Mauritania - Urban and Rural Development Project

Doe The Wo FOR OFllCL Report No. 9942 PROJECT COMPLETION REPORT ISLAMIC REPUBLIC OF MAURITANlA URBAN AND RURAL DEVELOPMENT PROJECT (CREDIT 888-MAU) OCTOBER 3, 1991 Industry and Energy Division Sahelian Department Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their ofricial duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EOUIVALENTS (1979) Currency Unit = Mauritanian Ouguiya (UM) US $1 -UM45 UM 1 - US $0.022 ABBREVIATIONS AND ACRONYMS BMDC Mauritanian Bank for Development and Commerce (Banque Mauritanienne pour le Developpement et le Commerce) OMAT - Office Mauritanien de l'Artisanat et du Touri-ne OMT - Office Mauritanien du Tapis PCR - Project Completion Report PPF - Project Preparation Facility SOCOGIM - Company for Apartment Building Construction and Management ("Societe de Construction et de Gestion Immobiliere") SONADER - Societe Nationale pour le Developpement Rural UBD - Union des Banques de Developpement VIS - Village Irrigation Scheme FISCAL YEAR January I - December 31  FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Dlrector-General Operatlons Evaluation October 3, 1991 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Islamic Republic of Mauritania - Urban and Rural Development Proiect (Credit 888-MAU) Attached, for information, is a copy of a report entitled "Project Comple.ion Report on Islamic Republic of Mauritania - Urban and Rural Development Project (Credit 888-MAU)" prepared by the Africa Regional Office. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment Thb document has a restricted distatbuaon and may be used by recipients only In the pernornance of thelr olclal duties. Its contents may not otherwLie be disclosed wIttout World Bank suthorketl,ao  FOR OFFICIAL USE ONLY PROJECT COMPL TION REPORT ISLAMIC REPUBLIC OF MAUR.ITANIA URBAN AND RURAL DEVELOPMENT PROJECr (Credit 888-MAU) TABLE OF CONTENTS Page No. PREFACE ................................................ EVALUATION SUMMARY ........ ........................i PART I: PROJECT REVIEW FROM THE BANK'S PERSPECTIVE 1. Project Identity . ....................................... 2. Background .1 3. Project Objectives and Description .1 Project Objectives .1 Project Description. 2 Changes in Project Scope .2 4. Design and Organization ........ ......................... 4 5. Project Implementation .5 Credit Effectiveness and Project Start-up. 5 Implementation Schedule. 5 Procurement. 5 Disbursement. 6 Project Cost. 6 6. Project Results ............ ........................... 6 Attainment of Objectives ........ ....................... 6 Impact ............................................. 7 7. Project Sustainability .................. I ................ 7 8. Bank Performance .......... ........................... 8 9. Borrower Performance ...... ... ........................ 9 10. Performance of Consultants ......................._ 9 11. Project Documentation and Data. 9 This document has a restricted distribution and may be used by recipients only in the performRnce  TABLE OF CONTENTS (cont'd.) Page No. PART II: PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE Principal Project Data ............ ................................ 10 I. INTRGUCTION .13 II. THE BANQUE MAURITANIENNE POUR LE DEVELOPPEMENT ET LE COMMERCE (BMDC) .13 A. The Institution .13 B. Organization and Management .13 C. BMDC Operations 1978-1985 1. Commercial Activities .14 2. Development Financing .14 D. Financial Performance of BMDC 1981-1985 .14 III. THE PROJECT .15 A. The Project Objectives .15 B. Project Implementation .................... ............ 16 C. Performance of the Subprojects ...... ...... .............. 16 IV. CONCLUSIONS AND LESSONS TO BE DRAWN FROM THE PROJECT .............. ............................ 16 Annex: 1. Data on Subprojects ........................................ 18 PART III: STATISTICAL INFORMATION 1. Related Bank Loans and Credits .20 2. Project Timetable .20 3. Credit Disbursements .21 4. Project Costs and Financing .22 5. Status of Covenants .23 6. Use of Bank Resources .24 Staff Inputs .24 Supervision Missions .25  PROJECT COMPLETION REPORT ISLAMIC REPUBLIC OF MAURITANIA URBAN AND RURAL DEVELOPMENT PROJECI' (Credit 888-MAU) PREFACE This is the Project Completion Report (PCR) for the Urban and Rural Development Project in the Islamic Republic of Mauritania for which Credit 888-MAU in the amount of US $8 million was approved on March 27, 1979. The Credit was closed on December 31, 1985 and the last disbursement took place by June 12, 1986 when the proceeds of the Credit were fully withdrawn. Parts I and III of this PCR were prepared by the Industry and Energy Division of the Sahelian Department, Africa Regional Office, and are based, inter alia, on the Staff Appraisal Report, the Credit and Project Agreements, supervision reports, correspondence between the Bank, the Borrower and the executing agencies, other data and information from Bank files and discussions with Bank staff who had been involved in project supervision. No mission from the Bank visited the country for the purpose of preparing the PCR. Part II was prepared by the Mauritanian Bank for Development and Commerce (Banque Mauritanienne pour le Developpement et le Commerce (BMDC))y on behalf of the Borrower in 1986 in compliance with a Development C. dit Agreement covenant. Understandably, it relates only to the industrial component of the project, since BMDC was unconnectcd with the artisanal and agricultural aspects. Nevertheless, it provides valuable information and is reproduced in its entirety. Since so much time has elapsed since the project was completed, additional contributions from the Government have not been sought. Parts I and III were sent to the Borrower for comments, but none were received. 1/ After the situation of the banking system deteriorated in 1985-87, the Government decided, as part of SAL, to implement in early 1988 a reform of the banking sector. As a result, BMDC was merged with another government- owned bank to become Union des Banques de D1veloppement (UBD).  - iii - PROJECT COMPL ETION REPORT ISLAMIC REPUBLTC OF MAURITANIA URBAN AND RURAL DEVELOPMENT PROJECT (Credit 888-MAU) EVALUATION SUMMARY Objectives 1. The project was designed to make an important contribution to the Government's long term strategy of exploiting renewable sources of growth, particularly irrigated agriculture, and maximizing employment opportunities for a growing urban population through the development of light industry and handicraft activities. To these ends, it helped to create and expand small and medium scale enterprises, encouraged and developed a promising artisanal activity in the form of carpet wev ing, and assisted in an expansion in the number of village irrigation schemes (VIS). Its short term impact was to be the relief of rural and urban poverty and an increase in food production. In the longer term, rrowth was to be facilitated and sustained by the introduction of basic sectoral reforms and institution building. Combining three small and essentially unrelated project opportunities to form an economically sized project in terms of the Bank staff cost of preparatioi., appraisal and supervision, provided an additional attraction (para. 3.01). Implementation Experience 2. Although appraised in March 1978, the project was not brought to the Board until a full year later, the delay, it can be inferred, being caused by a major alteration in the scope of the proposed project when an appraised and socially significant low-cost housing component was deleted on the grounds that it failed to address the needs of the lower income groups. Effectiveness was postponed twice because of ambiguities in local legislation that held up acceptance of the Government's ratification procedures. However, generous advances under the Project Preparation Facility (PPF) and retroactive financing enabled implementation to commence promptly, and for some prerequisites of successf-ul execution to be obtained even before effectiveness, and made these delays of little consequence (para. 5.01). 3. The original Closing Date of December 31, 1983 was postponed to December 31, 1985 to accommodate the reordering and replacement of a number of irrigation pumps, to complete the financing of two industrial subprojects after a limitation on the cost per job was raised and to enable the Office Mauritanien du Tapis (OMT) to utilize fully remaining funds for production and training after an enforced slowdown in activities in 1984. In most other respects, implementation was timely. The Credit was fully disbursed by June 1986 when the accounts were closed (para. 5.05). 4. Factors, including dcsign deficiencies, which adversely affected project implementation in varying degrees, although none to the extent that they caused any significant digression from objectives, were; the urgent need of Banque Mauritanienne pour le Developpement et le Commerce (BMDC) for additional equity, the provision of which had been left to the vagaries of a financially embarrassed Government; the insistence on directing the industrial line of credit to greater and cheaper employment creating subprojects in an unsympathetic environment; the failure to recognize the natural advantages of a cottage industry type of development for the rug weaving sector; the over- optimism with which the cooperative units for weavers were conceived when it soon became apparent  - iv - that the weavers were not ready to assume the responsibiiities attached to group financial commitments; and the cost recovery and credit problems of the agricultural component (para. 4.03). 