Morocco - Fourth Banque Nationale Pour Le Developpement Economique (BNDE) Project

Report No. 817 CONFIDENTIAL INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROJECT PERFORMANCE AUDIT REPORT on MOROCCO FOURTH DFC LOAN (660 - MOR) July 25, 1975 Operations Evaluation Department  TABLE OF CONTENTS Page No. Summary i Project Performance Audit Memorandum I.. Background 1 II. Size of the Loan 2 III. Issues - Objectives - Expectations 3 A. The Interest Rate 3 B. The Internal Rate of Return 5 C. Personnel and Organization 6 D. Employment Creation 6 E. Exports 7 F. Diversification of Industrial Structure 7 G. Equity Investment 8 IV. Profitability and Resources 8 V. Conclusions 9 Annex Tables (Project Performance Audit Memorandum) 1. Unemployment Rate by Sector - 1971 2. Sectoral Distribution of BNDE's Loan and Equity Portfolio Project Completion Report I. Introduction 1 II. Loan Objectives 2 III. Financial Performance 3 A. Profitability 3 B. Financial Position 4 C. Provisions Against Portfolio Losses 5 D. Resource Needs and Allocation 5 E. Level of Operations 6 IV. Allocation of Loan Funds and Subproject Analysis 6 V. Conclusions 7 Anirex Tables (Project Completion Report) 1. Statements of Income, Projected and Actual, 1969-1973 2. Balance Sheets, Projected and Actual, 1969-1973 3. BNDE Operations, Forecast and Actual, 1969-1973 4. Sub-Projects Financed - Descriptive Data 5. Sub-Project Performance - Forecasted Profits and Sales, 1971-1973 6. Sectoral, Geographic and Size Distribution of Projects Financed Under Loan 660-MOR NOTE Currency Equivalent: Dirham (DH) US$ 1= DH 1= From 1967 until December 1971 5.06 0.198 From Jan. 1972 until Jan. 1973 4.66 0.214 From Feb. 1973 until Oct. 1973 3.90 0.256 From November 1973 4.20 0.238 SUMMARY The Fourth Loan to the Morocco Banque Nationale Pour Le Developpement Economique (Loan 660-MOR) for the amount of $15 million, of which $3.5 million have been subsequently cancelled, was signed in March 1970 and fully disbursed by June 1973. The proceeds of this loan were allocated by BNDE to productive uses in industries roughly similar to those to which BNDE has been lending before. Prominent in these were consumer good industries such as food, beverages and textiles. The Bank's adviqe as to the need to diversify away from textiles has been reflected only in later commitments. The share of lending to tourist- oriented hotels has declined. Some important issues were raised by the Bank and discussed with BNDE at negotiations and during the period of loan disbursement. However, these issues were resolved only afterwards. The most important amongst them was the interest rate issue. The ceiling on interest rate was low and was constrained by the Government policy. As a result the Government had to compensate the BNDE for the narrow interest rate spread. This direct subsidy to BNDE has been abolished in 1972, but the economic implication of such subsidy, and especially any impact it has on the re- source allocation has not changed because, from this year onwards,the government started to subsidize the final borrower instead of BNDE. Nonetheless, the interest rate spread of the BNDE permitted it to start mobilizing domestic resources more effectively. Also, later BNDE successes in borrowing abroad from sources other than IBRD are undeniable. Another important issue was that of an internal rate of return and of the economic justification of the projects financed by BNDE. BNDE complied with Bank's expectation that projects below a certain level of the financial rate of return be rejected. lowever, such financial rate of return was calculated only in the appraisal reports. Available data on the profit situation of enterprises financed from Loan 660 shows that their real profits were smaller than expected, and that therefore, their financial rates of return were probably also lower than those cal- culated in appraisals. The calculation of the economic rate of return began only after the loan was committed and did not influence the choice of BNDE projects. This is also probably part of the reason for these projects having contributed less to employment and to exports than the projects financed from subsequent Bank loans to BNDE. Loan 660 was designed to meet BNDE demand for funds during a short period only. Total applications for new loans submitted by local investors and appraised by BNDE were equal to over two-thirds of the Bank loan amount by the time it was signed and only a few months afterwards a mission to appraise a new loan was required. The small size of the loan was intended to stimulate BNDE's efforts to solve some of the above-mentioned issues. However, solutions to these issues depended on the Govornment and not on the BNDE and they took a long time to decide and implement. There- fore, the expectations related to the small size of the loan were not al- together warranted. On the whole, however, the loan has been effectively implemented and became a useful stepping stone leading ultimately to important changes in the BNDE lending posture.  PROJECT PERFORMANCE AUDIT MEMORANDUM MOROCCO FOURTH DFC LOAN (660-MOR) BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE This memorandum reports on an audit of achievements under Loan 660-MOR made to the Banque Nationale pour le Developpement Economique (BNDE) on March 6, 1970 and closed in June 1973. The loan, amounting to $15 million, was the fourth loan made to BNDE up to then, bringing total Bank assistance to that organization to $54 million, net of cancellations. The loan was closed on June 30, 1973 as scheduled, by when $11.5 million had been dis- bursed and the remaining $3.5 million had been cancelled. Since then, three more Bank loans were made to BNDE, adding $87 million to the $54 million contracted by early 1970. The audit is based on a review of the attached Project Completion Report (PCR) prepared by the Bank's EMENA Regional Office, as well as on relevant materials contained in the Bank files and on discussions with the Bank staff involved with the Project. OED found the Completion Report to be factually correct and comprehensive. This memorandum concentrates mainly on a few selected issues of principal impor- tance from the economic point of view. The effectiveness of the preceding, third Bank loan to BNDE was reviewed in the Project Performance Audit of June 25, 1974, SecM74-464. I. BACKGROUND BNDE, founded in 1959 and associated with the Bank Group since 1962, remains the major institutional source of long-term credit for manufacturing industry in Morocco. In 1970 its lending accounted for over 30 percent of total private investment in manufacturing. By acting asl/ an intermediary for rediscountable medium-term commercial bank loans, - its exposure to the industrial sector has, in fact, been greater than implied by the above figures. Because of its central role, BNDE's level of operation depended directly on the investment climate and growth of industry generally. The economic growth of Morocco was uneven. Following a decade of 2 percent per annum growth in real GDP, 1967 and 1968 were marked by record harvests and growth rates rose to 7 and 12 percent, respectively. The demand for indus- trial goods increased also considerably as a result of the strengthening in the economy. 