Guinea - Private Sector Promotion Credit

Document of The World Bank FOR OFFICaAL USiE ONLY Report No. 13302 PROJECT COMPLETION REPORT REPUBLIC OF GUINEA PRIVATE SECTOR PROMOTION CREDIT (CREDIT 2148- GUI) JULY 1, 1994 Industry and Energy Division Occidental and Central Africa Department Africa Regional Office This document has a restricted distribution and may be used bv recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Currency Equivalents Currency Unit = Guinean Francs (GNF) 198 1994 US$1 = GNF 475 US$1 = GNF 975 ABBREVIATIONS AND ACRONYMS AfDB African Development Bank CAA Caisse Autonome d'Amortissement CCCE Caisse Centrale de Cooperation Economique CCEF Comite de Coordination Economique et Financier CCIAG Chambre de Commerce CCDE Centre de Creation et de Developpement des Entreprises CFD Caisse Francaise de Developpement CFE Centre de Formalites des Entreprises CJR Conseiller Juridique Resident CNI Commission National des Investissements CNPG Centre National de Perfectionnement a la Gestion CNPIP Centre National de Promotion des Investissements Prives DND Direction National des Douanes FAC Fond d'Aide et de Cooperation MPF Ministere du Plan et des Finances MICPME Ministere du Plan et des Finances ONEMO Office National de l'Emploi et la Main d'Oeuvre ONPPME Office National de Promotion des Petites et Moyennes Entreprises OPIP Office de Promotion des Investissements Prives PAGEN Programme d'Appui a la Gestion de l'Economie Nationale SAC Structural Adjustment Credit SECAC Sectoral Adjustment Credit SECAL Sector Adjustment Loan USAID United States Agency for International Development Fiscal Yer January I - December 31  FOR OFFICLAL USE ONLY THE WORLD BANK Wruhington, D.C. 20433 U.SA Offic, of Director-General Operations Evaluation July 1, 1994 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on the Republic of Guinea Private Sector Promotion Credit (Credit 2148-GUI) Attached is the Project Completion Report on the Republic of Guinea - Private Sector Promotion Credit (Credit 2148-GUI) prepared by the Africa Regional Office. The Borrower did not submit a Part II. This was a US$50 million quick-disbursing, adjustment operation in support of the Government's Private Sector Promotion Program (PSPP) and its economic reform program. Approved by the Board in May 1990, it was closed in December 1992, one year after the initial closing date. The PSPP was intended to improve Guinea's legal/regulatory framework, to rationalize the incentive structure, to restructure and reorient several government institutions towards private sector development, and to undertake financial sector reforms. The ultimate test of the program was defined in terms of increased private savings and productive investments. The covenants were complied with, and a number of improvements were made in the legal and regulatory environment that were well received by private businessmen. Based on this achievement of its specific objectives, the outcome of the operation is rated as marginally satisfactory and institutional development impact as modest. The private sector's continuing skepticism of the Government's commitment to foster a business-friendly environment is reflected in continued very low rates of private savings and investment. Thus, the sustainability of benefits is rated as uncertain. The PCR provides an adequate assessment of the extent to which narrowly-defined objectives were achieved. It does not however evaluate performance against the more broadly defined objectives of either (i) the PSPP as set forth in the Letter of Sectoral Policy; or (ii) the overall adjustment program. In particular, no assessment is made of whether the overall reform program remained on track during the period of project implementation. An audit is planned. Robert Picciotto by H. Eberhard K6pp Attachment |'his document has a re tricted distribution and m-ay be used by recipient only in the perfornmance of their official dutiex. Its contents | mny not otherwise be disclosed without World Bank authorization.   FOR OFFICLL USE ONLY PROJECT COMPLEIMON REPORT REPUBLIC OF GUINEA PRIVATE SECTOR PROMOTION CREDIT (CREDIT 2148-GUI) TABLE OF CONTENTS PagLe No. PREFACE .................................................. i EVALUATION SUMMARY ....................................... iii PART I: PROJECT REVIEW FROM THE ASSOCIATION'S PERSPECTIVE ....... 1 A. Project Identity .......................................... 1 B. Background ............................................. 1 Macroeconomic Survey and Overall Economic Objectives .............. 1 Sectoral Policy Context and Development Objectives ................. 2 C. Credit Description and Objectives ............................... 2 Objectives ............................................ 3 Timing and Innovation of Credit ............................. 3 D. Project Implementation ............. ......................... 4 Implementation Experience ................................. 4 Conditionality .......................................... 5 Factors Affecting Implementation ............................ 6 E. Project Results . ......................................... 7 Project Risks . ....................................... 10 Factors Affecting Results ................................. 10 F. Project Sustainability ............. ......................... 11 Project Impact ...............1.... .................... 11 Factors Affecting Project Sustainability and Final Recommendations ... ... 12 PART : PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE .... .... 13 PART III: STATISTICAL INFORMATION ............. ............... 14 A. Related Association Credits .................................. 14 B. Cumulative Credit Disbursements .............................. 15 C. Mission Data ............................................ 15 D. Staff Inputs by Stage of Project Cycle in Staff Weeks .................. 16 E. Project Results . ......................................... 17 F. Status of Legal Covenants ................................... 18 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.   PROJECT COMPLETION REPORT REPUBLIC OF GUINEA PRIVATE SECTOR PROMOTION CREDIT (CREDIT 2148-GUI) PREFACE This is the Project Completion Report (PCR) for the Private Sector Promotion Credit to the Republic of Guinea (Credit 2148-GUI) in the amount of SDR 38.7 million. The Credit Agreement was approved on May 31, 1990, signed on September 28, 1990, and became effective on March 15, 1991. At the Borrower's request, the Credit closing date was extended from December 31, 1991, to September 30, 1992, and finally to December 31, 1992. The last disbursement was made on May 7, 1993. Parts I and III of the PCR were prepared by the Industry and Energy Division of the Occidental and Central Africa Department. The Association has not received Part II of the PCR. The PCR is based on the findings of a mission to Conakry from November 1 through 12, 1993, as well as on the President's Report, the Credit Agreement, supervision reports, correspondence, interviews with persons involved with the Credit (Government and Consultants), and internal documents and memoranda in the project files.   - iii - PROJECT COMPLETION REPORT REPUBLIC OF GUINEA PRIVATE SECTOR PROMOTION CREDIT (CREDIT 2148-GUI) EVALUATION SUMMARY Objectives 1. The overall objectives of the Private Sector Promotion Credit were to improve the business environment in Guinea, eliminate constraints to business and promote new investments. The Credit brought urgent relief to Guinea's balance-of-payments gap of $US 104 million in the 1990-92 period, through the provision of US$50 million of quick- disbursing funds. Credit proceeds financed the cost of eligible general imports bought by both the private and public sector, subject to specific restrictions listed in the Credit Agreement (para. 7). The project was a follow-up to a Structural Adjustment Credit (SAC), and was designed to build on that reform program. More specifically, the credit aimed at establishing an 'enabling investment environment" by: (a) improving the legal/regulatory framework; (b) rationalizing the incentive structure; and (c) restructuring the institutional framework for investment promotion. Furthermore, the Credit aimed at deepening reforms in the financial sector started under earlier IDA credits (e.g., Credit 1234-GUI), including: (i) the adjustment of interest rates; (ii) the rationalization of credit markets; and (iii) the enhancement of the Central Bank's effectiveness (Part I, para. 9). Implementation Experience 2. The Credit was organized into two tranches and was distinguished by its limited but clear conditionalities and objectives. Despite the Credit's straightforward conception, the Association encountered considerable difficulty and delay in implementing it. These delays were due to: (a) Government resistance to certain difficult reforms; and (b) a ministerial dispute over jurisdictional control of an agency reorganized to promote new investments in the private sector. Disbursement of the second tranche was delayed several months to enable the Borrower to produce an action plan for legal and judicial reforms, as set out in its Declaration of Sectoral Policy. At the Borrower's request, the Credit closing date was extended from December 31, 1991, to September 30, 1992, and finally to December 31, 1992, to permit fulfillment of all conditions (Part I, paras. 30 and 31). Project Results 3. Project results have been mixed. Although the Government has implemented key reforms which substantially improved the business environment, overall supply response has been disappointing and following the long history of hostile relations between the private sector and Government, the private sector remains skeptical of the Government's commitment to change (Part I, para. 32).  - iv - 4. Legal/Regulatory Framework. Private businessmen report that the overall legal/regulatory environment has improved, and that the judicial process follows revised principles of transparency and predictability which are increasingly internalized. As required in the Credit Agreement, Commercial licenses (L.C.) have been abolished except for certain professions, such as lawyers, accountants, physicians, and pharmacists, which continue to be regulated. A series of measures were adopted to improve the overall legal and regulatory environment, simplify procedures for creating new business enterprises, and institute a uniform and centralized enterprise registration system. Recruiting Guinean employees no longer requires an authorization, although expatriates still must pay a fee and secure permission from the Office National de l'Emploi et de la Main d'Oeuvre (ONEMO). However, steps like reporting the creation of new businesses to both the ONEMO and the Office of Labor Inspection were not abolished, although they should have been, as part of the Government's efforts to liberalize labor regulations. Finally, the Land Code was enacted, but its implementation decrees have not yet been issued. The land registration system is now fully operational in urban Conakry, and properties are currently being surveyed and computerized (Part I, paras. 33-36). 5. Incentive Structure. The Reform Program called for legislation specifying: (a) eligibility criteria for benefits provided under the Investment Code; and (b) that any convention giving special tax or customs exemptions be reviewed by the National Investment Commission (CNI) prior to being signed by the Minister of Finance. Hence, two application texts were issued, but proved to be overly-complicated, and are not being applied. Although eligibility criteria are now somewhat clearer than before, benefits under the Investment Code are still granted unevenly and are not automatic. Furthermore, the CNI, initially created to grant and monitor benefits under special conventions, does not systematically monitor investor compliance. On the positive side, the Ministry of Plan and Finance (MPF) instituted systems to monitor the granting of tax exemptions and other fiscal benefits for new investments: no fiscal exemptions are effective without the MPF's approval. Furthermore, exonerations granted prior to these reforms are lapsing, and current Government policy is to refrain from renewing them (Part I, paras. 37-39). 6. Among the most successful reforms is the customs administration's acquisition of SYDONIA, the computer software for customs declarations. SYDONIA, financed along with technical assistance from the Caisse Francaise de Developpement (CFD) is now fully operational and has reduced the incidence of tariff fraud. However, other measures such as the creation of an inspection service, reduction of time required to accomplish customs procedures, computerized time management of customs declaration, and dissemination of customs information to relevant ministries have been less successful. 7. The Government complied with the Credit Agreement's provisions requiring it to restructure agencies created to promote new investments in the private sector. Thus, the National Center for the Promotion of Investments (CNPIP) and the National Bureau for the Promotion of Small and Medium Enterprises (ONPPME, formerly known as the Center for the Creation and Development of Enterprises CCDE) were merged into a new organization: Office for the Promotion of Private Investments (OPIP). However, infighting between Government departments prevented the restructured OPIP from being fully effective. Until now, OPIP has had no resources to implement its mandate and the effectiveness of its management was questionable. However, the newly appointment Assistant Director has been  instrumental in preparing a comprehensive work program for OPIP, helping clarify its terms of reference, and boosting staff morale. Other agencies created to help the private sector seem less likely than OPIP to succeed in the short run. The Chamber of Commerce, for example, continues to be ineffective in mobilizing the private sector and in promoting commercial activity due to its lack of financial resources and qualified and motivated staff (Part I, paras. 42 and 43). 8. Financial Sector Reforms. The Credit initially set out to establish an appropriate policy environment for financial sector development, hence deepening previous accomplishments in the areas of interest rate reforms, rationalization of credit markets, and enhancements to the Central Bank's supervision functions. Because it was felt that sufficient progress was achieved during the preparation of this Project, the Credit Agreement contained no specific conditions relating to financial sector reforms. However, it is now felt that current conditions in the financial sector justify further reforms. Such reforms are now included in a financial sector adjustment credit which is in preparation (Part I, para. 44). Findings and Lessons Learned 9. Despite the Government's many reforms and achievements, the Credit has so far failed to trigger a supply response in the formal private sector. This is primarily due to three factors. First, while this credit provided assistance for the balance of payments - facilitating imports and easing the role of the Central Bank in providing foreign exchange, it could not, by its nature, provide direct incentives to other agencies involved in the implementation of changes under the program. To maximize the impact of future PSD operations, consideration should be given to investment instruments. Second, considerable in-fighting within Government paralyzed the implementation of key reforms envisioned in the Credit, and delayed the creation of investment-promotion agencies like CCDE and the Centre de Formalites des Entreprises (CFE). In future operations, the Government's commitment, along with its action plan to implement difficult reforms, should be obtained prior to Board presentation. Third, Guinea's difficult inheritance from the previous regime has deeply scarred the private sector, hindering the supply response. Therefore, the project's achievements should be measured only after sufficient time is allowed for the private sector to regain full confidence in the economy, and to react more favorably to the Government's pro- private sector policies (Part I, paras. 