section 3.02 (ii), draft Development Credit Agreement). B. The Artisanal Sector 30. According to Government estimates, about 49,000 artisans are engaged in the production of ordinary consumer goods and art objects. The number of male artisans has remained constant for many years. In the meantime, increasing numbers of women have entered this field of production, and there are now about 33,000 women artisans. Although artisans form between 8 and 10% of the working population, their contribution is estimated to be only about 0.22 of GDP and about 2% of industrial activity, other than mining. 31. Artisanal Sector Policies and Promotional Institutions. In 1967, the Government took the first step towards expanding the artisanal sector by creating "precooperatives". It envisaged to supply them with raw materials and assist them in the organization and in the marketing - 11 - of cheir production, to enable them to become independent cooperatives. Since then, all development plans have included financial support for artisans. The fourth development plan (1981 - 1985) earmarks about US$8 million for creating an artisan village in each of the 12 Mauritanian administrative regions to help artisans market their products. 32. Three institutions have been set up to administer this government assistance. Within the Ministry of Industry, the Artisan Promotion Department helps to staff the 33 "precooperatives" that it has created since 1967. The Mauritanian Carpet Bureau ("Office du Tapis Mauritanien" - OTM), also under the Ministry of Industry, promotes hand knotted carpet production with financial and technical assistance, provided under the first IDA project, to improve the quality and quantity of carpet production and to train weavers (paras 55 through 59). Within the Ministry of Health and Social Affairs, the Department of Social Affairs has created about 31 women's cooperatives engaged in weaving, embroidery and dressmaking. 33. Achievements and Prospects. The development of artisan activities in Mauritania is favored by the pool of cheap refugee labor and by a long tradition of handicrafts. Nevertheless, although the Government has repeatedly stated its objective of developing this sector, artisans have received very little help. To date, none of the "precooperatives" has become an independent cooperative and only one of the 12 artisan villages envisaged under the fourth development plan has been created in Nouakchott. In any event, these artisan villages no longer appear warranted because of the low level of artisanal production. The promotional institutions are inadequately staffed, and have received very little of the funds earmarked for them in the development plans. The development of the sector as a whole requires financial resources and skilled personnel beyond Mauritania's present capacity. With the exception of the carpet weaving activity, the prospects for the expansion of the sector appear therefore limited. C. The Financial Sector 34. Institutional Setting. In mid-1973, Mauritania withdrew from the West African Monetary Union ("Union Monetaire Ouest Africaine" - UQIOA), created a Central Bank ("Banque Centrale de Mauritanie" - BCN) and introduced a new currency, the Ouguiya (UM). Besides BCK and the Government Post Office System ("Compte Cheques Postaux") there are five commercial banks. A11 the banks are jointly owned by the Government and foreign shareholders. In all of them the Government holds, either directly or through the Central Bank, a majority interest except for the Arab-Lybian Bank of Mauritania, in which it owns only 49% of the share capital- 35. Of the five commercial banks, only the Mauritanian Bank for Development and Commerce ("Banque Mauritanienne pour le Developpement et le Commerce" - BMDC) (para 44 to 54) has an important development - 12 - banking role. In this field it works closely with the fully government-owned National Development Fund ("Fonds National de Developpement" - FND) established in 1980 to finance projects in the agriculture and fishing sectors which received little help from the commercial banks. However, FND became also involved in industrial financing. In order to avoid duplication in the field of industrial development, FND and BMDC acting upon IDA's recommendation, concluded an institutional cooperation agreement, effective since August 1984, by which they will cofinance all industrial projects, with BNDC assuming the lead role for projects costing less than UK 60 million (or about US$750,000), and FND for projects above this limit. 36. Banking Policies. BCM is the Government's instrument for enforcing banking policies. To this end, BCM (i) reviews all credit applications for local resources over UN 2 million to be financed by the Mauritanian banks ; (ii) sets a ceiling each year on short- and medium-term rediscountable facilities available to each individual bank; (iii) regulates the terms and conditions of all bank credits to be financed by local resources; and (iv) sets financial ratios that the banks must observe. 37. BCH does not rediscount credits whose terms exceed 8 years. Lending rates to final borrowers range from 6% to 13% for rediscountable credits and 10% to 15% for non-rediscountable credits, the lower rates applying in both cases to agriculture and livestock. While interest rates charged on non rediscountable credit are adequate, those charged on rediscountable credits (to the productive sectors) are low compared to the international markets and to the annual inflation rate expected to run at about 10Z in the next 5 years. BCM's rediscount rate is 4.5% for credits to agriculture and livestock and 6.5% for loans to all other sectors. The spread allowed to the banks on rediscounted credit is higher on short-term (1.5% tc 3.5%) than on medium-term credit (1% to 3Z), which may constitute a disincentive for term lending. BCE also regulates interests paid to deposits. These range from 5 to 9X according to their amount and term. The structure of interest rates is such, however, that for the same amount term deposits are paid at most 0.5% more than short term (up to one year) deposits. As part of the conditions of the second IMF stand-by arrangement, expected to be effective later in 1985, the Government has agreed to raise in March 1985 all interest rates by 2% . In addition, BCM will undertake a review of the level and structure of interest rates to be completed by June 1985. 