Rwanda - Private Sector Development Project

C-/c4 S -4,S -/Y/ -K cfl Docwmt of The World Bank FR OmCIAL USE ONLY Report N. P-5980-RW NEORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE ITERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT IN THE AMOUNT EQUIVALENT TO US$12.0 MILLION TO RVANDESE REPUBLIC FOR A PRIVATE SECTOR DEVELOPMENT PROJECT AUGUST 18, 1993 FILE COPY Report No: P- 5980 RW Type: MOP This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCYUOUMALNT Currncy unit = Rwandese Franc (RP) 1989 US$1 = RWP 80 1990 US$1 = RWF 82 1991 US$1 = RWF 125 1992 US$1 - RWP 125 (lst semster) 1992 US$1 = RWP 140 (2nd smester) 1993 US$1 = RWP 145 (st semester) OSSAY OF ABBRBVaTION BNR = Central Bank of Rwanda BRD Rwandan Bank of Development GDP = Groas Domesti Produt ICB = International Competive Bidding IMP = International Monetary Pund MCI = Ministry of Commer~e and Industry PCR = Project Completion Report PB = Publio Enterprise PI = Participating Fancial Intermediaries PSSP = Private Sector Suppoft Pund FISCAL January 1 - December 31 FOR OFFICIAL USE ONLY RWANDES REPUBLI PRIVATE SECTOR DEVELOPMEN PROJEC Credit and Project Simma nawar: Rwandese Republic Go. Central Bank of Rwanda (BNR), Participating Financial Intermediaries (PPI), private enterprises, Ministry of Commerce and Industry, and the Ministry of Justice's Tribunal of Commerce. Amout: SDR 8.7 million (US$12 million equivalent). M : Standard IDA terms, with 40 years maturity. Qbjeci: The project's objective is to promote the rapid expansion of the private sector as the key element in a development strategy for growth and diversification. The specific components will provide the private sector with both the incentives and the means to engage in labor-intensive, eport-oriented activities in an environment where local and foreign entrepreneurs can operate within a free market economy. ProJect ComMet and.nding Terms: The project consists of a line of credit for productive investments, a fund to improve technical and managerial capabilities and competitiveness of the private sector, and support to institutions responsible for implementing improvements in the business environment. (i) Lin of Cd. The Borrower would lead US$7 million equivalent to BNR at a variable interest rate equal to the average yield over three months of one-year commercial bank deposits, minus an annual administrative fee, set at 1 percent, which is expected to cover adequately BNR's operating costs under the credit component. 'The credit to the Central Bank would be for 20 years, including a grace period of 5 years. The Central Bank would onlend the funds to qualified PFIs at the aforementioned one-year deposit rate, with the same maturities as the individual subloans to the beneficiaries. Onlending interest rates charged by PFIs to subborrowers would be variable and determined by the banks. The onlending rates would be reviewed periodically to ensure that they continue to reflect market rates. The foreign exchange risk would be borne by the Government. (ii) Private Sector Supt Fund. US$2.5 million will be passed on to the fund to: (a) help finance private firms' use of management consultants; (b) organize specialized training seminars; and (c) cover operational costs, including monitoring and follow-up of the assistance to firms. The fund would be located in a commercial bank approved by IDA and have an independent management. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. -Il- (ii) Intktional S~tnhg. US$2 mllin to b passed on to the implementing Institutions for their stregthening. Beneficlaries would be: (a) the Central Bank and banks to impement staff tranig and capacty building programs. and to improve program related aspects of banking supervision, economic and monetary analyses as weil a cred t ovaluaon; (b) the Ministy of Commerce and Ind~stry to oplement the privat sector development strategy; and (c) the future Tribunal of Commerce for the purpose of staf~ training and office equpmnt and technology to ensure it Is efficient and speedy In processing b~nena litigation. FiacnFlap: (US$ millions) Subborrowers 2.20 19 Participad~g Financial Institudons(PPis) 2.20 19 IDA 7.00 61 11.40 100 Priat Seto SupotFund Private Sector 1.55 38 IDA 2.50 62 Subtota1 4.05 100 Instito steng Governn nt .30 9 Other Donors 1.00 30 IDA 2.00 61 Sbtotal 3.30 100 IDA 0.50 100 TOTAL Government .30 2 Subborrowers 2.20 11 PFIs 2.20 11 Privat Sector 1.55 8 Other Donors 1.00 5 IDA 12.00 62 Total Financing 19.25 100 Sconomic Rate of Return: N/A Not Applicable No. 11388-RW Map IBRD 24507 MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE RNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A CREDIT TO THE RWANDESE REPUBLC FOR A PRIVATE SECTOR DEVELOPMENT PROJECT 1. 