1/ Under this arrangement, commercial banks obtain BNDE's appraisal and guarantee before rediscounting their medium-term loans with the Central Bank. The risk for these loans is assumed by the commercial banks. II. SIZE OF THE LOAN Anticipating increase in industrial activity, BNDE requested for a Bank mission to appraise a fourth loan in January 1969. Even though the Bank was less optimistic about BN1 's ability to commit all its funds under the previous loan (571-MOR) - and expected that BNDE would receive also loans from USAID and KfW, a mission was fielded in May 1969, close to the date requested. However, because of the various points raised during the negotiations, the loan was agreed upon only in January 1970, two months after all funds under the previous loan had been committed; it was signed in March 1970 and became effective in June of the same year. Given the extent and delicate nature of some of the issues involved, more particularly with regard to the interest rate charged by BNDE, this did not represent an unusual delay. BNDE continued to submit projects for approval to the Bank throughout the negotiation period. The amount of the loan, however, seems to have been small when viewed in the light of subsequent events. Based on its expectations of increased future operations and its demonstrated capacity to process loans, BNDE had requested an amount of $20-25 million to cover its needs for two years ending December 1971. The Bank's estimate of BNDE's foreign exchange requirements showed a $18 million gap. Because of the Bank's desire to follow-up closely on some of the conditions raised during the negotiations, a loan amount of only $12.5 million, revised later to $15 million,was proposed by the Bank. Such a loan was expected to meet BNDE's requirements up to March 1971, a shorter time than the period requested by the borrower. It was hoped that this would create an incentive for the BNDE to meet the loan conditions sooner. In retrospect, it is unclear how much of the generally good performance of the loan can be attributed to this measure. Some of the changes to be induced by the loan conditions were clearly of an evolutionary nature, not susceptible to time pressure. On the other hand, if, as it was the case of the BNDE, the real improvements became noticeable five years after the loan was signed, and almost two years after it had been fully disbursed, the question may arise as to whether these improvements were attributable to the specific loan or to the continuing Bank's dialogue with the BNDE. In particular, it may be noted that part of the reason for giving funds for a shorter period was to induce BNDE to diversify its resources and decrease its dependence on the Bank. The revision of the interest rate upward was thought to be a means of facilitating such a diversification because more expensive sources of finance would come within the range of BNDE borrowing capabilities. 1/ See Performance Audit of Morocco Third DFC Loan, June 25, 1974, p.6. - 3 - The problem is, however, somewhat more complex than it appears, because a higher interest rate spread could have been of importance for the BNDE in raising resources in the domestic market, but of rather lesser use in borrowing abroad where it is the country's creditworthiness which comes first, especially in a situation where a DFC did not yet acquire a truly international stature. This is also why it was the Moroccan Government itself which played a major role in foreign borrowing from such agencies as USAID, Banque Nationale de Paris or the Kuwait Development Fund. As these loans were to be destined for use by the BNDE, the latter obviously played quite an active role in soliciting from the Government the increase of its foreign borrowing and, possibly also, in providing a banking expertise. Even the Government's decision to permit the BNDE to raise the interest rate on its loans was less clear cut than it might appear. The BNDE interest rate spread has increased only marginally, and in reality the Government decision implied mainly a shift in the Government subsidization. Thus, while before the Government kept the interest rate low but was compen- sating the BNDE for this low rate, it began to subsidize the final borrowers, who were now paying a higher interest rate on their loans to BNDE. Therefore, it was not a more ample interest rate spread which enabled the BNDE to raise domestic resources, but rather the fact that its revenues from loan service charges had now become consolidated and acquired a more permanent charac- ter, compared with the past, when they consisted partly of periodic Govern- ment subsidies. This notwithstanding, BNDE had to seek the Government guarantee on the bonds it issued. Thus, if diversification of resources was one of the main reasons for keeping BNDE under pressure with short-period loans, there is room for doubt as to how significant such pressure was in bringing it about, considering that Government decisions were determinant in BNDE achieving any change in the structure of its resources. The short duration of loans which neces- sitated frequent appraisal missions, and resulted in inconvenience and additional work for both the Bank and BNDE, might not have been considered as the most effective tool. That the size of the loan was inadequate could be seen clearly because on the day the loan became effective, BNDE had requests for withdrawal of 70% of the Loan's total. Also, the Bank's next loan to BNDE (736-MOR) was appraised in September 1970 -- barely four months after the preceding loan became effective -- and was signed in May 1971. III. ISSUES - OBJECTIVES - EXPECTATIONS A number of issues were raised during the negotiations for Loan 660-MOR. A. The Interest Rate The interest rate policy of BNDE was the most important issue. The Bank's posture was similar to that adopted during the negotiations for theprevious loan. It objected to the artificially low interest rate of 7 percent which BNDE charged its clients. In so far as the Government subsidized all borrowing costs in excess of 5 percent, this low rate did not impair BNDE's ability to borrow per se. However, this subsidization entailed some clear shortcomings. It limited BNDE initiative to undertake any efforts to mobilize resources domestically, because the related financial plan would have to base upon such generally uncertain element as the future Government subsidy. In a broader sense, it was felt that a relatively low interest rate on long-term lending would make it overly attractive to the borrowers compared to short-term rates exceeding 13 percent, charged by commercial banks. Also, the latter would have a better opportunity to mobilize domestic resources. Thus, from the resource mobilization angle the need for a higher interest rate was viewed correctly. The approach to the interest rate problem was nonetheless incomplete, because the .resource allocation angle was not included in the above considerations. In particular, the influ- ence of interest rate on capital-intensity of industrial ventures has not been touched upon. If such influence existed, it was not liable to change, because the final borrowers continued to pay a virtually unchanged interest rate on BNDE loans. Given the central role played by the Government in administering BNDE's interest rate policy, the Bank decided not to make the revision of the interest rate a clear condition for the loan, especially so because, during negotiations the Government had implicitly agreed to reconsider its policy in this respect. The Government was looking forward to IMF assis- tance t6 be given within a framework of a broader study of financial mar- kets. This was accepted as adequate assurance that the interest rate problem would be looked into early enough. In retrospect, this seems to have been the only feasible alternative. The increase of the interest rate took place in two steps. In July 1971, BNDE's rate increased to 8%, but BNDE continued to receive a reduced subsidy equivalent to excess of BNDE's cost over 6% up to a maximum of 7%, i.e., a maximum subsidy of 1 percentage point. In January 1972, BNDE's rate was raised to 9% and direct subsidy to BNDE was abolished. However, BNDE borrowers were entitled to Government subsidies either in the form of a rebate of 2 percentage points -- which made them pay a 7% interest rate to BNDE as in the past -- and/or were receiving capital grants for fixed asset expenditure. These capital grants were abolished in August 1973, when all BNDE borrowers were entitled to receive a direct Government rebate of 2 percentage points on the interest paid to BNDE. In the meantime, however, inflationary pressures started to mount; and vhile the price increase in 1973 was only 4%, it exceeded 10% in 1974. The new interest rate became, therefore, somewhat insufficient 1/ and the 1974 Bank economic report urged the Government in order to "improve the market for private savings