38. Issues. The banking system is unable to mobilize adequate local resources to finance the growth of credit to the economy-. Although during the 1979-1983 period total deposits received by the banks grew at about 20% per annum from UH 3.3 billion to about UM 7 billion, they represented only 50% of total lending in 1983. Because of continued restrictive credit policies siming at reducing credit for imported consumer goods and improving the country's balance of payments, the share of BCM financing in total credit decreased from - 13 - 21% in 1979 to 16% in 1983. In the meantime, the banking system borrowed heavily abroad in order to sustain the growth of its lending, thereby aggravating the country's foreign reserve situation. Moreover, the banking system lacks adequate term resources for development financing. Although the interest rates charged on non rediscountable term credits are not low in relation to foreign credits, the country's high indebtedness discourages potential foreign term lenders. The structure of interest paid to deposits does not encourage term deposits relative to demand deposits. Still another problem - not uncommon in developing countries - is that the Mauritanian banks have to contend with very high portfolio arrears resulting from the economic slowdown which started in '982 as well as from their own weak management and inadequate experience. 39. In recognition of these shortcomings, the Government has commissioned a review of the banking system by the French International Center for Training in Banking ("Centre International de Profession a la Profession Bancaire" -CIFPB) which would include (i) an audit of all the banks; (ii) measures for increasing their operational efficiency and for improving their financial condition; (iii) measures for increasing the mobilization of local and especially term resources; and (iv) the conditions of the establishment of a financial market within which, with the exception of a prime rate determined by BCM, the commercial banks would be free to determine their own lending rates. The IMF is attempting to accelerate this banking sector study in connection with its forthcoming standby arrangement with the country. In coordination with the IMF, IDA will review upon their completion BCM's study of interest rates mentioned above as well as the study of the banking system with a view to making appropriate policy inputs (Section 4.04, draft Development Credit Agreement). PART IV - THE PROJECT 40. The project was prepared by IDA missions between December 1982 and December 1983. The appraisal took place in February-March, 1984. Negotiations were held in Washington from February 19 to February 27, 1985 with a Mauritanian delegation led by Mr. Mohamedou Ould Michel, Economic Advisor to the Minister of Plan. Supplementary data on the project are provided in Annex III. The Staff Appraisal Report No. 5359-MAU, dated March 1, 1985, is being distributed separately to the Executive Directors. A. Background 41. The proposed project, to be financed by an IDA credit of US$5.25 million, would comprise five components (i) a line of credit to BMDC for financing economically and financially viable private small- - 14 - and medium-scale enterprises (US$3.8 million); (ii) technical assistance to further strengthen RMDC's procedures, organization and staff training (US$430,000'., :iii) assistance to OTM to provide technical and marketing guidance to carpet weavers trained under the first project in Nouakchott and to train 300 additional carpet weavers (outside Nouakchott) and help them start commercial production (US$460,000); (iv) assistance to CFPP to train 25 accountants employed by private and public enterprises (US$310,000); and (v) technical assistance to the Ministry of Industry to carry out a study aimed at improving industrial sector policies and promotional institutions (US$250,000). The project would build on the results, described in the following paragraphs, of the industrial and artisanal eomponent of the previous project. 42. The first indust il and artisanal operation (IDA Credit 888-MAU, of US$8 million of 3ctober 1979) which will be completed in December 1985 consists of (i) a line of credit of US$2.55 million to BMDC to finance private small- and medium-scale industry; (ii) technical assistance to BMDC (US$620,000); (iii) technical and financial assistance to help OTM train about 400 artisan carpet weavers, supply them with looms and raw materials and establish extension services to support their commercial activity (US$1.66 million); and (iv) feasibility studies for an industrial estate in Nouakchott and the artisanal manufacturing of bricks made of gypsum (US$70,000). 43. With the exception of the OTH component (paras 55 and 56), the first operation was satisfactorily implemented. The line of credit to BMDC (which was increased in September 1984 from US$2.1 million to US$2.55 million) is fully committed and 95Z disbursed as of end February 1985. It has financed 9 subprojects creating about 260 new jobs. The technical assistance to BIDC helped build-up the appraisal capability of its Development Department and improve its data processing. Under the OTH component, it was originally envisaged that 400 carpet weavers should have completed their training and started commercial production by June 1985, but so far only slightly more than one half have done so. The two feasibility studies were carried out satisfactorily. Although the conclusions of the study concerning the establishment of an industrial estate in Nouakchott were positive, the implementation of such an estate should await the availability of adequate supply of water and energy to this city, expected by 1987-1988. Following the study on artisanal manufacturing of gypsum bricks, the construction of buildings using this material has started on an experimental basis. This experiment has not yet however confirmed the. viability of the process. B. The Project Institutions 1. The Mauritanian Bank for Development and Commerce - BMDC 44. BMDC, originally named Mauritanian Development Bank ("Banque Mauritanienne de Developpement") was established in 1961 as a - 15 - development bank by the Government of Mauritania and the French Central Fund for Economic Cooperation ("Caisse Centrale de Cooperation Economique" - CCCE). In 1974 it was authorized to conduct the full range of banking activities, was renamed the Mauritanian Bank for Development and Caumerce and received management assistance from the Tunisian Banking Company ("Socite Tunisienne de Banque" - STB) which bought the shares previously owned by CCCE. BMDC's share capital of UK 80 million is owned by the Government (76%), STB (20%) and BCH (4%). 