5. There were no particular procurement or disbursement problems and, overall, project costs remained within the appraisal estimate. There were, however, maior reallocations of funds between categories which had the effect of altering project scope in several aspects; e.g. funds made available for technical assistance were practically doubled, and, in some instances, insufficient explanations were given for these reallocations (paras. 5.04, 5.05, 5.06). Mect Results 6. The objectives of the industrial component were to a large degree accomplished. BMDC's financial position and performance improved noticeably, and the process of rehabilitation and institutional strengthening is being pursued in a follow ui) project. The severe under- capitalization of this intermediary bank was remedied towards the end of the project when IDA funds onlent to it by the Government were converted into equity. The line of credit financed 10 subprojects, creating some 400 jobs at an average cost of US $19,000 per job. Preliminary assessments concluded that only two of these investment enterprises experienced operational difficulties, the remainder proving reasonably successful, There were no serious repayment problems (paras. 6.01 and 6.02). 7. The artisanal component was not so succtssflly imrp'.mented, ONIT not responding as weli as had been hoped to the technical assistance and strengthening provided, and making little progress in its financial rehabilitation. By the time the Credit closed, little more than half the anticipated number of weavers had been trained and were in production. Nevertheless, quality and production improved and the operation as a whole was sufficiently promising for this component to become a part of the follow up project (para. 6.03). 8. In physical terms, the agricultUral component wsas a success in that the fu!! complement of 30 VIS envisaged at appraisal were completed and the developed areas cropped with satisfactory yields. Concerns over grades of fertilizer, the price of rice and seed multiplication were satisftactorily settled. However, shortfalls in the performance and policies of the Societe Nationale pour le Developpement Rural (SONADER) led to deficiencies in cost recovery and the provision of credit which could jeopardize the future viahility of the schemes (para. 6.04). 9. In terms of overall impdct. there were increases in food production and employment opportunities which must have helped to relieve poverty. As a result of the project, the institution building effects on BMDC were clearly beneficial but less so on the other participating organizations (para. 6.06). Sustainability 10. The benefits accruing to BMDC appeared sustainable in terms of improved processes and higher levels of trained staff and the institution was the beneficiary of a follow up project (Cr. 1572-MAU). However, the financial situation of BMDC detcLiorated and it had to merge with another public institution to become Union des Banques de Developpement (UBD). Prospects for the sustainability of the subprojects are less certain and dependent on many indeterminate factors, but most appear to be viable in a very difficult en-ironment. Insufficient institution building objectives were accomplished in the handicraft sector for there to be good prospects that they will be sustained, but the follow up project may have greater impact. The artisans, on the other hand, will retain their  - v - new skills and potential for increased and higher quality production. The future of the VIS depends on proper maintenance and the provision of timely and appropriate inputs. These in turn are dependent on successful cost recovery and a viable credit scheme. These conditions had not been established at the close of the project (paras. 7.01, 7.02 and 7.03). Findings and Lessons 11. Bank performance fell somewhat short of satisfactory. Preparation, although imaginative and innovative in concept, contained flaws, supervision was divided and, towards the end of the project, became superficial. The failure to provide adequate justification for many of the large reallocations made to the funds available was remiss, even if they were unexceptional. The performance of the Borrower in conpdlying with covenants was satisfactory, although that of the other beneficiaries could have been better. All the consultants and technical assistance teams performed efficiently and made significant contributions (paras. 8.01, 9.01 and 10.01). 12. An amalgamation of a number of small, unrelated components into one project in the interests of stafi economy does not necessarily save staff time if the disciplines required for supervision are so diverse as to dictate separate supervision. That, in turn, can dilate the Bank's influence with project authorities. The experience with institution b- ;iding, although not entirely without reward, suggests the need to plan technical assistance within the framework of a longer term, country specific strategy rather than to expect the accomplishment of important improvements through small, individual, short duration projects. Sustainability of a bank depends on the whole financial situation and not on health and good management of investment portfolio. Several of the institutional problems stemmed from, or were exacerbated by, the parlous state of the Government's finances and this is a factor which shnlild be taken into consideration at the preparation stage.  PROJECT COMPLETION REPORT MAURITANIA URBAN AND RURAL DEVELOPMENT PROJECT (Credit 888-MAU) PART 1: PROJECT REVIEW FROM TIE BANK'S PERSPECTIVE 1. Project Identity Name Urban and Rural Development Project Credit Number 888-MAU RVP Unit Africa Region Country Mauritania Sector Development Finaice, Handicraft, Small and Medium Industry and Agriculure. 2. Backg-round 2.01 Mauritania's 1.5 million people (at the time of appraisal) inhabit an area twice the size of France of which only one quarter, in the Senegal River Basin, is suitable for cropping or grazing, the remainder being largely unoccupied desert. One-third of the population is urban and social indicators point to a low quality of life. The economy has traditionally depended on agriculture an.. mining, a well developed iron ore mining complex dominating the industrial sector, with small and medium industry being relatively undeveloped. Its rate of growth, which had averaged 8% per annum in the 1960s, fell sharply in the 1970s because of severe and repeated droughts, reduced demand for iron ore and ihe costly Western Sahara conflict. Mauritania's withdrawal from this war in 1979 coupled with a period of good weather enabled GDP growth to recover moderately to about 4% for several years until 1982, when a particularly intense and prolonged drought and a steady reduction in the demand for and the price of iron ore again caused GDP to decline. In 1983, external disbursed debt reached 60% of GDP and, for the decade of the 1980s, Mauritania experienced a difficult economic and financial situation characterized by balance of payments deficits and an exceptionally heavy dependence on foreign aid. 2.02 The Government's long-term development strategy, dictated by these circumstances, has been to exploit renewable sources of growth, particularly irrigated agriculture for which there is very large potential but only a limited number of small village perimeter schemes, fisheries and livestock, and to maximize employment opportunities for a rapidly growing urban population through the development of light industry and handicraft activities. 3. Project Objectives and Description 3.01 Project Objectives. The project was designed to make an important contribution to these goals by helping to create and expand small and medium scale ent.rprises, by encouraging and developing a promising handicraft activity in the form of carpet weaving and by expanding the number of small village irrigation schemes (VIS). Its unusual structure and composition arose not only from the need to assist the poorer and less spectacular sectors of the economy, which by that date had received little in the way of official assistance, but also to economize on the Bank's processing costs by combining three small and essentially unrelated and unintegrated  - 2 - project opportunities to form E more economically sizcd project in terms of the staff cost of preparation, appraisai and supenrision. Its short term impact was to be to'e simultaneous relicf of rural and urban poverty through the creation of additional employment and income opportunities and an increase in food production. The longer term outcome was to be facilitated and sustained growth in the three sectors through the introduction of basic sectoral reforms and institution building. 3.02 Project Description. The project included the following: a) technical and financial assistance to small and medium scale industrial enterprises promising substan.;ally lower costs per employment opportunity created th.n was usually the case in Mauritania; b) technical and financial assistance for artisans engaged in the weaving of knotted carpets and the decentralization of that activity; c) technical and financial assistance for the development of 30 VIS along the Senegal river; d) three man-years of technical assistance for the Banque Mauritanienne pour le Development et la Commerce (BMDC) which acted as a financial intermediary for a) abovc; and e) two studies desib,.ed to promote future development by i) finding a viable local construction material to replace expensive imported cement in the construction of low cost housing, and ii) establishing an industrial zone in Nouakchott, the capital. 