and allow for price rises, to raise the interest structure and to make it more flexible. In the process, the lending rate 1/ With all due reservations one can have as to an influence which an in- flationary tendency of a recent vintage may have on the real level of interest rates charged on long-term loans. - 5 - of the specialized financial institutions should be raised commensurately with those of the commercial banks." At the same time, however, while reviewing the new Investment Code, prepared by the Moroccan Government in 1974, the Bank considered correctly that the interest rate is only one element in a total incentive package, offered to industry. As of late 1974, the Government was determined to complete its review of interest rates for the entire economy, with an intention to increase the general level of interest rates in the light of recent acceleration of inflation. B. The Internal Rate of Return To prevent misallocation of resources during the time when the Government was considering changes in its interest rate policy, the Bank and BNDE agreed to establish a minimum cut-off financial internal rate of return of 10 percent for all sub-projects financed by BNDE. This was implemented effectively in so far as all appraisal reports submitted to the Bank under the loan showed expected rates of return to be above this cut-off rate. However, the sample of twenty-four sub-projects analysed in the PCR (Annex 5) shows that actual performance of these projects has been considerably below the standards set at the appraisal stage. Whereas capital costs and sales forecasts were, on the average, quite close to actuals, profits were, on the whole, considerably below expectations. 1/ There are, therefore, reasons to believe that the 10% minimum cut-off inter- nal rate of return will not be achieved in many cases since earnings be- yond the fourth year will be heavily discounted. The causes of this divergence are said to be, firstly, the underestimation of start-up times; and, secondly, the suspect accounting procedures adopted by the entrepreneurs. If the latter implies downward bias in reporting profits, the problem might not be as serious as the figures indicate though for lack of assured facts a definite judgement is impossible to make. Such considerable differences between expectations of the appraisal report and the actual outcome.have been also observed for subloans supported by other DFC. 2/ The issue of divergence between expected and actual results of activity of new projects financed by DFCs is quite important because whenever the relations between the domestic costs and prices and international costs and prices become substantially different from what they were expected to be in the appraisal, the actual economic rate of return would also differ considerably from the one initially calculated. To calculate whether and by how much the actual economic rate of return is Even after delays in startup had been overcome. Some idea about actual performance against forecast can be gotten by comparing sum totals of 24 sub- projoects with regard to sales and profits: (DH '000) 1971 1972 1973 Sales: Forecast 278,829 336,687 341,918 Actual 195,419 321,521 332,573 Profits: Forecast 17,614 22,391 23,478 Actual , 1,059 11,319 11,236 2/ See,- for example, Annex Table 3.9 (on IMDBI-Iran) to the Operations Evaluation Report: Development Finance Companies, July 26, 1974, SecM74-529. - 6 - different from the one calculated in the appraisal report, a much more sophisticated information is needed than that needed for calculation of the deviations from the expected financial rate of return. For the latter data on investment cost overruns and on the profits, both usually avail- able from DFC accounts may suffice; while for the former, cost and price data would be needed and those, as a rule, are not collected by DFCs for projects in full operation. Neither does the project monitoring, recently ini- tiated by the DFCD, include all elements needed for the economic rate of return calculation which calls for a complicated and practically unmanageable data reporting. No method of appraisal of economic viability was applied to projects financed from the proceeds of the Loan 660, because such method evolved only a year later and started being implemented in 1971. It is reported that the BNDE applies this method well by now, partly thanks to two field seminars where the method was explained to BNDE staff by IFC and DFCD staff members. BNDE also calculates the economic rate of return for all projects for which BNDE's financing exceeds DH 5 million, and where nominal protection is more than 50%. Experience with the use of the economic rate of return is, however, still limited. C. Personnel and Organization The other major issue raised during the negotiations concerns staffing in general and, more particularly, the appointment of a suitable Deputy Director General. In early 1969, BNDE had expected to find someone for the job by the end of December that year. This was accomplished in March 1970 when the Director of BNDE's Legal Department was appointed to the post. However, the President and the Director General resigned at that time and the newly appointed President eventually assumed the duties of the Director General and had performed both functions during an extended period of time. Only partial success was reported in the hiring of additional engineers and business administration graduates 1/. The Bank also urged bet- ter internal coordination among departments as well as improvement in dis- bursement and supervision procedures. Some improvements were reported in these areas. D. Employment Creation The quality of appraisal reports submitted to the Bank has shown improvement, particularly in their technical and marketing aspects. Not enough attention, however. has been given to the economic merit of projects. The Bank's economic report prepared at the time of the negotiations highlighted two major problems which existed in the country 2/ -- considerable unemploy- ment and a precarious balance of payments situation. Total unemployment, despite a substantial emigration, was 12 percent of the economically active labor force in 1968 and was expected to increase even further. During the years 1968 and 1969, while the rate of employment improved somewhat in public works, employment created by industrial projects remained quite small and total employment in the mining industry actually fell. BNDE did not appear to have been in a position to influence this situation because: (i) as shown 1/ Both BNDE and the Bank agreed on the desirability of foreign expertise in helping to improve the economic and technical appraisal of projects. BNDE had asked for Bank assistance in recruiting an economist and an engineer as well as the secondment of a particular Bank staff member. The Bank was unable to help in either of these areas. 9/ Poopnt Fonnnmic nevelooments in Morocco. Aug. 29.1969. Renort No. EMA-14. - 7 - in Annex Table 1, in the sectors in which it was involved no acute unem- ployment problem was signalled and significant retraining would be needed to shift manpower from other areas to these sectors; and (ii) manufacturing industry with its 160,000 jobs, accounted for only 4.3 percent of the labor force and was not liable to provide important outlet for unemployed labor. This notwithstanding, a conscious effort to promote projects with high employment potential would have been welcome. Some improvement has been shown in this area recently . Thus, despite the fact that a larger proportion of projects financed under Loan 660-MOR in contrast with sub- sequent loans, were new projects (as distinct from expansion projects), it is precisely the loans subsequent to the Loan 660-MOR, with their higher share of usually more capital intensive expansion projects, which have shown a far greater employment impact. Thus, while 43 percent of the total value of projects financed under 660-MOR created no employment and only 4 projects (15 percent) created more than 100 jobs, 37 percent of the total value under the most recent loan (890-MOR) created