1 submit for your approval the following report and recomndation on a proposed development Credit to the Rwandese Republic for SDR 8.7 million, the equivalent of US$12 million, on standard IDA terms with a maturity of 40 years, to help finance a private sector development project in Rwanda. Part of the Credit proceeds (SDR 5.1 million, the quivalent of US%7 million) would be rlent to the Central Bank for 20 years Including 5 years of grace. with available interest at average yield over three months of one-year commercial bank deposits, minus I percent. The Belgian aid is also providing coordinated flonsftg for US$1 million equivalent.' 2. o . ground. Rwanda, a small landlocked country with a total population of about 7.8 Millon Increasing at an annual rate of 3.0 percent, Is the most densely populated country in Africa (295 people per kar). GDP per capita, estimated at about US$250 (1992), ranks among the lowest of the continent. More than 90 percent of the population lives in rural areas and derives its livelihood from subsistence agriculture and the cultivation of coffee and tea. From 1970 to the mid-1980s, Rwanda experienced financial stability, low Inflation and sustained growth (averaging 4 percent per annum). Since early 1987, it has been faced with precipitous declines in world coffee prices and unfavorable climatic conditions which had an adverse Impact on agricultural production. As a result, by 1989 real income per capita dropped by almost 16.5 percent from its 1986 level. he lattial policy response to adverse economic developments was not appropriate and serious internal and external iabalances and declining per capita income persisted through the end of 1990. 3. To correct these economic imbalances, the Government embarked in 1990 on a comprehensive economic reform program, supported by a first adjustment operation approved by the Bank in June 1991. This program has been implemented despite political difficulties and sporadic hostilities following the October 1990 Invasion of Rwanda by refugees living in Uganda. 7hp Governments program aims at achieving macroeconomic stability, Improving the competitiveness of the economy, and stimulating economic recovery. The Government is adhering to its undertakings under the adjustment program including maintaining positive real interest rates, but has failed to contain the budget deficit which reached 15 percent of GDP in 1992 (compared with a target of 6.6 percent, excluding grants). The higher than expected deficit was largely because of military expenditure, rising from about 2 to 8 percent of GDP. In response to a severe shortage in foreign exchange reserves, the Government reimposed in July 1993 temporary import controls. The peace agreement eventually signed on August 4, 1993 will allow the Government to turn its full attention to fiscal stabilization and renewed economic adjustment, and removal of temporary foreign exchange controls. The project is an important element of the strategy to Improve Rwanda's growth and diversification performance, with the private sector playing a key role. It will complement Rwanda's macro-adjustment efforts and support medium to longer term institutional and business environment reforms that are needed to facilitate private sector growth. 4. St ackUnd. The private sector in Rwanda is relatively unsophisticated and local atreprenourship is not yet well developed. Outside agriculture, the private sector accounts for about 15 percent of GDP. The private sector plays a major role in the production of export and food crops and in transport (3,400 operators). Other private sector activities are found principally in the informal sector I Th Couatry Assistmnos Strategy for Rwanda was discussed on June 17, 1992. A evised strategy is expected to be presented to the Board, together with a new Policy Pramework Paper, later in FY94 -2- (about 700 firms), inteMational trade (about 100 firms), mostly importers, small-scale mining (a few thousand artisans), and a growing but limited service industry, principally in construction and management consulting (12 firms and about 130 individuals). S. The main manufacturing activities are agro-industry (coffee and tea processing, modern beverage production) and production of basic consumer goods such as soap, textile products and garments. Much of modern manufacturing-i.e. formal enterprises with a registered legal status-was established after 1975 and consists of about 130 firms that employ an estimated 15,000 people and produce 8 percent of GDP. The total number includes 21 industrial public enterprises (PBs), some with mixed ownership, which produce about half of the formal manufacturing output. About half the industrial firms have been setup by a foreign owner. 