45. During the 1979 - 1983 perlid, the expansion of BMDC's operations more than doubled its assets. In addition, BMDC, which incurred losses until 1979 has been profitable since 1980. BHDC's outstanding portfolio increased from UM 1.12 billion to UM 1.97 billion at an average annual rate of 15%. Short-term and term lending rose by about 18% and 10% respectively per year. Between 1980 and 1983 term lending to the industrial sector grew steadily at an average rate of 26% per annum, while credits for housing construction, public utilities and agriculture decreased. Within this sector, as of September 1984, BMDC had financed 17 enterprises (including 9 under the first IDA Credit) and held equity investments amounting to UM 23.5 million in two enterprises. 46. quality of Portfolio. As a result of the economic slowdown and BMDC's inadequate procedures, but mainly because of the lack of a legal tribunal with specific jurisdiction over delinquent debtors, the quality of BMDC's portfolio declined until 1982. By the end of that year, its arrears were very high, amounting to UM 913 million or 53% of total outstanding portfolio. In 1983, BMDC took advantage of new measures enacted by the government on IDA's recommendation, including the creation of a special court to deal with delinquent debtors; it referred to that court delinquent loans amounting to UT. 353 million (or 39% of outstanding arrears). As of end 1983, BMDC had reduced its arrears to U1f 726 million or 35% of total outstanding portfolio. 47. BMDC pursued its recovery efforts and, as of September 1984, reduced its arrears to UM 637 million or 28% of total outstanding portfolio. BMDC expects to further reduce arrears on short-term loan portfolio and its overall arrears position will improve more significantly with expected collections on its six delinquent term loans to industrial enterprises (none of which was financed by the first IDA credit). Two of these loans were made with a government guarantee, to the Mauritanian Company for Industry and Equipment ("Mauritanienne des Industries et Equipements" - MIE), a privately-owned blanket factory in which BMDC also holds an equity investment, and to the Company for Apartment Building Construction and Management ("Societe de Construction et Gestion Immobiliere" - SOCOGIM), a government-owned company. Together these loar.s accounted in 1983 for UM 151 million of BMDC's arrears (for which no provision was made) and represented respectively 20% of total arrears and 63% of arrears on the term loan portfolio. 48. Under the first IDA credit, the government had agreed to compensate BMDC for any loss on government-guaranteed loans, in _ 16 - particular those made to MIE and SOCOGIM, presently under reorganization, should these enterprises be unable to repay BMDC. A reorganization plan and repayment schedule, both acceptable by IDA, have been presented for MIE. It was agreed that (i) the submission of a satisfactory reorganization plan and repayment schedule for SOCOGIM would be a condition of effectiveness; and (ii) the government would honor its guarantees if MIE and SOCOGIM were not to respect their repayment schedule (Sections 6.01 (e) and (f) and 4.03, draft Development Credit Agreement). 49. Capital Structure. On the basis of BMDC's unaudited balance sheets, as at end 1983, although its term debt/equity ratio was still below the 4:1 limit set under the first IDA credit agreement, its total debt/equity ratio (not covenanted under the first IDA project) had reached 22:1. However, if the UM 98 million additional provisions for bad loans recommended by its auditors to reflect more accurately BMDC's portfolio risks were established, this would have reduced its net worth from UM 118 million to UK 20 million, bringing its term and total debt/equity ratios respectively to 5.8:1 and to 129:1, the latter being excessively high by normal banking standards. In 1984, at IDA's urging, B1MDC's board of directors agreed to increase its share capital by UK 200 million of which U14 50 million would come from a cash subscription by BCM to BMDC's share capital and about UK 150 million from the conversion, agreed on between IDA and the government in March 1984, of the first line of credit (US$2.55 million) into government equity. The equivalent of US$1.945 million (or about UM 120 million) disbursed by BMDC as of end 1984, has already been converted into equity and the conversion will be completed by end 1985 following the full disbursement of this first line of credit. In parallel, BMDC has agreed to include (i) in ics 1984 balance sheet an amount of un 49 million of additional provisions; and (ii) in its 1985 balance sheet, the balance between this amount and the amount of additional provisions that BMDC's auditors will recommend following the audit of its 1984 accounts. 50. The fir.ancial reaEures described above would, by end 1985, bring BMDC's net worth to UM 279 million and improve its term . debt/equity ratio to 1.4:1 and the total debt/equity ratio to 10.5:1, which would be quite satisfactory by normal banking standards. (By way of comparison, banking regulations in the West African Monetary Union allow the banks a ratio of net worth to risk assets of 6%, which would imply a total debt/equity ratio of 16.7:1). The term debt/equity limit of 4:1, set under the previous project, would be maintained. In addition, it is r-commnended that a limit of 12:1 be set on BMDC's total debt to equity ratio. The establishment of additional provisions of UM 49 million and the payment in by BCM of UM 50 million into BMDC's share capital increase, would be conditions of effectiveness of the proposed credit (Sections 6.01 (b) and (c), draft Development Credit Agreement). 