3.03 A component to provide low cost housing for urban dwellers was appraised, but the high cost of construction in Mauritania, given the lack of infrastructure, made it impossible at the time to complete the preparation of a scheme which would address the needs of the lower income groups in the country. The study of establishing a gypsum plaster brick industry (see paragraph 3.02 e) above) represented a preliminary contribution to solving some of the problems of low cost housing. 3.04 Changes in Project Scope. A number of signiScant changes in scope were made during project implementation which eventually resulted in a major restructuring of Schedule 1 to the Development Credit Agreement to accommodate substantial reallocations of the proceeds of the Credit among the various categories of expenditures, as well as textual changes. The reallocation of funds affected the three project components as follows: i) the line of credit for small and medium industry was increased by 21% from US $2.1 miiiion to US $2.55 million to match the level of investment needed for the 10 subprojects financed; and the funds for a consultancy and for training of BMDC staff were increased by 68% from US $363,000 to US $611,600 to cover revised costs. ii) in the artisan component, the major change affected the civil works needed to house production units, for which 36 workshops had been proposed. At first, the implementing agency, Office Mauritanien de l'Artisanat et du Tourisme (OMAT), later Office Mauritanien du Tapi (OMT), found this  - 3 - proposal problematic because of difficultics with land acquisition and utility connections and the plan was changed to the construction of "at least" 4 larger workshops accommodating approximately tile same number of weavers which would be more cost effectivc and easier to supervise. This alteration in the scheme of things was also considered preferable since it had becomc, apparent that the weavers were not yet capable of forming cooperatives and managing their own production. Before any great progress had been made, however, OMT began to install looms in the homes of weavers, a promising development unforeseen at appraisal, which offered scope for greater decentralizatior. This innovation escalated from seven looms installcd in homes in 1981 to 27 looms in homes a year later, employing 159 weavers in addition to 44 wcavers on 8 looms in the center itself. As a result, the full amount of US$460,000 was no longer required for the construction of workshops and the funds were mostly reallocated, in part to (he consultancy and training category, and in part to finance additional equipment necessary to improve the operation of the wool and cotton dye factory operated by OMT. The abandonment of the original proposal to construct a specified number of workshops required a textual amendment of the Credit Agreement. iii) in the agriculture component, the funds available for credit to be provided by Societe Nationale pour le Developpement Rural (SONADER), a Government owned agricultural project management agency, for the benefit of farmers' cooperatives were reduced from US $2.2 million to just over US$800,000 and the proceeds intended for technical assistance and for equipment, vehicles and operating costs were increased by 30% and 80% respectively. SONADER persistently failed to observe the conditions established in Annex B to Schedule 2 of the Development Credit Agreement by providing large subsidy elements, not only in the provision of pumps to the farmers' cooperatives, but also in the provision of tubing and ancillary equipment, transport and installation for which no charge was raised and, therefore, no credit needed; and for such inputs as fertilizers, seeds, gas-oil and lubricants which were also provided free for the first crop. Not only did these subsidies reduce the need for credit, but they placed unacceptably high finaiucial burdens on SONADER, and the failure to adopt stringent cost recovery policies created severe recurrent cost financing problems for the future. Pump breakdowns exacerbated by inadequate after-sales service, poor specifications and the failure to place timely orders for spares necessitated the ordering of some replacement pumps for which, fortunately, funds were able to be made available from the Credit. 3.05 Overall, the industrial component fared best out of these wholesale reallocations, receiving almost 30% more than its original quota, so that some 40% of the proceeds of the Credit benefitted that sector, while the artisan and agriculture sectors received 10% and 6% less respectively than had been envisaged at appraisal. The memorandum on file seeking approval for the reallocations provides little in the way of detail justifying the changes - this has to be inferred from supervision reports -merely stating that "the objective is only to reallocate remaining funds in some categories ..... to finance in other categories items identical to those envisaged in the Staff Appraisal Report as well as in the legal documents (i.e. subprojects, additional training and technical assistance). There is no change in the project design and the proceeds of the reallocation will not finance activities which have not been appraised."  3.06 Other changes in scope lifted the recluirement that a limitation be placed on the amount of the line of credit given to investment enterprises which were expected to result in the creation or maintenance of employment with an average cost per job exceeding US $7,500. (Some 60% of the line of credit had been reserved for subprojects with anticipated high job creation prospects at costs per job created of less than US $7,500). The ceiling set in 1978 had become unrealistically low by 1982 and, in any case, in the particular circumstances of Mauritania there was not a sufficient number of high job creating investments available for financing to justify the continuation of the sort of credit rationing contemplated at appraisal. And, finally, towards the end of the project, at the Bank's urging, a much needed equity injection for BMDC was provided by the Government, but not out of its own resources. lhese were so severely constrained that on several occasions during project implementation the Bank had to threaten suspension as a result of non-payment by Government ot its obligations to IDA. The contribution was provided by the Bank agreeing that the Credit proceeds relent to BMDC by the Government should be converted to equity. 4. Design and Organizatien 4.01 A series of three Project Preparation Facility (PPF) advances were provided prior to Board approval; to strengthen the two key project institutions, BMDC and SONADER so that they could be ready for a prompt start once funds became available; to finance the studies to test the feasibility of producing brick out of locally available gypsum for low cost housing; and to provide consultancies to revise the curriculum for weaver training, to establish new student selection criteria, and to reorganize raw material purchase, accounting and marketing procedures as prerequisites for proper project implementation. Retroactive financing was also approved so that the artisan component could begin initial implementation, including purchase of raw materials and construction of workshops. This somewhat lavish provision of pre-project financing paid handsome dividends in the early stages of project execution. The first supervision mission was able to report six months before the project was declared effective that it was progressing satisfactorily, that all experts needed for the three components were already in the field drawing up and in some cases initiating work programs, and that two existing rug weaving centers had been reopened, employing 300 women. This rapid progress can be attributed in great part to the PPF advances and the retroactive financing that the Bank permitted. 4.02 The unintegrated combination of three small components from different sectors, while interesting and imaginative in the circumstances, and certainly appearing to fit the needs of the case, made the project difficult to administer and supervise. The agricultural component was supervised separately and to a different timetable from the other two components and, as a result, there appears to have been a lack of coordination on the part of the Bank needed to achieve a unified pursuit with the Government of aspects of implementation which needed rectification or modification. The Government must also have been somewhat bemused by receiving numerous aides-memoire and follow-up letters from different sources in the Bank which seemed to have had the effect of diffusing the impact of the Bank's occasional strictures and exhortations. On balance, however, at that point in time, the advantages to the Bank probably outweighed the disadvantages. 