Liberia - Second Development Finance Company Project

FILE COPY DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Not For Public Use Report No. P-1519-LBR REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED SECOND LOAN TO THE LIBERIAN BANK FOR DEVELOPMENT AND INVESTMENT WITH THE GUARANTEE OF LIBERIA November 14, 1974 This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  CURRENCY EQUIVALENT The official monetary unit is the Liberian dollar, with a par value equal to that of the U.S. dollar. The U.S. dollar is legal tender in Liberia.  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO LIBERIAN BANK FOR DEVELOPMENT AND INVESTMENT (LBDI) WITH THE GUARANTME OF THE REPUBLIC OF LIBEIA 1. I submit the following report and recommendation on a proposed second loan to the Liberian Bank for Development and Investment 1/ (LBDI), with the guarantee of Liberia, for the equivalent of US$4 million to help finance development projects. Amortization would conform substantially to the aggregate amortization schedules applicable to the specific investment projects financed out of the proceeds of the loan with a maximum period of 15 years from the approval or authorization of an investment project. The interest rate would be 8 percent per annum. PART I - THE ECONOMY 2. A report on the Liberian economy was distributed to the Executive Directors three years ago (AW-25 dated June 1, 1971). A basic economic mission visited the country in 1973, and the seven volume report will be ready for distribution in the near future. Its principal conclusions are presented in the following paragraphs. 3. For the past two decades Liberia has experienced an unprecedented rate of economic expansion. An annual rate of increase of national product of close to 7 percent stands in sharp contrast to the complete stagnation of the previous eighty years. This rapid expansion, led by the investments of foreign enclaves, has allowed Liberia, for the first time in her 150-year history, to undertake the economic and social infrastructure investment her people so desperately need. There is concern, however, that this rate of progress may not be sustained beyond the present decade, and that by the mid- 1980's the economy may not be able to grow faster than 3 percent per annum, about the same as the rate of population growth. This would be a serious prospect for the vast majority of the people whose near-subsistence livelihood brings them no more than $70 per year. 4. The Liberian economic boom has three major elements. First, iron ore, accounting for 30 percent of GDP and three-quarters of exports; of every dollar earned in mining, only 16i stays in Liberia. The current outlook is for, at best, no growth in output during the current decade and a possible decline thereafter. Next is rubber where the participation in the economy is more extensive and as much as 50# of every dollar stays in Liberia. It accounts for only 12 percent of exports and 6 percent of gross product and the outlook for world markets indicates a 3 percent growth rate. Finally, there is forestry, whose recent growth has been phenomenal, but whose contribution to exports and production is relatively small and whose retained product is even smaller. In this sector there is a very real prospect for swift depletion, and even with 1/ Formerly Liberian Bank for Industrial Development and Investment, a borrower of $1.0 million from the Bank in June 1972 (Loan 839-LBR).  - 2 - careful management and good reforestation the long-ran outlook is not out- standing. The Mission has looked carefully at other potential leading sectors and products, but under present circumstances no single one can match iron ore, rubber or forestry. 5. Liberia does have the possibility to escape from the bleak prospect of depletion of her resources and stagnation within a decade, if she embarks on an active all-out strategy of diversification, which should make the economy strong enough to survive by itself once the raw material boom ends. Such a diversification strategy not only calls for the promotion of such products as forest products, non-traditional agricultural goods, fish, and manufactures, but also for broadening of the participation of Liberians in their own economy. 6. Current estimates are that GDP should be able to grow at 5 percent per annum through the end of this decade, but unless a concerted, active develop- ment effort is made within the next few years, such a growth rate will be difficult to sustain beyond 1980. On the balance of payments, the present $100 miLlion resource surplus, most of which flows out in the form of factor income payments, will decline to perhaps $25 million by the end of the decade, and is projected to turn into a deficit soon thereafter. The balance of payments position of the country is currently quite strong and will enable Liberia to weather international disruptions resulting from the "energy crisis". Given the existing profile of debt service and a public sector borrowing plan of some $20 million a year rising to about $35 million by the end of the decade, the prospect is for an overall balance of payments surplus of significant proportions, followed after 1979 by substantial deficits if no changes are made in the current development path. Even so, the debt burden will remain smnall and Liberia should remain creditworthy through the 1980's. Debt service -atios are presently about 7 percent of exports and are projected to stay below this level for the next 15 years. 