51. Organization and Staffing. BMDC has competent management and c nu.x..s of dedicated staff. With the technical assistance provided - 17 - under the previous project, BIIDC has developed a good capability for term lending, including adequate project appraisal and supervision. BMDC has made noteworthy efforts to improve its operational procedures and its data processing (in particular by introducing the use of computers), and to strengthen its personnel. In order to achieve a higher level of operational efficiency, BMDC intends to complete the codification of all its operational procedures, as well as to review those already codified to adapt them to the organizational changes which occurred in the past years and to strengthen its management practice and staff training. Measures to that effect are included in BMDC's Action Program analyzed in the following paragraph. 52. Action Program. In consultation with IDA, BMDC has formulated a comprehensive Action Program outlining specific measures for correcting existing institutional shortcomings and for achieving further improvements, both from a financial and an operational standpoint. This Action Program contains specific and monitorable deadlines for key steps. a) From a financial standpoint, the share capital increase and the establishment of additional provisions referred to in para 49 should result in considerable improvements in BMDC's capital structure, including a restructured balance sheet that would more accurately reflect the condition of the portfolio. In addition, BMDC will pursue the account-by-account review of its loan portfolio in arrears, to be completed by June 1985 and to be repeated at least annually thereafter, to serve as a basis for its intensified loan collection efforts and as a part of its objective of gradually reducing the ratio of arrears to outstanding portfolio from 35% (actual as of end-1983) to 15% by end-1987. In regard to future financial management, the Action Program sets such quantitative targets as a current ratio of no less than 0.75:1, a term debt/equity ratio of not more than 4:1, a total debt/equity ratio of not more than 12:1, and a gradual reduction of the ratio of administrative cost to total assets from 3.6% in 1983 to below 3.0% by 1988; b) From an operational standpoint, the Action Program provides for the establishment of an adequate Management Information System, the codification of key operating procedures and systematic staff training, the desirability of which is discussed in para 51. The technical assistance to be provided under the project (para 63) would help BMDC carry out this program of institutional strengthening. 53. Financial Projections. BMDC's financial projections for the period 1985 - 1989, indicate that its total assets are expected conservatively to grow at a rate of 10% instead of the 19% of the recent past. Its operations are expected to remain profitable and its net profits as a percentage of net worth to rise from 9% in 1985 to 15% in - 18 - 1989. Term debt and total debt to equity ratios would range from 1.4:1 to 1.7:1 and from 10.0:1 to 10.4:1 respectively. Provisions, which are expected to represent 10.7% of total outstanding portfolio in 1985, would be increased to reach 13% in 1987 and would remain at this level thereafter. 54. With the experience gained during the first project BNDC has built up a pipeline of about 36 subprojects (of which three are expansion projects) whose total cost would be UK 2.8 billion (or US$34 million). BMDC intends to select from this pipeline about 20 small- and medium-scale subprojects with the highest economic merits. During the 1985-1989 period, its disbursements on term loans are expected to amount to UM 434 million. Rediscounted medium-term credit is expected to amount to about UM 87 million. BMDC dees not expect other external term resources than the proposed IDA line of credit (equivalent to about UM 300 million). To fill its term resources gap, BNDC envisages using about UN 47 million of its one-year renewable deposits, which have proved to be stable in the past, and can therefore be used for term lending. 2. The Mauritanian Carpet Bureau - OTM 55. Background. In 1979, when carpet production and weavers' training, provided by the Mauritanian Tourism and Artisanal Bureau were virtually at a standstill, a component of US$1.66 million for rehabilitation of this handicraft was included in the first IDA project. In 1980, on IDA's recommendation, the newly created agency, OTH, decentralized carpet production by forming small independent cooperatives of six weavers each, working from the house of one of the weavers. In addition to technical guidance, 0TM provided each cooperative, as a credit in kind, with one loom and an initial raw material supply. OTM was to recover the cost of the raw material by paying only the labor cost of carpets delivered by the weavers. Each cooperative was to repay the cost of its loom within eight years, with an 8.5% per annum interest rate. 56. Operations. By 1982 OTM had, with IDA's funds and the help of the Tunisian Carpet Bureau, equipped 200 women weavers and started to train another 200. However, because it had, in 1980, inherited from its predecessor an onerous short term debt of about UM 25 million and excess administrative staff, it was operating at a loss and with insufficient working capital to finance the raw materials that it needed. Consequently, notwithstanding the weavers' willingness to work, their production, which rose from 760 m2 in 1980 to 1,500 m2 in 1981, dropped in 1982 to 1,000 m2. Furthermore, in 1983 the government stopped paying its 50% share of training costs, the banks discontinued the granting of overdrafts to OTM, which consequently stopped production and training, and IDA suspended in March 1983 all disbursements on this component of the project. OTM's balance sheet as of December 31, 1983 showed a short-term debt of about UK 40 million including UM 22 million towards the banks and UM 13.5 million towards the social security system. - 19 - 57. As a condition of the resumption of IDA's disbursements, the government reduced OTM's administrative personnel from 36 to 11, along with other administrative measures for streamlining OTM and strengthening its management. In addition, it has reduced OTM's debt towards the social security system to UM 9.4 million (by cancellation of the interest due) and agreed to bring about the conversion of this debt, as well as OTM's debt towards the banks, into long-term debts with terms compatible with OTH's debt servicing capacity. The government further agreed that during the