4.03 The project, as conceived and designed, responded well to the priorities of Mauritania's long-term development strategy and took important steps towards the fuller exploitation of the country's irrigation potential and in providing employment opportunities. Its scale and timing were appropriate against a difficult macro-economic background. With hindsight, it is possible to point to several design deficiencies that might have derived from inadequate preparation; the urgent need of BMDC for additional equity, the provision of which had been left to the vagaries of a financially embarrassed Government; the insistence on directing most of the industrial line of credit to greater  - 5 - and cheaper employment creating subprojects in an environment in which any really viable industrial investment was a rarity - especially when dealing with a relatively rudimentary development term finance organization as BMDC was at that time; the failure to recognize the natural advantages of a cottage industry type of development for the rug weaving sector until it redeveloped in that direction almost spontaneously; the over-optimism with which the cooperative production units for rug weavers were conceived when it soon became apparent that the weavers were not culturally ready to assume responsibilities attached to group financial commitments; the lack of foresight in assuming that there would be no land acquisition or utilities connections problems associated with the construction of so large a number of weaving production units; and the cost recovery and credit problems of the agricultural component for which no mid-stream remedial measures were incorporated. A reflective judgement must conclude that, even given the innovative design, preparation was not of a particularly high order. 5. Project Implementation 5.01 Credit Effectiveness and Project Start-up. Although appraised in March 1978, the project was not negotiated until February 1979 and not approved by the Board until March 1979. The files are silent as to the reason for this delay, but it can reasonably be inferred that it was, at least in part, due to the debate that surrounded the appraised housing component before it was dropped and the "brick" study substituted (see para. 3.03). Signing took place on schedule shortly after Board approval but then there were .epeated delays before the Credit could be declared effective in October 1979. These delays stemmed from ambiguities in local legislation that held up Bank acceptance of the Government's ratification procedures. In the event, however, as has already been noted, sufficient funds had been advanced for implementation to commence, making the delay of little consequence. 5.02 Implementation Schedule. The original Closing Date of December 31, 1983 was postponed by two years to December 31, 1985 and the last disbursement was made in time for the accounts to be closed formally on June 12, 1986. The records do not elaborate on the reasons for the postponement, but one factor was the need for replacement of a number of irrigation pumps which had to be reordered, and another was the extension of time needed to complete the financing of two new industrial subprojects after the limitation on cost per job had been revised and to enable OMT to utilize fully the funds remaining for production and training after an enforced slowdown in activities in 1984. In most other respects, implementation was timely and, indeed, the completion of the 30 irrigation schemes was a full year ahead of the timetable established at appraisal. 5.03 Factors which adversely affected project implementation in varying degrees and which might have been foreseen are listed in para. 4.03, but in no case was the impact sufficiently serious to cause significant digression from project objectives. One main feature contributing to the relatively successful nature of the project was the significant pre-financing which facilitated, among other thi,ngs, Ehe advance instailation of technical assistance teams who laid sound foundations for the project in all its dimensions. 5.04 Procurement. The only inputs suitable for international competitive bidding were irrigation pumps. All other procurement followed competitive bidding under local government procedures acceptable to IDA, except for the consultancies where Bank rules also prevailed. There were problems with the pumps as a result in part of poorly conceived specifications, but procurement per se was without incident or problems.  -6 - 5.05 Disbursement. More than half way through the project, in March 1982, disbursements stood at US$4.6 million, ahead of the appraisal estimate of US$4.4. By the date of the last supervision mission in July 1985, disbursements had reached US$7.4 million as against an estimated full disbursement at appraisal of the entire proceeds of US$8 million by the end of December, 1983. The last payment was made on June 12, 1986 at which time the Credit was fully disbursed. 5.06 Project Cost. Overall, project costs remained within the appraisal estimate, but there were major reallocations which have been noted in para. 3.04 and which, it is maintained in one staff memorandum, "reflect the true intentions of the project as described in the Staff Appraisal Report and President's Report as well as the understanding reached with all parties and institutions in Mauritania as to thefr entitlements under the project". That may be so, but the reallocations were sufficiently large to justify a much fuller explanation than was forthcoming or could be gleaned from the supervision reports. For example, in aggregate, funds made available for technical assistance were practically doubled but the record fails to reveal any detailed examination of the reasons for and the fuill nature of this substantial increase in expenditure. 6. Project Results 6.01 Attainment of Objectives. The objectives of the industrial component were to a large degree accomplished. BMDC's financial position and performance improved noticeably. Requirements for credit approvals were significantly tightened, sizeable additional deposits secured, loan recovery efforts intensified and the chronic liquidity problems that characterized its earlier state were overcome. Problem loans remained numerous, however, and until towards the end of the project, when Government converted relent IDA funds to equity, BMDC was grossly under- capitalized. The institution appeared marginally profitable since 1980, whereas at the time of project preparation it .vas heavily in deficit. Its burden of bad debts and the provision they necessitate continues to endanger its financial situation, but the process of rehabilitation and institutional strengthening commenced under the project is being continued in a subsequent follow up project. After the situation of the banking system deteriorated in 1985-87, the Govermnent decided, as part of SAL, to implement in early 1988 a reform of the banking sector. As a result, BMDC was merged with another government-owned bank to become Union des Banques de Developpement (UBD). 6.02 The line of credit financed ten subprojects, only two of which were small enterprises, and all of which were in the urban areas. Details of these investments are taken from the Borrower's PCR, since Bank supervision reports do not contain any examination of this aspect of activities financed by the Credit. By this account, the subprojects appear to have been successful. The number of jobs created reached 400 and the average ccst per job was the equivalent of US$19,000. This cost was a little on the high side when measured by the targets set at appraisal - of most employment opportunities being created costing up to US$7,500 with a maximum ceiling on others of US$25,000. Nevertheless, given the high cost of investment in Mauritania, inflation and the paucity of infrastructure, this result must be deemed to be satisfactory. No rates of return are available for the small and medium industries financed, but BMDC's assessment is that a year after the project closed, all but two were performing satisfactorily. Five were profitable, one had already paid off its loan and two were in the early stages of operation. At that time, no serious problems were envisaged over repayment. As a credit intermediary, BMDC's performance appears to have been good, and there is little doubt but that the technical assistance provided by the project helped to build up the appraisal and monitoring capabilities of its Development Department and improve its data processing. To the extent that new enterprises financed are an indicator of entrepreneurial development, the results are encouraging, since 8 out of 10 of the enterprises were new, and only two were expansions of existing businesses.  - 7 - 6.03 The handicraft component was not so successfully implemented, although there were significant accomplishments. The main failuire was institutional, OMT not responding as well as had been hoped to the technical assistance and strengthening provided. Decentralization of weaving progressed well under the cottage induistry approach and rug production and quality improved, but by the time the Credit closed only slightly moie than half the 400 weavers targeted had been trained and had commenced commercial pr(oduction. ONIT made but little progress in its financial rehabilitation and was unable to maintain a reliable accounting system or provide the audits required by the Bank. Changes in its legal status and in supervising ministries and the low quality of accountants it hired contributed to this state of affairs. Throughout, the financial position of OMT remained precarious and the financial support expected from the Government did not materialize. Nevertheless, the whole operation contained enough promise for this handicraft component to become a part of the foilow up project. 