Rwanda - Second Banque Rwandaise de Developpement (BRD) Project

Document of F The World Bank ; FOR OFFICIAL USE ONLY Report No. 2142a-RW RWANDA STAFF APPRAISAL REPORT OF A SECOND IDA CREDIT BANQUE RWANDAISE DE DEVELOPPEMENT (BRD) March 30, 1979 Eastern Africa Projects Department. Industrial Development and Finance. Division This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS US$ 1.0 = RwF 92.8 RwF 1.0 USi 1.0775 RwF 1.0 imillion = US$10,775 GLOSSARY OF ABBREVIATIONS BNR Banque Nationale du Rwanda - Central Bank BRD Banque Rwandaise de Developpement CCCE Caisse Centrale de Cooperation Economique DEG Deutsche Entwicklungsgesellschaft KfW Kreditanstalt fur Wiederaufbau SOMIRWA Societe dess Mines du Rwanda FISCAL YEAR January 1 to December 31  FOR OFFICIAL USE ONLY RWANDA BANQUE RWANDAISE DE DEVELOPPEMENT (BRD) STAFF APPRAISAL REPORT Table of Contents Page No. BASIC DATA i - ii I. THE ENVIRONMENT A. The Economy .*.........................*................... 1 B. The Industrial Sector ................ .................. . 2 C. Economic Prospects and Constraints ...................... 3 D. The Financial System .................................... 5 II. THE INSTITUTION A. Institutional Aspects ......................... .......... 7 BRD's Objectives ........ ............................. 7 Share Capital and Ownership .......................... 7 Board of Directors . ........... ... ................... . 8 Management, Organization and Staffing *...... *.........* 8 Policy Statement ..................................... 8 Interest Rates .................................................... 9 Procedures .................................................... 10 Auditors ................................................... 11 B. Operations ......*....................................... 11 Portfolio ........................................... 12 Financial Results and Condition ........... .......... 13 Resources ......... 0............... ....... ....................... 14 C. Prospects ......... ....... * .... ... ..... 14 Resource Requirements .......... ................... 16 III. THE PROJECT A. The First IDA Credit to BRD .................. . ....... 16 B. Objectives of the Proposed Second IDA Credit ............ 16 C. Description of the Project ................... . .......... 17 The Proposed Credit to BRD ........................... 17 Feasibility Study for Establishment of an Audit Firm.. 18 This report is based upon the findings of a mission consisting of E. Sawaya and P. Edmonds, that visited BRD in February 1978. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be dismcsed without World Bank authorization.  Table of Contents (Continued) Page No. D. Project Costs and Financing .. 19 E. Project Implementation .......... ... ...... , 20 F. Benefits and Risks . . ........... ..... . .21 IV. AGREEMENTS REACHED AND RECOMMENDATION ................... ...... 21 LIST OF ANNEXES Annex No. 1 Structure of Interest Rates 23 2 Summary Income Statements, 1974-1978 24 3 Summary Balance Sheets, 1974-1978 25 4 Forecast Income Statements, 1979-1982 26 5 Forecast Cash Flow, 1979-1982 27 6 Forecast Balance Sheets, 1979-1982 28 7 Schedule of Disbursements 29 8 Selected Documents and Data Available in the Project File 30  .- i - RWANDA BANQUE RWANDAI';E DE DEVELOPPEMENT (BRD) Basic Data Date Established: 1967 Ownership (As of December 31, 1978) RwF million X Public Sector 260.0 62.5 Domestic Private Sector 65.7 15.8 Foreign Institutiors 90.3 21.7 TOTAL 416.0 100.0 Resources Position (As of December 31, 1978) RwF million Local Foreign Total Sources Equity 459.0 - 459.0 Loans 153.0 605.3 758.3 TOTAL 612.0 605.3 1,217.3 ii s e.,, Net F;xed Assets 34.3 - 34.3 Term Loans 197.8 355. 4 553.2 ETquity Investments 139.8 - 139.8 TOTAL 371.9 355.4 727.3 Undisbursed Commitments 5.9 1.5 7.4 TOTAL 377.8 356.9 734.7 Resources Available for Commitment 234.2 248.4 482.6  .1 . RWANDA BANQUE RWANDAISE DE DEVELOPPEMENT (BRD) Basic Data Operations (RwF million) 1974 1975 1976 1977 1978 Approvals Loans 163.1 201.3 228.8 319.0 368.0 Equity Investments 22.5 33.8 13.1 - - Total 185.6 235.1 241.9 319.0 368.0 Commitments Loans 9.9 148.4 78.8 228.0 112.0 Equity Investments 22.5 12.5 34.4 _ - Total 32.4 160.9 113.2 228.0 112.0 Disbursements Loans 3.6 97.2 40.7 185.0 198.0 Equity Investments 22.5 12.5 34.4 - _ Total 26.1 109.7 75.1 185.0 198.0 Operating Results (RwF million) Net Profit 3.4 9.3 21.9 18.6 19.6 Net Profit as % of Net Worth 2.0o% 4.3% 9.3-% 7.3% 4.5% Net Profit as % of Year-End Share Capital 1.6% 4.5% 10.5% 8.9% 4.7% Financial Position Net Worth 133.8 212.1 243.5 263.6 438.7 Total Assets 351.2 540.6 606.7 635.3 869.0 Term Debt/Equity O.6 1.2 0.9 1.0 0.9 Interest Rates Medium-Term Loans (up to 5 years): 6.5-9%, including commissions. Long-Term Loans : 7.0-9%, including commissions.  RWANDA BANQUE RWANDAISE DE DEVELOPPEMENT (BRD) STAFF APPRAISAL REPORT 1. THE ENVIRONMENT A. The Economy 1/ 1.01 Rwanda had a population of about 4.3 million in 1977 and with an area of 26,340 square kilometers, is one of the most densely populated countries in Africa. It is estimated that per capita GNP in 1976 was about US$120, which is one of the lowest in the world. Real growth in per capita GNP (only an average annual of 1.2% during 1970-1976) 2/ indicates some improvement in the living standards of the population in the early 1970s. Except land and a few deposits of cassiterite from which tin is extracted and wolfram from which tungsten is produced, Rwanda has no other known natural resources. 