49 -51). 10. This project confirmed the importance of conducting in-depth internalization work during project preparation. Much time and effort was consumed with the Government during meetings of the Comite de Coordination Economique et Financier (CCEF) to discuss project goals and the necessity of reforms. This required an enormous, yet unavoidable, investment of time by IDA staff to inform the Government and the private sector of the rationale and urgency of reforms, and to obtain the former's commitment to these changes. In fact, this Credit demonstrated conclusively that, with sufficient preparatory work, it is possible to generate a consensus between IDA, the Government, and the private sector on issues affecting private sector development (Part I, para. 49). 11. Another important lesson from this project is the importance of concentrating on a few essentials, and resisting pressure to overload a project with conditions. This project had a few  - vi - clear and attainable objectives, whose implementation was manageable from the standpoint of both the Borrower and the Association (Part I, para. 30). Sustainablity 12. Private Sector Development is a continuing process, and although structural reforms of the overall business environment are critical, these reforms must be accompanied by actions designed to stimulate more directly the private sector's supply response. This Credit had a positive impact at the level of the business environment, and should be followed by further actions to encourage formal sector activity, and entrepreneurship. For instance, it did not address the informal sector, which is a dynamic element of Guinea's private sector. Attention needs to be given to encouraging the informal sector to "formalize" through policies to reduce barriers and distortions (Part I, paras. 53-58).  PROJECT COMPLETION REPORT REPUBLIC OF GUINEA PRIVATE SECTOR PROMOTION CREDIT (CREDIT 2148-GUI) PART I: PROJECT REVIEW FROM THE ASSOCIATION'S PERSPECTIVE PROJECT IDENTITY Name - Private Sector Promotion Project (PSPP) Number - 2148-GUI RVP Unit - AFR Country - Republic of Guinea Sector - Private Sector Development BACKGROUND 1. Macroeconomic Survey and Overall Economic Objectives. From Guinea's independence in 1958 until 1984, the Government managed the economy through a pervasive system of state monopolies and controls. Guinea's private manufacturing sector was displaced, and replaced with a pervasive network of state-owned enterprises in all sectors of the economy. Deteriorating conditions caused Guinea, once a major exporter of agricultural products, to become a net food importer in the mid-1970s, and finally forced the country's switch to subsistence agriculture in the 1980s. The currency became overvalued, under the constant pressure of the inefficient public sector, and resulted in grave misallocation of resources and disincentives to export. The economy, which had grown increasingly dependent on its foreign exchange earnings from exporting bauxite and alumina, became unsustainable as mounting debts resulted in massive arrears. Furthermore, the financial sector, which had demonstrated its inability to mobilize domestic savings under the skewed policy environment, led to overreliance on external financing and to a progressively heavier debt burden. As the private sector vanished, the civil service rolls became grossly inflated. The Government's fiscal position, which had worsened considerably since 1980, became disastrous by 1985, as the foreign liabilities and arrears accumulated at the level of the Central Bank exceeded US $300 million. The results were: (a) a rate of economic growth well below that of the population; (b) a failure to occasion desired modernization and industrialization of the economy; (c) increasing pauperization of the population; (d) the prosperity of a vibrant informal sector which continued to thrive on clandestine import-export activities, involving commerce of smuggled or stolen goods, and private transfers from abroad. 2. Established in April 1984, Guinea's second republic inherited the task of reviving the moribund economy. The new regime embarked upon a radical, and in many respects, unprecedented program of economic and financial reforms. The over-riding objective of the reforms was to: (a) reverse deterioration of the economy and redress financial imbalances; and (b) replace the old system of state controls and government intervention with a policy framework supportive of a market-oriented economy. More specifically, the reform program  - 2 - included the following key policies: (a) correction of the overvaluation of the currency; (b) establishment of a new banking system; (c) liberalization of prices; (d) liberalization of internal and external commercial and trade activities; (e) improvement of the institutional and legal framework for private investment, including the promulgation of investment, commercial and labor codes; and (f) size reduction and efficiency improvement of the public sector, including some privatizations. This program was supported by the IMF in the form of two Standby Arrangements, and a Structural Adjustment Facility, and the Association under a two Structural Adjustment Credits cofinanced by other donors. 3. Until 1990, the economy reacted well to this initial program of reforms. Reforms were such that they could easily be managed centrally and implemented with ease, and encouraging results began to be observed. GDP grew by a commendable 6 percent in real terms in 1987, and by over 5 percent in 1988, while inflation fell from 72 percent in 1986 to 27 percent in 1988, and the country's long economic decline gave signs of having been reversed. In principle, the stage had been set for long-term recovery in key sectors such as agriculture, construction, trading, and services sectors. Shortages that characterized the pre- reform period were eased or eliminated. 4. The Government's overall economic objectives as indicated in its Policy Framework Paper, were to: (a) reach a sustainable growth rate of 5% per year for the 1990-1992 period; (b) gradually reduce the rate of inflation to 10% at the end of the period; (c) avoid any appreciation of the real exchange rate; and (d) reduce the account deficit to an average of 5.1 % of GDP over the period, while helping restore the level of available foreign exchange reserves to the equivalent of 4.3 months worth of imports. 5. Sectoral Policy Context and Development Objectives. Despite the introduction by the Govermnent of significant macroeconomic reforms, much remained to be done and sustainable growth in most productive sectors would have been difficult without a coordinated set of private sector environment reforms. The business climate in Guinea continued to be unfavorable, contributing to uncertainty among private economic operators and low levels of investment. As major constraints to continued economic progress, Guinea's 1990 Economic Memorandum cited the urgent need to: (a) develop competencies in the private and public sector; (b) increase Government revenues to provide essential services; (c) end corruption; (d) increase the efficiency of remaining Government-provided services; and (e) promote private sector confidence in the business environment and encourage investments in productive activities. CREDIT DESCRIPTION AND OBJECTIVES 6. Having paved the way for the complete reorientation of its role in the economy from one of systematic control and hostility towards private interests, to a more pragmatic and pro- business one, in theory, the Government increased the likelihood of success of its envisioned private sector reforms. In order to bring about a sustained supply response from the private sector and to meet the ambitious growth targets it had set for itself, the Government decided to intensify its efforts to improve the business environment in the context of reforms contained in this PSD Credit. These reforms involved a complex process of institutional reforms, and improvement in private sector/Government relations through significant attitude changes on both sides.  - 3 - 7. Credit proceeds were to provide urgent relief to Guinea's balance-of-payments gap of $US 104 million in the 1990-92 period, through the provision of US$50 million of quick- disbursing funds available against general imports, and indirectly through a stimulus to foreign capital inflows. Credit proceeds financed the cost of eligible imports sought by both the private and public sectors, subject to a negative list and other restrictions. It was envisioned that a third SAC planned for 1992 could, in conjunction with cofinancing, help meet Guinea's financing needs in 1992-93. 8. Reforms supported by the Credit were to complement: (a) the macroeconomic policies supported by two previous SACs, and two companion Economic Management Support Projects (EMSP-I and II) which provided targeted technical assistance; and (b) the second-year arrangements of an IMF structural adjustment facility (SAF) that came onstream in 1989. Objectives 9. This Credit aimed broadly at boosting the confidence of domestic and foreign investors, giving new impetus to private investment in Guinea by: (a) removing the legal and regulatory constraints to private sector growth; (b) reducing Government interference in the daily activities of business; (c) eliminating arbitrary privileges and exemptions, thus increasing competition; (d) increasing support for private sector development within Government; and (e) increasing the Banking sector's ability to provide necessary financial services as well as financing to economic operators. 10. Co-financing, The operation had important implication for Guinea's overall strategy, and thus attracted strong interest from the donor community. In particular, the CFD, whose observer participated in the Credit negotiations, financed technical and other assistance to strengthen the National Investment Commission and the acquisition of computer software and equipment for the Customs administration. The Fond d'Aide et d'Assistance (FAC) financed for its part technical assistance, training, and equipment for the judiciary system. USAID provided long term assistance to the BCRG for bank supervision and for the collection of balance of payments statistics. UNDP, offered technical assistance to the Ministry of Labor's National Employment Office. Timing and Innovation of Credit. 11. The Borrower made a courageous commitment to legal reform at a time when support for those reforms was scarce. Guinea's readiness for legal reforms appeared uncertain, and  - 4 - there were concerns that the reforms proposed under the Credit were too advanced for the country to handle. Some Government officials feared that these legal reforms could not be sustained, as the country could not simultaneously undergo a complete overhaul of its business law environment while the Loi Fondamentale (Guinea's constitution) was being prepared and legal institutions evolved constantly. This process of legal reforms is being continued, and has evolved considerably during preparation of the proposed financial sector adjustment operation. 12. Given the fact that private sector development is a long-term process involving attitude changes, it is not surprising that progress on legal reforms was sometimes slow, and that a private sector supply response and new investments were somewhat lacking. Nonetheless, significant pro-private sector attitude changes have been observed within Government agencies (ONEMO, OPIP, BCRG, etc.), which should contribute in restoring the confidence of the private sector. PROJECT IMPLEMENTATION Implementation Experience. 13. Borrower Performance. The Cellule Technique (CT) of the CCEF was designated to ensure effective implementation of the program by the Borrower. The CT met regularly, and advised consistently the CCEF on reforms included in the letter of Sector Policy. It is clear that the CT benefitted from strong support at the highest level of Government, especially from the Governor of the Central Bank, the Minister of Plan and Finance, and the Minister of Justice. 14. Although reforms were put in place in accordance with the conditions of the Credit Agreement and the objectives stated in the Government's Declaration of Sectoral Policy, the Government failed to pursue forcefully the implementation of some reforms. For example, although the Customs administration purchased and newly recruited customs officers currently use the SYDONIA customs declaration software, the Government still does not require that older customs officers use the software as well. Consequently, the software's use has not generated the overall productivity gains, nor has it reduced the incidence of customs declaration fraud that it has the potential to do. 15. Association Performance. IDA supervision of the Credit was carried out through a series of short missions to Guinea (Part III). These missions aimed generally to assess progress in the various reforms agreed upon under the Credit Agreement, and to verify that conditions for disbursement of the second tranche were met. 16. As the anticipated second tranche release date approached, the pace of activities and Borrower-Association communications related to the Credit increased measurably. However, the second tranche was not released until December of 1992 to give the Borrower additional time to prepare a satisfactory draft action plan required to tackle systematic weaknesses in the judiciary which impact negatively on and constrain the development of the private sector. 17. A criticism that the Borrower addressed to the Association concerned the lack of continuity in the project's supervision as task managers changed. Another Borrower  observation was that the Association had a tendency to react slowly to requests by the Borrower to issue its clearance on disbursement requests. The Association should be sensitive to the Borrower's assertions, by promoting: (a) continuity in the Association's supervision through fewer changes in task managers; and (b) shorter response times to Borrower requests. 18. Overall, however, the supervision of this Credit by both the Government and the Association was effective. The Resident Mission in Conakry provided regular, thorough, feedback on the program's progress, as well as on critical developments in the field. Conditionality 19. The Credit was divided into two equal tranches, the first to be released upon effectiveness, and the second upon satisfactory progress in implementing selected actions agreed upon by the Government. Although the funds supplied under this Credit were placed with the Central Bank of the Republic of Guinea in the name of the Treasury, overall responsibility for the implementation of this operation rested with the monitoring unit (CT). 20. Project conditionalities were designed to change the country's overall business environment and financial sector. Those for the financial sector were relaxed as they had been satisfied when the Credit was prepared. However, changing conditions, now require further reforms, which are being considered in a Financial Sector Adjustment Credit under preparation. 21. Conditions of Board presentation required the Borrower to adopt legislation: (a) abolishing licensing requirements for commercial businesses, and limiting requirements to regulated professions only (e.g., lawyers, doctors, dentists, accountants, etc.); (b) specifying eligibility criteria for benefits provided under the investment code; and (c) specifying that any convention awarding special tax or customs privileges be reviewed by the National Investment Commission (CNI) prior to being signed by the Minister of Finance. 22. These conditions were met, and the Credit was approved by the Board on May 29, 1990. 