more than 100 jobs each. E. Exports Balance of payments was the other major economic problem alluded to in the economic mission report. In the past, when BNDE was still a major lender to the tourist industry, it contributed significantly to the foreign exchange receipts of the country. However, by the time the fourth loan was signed, its exposure to tourism was reduced to taking up equity parti- cipations and this only when the Credit Immobilier et Hotelier (CIH), a credit institution specializing in housing and hotel financing, was acting as the prime lender. Emphasis on promotion of export industries has been a relatively recent development. Less than 20 per.cent of the number of projects financed under 660-MOR were export oriented while comparable figures under the subsequent loans 736-MOR and 890-MOR were 35 and 57 per- cent, respectively. F. Diversification of Industrial Lending The need to diversify BNDE's portfolio away from textiles and hotels, though not formalized in the Policy Statement, had been expressed during the course of the negotiations. As shown in Annex Table II, BNDE had achieved success here only after 1970. For instance, the share of textiles which constituted 14 percent of total investments (loan and equity) during 1959-1968, increased to 16 percent of annual approval in 1970. This share declined to 5 percent in 1971, but textiles still accounted for 14 percent of loans out of Loan 660-MOR. Moreover, one of BNDE's prin- cipal borrowers is a leaser of industrial equipment, and the textile sector accounted for nearly one-fourth of its leasing activity during 1970*-74. As the leasing company -- Maroc Leasing -- benefitted from 23 perceit of proceeds from Loan 660-MOR, the BNDE's additional indirect involvement in - 8 - the textile industry was on the order of 6 percent of its loans. The share of tourism has grown from 6.3 percent during 1959-68 to 9 percent of loans financed from Loan 660-MOR; but there has been a notable decline compared with the past three years, when lending to tourism had been particularly high. 1/ G. Equity Investment Equity investments, as a partial measure of the degree of pro- motional activity, were considerably greater than forecast (see Annex 3 in the PCR attached). Although 60 percent of these investments were paying dividends which made them attractive to the public, there was no rollover of BNDE portfolio before 1973. IV. PROFITABILITY AND RESOURCES BNDE's profitability in-terms of net income has generally exceeded forecasts during 1970-73, mainly because of the sharp increase in loans disbursed during 1972 and 1973. The dividend target was also exceeded in 1970 and 1972. The return on share capital was somewhat below forecast in 1972, but this was entirely due to the increase in share capital in that year. The rise in the debt-equity ratio has been more rapid than anti- cipated, consistent with the Bank's expectations with regard to "mature" DFCs. The main concern was related to mounting arrears in BNDE's portfolio and, although the reserves were considered to be adequate, the Bank was correct in insisting on a case-by-case review of BNDE's reserve provisions. Port- folio affected by major arrears increased from 2.1 percent of the portfolio in 1968 to 5.5 percent in 1972 and 9 percent in 1973. As a result of the termination of t1he Government diret subsidy, the cost of BNDE debt increased from 4.8 percent of average debt in 1970 to 5.3 percent in 1973, but the higher interest rate charged to its bor- rowers contributed to increase of BNDE spread on loans from 2.5 percent in 1970 to 2.9 percent in 1973. This rather marginal increase would not have been, in itself, enough to encourage the BNDE to raise domestic resources. BNDE efforts were facilitated because it could increasingly rely on reve- nues provided by its own portfolio and also because the Government was willing to guarantee the BNDE issue of 15-year 6.25 p.a. bearer bonds. All these ele- ments together helped the BNDE to diversify its resource base. Between February 1971 and the end of 1973, nearly $13 million (60 million DH) were mobilized by BNDE on the domestic market, with banks and individual investors subscribing to its bonds. While BNDE foreign resources continued to depend largely on IBRD 2/, it managed, with Government assistance, to obtain some foreign resources. 1/ In the years directly preceding Loah 660, the shares of BNDE lending to textiles and to tourism were as follows (in % of total lending): 1967 1968 1969 Textiles 15 4 19 Tourism 14 41 31 2/ IBRD loans constituted 84 percent of BNDE foreign resources or 61 percent of its total resources, including BNDE equity, as of December 1972. -9- Apart from the $3 million USAID loan, a loan of DH 46 million (tied to French procurement) was obtained ini 1971 from the Banque Nationale de Paris and a DH 12 million loan for a specific project was obtained in January 1972 from the Kuwait Development Fund. Efforts to secure loans from foreign sources other than IBRD continue, and during 1974 alone BNDE new borrowing amounted to $30 million equivalent. The financial assistance provided by the Bank under Loan 660, similarly to the situation which occurred when the preceding loan was being disbursed, was reduced by the large cancellations amounting to $3.5 million out of a total loan of $15 million. This caused BNDE to pay commit- ment fees,and had blocked funds,unproductively. Three principal reasons were cited for these cancellations: (i) the inability or unwillingness on the part of entrepreneurs to use BNDE funds after loans had been approved; (ii) the lack of awareness of,or inability to meet,the 90-day retroactive financing rule of the Bank; and (iii) the failure on the part of some clients to obtain supplementary foreign exchange from other sources. Detailed reasons for cancellations for each subloan are specified in the Annex 4 attached to the PCR. V. CONCLUSIONS BNDE's performance during the period of the fourth loan, when measured in terms of its level of operations and the meeting of Bank loan conditions, exceeded Bank expectations in some aspects but was inadequate in others. Even though the size of the loan was small in relation to its needs, BNDE was able to exceed its lending targets. This performance was made possible by BNDE's resource mobilization efforts during 1971 and 1972. The diversification of resources sought by the Bank did take place., How- ever, in view of important role played by the Government in regulating the interest rate -- as well as in guaranteeing the 1971 BNDE bond offering, a causal relation between the small size of the loan which was supposed to induce BNDE efforts to diversify its resources, and the commendable BNDE performance in this field, is rather tenuous. Thus, the cost and incon- venience both to the Bank and to the BNDE in having to field another appraisal mission soon after the fourth loan became effective can hardly be -justified on resource mobilization grounds alone. In retrospect, the Bank's emphasis on organizational aspects and the interest rate policy was well placed. BNDE responded to some of the loan conditions quickly, in particular in appointing the Deputy Director General, as promised, in strengthening effectively its internal organization, in setting up inter-departmental coordination and in improving the project appraisals. There were, however, some elements the Bank overlooked. Thus, con- sidering that the causes for loan cancellations were already identified during the appraisal period, not enough Bank effort was devoted to a search of solu- tions, capable of alleviating this problem. Furthermore, there has been little attention given by the Bank to the fact that until 1971, the means adopted for identifying financial/economic merit does not seem to have been very satisfactory. The Bank has subsequently greatly increased the attention to the economic evaluation of sub-orojects by BNDE. - 10 - On the whole, an excessive amount of stress was laid on only two or three loan conditions and little importance was given to other aspects, such as the above ones. A more balanced emphasis on a wider range of aspects would have been more appropriate, especially in a situation where some of the principal recommendations the Bank was strongly dwelling upon did not depend on the BNDE initiative but on the Government decision. These conclusions do not differ substantially from those spelled out in the Performance Audit of Morocco Third DFC Loan in respect of institutional and organizational improvements achieved, and also the problem of arrears, but they raise different questions, particularly with regard to the real effects of the small size of this loan, relative to BNDE's requirements, and the information available regarding the merits of the sub-project financed. ANEX TABLE I UN'TQETPiE'? RATE -5Y SECTOR - 1977 (Percent) Sector R a t e Sector Rate ?n rrestry 5.0 Pa-er Manufacturing' 5.0 Crc- Production 1.5 Enercy 3.0 Anima).l iLUsar)Pndry 0.J Housing & Public Mines 3.5 Iorks 7.5 Petro3eu-i 3.0 Trnnsnortati,.on h.5 Fetal Processing 5 Commerce 2.5 Chemical 5.0 Services Fond Processin;j .0 (k veriment .0 Texti-1es 4.0 Other Services 17.5 LeFther Processng 5 .5 nur r: Current Econonic Position and Prospe c. s of Morocco, Vol.e II, EMENMA i.e' -ion, February 7, 97h. SECTORAL DISTRIBUTION OF BNDEIS LOAN AND EQUITY PORTFOLIO - APPROVALS (Dirhams 1000) 1959 - 1968 1969 1970 1971 1972 Sectors Number Amount Number Amount Nunher Amount Number A,ount Number Amunt Power and Mining 21 113,69 - - 5 33,108 1 36,750 2 3),22» Petroleum and Derivatives l6 81,760 - - 5 77,000 3 6,h11 2 7,000 Textiles 130 106,105 14 15,980 9 h2,909 9 lh,60 Food and Beverages 103 178,7h0 11, 8,190 25 33,066 23 107,950 l Mechanical Industry 43 51,1)10 2 1,500 1 250 1 12< - Chemical. Industry 33 143,117 1 90 9,000 I h00 1 i?? Agriculture 23 12,h66 - - - - 90 - - Trpnsportation 20 1,950 3 6,330 9,0h0 11 L,022 9 29,LOh> Tourism 28 h8,206 7 21,880 2 2,919 - - - - Ms.iscellaneous 80,27 17,025 57,085 -62 94,519 115 77,2'? TOTAL 531 758,152 56 70,995 89 261,377 i1 26h,862 )9 16i,i76 J- ?64362 1h COMPLETION REPORT ON BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE LQA 660-MOR I. INTRODUCTION 1.01 Banque Nationale pour le Developpement Economique (BNDE) was established under the sponsorship of the Moroccan Government in 1959. The Bank's association dates from December 1962 when private investors became majority shareholders in BNDE and the first loan of $15 million was negotiated. In January 1973, IFC took an equity participation of DH 7,500,000 equivalent to US$ 1,495,774. Additional loans of $17.5 million, $15 million, and $15 million were made in 1966, 1969 and 1970 respectively. The latter loan (660-MOR) which was the fourth, and is the subject of this report, was signed March 6, 1970 and was closed June 30, 1973 when $11,485,10 had been disbursed, the remaining $3,514,590 having been cancelled. 1.02 Subsequent to the fourth loan, two additional loans, 736-MOR and 890-MOR for US$ 35 million and US$ 24 million were made in 1971 and 1973, respectively. A seventh loan for about US$ 30 million is currently being processed. If approved, total Bank lending to BNDE will amount to US$ 152 million. 1.03 Loan 660-MOR amounting to US$ 15 million was approved by the Board on January 13, 1970 and became effective June 8, 1970. The interest rate was set at 7% and the free limit was raised from $150,000 to $300,000 with an aggregate limit of $4,000,000. A terminal date for project submission was set at March 31, 1971 and the closing date for disbursement at June 30, 1973. 1.04 As of December 22, 1969 (the date of the appraisal report), the OO,000 outstanding shares of BNDE were owned 43% by Moroccan Government and public institutions; 15% by private Moroccan institutions; 16% by foreign financial institutions; 25% by IFC and 1% by Moroccan individuals and Moroccan subsidiaries of foreign insurance companies. In December 1972, the number of shares was increased to 648,000 and at the end of 1973 ownership had taken on a somewhat different pattern; 38% by the Government and public institutions; 17% by Moroccan individuals, 17% by IFC, 18% by foreign financial institutions, and 9% by foreign institutions resident in Morocco. The principal interesting features of this change in the ownership pattern were the substantial increase in the share capital held by Moroccan individuals and the decrease in the Goverpment's shareholdings. 1.05 There have been no basic changes in the representation on the Board of Directors; 8 directors represent the Government; 9 others are divided amoung various foreign and Moroccan private interests. The Board meets only four times a year, however, an executive committee composed of 7 directors has the authority to approve all rediscountable loans and all direct loans up to DH 900,000. 1.06 Three important changes in the top management took place in the period from December 1969 to June 1970. The President and the Director General resigned, and a Deputy Director General was appointed. The newly appointed President eventually (May 30) also assumed the duties of the Director General. This was at first thought to be a temporary arrangement but has persisted under the present President who was appointed in December 1972. In an effort to improve internal communication and relieve some of the burdens of the President, a second Deputy Director was appointed in September 1972 and the organization was realigned. 1.07 BUDE currently has a professional staff of 48 as opposed to 35 when the loan under review was appraised. It is a competent staff but short of the necessary number of engineers to effectively process and supervise the invest- ments of the bank. Strengthening of the staff in this respect has been recomended by the recent appraisal mission. 1.08 The general policy of BNDE was to invest primarily in private enter- prises in the industrial sector, however, investments were contemplated in other productive activities includint Government-owned enterprises. II. LOAN OBJECTIVES 2.01 In broad terms, the objectives of the loan were to provide foreign exchange funds to support BNDE's lending program and to continue to build an institution which would selectively invest in productive projects. In some- what narrower terms, objectives were expressed as intentions or expectations and specific undertakings relating to management, organization, finance and operations. 2.02 With respect to organization and management, three objectives were explicit; improved internal coordination, the appointment of a DeputyDirector, and the hiring of an engineer and a few business administration graduates. Improving internal coordination has proved to be the most difficult to achieve, partly because of personalities, and partly because of the organizational setup which separates the engineering, financial and economic aspects of the appraisal and supervision process. The way the bank is organized also requires rather cumbersome procedures with respect to disbursements and supervisions. Currently these problems are seemingly less acute than previously but still could be improved. As for the other objectives, both were achieved although the recruit- ment of engineers has again become a problem. Several were lost during a retrenchment program of the bank. 2.03 Specific financial expectations contained in the appraisal report relate to profitability, current ratio, debt/equity ratio, dividend payments, diversification of resources, proportion of IBRD debt to total resources, and provisions for investment losses. Performance of BNDE in relation to these expectations are treated in detail in Chapter III. 2.0M Operationally, there were numerous intentions cited in the report including (1) a shift in operations towards the private sector, (2) increased assistance to Moroccan-owned companies, (3) financing of more export-oriented - 3 - industries, (4) promotion of new ventures, (5) improvement in the economic and marketing aspects of project appraisal, (6) application of stricter project criteria (10% minimum return on total investment) to prevent misallocation of resources, and (7) improvement in the supervision of projects and the use of follow-up information. 