6. Poect Objective. The present development strategy for Rwanda calls for the creation of a business environment where the private sector provides the main impetus for growth, which in turn generates employment opportunities and helps relieve poverty. Beyond reestablishing sustainable internal and external balance and laying the foundations for efficient financial sector intermediation, the Government is taking specific measures to provide the private sector with both the incentives and the means to engage in labor-intensive, export-oriented activities in an environment where local and foreign entrepreneurs can operate within a free market economy. The project is a vital complement to the macroeconomic adjustment program and will support efforts to improve the legal and regulatory environment in which businesses operate, enhance the investment climate and export kacentives, and ensure access to managerial and technical support and investment financing for the private sectr. 7. Prtjc iptVfiands . To achieve these objectives the project consists of three, mutually reinforcing components: (a) an Apex line of credit which will provide local banks with the long- term resources needed to finance medium- and long-term investment; (b) a private sector support fund (PSSF) to help entrepreneurs improve the design and reduce the risks of their projects, and strengthen their managerial capacity; and (c) institutional support to the Central Bank (BNR), the Ministry of Commerce and Industry and the Ministry of Justice (for the proposed Tribunal of Commerce) to strengthen their capabilities and ensure adequate implementation of reforms aimed at improving the business environment. The credit component would be in place to help satisfy an Investment demand (estimated to require over US$30 million in term lending in the next three years), at a time when political stability is being reestablished. The nascent investment demand would be nurtured by well-focused policy reforms, and through gains in productivity and competitiveness made possible with assistance from the PSSF. 8. The main features of the project are summarized as follows: 0 Implementing the Government Strategy: Policy Measures. The implementation of the government strategy is supported by a set of agreed policy objectives, performance targets, and associated actions for private sector growth through (a) Implementation of the IDA-supported adjustment program to ensure enabling macroeconomic and sectoral policies; (b) adoption of a clear and well adapted legal and regulatory 1ramework, particularly with regard to legal enforcement of contractual obligations, including guarantees, and fewer barriers restricting enterprise creation; (c) effective liberalization of factor markets, particularly by adopting laws to ease labor regulations with respect to compensation and hiring; (d) a more transparent tax system that lowers the maximum tax burden and does not distort investment decisions; and (e) improved export incentives by providing a tax rebate to exporters, adopting a free-zone legislation, and liberalizing air transport. -3- 0 bampgr I stment:L mponen. The project will finance a relatively modest line of credit of US$7 million. The line of credit will finance, through eligible financial Intermediaries, the foreign exchange and local costs of investments for new and existing enterprises registered in Rwanda, on the condition that such projects are economically viable, financially profitable and environmentally sound. Investments In privatized PEs and the permanent working capital required by manufacturing Industries will also be eligible. It is expected that the majority of subproject financing will be for manufacturing and agro-industrial investments, and for permanent working capital of Industries. Onlending rates to BNR and participating financial intermediaries will be pegged to the average yield of 12-month bank deposits over the preceding three months (9.2 percent as of Decimber 31, 1992), which would include a one percent administrative fee collected by BNR. This fee will be reviewed periodically with IDA. The rate of lntereSt to subborrowers will be free, within the temporary maximum lending rate (currently 16 percent), pending full interest rate liberalization expected in 1994. The Government would assume the foreign exchange risk on the understanding that exchange rates would remain flexible and that real interest rates would remain positive at all times. o Enoaging Enrpeeurship: Private Seor SUpo Fund. Private entrepreneurship in Rwanda is nascent and many firms suffer from managerial, marketing, technological and other deficiencies which decrease their efficiency and competitiveness, and prevent the supply response from reaching its potential. The project would tacWde this problem by financing the establishment and operations of a demand-driven, market-oriented private sector support fund (PSSF). Private promoters would select their consultants and would pay for part of the cost of their services. The balance would be paid by the fund, which would thus provide a matching grant to private promoters on a declining basis, up to a ceiling of US$100,000 per firm. The Credit would contribute US$2.5 million to this fund, US$1.5 million of which would finance the matching grants. The PSSF would also play an important role in sensitizing the private sector on the need to enhance its performance