23. Conditions of effectiveness required: (a) the adoption of a detailed action plan, consistent with the principles set forth in the Program, to streamline the institutional framework for investment promotion, and establishment of an enterprise registration center; and (b) the issue of regulations satisfactory to the Association, to implement the Labor Code; and  - 6 - (c) limiting the role of the ONEMO to that of a statistical center. 24. These conditions were met and the project was declared effective on March 15, 1991. 25. Conditions for second tranche release included the presentation of evidence satisfactory to the Association that the Borrower had achieved satisfactory progress in carrying out the Program, and that the macroeconomic policy framework of the Borrower was consistent with the objectives of the Program, including: (a) adoption of land legislation recognizing private ownership, and setting up a system of title registration and publication; (b) implementation of the first phase of the customs reform program set forth in the Program; and (c) establishment of the new institutional investment promotion structure and appointment of key staff. 26. These conditions were fulfilled by the Government and the second tranche disbursement was authorized on December 11, 1992. 27. Disbursement and Procurement. Serious implementation problems arose in the context of goods purchased with financing from the Association and other international donor agencies, which do not allow for the payment of taxes. In those cases, private promoters benefitting from the availability of such financing had to be exonerated from taxes and import duties, despite the recent move to rationalize the overall fiscal structure. Although current Guinean laws do not reflect this, a new one is anticipated to do so. 28. Reporting and Auditine. Audits were carried out for both the first and second tranches. The borrower was offered suggestions for improving its record-keeping practices, but failed to implement them until after the Credit's final audit. 29. A final audit of the Credit was concluded in August of 1993. It revealed that: (a) the Borrower failed to monitor disbursements per product category; and (b) refinancing requests were not kept current. In response, the Borrower instituted a system requiring that all refinancing requests contain a summary "status sheet," and undergo two reviews prior to submission for IDA reimbursement. Factors Affecting Implementation. 30. Credit conditionalities were few and succinct and aimed at focusing the Borrower's attention on issues essential to project implementation. When difficult reforms became necessary, what was initially a virtue of the project's design, eventually became a fault, as the Government resisted the Association's efforts to ensure the implementation of these reforms. For example, the Credit Agreement specified that benefits offered under the Investment Code should be clarified. It was not until September of 1992, that application decrees were prepared for the Code, though they did not bring the level of clarity to it that was initially envisioned.  - 7 - 31. Another factor that affected implementation involved internal battles relating to the new investment promotion structure. Some reforms called for the establishment, elimination, or role redefinition of various Government agencies, such as ONEMO and OPIP. These reforms took longer than expected because agencies and specific Ministries resisted changes that divested them of some jurisdictional prerogatives, e.g., the Ministry of Commerce resisted relinquishing control over OPIP's predecessor in favor of the Ministry of Plan and Finance; the CFE (one-stop-window for enterprise creation) had to be located in the Ministry of Justice because jurisdictional battles among relevant ministries threatened the very creation of the one-stop-window; ONEMO resisted changes that diminished its prerogatives from controlling employment to barely monitoring employment statistics. PROJECT RESULTS. 32. General, Despite the difficulties described above, the Government implemented the specific measures included in the Credit, and the overall results of the project are positive. The reforms implemented under this project have clearly deepened the gains of the two previous SACs and their two companion EMSPs (I and II). However the anticipated supply response from the private sector has been disappointing, and it is expected that it will take time before the private sector reacts favorably to the improved business environment. 33. Legal/Regulatory Framework Reforms. Despite the absence of a supply response, many private sector operators report overall improvements to the legal and business environment that are evidenced by the increasingly internalized transparency and predictability of the judicial system. Commercial licenses were abolished for all, except the regulated professions (lawyers, physicians, pharmacists, accountants, huissiers, etc.) However, Guinea still has a long way to go in order to have a fully credible and well functioning judicial system. Additional assistance needed to sustain the pace of reforms in this area has been included in the proposed Financial Sector Adjustment Credit. 34. A detailed action plan for streamlining the administrative and legal procedures creating and operating enterprises was prepared and submitted to the Association. However, there is room for improvement. For example, redundant steps could be eliminated if a single company identification number were attributed to new enterprises registered in the CFE. 35. Limiting the role of ONEMO into a strictly statistical one was another condition of the Credit Agreement. This condition was technically achieved with respect to domestic job seekers. Some promoters felt that ONEMO had outlived its usefulness, and should be eliminated altogether. Because employment agencies were liberalized effectively, with new entrants into this field in the Conakry area, that position may be extreme. ONEMO could be maintained provided it holds no monopoly over the field of employment agencies, but becomes an entity committed to promoting employment through education, job-search training, and employment data storage and dissemination. 36. The Credit Agreement also called for land reforms and the adoption of appropriate legislation. Although legislation was passed, the application texts are still not enacted. A land registration system which relies on computer technology has been established. However, the system is perceived by some critics as overly sophisticated, requiring extensive training of  - 8 - Guinean nationals to eventually assure its management. Until such training is completed it will be necessary to maintain the technical assistance. 37. Reforms of the Incentive and Institutional Structure. Application texts were adopted to clarify the investment code. However, they remain overly complicated, and benefit regimes are still not directly linked to the tax laws. Furthermore, investment benefits devoid of budgetary impact are not automatic as initially envisioned, because the CNI's prior approval must be obtained before they vest. 38. Under the preferential regime afforded exporters, the Investment Code and its application texts require complex calculations. Under the incentive regime for small- and medium-sized enterprises, benefits are given only to Guinean promoters, excluding foreign investors, thus defeating the purpose of an open policy. Under all regimes, fiscal benefits are not systematically phased in and out, causing investors to be financially destabilized. Finally, conventions for the establishment of new enterprises are negotiated on a case by case basis because the Code has no applicable provisions. This creates uncertainty among private sector promoters who cannot determine in advance whether they are entitled to specific exemptions. The law needs to provide or deny benefits on a more systematic and equitable basis. 