2.05 A significant shift in operations has taken place since 1970. Prior to that year, 6% of BNDE investments and 38% of the amount of its investments were in the public sector. During 1971-1973, only 2.5% were in the public sector and 21% of its investments. Similarly, 88% of 3NDE's projects were to finance predominantly Moroccan-owned enterprises during 1971-1973 as opposed to only 60% in the 1959-70 period. 2.06 Promotion of new enterprises, measured by the number of operations with new enterprises, has pretty much followed the ups and downs in the investment climate in Morocco. In 1971 and 1972, for ex3mple, only 18% of BNDE's operations were in new enterprises while in 1973 nearly 50% of operations were of this nature. In the more comprehensive sense, however, BNDE has not been particularly active in promoting new ventures. 2.07 With respect to financing more export-oriented industries, available data is not sufficient to make a definite judgment on whether BNDE has carried out its stated intention. Only a few of the projects financed with IBRD funds exported directly a significant portion of.their production. It is fair to observe, however, that many of the projects produce intermediate goods, such as textiles, which were further processed and exported. 2.08 The intention of BNDE to apply a 10% return on total investment as a criterion for each project has been observed. Very few projects were financed where the rate of return was less than 15%. 2.09 Supervision is still a problem with BNE, not because of quality but because staff constraints, particularly engineers, limit meaningful follow- up to projects which are experiencing difficulties. Management recognizes this continued weakness and in processing the current appraisal it has been recommended that a formal commitment to augment the engineering staff be obtained. 2.10 On an overall basis, there was a reasonable attainment of the foregoing objectives. Virtually all continue to be matters of concern to management since they are related to the basic purposes of the bank. III, FINANCIAL PERFORMANCE OF BNDE Profitability 3.01 BNDE's profitability during 1969 to 1973 has outpaced the -projections and targets contained in the appraisal report for the loan 660-MOR (see Annex 1 for comparison of actual with forecast income statements). Gross income in 1973 of DH 35.2 million was more than twice the level in 1969 of DH 15.1 million and DH 13.b more than the amount forecast of DH 21.8. Net income grew similarly from DH 3,2 million in 1969 to DH 7.6 million by 1973 compared to DH 4.8 forecast for that year. Even after taking into account the increase in share capital in 1972, this represented an increase in return to year-end equity from about 10% in 1969 to 13.h% in 1973 compared to 10.9% forecast for 1973. 3.02 Detailed objectives related to BNDE's profitability specified at the time of the fourth Bank loan can be summarized as follows: (i) continued .concern with earnings sufficient to contract new shareholders; (ii) increase in net income to 21.8% share capital by 1972; (iii) increase in dividend rate. 3.03 Viewed from a hindsight these objectives seem to have been well-chosen. They contributed significantly to attractiveness of BNDE shares and successful sale of new shares issued at the end of 1972. With net income 1/ as a percentage of share capital of 22.3% in 1971, BNDE in fact achieved the target one year ahead of schedule. Although the rate dropped to 18.4% in 1972, this was because of the increase in share capital (not anticipated at the time of appraisal) in December 1972. The rate increased to 23.b% in 1973. The higher profitability enabled BNDE to increase its dividend rate from 6% in 1969 to 7% in 1970 through 1971 and 8% in 1973. This record should enable BNDE to make a further issue of sharescontemplated for 1975. Financial Position 3.04 Because of a higher level of operations than expected at the time BNEE's financial structure evolved significantly different than forecast (Annex 2). Total long-term debt of DH 338 million by end-1972 was already about twice the 1969 level and DH 83 million more than anticipated for that year. At the time of appraisal, BNDE's term-debt/equity 2/limitation was fixed at 4.5:1 and was not expected to be approached through 1974. In order to remain within this limitation BNDE in December 1972 increased its share capital by DH 12.4 million, DH 10.0 of which was in fresh cash subscriotions. At the same time, BNDE's debt/equity limitation was redefined and increased to 6:1 in May 1973 at the time of the sixth Bank loan. BNDE is now expected to reach this limit sometime in 1975 and further increases in share capital and possibly increase in limitation are contemplated in the seventh loan currently being processed. 3.05 At the end of 1968, the Bank group financing (including IFC's equity investment) as a proportion of BNDE's term debt and equity amounted to $8%. With Bank financing foreseen at the time, this ratio was expected to rise to about 66% by 1972. This was feared to be too high and diversification of BNDE resources was an objective implied in the Bank's appraisal in 1969. Due to the resources other than the Bank's which BNDE was able to contract and the increase in shate capital (in which IFC did not participate) the share of the Bank financing in BNDE had increased only by 4% to 62% by 1972. The Bank Group's share in fact has since then decreased and amounted to 53% by May 1974. The reduction is expected to continue as BNDE draws down on loans recently contracted. / After taxes but before allocation to general reserve for loan risks. 2/ - As defined in the Loan Agreement, Government loans maturing after Bank loans and general reserve for loan notes were regarded as part of BNIE's equity. Provisions Against Portfolio Losses 3.06 BNDE does not create specific provisions against doubtful loans although in order to take the maximum tax benefit it makes annual appropriations of income to a global "general reserve for loan risks". Total amount of such reserves is treated by BNDE as part of its equity and the Bank both for the fourth and the fifth loan (in 1971) had accepted this treatment. Although the Bank position in this respect was perhaps reasonable in view of the small proportion of BNDE's arrears and potential risks at that time, developments since then indicate that it might have been more prudent to insist upon a more systematic evaluation of potential losses and creation of specific pro- visions clearly separated from equity reserves. Arrears of principal and interest in excess of three months increased from about DH 1.5 million in 1968 to DH 7.0 million by 1972 and DH 10.8 million by end 1973. Portfolio affected by major arrears increased from 2.1% in 1968 to 5.5% in 1972 and 9% by 1973. Although the global reserves were still adequate to cover BNDE's potential losses, commencing from 1972 BNDE was to make a case-by-case review of its loan portfolio and estimate and requirements of provisions. This was finally done in September 197h and will be a continuing requirement for any future Bank loan. Resource Needs and Allocation 3.07 At the time of appraisal, BNDE's resource needs and financing plans for approximately two-year period were estimated as follows: Resource Needs (Millions of DI) Commitments in Decemb6r 1969 12.7 Commitments expected for 1970 65.0 Commitments expected for 1971 60.0 137.7 Financial Plan Balance of 3rd Bank loan (571-MOR) 6.3 Cash Generation 2.5 US AID Loan 7.5 Fourth Bank Loan (660-MOR) 121.4 13-7.7 3.08 - While commitments for 1969 and 1970 were almost exactly as forecast, commitments for 1971 of DH 148.9 million were almost two and a half 'times the amount foreseen for that year (Annex 3). Disbursements for the two years of DH 157.5 million were DH 47.5 million above expectations. The additional resource requirements were financed principally through two bond issues amounting to DH 18.6 million in 1971 and a more rapid drawdown on third and fourth Bank loans than anticipated. - 6- Level of Operations (1968-1973) 3.09 Annex 3 shows BNDE's actual operations during 1968 to 1973 compared with the forecasts at the time of appraisal for the fourth Bank loan. Loan approvals and commitments were higher than anticipated for each of the five years and total approvals DH 575.2 were substantially 69% above the total forecast of DH 30.0 for the five-year period. Total disbursements amounted to DH 415.7 million compared to DH 265.0 forecast. An even greater increase (compared to forecasts) was achieved in respect of BNDE's equity investments. Total disbursements against new investments of DH 36.3 million were two and a half times the forecast amount of DH 13.6 million. The substantially higher operations than expected reflect in part the higher level of economic activities than foreseen and a somewhat pessimistic forecast made at the time of appraisal. As also indicated in Annex h, BNDE has clearly met the objectives of increasing equity operations in industrial enterprises as defined at the time of Bank's fourth loan. 3.10 BNDE's increased operations were financed principally through increased foreign borrowings, Pdditional bond issues. Consequently, BNDE's total long-term debt after 1971 increased much more rapidly than anticipated. At the time of the fourth Bank loan, BNDE's debt/equity limitation was fixed at 4.5:1. In order to remain within this limitation, BNDE increased its share capital in 1972 by DH 12.4 million (not anticipated at the time of appraisal) of which DH 10 million was in new cash subscriptions. By 1973, BNDE debt/equity (as defined in IBRD Agreement) had increased to 5.3:1 by December 1973. (The debt/equity limitation had been redefined and increased to 6:1 in May 1973 at the time of sixth Bank loan to BNDE.) IV. ALLOCATION OF LOAN FUNDS AND SUB-PROJECT ANALYSIS 11.01 The entire amount of the Bank loan was committed by BNDE; however, as in the previous loan, there were cancellations which were not replaced by new projects. The cancellations amount to $3.5 million or 23% of the total loan. This situation has now improved and a procedure adopted which results in replacing cancelled projects before the terminal date of commitment. 4.02 Annexes 4 and 5 contain the details on the financial and economic data available for each of the sub-projects financed under the Loan. Sectoral, geographic and size distribution of these sub-projects are analyzed in Annex 6. Both sectoral and geographical distribution reflect what might be expected given the structure and location of industry in Morocco. As for the size of the projects financed, about 67% were DH 1,500,000 or less. On the other hand, 25% of the projects accounted for about 61% of the total amount of the loan. No particular significance is attached to the project with respect to the foregoing. 4.03 A comparison of BNDE's estimated cost of projects with the actual costs (Annex ) indicates no significant variation and it can be concluded that the estimates were well done by the BNDE staff. - 7 - 1.O% A somewhat different picture emerges from a comparison of forecasted sales and profits on projects for 1971, 1972 and 1973 (Annex 5). In general, sales forecasts havebeen relatively good despite some obvious optimism for 1971 whinh was the first year of operation for most projects. Forecasted profits, however, were generally overestimated and probably can be attributed to an underestimation of the start-up time required to get personnel and equipment operating efficiently. Another speculation is that accounting procedures are suspect and that reports fail to reflect the actual results of operations. Only one project, A-8, a chicken raising and slaughtering enterprise, is in serious difficulties and at the moment no solution to its problems is in sight. V. CONCLUSION 5.01 With the exception of the problem of cancellations which resulted in not utilizing the full amount of the loan, BNDE's operations were reasonably well managed and the expectations when the loan was appraised were reasonably achieved. Europe, Middle East and North Africa Regional Office October 31, 1974  BNDE: STATEMENTS OF INCOME, PROJECTED AND ACTUAL (1969-1973) (millions of Dirhams) ------- Forecast ----------------------Actual-------- 1969 1970 1971 1972 1973 1969 1970 1971 1972 1973 Income Interest on direct loans 12.7 14.2 15.8 17.2 18.5 12.8 14.8 18.6 2h.7 29.5 Interest on rediscountable 1.0 1.2 1.2 1.2 1.2 1.1 1.1 1.4 1.9 1.8 loans Dividends 0.5 0.5 0.7 1.0 1.3 0.6 0.8 1.0 1.7 2.7 Commitment fees, and other 0.8 0.8 0.8 0.8 0.8 0.6 0.6 0.5 0.9 1.2 income Total income: 13.0 16.7 8 20.2 21.7.1 17.3 21T. 29.2 35.2 Expenses Changes on borrowings 8.2 9.h 10.6 11.8 12.8 8.0 9.4 11.8 16.6 19.8 Personnel costs 1.7 1.8 1.8 1.9 1.9 1.8 2.0 2.4 2.9 3.6 Other administrative changes 0.8 0.8 0.8 0.8 0.8 0.7 0.6 1.0 0.9 1.0 Depreciation and amortization - - - - - 0.2 0.2 0.3 0.6 1.0 Provision for losses on - - - - - 0.3 0.4 0.6 1.0 0.9 equity investments 1-57 Total expenses: 10.7 12.0 13.2 T.F. 11.0 12.6 1.1 22.0 26.3 Income before Taxes 4__ 4.7 5.3 ** 6.3 4.1 4.7 5.4 7.2 8.9 Income tax 1.0 1.1 1.2 1.3 1.5 0.9 1.0 0.9 1.3 1.3 Net Income 3_3 3.6 4.1 4.4 4.8 3.2 3.7 4.5 5.9 7.6 Appropriation General reserve for loan-risks) 2.1 2.3 2.7 2.9 3.2 2.0 2.5 3.4 3.9' Legal and other reserves ) 0.2 0.3 0.4 0.4 0.5 Dividends 1.2 1.3 1.4 1.5 1.5 1.2 1.4 1.4 1.L 2.6 Unallocated - - - - 0.1 - - 0.2 0.7 0.6 3.3 37 _7 T T. 3.2 3.7 4. 5.9 TT EMENA/IC&DFC October 31, 1974 ANNEX 2 BNDE: Balance Sheets Projected and Actual' (1969-1973) (millions of Dirhams) ------------ Forecast------------- --------------Actual-------------- 1969 1970 1971 1972 1973 1969 1970 1971 197, 1973 Assets Current Assets Czsh 17.3 17.5 18.8 20.6 25.2 9.5 11.6 19.3 18.8 19.3 Receivables and other current assets 5.5 6.1 6.6 8.0 8.0 6.4 7.2 12.1 16.6 22.9 Total current assets 22 7 37 ___ = I377 W 317'9T R = Investment Portfolio Loans 190.2 215.2 237.2 256.7 273.2 188.2 218.9 279.4 328.3 393.0 Equity investments 20.7 23.5 27.2 31.8 33.7 20.8 21.2 32.2 47.2 54.5 less provision for loss ,n equity investments ( 2.1) (2.1) (2.1) (2.1) (2.1) (2.3) (2.7) (2.2) (3.2) (4.2) Debentures and Govern- ment bonds - - - - - 0.8 0.8 1.0 1.1 1.3 17ixed Assets (net) 4.1 3.9 3.7 3.5 .k .I 4 2.9 3 . _7 Deferred Chirges - - - - - - -0.7 0 Total Assets 235.7 264.1 291.h 318.5 3L1.h 226.7 261.1 146-3 h1_3.3 6 490.9 Liabilities & Equity Current Liabilities Short term borrowings - - - - - 8.1 10.0 19.6 9.2 19.2 Dividend and taxes payable 2.2 2. 2.6 2.8 3.h 2.1 2.4 2.3 2.7 3.8 Accounts payable on other current liabili- ties 20.0 20.0 20.0 20.0 20.0 11.2 12.6 16.0 11.7 26.9 Total Current Liabilities 22.2 22.4 22.6 22.8 23.4 21.4 25.0 37.9 23.6 49.9 Long-ter- Debt 127.8 156.6 184.1 209.0 229.0 119.7 151.3 203.7 239.8 25L.0 ,overnment Loans 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 4c.c 40.0 Other domestic borrowings 12.8 9.8 6.7 5.8 4.8 12.8 9.8 26.7 L.4 60.8 Exchange gains due to Government - - - - - - - 1 8 29.5 Equ ity Shrre Capital 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 32.4 32.4 Reserves and retained earnings 12.9 15.3 18.0 20.9 24.2 12.8 15.0 18.0 19.3 24. ~3.9 ~ B. 7l0.9 :E: 3= . ~ 1 75.7- Total Liabilities & Equity 235.7 264.1 291.4 318.5 31.h 226.7 261.1 36.3 4 90.9 Arrears Prin. Ic Int. over 3 1/ months (DH 000's) - - - - 1.5 4 9-' 4.8 7.0 10.8 Portfolio affected 2.1 2.5-- n.a. 5.51 9% Ratios Met income to share capital 16.7 18.2 20.5 21.8 24.1 16.2 18.7 22.3 18.L 23.5 Net income to avrg. equity 11.8 10.7 11.2 11.1 11.3 10.2 11.0 12.2 13.3 14.0 Dividends , 6% 6.5% 7% 7.25% 7.5% 6% 7% 7% 7% 8% Total term debt/equity 5.5:1 5.9:1 6.1:1 6.2:1 6.2:1 5.3:1 5.7:1 7.1:1 6.5:1 6.8:1 Debt/e4uity (IBRD agreements)1.9:1 2.2:1 2.4:1 2.7:1 2.8:1 11.B:1 3.0:1 4-0:1 4.2:1 5.3:1 1/ At September, 1970. 