and competitiveness, by organizing specialized training programs and undertaking other forms of advertizing to ensure that all promoters, Irrespective of size and location, are aware of this facility and use it. The cost of the seminars and the fund's operations would be covered by IDA finacing of US$1 million. The management consultants would be hired locally or internationally. To minimize costs, whenever possible foreign experts will be selected from qualified retired executives to provide expert advice and give the seminars. o Supporday Improvements in the Business Environment: Institutional Strengthenin Conet IDA financing of US$2 million for expert assistance, training, and automation and office equipment would ensure that implementing agencies have the means to execute the agreed strategy. The Ministry of Commerce and Industry would receive US$1 million to cover the costs associated with its expanded responsibilities, particularly ensuring proper implementation of the agreed strategy. Another US$0.7 would be allocated for the Tribunal of Commerce to be created In order to Improve the functioning of the legal system, including speedy settlement of business disputes and easing registration of mortgages and companies. Finally, another US$0.3 million would be available to BNR to finance its training needs and that of key staff of financial Institutions related to the Apex component. 9. project Implementtio. The Ministry of Commerce and Industry will be responsible for overall project coordination. It will also be responsible for the coordination of the mid-term review, -4- as well as of policy discussions and follow-up with other ministries and executing agencies, e.g., Ministry of Yustice (Tribunal of commerce), Ministry of Finance, and BNR. It will also be directly responsible for the institutional strengthening component, except for the TA for 3NR. The PSSF would have Independent management and would be located in the Banque de kigall, a reputable convercial bank, and will be administratively attached to the Ministry of Commerce and Industry. The Department of Monetary Policy of the BNR will implement the credit component and the Institutional strengthening subcomponent for which it is a beneficiary. Amounts and methods of procurement and disbursement, as well as the disbursement schedule, are provided in Schedule B. A timetable of key project processing events, and the status of Bank Group operations in Rwanda are detailed in Schedules C and D. The Staff Appraisal Report No. 11388-RW dated August 18, 1993 Is being circulated separately. 10. Pt Sustainabily. Improvements in the business environment are expected to have a lasting impact on the level and quality of investments in Rwanda. The quality of financial Watermediary lending should benefit from the availability of long-term funds, Improved enforcement of guarantees, tax deductibility of provisions for risk on bank loans and other financial sector reforms which should help banks gear themselves for increased risk taking and improved financial management. The Institutional strengthening component would rely, to the extent feasible, on local Institmions, experts and counterpart staff, to ensure continuity and sustainability. The use of expert advice, the cost of which will be partly borne by the PSSF, is expected to have a permanent impact on the capacity of private sector management and enhance the competitiveness of private firms, thus ensuring sustainable private sector-led growth. 11. Bank Group Strategy and Rationale for IDA Involvement. The proposed operation is an integral part of the Country Assistance Strategy for Rwanda, which was discussed with the Executive Directors on June 17, 1992. Through its policy advice, leading, and economic and sector work, the Bank is giving high priority in Rwanda to: (a) supporting the country's adjustment process; (b) developing an incentive structure for private sector investment; (c) reducing the role of the State and improving public resource management; (d) developing human resources, building local capacity, and alleviating poverty; and (e) fostering Improved management of natural resources, while protecting the environment. The project objective is to improve the business environment for the private sector, and support investment and increased competitiveness to elicit sustained private sector response. Experience has shown that the adoption of appropriate microeconomic policies and removal of specific Institutional barriers is best addressed through such operations with a direct impact at the enterprise and institutional level. 