39. More importantly, the Government does not manage and monitor the benefits that it has previously granted. Significant abuses were reported by the CNI, involving cases where goods and equipment imported into Guinea under preferential duty regimes were diverted to uses other than those for which they were intended. In some instances, equipment was imported into Guinea and then simply sold. As required in the Agreement, all special tax exemptions must be approved by the CNI before ratification by the Minister of Plan and Finances. However, there are still cases where ministries, other than the Ministry of Plan and Finance, authorize special investment incentive packages which have a budgetary impact. 40. The customs reforms were implemented, and the SYDONIA import/export duties software is now fully operational. Despite the obvious advantages of computerizing customs administration and transactions, Government provided little support for it. Significant budgetary savings have been realized as revenue losses from improper collection practices by the customs administration were reduced. Although the basic training necessary to operate this software was completed, more training is required in the complexities of SYDONIA. It would be useful to promote training for Guinean programmers who could become familiar with SYDONIA's code, and use the software to its maximum potential. Because there is continued resistance from older generation customs' officers to SYDONIA and to the software's forced transparency, priority should be given to training new recruits as customs officers to work exclusively with this system. 41. CNPIP and ONPPME were merged into one institution (OPIP) only after considerable disputes over which Ministry would ultimately take control. The Minister of Commerce, Industry, and Small- and Medium-Enterprises insisted on preserving control over the ONPPME (eventually renamed CCDE), while the Minister of Plan felt the same way about CNPIP. It was not until September 14, 1992 that OPIP was created, merging these two agencies, as proposed in the Credit. At the time this report was prepared, OPIP's mission was still unclear, and the Agency lacked the resources for its normal operations. However, a new Assistant Director was recently appointed and it is expected that this addition to OPIP's  - 9 - higher level management team will increase the institution's effectiveness in promoting the private sector. A statement of OPIP's objectives has been prepared at his initiative and is now used to measure the agency's performance. 42. Despite a series of recent reforms to strengthen the Chamber of Commerce, (including the overhaul of its by-laws; the holding of consular national elections; the publication of the third Annuaire des Societes Industrielles, Commerciales et Agricoles de Guinee; and the acquisition of computer equipment with the financial support of UNDP), the Chamber continues to lack adequate basic resources and trained staff to carry out its work program. With regard to the argument that it would be efficient to merge OPIP and the Chamber of Commerce, Guinean authorities point out that there is an important distinction between OPIP and the Chamber of Commerce which should be preserved: the Chamber of Commerce is an advocacy group representing and elected by private sector promoters that happens to provide logistical support in specific areas, whereas the OPIP is a government agency. Whether OPIP and the Chamber of Commerce are merged into one agency or not, it should be the Bank's recommendation that each of these institutions' role be more clearly defined, and that they be given adequate financial and human resources. Although it is preferable that the Chamber of Commerce be private-sector-led and financed, the attitude of the private sector has been as difficult to change as that of Government. Many private sector operators value the services provided to them by the Chamber of Commerce, but they view them as entitlements and not as a service for which they have to pay. Without abandoning the objective of making the Chamber of Commerce financially self-sufficient, it may be preferable and more effective in the long-run to opt for gradually increasing financial contributions by the private sector. 43. Financial Sector Reforms. The Credit initially set out to establish an appropriate policy environment for financial sector development, hence deepening previous accomplishments in the areas of interest rate reforms, rationalization of credit markets, and enhancements to the Central Bank's supervision functions. However, during project preparation, the Central Bank had taken a number of steps in the right direction. Interest bearing savings accounts were introduced in 1988, and the minimum rate on time deposits was increased from 17 to 19 percent in January of 1989, and to 21 percent in September. Furthermore, the Central Bank agreed to review twice yearly the interest rates to ensure progress towards remunerating savings and time deposits with a positive real interest rates. In January 1989, the Central Bank rationalized Guinea's credit markets by: (a) consolidating and simplifying the various discount/refinancing windows open to commercial banks, in addition to increasing the cost of resources to the banks; and (b) signing an agreement with the Treasury restricting the Treasury's access to cash advances at the Central Bank. Finally, the Central Bank took important steps in enhancing its capacity to monitor, control, and supervise the banking sector through the adoption of a standard reporting format to be used by the commercial banks in their quarterly submissions to the Central Bank, along with other reforms (e.g., establishment of a risk management unit). Because it was felt that the Central Bank achieved considerable progress in reforming the banking sector during the preparation of this project, the Credit Agreement contained no specific conditions relating to financial sector reforms. However, it is now felt that current conditions in the financial sector justify further reforms. Such reforms are now included in a financial sector adjustment credit which is under preparation.  - 10- Prject Risks, 44. Two risks were predicted at the time of appraisal, namely, that: (a) given the traditionally negative Government and administration attitudes towards the private sector, the proposed set of reforms would not be implemented in a forceful manner, and would possibly be disregarded by officials in daily contact with the private sector; and (b) despite the new measures, the private sector supply response would not be forthcoming if the business environment remained unfavorable and the private sectors' confidence was not restored. 45. The first risk was thought to be offset by the level of commitment at the highest level of Government to implement the reform program. Furthermore, considerable internalization was done during project preparation to ensure Guinean ownership of the reform program. The technical unit of the CCEF with its multi-sectoral representation, was given the responsibility of coordinating and supervising the implementation of the program. Finally, the project also received support from other donor agencies in the form of technical assistance to improve Government responsiveness to private sector needs. For example, CFD financed computer equipment and technical assistance to the customs administration to implement the SYDONIA import and export software, which is now fully operational. 46. The second risk reflected the private sector's reluctance to participate in the formal economy because of the constrained business environment and a long history of hostile relationship with the Government. Since attitudes needed to change on both the sides of Government and the private sector, it was expected that it would take some time before there was some response from the private sector. This has been confirmed, and indeed, the private sector is still maintaining its wait-and-see attitude. 