implementation period (i) no debt repayment would be requested by any of OTM's creditors; and (ii) OTH's future revenues would be deposited in a special account at BMDC to finance OTM's activities exclusively. Consequently, IDA resumed disbursements in October 1984. I 58. Prospects. OTM has a fully equipped training center capable of receiving 200 trainees at any one time. By June 1985, there will be about 400 weavers, of which 200 already fully trained, capable of producing a highly appreciated product for local as well as foreign markets, in which potential European importers have shown interest. In addition, continued assistance to OTM would (i) create considerable employment (taking into account the fact that women once trained, can easily train other members of their families) at a very low cost (about US$1,500 per person for training and equipment); (ii) provide work in particular for the impoverished women refugees in the cities; and (iii) increase, although marginally, the country's foreign exchange earnings because a large proportion of carpets produced would be exported or locally sold to foreigners. OTM's projected income statements show that, following the above rehabilitation measures, it would be able to generate positive cash flows (after debt repayment) growing from about UM 820,000 in 1985 to about UM 7.3 million in 1989. 59. It is therefore recommended that the proposed project continue to support OTM by financing the training of new weavers and the equipment and initial raw material needed to establish new cooperatives. It was agreed with the Government that OTH's debts towards the social security system and towards the banks will, no later than October 31, 1985, be converted into long-term loans with amortization periods of not less than 10 and 8 years respectively, including grace periods of not less than 3 and 2 years respectively and with interest rates compatible with OTM's repayment capacity. Draft loan agreements between OTM and its creditors would be submitted to IDA no later than August 15, 1985. The effectiveness of these two loans will be a condition of disbursement for this component. If by October 31, 1985 either of these loans are not effective, the OTM component would be dropped from the project and the funds earmarked for this purpose would be allocated to the line of credit to BMDC (Section 4.05 and Schedule 1 para 2 (b), draft Development Credit Agreement). - 20 - 3. The Training and Professional Improvement Center - CFPP 60. CFPP is a state-owned vocational training center, founded in the late 1970s with UNDP and IDA financing (under the first Education Project), located in Nouakchott. Its object is to organize in-service training for both public and private sector employees, In bookkeeping, clerical services and selected technical fields (e.g. construction activities, automobile mechanics). The private sector participates, through CGEM, in the financing of CFPP's operation. CFPP has financial autonomy under the Ministry of Labor and operates efficiently. 61. The Accounting and Auditing Profile of Mauritania, prepared by the World Bank in 1982, drew attention to the lack of qualified accountants. In addition to an already considerable need for basic I training in accounting, training is required for all existing professionals to help them adapt to the new Mauritanian Accounting Code that the Government introduced in 1982. CFPP, the only institution which provides training for accountants of industrial enterprises, has therefore a major role to play in enhancing accounting practice in these enterprises but it lacks the financial and technical means to carry out this task. As mentioned earlier (para 23), the proposed project would include assistance to CFPP to train accountants. A PPF of US$140,000 was approved in September 1984 to finance the preparation of this training component. C. Project Description and Objectives 62. Line of Credit to BMDC. The Government would relend US$3.8 million of the IDA Credit to BMDC for onlending on the following terms and conditions (i) Beneficiaries: BMDC would finance fixed investment and permanent working capital needs of the new or existing private enterprises, included in its pipeline (para 54), in sectors other than agriculture. With the objective of reaching a relatively large number of smaller enterprises, an amount of US$1 million is earmarked for financing enterprises whose total assets do not exceed US$250,000; (ii) Relending Terms to BMDC: The line of credit would be relent by the Government to BMDC for 20 years (including five years of grace) at an interest rate of 7% p.a., which, considering the final onlending rate of 11% referred to in (iii) below, would give BNDC an adequate spread of 4 percentage points. The foreign exchange risk would be borne by the Government against a 1% per annum fee charged on final borrowers. The standard IDA commitment fee of 0.5% would apply to BNDC. BMDC will re-use the second generation funds to finance activities or projects that are in line with the original objectives of the line of credit, including the financing of enterprises' permanent working capital; (iii) Terms and Conditions to Final Borrowers: Subloans by BMDC would have maturities of up to 12 years, including a grace period of one to three years. BMDC's subloans would finance up to 85% of the subprojects whose cost is below the free limit and up to 75% of those whose cost is above the free limit. BMDC's onlending rate to final borrowers would be 11% - 21 - (plus a 1X per annum fee accruing to the government as a guarantee fee for covering the foreign exchange risk); (iv) Subproject Processing: There would be an individual free limit of US$150,000, with an aggregate limit of US$1 million. It is estimated that with this limit, about 12 subprojects out of 20 will require IDA's review for approval. All subproject appraisal reports by BMDC would show appropriate economic justification, including an analysis of capital intensity and choice of technology, value added and foreign exchange savings or earnings. Whenever applicable, subproject appraisal reports would include the calculation of the financial rate of return and the economic rate of return. The latter should be no less than 12% (Agreements on these arrangements are contained in Schedule 1 para 1, draft Development Credit Agreement; section 3.01 (c) (i), draft Development Credit Agreement; sections 2.02 (d) and 2.03 (b) draft Project Agreement and Schedule L para 3 (a), draft Development Credit Agreement, sections 2.02 (b) and (c), draft Project Agreement and Schedule 1 para 2 (c), draft Development Credit Agreement). 