7/ For the purpose of forecast, all of the Government loans of DH 40.0 million were treated as subordinited. EMENA/IC&DFC October 31, 1974 BNDE OPERATIO'-S: FORECAST AND ACTUAL (1969 - 1973) (millions % Dirhams) ------- Forecast-------------------- ------------Actual------------------- 1969 1970 1971 1972 1973 Total 1969 1970 1971 1972 1973 Total I. Direct loans Approvals 65.0 70.0 65.0 70.0 70.0 3ho.o 65.5 164.7 110.2 87.8 147.0 575.2 Conrmitents 63.0 65.0 60.0 65.0 65.0 318.0 68.5 65.0 148.9 89.4 143.9 515.7 Disbursements 45.0 55.0 55.0 55.0 55.0 265.0 42.7 61.2 96.3 97.9 117.6 415.7 II. Equity Invest-nents Approvals 0.1 8.5 3.0 2.0 2.0 15.6 0.1 2.0 18.0 8.9 8.3 37-3 Disbursenents 0.6 2.9 3.7 4.6 1.8 13.6 0.7 1.1 12.3 14.9 7.3 36.3 III. Rediscountable Iedium term loans Approvals 30.0 30.0 30.0 35.0 35.0 160.0 5.4 96.7 134.0 65.0 71.0 372.1 EMENA/IC&DFC October 31, 1974 BAr . NATIONALE POUR LE DEE0DPPE~T ECNoMIÇUE REVISED ANN DAN 660-MR Financial Plan Pr,cj- Amt. C..- Å-t. Di- cancel- Reason . Typeof Estimated Actual Reasos fr over- .E- Ocner- Total* Incen- Geogra- Owne~hip Protection No. Na. mitted buroed lation& for Can- Activity C..t Ca0t run/DelaU Loan Loon, Pulty tives phic Percnt Nom./Eff. - '00 -. - T ) lation, P c - D11 - - ) R.c'd Loca.ion Dom/For A-l MOUTLITEK I II 900 900 - Textile 8,814 7,943 4,500 1,314 All (6) Cata 100/ - 19-21/14-20 A-2 CADEM II 6Co 594 6 Cement 9,425 9.50 - 3,00W 6,025 1 MokoS 50/ 5o - 0 - /1 A-3 HAROC LEASIN VII 1,300 1,300 - Financing Inter- 12,500 12,500 6,500 6,00 - Casa 100/ - Service ecflary A-0 SOMATEX 8Wo 195 305 a & b Texcl. 9,170 - .4,000 750 0,ä20 1&3 Ccaa 100/ - A-5 WAROC LFASING VIII 1300 1,300 - Financing Inter- 12,500 12,500 6,500 6,000 - Caa 50/ 50 Service mediary A-6 OAc tI 1,500 751 719 d Fiehing 13,777 6,986 - 7,500 500 5,777 12,3, Agadir D.r/Far & 1,. A-7 c0ETMS MROTUIES 750 750 - Cement 10,591 - 3,800 600 6,191 1 Tetoaan - /100 - 0 - A-8 STE. MAPOCAINE DE 1,100 966 134 N/A Chicken .laughter- 13,800 15,217 Bought mr, laa; 5,500 1,20 6,880 1,2,3 Rabat 60/ 0 - 0 - VOLAILLES ing house. l devaluatio; & 6. parchasee outside program. A-9 ,POLYDIC 18 661 1,336 . Phar,aeutial 15,715 15,730 - 9,000 958 5,757 1, for Coco oeFar som in- Porte. A-10 LE ~MARA1K:/CI 560 387 173 c Ht.i 8,737 2,799 1,591 1,397 All (6) Rarrakech 100/ - Service A-11 CTIK I 1,100 871 229 a & d Traneport - 8,320 5,500 2,820 - Ca - /100 Service 9-1 CoRDEHIE EOUfOUBIA 80 80 - Tetile 1,573 1,573 00 200 973 2,3,6 Marrkech 100/ - & 5. B-2 LEFr 70 708 Tur-it 9 500 MÅ - 350 - 150 traport B-3 CIH/SAMEN 22 207 17 h Hotel 4,266 1,123 1,280 1,86 AU (6) Agadr 60/ 40 Srcce B-4 MET~>POLE 10 80 60 1, Textile 2,174 2,550 Contruction coa.. 700 00 1,074 - Caa 100/ - B-5 APco 170 158 12 a Conent pipec 2,846 3,392 TchCal pbmes. 850 300 1,696 ,3 &5 Kenitra 59/50 B-6 STAN 190 190 - Civil rka 2,584 2,600 950 - 1,634 - Caa - /100 - 0 - B-7 SODET/CIH 228 160 68 c Hotel 4,268 - 1.100 1,138 1,990 All (6) Marrakech D./For Service B-8 SFRM 200 150 46 e Electrea. 1,939 1,939 1,00 - 939 1 Caa 30/ 70 B-9 IOP FOOD 120 14 106 . & b Food proceseing 1,57 600 947 1,3 61 Marrakeb - /100 B-10 SITAL 160 121 39 e & b Fod Pro Uc g 3,464 800 676 1,988 1,2,3 Konitra 100/ - 5-6 / 8 & 1. B-il LACIERES AGADIR 1I 80 80 f Ice afacturing 783 gA 4o 383 Agadir 100/ - B-12 STA P II 160 180 - Civil orkt i,965 1,965 900 - 065 - M.ee. 100/ - B-13 5ANODRA 260 221 39 . & b T-til. 2,675 - 1,300 1,375 I Ca« 1o0/ - B-14 NORA 100 59 11 . & b Food Pro~eong 776 - 500 276 - Meknae 2/ 76 B-15 NOJICERAM 260 75 185 a Brick 2,81 3,094 Construction coet 1,30 - 1,51 - Tanger 100/ - B-16 MAOPATES I1 100 81 19 Fond Pro.ceeing 889 81 500 - 389 - Marrakech 100/ - B-17 OBONOR VIII 190 190 - Textile 1,95 1,935 950 995 1 & 5 ca-o Do./Far 30/60 B-18 cATIC 160 - 160 . & b Food ProceeIng 9,200 NA 3,00 700 5,500 Coa B-19 P ~ARoc .. 240 103 137 - . Troneport (Tourime) 2,236 -- 1,200 1,036 - Tanger 98/ 2 Service B-20 HUILEKIES 11mEKNES 160 138 22 e Food Peseing 3,022 2,170 6 month, constr. 800 700 1,522 1,2W Meknee 100/ - 12-31/53-75 B-21 'SONACL-e, 300 198 102 . Leather 3,81b 2,898 13anth. love; 1,500 1,51b 1,23, Casa 100/- 55/11u ehnal problems. 5&6. B-22 METIPOLE II(S~7) 160 139 21 a & b Textile 1,549 300 749 - Casa 100/ - B-23 0MR 160 160 - Civil Work, 2,010 2,10 800 400 810 - cas 100/ - Service Ke to Inc,etive Koe to Iaclain 1.. ReeoIpr duties a.Prcae aalblen Dirh~. 2. E-ompt rcma Licen~ Tax b. 90-d0y nie uInclomo othen oh n funde/prime & eqipment 3. Regietration Tax c. 15-doy rule atcfinance et. 4, Pament of 15% of equp~oot coete. d. Investment program not achived. I mot t ca-e these are reicounted loane from 5. Acceleateo depreclation e. Look of foreign exchange. comril 6. 10-year guarante of tax level f. Did ont agre, to increase ehare cpital. g. Equipent purohased locally. h. Purchase» from Eatern Block not eligiblo. i. Reductin in equipment. EMAIMFC ~ac F? IýP,5 ANNEX 5 BAN,UE NATIONALE POUR LE DEUOPPEUENT EO0G0CIQUE IAN 660-MR Projeot Project Forecated Profots Aztual Profits Sales Foreast Actual Sales p Remark, No. Name JT579 T79 3 197 17 : 1973 1 7977- 2-Pr 173 Lm, 17 3 - - - - - - - - - - - - - - - - - - - - - - ( DH '000 ) - - - - - - - - - - - - - - - - - - - - - - - - A-1 MULITEX 1,59 2,365 2,40 -1,350 2,123 1,314 14,790 19,499 19,499 11,499 29,706 49,265 - - - Planed for export but absoroed by destic market. ,2 CADEM 1I 2,t35 3,13 2,757 - 3,263 3,61 30,263 32,805 31,007 - 58,194 50,000 - - - A-3 MAR9C LFAS5ING VII 7W0 l,7o7 ',J2- 1, '. 1,319 1,735 18,750 20,100 21,250 21,622 25,173 25,515 - - - A-4 sOATEY 63 736 736 257 - - 8,848 10,060 10,060 3,753 - - - - *-5 MAROC LEASING VIII 1,7D,) 1,76, 1,32u 1,,19 1,319 1,734 13,750 20,100 21,250 21,622 24,173 25,515 14-6 OMACI II 1,573 1,761 1,761 -2,073 -1,154 936 15,61 16,055 16,855 5,676 8,526 19,006 755 88% 92% Data should be copare-d to the operation- of two bolte not four as planned. 4-7 CMENTOS MRäCKES 935 937 953 51!, 656 968 8,576 9,321 10,253 9,754 9,691 12,365 A-3 STE. MA-RoCeInE D7E 3- 71 1,2>. -2,473 -.o -1,ao 2,17e d,715 14,315 756 6,679 6,065 - - - V014(, A-9 POLYMEDIC 347 124 259 1,113 -455 534 19,790 22,060 24,717 19,805 25,570 29,556 - - - A-10 LE MARRIAKEGH/CIH A-11 CT11 599 1,168 885 40 53 77 33,762 35,871 37,703 29,381 30,548 30,71 B-1 CORDERIE KUTOUBIA 172 172 172 30 33 h 2,748 2,758 2,748 2,500 2,500 3,390 3-3 CIE/SAMEL4 3.-4 MEJTO,LE 1 & II 522 556 546 266 274 -551 7,246 12,466 3,559 2,37 3,841 869 B-5 ÅPC2 69 215 315 22 -56 15 5,520 6,970 6,970 3,202 6,226 5,963 B-S 57AM 1,li9 1,295 ),557 177 796 - 16,000 ' 17,000 18,000 15,000 12,595 - B-7 337im I6 -3 5?.M 290 43 590 33 -427 52 15,650 16,000 16,300 13,946 16,131 11,956 105 12% 15% B-9 T37P -30 9-4o SITAL 155 605 605 -121 7 11a 3,782 7,562 7,564 1,527 6,558 7,620 905 92% 95% 3-12 STC? Ii 611 758 772 12 213 - 9,000 10,000 10,000 10,979 8,328 9,700 B-13 4ANUDRA 0-14 NORA S-15 NOJ0A~ 3 147 11,7 -5 - - 877 1,579 1,579 172 - - 2-16 KAROPATES II 178 232 264 151 185 207 3,180 3,713 4,066 3,570 5,471 5,885 B-17 83NOR viii 1,032 1,032 1,032 1,669. 1,955 2,197 17,D 17,000 17.000 17,763 19,664 16,166 B-19 PROMAROC 47 106 157 -215 -465 -1 1,150 1,255 1,368 1,565 2,273 1,890 B-20 HUILEIES UEKNES 902 1,720 1,720 - 1,599 74 19,672 22,785 22,785 - 32,591 22,825 B-21 SONACLI - 22 121 -- - 208 - 1,725 2,070 - 93 251 B-22 OETHPOLE if (See I) B-23 SMER 699 699 796 . - - 20,000 20,500 21,000' ENA/IC&DFC August 7, 1975 ANNEX 6 BANQUE NATIONAL POUR LE DEVELOPPEMENT ECONOMIQUE Sectoral, Geographic and Size Distribution of Projects Financed Under Loan 660-MOR Amount No. of of Loans Sectoral Loans (DH'OOO) % Textile 7 14,000 15.6 Food Processing 5 4,576 5.1 Cement & Cement Products 3 14,550 16.2 Hotel 3 6,054 6.8 Civil Works 3 2,550 2.8 Financing Intermediary 2 13,000 14.5 Transport 2 7,200 8.1 Fishing 1 8,000 8.9 Chicken Slaughtering 1 6,920 7.7 Pharmaceutical 1 9,000 10.0 Electronics 1 1,000 1.1 Bricks 1 1,300 1.5 Leather 1 1 500 1.7 31 U9,160 1o.0 Geographical Casa 14 h6,050 51.4 Marrakech 5 6,634 7.4 Mekness 4 11,400 12.7 Agadir 2 9,120 10.2 Kenitra 2 2,626 2.9 Tangier 2 2,500 2.8 Tetouan 1 4,400 4.9 Rabat 1 6,920 7.7 31 7,650 100.0 Size (DUTMO) 001 - 500 3 1,Ioo 1.6 501 - 1000 5 3,900 4.1L 1001 - 1500 12 14,986 16.7 1501 - 2000 - - - 2001 - 2500 - - - 2501 - 3000 - - - 3001 - 3500 - - - 3501 - 4000 1 3,794 4.2 1001 - 4500 2 8,900 9.9 4501 - 5000 1 4,750 5.3 5001 - 5500 - - 5501 - 6000 1 6,000 6.7 6001 - 6500 2 13,000 14.5 6501 - 7000 1 6,920 7.7 7001 - over 3 26,000 29.0 31 190650 1o0.0 EMENA/IC&DFC October 31, 1974