47. A third risk, not anticipated during project preparation, but which became evident during implementation, related to internal battles within Government itself, particularly on the institutional framework to support private sector development. Factors Affecting Results 48. SECALs have the limitation that proceeds do not benefit the agencies concerned directly. Commitment to changes are therefore difficult to obtain from these agencies, and considerable time must be invested to ensure that they understand the importance of specific reforms, and the benefits that may accrue therefrom. Although in-depth internalization work was conducted in this project, which yielded progress in changing civil servants' attitudes towards Private Sector Development, a lot more needs to be done. 49. Private sector promotion programs should not be expected to produce results overnight. To be effective, these reforms must cover several substantive areas, and typically involve the simultaneous cooperation of several Government agencies. A progressive change in outlook must be achieved among various groups of economic actors -be they in the private sector or Government - who need to learn to think about each other in terms of cooperation  - 11 - and mutual support before results may be seen. As this did not happen at first, there were unavoidable delays in generating needed reforms, and in encouraging a private sector supply response. 50. The long history of mutually hostile attitudes held by the private sector and the Government has seriously damaged private sector confidence in the Government's commitment to reform the business environment. Thus, the Government's current program of macro-economic reforms needs to be complemented by direct actions designed to elicit a private sector supply response. Such actions should include programs designed to benefit directly the private sector through training to develop and sharpen entrepreneurial skills, mentoring programs, access to small business loans, etc. Programs targeted at micro- enterprises are currently implemented by PRIDE (an NGO) in the Conakry area. A program similar to PRIDE's could be prepared and implemented for the benefit of small- and medium- size enterprises. 51. It should also be noted that many of the reforms focused on the formal private sector. The formal sector is presently a static part of the economy; it is the informal sector which is blossoming. Clearly, the Government should seek ways to bring the informal sector into the mainstream through the removal of distortions. Considerable work remains to be done to demonstrate to the Government that the private sector environment must be made more attractive in order to entice firms to "formalize" spontaneously. It is important to continue stressing to the Government the need to encourage the "formalization" process through pujl factors (e.g., lowering barriers to entry, leveling the tax burden, etc.) rather than push factors (e.g., increasing special taxation and bureaucratic harassment of informal sector firms). PROJECT SUSTAINABILITY Project Impact 52. At the macro level, the impact of the project was positive in that all reforms that were specifically named were implemented. As a result, the private sector may now evolve in an environment that is far friendlier than it ever was in Guinea. The basic institutions that were envisioned to be created as part of the Credit were in fact created, or restructured, but they remain ineffective for reasons enumerated previously. Although private sector support institutions like the Chamber of Commerce are still ineffective due to a lack of means and resources, others that previously lacked direction (OPIP) now seem to be recovering from staffing problems. 53. At the sectoral level, however, a sustained effort is required to ensure that a private sector supply response materializes. To encourage the process of "formalization," positive incentives should be provided to the growing informal segment of the private sector. 54. The program succeeded not only in establishing the importance of the private sector as an engine of growth and prosperity, but also in increasing the Government's awareness of the importance of a favorable overall business environment.  - 12 - 55. The Credit had a positive impact on the labor market. The Labor Code was redrafted, although its application texts are not yet in force. ONEMO saw its role reoriented from one of control over the labor market into one of providing job search training and information for Guinean job seekers. ONEMO's transformation to date signifies a great improvement, although the agency is still a measure away from being only a statistical center. Expatriates employed in Guinea denounced ONEMO for "ransoming foreigners." 56. Enterprise creation is simpler, but still somewhat costly, whether using or not the one- stop window of the CFE. Despite significant improvements that can be traced to this Credit, there remain agents within Government that still have not adopted a client-oriented approach to dealing with the private sector. Among the improvements that have resulted from the Credit, however, are an increased awareness of the private sector among Government officials, and the lessening of hostility toward the private sector within these agencies (e.g., courts of law are now less hostile towards the private sector, and have begun issuing judgements that do not systematically discriminate against businesses). Factors affecting Project Sustainability and Final Recommendations. 57. Sustainability can be achieved if and only if this Credit does not sound the end of the Borrower's interest in promoting private initiative in Guinea, and the Borrower continues to undertake direct actions designed specifically to elicit a private sector supply response. Three categories of actions should be considered at this time: (a) educate and inform the private sector about the improvements to the environment and to specific institutions that were achieved under the Credit. Interest in strengthening legal institutions and in particular the judiciary should be pursued. There have been enough such achievements to justify a media campaign; (b) remedy situations identified in this paper by: (i) enabling institutions like OPIP and the Chamber of Commerce to raise their own resources from the private sector, or be funded on a declining basis with public funds; and (ii) continuing the process of fine-tuning the reforms that were completed under this Credit (e.g., redo the application texts for the Investment Code with a view to increasing their simplicity and level of automatization in the granting of benefits to new investments, continue efforts to increase sensitivity to private sector needs within Government circles, etc.); (c) identify areas of intervention for the Borrower and the Association whereby a meaningful private sector supply response may be elicited through direct economic stimuli. Such activities could include availing entrepreneurial training as is currently being done by NGOs like PRIDE in Conakry, along with access to capital and other important services. There is also a need to conduct specific sector studies, currently addressed in part under the proposed Financial Sector Adjustment Credit.  - 13 - PROJECT COMPLETION REPORT REPUBLIC OF GUINEA PRIVATE SECTOR PROMOTION PROJECT (CREDIT 2148-GUI) PART nI: PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE By letter dated 16 July 1993, the Guinean authorities were formally requested to prepare a Project Completion Report from their perspective. This has not been received.  - 14 - PROJECT COMPLETION REPORT REPUBLIC OF GUINEA PRIVATE SECTOR PROMOTION PROJECT (CREDIT 2148-GUI) PART III: STATISTICAL INFORMATION Original Credit Amount: $50.000 million (38,700 SDR) Disbursed Amount: $53.120 million (38,700 SDR) Stage of Project Cycle Date Completed Initiating Memorandum 05/24/89 Appraisal and Preparation 03/19/90 Negotiations Completed 04/09-13/90 Board Approval 05/31/90 Credit Agreement 09/28/90 Effectiveness 03/15/91 Second Tranche Release 12/11/92 Credit Closing 12/31/92 Accounts Closed 05/07/93 A. Related Association Credits Credit and Title Purpos Ye Approved Cr. 1963-GUI Support Government in managing the economy 1988 Closed Projet d'Appui a by availing technical assistance in critical areas la Gestion de (restructuring of institutions (ministries), I'Economie II drafting of economic legislation, rationalization (PAGEN) of civil service roles, etc.), and in improving the civil service through institutional ameliorations and career development (including training). Cr. 1234-GUI Support Government's industrial strategy by 1982 Closed Industrial strengthening the private sector, improve Rehabilitation and performance of selected state enterprises, and Small- and strengthen institutions responsible for Medium-Scale developing policies for the industrial sector and Enterprise Project for preparing projects suitable for financing. Make term credit available for equipment, and technical assistance to small- and medium- enterprises.  - 15 - Credit and Title Purpos Y Approved Cr. 1659-GUI Support Government's economic recovery 1986 Closed Structural program and allow economic activity to expand Adjustment Credit by focussing adjustment program on economic liberalization, and reform of public administration and enterprises. Cr. 1926-GUI Support second phase of Government's 1988 Closed Second Structural economic and financial reform program, and Adjustment Credit address key constraints on Guinea's medium term growth potential. Improve public finance management; further restructure public enterprises; reinforce the incentive structure to favor the private sector. B. Cumulative Credit Disbursements (US$) Period Dates Disbursements Cum. Disbursements % Disbursed 01/01/91 - 03/31/91 0.00 0.00 0.0 04/01/91 - 06/30/91 15,151,102.00 15,151,102.00 29.2 07/01/91 - 09/30/91 0.00 15,151,102.00 29.2 10/01/91 - 12/31/91 10,948,687.04 26,009,789.04 49.8 01/01/92 - 03/31/92 110,762.60 26,210,551.64 50.0 04/01/92 - 06/30/92 0.00 26,210,551.64 50.0 07/01/92 - 09/30/92 0.00 26,210,551.64 50.0 10/01/92 - 12/31/92 7,687,981.83 33,898,533.47 64.3 01/01/93 - 03/31/93 10,171,987.41 44,070,520.88 83.5 04/01/93 - 06/30/93 9,049,543.32 53,120,064.20 100.00 C. Mission Data Mission End Dat No. Persons Staff Wks. in Rrt (Month/Year) Eield Before Appraisal 4/88 2 2.0 4/29/88 9/88 3 2.0 10/12/88 3/89 4 2.5 3/7/89 Appraisal - Board 6/89 2 2.0 7/9/89 Approval 11/89 1 1.5 11/1/89  - 16 - Mission End Dat No. Persons StaffWks, in Report (Month/Year) Eield Supervision . 02/90 4 1.2 08/24/90 11/90 1 1.0 08/23/91 10/91 1 0.2 10/28/91 02/92 2 1.9 03/02/92 07/92 2 3.0 09/15/92 D. Staff Inputs by Stage of Proiect Cycle in Staff Weeks Stageof Cycle h 8 87 82 2Q 21 2 X2 24 TItai Pre-appraisal 3.5 31.4 27.2 46.6 108.7 Appraisal 1.4 33.5 34.9 Negotiations 3.2 3.2 Supervision 3.3 12.2 9.7 21.9 47.1 PCR 10.4 10.4 Total 3.5 31.4 27.2 48.0 40.0 12.2 9.7 21.9 10.4 204.3  - 17 - E. Project Results Conditionalities Sat Board Prescntation (a) Elimination of licensing requirements for commercial businesses, except for regulated professions Met. (e.g., lawyers, doctors, dentists, accountants, etc.); (b) Clarification of eligibility criteria for benefits provided under the investment code; and Met. (c) Application of policy requiring that any convention awarding special tax or customs privileges be Met. reviewed by the National Investment Commission (CNI) prior to being signed by the Minister of Finance. Effectiveness (a) Adoption of a detailed action plan, consistent with the principles set forth in the Program, to streamline the institutional framework for investment promotion, and establishment of an enterprise Met. registration center; (b) Adoption of regulations satisfactory to the Association, to implement the Labor Code; and Met. (c) Limitation of the role of the Office National de l'Emvloi et de la Main d'Oeuvre (ONEMO) to that of Met. a statistical center. Second Tranche Release (a) Adoption of land legislation recognizing private ownership, and setting up a system of title registration and publication; Met. (b) implementation of the first phase of the customs reform program set forth in the Program; and Met. (c) establishment of the new institutional investment promotion structure and appointment of key staff. Met.  - 18 - F. Status of Legal Covenants Section Covenant Status 1.01(b) Not later than six months after the Closing Date or such later date as may be Not complied agreed for this purpose between the Borrower and the Association, the Borrower with. shaU prepare and furnish to the Association a report, of such scope and in such detail as the association shall reasonably request, on the execution of the Program referred to in the Preamble to the Development Credit Agreement, the performance by the Borrower and the Association of their respective obligations under the Development Credit Agreement and the accomplishment of the purposes of the Credit. 2.01(b) The Borrower shall, for the purposes of the Project, open and maintain in U.S. In full DoUars a special account in its central bank on terms and conditions satisfactory compliance. to the Association. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 4 to this Agreement. 3.01 (a) The Borrower and the Association shaU from time to time, at the In ful request of either party, exchange views on the progress achieved in compliance. carrying out the Program and the actions specified in Schedule 3 of the Agreement. (b) Prior to each exchange of views, the Borrower shaU furnish to the In fuU Association for its review and comment a report on the progress compliance. achieved in carrying out the Program, in such detail as the Association shall reasonably request. 3.02 Procurement of the Goods to be financed out of the proceeds of the Credit shaU In fuU be govemed by the provisions of Schedule 2 to this Agreement. compliance. 3.03 (a) The Borrower shaU maintain or cause to be maintained records and In fuU accounts adequate to reflect in accordance with consistently maintained compliance. sound accounting practices the expenditures of the proceeds of the Credit. (b)(i) The Borrower shaU have the accounts referred to in paragraph (a) of In fuU this Section including the Special Account for each fiscal year audited, compliance. in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association. (ii) The Borrower shaU fumish to the Association as soon as available but in Not in fuU any case not later than six months after the end of each such year, a compliance. certified copy of the report of such audit by said auditors, of such scope and in such detail as the Association shaU have reasonably requested. (iii) The Borrower shaU furnish to the Association such other information In fuU concerning said records and accounts and the audit thereof as the compliance. Association shall from time to time request.  - 19 - i2n Covenant St a u 3.03 (c)(i) For all expcnditures with respect to which withdrawals from the Credit In fuU Account were made on the basis of statements of expcnditure, the compliance. Borrower shall maintain or cause to be maintained, in accordance with paagraph (a) of this Section, records and accounts reflecting such expenditures; (ii) Borrower shaU retain until at least one year after the Association has In fuU received the audit report for the fiscal year in which the last withdrawal compliance. from the Credit Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) Borrower shall enable the Administration's representatives to examine In full such records; compliance. (iv) Borrower shall nsure that such records and accounts are included in the In full annual audits referred to in paragraph (b) of this Section and that the compliance. report of such audit contains a separate opinion by said auditors as to whether the tatemcnts of expenditure submitted during such fiscal year, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals.