Tunisia - Second Societe Nationale d'Investissement Project

CONFIDENTIAL Report No. 445 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PRUJECT PEKfUNANCE AUDIT: TUNISIA SECOND DFC LOAN (512-TUN) May 15, 1974 Operations Evaluation Department  PREFACE Loan 512-TUN to the Socidt6 Nationale d'Investissement (SNI) of Tunisia was signed on September 14, 1967 and finally closed in October 1972, when the last disbursement was made. SNI was renamed Banque pour le Developpement Economique de la Tunisie late in 1973, but the old name is retained here, where the history dealt with relates entirely to the earlier period. This report represents a performance audit against the objectives of Loan 512-TUN, as stated in the President's Report and Appraisal Report supplied to the Bank's Executive Directors when they approved the loan. Comparisons are made between the proiections and forecasts given in these documents and actual events, and the attempt is made both to explain deviations and to assess the actual impact of the loan on Tunisian economic development. General background for treating this particular loan was gathered during a lengthy evaluation, carried out in FY 1973, of Bank assistance to various Development Finance Companies, including the SNI; in particular, reference was had, for the present study, to the economic evaluations of thirteen SNI sub- proiects which proved common to the sample used in that evaluation and to the population of some 50 projects partly financed with funds from Loan 512-TUN. This earlier work was complemented with analysis of statistics drawn from official Tunisian publications, SNI reports and reports of SNI's external auditors and with a brief review with SNT staff in November 1973 of the current status of sub-projects financed with the proceeds of the Bank loan. No spnarate vprificatinn of thp nccounintq of SNI or its borrowers has been carried out. Warm appreciation is expressed to the SNI and its staff for the 1t971n-7 8rieed Note: Currency Equivalents (Dinar": Or Ot7 7 f) U: TT('61 . An 1971-72: 0.48 Dinars per US$1.00 1 72 _3! . -+ ~ UlALaL b f- U YI V  TAIZTV WP r'nXTTATTQ Page No. SUMMARY i The Loan, Its Setting and Conditions 1 Planned Targets and Their Achievement 2 Economic Impact 5 The Choice of Projects 7 Financial Problems 9 Conclusions 11 Text Tables 1. Macro-Economic Targets and Related SNI Projections 2. Arrears in Servicing Loans 10 Annex Tables 1. SNI - Loan 512-TUN - Annual IBRD Disbursements 2. SNI - Projected and Actual On-lending and Its Composition, 1967-72 3. SNI - Loan 512-TUN and Development of the Tunisian Industry and Tourism. 4. Tunisia and the SNI - Expected and Actual Fixed Investment and Its Financing. 5. Tunisia - Role of Public Investment in Manufacturing 6. Distribution of Loan 512-TUN by Size, Location and Sector 7. SNI Loan 512-TUN - Sub-projects 8. SNI - Impact of the Loan 512-TUN on the Flow of Funds 1967-71 9. SNI - Cost of Borrowing and Price of Lending - Actual vs Projected  SUMMARY 1. The loan 512-TUN, in the amount of $10 million, to the Societe Nationale d'Investissement (SNI) of Tunisia, was signed on September 14, 1967. The loan proceeds were to finance productive investment in private enterprises in Tunisia and to be used exclusively for foreign currency costs. 2. Four-fifths of the loan were disbursed by 1970, and the ontire loan, the amount of which reached, after cancellations, $9.3 million, was disbursed by 1972. The loan was used to finance 28 industrial enterprises, which received one-half of the loan proceeds,4 enterprises in the services sector, which received three percent of the loan, and 17 tourist hotels, which benefitted from the remainder of the funds. Projects associated with these loans accounted, during 1968-72, for 7% of total investment in the Tunisian manufacturing sector and for 13% of total investment in hotel construction. The importance of these projects was hizher within the private sector investment- to which the Bank funds were limited, accounting for 19% and for 16%, respectively, of total fixed canifal invPgfmPnf in mnifnrtirrinc rnd hnol n nnt-ircf-inn Chinng 1968-72. 3. When the loan was appraised and negotiated in 1967, the inten- tinnQ of t hp Tiinizian rovernment ere tn nopn the rany for private ctor initiative and to give a higher priority to production for export, espe- Cially by ligit- indt-ry. Th-- ;* stantially in policy only in late 1969, after most of the sub-loans were fullw appnnrroed. During the perod cA,'rui l for t-he --Iloc n--t,on ol th loan proceeds, however, private investment in manufacturing fell 20% shi-ri nf tnrets ited in the project appraisal report. Also hr was little, if any, increase in attention to export production, through a be.tter ___-!f4-+-4__ o r 0 grem-er - n c n t4l)a. 'rl- -Former wa detne rmia-. nn f - for the relatively slow disbursement of the loan, and, more broadly, for the lack of dynamics in the general activity of the CAT. ThIe late obscured the need to emphasize specialized lines of production in which Tuniia igh deelo copartiv adantge. The sub- loans were chan - nelled into creation or expansion of enterprises in a wide variety of f~o v r ri---,---n -C, -- - - -Jl. F,,-l, ds-,-sn for.-44.. ket. These products were generally turned out quite efficiently, however, - - I - ILL FU C. tILLt-iLL b- , CLLU -et eL-LLL1 atL prices competitive with imported goods. 4. Tourist hotels created with the help of funds from the Bank loan bec=ea O --1in,nnrt-n - contri.,butor, of eo.n .oi....-.. r 2- 4.S~~.C'4 C'. -.4.5LL LCLLL6=. LL dec sio to~LUL L develop tourist facilities on the Tunisian coast of the Mediterranean proved to be au god one, both from e poit of view o ntew epILPLUy-MenL opportunities and of the balance-of-payments, issues which were in the .JJu .LuiL.La.Ln.LI witLu.LLi LI1 LLue 17UU6. 1ILIS UeCISIOn WaS effectively (because quickly) implemented and national investment in LUUJ.LbL t&U L projections but Lhe efficiency of this operation was - 11 - open to doubt. Many of the hotels financed from the proceeds of the loan were built with a more luxury-seeking and free-spending clientele in mind, than the group-travel, package-tour, low-income tourists who arrived. The inevitably low receipts, compared with high investment cost, much higher in practice than originally projected even for the more remunerative clientele, resulted in financial difficulties for the hotels and debt servicing arrears for the SNI, particularly as the lat- ter's loans were given terms which, at 9-10 years, were rather short for hotels. 5. Considerable involvement in lending to hotels was not without influence on increased claims for local currency financing, which the SNI could not fully meet. Its role in domestic resource mobilization remained insignificant throughout the second half of the 1960s, but it took some small but important initiatives in this area in the early 1970s. 6. SNI has faced serious problems of arrears, particularly of interest payments on hotel loans, and these, together with much more rapid growth than expected of administrative expenditures, have been the main factors accounting for SNI's disappointing financial performance - pre-tax net earnings of only 6.4% of equity in 1970 compared with 11.2% projected. Moreover SNI's external auditors have qualified their statements about the company's accounts, mainly due to deficiencies in the accounts of enterprises to which SNI has provided loan or eauity financin, and specifically withheld their approval of SNI's income statement for 1972, citing the need for larer orovisions against losses. It is however hoped and expected that, just as some earlier provisions for interest unpaid have so far proved unnecessary so sienificant losses will be avoided on loans in arrears, 27% of portfolio at the end of 1972 down from 45% at the end of 1971. 7. Given the qfated nhipctive of the Bank's loan and the framework of Government policy - somewhat different from what had been expected at 1Innn nnn-rAicn1 - fhe- nncQit-k Pl,- p1e nt-- in thp 11c r-%F Innan nspred , such1 as the financial support given to the relatively efficient private sector ,~,,n,,cr- n-1 tn i-ln -Fnn4g"r exch,n.an- -natnn torisrt secor, clearly outweigh the negative elements that existed, such as lack of ex- nrt emnlnecc in inAriit-rinl financinc qnd nihtful finqncialI vinhility of hotels. PROJECT PERFORMANCE AUDIT OF TUNISIA SECOND DFC LOAN (512-TUN) The Loan, Its Setting and Conditions 1. The Societe Nationale d'Investissement (SNI) was established in 1959, with a share capital of 2 million Dinars, 58%-owned by the Tunisian Government. It was meant to become essentially a promotion-oriented bank, an orientation considered desirable in a setting where private capital was scarce and hesitant to undertake industrial ventures. Between 1959 and 1965, SNI invested most of its capital in the equity of new and expanding enterprises, whose slow maturity and often low profitability did not make possible a timely recovery of this capital. Thus, by 1965, the SNI faced a situation where it could n.t meet new demands for capital. It was at that time that the Bank responded to a request for advice, and helped to organize privatization and recapitalization. Shortly after- wards, in May 1966, the Bank granted its first loan to the SNI, for $5 million. When this loan became committed ahead of schedule (although its disbursement lagged considerably) the SNI applied, late in 1966, for a second loan, double the size of the first. A Bank appraisal mis- sion visited Tunisia in January/February 1967. The President's Report, proposing a $10 million loan to the SNI, was prepared in June 1967 and, after the Board's approval, the loan was signed on September 14, 1967. 2. The main justification of the loan presented in the documents sub- mitted to the Executive Directors was twofold - the favorablp orivate in- vestment climate anticipated in Tunisia for the coming years and the good performance shown by the SNI in its Droiect aDDraisal and selection of sub-borrowers. Thus, firstly, the Bank's analysis permitted to predict that. althouah the general level of investment was to be lowered because of a deterioration in the financial situation of the country in late 1966. it would be mainly the social infrastructure that would s1iffPr- on the contrary, new investment in productive sectors such as agriculture and industry. as well as in tourism, was xnActed to he on the viep Further, relatively more prominence than in the past was expected to be given to the nrivate sernor- and this not only hracAica onme In-c n,hl4 projects in the manufacturing sector were completed by that time, but also ht-rau.QA thp rnouprnmPrit Awlinitlire c 4f-c r1n4,- f-se h private sector fill the gap in creation of medium-size enterprises, cap- ale o f un d er tak i nga ex po rt a c ti vi4-ty i_n s-u ch industries as foo processing, 4 _ textiles.and clothing. Secondly, the Bank's 1967 appraisal mission fouind thea QNT'cs p resnccenp- r gn-4Z.t4on to be satisfactory, withL its management well in control aind its project appraisals improved compared withthepas. Te capital structure of SN was considered sound. Profits which were at that time free of tax, were 7% on the share capital and 6 the wenroetedn ec nuay wa 3 inlu 70, a they overe . et, and they were projected to reach nearly 13% in 1970, after the Government - 2 - subsidy would have ended and taxation begun. SNI's first dividend to its shareholders, 4%, was declared for 1965 and again for 1966, and its liquid position was str9ng. 3. The Bank's loan to SNI was intended to meet a number of broad economic objectives. Firstly, the loan was considered as one component of about $100 million worth of suitable lending which the Bank, at two Consultative Group meetings in December 1965 and March 1967, in principle undertook to provide Tunisia. At the latter meeting, the Tunisian Govern- ment affirmed, among other things, its intention to adjust its Z.nvestment program more closely to economic priorities, with special emphasis to be given to export production, and its goal to encourage private investment. These intentions were accordingly incorporated into the President's Report presenting the loan. Secondly, the loan, aside from financing manufacturing industry, a sector supported traditionally by SNI, was also to be channelled into tourism, which was expected to receive about one-half of the entire loan. This high exposure in a sector known for its risk was motivated by the great growth potential of tourism, and by the Government's willingness to leave most new investment in this sector to private initiative. The SNI was considered ideally suited to attenuate the risks to which the tourist sector is traditionally exposed, by apply- ing a careful project appraisal, insisting on sufficient equity capital, requesting adequate security for projects financed and selecting qualified management. Moreover, the SNI Board decided to set the limit on loans to the tourist sector at one-third of all loans and investment outstanding. 4. Various limits were defined to SNI's freedom in use of the loan oroceeds. In line with standard Bank nolirv at the time they wprp to he used exclusively for foreign exchange expenditures and for private-sector oroiects. The free limit, below which nrnnnqed ,uh-1mnn wnild not he subject to prior Bank approval, was to be raised from $50,000, the level agrppd for the Bank's first lan to RNT tn At n 000. All Puit--7 inuXrt-- ments out of Bank loan proceeds would require prior Bank approval. SNI's nolirv qtAtement nri7ided thnt lonc choild nni- normnll- he- for lo ca thrnn $30,000 equivalent. The Bank's loan was to be repaid according to an -J----- -" - - - - 1_1 - - - - - - ( _ -ce u e o sub-loans financed from the loan, normally not to exceed 15 years. The ln -n -LL.LL a mo ts Fi ly, theC foreign exchange risk was to be assumed by the Tunisian Government, as in tlornco n-F f-a nrorodino 1 nnr Planned Targets and Their Achievemnt 5. Th rloastn was or,cast *". be J LtLaL.U CO_4te, withi )I± -2yCl iut..L disbursed within 4 years. It has actually been committed over about ALLUeu UVCL yJ aCri. HUW VCL, LUULadbLLLLe Uo LLL 1er.l were disbursed within the first three years following the signature of tIe 10an, i.e., uLL.LuiL 7Uo-/u see leWe 1). 1uriUg tnese three years, the loan proceeds accounted for 56% of total SNI foreign exchange disburse- ments. Tnus, tne fate of the loan cannot be extricated from the general lending situation of the SNI during this period. Moreover, the SNI's - 3 - overall 1nircPQcPc annd fnilrep tn iidrl nnt hp an1v7d niitirl thi Pvolution of the Tunisian economy. 6. A Bank economic mission had visited Tunisia in October-November 1966 andl thep Lon Appraisal Port-f took- accont of its- findinac fn~r Hip macroeconomic projections covering the three-year period 1967-69 when -ka 1-nn..~ -A -- -M. ,~4 - ex ec e to be en ir l c m i tt-dn,-l ,A mn.1- n-f 4 1- r1i ch11rQ0-f The forecast which emerged was based on a number of assumptions, considered . U lLe 'J i n it e E L.L LLt-. o.. Like arrn ee t rece forEiVLL _an IM tn -b -n the Government's willingness to scale down the investment program. It was alsobuased on Like UJ-Lu-SS1'U[InS duing- tLke C2jUonstaai Grou meein Si i, which indicated more encouraging prospects for the Tunisian private sector. 1LLe assumptLUnS ULU UL dd ULU LLUC, hUWeVCL, UULLiig 1767; an- .L last two years of the second Plan period; it was only toward the end of I 7Uo Lat soue adujustments starteu, alongUsue imuproved iJVEumL iLtJiuSmmu- of the Tunisian economy. Toward the Fall of 1969 Tunisia's general econ- omic policy ook a new turna centralzation began to be reduced, a greater role was effectively given to private initiative and a certain retrench- ment on the Ueveiopment goals of Lie past was decUeu. MLuEn -- Ei resulted in a considerable deviation between what had been projected in 1Fooo0/0 and [ne actual development. JLui, wLLe %LLUaL .LiV_OEmL manufacturing ran 40% above the projected volume, this was mainly because massive public investment continueU unabateu, wilae actuaL private invest- ment fell 20% short of projected. This could not happen without influencing the ac;ual outcome of the SNI lending. wnile tne S1Ni s approvals ran as projected or greater, its effective disbursement during 1967-69 was one- fourth below original projections. 7. National investment in the tourist sector came out greater than forecast, about 10 percent above the projected level, and the importance of the private sector in the total was also quite close to the forecast, hovering around 80% of the total. However, unit costs in tourism in- vestment proved much higher than expected. The original estirmate, for which le Bank largely relied on the Government's tourist promotion agency=' , assumed the cost per bed to be about 2,500 Dinars (Ub$4,7U). On that basis the Bank expected the foreign exchange expenditure in the cost of hotels not to exceed 25%, or $4.4 million out of the $17 million worth of tourist projects which SNI planned to support during 1967-69. The debt-equity structure of these hotels was expected to be 60:40. The SNI was to cover from its own Dinar resources a part of domestic currency requirements for both loan and equity, but this part was planned to be relatively insignificant, so that an expected $3 million loan from the Swedish International Development Authority of which 70% could be used for domestic currency loans, together with SNI's resources, were judged adequate. 1/ Commissariat Gen4ral au Tourisme et au Thermalisme (CGTT). Table 1 Macro-economic Targets and Related SNI Projections (in million Dinars, current prices) Actual Over Projected 1967 1968 1969 1967-69 (in %) Manufacturing Investment Total projected 9.7 8.1 11.7 29.5 actual 12.9 11.5 17.0 41.4 Private projected 4.5 5.0 6.0 15.5 -20.7 actual 3.6 3.6 5.1 12.3 Share of public in total (%) projected 53.6% 38.3% 48.7% 47.5% actual 72.1% 68.7% 70.0% 60.3% Tourism Investment Total projected 8.3 14.5 15.0 37.8 +9.2 actual 13.0 13.8 14.5 41.3 Private projected 8.0 10.0 10.0 28.0 . actual 10.5 10.3 11.4 32.2 SNI Total Disbursement projected 2.3 3.1 3.2 8.6 -16.3 actual 1.1 2.6 3.5 7-2 Total Disbursement (net of equity investment) projected 2.2 2.9 3.2 8.3 ~cti~1 09 2. 2.9 6.2-25.3 actu al n_Q 7 ZL Q O rA (foreign currency only) projected 1.6 2.1 2.3 6.0 -24.3 actual 0.6 1.8 2.2 4. Of which: 512-TUTN actual- 0. 16 21 or~~~~~ 7.J,e s, - -a , . .' +31.5 actual 3.9 3.2 5.4 12.5 Total Approvals '. q.L LVL LUJt+22.8 actual 3.7 3.2 4.4 11.3 Source: Projections derived from the IBRD Appraisal Report and Economic Report for 1967; actual evolution calculated from official statistics and the SNI reports. - 5 - 8. These expectations proved to be overly optimistic. A sample anal- sis of four out of the 17 hotels financed under Loan 512-TUN shows an in- vestment cost ovpr-nn of 54% over the original. forecast. Review of balance sheet data for a broader sample of 12 hotels shows that the ratio between long- and medium-term debt and equity turned out. at 45:55. virtually as projected but they had had to take up considerable amounts of short-term crmdit in ordpr fn finance cost overruns, and the short-term indebtedness added up to one-half over the already contracted long- and medium-term iet. nneration of most of the hotels nrnvpd less profitable than originally thought, and their long-term debt servicing suffered accord- ingly. Secondly, as a nnd share F rnat mnrn,inq wqq On Civil Works and furnishings, mostly local currency financed, the SNI's domestic currency finan-cinr-, both -in dirct lOn-s ndA equiity patrnation.q was higher than planned. The original projection for 1967-69 provided for 10"I domest.ic curnyneA 4-, total., SNT disburse0ments, anti fr)-r 96~ f domestic currency needs for total loan disbursements, excluding equity. Lctua ly , nLLoLW4 L13 L-ALLtLLU #..I- ___La1 sh rtal OLL disursmen rjvrnc ti. period, these shares became 38% and 28% accordingly (Annex Table 2). ILLesesome-LLat LLer pieentage, in conjunto wih soeareas ha occurred, evolved into an acute local currency shortage for the SNI by 19697, which compelled it LU tuLrn away p0te[ntLilbrOes Economic impact Of the LUan JIL-JULI - DruaU rstupective ___ -Z -I- VNTT l- A - 9. In a somewnac longer perspective, the impact of mjie D1N JULLUsILr on the development of manufacturing and tourism in Tunisia has not been negligible. Projects supported by the SNI accounted for 5o only of total investment in the manufacturing sector in 1968, but this share grew to 12% in 1969 and continued to grow, to reach 22%o in ai7 (see Annex Table 3). The importance of SNI's role in the manufacturing sector has been, in a way, inversely proportionate to the role played by the pubic sector in industrial development, the latter decreasing from about 70% during 19b-7U to 53% in 1971 and 33% in 1972 (Annex Table 5). Over tHe period 1968-72, during which the loan 512-TUN was disbursed, some 15% of total industrial investment was accounted for by projects supported by n'1 and nearly 7% by projects benefitting from the proceeds of loan 512-TUN. The SNI's role and the relacive importance of the Bank loan varied from industry to industry. Both SNI and the loan were associated with more investment in the capital goods industries than in the consumer goods sector, although SNI's disbursements were greater in absolute amount for the latter. 10. In terms of results of projects, the importance of those supported through loan 512-TUN may considerably exceed the projects' share in total investment, mainly because performance coefficients of the private industry in Tunisia have to date apparently exceeded by far those of the public industry. Thus, the capital/value added coefficient has been estimated at 7.3 for public industry and 1.6 for private industry. Of the 90 million Dinars invested in Tunisian manufacturing during 1968-72, public investment accounted for about 63 million, and the SNI-supported projects for about 13 million, of which projects assisted by the Bank loan represent some - 6- i-I ±I J in UrL- ',t- LiLHU LC a )id U J) . A[U ULoe I IC lUnlLS 111P I Y I I L[iL public investment yields annually only 8.6 million Dinars in value added, wnhie tne private investment supported by Loan D14-TUN, only a tentn as big, would yield 3.7 million Dinars annually. 11. The contribution of the Bank loan to creation of new employment opportunities was also -.ignificant, although more commensurate with the capital investment it supported. At the average capital cost per indus- trial job calculated for the SNI-supported projects of $8,500, the loan helped to create, during its disbursement period of 1968-72, some 1,400 new jobs, compared with an overall growth of manufacturing employment during this period by some 12,000 persons. 12. The loan, however, failed to bring about any significant additions to Tunisia's industrial export performance. The overall share of manufac- tured exports, excluding olive oil and superphosphates, remained low in Tunisia, hovering around 107 of the value of manufacturing output, and projects supported by the SNI did not show any specifically higher per- formance. Out of 28 irdustrial projects supported by Loan 512-TUN, only four or five were continuously involved in export business. 13. The contribution of the loan to investment in tourism was much more pronounced than its effect on manufacturing industry. The share of SNI-supported projects in total capital investment in tourism has been substantial, hovering around 40% of total investment from 1968 through 1972. SNI loans went to slightly more than one-half of hotels built by the private sector during that period. The loan 512-TUN itself con- tributed to projects accounting for 13% of total investment in tourism, greater than in manufacturing although less as a proportion of SNI's total involvement in that sector. 14. Given the large weight of the SNI in financing tourism develop- ment, the common characteristics of hotels financed from the Bank loan were relatively closer to the country's average than has been the case for manufacturing projects. It is suspected, however, that contrary to the case in industry, the hotels suppor:ed by SNI in this period may have erred rather on the negative side of the all-country average, mainly because they were, in a sense, overbuilt. Their low average size of some 250-300 beds/hotel and their high investment cost made them suitable for the upper/middle-income individual tourists which Tunisia expected to receive. With European per capita income increasing quickly and the air charter form of travel spreading widely, packaged mass tourist movement has materialized instead. The average expenditures per tourist proved low, especially compared with the actual investment costs, and many of those hotels have suffered losses on their current operations, at least in the early years. 15. All in all, however, the tourist movement oroved beneficial to Tunisia, especially to its balance of payments. Foreign exchange receipts from tourism grew from $42 million in 1968 to nearly $150 million in 1972, or one-half of export receipts for factor and non-factor services. - 7 - The labor-creating capacity of tourism is also considerable. Assuming an actual cost per bed of some 4,200 Dinars (the average for the four hotels studied in greater depth), it can be estimated that the 17 hotels assisted under Loan 512-TUN added 2,300 new hotel beds and, at 1.8 beds per employee, about 1,300 new Jobs, almost as much as in the manufacturing industry - though of course at higher unit cost, of some $15,000 equivalent. The Choice of Projects 16. The proceeds ofLoan 512-TUN were on-loaned to 49 enterprises, two of which benefitted from two lnAnq PAch One-half of the total amount was loaned to the manufacturing sector and of the balance, 47% went in loanq to ht.q and the remainincr ''/- chnne11ed to the ruire qpctor (Annex Table 6). In the manufacturing sector, enterprises producing con- Sumer prnndq mainly fpttilp. hpnpfitter frnm nno-hnlf n. the nmnint the intermediate goods industries from one-seventh, with the i.emainder going to thoecapitanl gooids indusetries. Almost on-hl of th lonws1ocn trated in enterprises in Tunis and another one-fourth in the industrial arath nole an of Sousse-Monatir Most loans were nf more than 5,O 000 each, and only 15% of the value of loans, but as much as 24 loans in num- her wore holnm the frp limit nf Alnn 000 17. Nine out oFf the28 industrial enterprises benefitting from the loan, four out of the 17 hotels and one of the four enterprises in the by the Operations Evaluation Department and more detailed analysis of them, .LLI. .1LI. in6 ,.±t.txta~'.ni U.J.L -LJULLLL.&, L LLU .LLLL L j £ LCC . U~.L i. c LUL it, .LZ presented in Chapter IV of "Operations Evaluation Report: Development 'IFinance Carmp ani es LvuLUue t- )k. R74-uiuary Lnfrmation on al1 Le projects assisted with funds from Loan 512-TUN is given in Annex Table 7 1o. 1tULg LL& oLLUULraL projects rinancea Dy Loan DL/-.UIN, eignt enterprises owe their existence to the SNI loans, one chicken breeding 'Eactory, Lwo teAile piants, one prini-tng shop, one marole producer, an electrical cable plant, a wire fencing plant, and a mechanical repair sIop. The SI di d little to nLoUry nese projects, Iet alone to creare or to promote them, but its contribution in undertaking a realistic uarket analysis anu iu naving confidence in the future success of these enterprises and supporting this confidence with its loans - which amounted together to $9ou,uo or /w, or the $4.6 million loaned to manufacturing under this Bank loan were of considerable and in most cases determinant importance to these companies- existence. Performance of all these enterprises is very good, their contribution to the country's development is exceptionally high, the economic rate of return ranging from 30% to 145% for the five cases for which it was calculated in the larger study mentioned. 19. Only a few of the industrial enterprises financed from Loan 512- TUN have performed badly, and only four of them were in arrears on loan repayment as of the end of 1973. The principal difficulties have been - 8 - with the second and third largest projects assisted under the loan, both in the textiles field and together accounting for some 25% of the loan funds applied to manufacturing, or nearly $1.2 million. One suffered from a 30% overrun in capital costs, mainly due to omission from the original estimates of various items which proved essential, and from considerable technical difficulties with the second-hand spinning mill installed under the project; arrears were substantial by the end of 1973. Management is strong and it is likely that the company will recover, but it appears to have been an error to purchase this particular second-hand equipment. The other project, which also showed arrears to SNI of the order of $100,000 as of the end of 1973, has suffered from inadequate capitalization and difficulty in changing to synthetic fibers from the natural wool which it was originally intended to use but which then became too expensive; these technical problems, while serious, will probably be surmounted, but SNI has had difficulty maintaining contact with the borrower. Only two other loans for manufacturing projects are in arrears: one for plastic sheet production which has suffered from project management difficulties and serious delays which should probably now be overcome with a recent change in management, and a much smaller one (about $100,000) to a construction company which may well prove only partially recoverable. The company undertaking the largest manufacturing project of all under the Bank loan - a brick plant expansion - has faced considerable financial and management problems, partly due to earlier undercapitalization and excessive invest- ment, but loan repayments are presently up-to-date and the SNI-supported proiect appears economically worthwhile. Two other smaller Companies in the capital goods field have faced great difficulties with parts of their proiects - production of electric motors for wells and of steel radiators - mainly due to poor market preparation and acceptance,tut they have been able to offset these failures with considerable success in other lines of production - water heaters and steel tubes, respectively - to which some of the equipment originally acquired for the other lines could also be applied. 20. Many of the hotel projects supported with funds from Loan 512-TUN have suffered considerable difficulties and rarformed noorly financially but it may be that these financial problems will be overcome with time, and thv qti11 qem to h Pennnmirnllv wn orthuhiile mainly harnce n' the foreign exchange earnings they would bring. Review with SNI as of the end o)f I(19 showedr t-hat eigbt outf o)f Hei 17 hlsl assistedl unde the lon were clearly in bad financial situation with no immediate chances for im- provmen an anoherfou -,ereStil in_aC_ad situation butL gradually I'mL1 proving. Debt se::vicing to SNI was apparently sometimes being covered from other sources-of funds, so that only six were actually inarar;ee in the one case where arrears are particularly large, exceeding $150,000, and whk~ih Li. unde ltig.atioLn, IJT sem 1 kl toCIL L ecove itsU'C Loan even- tually by sale of the property. Besides the problems of investment cost overruns, xcessooely small sze and orientation to too high a grade market, as mentioned earlier, some of the financial difficulties of these hotels seem Lo sLei ILUnt 'Avebbively buot Lshort Ut Lhe Uriginal SNI loan - 9 years on average for hotel loans under 512-TUN compared with about 14 years for new DNI lovel luans at present - and grace periods of only 2-3 years. - 9 - Snme nf th hotels are hing exnanded gradually to the morp Prnnnmic --- - -- - -- - - - -- o - r - -- 0 ------- -- - ___ _-- - --_ sizes, generally exceeding 500 beds, at which new hotels are now being hiili- in Tii nicin Fwpn T.uE n ith t- cnpri q I n IImannrp fn- thic t-ho ala- tion study suggested that the four hotels analyzed that benefitted from Loa~n 512-...TUNT. financing u.,o1ld ,, -1 A e, -4. , ratea of rt-n nover tl-r lives as a whole of some 20% and it appears likely that similar analysis of the. remaining h-otelsf i~no.nced u,nder thi loan -Would -~401A -"lf I eCnF the same order of magnitude except possibly in one or two cases of inappro- pri a-e locration or excepntionally, h-. cr- f -_-, - n.o.,n- rA tntnl nc.r-hc. pnstc_ Nonetheless, the Tunisian tourism industry still seems to suffer from shortage of qualified hotel managers, unatsfctr tr ,5 -go-eronl inadequate promotion abroad especially with respect to off-season tourism, ani A LL nu-PP"lent.LI range~ oL actiLvities~ aLU. UL.LV .LO.LULLO "V - - in isolated hotels. Efforts are underway to overcome these shortcomings. Financial Problems of SNI 21. The financial projections prepared in connection with Loan 512-TUN were not at all attained. Mainly due to delay in disbursements, medium- and long-term lending outstanding at the end of 1970 was some 20% less than had been projected. Pre-tax net earnings in that year were only a little more than half what had been forecast, both in absolute terms (180,000 Dinars against 317,000 Dinars projected) and relative to share capital (12.0% against 21.1%) and relative to end-of-year equity (6.4% against 11.27Z). Taxes were significantly less than expected, so that after-tax earnings on share capital, at 8.9%, were somewhat closer to the projected level of 12.7%. 22. Lower than expected profitability has not been due in significant part to lower than expected spread on the Bank loan funds, although it was lower at about 11% compared with an expected 27 and IBRD funds were very important in SNI's total resources. SNI borrowings from the Bank represented, during 1967-71, over 70% of its entire medium- and long-term borrowing (see Annex Table 8) and about 60-70% of its disbursements in the period. SNI raised its interest rate on foreign exchange loans from 7 to 8% in 1968, to 8k-81% in 1969 and to 9% toward the end of 1970. Thus most of the sub-loans from 512-TUN carried an average rate of 847k-', while the major portion of the loan was borrowed from the IBRD at 7%. But the SNI used other sources of financing to increas its protit margin somewhat. For instance, the Swedish Government loan allowed a spread 1/ Plus a commitment tee of 1% on the undisbursed portion of its loans, a one-time study commission of 1 of 1% of the approved amount of the loan and a foreign exchange charge of j of 1%. These were largely absorbed by the commitment fee that SNI had to pay on the undisbursed portion of the IBRD loan. 2/ There were two SIDA loans extended to the SNI during the period under review - the first for 1.5 million Dinars in 1967 and the second for 3.0 million Dinars in 1970. - 10 - of 4%%, of which 212% was to be allocated to special studies and technical assistance to SNI clients. SNI also benefitted from an interest-free Government loan granted in 1965-66 in connection with the reorganization, from low-interest deposits of the public social security institution and from the fact that it paid only 4% (6% in recent years) to its shareholders on their equity capital. Furthermore, the SNI was also able to derive a small additional income from short-term money market operations, for which low-cost liquid funds were used. As a result SNI's average spread over all its resources was about as projected, as shown in Annex Table 9. 23. Major factors accounting for SNI's poor profitability, compared with expected, were rapid growth in administrative expenditures (13% p.a. for 1965-70 compared with only 6% proiected), the development of substan- tial arrears on sub-loans and the need that was consequently felt, but had not been foreseen, to make provisions out of income. The increase in administrative expenditures appears to have been required mainly to cover the increase in staff and to bring on to the SNI Payroll certain persons who had previously been paid from other sources. The more maior Droblem was arrears and provisions. Table 2 shows the rapid growth of arrears to 1970. Table 2 SNI: Arrears (in excess of three month.) in Servicing Loans by its Sub-Borrowers (In thousand Dinars, as of December 31) 1968 1969 1970 1971 1972 1M.-Aiiim- nnr 1 na_1 c.m In outstanding 3,686 6,077 9,028 11,588 14,398 2. Arrears: b. (in % of loans outstanding) 2.5 1.1 1.3 0.8 0.5 c nterest, 81 348A 1 - 1 tic d. Total 175 84 466 374 265 e. I n /.o f Loans~ outstadingL '.I i J .0 Information is unfortunately not available on the corresponding amounts of the loan portfolio affected by arrears. Arrears of interest have been mainly (to the extent of about 90O) on account of hotels, but arrears of principal have arisen more equally on all types of lending. But the table snows unat arrears have fallen substantially in the last two years. This has been partly due to rescheduling of large volumes of loans, but there have been no significant write-offs. The proportion of total port- folio affected by interest arrears of some three months or more fell, according to the auditor's reports, from some 45% as of the end of 1971 (5.3 million Dinars) to about 27% (3.9 million Dinars) as of the end of 1972. With the improvement in collections SNI felt it possible to take back into earnings in 1971 and 1972 substantial proportions of the special provisions made out of 19/U income tor irrecoverable interest. - 11 - v-xv C~TI spo'- Ca-.,1 ty ver shanrply n 1071 nriA 1Q79, Clif11 LiD V4ML b LuLLaU.LU LLJ -tttu~~ V-L -t . -4t-41- that after-tax earnings did reach, by the latter year, the 12.7% of share UcIpLLaL UL.I6LLLa.LLY PLUJCLL L "J- Lir 107n --*e .~Jthefc ha N a doubled its share capital in 1971 and that administrative expenses in- creaseu mure tuan OU/0 beUweCU 12/a 1/0. nlUWEVQL, -tI7 1- CWTTI auditors, who have for the past several years expressed reservations mainly connected with the inadequate (and unaudited) information avail- able about sub-borrowers and hence about collectibility of loans and about the real value of some of SI's equity hodings, took the view in their comment on SNI's 1972 accounts that failure to provide for possible losses on two particular loans meant that OnI' t earning state ment for that year did "not present fairly the results of operations... in contormity with generally accepted accounting principles. HaU the provision recommended by the auditors been made, SNI's after-tax earnin2s would have been less than 5% of outstanding share capital. SN manage- ment felt confident that such provision was not necessary and that the amounts due would ultimately be collected. 25. Local borrowings by SN were not envisaged in connection witI Loan 512-TUN. When SNI faced a local currency shortfall of 0.5 million Dinars in 1969, it made efforts to fill this gap mainly through refinancing with local banks, speeding up the Government's payment of subsidies due and repurchase of parts of SNI's pre-1966 equity portfolio, and arranging withthe Bank for $1 million of the $10 million Loan 648-TUN granted in December 1969 to be available for local currency expenditures. In fact, however, this facility was never used. Early in 1973 SNI was able to float its own first small bond issue in Tunisia. C nnclusions 26. Loan 512-TUN was appropriately timed for Tunisia: it provided a substantial transfer of foreign exchange, badly needed in view of serious balance-of-payments difficulties. It also carried with it finan- cial support to the private sector in manufacturing and tourism, at a time when the Government's concern with this sector was still at a low ebb. The fact that the loan was channelled through the SNI helped to move this development finance company, reorganized only a year before with considerable Bank assistance, closer to the center of the economic scene, 27. The pattern of allocation of the proceeds from Loan 512-TUN was acceptable, given the economic and political situation of Tunisia at Lhat time. In general the industrial projects were prudently designed, mainly inwardly turned and of medium size, mostly family operated, with- out pretence to become much larger, or to insert themselves into a more sophisticated matrix of inter-enterprise relationships or to become tajor exporters, or, finally, to acquire a broader, corporate form of ownership. Despite the absence of such grand designs, which, had they existed and had they been well executed, might have helped to move the Tunisian industry closer to the position from where it could more prominently trade with Europe or more closely cooperate with other North-African countries, - 12 - industrial enterprises created or expanded through the use of proceeds from Loan 512-TUN were, on the whole, performing well, turning out products of acceptable quality at reasonable prices. 28. Evaluation of the SNI's involvement in hotel financing and the use of proceeds from Loan 512-TUN for this purpose is more open to doubts, even if it is still clear that at least the large majority of investment in this sector has represented an economically worthwhile use of capital. In general terms, development of a hotel network to entice increasing foreign tourist movement proved to be an excellent decision. Its application was, however, carried rather inexpertly, with no master plan on the Government level, no strategy on the SNI level, little expertise on the investor's level, and little if any critical approach or technical assistance from the Bank. One outcome of this, on a macro-economic plane, has been a considerable inflow of foreign exchange in Tunisia, perhaps accompanied with less subsidies than a drive toward massive exports of industrial goods might have required in Tunisia. But the development seems to have been considerably less efficient than it might have been even given the difficulties of correctly planning early investments in a field new to a country. 29. The financial difficulties that have resulted from the inexpert development in the tourism sector and the few mistakes in the industrial sector have affected SNI's own financial performance, but profitability has improved sharply in recent years and it is still hoped and expected that portfolio losses will be relatively minor. SM has substantially strengthened its equity and begun to raise fixed-interest funds domestically. AMN'WY TARTR 1 SNI - LOAN 512-TUN - ANNUAL IBRD DISBURSEMENTS (Dinars) 1968 1969 1970 1971 1972 1. Disbursements of 512-TU toe-I ": .- L.J7n 0'n I eAn '70A 1 A1l 7-0 7rf 071. 190 177 L'aOa19 10I- buu-proUjucu 417,9V(C _ Ly)Ucy U p 17V ) LU ()j [2y/- v 1i . Cumulative disbursement 4[7 2 2,07UUVf 87y,UJ j4w..; h)U,76 "3 y 3. % of tne total loan $12-TU - annually 10.1 33.2 38.1 14.8 3.8 4. % of the total loan >12-TU - cumulative 10.1 -. 1.1 96 1U.0 . Disbursement of 5l2-TU as % of SNI's tot4l annual disbursements-t ±7.0 ps.u U.r c4.U 6. Disbursement of 512-TU as % of SNI's total annual disbursements, including equity financing 18.4 44.5 47.1 20.5 3.7 / SNI disbursements in foreign and domestic currency, out excluding equity investments. ANNEX TABLE 2 SN! - FROjECTED AND ACTUAL UMN-IAMD MVIMND ITI S WnrVS M ION? 19 790"f (Thousand dinars) Projection Actual 1967 1966 1969 1970 1971 1972 1967 1965 1969 1970 1971 1972 Approvals Foreign exchange loans 2,100 2,300 2,400 2,400 5,303 5,300 2,710 2,584 3,535 5,!h4 3,865 5,723 ninar loans 800 800 800 800 1,215 1,600 999 668 885 1,311 1,206 4,595 Equity investments 1C0 150 10 150 500 600 243 427 1,010 255 290 500 TOTAL 31000 3,250 3,350 3,350 7,018 00 3 952 3,252 5,433 6,710 5,361 10,818 Disbursements Foreign exchange loans 1,620 2,120 2,280 2,370 2,700 4,372 586 1,770 2,157 2,924 2,403 3,371 Dinar loans 540 800 500 800 1,1LO 1,011 31.3 663 773 809 831 1,121 Equity investments 100 150 1 0 1 0 20o I),C 1(9 182 69h 12h 209 1, TOTAL 2 260 3.070 3,2L0 31320 4j049 8 16 3,554 5 3L443 7 Sources: Projections of Approvals and Disbursements - 1967 SNI Appraisal Report for (1967-1970) 7U7 .J11.L A I e~i L KV U a Actual Approvals - 1967-68 from Annex 8, 1969 Appraisal Report 1969-70 from Annex 13. 1971 Renort 1971-72 from SNI Approvals Sheet, Reports to the IBRD Equity Investments from Annex 5, 1971 Report Actual Disbursements - from Audited SNI Accounts and Annex 13, 1971 Report. SNI - LOAN 512 AND DEVELOPMENT OF THE 1UNISIAN INIIUSTRY AND TURISM ANNEX TABLE 3 ____________ 1968 1969 1970 SNI Participation SNI Participatio 1N Participation Total Fixed Disburse- Project Share of Projects Total Fixed Disburse- Project Share of projects Total Fixed Disburse- Project Share of Proja:to Investment moot Value In total Investment Inves tment ment Value In total Investment Inves tent met Value In total Investment (Diners m1n.) (Diners mino (Dinars min.) I (Oies mn.) (Dinars eOn) (Dinars mln.) % (Dim rs ml.) (Di.ars mis.) (Diners eOn.) % A. CONSUMER GOODS INDUSTRIES 4.1 0.1 0.2 5% 5.8 0.5 0.9 15% 7.6 1.1 2.0 26% - Food and beverages 2.9 0.1 0.2 7% 2.3 0.2 o.4 17% 3.5 0.2 o.4 11% - Textile, clothing and footwear 1.2 - - 3.5 0.3 0.5 I% h.1 0.9 1.6 39% B. INTERMEDIATE GOODS INDUSTRIES 2.8 a) a) .. 6.7 0.2 0.5 7% 7.9 0.3 0.7 9% - Chemicals 1.2 a) a) .. 2.3 0.1 0.3 13% 2.3 0.1 0.3 13% - Rubber and plasticsc 1.6 a) a) .. 4.4 0.1 0.2 4% 5.6 0.2 0.4 7% -Wood, paper and misxellaneous) C. CAPITAL GOODS NUSRIZS 1.6 0.2 0.4 4.5 0.3 0.6 13% 4.1 0.2 0.9 22% - Construction materials 2.9 a) a) .. 2.h a) a) .. 16 0.1 C.7 44% - Mechanical and electrical 1.7 0.2 0.4 2.1 0.3 0.6 28% 2.5 0.1 0.2 8% D. SUBTOTAL - MANUFACTURING (A + B + C) 11.5 0.3 0.6 5% 17.0 1.0 2.0 12% 19.6 1.6 3.6 18% E. SERVICES - Transportation and distribution 11.3 16.2 19.0 F. TOURISM - Hotels 13.8 1.6 6.4 14.5 2.2 8.8 61% 11.0 1.8 7.2 51% 1968 - 1972 (Cumulative) 1971 1972 ENT Participation Soxed Diburse- ! Participation - SNT Participatia Total LendiP t n12-To Gal i total invest. TtlFxd Dau- Project Share of Projects Tota Pie Dibrs- Prjc Share of Proet TtaFid iur- PojcDiNE693e Nfl ~ u Covntmot nex Vlue Co otl Icetesnt Investmnt mnt value In total Investmnet Ixnvetment ne-t Value mnt Fle Lnig Ol (Diners m1x.) (Dinars mn.) (Dinars min.) % (Di)ars n. (Dixars e1n.) (D i((Dinars l1n.)(nars ms.) (Dinars m L.) O t. CONSUMER GOODS INDUSTRIES 5.7 0.3 0.5 9% 8.9 1.1 0.1 2ie 32.1 3.1 m.7 1.09 2.0n 11n.) % - Food and beverages 3.5 0.1 0.2 6% 2.9 0.4 0.8 28% 15.1 1.0 2.0 0.23 4o 13.2% - Textile, clothing and footwear 2.2 0.2 0.3 1)% 6.0 0.7 1.3 22% 17.0 2.1 3.7 n.86 1.60 21.8% 9.4% B. INTERMEDIATE GOODS INDUSTRIES 12.0 0.4 1.0 8% 5.6 0.3 0.8 14% 35.0 1.2 3.0 0.35 0.78 8.6% 2.2% Chemicals 8.9 0.2 0.6 7% 2.0 0.2 0.6 30% 16.7 0.6 1.8 ** .. 10.8% -'lubber and plastics - Wood, paper and miscellaneous) 3.1 0.2 0.1 13% 3.6 0.1 0.2 5% 18.3 o.6 1.2 0.35 0.78 6.6% 4.3% C. CAPITAL GOODS INDUSTRIES 5.1 0.6 1.5 2 1. 6 0.5 1. 30% 22.9 1.8 .8 0.86 3.27 21.0% 14.3% - Construction materials 1.6 0.3 0.9 56% 2.0 0.1 o.6 30% 10.5 0.5 2.2 0.32 2.22 20.9% 20.9% - Mechanical and electrical 3.5 0.3 o.6 17% 2.6 n.4 0.8 31% 12.1 1.3 2.6 0.51 1.05 21.1% 8.5% D. SUBTOTAL - MANUFACTURING (A + B + C) 22.8 1.3 3.0 13% 19.1 1.9 4.3 22% 90.0 2.30 05 15.0% L.7% E. SERVICES - Transportation and distribution 31.8 32.8 117.1 n.a.. 0.17 0.12 F. TOURISM - Hotels 15.5 1.4 5.6 36% 16.3 1.6 6.4 39% 71.1 8.6 31.1 2.16 9.68 46.1% 13.1% cource: Mission's estimates. a) Below 0.1 million dinars. Note: SNI disbursements are net of eq,ity prticipatdzn. ANNEX TABLE 4 TUNISIA AND THE SNI - EXPECTED AND ACTUAL PIED INVESTMEN AND ITS FINANCING PROJECTED ACTUAL (in million dinars, constant and current prices) ( milliio dinars cur rices 1967 19bb 1969 1970 1971 1972 1967 19b 199 1930 1971 1972 196/67 Current 1965/67 C 1rc 9/ cr/ 196967 1967/7 Currnt ,196/67 Ecrent .1965/67 c,rnt price res p n/sE prices prices/ rice prEles2V prices ces?' prices A. NATIONAL ECONOMY - IBRD PROJECTIONS- 1. Manufacturing 9.7 9.9 8.1 .5 11.7 12.2 14.5 14.5 n.e. n.a. 12.9 11.5 17.0 19.6 22.8 19.1 Food processing 2.9 3.0 1.7 1.8 2.5 2.6 3.0 3.0 3.1 2.9 2.3 3.5 3.5 2.9 metal and mechanical 1. 1.6 1.8 1.9 3.0 3.1 4.0 6.0 2.0 1.7 2.1 2.5 3.5 2.6 Chemicals 0.9 0.9 0.9 0.9 2.4 2.5 3.0 3.0 1.0 1.2 2.3 2.3 8.9 2.0 Textiles 2.8 2.9 1.8 1.9 1.8 1.9 2.0 2.0 1.8 1.2 3.5 4.1 2.2 6.o All other_/ 1.7 1.7 1.9 2.0 2.0 2.1 2.5 2.5 5.0 4.5 6.8 10.5 5.7 5.6 2. Tourism 8.3 8.5 14.5 15.0 15.0 15.5 16.0 16.o n.a. n.a. 13.0 13.8 15.5 1.0 15.5 16.3 3. Total - Manufacturing & tourism 18.0 18.5 22.6 23.5 26.7 27.7 30.5 30.5 n.e. n.a. 22.5 25.3 315 33.6 .3 J Index (1967 = 100) 100.0 127.7 150.5 165.8 i00.0 112.4 14o.o 159.3 170.2 157.3 Year to year growth rates (5) 27.7 17.8 10.2 -12. 2.5 6.6 11 0 -7.6 B. NATIONAL ECONOMY - MINISTRY OF PLAN PROJECTIONS31 1. Manufacturing n.a. n.a. n.a. n.a. 16.3 16.9 21.0 21.0 17.2 18.0 13.1 13.7 Food processing 1.8 1.9 2.7 2.7 1.9 2.0 2.1 2.2 Metal and mechanical 2.5 2.5 2.5 2.5 3.9 5.1 1.h 1.5 Chemicals 3.2 3.3 6.5 6.5 6.5 6.7 5.6 5.8 Textiles 3.6 3.7 1.7 1.7 2.6 2.7 2.3 2.5 All others- 5.3 5.5 7.6 7.6 2.5 2.5 1.7 1.6 2. Tourism n.a. n.a. n.a. n.a. 15.0 15.5 15.0 15.0 15.0 15.7 15.0 15.5 3. Total - Manufacturing & tourism 31.3 32.5 36.0 36.0 32.2 33.7 28.1 29.2 Year to year growth rates (6) 11.1 -6.4 -13.4 SN I (in thousand dinars, current prices) (in thausand dinars, current prices) 1967 1968 1969 1970 1971 1972 1967 1968 1969 1970 1971 1972 C. APPROVALS 3000 3,350 3,350 7,018 7,500 3.952 3,252 5 ,33 6 710 5.361 io.88 Index (1967 = 100) 100.0 108.3 111.6 111.6 233.9 250.0 100.0 82.3 137.4 169.8 135.6 273.7 1. Manufacturing ..a. n.a. n.a. n.a. O 82 3,554 3,433 na... 4oo0 Food processing 76 85 247 68 Metal and mechanical 510 335 36 143 Cheminals 128 45 68 360 Textilesa - 329 617 596 All ether industries 1,244 88 2,586 2,266 2. Tourism 1,994 2.370 1.879 2,127 n.a. 6.8i8 3. Transpor - - - 1,150 n.a. n.a. D. DISBURSEMENTS 2,260 3.070 3.230 3,320 41 M9 5.728 1 068 2.615 3.554 3,857 3, 3 4 837 index (1967 = 100) 100.0 135.8 142.9 116.9 179.1 253.4 100.0 25.8 332.8 361.1 322.4 552.9 Tsar to yea growth raes 5 35.8 5.2 2.8 21.9 51.4 1554.8 35.9 8.5 -10.8 50.5 Sources: 1/ The Current Economic Position and Prospects of Tunisia, IBRD, March 10, 1967, AF-56c, Vol. I, p. 29 (projections 1967-70). 2/ GDEU deflator was used to convert fixed into current prices (1966 - 100, 1967 - 102.0, 1968 = 103.2, 1969 = 103.5, 1970 - 100.3, 1971 = 104.4, 1972 = 103.2). 3/ Projections in the Plan from The Economy of Tunisia, IBRD, August 25, 1969, EMA-12, tables 1 and 36. 4/ Excludes petroleum. 5/ Projections of Approvals and Disbursements - 1967 SNI Appraisal Report for (1967-1970) 1969 SNI Appraisal Report for (1971-1972) Actual Approvals - 1967-68 from Annex 8, 1969 Appraisal Report 1969-70 fran Annex 13, 1971 Report 1971-72 from ANT Approvals Sheet, Reports to the IBRD Equity Investments from Annex 5, 1971 Report Actual Disbursements - from Audited SNI Accounts and Annex 13, 1971 Report. ANNEX TABLE S TINTTA - RT. OF PITRT.TC IVESTMMIT TN MANIWACTTINGr (In % of Total Gross Fixed Capital Formation) ln/W anzo Inn I n-n 1071 -1070 04-17 Ui-7UU 4.7U7 -L7 I'-/ (Cumulative) Food processing 87.1 69.0 65.2 82.9 31.4 37.9 62.1 Metal and mechanical 70.0 70.6 38.0 64.o 22.9 84.6 55.5 Chemicals 40.0 50.0 86.9 82.6 92.1 35.0 78.0 leL- Les Oc CL ULI.lIg and footwear 61.1 75.0 54.3 85.4 9.1 5.0 42.0 Construction materials 97.0 96.5 87.5 87.5 87.5 75.0 89.9 Wood and furniture 0.0 0.0 0.0 0.0 20.0 16.7 9.4 Paper and other industries 36.3 33.3 85.7 55.8 15.4 16.7 48.5 Total - Manufacturing 72.1 68.7 70.0 72.4 53_ 33.5[ 60.1 Source: Mission's estimates. RivivfA -T L O I S1 - LUAN 512-TUN: SUb-BROUJET DIBURSENiTS: BY iZE, LOCATION, & SECTUR mount Disbursed Number (US$ '000) Distribution (%) I. Size Less than $25,000 2 65.0 0.4 $25,001-50,000 7 263.0 2.8 50,001-100,000 15 1,073.4 11.5 100,001-200,000 6 756.9 8.1 200,001-300,000 11 2,764.5 29.7 300,001-400,000 6 2,114.1 22.7 400,001-500,000 2 917.2 9.9 501,000 + 2 1,357.5 14.9 51 $9,291.6 100.0 II. Location Tunis 27 3,923.0 42.2 Hammamet-Nabeul 8 1,655.8 17.8 Sousse-Monastir 9 2,472.6 26.6 Sfax 2 117.0 1.3 Djerba-Zarzis 2 797.8 8.6 Other regions 3 3,257.4 3.5 3T $9,291.6 100.0 III. Sector Food & beverages 472.3 5.1 Textiles 1.720.5 18.5 A. Consumer goods (Subtotal) 2,192.8 23.6 Wood, paper & miscellaneous 492.6 5.3 Plastic & rubber 193.2 2.1 B. Intermediate goods Construction matAerial 63n A 6A Metal, mechanical & al+a 10 -A1 1A (Subtotal) 1,096.0 18.6 D. Total - Manufac- ~-E~\±~JJ'JJ 4, JA.L%J W 47U L~~~ ~~)L, - ~- F, - ourism. (hotels)N 1.8h( fNnhA% )t1 nrnflAT (D+F+E) $9,291.6 100.0 Source: Mission's calculations. SH1 - LOAN 512-TUN SUB-PRO.JEC_ II Partticpation Total Amount SNI Loan Lean Contract Projected Captital Actually A, % -epayme. Amount Cost of Froec- Disbursed Project Coat Firma by Category nd Produt D period(years ) ($) (s) Projected Osrvatlons A. 0NSUMMI0 MODS INDUSTRIES 2.262.300 32990IOoC 2,192,831 l1.6 - Food & Boverages 80 000 472,353 58.7 (10/8/68 5 ,700 11,000 7,23) Good market. Funetioning well. High 0co-oMic rote of ro turn (70%) I. B.. (E) 7/8/69 3 248,00 310,000 218,137 70.4) 2. ttiok.1.7 23,000 88,000 22,514 25.6 Good market. Spec.ohzcd maaet. E~pandig. 3. Fio mill (5) 2/19h 719 3 86,000 115,000 25,.29 22.1 7PpId Ito 1or. 4 Floor 111( 6/7/69 8 129,000 173,000 130.349 75.6 Co ena rp r:se, recoverbng from financial loooes tO 1972 due o tectnical -tiles 1,710,600 3,186,000 1,720.h78 54.0 8. W-ig (E) 4/15/69 6 72,500 215,000 71.92 33.5 Functiolnig -ll. 6. Weavin'g & printig (S) 2/24/69 8 241,300 352,000 233.535 66.4 Pntonng oefi. Vory high econ08 rum a o f return (145). 7. Weaoing & plothing (M) 11/6/69 8 1P7,500 191,000 1l.432 74.0 Funcin,g well and BxpOrtin. Vory high acoom-l rate of notun, (1315). 8. Weving 5/19/70 6 807,500 1,496,000 807,500 54.0 investmt -coot oerrun. Tebuocal difficulties. Financial losea. Arrears. 9. W-ng & olothng 10/29/68 5 48,000 614,000 50,333 78.6 Functiooing won. 1 nn ( 7/23/69 7 343,300 760,000 313,000 45.1 apitlization inadequate. Techical and mrkt problems. Lrge arrears. 11. KittIng /15/69 6 70,500 108,000 72,694 67.3 Functioning -1. B. INTERMEDIATE GOODS INDUSTRI.s 693,500 1575.66 685,760 43.5 - Wood, Paper & Mi-cellaeouso 505500 1,189,4o6 492.612 _iL 12. Spring mattresses 1/7/68 7 77.000 380,000 55,077 14.5 Functioing well. 13. Paper packaging (E) 10/29/68 5 36,000 68,000 34,815 51.2 Functiiog wull. 14. Color printig* 12/20/68 8 50,000 102,000 50,517 L9.5 Funtiming well. 15. Printing (E) /15/169 5 38,000 94,400 38,000 0.3 rntioning well. 16. Printing 4/7/70 8 304,500 545,006 314,203 57.7 Functioniag ø01. Plastic & Ruber 188,000 386,000 193,18 50. 17. Plaotio .ck. (E) 10/28/68 5 58,000 320,000 55,808 46.5 Funotonlig o . H,gh economie rate of return (415). 18. Plastio sheets 7/9/69 9 130,000 266,000 137,310 51.6 GOod oorrkt but djayd construction and manogment diffi..ult1.. Aear. oboolo be c-ooad. C. 0APITAL 00DS INDUSTRIES 1.709.100 6,556.800 1.732.039 26- - Construction aterials 653.5D0 4.442,800 635.969 1!-. 19. Hrieko 7/13/68 l0 680,800 4,140,80 466,300 11.3 High short-tem Indebtudn.s.. Investm~nt co0t oorr-n, ood market. Lo. .conaic rate of return (89). 20. Construc.tion 7/18/68 7 45,700 58,oo0 b4,399 76.6 Conuiderable arrearr. LItigetion under Way. No necurit. 75% of orodit ohod boreovored. 21 ab lo 10/29/68 6 85,000 188,000 86,653 h6.1 ood mark.t. Wide haro0lding. Cotive mngieot. 22. Cootruction (E) 5/18/70 5 2,000 56,000 38,617 69.0 Entarprise function satisfactorily. - mehoanical and ElocIral 1,055,00 2.114.ooo 1,096,970 51.8 29. Coontanro (0) 6/12/68 9 250,000 U C0,000 250,238 56.9 Faactiiong well. Hi econci rate of rturn (32%). 24. Electric .oales( 10/30/68 9 333,400 452,000 332,1418 73.5 SNI equity partioipation. Good market. High oonomie rate of return (32%). 25. Water heatero (E) 12/19/68 6 95,500 210,000 95,500 45.5 E~.panoio proj.ot. SNI equity partiipatio.. Initial inves0ment also SNI- supoorted but unsucce.fl. Noo 1ituatin iimproOig. 26. Rudiator,, tube, 2/12/69 10 286,000 650,00 282,227 43.4 Bad propeets for radiatore, btter for tubes, ohere -0cole retun high (26%). 27. Wir fencin"g 7/17/69 6 45,0OS 82,000 65,000 51.9 New én~trpriso. God market. FinanciOally success,l. 28. M.obanical 0hp* - 7 86,000 280,000 90,687 32.4 000d maket, higb 0nic return (51). Initial sqalty participation coerted int1 oredit. TAL MANU,ACTURING INDST77 4,665,200 12,122,206 4.610.630 380 D. SERVICES 383,100 848,000 347,219 40.o 29. Oi1 dtotuttoo 'too Ioen,) (0) (11/12/68 6 62,900 154,00o 55,194 35.8) inetioning wnll. 6/6/70 7 11000 178,000 108,672 61.1) 30. Car r,ntal (E) 7/10/69 3 95,500 200,000 93,853 b1>.9 Oaet and oOperationsexce nt. High economt" rate of raturn (969). 31. FrIt frsoing 1/13/71 5 67,000 202,000 67,000 33.2 Profitable but delay3 io dobt sorvicing. 32. Car rental (E) 7/8/68 2 47,700 114,000 22,50 19.7 Loan repaid. E. HDTELS 4,55,200 19.362,80o 4 3385 22-4 33. Hotel (D) 8/28/68 10 240,000 1,360,000 239,086 17.6 Loo rate of occupancy (30-40%). No proper infratruture in the rgion. Arrers but n eull-ecured. 3.. Hotel (D) 10/13/68 9 '259,M6 1,000,000 258,946 25.9 Bad organizetfon. Liti traro. Activity fold.d. Major arrears will to oered by oae of property. 35. R.ta1 8/7/68 9 286 ,00 1,388,000 279,358 21.5 SNI's quity particpation. Post difficulti.B 000 improvng. rara, . Hotl 4/3o/67 7 125,000 600,000 128,008 20.8 Pat dnfei.lties now iW-ving. Repayment rgular. 37. Hotel 2/10/68 9 247700 1,260,000 24,70 19.7 Funoiomn 0011. 38.a ltel. 12/2V/68 9o i0h,50o 64o,000 J14.o96 17.8 MsTe Ooity pe,tolpeoan to LapmWr capit,1 otrturet. Fonootioning well. Arrear,. 39. Hotel 12/17/70 l 2h7,000 1,200,000 215,041 20.4 wanctioning slO. 4o. Hotel 12/18/69 7 0.500 1,680,000 95,248 5.7 Frcial less. Operating bdly but servoing dbt. 41. Hortt propaty 2/20/68 3 57,000 582,800 36,735 6.3 Bunglows sold for foroign exchange. Functioning well. 42. Totio p/15/70 6 57,000 41,000 57,000 12.9 Funationg well. 43 Hotel12/3o/68 9 257,500 1,2h0,000 352,027 28.4 BadIj orgnied, bt sejrling dmbt with aome dol.ym. 43. Hotel 1127/69 8 480 000 11500,000 450,917 30.1 C.oaderable inv-.t..nt .oot o-orrun. too occup.ncy t. S H. otl- 81/15/69 8 381 000 1 500,000 392,411 26.2 SNI equitY partioipation. >onagemnt probfa but dabt srice ~1th delays. 46. Hotel 11/12/69 67, 200000 549,982 26.9 In- toent 000t overr-n. F-inanial ls000. Regular repgyent. 46. Hotel 7/23/69 28,00 960,000 247,930 25.8 Poot diffrillties and arroaro. No iproig. Litigtio between sheholder., 48. R D) 7/8/69 12 362,000 1,100,00O 262,280 23.8 Financial looes. Major arear. Litgtion between shrooldero. 48. Hotel(D) 10/23/69 10 380,000 1,800,000 380,000 21.1 Pao di fficlties. o9. Hotol GRAND IOTAL (A B +C +D ) 9613,500 3 0 9.29163 8.7 o SNI's role in upporting the projoct f romtae beginning could be eoneidered as pro O ormo deerian. E -- SIO Ion used for fLancing epansion only. D - Enterprise in consideroble difficultis. Souroe: mi-i.n anasis ANNEX TABLE 8 aNI - IMPACT OF TH LOAN 512-TUA ON TH FLW OF FUNW 15,67-71 1967 1oA 1969 1970 1971 A. Sources 1. Net income 158.5 179.5 198.6 133.6 257.6 2. Less: dividends *0 60.0 75.0 90.0 180.0 3. (1 - 2) Reinvested income 98.5 119.5 123.6 43.6 177.6 4. Provision for bad loans 9 - 0.0 2.0 5. Provision for depreciation 9.5 10.2 9.1 8.6 20.2 6. (3 + 4 + 5) Optional fund generation 108.0 129.7 172.7 116.2 197.8 7. Increase in share capital . - - 8. Borrowings (Total): 590.6 2,033.8 2,506.2 3,122.6 2,418.7 8a. Foreign currency >9u.o 18,8.2 ,7.u 2,9.7 1-0.0 8b. Domestic currency 188.2 h75.8 190.9 10.0 Of which: 9. Borrowings from the RNet 177 1, 1 1,7 9a. Total in thousand diners 51. 1,61.1 1,582.8 1,8416.7 1705.7 9b. Loan 512-TU only 7.1,881867709 9c. (9&.U 8) &J Total Ja borwigfom1RDa I of total SNI borrowing 87.6 79.1 71.2 77.3 70.6 9d. (9b*8) Loan 512-TU as % of total - 2 63.2 58.2 29.2 39T hrrowing 3* 10. Collections: 53.0 172.5 417.1 683.8 852.9 10a. Foreign currency 14.0 110.0 223.5 493.5 663.5 10b. Dowestic currency 39.0 62.5 LY.6 190.3 89.s 11. Increase in Current Liabilities (35.2) (888.7) 916.5 1,397.4 (134.2) 12. (6 + 7 + 8 + 10 + 11) Total Sources T6.4 1,056.3 4,012.5 5,318.0 1,835. B. Applicat ons 1. Loan disbursements: 898.3 2,432.3 2,929.8 3,732.5 3,221.7 la. Foreign currency 585.7 1,769.8 2,156.9 2,923.9 2,450.9 112-A 662.5 772.9 808.6 770.8 Of which: 2. Disbursements from IBRD Loans-Net Trnt., in thnsan dinars 517.7 1.616.1 1.783.4 2,415.4 1,708.7 2b. Loan 512-TU only - 479.9 1,582.8 1,816.7 705.9 2c. (1*2a) Disbursement of IBRD as % of total SNI disbursement 57.6 66.4 60.9 64.7 53.0 2d. (1.2b) Disbursement of 512-TU as % of total SNI disbursement - 18.4 44.5 47.1 20.5 3. Equity Investments ' (225.6) (54.1) 621.9 (271.5) 12.0 4. Debt repayment 50.9 1h8.0 311.2 566.5 751.5 ha. Foreign currency 19.0 148.o 244.8 516.3 699.9 4b. Local currency 31.3 - 66*h 50.2 1.6 5. Increase in net fixed assets (7.1) (4.8) (5.8) (7.1) 30.0 6. Add: depreciation 9.5 10.2 9.1 8.6 20.2 7. Increase in reserves 9221 110.7 11.7 30.7 65.1 6., Increase in social fund 5.0 7.5 7.5 12.5 12.5 9. Board menbers' fee, etc. 1.4 1.3 0.6 o.4 - 10. Increase in current assets (27.0) (1,000.6) 134.8 1,437.6 469.9 11. (1 + 3 + 4 + 5 + 6 + 7 + 8 + 9 + 10) Total Applications 796.9 1,650.5 4,124.8 5,510.2 4,694.5 12. (A 12 - B 12) Cash Surplus - Actual (80.5) (194.2) (112.3) (192.2) 140.7 a/ Net of sales and purchases of stocks. Source: Mission's calalation.  AIINEX TABLE 9 SNI - COST OF BORRDWING AND PRICE OF LENDING - ACTUAL vs PRLJECTD (In thousand dinars) Projections Actual 1967 1968 1969 1970 1971 1972 197 1965 1969 1970 197L1 92 1. Short-term advances 672 572 172 72 - - 835 768 40 30 26 51 2. Medium- and long-term loans 2,634 5,354 8,384 11,184 16,896 21,367 1,4h0 3,686 6,077 9,028 11,588 14,398 3. Total 3,306 -,926 8,556 11,256 16,896 21,367 2,275 4,4cl 6,117 9,058 11,61h 14,4L9 !. Interest on loans and advances 170 340 545 750 1,316 1,705 127 254 429 613 934 1,092 5. rnterest J 0 -1) 5.1 6.3 6.4 6.7 7.8 8.0 5.6 5.7 7.0 6.8 7.2 7.6 6. Equity investments 1,632 1,482 1,432 1,382 2,712 2,912 1,611 1,557 2,179 1,907 2,001 2,013 7. Dividend income 50 60 70 80 92 98 55 45 63 53 59 117 . Dividend -in%( ) 3. .0 . o C 1 1. J, 9.9 2.9 2.8 2.9 5.8 BORROWING 9. Deposits 1,950 1,950 1,950 1,950 563 513 1,842 991 1,720 1,983 2,531 2,701 10. Interest on deposits 20 20 20 20 15 18 14 13 16 27 19 13 11. Interest in % (10;9) 1.0 1.0 1.0 1.0 2.7 3.5 0.8 1.3 0.9 1.L 0.7 u.5 12. Long-term borrowing 2,930 5,138 7,674 10,140 15,966 20,391 1,906 3,795 5,978 8,531 10,213 12,522 1. intrest on bnrrning 87 206 350 495 903 1.193 45 130 241 391 562 714 14. :hterest in % (13;12) 3.0 4.0 4.6 4.9 5.6 5.8 2.4 3.4 4.0 4.6 5.5 5.7 15. Share capital 1,500 1,500 1,500 1,500 2,500 2,500 1,500 1,500 1,500 1,500 3,000 3,000 1 . -1 , 4a 60 on) 3Cn 1 7c: (n z 7q 90 180 18 10. Dividends distributed - - 1 180 17. Dividends in % (16.15) 4.0 4.0 4.0 6.0 6.0 7.0 4.0 L.0 5.0 6.0 6.0 6.0 SUMMARY 18. Total assetsY . , 7,418 9,809 12,436 15,004 20,86 25,127 6,447 7,633 10,731 14,778 18,008 20,878 19. Income receivedE/ 361 542 757 972 1,563 1,965 311 398 637 62 1,132 1,5/9 20. Return in % (19*18) 8.6 5.5 6.1 6.5 7.6 7.8 4.8 5.2 5.9 5.7 6.3 7.6 21 T1ota liai4-c/ 7.1A 9-809 T2.h36 16.004 20.86 25,127 6.447 7,633 10,731 1h,778 18,008 20,878 22. Interest and dividends paid 167 286 430 605 1,068 1,386 120 203 332 508 761 907 23. Borrowing cost in % (22-21) 2.3 2.9 3.6 4.0 5.2 5.5 1.9 2.7 3.1 3.4 4.2 4.3 24. Spread in % (20-23) 5.3 2.6 2.5 2.5 2.b 2.3 2.9 2.5 2.8 2.3 2.1 3.3 a/ Current Assets, medium- and long-term loans and equity investment. b/ Including income from money market operations, dividend income, and other income, mainly capital gain on equity sold. g/ Including reserves and Government grant. Source: IBRD Appraisal reports, SNI auditors' reports, Missions Estimates.