63. Technical Assistance to BIIDC. This component would help further develop BMDC's institutional strength in particular through the implementation of the Action Program referred to in para 52. To this end, US$430,000 would be passed on as a grant by the Government to BMDC to finance (i) one year of expatriate expertise to help BMDC codify its procedures and establish a Management Information System (MIS) (US$80,000); (ii) the extension for three years of the services of an existing technical adviser who will help put into practice BMDC's new procedures, MIS and internal controls, and the training of its personnel (US$210,000); (iii) six months of short-term consultancy services to BMDC's Development Department to help assess the appropriateness of equipment and price of subprojects submitted to BMDC (US$70,000); and (iv) training fees for 48 staff to attend courses at the Center for Training in Banking, a facility located at BCI and created and efficiently operated with the assistance of the French CIFPB and the foreign costs of the training of 8 high level staff in overseas courses and seminars (US$70,000). 64. Technical and Financial Assistance to OTh. This component would help OTM (i) train about 300 additional weavers in cities outside Nouakchott (100 in Ayoun, 50 in Barena, 50 in A]leg and 100 in Kiffa); (ii) organize the trained weavers into 50 cooperatives to which OTM would provide equipment and initial raw materials; and (iii) provide further technical and marketing assistance to weavers. The latter would be trained in successive cities over a three year period, in sessions of six months each. The provision of the looms and raw materials would be treated as a credit in kind by OTM, to be repaid by weavers on the terms specified in para 55. 65. For this purpose the Government would pass on US$460,000 as a grant to OTM to finance (i) the weavers' training costs, including scholarships, raw materials (used as teaching materials) and administrative costs (US$180,000); (ii) the provision of 50 looms, - 22 - vehicles and initial supplies of raw materials for the trained weavers (US$210,000); and (iii) the extension for one year of the services of an existing advisor provided by the Tunisian Carpet Bureau to complete the strengthening of OTM's management and organization and the establishment within the institution of a marketing department initiated under the first project (US$70,000). 66. The Training of Accountants. This component would finance a pilot scheme intended to train, over a two-year period, an accountant for each of 25 selected enterprises (16 privately-owned enterprises who are borrowers of BMDC and 9 state-owned enterprises) who would become capable of applying internationally accepted accounting standards. This training will be provided within the CFPP by an ILO and two Mauritanian instructors. It would cons4.st both of formal courses at CFPP and of practical on-the-job training at the enterprise level. 67. The Government would pass on for this component, an amount of US$310,000 as a grant to CFPP to finance (i) a US$240,000 contract signed with ILO to provide two years of services of an instructor (US$225,000) and teaching materials (US$15,000); (ii) the salaries of two local instructors (US$42,000); and (iii) an independent evaluation of results (US$28,000). 68. Technical Assistance to the Ministry of Industry. This component of US$250,000 would finance (i) two man/years of expert services (US$200,000) to help the Ministry of Industry establish an adequate data base and carry out a review of the incentives system and of the institutional set up for industrial promotion mentioned in paras 27 and 29 and help implement the necessary reforms to improve them; and (ii) equipment and vehicles (US$50,000). D. Project Costs and Financing 69. The total project cost (net of taxes and duties) would amount to US$11.2 million, of which US$8.8 million or 78% would be in foreign exchange. The financing of subprojects would amount to US$9.5 million or 85% of total project cost. IDA financing would cover 47% of the project cost, with the balance to be met by subproject sponsors (21% or about the same percentage during the first operation), the project institutions (2%) and FND which received in 1984 a line of credit of about US$6 million from the Arab Fund for Economic and Social Development (30%). IDA financing would cover 57% of project foreign costs and 12% of local costs. It would in particular finance all the local costs of CFFP's and OTM's training with the understanding that these two institutions will, upon completion of the project, continue the training at their own expenses. - 23 - E. Project Implementation 70. Monitoring and Evaluation. The project would be monitored through half yearly progress reports by BY -, OTM and CFPP, on their respective IDA-financed activities, and their content would be agreed on during negotiations. BMDC, CFPP and OTh would submit annual audited accounts, including for BMDC a detailed analysis of arrears no later than nine months following the end of the accounting period. CFPP would submit, no later than 12 months after the end of the accountants' training, an evaluation of the results by an independent instituttion or consultant. In addition,each institution would prepare, within three months of project completion, a Project Completion Report, the form and content of which would be agreed with IDA. r 71. Procurement. In line with the Bank's standard practice with DFC-type projects, and given the expected small size of the procurement contracts, there will be no international competitive bidding. For imported machinery and equipment, OTM and subproject sponsors would be required to sollicit at least three quotations. For off-the-shelf materials and civil works, BMDC would satisfy itself that purchases are suitable and competitively priced. Consultants would be selected in accordance with IDA guidelines and their terms of reference and conditions of contract subject to prior approval by IDA 72. Disbursements. A US$500,000 revolving fund amounting to