12. LessonsetmL .PreIeluS.nkExp e. Since the late 1970s, IDA has extended four lines of credit to the development bank (BRD). The latest Credit (Cr. 1650-RW) was approved In 1986. R is fully committed and disbursements should be completed by the closing date of December 31, 1993. The most recent Project Completion Report (PCR, No. 8799-RW) assessed the second and third Credits (Cr. 896-RW and 1344-RW). It concluded that: (a) BRD faced problems due to the deteriorating macroeconomic environment and increasing government interference; and (b) BRD lending to risky small- scale enterprises would adversely affect the quality of its portfolio. These predictions were realized and the BRD has adopted a restructuring plan whose implementation is a condition of its eligibility under the Apex component. The report recommended that future operations should move away from a single institution approach towards an Apex-type operation. The experience of technical assistance projects in Rwanda has been mixed, in part due to lack of ownership by the Government, and because experts have tended to substitute themselves for their counterparts. The assistance for institutional strengthening proposed will draw from the more encouraging lessons of the approach being implemented under the Public Enterprise Reform Project (Cr. 2113-RW). This approach relies on a mixture of short- and long- term assistance provided by international and local experts, collaborating closely and effectively with -5- qualified and motivated government counterparts. In the same vein the demand driven and cost sharing approach envisaged under the PSSF would ensure its ownership by the private beneficiaries. 13. Ared Ato. Many of the policy reforms that would contribute to the success of the project are under implementation. The Governent has confirmed Its decision to create the Tribunal of Commerce; its commitment that Interest rates will be reviewed regularly and that lending rates will be maintained positive in real terms and has endorsed the restructuring plan for BRD. In addition, the Government has signed a Statement of Sectoral Development Policy. The specific condition of Credit effectiveness is the Signature of the Subsidiary Ioan Agreement between Government and BNR. The conditions of disbursement for the various components are the following: (a) Line of Credit - signing of the Participation Agreement by at least one eligible PFIs and BNR; accelerating the process of validating all legitimate pending claims by the Guarantee Fund; and revision of its bylaws; (b) Institutional Strengthening - hiring an expert to head the policy team at the Ministry of Commerce and Industry: proposing new administrative procedures and an acceptable timetable for settling pending disputes related to banks' loans; estblishing the Tribunal of Commerce, appointing a qualified lawyer as its head, and adopting the text regarding its organization and functions; ano (c) PSSF -selecting an expert to manage the PSSF tnd depositing RwFl.5 million in counterpart funds in a project account. Other dated covenants to be undertaken by December 31, 1994, unless indicated otherwis, include: (a) (by June 30, 1995) simplify procedures for authorization of unscheduled freight and passenger charter flights, and liberalize air transport so as to eliminate monopoly and liberalize pricing; establish a regime of free-zones for the purpose of xport processing; (b) take the necessary measures (by December 31, 1993) to eliminate dividend taxation; institute a schedule of depreciation allowance and of a five-year tax credit for losses; allow banks to deduct provisions for losses; (c) take necessary measures for simplifying business formation and registration; updating the regime of negotiable financial and commercial Instruments; modernizing bankruptcy procedures; showing the creation of private legal and paralegal professions; and improving the functionlag of the labor market. To ensure that objectives are met the Government also agreed to (a) undertake jointly with IDA by July 31, 1995, a mid-term review of progress in project implementation, with particular reference to policy and institutional reform measures as well as monitorable targets, and (b) take action, as required, to implement the recommendations stemming from such review. Eligibility conditions of Participating Fnancial Intermediaries Include: (a) submission of yearly independent audits; (b) signature of Participating Agreement with BNR; (c) maintaining an adequate capital adequacy ratio; and (d) for BRD only - implementation of the agreed restructuring plan. 14. Envirmena Ases. In May 1991, the Government adopted an environmental action plan, which includes regulations for industries. For investments to be financed by the Apex line of credit satisfactory analysis of their environmental impact will have to be provided. In cases where environmentally hazardous pollution problems are likely, an environmental test will be developed in agreement with IDA. Such project appraisal procedures and information seminars would sensitize borrowers and PFIs on the need to undertake environmentally sound projects. 15, Progm Objective ateo . The project would contribute to the following Bank Program Objectives: (a) private sector development; (b) financial intermediation; (c) poverty reduction through employment creation; and (d) economic management. 