1.02 The economy is dominated by the agricultural sector, which remains largely subsistence in nature. It provided the livelihood for about 90% of the population and contributed about 57% of GDP in 1976. Agricultural exports, particularly of coffee and tea, accounted for about 70% of total exports in 1976, and provided a significant proportion of the Government's tax revenues. The secondary sector, which includes organized and artisanal mining, traditional and modern food manufacturing, construction and other industries, accounted for about 23% of GDP in 1976. Commerce and other services contributed about 20% of GDP. 1.03 Rwanda's economic development is hampered by several factors. Firstly, agricultural productivity has been declining due to severe soil erosion, the inferior quality of the new land being brought under use, inappropriate cultivation techniques, and the lack of use of modern agri- cultural inputs. Secondly, the increasing population (2.3% p.a.) has led over the years to the fragmentation of cultivable land into small hold- ings (about 1 hectare per farm family), a shift from cash crop production towards foodstuffs, and increasing underemployment and unemployment. Thirdly, there has been little effort, until recently, to train an adequate number of Rwandese in the skills vital to the country's development, particularly professionals (e.g., engineers, architects, managers, etc...) and technicians of various types. Consequently, there has been increasing reliance on expat- riate technical assistance. Finally, Rwanda is a land-locked country located 1/ The most recent economic report on Rwanda (Report No. 1108-RW) is dated July 27, 1976. An economic mission has visited Rwanda in February/March 1979 and its report is expected to be distributed in October 1979. 2/ World Bank Atlas, 1978.  between Uganda, Zaire, Burundi and Tanzania, at a distance of at least 1,700 kilometers from the nearest seaport, Mombasa in Kenya. The long distances, the high cost of fuel and the bulky nature of most of Rwanda's imports (e.g., cement), have resulted in high transportation costs of imports. In addition, different transportation regulations between Rwanda and its neighbors and border problems, have led to irregular supply and frequent shortages of vital materials as well as severe price increases. B. The Industrial Sector 1.04 For a few years after independence (1962), the industrial sector in Rwanda did not register any significant growth or development. Even after the establishment of a separate customs regime from Burundi, only those new manufacturing activities that were based on the processing of agricultural products, such as tea, coffee and pyrethrum experienced some significant growth. The industrial policy at that stage aimed at providing an environment conducive to investors, emphasizing import-substituting and export-oriented projects that were based on local resources. 1.05 The available data indicates that, except for a large brewery, there are less than 100 modern manufacturing enterprises, all relatively small in size. Wage employment in industry (excluding mining) was estimated at 15,700 in 1976. Food manufacturing is the dominant industrial activity, accounting for 64% of the value added by the secondary sector. This activity, however, remains largely traditional and artisanal and modern food manufacturing activities account for only 18.5%, of the value added by this sector. Con- struction is second in importance (15.3% of value added by secondary sector), followed by mining (9%). Mining is scattered around the country and most modern manufacturing activity is located in or around Kigali, the capital. Gisenyi, Butare and Cyangugu are growing in importance. Foreign ownership of industrial enterprises is limited to some modern manufacturing enterprises, but is predominant in the mining and construction sectors. Government owner- ship is concentrated in the few 'Larger enterprises in manufacturing and mining. 1.06 Annual investment in manufacturing is estimated to have increased from RwF228 million in 1973 to about RwF800 million in 1977, for a total of about RwF2.3 billion during 1973-1977. On its own, this represents rapid growth, but the starting point is a low base and the absolute amounts remain relatively small. The major reasons for the increasing investment in manu- facturing are the local opportunities which were unexploited, the increase in transportation costs which made the local production cost of some goods attractive relative to imports, and the political stability that Rwanda offered relative to the neighbouring countries. Also well-to-do Rwandese who concentrated on commerce started to look for other investment opportuni- ties.  - 3- C. Economic Prospects and Constraints 1.07 The problems and constraints facing Rwanda's economic development (para. 1.03) have been recognized in the Second Five-Year Plan 1/. The plan is centered around an integrated rural development program which aims to achieve, in 1