about 4 months of projected disbursements would be established in the form of a Special Account in US dollars at BCM. It would prefinance expenditures by the three project institutions (BMDC, OTH, CFPP) and those relating to subprojects approved by IDA. Disbursements would be fully documented for technical assistance contracts and imported raw materials and equipment. Initially, full documentation would be required for subprojects; however, the Association would, within six months following project effectiveness, review BMDC's performance with the possibility of allowing disbursements against Statements of Expenditures (SOEs). The latter would be used for expenditures relating to training and salaries of CFPP's local instructors. Disbursements under SOE procedure would be supported by full documentation retained by the project institutions and made available for IDA inspection during supervision. The SOEs and the Special Account would be audited by auditors acceptable to IDA. I'isbursement would be for 100% of IDA's participation towards the cost of azzh subproject and 100% of local training fees of BMDC's staff, af OTM's-training costs, of the salaries of local instructors to be recruited by CFPP and of the technical assistance to the Ministry of Industry. Reimbursement requests for less than US$20,000 equivalent would not be submitted. F. Benefits and Risks 73. The project would build upon the results of the previous one and continue IDA support of the Government's objectives in the SME and - 24 - artisanal sector. At the enterprise level, the project is expected to finance through BMDC about 20 small- or medium-size subprojects generating about 750 new jobs at an average cost of about US$14,000 and to provide, through OTM, professional training as well as equipment and initial raw materials to 300 additional artisan carpet weavers. At the institutional level, the project includes technical assistance for further strengthening the operational capabilities of BMDC as a development lending institution, of OTM and of 25 enterprises through the training of their accountants. At the sector level, the project would reinforce IDA's policy dialogue with the Government through discussions to take place following the completion of the industrial sector review (paras 27 and 29) and the Central Bank review of the banking sector (para 39). Finally, at the country level, the project would transfer sorely needed foreign exchange resources from IDA to one of the neediest countries in Sub-Saharan Africa, for use in economically productive investments. 74. A major risk which the project entails is the relative weakness of the institutions involved in project implementation, although such risk is more pronounced for OTM, than it is for BMDC, the principal project institution, which has made steady progress under the first project. Another risk would be that, on account of both the inadequate policy framework and the relative shortage of investment projects prevailing in the country, sub-optimal subprojects might be envisaged by BMDC for financing. The project seeks to minimize such risk through IDA's subproject review process as well as through technical assistance included in the project to strengthen the project institutions and through close supervision. PART V - LEGAL INSTRUMENTS AND AUTHORITY 75. The draft Development Credit Agreement between the Islamic Republic of Mauritania and the Association, the draft Project Agreement between the Association and BMDC, and the Recommendation of the Committee provided for in' Article V, Section I (d) of the Articles of Agreement of the Association, are being distributed to the Executive Directors separately. 76. Special conditions of the Draft Development Credit Agreement are listed in Section !II of the Annex III of this report. Special conditions of Credit effectiveness include (i) the enactment by the Military Council of the abolishment of the UM 10 million threshold in the Investment Code (para 25); (ii) the subscription by BCM of UM 50 million in cash to BMDC's share capital and inclusion in BMDC's 1984 balance sheet of an additional provision of UM 49 million (para 50); (iii) the provision of plans for the reorganization of SOCOGIK and of the repayment schedule of its debt owed to BMDC on terms and conditions satisfactory to IDA (para 48); and, (iv) the execution of a Subsidiary Loan Agreement between the Government and BMDC (para 62). A special - 25 - condition of disbursement for the OTM component is the conversion, on terms acceptable to IDA, into long-term debts, of OTM's UM 9.4 million debt towards the social security system and UM 22 million debt towards the banks (para 59). 77. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 78. I recommend that the Executive Directors approve the proposed Development Credit. A. W. Clausen President Attachments Washington, D.C. March 5, 1985 - 26 - Page rof 5 mama - SOCI A uL s DZM erA N Z A1 uvas (EWIm AVEsw ) IL NO1? cam? ERU ESTUIAIE) tgil 1OLb C4= t ID=ZNOMR 10=Ao a cinuss Eq. U)~~~~~~~~~AUUS O SM 1 FRC &MO S TOTAL 1030.7 1037 10307, ACICULTWRAL 395.1 395.3 394.6 cWm Cari (on) 100.0 210.0 470.0 1112.9 1149.6 CXtIUANS OP OIL EWIVAUT) l2.0 1150 132.0 529.0 622.1 sam sam waAe. POPIILATION*ID-VRA (TNDOUMo) 970.0 1214.0 198.0 II POPUATION R or TOTAL) 3.4 12. 25.1 09.; 48.2 POPUIAfON PEOJCTIOS. p0pUIATfl IN I* 2000 (MLL) L25 STXOUAT PtCUATWO (KIUL) 8.2 PDrOLATIO KONDIUI 1. POPULATION OBsmT vEm Sq. M. 0.9 1.2 1.5 55.8 36.3 PE S. KM. ArRL LSO D.5 3.1 4.0 111.5 461.7 POPULATIO AGE SUCD E (2) 0-14 YES *4.0 45.3 46.2 45.4 43.6 I-4 YES 53.3 52.0 50.8 51.7 53.1 65 MID ABE L7 L7 2. 2.9 3.3 POPULATION GrH RATE CZ) TOTAL 2.2 2.2 2.3 2.8 2.8 URDU 16.2 15.5 1 .1 5.2 4.5 CRUDE S3K2M REAT (Pa NOUS) 50.7 49.9 43.4 47.0 *0.4 CRUc OEATH RAT (CPEE 7US) 27.1 23.9 19.4 15,2 11.5 1OBS OOCTION RATE 3.4 3.4. 3.4 3.2 2L8 -PAtLY PLANNIN Aar ans. mum (T..) US ES OP aIMD m ) .. .. 1.0 IC .. 22.2 FMAd sem s umcx or FO OD.MM CAPmTA (1929-71-100) 107.0 102.0 73.0 91.6 97.3 Fa CsATA SUPTL Or CALORIES (2 oF EQUIrBVS) 93.0 85.0 97.0 98.2 110.8 DINS (cGAMS PMDAY) 80.0 75.0 750 56.7 70.1 of WCC ADDAL ANID PUtS 51.0 49.0 4.0 /d 17.0 17.8 CUILD (AGS 1-4) DER 383 45.0 36.1 27.0 18.7 14.6 _-a Lirt ECST. AT Irm (TYEAS) 37.2 40.3 ".3 51.7 57.5 INFANT lYT. RAT Cm T0US6) 178.0 161.9 13LO 102.7 101.5 ACCESS TO SAFE sA* (SPOr) TA .. 17.0 .. 35.6 59.7 UN .. 98.0 16.0 I. 54.1 34.5 REAL o.. 10.0 .. 27.3 38.4 ACCES TO EnETA DISPOSAL (C or POPULATWIO) TOTAL .. 7.0 UR .. 100.0 RREAL .. .. POPLATION PB PIYSICI 40420.0 17850.0 1*350.0 Id 11948.3 43*5.1 POP. PER NURSD PERSON 5430.0 if *440.0 2080.0 7; 2248.9 1831.1 POP. El HOSPITAL BED TOTLL 4780.0 2890.0 2610.0 Jd 986.9 632.9 Un .. 700.0 131LO /d* 368.7 545.5 RURAL 5210.0 I!a 5370.0 3710.0 f 4012.1 2513.5 ASEISSIS PEt OSPIAL s .. .. .. .. 26.2 11SING AVE11E SIZE Or OUSCENA TOTAL .. .. UA .. .. RSAL .. .. AVERAGE NO. o PERSOS/ROCK TOM .. .. Uma ., . RUAL .. . ACCESS TO ELECT. (:or OEDWUCS) TOTAL .. .. .. .. 46.2 UAN .. .. .. 77.7 RAL . .. . .. 1.1 - 27 - Page 2 of 5 11AURITANIA - SOCIAL INDICATORS DATA SHET MIAURTANIA REFERENCE GlROUPS (WEIGHTED AVERAGES) f MOST (MOST RECENT ESTIMATE) fb RECENT HIDDDLE INCI MIDDiL lUCIUe imoh go& tk ESTDIATEib AFRICA S. Or SAHARA N. AFRICA 4 MID EAST ADJUSTED CNROLLMENT RATIOS PRIMARY: TOTAL 8.0 14.0 33.0 91.0 88.3 MALE 13.0 20.0 43.0 90.5 102.5 FEMALE 3.0 6.0 23.0 73.6 73.6 SECONDARY: TOTAL 0.4 2.0 10.0 17.4 43.0 MALE 1.0 4.0 16.0 23.7 52.3 * FEMALE 0.04 4.0 14.8 33.0 VOCATIONAL (2 OF SECONDARY) 12.5 4.5 5.3 10.3 PUPIL-TEACHER RATIO PRIMARY 20.0 24.0 41.0 38.6 30.3 SECONDARY 17.0 24.0 25.0 /h 24.3 23.1 ADULT LITERACY RATE CZ) 5.0 /I 10.0 17.0 /h 35.6 43.5 COESUOt PASSENGER CARS/THOUSAND POP 0.4 3.4 20.7 17.8 RADIO RECEIVERS/THOUSAND POP 12.4 45.3 98.5 100.8 138.8 TV RECEIVERS/THOUSAIID PoP .. .. .. 18.5 46.1 NEWSPAPER ("DAILY CENERAL INTEREST) CIRCULATION PER THOUSAND POPUIATION Z24 / . 17.2 31.2 CINEMA ANNIUAL ATTENDANCE/CAPITA 0.3 /d 0.3 1.7 LABOR FORtCE TOTAL LAWOR FORCE (THOUS) 299.0 362.0 454.0 FEMALE (PERCENT) 3.8 4.1 4.3 33.8 10.8 AGRICULTURE (PERCENT) 91.0 88.0 69.0 57.1 42.4 INDUSTRY (PERCENT) 3.0 4.0 8.0 17.4 27.9 PARIlCIPATION RATE (PERCElT) TOTAL 30.9 29.8 28.4 36.3 26.2 KALE 59.8 57.8 54.3 47.6 46.4 FEMALE 2.3 2.4 2.4 25.1 5.8 ECONONIC DEPENDENCY RATIO 1.5 1.6 1.7 1.4 1.8 DICCI DISUIB8TIIO PERCENT OF PRIVATE INCOMIE RECEIVED BY HIGHEST 52 OF HOUSEHOLDS HIGHEST 20: OF HOUSEHOLDS LOWEST ZOZ OF HOUSEHOLDS LOWEST 40Z OF HOUSEHDLDS POVrTa TARCET - ESTIMATED ABSOLUTE POVERTYr INCME LEVEL (USS PER CAPITA) URbS. 525.3 274.8 RURAL 110.0 /b 2n9.0 177.2 ESTIMATED RELATIVE POVERTY INCOME LEVEL (USS PER CWPITA) URBAN '' '' 330.0 /h 477.4 402.6 RURAL 120.0 /h 186.0 284.9 ESTLIATED POP. BELOW ABSOLUTE POVERTY INCOME LEVEL (2) URBMA RURAL NOr AVAILABLE NOT APPLICABLE NO TE S /s The group averages for each indicator are populacion-weighted arithmetLc means. Coverage of countries among the Indicators depends on availability of data and Is not uniform. /b Unless otherwise noted. "Data for 1960" refer to any year between 1959 and 1961; 'Data for 1970" between 1969 and 1971; and data for 'most Recent Estimate" between 1980 and 1982. Ic Ages 12-50 years; /d 1977; /I 1976; /f 1962; /L Government hospital establishments; /h 1978; /lI 1963; f/ 1972. JUNE. 1984 -28 - ANNEX 1 teens teetesyat a-gje31of 5 kelet etlt.wjh she de. ste iran rts ...t.. wi-rail, jaiged sir ..' eshwettei.e aS reiatta. he.eteelA .5..he esti ibl chip atgwt hlbl,tLfMAetteewll -lbttee. gtaew ac littw. slit,ois twaist s ..p ...the e .C.tjett.t osi" dI)) PA esl gee ."thowoe. thtewte isec b atli h eahe.lww.rt .wet a tsh L si. iAPtt wa,.ttw. *tp -b .,. -edtw A lwc- uwi APP se adrl wst. --b. I. fle.. bcawww I- oftt-e iwwlwfvsnttnetd P Aelce.I b e eA. -.tAk =it shR ie c at. Pu pitltt "Itihlw ertltle new.- tAtd wattil Stie ai eba cslp fle .&Wajew b et flap e deetwt ls ta leWr .itte the .-.0....A. rwPiitewe anie tie terttetet dep - the eeA ttLAtttalt Aod bct ewi BeA PAwl MA an.. weta PAPVLee b ewIerti.wAn te eItuegwae. at w twaewa t,.w.-II-a eais It. Iwlti tet.M ISPAd werei the tiliw atI iS'" tidtti.t -io _Its imelath esl . LAM ttwic .I... 0-IA - A u . ~ Id eq5. ffeiuLa IhAs-Fwwtt.lls ted hA tete -. .4 pitti -hh":5 ." ' letwe. it*resiyt e-ttitewert p st wwt aed wets, .eiies t..4dv. Menial wrweaw iS - H -A _. -ft.. ." .1.~ ~ ~ ~ ~ ~~~~~it..teAAetliIrt.d y eet tep-,a isJr. t-p-et.ed tPrtsiA l"!P)-mp.*ateasr itewleesspls ltti5 patIte ad 4eaeg-rt e1p!iteihptla M55 Om .-.tWiSet. - atet w91155eaerti it, l r.q rt. edtw teeter.- - petweaacttr stel he a phpwlets. lb rAPP af adleet tlue.si 0 iweeyta lai d.. teit.tl.ew i.ilsw- yr. ela aetlae catew Z. MPile. itt.b) whe-at w Fi l-psllww ".ePAwAnst iS. aS getie.wt twettrtrt i hItest it it qitrtweeewereplca ftS.Pau. - 'ti-I twig. wi - n reel.. tills.,L1P WI. d tog!, i tIlt dale. ritwsn'eltIA- lIF al 1 siehi PI ai -lIa Ai -destti CAFM A. Milit", 1ibri7 JIlW l wte e ta Cl tar tls'.ee.tiu - Si .t Ict a.. tied tte. _I-i 5 A..teStIs1. PO f,I- ..AAI14 . P.a OPPRUPAP -I& A 11-bt-d .qp Pra.Clw I eretlt Crrrt fr eyetlu -SaeSAeMARA rri etc -~~ - is ii arid th1tt-Ittp- iwtttd eita.- tesirttat. lAd toliaw e lld Cawrwa eteweta is ecptew tee teset. we -iwt Ittu, . .e.t.eit i.li a... I Al.e-ewtMetitwl e-t-IcteritA t . t-sie - pew. t- rer wd ewee.lbtawail It. lesitl ret11. clew ~ ,L he.eee et A.- seAP, we..dptt:etiwesetw ,=.s cee IL. CirtittLY cIrweatseA....... t.weetsca pest. twisty.- Pleelewpercyw-ew Ate " e iset, ii. Ibi eite '-a cir-c. PALwlta.Pd-1 -it -Pt-I cseests API, 1 .4 eat twtl a tenths --. tee pA-j:tlA pet5ePidi, ieaelti .5wals Ih deS u..id g ceterlw. ii t .1. ,a-.- h sere aitwiwtitidrat seclee wyPIP eaigd- It" percA gnash -seAi --H. . Thi wlcsewar eweetl ilaw - '.wi tar - h - e aptA I.e be.. ihe-tm., th ctttetet ie ltietiosee bliefL . she ecieiw thrtttee wt the A.pie .1w. steye Prea.e - . wui. at.t- tea.. -Fli a.- elogwwcit 2,b ewa. tee tal ?h. -icIe tte,tie tIiw PAc rteic tAuwst. edral -eelee I. teat at reir tw unre.Ad relate tell tere thPA aIe t etleaee..J_.letlili Sc. iwi atIwia theppt cit E1 s ter lag;arnwPFietc is -ewsreA.e witate rt eAeei ii. tisi .e...t Id.ericaid...11..dr. -Iesa- ACawwitI ites wahe rlcw bVrlca eete wewe i.srdrt-teectliteii seIaPilwII tiritie rts il relweelta It- At
Groupe de la Banque mondiale · Memorandum & Recommendation of the President
Mauritania - Industrial and Artisan Development Project
Voir le document original
Le texte intégral est hébergé par l’organisation qui le publie. lawenc.com indexe les métadonnées et renvoie vers la source officielle.
Texte intégral
Informations clés
Organisation
Groupe de la Banque mondiale
Type de document
Memorandum & Recommendation of the President
Pays
Mauritanie
Source
Banque mondiale