16. Benis. The proposed operation is a complement to Rwanda's macro-economic adjustment program already launched with Bank and IMF support. The project would help spur private investment and assist Rwanda achieve its growth objectives. Major expected benefits would stem from an enhanced supply response by private sector investors, which would create the employment opportunities that are critical for supporting the consolidation of peace and the public sector retrenchment from productive activities. The project Is expected to contribute to the achievement of the objectives by providing long-term credit, helping private firms become better managed and more competitive, and strengthening Institutions responsible for ensuring the creation of a fully liberalized business environment, including freedom to create and operate an enterprise, and a reliable legal system guaranteeing transparent enforcement of contractual agreements between lenders and borrowers In particular. By supporting effective monetary and credit policies, and promoting better managed bankin Institutions, the project would improve their capacities for increased resource mobilization, and diversified and expanded financing of private sector investment. 17. Ba15. The Government of Rwanda is currently undertaking a dual process of political and economic liberalization designed to achieve national unity and opening-up the political system, while maintaining the thrust of the economic adjustment process, and liberalization of the legal ard regulatory environment. The main risk associated with the project relates to renewed political Instability which could delay the Governments policy reform program and slow down the process of revamping the legal and regulatory framework for enterprises and banks, as well as hinder the introduction of substantial fiscal and labor policies. This could mean that the implementation of a well focused private sector development strategy could be lengthy, thereby creating a risk that the pace of private sector investment would be slower than expected. These risks have been considerably mitigated by the recent August 4, 1993 signing of the peace agreement ending the military conflict within Rwanda. A risk associated with recent military expenditure would be the monetization of the fiscal deficit which would lead to high inflation and crowd out the private sector. The likelihood of this problem becoming severe is mitigated by the fact that the Government has a long record for fiscal prudence which can be seen in the fact that in the past 20 years inflation in Rwanda has rarely reached double-digit figures. These risks will be monitored closely in the context of implementation of the adjustment program, and through an assessment to be undertaken during the mid-term review of project implementation planned for early 1995. Furthermore, the consensus built around the need for effective reform of the business environment and the strong voice of a rapidly emerging private sector should ensure the effective implementation of the project. 18. Recommendation. I am satisfied that the Credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the Credit. Lewis T. Preston By Ernest Stern Acting President Attachments Washington, D.C. August 18, 1993 -7- Page 1 of I R-WANDESE_REPUIMC PIVATE SECTORDEVMLOMENT PROEC Estimated Project.Cost an,4Financinw estimated Proect Cost (US$ millions) (A) Investments Subprojects 3.90 7.50 11.40 (B) Pr.vate Sector Sunort Pund 1.35 2.70 4.05 (C) Institutional Smtrahnins Tribunal of Commerce .30 .55 .85 Central Bank (BNR) .10 .20 .30 Ministry of Commerce and Industry .70 1.45 2.15 agiggig1 1.10 2.20 3.30 (D) naloated .15 .35 .50 IQ]'L 6.50 12.75 19.25 Financing ln: Amon PeMCs (US$ millions) InvestmentEPrigot Subborrowers 2.20 19 Participating Financial Institutions(PIs) 2.20 19 IDA 7.00 61 Egiggggg 11.40 100 Private Sector SuMort Fund Private Sector 1.55 38 IDA 2.50 62 Subtoal 4.05 100 Institutional StrenMening Government .30 9 Other Donors 1.00 30 IDA 2.00 61 Subtota 3.30 100 Unallocated IDA 0.50 100 TOTAL Government .30 2 Subborrowers 2.20 11 PFIs 2.20 11 Private Sector 1.55 8 Other Donors 1.00 5 IDA 12.00 62 Total Financing 19.25 100 DA Fiscal (US$ million) Fiscal Year 1994 1995 1996 1997 1998 1999 Annual 1.26 2.46 2.56 2.56 2.16 1.00 Cumulative 1.26 3.72 6.28 8.84 11.00 12.00 Schedule B Page 1 of 2 RWANDESE REIU PRIVATE SECTO DIEELOPM -PROJECT Summary of the Proposed Procurement ArranSements PROCUREMENT METHOD Item ICBh/ Other Al N.A. g/ TOTAL A. Credit Component Goods, works and service contracts 11.40 11.40 (7.00) (7.00) B. Private Sector Support Fund Component Consulting Servic for Private Promoters 3.00 3.00 (1.50) (1.50) Consulting Services and Training 0.80 0.80 (0.75) (0.75) Vehicle and Office Equipment 0.15 0.15 (0.15) (0.15) Operational Audit 0.10 0.1 (0.10) (0.1) C. Institutional Strengthening Consulting Services and Training 1.45 1.00 2.45 (1.45) (1.45) Vehicle and Office Equipment 0.75 0.75 (0.45) (0.45) Audit 0.10 0.1 (0.10) (0.1) D. Unallocated 0.50 0.5 (0.50) (0.5) TOTAL 18.25 1.00 19.25 (12.00) (12.00) Notes: At International and local shopping. Consultants to be hired in accordance to Bank guidelines, kl For goods contacts below US$750,000 international shopping procedures. For goods contracts above US$750,000, procuremnt will be through ICB. g/ Belgian grant. 