7. Liberia has four iron ore concessions producing about 23 million tons a year. One of them will close operations in 1975, but the shortfall will be made up by greater production in two others and the volume of exports should be maintained around 23 million tons a year up to 1978. Prospects beyond 1978 are uncertain and would depend on opening of some of the new deposits currently under study by foreign firms. While Liberia should continue to remain attractive for private mining investments, the Government might be able to improve its revenues from the concessions operated by the remaining three companies (LAMCO renegotiations in 1973 yielded an additional $2 million a year). Liberia should be careful to avoid granting unreasonable tax and duty exemptions which, because of double-tax avoidance arrangements, usually benefit the home governments of the foreign firms rather than the enterprises. 8. The rubber industry consists of seven foreign-owned concessions and 5,300 Liberian-owned farms and is the most important source of employment in the country. Firestone dominates the industry; it produces 50 percent of Liberia's rubber output and, including purchases from local farms, processes and sells 72 percent of the nation's output. There are two main policy issues vis-a-vis the foreign rubber concessions: the first concerns the tax conces- sions, the second the securing of improved marketing arrangements, so that the Liberian producers get better prices for their produce.  - 3 - 9. Forestry's contribution to GDP is expected to increase rapidly from 2.2 percent in 1972 to 8 percent in 1978, and exports to grow from $8 million in 1972 to $39 million in 1978. No single large foreign concession dominates this sector. The concession arrangements contain obligations for -(i) annual cutting to be limited toregeneration and reforestation levels; (ii) scientific reforestation of the concession areas and (iii) processing in Liberia of progres- sively larger percentages of its timber harvest (20 percent in 1973, rising to 100 percent in 1977). Unfortunately, the Government lacks machinery to supervise and enforce these obligations. 10. Particularly important is the intention of the Tolbert administration to encourage greater participation in the national economy of the rural people who make up over 70 percent of the population. A reorientation of agricultural policy must focus attention on the marketing system and pricing policy, both of which have unduly discriminated against the small farmer. The Government should encourage competition in marketing of farm products by changing the Liberian Produce Marketing Corporation from a foreign-controlled and highly profit-oriented marketing institution to an agricultural service corporation. A pricing policy - backed by acdministrative machinery to enforce floor farmgate prices - should offer farmers adequate incentives. Measures to extend credit and banking services to rural areas, to modify existing controls so as to encourage small entrepreneurs to improve the land tenure system, extension services, research and infrastructure (feeder roads, storage facilities) should form part of any new rural development program. 11. The industrial sector is still small and consists largely of high cost import substitution ventures, which typifies the mis-direction of Liberia's industrial strategy. The incentive system is geared to protect import sub- stitution and, as a result, the potential for export industries lies largely untapped. Yet it is here that Liberia will find the key to sustained development in the long-run. 12. In the financial sector, problems are related to the lack of an independent monetary system. At present there is no set of government policy instruments that will allow the public sector to tap the substantial private savings that exist in the economy. There are no deposit requirements, no credit rules and no obligations on the part of the comnercial banks either to lend locally, to keep currency in the country, or even to supply cash for circulation purposes. Domestic savings typically end up in Daropean and Amerian banks. Only Monrovia and some of the concession towns have commercial banking facili- ties. Even if the local farmer could be induced to save, there are no institu- tions at present to handle such funds or to lend him money for productive investments. 13. In the social sectors - health, housing, and education - the available infrastructure is relatively small and almost entirely directed towards Monrovia and the concessions. Allocations of resources, both current and capital, to education, will have to be significantly increased if Liberia is to sustain her present rate of economic development in the coming decades. There is a shortage of teachers at all levels, the curricula are not properly directed, particularly in the vocational and agricultural fields, and equally important, the Ministry and the sector are poorly organized.  - 4 - 14. The fiscal system is relatively under-developed, highly sensitive to external fluctuations, and ill-equipped for development purposes. While fiscal performance, as measured by public sector savings, may give the impression of being very good, it must be recognized that this is largely due to the government's conservative fiscal policies, directed at maximization of revenue and a restraint cn the growth of expenditure. This cautious policy, compounded by an inadequate capacity for project identification, preparation and implementation, has resulted in a level of current and development expenditure, especially for the agricul- tural sector, that is inadequate relative to the economic and social needs of Liberia. 15. The limited capacity of public service in Liberia has been a major constraint on growth and development. The new administration has placed a high priority on reforming the civil service and strengthening public administration. .A Civil Service Commission and a Public Administration Institute were established and various administrative reforms were introduced which, although adding $3-4 million annually to government expenditure, could prove to be very productive. Tn the field of planning Liberia is currently in a phase of transition. A t.echnical assistance team, sponsored by the US Government, UNDP and IBRD, is in process of being established. The initial planning efforts in the early sixties, under the guidance of the Harvard Advisory Group, concentrated on building the 1oundations: statistics, organisation, budgets and training. As there were few resources available, almost nothing was accomplished in the field of project evaluation and execution. Under current circumstances, with significantly more resources available for investment and with a government that places great c-mphasis on action, the government's limited ability to prepare and implement is a serious bottleneck. 1';. The long-run future of Liberia will depend to a great extent on the development strategy that is adopted. The following potential strategy contains five key elements: concessions, diversification, dispersion, distribution, and decentralization. 17. Given the importance of concessions to Liberia - they account for 40 percent of employment and 27 percent of government revenue - the Government still maintains a relatively cautious policy towards them. Even though in recent years there has been some improvement in the contribution of iron ore mining concessions, Liberia still gets only 16.5d (government revenue plus local wage payments) for every dollar of iron ore, while for example Brazil and Mauritania have negotiated 36/ and 21/ respectively in government revenue alone. Liberia has always valued its "open door" policy, and any precipitate moves would not be in consonance with this philosophy. The Government should move towards having concessions wit, more linkages to the economy, and in this respect the establishment of independent rubber processing facilities and the regulations requiring local sawing of timber are steps in the right direction. Finally, the question of how the concessions can contribute in the way of infrastructure in their local areas should be considered. 18. The need for diversification arises from the inability of the major export products to provide the long-run dynamism required for a 5 percent rate of growth in GDP. By the late 1980's, the economy must find an additional $200 million per year in foreign exchange, and this might be achieved with a  -5- combination of export diversification and import substitution. In the former area, wood-based industries, coffee, cocoa, palm products, and fishing suggest themselves, while in the latter a concerted program of rice production and increased hydroelectric generation would significantly affect the import bill. Proper incentives and the availability of key infrastructure are required for both. 19. The elements of dispersion, distribution and decentralization relate to the importance of a greater involvement of Liberians, particularly from the rural areas, in the process of economic development and a more equitable sharing of its benefits. The reluctance of farmers to participate in the economy, the extreme shortage of health and educational facilities and of roads and water supply in the rural areas and the highly centralized control and management of the economy in Monrovia will hinder satisfactory long-run development and require investment in infrastructure and changes in pricing and marketing policies and in administrative organization. 