6.04 In physical terms, the agricultural component was also a success, in that the full number of 30 village irrigation schemes envisaged at appraisal were completed within the funds available, and all these developed areas were being cropped with satisfactory yields. Initially, developed areas were 15% below planned acreage, but this deficiency was quickly remedied by force account paid for out of the Credit. There was some concern at first, over the need to adopt more efficient fertilizer grades in the comnmand areas, over the seed multiplication policy of the Government and over rice prices which were insufficient to cover costs of transport and milling. There was also a need to reorder a number of pumps which had failed to pertform adequately. But the Government then increased the price of rice, SONADER ordered phosphate fertilizer to complement the use of urea, the pump replacements were financed out of the Credit and the seed multiplication problem largely resolved. Shortfalls in the achievement of objectives concentrated on the performance and policies of SONADER in the provision of credit and cost recovery. These defic encies have been discussed in para. 3.04 iii) above. Unless changes are made, the financial burden of such unnecessary subsidies could lead to input shortages which couild be detrimental to yields and cropping intensities. 6.05 The two feasibility studies were carried out satisfactorily. The conclusions of the study concerning the establishment of an industrial estate in Nouakchott were positive, although the implementation of such an estate had to await the availability of an adequate supply of water and energy. Following the study on the feasibility of manufacturing gypsum bricks, the construction of buildings using this material started on an experimental basis. 6.06 Impact. As a result of the project, there were increases in food production and employment opportunities in both urban and rural areas which must have impacted favorably on the relief of poverty, although the quantitative dimensions cannot be established. In terms of institution building, the effects on BDMC were clearly beneficial, but less so on the other participating organizations - OMT and SONADER. 7. Project Sustainability 7.01 The prospects of the flow of benefits created by the project being sustained varies from component to component. The industrial sector benefits accruing to the financial intermediary, BMDC, appeared sustainable in terms ot improved processes and higher levels of appropriately trained staff and because the mechanisms ot improvement are being perpetuated in a follow up project (Cr. 1572-MAU). However, the financial situation ol BMDC deteriorated and it had to merge with another public institution to become UJnion des Banques de Developpement (UBD). Prospects for sustainability of subproject benefits are less certain and dependent on many indeterminate exogenous factors, including the future state of the economy. But some entrepreneurial enterprise was  encouraged, some export potenitial realized anid GDP enhanced by these enterprises, most of which appeared to be viable and capable ot' maaking acceptable rates of' return in a very difficult environment. Although a final judgemnent has to he withheld in the absence of a follow up survey, these are no mean achievem.nts. 7.02 Insufficient institution building objectives were accomplished in the artisan sector for there to be realistic prospects that they will be sustained, but the follow up project may have greater beneficial impact. As far as the artisans themselves are concerned, even though fewer were trained than was hoped for, those that were trained, and they numbered in the hundreds, will retain their new skills and potential for increased productioni and the making of a better quality article. 7.03 It is not possible to assess the sustainability of the agricultural component. 2'he future of the VIS depends on proper maintenance and the provision of timely and appropriate inputs of sufficient quality and quantity. These, in turn, are dependent on successful cost recovery and a viable credit scheme designed to meet farmers reasonable needs. These conditions had not been established at the close of the project. The project management agency, SONADER, has subsequently been reorganized and its management maide more flexible and efficient so that prospects for improvement exist, but at the close of the project these prospects remained too uncertain for any positive judgement to be made. 8. Bank Performance 8.01 Bank performance fell somewhat short of satisfactory. Preparation, although imagin:.tive and innovative in concept, contained numerous design flaws which a greater attention to detail (ould have avoided. Appraisal was competent, althou,gh it failed to define those factors which subsequently led to the dropping of an important low cost housing component, and supervision was divided and, towards the conclusion of the project. erratic and somewhat superficial. At that time, greater attention appeared to have been paid to the preparation and appraisal of the follow up project than to the project being supervised. In all, the industrial and artisan components were supervised by nine missions, visiting the country at first tairly regularly at approximately six months intervals. After October 1982, however, no further mission specifically organized to supervise the project took place until July 1985, and this last mission appears to have devoted most of its time to a discussion with senior officials of the Government's obligation to prepare a project completion report. In mitigation, it should be stated that, in the interim, ftour missions took place with the objectives of preparing, pre- appraising and appraising the follow up project. To the considerable extent that the follow up project subsumed the objectives of the Urban and Rural Development project under its industrial and artisanal components, attention was paid, in a somewhat incidental manner, to progress under that project, but these missions did not, and could not. stibstitute tor the full in-depth, specifically targeted supervision that the project required. The agricultural conmponent was supervised on five occasions only, starting appropriately enough around the date of eft'ectiveness in the latter part of calendar 1979 and finishing in April 1983, almost two years before the Credit actuially closed. Not only was supervision, overall, inadequate for a project which at the outset was accepted within the Bank as being one that would require unusually attentive administration, it was also, in the closing stages of implementation, perf'unctory. The failure to provide suLfficient justification for many of the large reallocations made in the funds available was remiss, even though most of the reallocations were almost certainly unexceptional. On the other hand, the readiness ot' the Bank to provide generous PPF advances and retroactive financing contributed to some of the project's successes and is to be commended. Relationships with the Borro"er appear to have been at all times cordial and constructive.  -9- 9. Borrower Performailee 9.01 The performance of the Borrower in terms of compliance with covenants was satisfactory, although that of the other benefitciaries couldl have been better as this report has noted. There was much sincerity displayed by senior oftfcers of the Government in their relationships with Bank staff and, given the formidable constraints under which they operated, to have accomplished as much as they did is greatly to their credit. Some deficiencies in performance stemmed from the financial problems of the Government which were serious and sustained throughout the life of the project. They resulted in the inability of the Government to provide an equity contribution to BMDC, however badly it was needed, until they were authorized to utilize IDA funds which had been onlent to the institution, and the failure to provide the financial assistance to OMT which had been expected. 10. Performance of Consultants 10.01 The performance of the consultants engaged for the two feasibility studies was good, the only recorded inadequacy being an initial tailLure in the gypsum brick study to clarify the potential decrease in construction costs, a deliciency which was quickly remedied. The technical assistance teams in all three sectors performed withi exemplary efficiency and made significant contributions. 11. Proiect Documentation and Data 11.01 The Legal Documents were adeqLuate and appropriate for achieving project objectives in the key organizational and financial areas and the Appraisal Report provided a useful framework for the review of project implementation. No project completion mission as such took place and the task of compiling this report more than five years after the project closed was made more difficult by incomplete data in the project files and a system of supervision which was not designed to provide the judgmental type of analysis needed tor this report.  - 10- PART 11 - PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE ' This Project Completion Report relates to IDA Credit MAU-888 for an Urban and Rural Development Project, under the agreement signed on 11 April, 1979. The disbursement period was extended because of a reallocation of the loan funds between some components of the project. Disbursement was completed in entirety on 30 June, 1986. A second IDA line of credit MAU-1572 (Industrial and Artisanal Development) amounting to 5.4 million SDRs was approved and the credit and project documents were signed on 31 May, 1985. The purpose of this second line of credit, which became effective on 28 February, 1986, was to provide financial and technical assistance to the industrial and artisanal sector. The beneficiaries are: BMDC (Banque Mauritanienne pour le Developpement et le Commerce), CFPP (Centre de Formation et de Perfectionnement Professionnel), OMT (Office Mauritanien du Tapis) and the Ministry of Industry. PRINCIPAL PROJECT DATA The purpose of Credit Agreement Mau-888, signed on 11 April, 1979 for a total amount of US$8 million, was the promotion and development of small- and medium-scale enterprises in Mauritania. The project comprised four components: (a) - A line of credit and technical and financial assistance to the Banque Mauritanienne pour le Developpement et le Commerce (BMDC), as intermediary, primarily for the financing of small- and medium-scale industrial enterprises. (b) - A line of credit to be made available to the Societe Nationale pour le Developpement Rural (SONADER), and intended for the purchase by small farmers of agricultural equipment and inputs. (c) - Technical and financial assistance to the Office Mauritanien du Tapis (OMT) to recruit technical specialists, to finance certain elements of a revolving fund, and to establish training scholarships for weavers. (d) - Financial assistance to the Societe de Construction et de Gestion Immobiliere (SOCOGIM) to undertake a feasibility study of production of gypsum plaster bricks in artisanal units in Mauritania. In the course of implementation of the project, a reallocation of the funds was made between certain of the components, in order to provide financial assistance to the Centre de Formation et de Perfectionnement Professionnel (CFPP) for the training of accountants who would work primarily with the small and medium enterprises financed from the line of credit provided for that purpose to BMDC. I Part II was prepared by BMDC on behalf of the Borrower in June 1986.  - 11 - On the whole, implementation of the project proceeded satisfactorily, especially with regard to the BMDC - CFPP and SOCOGIM components. Some difficulties were encountered in execucion of the SONADER and OMT components. During the course of 1983 a reallocation of the resources intended for these two components made it possible to strengthen BMDC's intermediary role and to fund the training of accountants by CFPP for the benefit of the small and medium enterprises financed by BMDC. The credit was entirely disbursed by the end of June 1986. The project objectives were only partially achieved because of the difficulties encountered in implementing the SONADER and OMT components. Ten subprojects were finally financed through the line of credit granted to BMDC, including two small- and eight medium-scale enterprises. All these subprojects are now operational and 384 jobs have been created. CFPP's accountant training program benefitted 44 persons, including 23 with no previous experience and 21 professionals. Of the 10 projects financed, only one (the HOTEL ASSALAM) has already reimbursed the subloan in full. The printing works project is in difficulties due to the death of the entrepreneur. Three other projects (the Biscuiterie IBS, the ITC enterprise for manufacture of sanitary equipment and the enamel ware factory) are still only in their first year of operation. The other projects are functioning satisfactorily. Two projects - SETOPO-ATP (earthworks) and SOMAM (enamel ware and utensils) ran into difficulties at the start because of the purchase of second-hand equipment that did not work, but the problems have been overcome and the companies are now operating normally. We should add that all the subloans are being repaid on schedule except in the case of two proj -cts -- the SAMBA KANTE printing works, whose promoter died, and the SETOPO-ATP earthworks company, which is one instalment in arrears because of a liquidity problem due basically to the tendency of the promoter to overinvest and also to the payment terms in its contracts with its clients. In the case of the SONADER and SOCOGIM components, it was considered that the proposed assistance was not adequate. That is why they were not included in the second project MAU 1572. There have been some changes in the position of the institutions involved in the project as compared with the period of project evaluation. BMDC has been profitable since 1980 whereas at the time when the project was under study it was in deficit. However, its profits are declining year by year because of the unfavorable economic situation and the quite heavy burden of provision for bad debts remaining from the past. Accordingly, in order to put the bank on a sounder footing, to stabilize its position and to expand its capacity to seek out new sources of refinancing, its share capital was increased, in line with the proposed reorganization plan, from UM 80 million to UM 300 million in 1984. The Mauritanian Government, which is the principal shareholder, participated in the increase by consolidating the BMDC loan into the capital, by agreement with the World Bank, while the Banque Centrale de la Mauritanie (BCM) made UM 50 million available. There have also been considerable changes at the OMT, in that the Mauritanian Government withdrew and handed the institution over to the Fonds National de Developpement (FND), which now owns and has managed it since the end of 1985. It is probable that training of the weavers will no longer be undttaken by the OMT, now that it is under FND's management. SOCOGIM, for its part, has seen some favorable developments, since most of its construction programs have been completed and are now  - 12 - operational and it received a quite substanitial capital increase in 1981. During the implementation phase of the project, SOCOGIM was able to build rno e than 500 dwellings, including luxury, moderate and low-cost types. Other large-scale building programs are also underway, with financing from Arab lenders, in Nouakchott, Nouadhibou and Rosso. SONADER has been reorganized to make its management more flexible and more efficient and to reduce its costs. The following lessons can be drawn from the experience of implementation of the project: (1) - The lack of infrastructure (for instance, already developed industrial zones) makes subproject costs excessively high. (2) - The fact that the entrepreneurs have such limited financial resources of their own suggests that less weight should be given to this factor and that other criteria should be developed, such as energy and initiative, responsibility, technical capability, and so on, if the intention is to continue promotion of small- and medium-scale enterprises. (3) - Secondhand plant and equipment have always caused problems, no matter what expert appraisals they come with, and they should not be purchased on a systematic basis. (4) - The principle of setting a ceiling for job creation cost should be applied with caution, to take account of changes in investment costs arising from inflation, price increases and necessary financing of non-project infrastructure costs. (5) - The absence of a support agency for entrepreneurs raises serious problems relating to project feasibility studies, the identification of viable initiatives, the choice of appropriate technology, assistance with enterprise management, training of entrepreneurs, and so on.  - 13 - I. INTRODUCTION The nced for an urban and rural development project in Mauritania was idcntiried in 1976. The drought experienced in the Sahel since 1972 had set in motion a mass shift of population to the towns. The creation of small- and medium-scale enterprises, the grant of credits to small farmers within the framework of the irrigated farming schemes and the establishment of training programs were judged to be suitable short-term remedies designed to create new jobs, to retain certain population groups in the countryside and limit the exodus to the towns, to give people training with a view to teaching them occupational skills, and to provide support for the agencies working in this field. An IDA project was formulated with the aim of assisting urban and rutral development in Mauritania and five agencies were designated as intermediaries for the project, namely, the Banque Mauritanienne pour le Developpement et le Commerce (BMDC), the Societe Nationale pour le Developpement Rural (SONADER), the Office Mauritanien du Tapis (OMT), the Centre de Formation et de Perfectionnement Professionnel (CFPP) and the Societe Nationale de Construction et de Gestion Immobiliere (SOCOGIM). All these institutions already had a certain amount of experience in the field. II. THE BANQUE MAURITANIENNE POUR LE DEVELOPPEMENT ET LE COMMERCE (BMDC) A The institution Established in 1961 under the name Banque Mauritanienne pour le Developpement (BMD), with a participation by the Societe Tunisienne de Banque (STB), by 1974 the bank had extended its activities to the commercial sector and changed its name to BMDC. In addition to the headquarters office, there are four branches. one in Nouakchott, and the others in Nouadhibou, Kaedi and, more recently, in Selibaby. The Mauritanian Government is the major shareholder, with 74% of the shares. The STB holds 7%, and the Banque Centrale de la Mauritanie (BCM) 19%. At the time of project evaluation, BMDC could really be considered a commercial bank, with about 80% of its activities being of a commercial nature. These commercial operations were the main source of its profits and served to support its other development and promotion activities. B. Organization and management BMDC's Board consists of 11 members representing the different shareholders; the Chairman is the Secretary-General of the Ministry of the Economy and Finance. The General Manager was appointed recently (in March 1985). As of June 1986 BMDC had a staff of 190, a 15.9% increase over 1984. The bank has had to invest a lot of resources in training its staff, with assistance from (illegible).  - 14 - C. BMDC Qperations 1978-1985 1. Commercial activit es. The commercial side of BMDC's activities represents about 80% of its total operations and is its major source of rcvenue. The bank conducts a full range of commercial transactions, which have enabled it to support development financing and promote investment activities. 2. Development financing. The bank's Development Department is in theory concerned with long and medium term financing, for both the public and private sectors. Leaving aside short term and personal loans for purchase of automobiles or furniture and home construction, the Development Department is in fact responsible for economic research of all kinds, for project studies and monitoring of development projects financed by the bank and in operation, and for preparation of reports on the bank's activities. However, we should point out that the creation of an Office de Promotion des Petites et Moyennes Entreprises (Oftice for the Development of Small- and Medium-Scale Enterprises) would allow the Department to devote itself to its function of granting credits to enterprises. The rnajor part of the resour;es used to finance development come from capital, from term deposits, from rediscounting at the Banque Centrale de la Mauritanie or from lines of credit obtained from international institutions such as IDA. D. Financial Performance of BMDC 1981-1985 From 1981 to 1985 the Banque Mali. itanienne de Developpement et de Commerce (BMDS) had net profits. However, these profits have tended +o decline from year to year, mainly due to the very marked rise in financial costs (a 74% increase in 1985 compare(d with 1984), and also to the large amounts set aside as provision for bad debts inheriterl from the past, amounting to UM 31,727,000 in 1984 and 43,714,000 in 1985. For these two years, the total BMDC end-of-year balance was UM (illegible) in 1984 and UM 4,778,773,000 in 1985, representing an increase of 45%, while for the same two years the bank's portfolio grew from UM 2,691,180,000 to UM 3,445,136,000, a 29% increase. The following table shows the trend in the various ratios since 1981. 1981 1982 1983 1984 1985 1. Net earnings (UM OOOs) (illeg) 14,059 15,168 13,777 3,932 2. Net earnings Average equity 11.18% 7.69% 8.31% 7.55% 2.15% 3. Net profit Average balance 0.7% 0.49% 0.53% 0.48% 0.14% 4. Total debt Total equity 15.87 19.51 85.2 9.612 14.05 5. Medium and long term debt Equity 0.44 0.74 1.11 0.07 0.11  - 15 - The progressive weakeniing ot the barik's position is duie essentially to the marked increase in financial costs, to the need to carry provision ftr had (eLbts, to the conversion of some short term debt into medium and long term credits in accordan,.e with the hank's debt recovery program, and also to assignments of interest on outstanding loans, which were eniteed in the balance sheet in previous fiscal years and for which provision obviolISIV mllSt be imlade. The outstanding loans in the hank's portf(lio rose trom UM 3,284,522,000 in 1984 to UM 4,778,773,000 in 1985. Of these, about UM 1,200,000,000, i.e. 37%, were considered by BMDC as frozen credits. However, after revision ot this fig,ulle, which was judged to he an overestimation, and rescheduling of certain larger frozen credits, including two that were guaranteed by the Mauritanian Government (Mauritanienne de l'Industrie et de l'Equipement, which manutactures roofing, - about Um 200 million - and the Societe Natiotnale de Construction et de Gestion Immobiliere (SOCOGIM) - UM 101 million ), the total of frozen credits had declined at 31 December, 1985 to Um 715,533,000, about 15% of the total loan portfolio. III. THE PROJECT A. 'he Proiect Obiectives 1. The primary objectives were to promote a.id develop small and medium enterprises that would create jobs in the industrial sector, to train artisanal workers, to provide assistance to small farmers and at the same time to strengthen the institutions that woulld be responsible for executing the different project components. The total amount of the project (US$8 million), included a line of credit of US$3 million (after the reallocation of project funds) which was intended for financing small and medium enterprises and which is the subject of this report. It shouild be noted that this line of credit was supported by free technical assistance. 2. The line of credit was granted to the Mauritanian Government, which would onlend the proceeds to BMDC at a rate of interest of 7%, plus 1% to cover the foreign exchange risk. Repayment of the loan by BMDC was scheduled over 20 years, with a grace period of five years. It should be noted here that by agreement with IDA the line of credit was consolidated into BMDC's capital increase in 1984. 3. The terms under which BMDC granted loans were flexible, the maximum repayment period being 10 years, with a two-year grace period. The interest rate was 12%, of which 8% was originally supposed to go to the Government and 4% to BMDC. With the consolidation of the line of credit into the bank's capital, all the interest went to BMDC. 4. The cost per job of the jobs created by the subprojects financed from the line of credit proved to be more than US$ 5,000, but in all cases was under US$ 20,000. 5. BMDC was authorized to finance uLp to 90% of the investment cost of small enterprises and up to 75% in the case of medium enterprises. The percentage financed for the latter was in fact usually 70%, requiring 30% participation by the entrepreneurs.  - 16 - B. Project Implementation 1. Responsibility for repayment of the credit to IDA rested with the Mauritanian Government, which entrusted implementation of the project to BMDC, The Government carried the foreign exchange risk, covered by a 1% additional interest charge which was passed on to BMIDC's borrowers. BMDC was also responsible for managing the technical assistance component that directly concerned it. 2. The goal of putting a ceiling on cost per job created was not achieved, since only two projects showed a cost per job of under US$5,000. However, for all the others the costs were less than US$20,000. This state of affairs can be explained by the tact that projects of the type envisaged were practically unknown previously, and bv the high investment costs, which often included provision of infrastructure absolutely necessary to the pr(ojects. 3. The line of credit served to finance 10 projects. Only two of these can be considered as small enterprises. The 10 projects are distributed am(ong the various sectors of industry as follows: four in the food sector (40%), two in engineering and metal structures (20%), three in the service sector (30%) and one in building materials (10%), accounting respectively for 64%, 10%, 20.5% and 5.5% of the amount of the line of credit. (See Annex I) All the projects are in urban areas. The average cost per job created was UM 857,000. The number of jobs was 399. Of the 10 projects tinanced, eight are new enterprises and two extensions of existing enterprises. Lastly, all the projects are in the private sector; one has majority foreign capital ownership. C. Performance of the Subprojects On the whole, the financial performance of these projects has been satisfactory. Five of them have been profitable since 198(?); two are still in the first year of operation. Another project has tully repaid its loan. The other two have had problems, one in getting off the ground and the other through the death of the entrepreneur. Two enterprises have already begun exporting to Senegal (pasta products), and the other entrepreneurs believe that they also will be able to export to the CEAO countries when they can compete successfully on the domestic market. However, this level of performance has been achieved while all the projects are still benefiting from advantages under the investment code. What will happen when they have to operate under normal conditions and pay taxes? IV. CONCLUSIONS AND LESSONS TO BE DRAWN FROM THE PROJECT 1. The project is the first of its kind undertaken in Mauritania by IDA, as an effort to promote and develop small- and medium-scale enterprises. It can be regarded as successful, apart from the insignificant number of small enterprises created, only two out of 10. 2. The assistance provided to BMDC was successful, in that the bank has been put on a sounder basis and strengthened in its role of financial institution. There has been a significant improvement in the Development Department and some high level officials of the bank have received good training. The bank was also successful in its use of the IDA credit funds.  - 17 - Because the climate was favorable, tile projects tinanced from the line of credit have on the whole shown satisfactory results. However, the lack of small industrial entrepreneurs and the want of any programs for development and training in entrepreneurial skills prevented the creation of what could be considered a sufficient number of small enterpr ises. 3. The experience of the project has shown that in the case of Mauritania it would be difficult to find pro jects with a job creation cost ot' less than US$5000. The reason lies in the lack of infrastructure (in the form of developed industrial zones), inflation and the rise in the cost of plant and equipment, and also in the fact that facilities for project identification and technical assistance need to be available at the same time as financial assistance. CEPI (Cellule d'Etudes et de Promotion Industrielle), which was supposed to fill this role, should be elevated into an autonomous agency independent of tLe Department of Industry, but this idea has never come to anything. 4. Also in the case of Mauritania. puirchases of secondhand plant and equipment have proved disastrous. The few enterprises that bought such ecluipment have had enormous problems with it, in spite of the expert appraisals obtained from competent agents and the care exercised at the time of acquisition. To conclude, we would say that on the whole the project went quite well, and perhaps even that the fiscal and administrative circumstances were favorable. However, we would recommend that the criterion of cost per job created should be used with a great deal of flexibility, that secondhand plant and equipment should not be purchased for any ftiture development projects because of the risks involved, and that full assistance should be provided to the enterprises or subprojects concerned from the stage of identification studies through choice of technology, installation, startup and operation, and should cover technical, administrative and sales management. In addition, particular attention should be given to the question of training for managers of enterprises and technical staff, and administrative procedures should be made more flexible.  - 18 - ANNEX 1 Page 1 of 2 Ct : Mauritania INT LARY: BMI)C IAN No.: MAU 888 PRWBI CCLP=ON REORT DAMR ON SUBPROJETS FINA BY TIM MLAN Number Amout of subloans % by no.of % of total projects of subloans i 'I I j 1. Distribution by sector 4. 1 89.905.0100 40 1 6AO - Food industry - Eagineering and I I I I msetal structures 2 [ I If o 12{X00V0 a 1no r. I . ff I - Servioes i)l ;A8OOl - Construction I I materials 1 '7.70000 t I10 % 1 5,5 %f I . I ~I *I II --I I I I' I 2. Distribution of; I J I 1 investnt costsI I I . *less than 15 1 1 t I I million 1 3 1 11.800.OCo ! 30 S 8I % ! *15 - 40 l 1 I I millicn I 9 I 7U9. 700.00O t 30. I 33ig4 9 1 * nmre than I 40 mil-lionz4i 89S0l ey t 5;z9 3. Size of loans I t t *less than--1S-55H*W0{ t ( l millicn 10 I IW00 2 I *More than-20 1 1 . millicn ,.3 1 73.905.600 1 30 I 52:7I . . . I ~~I I I I 4. Duraticn of I 1 . . yeari 1 1 !I ir-stallation 1* 1 I I 1 * less 1 40t h' 3 27 4f *1 - 2 years 6 '10;-.*Z405# 60% 7376 I I' I ',It I I I I I*/vX  - 19 - ANNEX 1 Page 2 of 2 ,~~- I I I I I 5. ResaymtI I II period I J I I (incl. grace period) t I . O - less than 2 yers I I I O I I - 2 - 4 years I 0 1 0 1 0 1 -2-4years I oI I o o - 4 - 7 years *'5W10 t '0% -7 10 years 6 r 25500*O I R| I 106.1905.0o 6% 76,1% W~~~~ I I I I fi. Distcibutiio bY n ~stperob - $500 - $5000 t I I I ! ! ! - less than $500 - I - _ ls ssoo ., I I I - $5000 - $20,000 ' 1 1164)05.0o00 1 80so 1 f399 % I -$20,000 - $50,000 I - 1 I 7. Aditional I - 5 data I I. I (a) Type of sub- I I I pvroject| 8 | - New I O.#5.Q)~ -Extnsion t 2 1 38,OOO 20 % 27 1 (b) Type of I I I 1 ownership I I - Private I l0 1 lSJ':.i5.000 1 1lX 74 1. iou f I (c) Foreiqn or local ~ersh.ip - - Majority forei.g n 1 ..0.00u0U 10 ' 1 UO is L - faiJrPity locUJ. I 9 1 i,:0.vo0 1 90 o 1 86 I I ~ ~ ~~~ . 1 1 I (d) tLocMior, I a I t - Ur__ an _____10 M1005bOCO 1 % 0 100%  - 20 PART III - STATISTICAL INFORMATION 1. Related Bank Loans and Credits Loan/Credit Year of Title Purpose AMproval Status Credit 1572-MAU To provide a line of credit to 1985 Ongoing Industrial and small and medium enterprises, Artisan to strengthen BMIDC, to assist Development in training and eoui,pinpn carpet Project weavers, to traiin accountants and to help in a review of .he industrial sector. 2. Project Timetable Item Date Date Date Planned Revised Actual - Identification - Preparation - Appraisal - - 03/78 - Negotiations - - 02/79 - Board Approval - - 03/79 - Credit Signature - - 04/79 - Credit Effectiveness 07/79 09/79 10/79 - Credit Completion 06/85 - 06/86 - Credit Closing 12/83 - 12/85  - 21 - 3. Credit Disbursements (US$ '000) Bank Fiscal Year Estimated Actual Actual as and Quarter Cumulative Cumulative % of Estimated 1979 1 167 2 476 3 785 4 1,094 1980 1 1,403 2 1,712 840 48 3 2,021 1,350 66 4 2,639 1,740 66 1981 1 3,227 2,030 63 2 3,816 2,100 55 3 4,405 2,330 53 4 4,993 3,000 60 1982 1 5,655 3,590 62 2 6,318 3,910 62 3 6,981 4,620 66 4 7,643 5,040 66 1983 1 7,692 5,200 67 2 7,742 5,350 69 3 7,792 5,420 70 4 7,841 5,630 72 1984 1 7,881 6,110 77 2 7,921 6,120 77 3 7,961 6,120 77 4 8,000 6,200 78 1985 1 - 6,520 81 2 - 6,820 85 3 - 7,350 92 4 - 7,400 92 1986 1 - 7,540 94 2 - 7,600 95 3 7,910 99 4 - 8,000 100  - 22 - 4. Project Costs and Financing Expenditures from the Credit by Categorv Category Description Planned Revised Actual I Consultants and travel 363,000 611,600 670,334 -Industrial component 2 Consultants and Training 511,500 657,170 585,791 - Artisanal component 3 Consultants and local staff 438,500 1,372,910 1,344,443 - Agricultural component 4 Consultants for Studies 70,000 85,690 85,690 5 Civil works 460,000 11,280 26,279 - Artisanal component 6 Credit 2,100,000 2,550,000 2,552,852 i industrial component 7 Credit 295,000 499,200 568,294 - Artisanal component 8 Credit 2,200,000 812,090 657,809 - Agricultural component 9 Equipment 57,000 23,400 35,480 - Artisanal component 10 Operating costs 450,000 392,800 280,569 -Artisanal component 11 Equipment 460,000 726,620 935,225 - Agricultural component 12 Refund of PPF advances 323,500 257,240 257,233 13 Unallocated 271,500 - - Totals 8,000,000 8,000,000 8,000,000  - 23 - 5. Status of Covenants Covenant Subject Deadline for Compliance Status Credit Agreement Section 3.04(a) Insurance of goods and - Complied with. services Section 3.05(b) Furnishing of progress reports Half yearly Partially complied with. and (c) by Govt., OMT and Info. and data supplied SONADER during spn. Section 3.05(d) Preparation of completion Within six Complied with report months of Closing Section 4.01(c) Furnishing by OMT of audited Nine months Not complied with from accounts after end of 1982 to 1985. year Section 4.04(b) Installments due by artisans to - Not complied with until and Annex A to OMT for provision of looms to 1985. Schedule 2 be deducted from purchase price of carpets Section 4.05 OMT to ensure collection of Within three Partially complied with. amounts due from sale of rugs months Section 4.07 OMT to form carpet Complied with. production units only in accordance with Agreement Annex B to SONADER to provide credit to - Unilateral alterations made Schedule 2 cooperatives in accordance to terms by SONADER. with arrangements satisfactory to IDA. Project Agreement Section 3.02 BMDC to furnish audited Within nine Complied with. accounts. months of year-end Section 3.03 BMDC's consolidated term - Complied with. debt will not exceed 4 times its consolidated capital and reserves. Section 3.05 BMDC shall protect itself from Complied with. exchange rate losses and to that end levy a charge on borrowers.  - 24 - 6. Use of Bank Resources A. Staff Inptuts Stage of Project Cyvle Statf Weeks Comments Through Appraisal 50.4 Some of the staff time spent on achieving the delayed effectiveness of the Credit may have been attributed to supervision. Appraisal through Board 24.4 Approval Board Approval through 5.6 Effectiveness Supervision 78.9 In addition to the time recorded on supervision, four missions took place in 1983 and 1984 to prepare and appraise a follow up project. These missions also reviewed project progress as a part of their work without recording the time spent. Total 159.3  - 25 - B. Stipervision Missions Date No. of Staff Days Specialization Performance Types of Persons in Field Rating 1/ Problems 2/ 04/79 3/ 1 4 Division Chief 09/79 4/ 3 9 Irrig. Eng. Fin. Analyst Training Spec. 2 F.M.T. 11/79 1 8 Operations Ofi. 2 F.M. 03/80 3/ 2 3 Operations Off - Training Spec. 06/80 2 6 Operations Off 2 F.M. Ind. Economist 08/80 4/ 1 4 Irrig. Eng. 2 F.M.T. 06/81 4/ 2 10 Irr.Eng. 2 F.M.T. Agriculturist 06/81 1 9 Operations Off. 2 F.M. 11/81 4/ 1 8 Agriculturist 1 03/82 2 4 Operations Off. 2 F.M. Operations Off. 06/82 3/ 2 7 Operations Off. - Operations Off. 10/82 3/ 2 6 Operations Off. - Operations Off. 04/83 4/ 1 14 5/ AgricuiltLurist 2 F.M.T. 07/85 1 8 Operations Off. I F.M. 1/ 1. Problem free or minor problems 2. Moderate problems 3. Major problems 2/ F. Financial M. Managerial T. Technical 3/ No Form 590 4/ Agricultural component only 5/ Mission devoted some time to the supervision of another project.