5.1 Disbursements. The proceeds of the Credit would be disbursed as follows: (a) CQit Comonen: US$7 million (i) 100 percent of expenditures for up to 70 percent of total subproject cost for new operations; (ii) 100 percent of expenditures for up to 80 percent of total cost of subprojects for extensions, modernization aqd rehabilitation. -9- (b) Private Sector Support Fund Component: US$2.5 million (i) 100 of expenditure on management consultant for private sector firms for up to a percentage of total costs consistent with the agreed declining cost sharing schedule (para. 4.33 (b)). (ii) 100 percent of foreign expenditures for goods and services, and operating expenditure and audits; (iii) 90 percent of locally procured goods and 100 percent for services. (c) Institutional Strenthening Component (exclusive of tax) US$2 million (i) 100 percent of the cost of consultants, assistance and training, and audits; (ii) 100 percent of the c.i.f. cost of goods directly imported; (iii) 90 percent of the local cost for materials and supplies. (a) Central Bank (DPM: Consultant Services $5, Office Equipment $50,O (b) Ministry of Commerce and Industry: Consultant Services and Training $7A4@ Office Equipment, Vehicles $150@ Audits $100, (c) TribunatoQfComc: 2M08 Consultant Services and Training $40=0 Office Equipment/SoftwareNehicles $25%= -10- Schedule C Page 1 of 1 PRIVATE SECTOR DEVELOPMENT PROJECT TIMETABLE OF KEY PROJECT PROCESSING EVENTS (a) Time taken to prepare: 15 months (b) Prepared by: Government with IDA assistance (c) First IDA mission: November 1991 (d) Appraisal mission departure: March 28, 1992 (e) Negotiations: February 1993 (f) Planned date of effectiveness: December 1993 -11- Schedule D Page 1 of 3 RWANDESE REPUBLIC PRIVATE SECTOR DEVELOPMENT PROJECT STATUS OF BANK GROUP OPERATIONS IN RWANDA PFDBR25 - Summary Statement of Loans and IDA Credits (LOA data as of 7/30/93 - MIS data as of 08/11/93) Amount in US$ million (less cancellations) Loan or Fiscal prm aallk I0A Undish- Closingat Credit No. XML Vtl Credits 250.57 26 Credits closed C16410-RWA 1986 Rwanda Hwys. VI 11.00 .36 12/31/92 (R) CA0081-RWA 1988 Rwanda Hwys. VI 10.00 9.15 12/31/93 (R) C16500-RWA 1986 Rwanda BRD IV 9.00 3.01 12/31/93 C16780-RWA 1986 Rwanda Family health 10.80 .23 06/30/94 (R) C1680-RWA 1986 Rwanda Education III 15.60 9.72 12/31/93 (R) C178O-RWA 1987 Rwanda Water sup. I 15.00 5.10 12/31/94 C17940-RWA 1987 Rwanda Pub.Sct.Mgmt 7.40 5.92 12/31/94 C18110-RWA 1987 Rwanda Forestry U 14.10 8.96 06/30/94 (R) C20260-RWA 1989 Rwanda Agr. Services 19.90 14.81 0630/95 C20410-RWA 1989 Rwanda Urban Inst. 32.00 33.03 12/31/96 C21130-RWA 1990 Rwanda Public Ent 4.40 3.55 12/31/94 C21360-RWA 1990 Rwanda Trans. Sect 40.00 35.86 06/30/97 C21890-RWA 1991 Rwanda Second communication 12.80 8.93 12/31/95 C22270-RWA 1991 Rwanda Education Sect. Cr. 23.30 21.59 09/30/96 C22710-RWA (S) 1991 Rwanda SAC I 90.00 38.57 12/31/93 C22720-RWA 1991 Rwanda Population 19.60 19.00 06/3/98 C23880-RWA 1992 Rwanda Food sec and social so 19.10 19.52 12/31/97 C24560-RWA 1993 Rwanda Energy Sector 26.00 25.79 12/31/98 380.00 262.62 TOTAL number Credits - 17 Total" 630.57 of which repaid 14M Total held by Bank 615.84 and IDA Amount sold of which repaid Total undisbursed Notes: Not yet effective * Not yet signed Total Approved, Repayments, and Outstanding balance represent both active and inactive Loans and Credits. (R) Indicates formally revised Closing date (s) Indicates SACISECAL Loans and Credits. The Net Approved and Bank Repayments are historical value, all other are market value. The Signing, Effective, and Closing dates are based upon the Loan Department official data and are not taken from the Task Budget file. -12- Schedule D2 Page 2 of 3 RWANDESE REPUBLIC PRIVATE SECTO DEVELOPMENT PROJC Implementation Issues 1. Overview. In all sectors in which the Bank is active, the Government has generally been receptive to the Bank's advice on sectoral development and general implementation issues. Following a decline in recent years, implementation performance has Improved In FY93, despite the unsettled country situation, as a result of increased supervision and an intensified implementation dialogue. Disbursement for investment operations, which decreased in FY90-92, bounced back in FY93. In addition, the size of the portfolio has been reduced; in FY92 and FY93, five credits were closed but only two were approved. During this period, the undisbursed amount for investment projects has declined by 25%. 