20. Finally, it is important to realize that until the late 1950's Liberia had no resources whatsoever to devote to development and she arrived in the post World War II era far behind, both in physical and in human invest- ment. The country has thus required more than the international average of per capita aid and will continue to do so in the future. PART II - BANK GROUP OPERATIONS IN LIBERIA 21. The Bank has made eight loans for projects in Liberia totalling $26.9 million, and there have been three IDA credits totalling $11 million and one technical assistance grant of $200,000 for development planning. IFO has made one equity investment in Liberia: $250,000 in the share capital of the proposed borrower, LBDI. The Bank loans have been for roads, port expansion, power and LBDI; IDA credits have been for education and agriculture. Annex II contains a summary statement of Bank loan3, IDA credits and IFC investment as of September 30, 1974, and notes on the execution of ongoing projects. 22. The objectives of the Bank Group operations in Liberia are: (a) to increase the absorptive capacity of the economy and enable the Liberians to take greater initiative in developing their own resources for the benefit of their own people; (b) to support policies and programs leading to a broader sharing of the fruits of economic progress; in the Liberian context this implies carrying the development process to the 70 percent of the population in subsistence agriculture largely bypassed by the recent economic gains; (c) to help the Government in broadening the economic base and in easing the adjustment problems arising out of a declining mining sector; and (d) to assist the Government in mobilizing development resources for sound projects from other external agencies.  - 6 - The proposed project, for which the African Development Bank is also providing assistance (para. j42 ), will promote the participation of Liberians in their own economy and broaden the economic base. Several integrated rural develop- ment, road, education and public utilities projects are in preparation for possible Bank Group assistance and three or four projects - a rural develop- ment, an education, roads and possibly a power project - are expected to be submitted for approval of Ebcecutive Directors in the next twelve months. PART III - THE INDUSTRY AND FINANCIAL SECTORS Industry 23. Liberia is a small country with a small domestic market and has little manufacturing activity. On the average, manufacturing contributed 5.4 percent of the GDP during the 1969-72 period. A survey of industrial establishments undertaken by the Ministry of Commerce, Industry and Transpor- tation for 1972 indicated a gross output from industry of $254 million and employment of about 15,000. Most of the activity was concentrated in mining and quarrying and forestry (accounting for 82 percent of gross output and 69 percent of employment). Ownership is largely foreign, although there is a small but active group of Liberian entrepreneurs engaged in a number of agri-business, manufacturing and service industries. 24. The important export industries are peletizing of iron ore, fi.sh processing, wood and rubber processing. Other manufacturing so far in Liberia has been almost wholly for import substitution, supported with protective policies. A sample analysis of the performance of import substitution fiims conducted by a Bank mission in March 1973 showed that several inefficient firms were being sustained in operation by high rates of effective protection provided under government tax and incentive policies. These policies are now being reviewed by the Government with a view to increasing their effectiveness in promoting export-oriented industries and processing of indigenous raw materials for the domestic and neighboring markets. 25. Traditionally, Liberia has followed a liberal policy under which foreign firms are encouraged to invest in the country and are granted tariff and tax incentives and enjoy freedom to repatriate earnings. Recently, the Investment Code and the structure of tariffs were revised. Changes include the establishment of differential income tax treatment for investors. depending on whether realized profits are reinvested or repatriated, and extension of the benefits of the Code to small entrepreneurs and to the service sector and tourism. Excport industries are given more encouragement under the new Code than import-substituting industries. 26. Despite the constraints of a small domestic market and a scarcity of technical andmanagerialknow-how, manufacturing has grown at a rate of 10 percent per annum fram 1 964 to 1972. Most institutional financing of private investment comes from the banking system. There are six commercial banks, two of which have a majority Liberian ownership. Commercial bank loan maturities are generally less than two years, although in a few cases longer- term loans have been granted. Outstanding commercial bank loans to the private  - 7 - sector totalled $54 million at the end of 1973. Of these, 46 percent were for canmerce, 24 percent for agriculture (including forestry and fishing), 18 percent for personal and other loans, 5 percent for construction, 3 percent each for transportation and manufacturing and 1 percent for mining. Interest rates have been held below 10 percent under Government's usury law. However, when service charges and other fees are included, the effective cost of borrowing from commercial banks is about 12 percent. Recently a new central bank - the National Bank of Liberia - was established. In addition to super- vising banking operations, managing the clearing house and holding the Govern- ment's accounts, the new central bank is also empowered to prescribe reserve requirements for the commercial banks, determine ceiling interest rates on loans and deposits and serve as a fiscal agent and advisor to the government on monetary and financial matters. The US dollar is the currency of use in Liberia, and a separate Liberian currency is not expected to be issued in the near future. PART IV - THE PROJECT 27. A report entitled "Appraisal of the Liberian Bank for Development and Investment" (number 503-LBR, dated October 31, 1974) is being distributed separately. The project was appraised in April 1974. A loan and project summary is attached as Annex III. Negotiations were held in Washington, D.C. fron September 23 to September 27, 1974. Mr. Edwin Williams, Deputy Minister of Finance, and Mr. Elias Saleeby, President of LBDI, represented the Guarantor and Borrower respectively in the negotiations. LBDI - The Borrower 28. The Liberian Bank for Industrial Development and Investment, a Liberian statutory corporation, was established in 1965 with the help of IFC, which subscribed 25 percent of LBIDI's share capital of $1 million. The Government, IFn and private Liberian investors together hold 51 percent of the company's share capital. Foreign private investors (financial institutions, Firestone Plantation Company and two mining companies) own the remaining 49 percent. The company, which recently changed its name to the Liberian Bank for Development and Investment in order to better reflect its multi-functional orientation, is the only national institution in the country providing long- temn loans and equity financing for productive investment. The great bulk of the projects it finances have been with small Liberian entrepreneurs. Management and Organization 29. Of the eight members of LBDI's Board of Directors, three are Liberians, one represents IFC and four represent foreign interests in pro- portion to shareholdings. The Chairman is the Minister of Finance of Liberia. The Board takes an active interest in the affairs of the company. Board matters are first discussed by the LBDI Executive Committee (five Board Members resident in Monrovia), and are often voted upon by mail. In September of 1973 Mr. Elias Saleeby, a Liberian previously employed in the Bank's DFC Department, took over as President of LBDI. He has proved to be effective in improving internal procedures and in finding new initiatives for the company. He is  - 8 - assisted by an able expatriate general manager. The company has been successful in increasing its operations markedly and also in reducing the proportion of its portfolio affected by arrears over three months (to 5 percent fram 10 percent a year ago). 30. LBDIts project staff has responsibility for project appraisal and follow-up of investments. There are seven full-time staff members, four of whom are Peace Corps volunteers. Recently, LBDI obtained UNIDO Special Industrial Services (SIS) funding for technical assistance in improving appraisal capacity. Generally, LBDI's appraisal and follow-up work have been satisfactory. Policies 31. Although LBDI's policies are generally sound,in some cases it has aemanded excessive security fram project sponsors, and LBDI's new management wi 1 liberalize its policies in this regard as appropriate. Previously, LBDI cculd make commitments in a single enterprise up to 10 percent of its total resourzes, which is now considered high given the company's growing debt/equity ratio. At the same time the company wishes to retain its capacity for dealing wath larger projects. Following discussions on this matters during negotiations, LBDI changed its policy limit on investments. LBDI's commitments to an individual enterprise are now limited to the equivalent of a combined amount representing 30 percent of net worth and 5 percent of the quasi-equity (the present $3 million of subordinated loans outstanding from Government). 32. In may 1974 LBDI raised its interest rate from 9 percent to 10 percent and its service charge from 1 percent to 1.5 percent per annum; resulting in an effective rate of 11.5 percent per annum. LBDI's current interest rate is the maarjqum permissible under the existing usury law, and LBDI plans to review its lending charges again once the law is revised as expected soon. On Bank and ADB funds the sub-borrowers assume the exchange risk. Because of the use of the US dollar in Liberia, this exchange risk is only that between the currencies of disbursement and the US dollar. Record of Operations 33. LBDI was established to pronote private enterprise through loans, equity participations, guarantees and underwrit.ings. Although LBDI got off to a slow start, its level of activity is now increasing significantly. Annex II] contains a summary of LHDI's outstanding loan and equity portfolio as at March 31, 1974. The first Bank loan to LBDI was approved in June 1972, together with a $500,000 loan from the African Development Bank. The company has progres- sively improved its operations; approvals of loans and equity investments rose from $576,000 for 23 projects in 1972 to $1.3 million for 34 projects in 1973. Another $1.5 million for 12 projects was approved during the first four months of 1974. Commitments rose from $289,000 in 1972 to $885,000 in 1973. Dis- bursements were $L477,000 in 1973 compared to $141,000 in 1972. LBDI has experienced a low rate of cancellation of projects after Board approval.  -9- Portfolio 34. About 35 percent of LBDI's portfolio at March 31, 1974 was for manufacturing enterprises, and 30 percent for agricuture, agricultural processing and livestock projects. Forestry and fishing each represented another 10 percent, tourism 6 percent and the 9 percent balance consisted primarily of transport and trade services. LBDI assistance has been largely for small Liberian-sponsored projects and nearly half of them (by amount) have been primarily export-oriented. Projects submitted under the first Bank loan had an average expected economic return exceeding 25 percent. Of the 103 projects for which LBDI has provided a total of $3.9 million of financing since its establishment, 92 percent of the number and 79 percent of the amount financed are majority Liberian-owned enterprises. The average size of LBDI's loans has been about $38,000, and 80 percent of the loans by number (20 percent by amount) have been for $50,000 or less. 35. LBDI's present outstanding portfolio consists of three equity investments totalling $143,000 and 70 loans for $2 million. Four loans out- standing (oil palm processing, logging, fishing and assembly of consumer clurables) exceed $100,000 each and together account for nearly half of LBDI's portfolio. Two of those projects have not yet become operational, and the other two are meeting the repayment obligation regularly. Eighteen loans with $103,000 outstanding, representing 5 percent of the loan portfol o, were in arrears over three months as of March 31, 1974. This is a significant improvement since March 1973 when 9 percent of the portfolio affected by arrears over three months. As of December 31, 1973, LBDI had made an adequate provTision of $103,000 - representing 5.3 percent of the loan and equity portfolio - to cover possible losses on the portfolio. This provision has been jugded adequate by LBDI's auditors. Financial Results 36. LBDI has an outstanding deutsche mark loan from Kreditanstalt fur WAederaufbau (KfW) equivalent to about $1 million, on which it had previously failed to pass on the foreign exchange risk to its borrowers. As a result, LBDI has suffered foreign exchange losses amounting to over 30 percent of its net worth in the last few years. In early 1974, KfW agreed to extend the maturity of the loan from 1978 to 1996, and to lengthen the grace period until 1986. An assurance was obtained from LBDI at negotiations that the present deutsche mark foreign exchange risk exposure on the KfW loan would be sub- stantially eliminated by LBDI by June 30, 1975. 37. LBDI suffered net losses in 1971 and 1972, and earned only a very small profit in 1973 (less than 1 percent of net worth). This was primarily due to the large foreign exchange losses described above. Future Operations and Required Resources 38. The strategy LBDI is presently following is to expand the scope and volume of its financing, to improve its stance in the community as an active development agent, and to improve its profitability. In the last year, LBDI  - 10 - has begun financing agricultural cooperatives and retail enterprises, and soon it is expected to finance its first majority Government-owned enterprise (a rubber processing operation). LBDI is obtaining a change in its Act to enable it to finance public projects and will limit such financing to 30 percent of its portfolio. This stance is appropriate to LBDI's role within the Liberian environment. -9. LBDI needs in time to increase its equity base which would be possible -sithout disturbing the current non-governmental ownership, only if it can Le-lare attractive dividends. Accordingly, along with the current emphasis on service to small enterprises, it proposes to increase its equity participa- tion and portfolio in comparatively larger and more profitable enterprises. The risk-taking capacity of LBDI in assisting smaller units will also be thereby improved. LLo. At the end of March 1974, LBDI had a pipeline of appraised projects requir ing some $3.5 million of its financing. In addition, several additional projects requiring $0.5 million were under preliminary study. 1. The unexpectedly rapid increase in LBDI's level of business since last year led to a liquidity shortage, and LBDI had to seek additional funds from several sources. Chase Manhattan Bank of Liberia agreed to an over-draft facility at an interest rate one percent above the London inter-bank rate. Also, L3DI discounted $500,000 of government promissory notes with the New York branch of the First Curacao International Bank at an effective interest -ate of about 11 percent. The Government recently agreed to provide LBDI with ,1 s&-iLon of funds on a short-term basis at 7.5 percent interest. 