2. Several factors affected portfolio performance. Traditionally, implementation issues in Rwanda included institutional and management weaknesses, slow decision-making, inadequate accounting and auditing practices, and cumbersome procurement procedures. Since the war erupted these problems were compounded by shortages of counterpart funding and disruptions of project activities due to hostilities and government instability. To address the deterioration in performance, the Bank Intensified supervision and strengthened the resident mission's involvement. The country dialogue focussed on sensitizing the Government of the critical linkage between substantially improved portfolio implementation and availability of new Bank assistance. 3. As a result of increased supervision, the performance of the portfolio improved noticeably in FY93. The Bank carried a Country Portfolio Performance Review (CPPR) in Kigali in July 1993 to discuss with decision makers and managers implementation Issues and seek concrete actions for further improvement to the portfolio. The CPPR was well attended by government officials and project managers and generated considerable interest. As an important outcome of the CPPR review, the Government is in the process of streamlining its PIP to take account of severe fiscal constraints. Project directors are assessing their funding requirements for 1993 and 1994 as a basis for a detailed agreement on counterpart funding for Bank-financed projects to be reached shortly. Projects which are no longer high priority under present circumstances will be adjusted or cancelled. 4. Progress In Improving the portfolio. The implementation of the Agricultural Services Project (Cr. 2026-RW) has improved after a staff member was posted in Rwanda to intensify the supervision effort. The Closing Date of the Second Integrated Forestry Credit (Cr. 181 1-RW), which has had serious implementation problems (with the exception of the Nyungwe component which has been progressing well) has been extended to complete a series of studies and pioneering actions in support of the preparation of the forthcoming Environment Project. The Fourth Credit to the Rwandese Development Bank (Cr. 1650-RW) has been entirely committed and is expected to close as scheduled on December 31, 1993. A restructuring of the Public Enterprise Reform Project (Cr. 2113-RW) is underway. Procurement problems under Highway VI (Cr. A0081) have been resolved; construction of earth roads was started in late 1992 and is expected to be completed within the next two years. Under the Transport Sector Project (Cr. 2136-RW), construction of the Gitarama-Kibuye started in June 1993 as an agreement on resettlement of the affected population was reached. The Water Supply II project (Cr. 1783-RW) was affected by the hostilities; with security reestablished implementation will resume in the project area. The Urban Institutions Project (Cr. 2041-RW), which has progressed slowly, is being restructured. Good progress has been made in improving the disbursement performance of the Family Health Sector Project (Cr. 1678-RW) following a chane in management, which justified the extension of its closing date to June 30, 1994, at which time it will be fully disbursed. The credit for the Third Education Project (Cr. 1683-RW) will be closed in December 1993; almost all physical targets have been met. The Population Project (Cr. 2272-RW) suffered from poor management. New arrangements have been agreed with the Government, recently. The Education Sector Project (Cr. 2227-RW) has had a slow start because of co-financing problems. These problems have been resolved and implementation is expected to improve. The Credit for the Food Security and Social Action Project (Cr 2388-RW) has been declared effective recently after a long delay due to the Government's inability for political reasons to appoint the Minister in charge of Credit ratification. -13- Schedule D Page 3 of 3 PRI E SECTOR EVELOPMENT PROJECT STATUS OF BANK GROUP OPERATIONS IN RWANDA B. STATEMENT OF IFC INVESTMENTS IN RWANDA EXPRESSED IN US$ (June 30, 1993) Amount Investment - -n - Number .. .. A8 of Buiw mn &a 121 337-RW 1975 Sorwathe Tea procesing and markedng 0.53 0.53 470-RW 1979 Sorwathe 0.23 0.06 0.29 764-RW 1985 Sorwathe 0.29 0.29 1028-RW 1988 Sorwal Manufacturing (*) 0.20 0.20 Total Gross Commitments: Lo.1 0-26 L3 Iss: Cancellations, termination, exchange adjustments, 1.05 0.06 1.11 repayments, wiwoffs, and sales Total commitments held by IFC 0.00 0.20 0.20 Total undlisbured 0.00 0.00 0.00 Total disbursed 0.00 0.20 0.20 (*) Loan guarantee of US$42.1 million provided by IFC. RWANDA PRIVATE SECTOR DEVELOPMENT UGANDA PROJECT ® NATIONAL CAPITAL e PREFECTURE CAPITALS - MN ROADS ZAIRE - PREFECTULRE BOUNDARIES Aub - INTERNATIONAL BOUNDARIES RIHEN . BYUMBA Giseny G~SMAT FO~S GISENY1 KGGALI lTA KI NGO '0' U Gi t m * Kibungo 2ý-GIKONGORO O Uleý~Cyang C Gikongro• B TR * NDA 8URUNDI r 8URUNDI flutaBURUNDI Th , b ZAI RE KOW~ 0 5 10 15 20 2 0 3s 0 4550d zozA~Åu in . s . . . .o f