42 . Over the longer term, LBDI's commitments from calender 12974 through 1976 are expected to be approximately $11 million. They are expected to be met by the following sources: Sources of runds EXpenditures Foreign Local Total Expenditure Expenditure (in $ millions) LBDI collections and cash generation 2.3 2.3 Discount and redemption of government notes 1.4 1.4 alance of ADB/IBRD past loans, net of repayments during period 0.5 0.5 -- New ADB loan 2.5 2.0 0.5 Proposed IBRD loan 4.0 3.5 0.5 10.7 6.o 14.7 The Government's contribution will come in the form of a new $2 million long- te.m- subordinated loan signed in May 1974; LBDI will receive promisory notes f Ti the $2 million loan amount redeemable over a five-year period beginning in V1 75. Of the $6.5 million required from international sources, ADB has recently negotiated the equivalent of a $2.5 million loan to LBDI. The proposed $4  million Bank loan would help LBDI meet its financial requirements through calendar 1976. 43. Because of the limited resources the Government is able to provide and the lack of other sources of local cost financing, LBDI requested the African Development Bank and the IBRD to permit limited local cost financing from their respective loans. These two institutions have worked closely in appraising the 1974-76 investment program of LBDI, and the African Development Bank has agreed to release 20 percent of its loan for meeting local expendi- tures. It is proposed that the residuary local expenditure financing gap of $500,000 be covered from the proposed Bank loan. Local expedniture financing this amount (equivalent to about 13 percent of the proposed loan)is justified given the shortage of public and private investment resources in Liberia, made more acute by the recent movements in oil and commodity prices. Retroactive Financing 44. The first Bank loan (839-LBR of June 1972), was fully committed by May 1974. To maintain continuity of Bank financing, retroactive financing up to $750,000 is proposed for sub-projects approved since May. Disbursement 45. The Bank loan would be disbursed (i) for foreign goods and services obtained directly, (ii) 75 percent of the invoiced price for goods previously imported into Liberia, (iii) 60 percent of construction costs, and (iv) up to $500,000 of local goods and services. 46. Each project requiring $100,000 or more of the proceeds of the pro- posed loan would require the prior approval of the Bank, until the aggregate of loans approved by the LBDI without reference to the Bank reaches $1 million. The proposed aggregate free limit of $1 million would ensure that at least 75 percent of the amount of the loan would be subject to Bank approval. 47. During negotiations, assurances were obtained from LBDI regarding improvements in procedures, flexibility in lending conditions and pari passu draw-down of the ADB and IBRD lines of credit. Other tenms and conditions of the proposed Bank loan are those generally applied to recent Bank loans to development finance companies, including standard commitment fees. The foreign exchange risk would be taken by sub-borrowers. PART V - LEGAL INSTRUMENTS AND AUTHORITY 48. The draft Loan Agreement between the Bank and the Liberian Bank for Development and Investment (LBDI) the draft Guarantee Agreement between Liberia and the Bank, the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement and the text of a draft Resolution approving the proposed loan are being distributed to the Executive Directors separately.  49. I am satisfied that the proposed loan would comply with Articles of Agreenent of the Bank. PART VI - RECQMMENDATIONS 50. I reccmmend that the Executive Directors approve the proposed loan. Robert S. McNamara President by I. P. M. Cargill Attachments November 14, 1i97  Page I "i I Poge- COUNTRY DATA - LIBEIRIA Population I,eus~~~~~11-;i ty 111,370 KIm 1.63 million (mid 1972) 14.7 per kmn Rate of growth 3.0 per ,of arab,hI land (from 1963 to 1972) Keferen:o 0c ' GNP' at, Caplt.a US$ (At.laa basis) 2.'c 50 /b Cu:brhrate (pa:- thouxarc) . 5 /168 LI 1 Crud. death, rat.. (par thousand).. 16 a~ 17 16 114 InrAnt nwrta1lty rate (per- thousand Ilve blr'ths).. 137 156 I 31 11.2 LIl's expootA,,cy at birth (years) 37 /d 11 4,6 7?' Ore,s rsproduntiun rato /1 . 2.7 3.2 3 . P.'p.,1ation growth rate .. 3.1 2.6 3.1 o.6 Population grow~th rato - urban 7If. 5 I Age structure (Percent) 0-14 ~~~~~~ ~~~~~~~37 Id 13 16 h7 23.1E 15s-6 59 ~ 53 5? 51 63.1 65 and over 4 d I,2 13.0 Dependen--y raLtio I . 1212. 0.7 Population density per sq. km. 9d IL 36 23 278 Ulrban population &a percent of total 26 76 32 32 73 Family plannings No. of acceptors cumaulative (thous.) ...11 No. of usore (% of married women) ...-2 --WrAT lorforoe (thousanda) 112 Id575 3, 100 Ily 25,21! Peroentagp uployed in agriculture 81 72 .. 67 Percentage uanowtployed ..20~ .. 2.? croon o na o"nal income received by lowest 20% *.1 0. Percent of nationrul income recosived by highest 5% ..60 NsaiU,1,1, urgllon n it preic an12, 000 /) 13,600 15,200 Li 3,16o 0 Population par nursing person ..2,250 /1 1,530 1,L10 29o Population per hospital bed 730 690 790 59oj l30 Par capita oaAorie supply as % of requirementa A . 95/02 86 479 / L 12 Of whiah, animal and pul.es .a 10 21 o 57 Death ratO 1-L years a 29 Ld . 0.9 a~~* primary achool enrollment ratio 38 50 56L 89 98 AAJUtted aseooradary school enrollmtent ratio 2 12 5 ~ 10 7 Years of -schooling provided, first and second level. 12 12 15 12?1 Vooatl.onsl enollment as S of ee". Itohool enroflment 12 6 9L IL11 Adult literacy rate % 9/d.t 32 .u 45 9 A geNo. of persona par room (ur~ban) 1.T /v . . 1.8 /w o.66 Peroent of ocupisd units without piped water ... .67 Macess to eleoctricity (as % of total popsietim) i.. 7 Percent of rural population eonneoted to eleotrinity... %di rosivrspar 1000 population 77 132 78 57 330 Psadwenpr aero per 1000 population 6 10 4, 5 210 gleetric porer oonouagttion (huh p.e.) 1.1 4129 322 11 120 1,161 Newsprint conevAption p.*. kg per yea . 0.7 0.5 27.7 Notes, F4fei refer either to the latsot perods or to and dM ribution by g ade of national Populations. the latest years. Latest periode refor in principle to Zj Protein ctandards (rquuente) for all countriem am est4ab- Ute p"ear 1906-60 or I966-70, the latest pears In prim. Liebe by UWA 3emtcMic Deecarob Bervioc provide for a miniamu siple to 1960 "Ad 1970. ou1y eiganifeet3. dtfferet ell1oesnec Of 60 pane of total proptein par day, and 20 grams of Periods or Years are fbotnoted moenrst,2.p. animal en pdose protein, of which 10 grows should be animal Aver4e number of daughters per voma of reproduetive poen hs tnad r oeht1~ta ha f7 age. tonPams Of total protein end 33 sane of animal prtein as an ~j Po~1atimiR uth rates are for the dcade. endina in vavrage for the word, proposed b FAD in the Whr orld lPood 1960 w4 I . ~~~~~~BUrW. P atio of wrdcr 15 And 65 end over age braokcte to 3 stde haesfetd htorcdahrtsofhirn thoael in labor fcore bracket of ages 1S through 64,a.B- ags1tudolsg b, ay e e asPG tat firsdtaprxmatio ide of OLd IPAO reference standarda rporecent pbysiologoaLl re- 60 .am thriton 4A eu a ia prxiainidxo quiremente for normal activity and health, taking aL PercentAe enOM.1ed of corresponding population of sohool age aocount of sn,irccarntal temperature, body veighta, as defined tor stab oountr7. ~g Itimate bpood on the population glrowth ourvey; b Baaned on a UN estimate of the am? wich is lover than the official eStIMAte) Lo 1970 figures based on 1965/70 average exchang rates; Ld 19621 LO 19601 /f Over 5,000 population; Ratio of Population under 15 and 65 aLnd over to total labor forcel A ocalitico of mre than 27000o population; Unemployed end partially employed; LI. Lowest 4,0%; 1) 9641; 969i I- 19681 & 1971i /o 1964/66k 19661681 w Public education only; 19661 L~j9671 L.1<lyears end ovsrj /u As % of totV3. school age popu- lation; ~ 96Knoi ny t6 ; ~ U~an and rural October 23., 1974  1CON837IC DRVELOPMEl4T IATA SHEET A~~~t~~~.I - ol~~~~P eCL.d___ 1960- 1965- 1 9 70 IS 9I. (960( 1965 1970 1973 1975 1978 1965 1970 1375 197~ 7565 _970 J 927 flo~~'.h(. Or,,I.7 2 94.9 387.4 44 2.6 4 89 .0 566 1 6 4 8 5 f4 qt 4 ( 02 1I'311 ~~.,o. T,',is~~~ I b-..h1'j J~~~~J ~~Q,4 -1.~7 -04 0 -471I -99. 34 1 L ,,'.)I~~~~~ (A or (1)6~~~lb.1 I 176.9 441.0) 498.8 506 . 1 4 3 5 1 5 .1I I 7)1.-1) *0 1 .0 i; ,,I 1Cj 1. i 40.6 6 2 .2 i7 8 .9 2(7 .1 2 .7 49 5.01 ((2 I 'j'u' .77..(0O.I)4j2p 1 -! 514 5. 4 4 2 .3 3. -237 . -237.96 5. I5 0 .4 -4 '5 -529 -4L)1 O-,,,rc" .,~~~~~~~~~~~~~.~- 2 2 . -58.8 -70.9 58 .4 - 307.8 27I.2 -01 l3 -7.3 -T7 6 '.0 'O) 1,.nI1,cCO 2 31 , 2 59 . 8 287 .5 37 7.4 4 . 3 .5 3 .1 4,7 7.0 72 9 .19 ('A,~tO.,,T ~~I601. alo,-ks*IW 6(1. 58. 4 82 .6 7 0268 1 18 .17 17 0 9 . 19 .8 35 I3 "A-0)07 7)). I L11I.7 1i5 3 .4 1461 .2 14b2.6 . 6.1. 1. 2 7 2 fl ,1 28.-I - 1 0I.A 2 3 J 55.1 i I 3 1 01 .1 108.5 139. 0 1 37 30C 7.5 it.4 197 MC:iCHAND0 I7 (149) A--1. D.ta at Current PriAes As130.,, C' oi 7or I 1114 8 f9 .7 2 13 .0 75 8. 8 3 3 2.8 7 .4 71.6 9.4 100.0 1110o.7 707 1 7'. 27. 7 318.0 33 . 9 383.6 9.6 9.6 9 .2 3.8 100. 0 1QUlOS r(1,.07 1. 34 :5~~~~0 .7 211.7 229.1 5 T. 3 23.0o 9 .'. 8 .8 4. I 7 I. 0 70 .5 ),'. -.7,' 4' 2~~~~36 . 2 5 2 .8 41.4 44. 2 -8.0 4 .5 2.~7 -2.7 2 14 ( 6.9 12.1. m9 2t'2 7. 8 20 .1 265 3 38 12.6 '21 7, 18.0 (4.1 I 1 0. 1,74 , ' ~~~~~~~~3 3 .4 34 .9 4113 1 3 . 1 71I. . ..... !1,,~~4.raxe 1967-69 -_100 7 1,1 .~~~~~~~ ,))ACS 33 ~~~~~~~~ 96.6 1 34.,5 14 3. 7 161 . 5 0,10, ,,.;,,, '74 7 ~~~~2 I0 7.8 7371. 144 .8 160.9 .aIl.. I s.),.II. u. Hq.,6, 702. 4 9 9. 2 1011.4 -I ,-I "' .,, ' ; , .-.0 1 32.9 1729 .5 (33.5 VA.L.U 16727. WII.')1K A~ .....I 0, .1 1971 RCIr- 19, 1 912U 1971 192 271.74T30 7 9. 0 3959. _~ ~ - 9i TT _W~ 99 1'. 6 1 56 .0 165 .2 I?109 (17.3 1532 .0 136.0 15r4.18-,e17,s 421 68.3I 88. 5 94.2 17 27 9 .4 . 6 5.0 'IS 4 1 7.4 1 9 9 Csrto.l rce.ndlbvsrs ~~~~~~~~~~-46.17 -56. 4j -4 ,2 -106 .7 4.3 -.2 -9,5 16 -14.6 8 ry CS",rr I' n& rpse2.3 I 1.5 -T.T -o- -2 .7 -i.1 3 .0 11 I,, - 0rs,. .. n,2 .3 71.5 2 2.7 12 .6 17 .0 1 8 -13.5 5 8 3 . 0 8 45.5~~~~~~~~~~~~~~~1 - JL_4. Dr,TAIL OIN (21168893 *XI'1407 ('(771 391771'S r.c,.,oI Prel Ii,,. E0 . Pros P11RL1 C SECTOR .L737.~~~~ ~~22~~~ J12