Morocco - Fourth Hotel Development Project

TeDocument of FILE COPY The World Bank FOR OFFICIAL USE ONLY Repu N.P-2937-MOR REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED FOURTH LOAN TO THE CREDIT IMMOBILIER ET HOTELIER WITH THE GUARANTEE OF THE KINGDOM OF MOROCCO FOR A FOURTH HOTEL DEVELOPMENT PROJECT December 31, 1980 T i docmen bu a resrited dishibuto md may be wed by r|eie only in the pXermnce of dweir ocW dutis lb contnts may not otherwise he dised wthou Worl Dak authation.  KINGDOM OF MOROCCO FOURTH HOTEL DEVELOPMENT PROJECT FISCAL YEAR January 1 - December 31 CURRENCY EQUIVALENTS Currency Unit Dirham (DH) DH 1 US$ 0.256 US$ 1 DH 3.90 WEIGHTS AND MEASURES Metric System British/US System 1 meter (m) 3.28 feet (ft) 1 kilometer (km) 0.62 miles (mi) 1 bectare (ha) 2.47 acres GLOSSARY OF ABBREVIATIONS BCP Banque Centrale Populaire BNDE Banque Nationale pour le Dgveloppement Economique CDG Caisse de Dep8t et de Gestion CIH Credit Immobilier et H8telier CMKD Consortium Maroc-Koweitien de Dgveloppement CNCA Caisse Nationale de Credit Agricole CREFOGA Crgdit Foncier du Gabon MOT Ministry of Tourism ONCF Office National des Chemins de Fer ONMT Office National Marocain du Tourism SICOPAR Socigtg Industrielle de Construction et de Participation UNDP United Nations Development Program WTO World Tourism Organization  FOR OFFICIAL USE ONLY MOROCCO CREDIT IMMOBILIER ET HOTELIER (CIH) Proposed CIH-IV Loan Loan and Project Summary Borrower: Credit Immobilier et 118telier (CIH) Guarantor: Kingdom of Morocco Amount: US$100 million equivalent, in various currencies Terms: Prevailing Bank rate. The loan will be repaid on a fixed amortization schedule basis over 17 years including 4 years of grace. On-lending Terms: The proceeds of the loan will be on-lent by CIH at its prevailing nominal interest rate of 13% for sub-loans of up to 15 years and 15% for sub-loans of 15 years or over; Government grants a 2% rebate on such loans for projects approved by the Ministry of Tourism. $600,000 of the loan reserved for financing of technical assistance for sector studies will be on-lent by CIH to the Government under terms and conditions satisfactory to the Bank. As for all bank loans in Morocco, the Government assumes the foreign exchange risk on all currencies disbursed by the Bank. Project Description: The project would consist of (i) tourism development projects, mostly hotels, financed by CIH under loans to be made until end 1983; (ii) a cost benefit study on tourism investments, to be carried out by the Ministry of Tourism (MOT) and CIH with the assistance of consultants; the study would represent the third and last phase of a program of studies, the two first phases of which were carried out under a UNDP project with the World Tourism Organization as executing agency, and (iii) a training program for CIH staff to improve and computerize further its appraisal of tourism investments. Up to $600,000 of the proposed loan of $100 million would be made available for the cost benefit studies if required (the studies may be financed under a new UNDP project), and up to $400,000 for training of CIH staff. The benefits to be derived from the project are several: net foreign exchange generation of $128 million per year in 1980 prices by 1987; 21,000 new jobs, direct or indirect; and net fiscal revenues of at least DH80 million per year initially, growing to about DHI149 million after five to ten years. There are risks of delays in carrying out the recommendations of the studies, but the gradual progress recently accomplished in sector This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - 31. - policies illustrates the Government's commitment to continuous improvement. Finally, the resilience demonstrated in the past by Moroccan tourism should help protect it against the fluctuations of economic activity in the region. Estimated FY82 FY83 FY84 FY85 FY86 Schedule of Disbursement: Annual 13.5 18.0 25.0 28.5 15.0 (Us$ million) Cumulative 13.5 31.5 56.5 85.0 100.0 Staff Appraisal Report: No. 3014-MOR of December 18, 1980  REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED FOURTH LOAN TO CREDIT IMMOBILIER ET HOTELIER FOR A FOURTH HOTEL DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed loan to Credit Immobilier et H6telier (CIH), with the guarantee of the Kingdom of Morocco, for the equivalent of US$1O0 million, to help finance tourism investments. The loan would have a term of 17 years, including 4 years of grace, with interest at 9.25 percent per annum. PART I - THE ECONOMY 2. A report entitled "Country Economic Memorandum on Morocco" (1473-MOR) was distributed to the Executive Directors in June 1977. A basic economic mission visited Morocco in February 1979, and updating missions in September and December 1979 and in May 1980. A draft basic economic report was discussed with the Government at the end of 1979, and is due to be issued shortly. The findings and conclusions of this report and the missions are reflected in the following paragraphs. Country Data Sheets are attached as Annex I. 3. Moroc,o has now moved towards a constitutional monarchy. While the regime remains highly centralized, the establishment of elected assemblies at the national and local levels has had a marked effect on the political structures and on the debate on major social and economic issues. The dependence of the elected assemblies on popular support bas made them and the Government increasingly aware of and sensitive to local aspirations, including the needs of the poorest members of the population. 4. Compared with many developing countries, Morocco is well endowed with natural resources. It has a considerable agricultural potential. Intensive irrigated agriculture has expanded in the Northwest plains, where the humid and temperate Atlantic climate combines with fertile soils. Extensive coastlines on both the Mediterranean and especially the Atlantic offer considerable fish resources. Morocco also has the world's largest and most easily recoverable phosphate reserves, which makes the phosphate sector a key one in the economy as regards the generation of foreign exchange. Other minerals such as iron ore, manganese, lead, zinc, etc. are also exported, but in much smaller amounts. Coal and hydropower plants help to meet part of the country's energy requirements, which are essentially met with imported oil. Morocco has however uranium and oil shales in very sizeable quantities which could become profitable to exploit in the near future. In addition, Morocco's geographical location gives it other advantages; its proximity to Europe has been a factor favorable to the development of international trade, tourism and labor migration with the EEC countries.  5. During the Second and Third Development Plans, which covered the 1968-77 period, national income grew distinctly faster than population, with per capita income growing at an annual real rate close to 3 percent. The conservative approach which had tended to predominate in the post-independence (1956) years gave way after 1970-71 to a greater emphasis CA growth. Thus, the 1973-77 Plan aimed at a marked acceleration of economic growth and also an improvement in income distribution. To accomplish this, it was initially based on an export-oriented investment strategy and a much intensified savings effort. However, taking advantage of the sudden but short-lived rise in phosphate prices in 1974-75, the Government launched in 1975 an ambitious investment program which brought about a considerable increase in demand for imported goods and services (their share in GDP rose from 20 percent in 1972 to 40 percent in 1977). Growth of GDP averaged 7.3 percent p.a. during 1973-77 and imports grew rapidly. At the same time, however, exports of phosphates and agricultural products lost their dynamism, although exports of manufactured goods continued to increase at the rapid rate of 11 percent per year in real terms. These various factors produced a skewed growth pattern in which the weakness of exports and savings contrasted with the dynamism of investment and Government consumption, and by 1977 the economy's resource gap exceeded 20 percent of GDP, whereas it had never exceeded 5 percent before 1974. Recent Developments. 6. After the 1973-77 period of rapid growth which led to financial disequilibrium, the Moroccan economy entered in 1978 a phase of adjustment, characterized by a substantial retrenchment of investment and import levels and a significant reduction in the rate of growth. In 1978, the first year of the adjustment, public investment was cut back by 40 percent and the growth of current budget expenditure held down to about 13 percent (or less than 3 percent in real terms). These measures of fiscal restraint were combined with tight credit policies and stringent import controls. As a result, the economy's resource gap was reduced from 22 percent of GDP in 1977 to 14 percent in 1978, while the overall Treasury deficit declined from 17 percent of GDP to about 11 percent. Since then, however, progress towards stabilization has been slow and both fiscal and external imbalances remain substantial. This loss of momentum can be attributed in part to the deterioration in the terms of trade related to the recent oil price increases. The Government was also led to relax its austerity program in 1979 in order to meet the pressing needs of its social programs, and to keep the rate of growth of the economy from falling below the rate of population growth (about 3 percent p.a.). 7. The policies adopted in 1978 had an immediate impact on the external payments situation, which improved considerably in that year. The current account deficit of the balance of payments was reduced by $500 million in 1978 to $1.3 billion (excluding special grants). This reflected a $400 million improvement in the trade balance on goods and non-factor services, along with a substantial increase in factor service income induced by the establishment of an exchange rate premium on workers' remittances. Merchandise imports  declined more than 25 percent in constant 1969 prices. Except for food and petroleum, most import categories showed considerable declines in current terms. As a result of this performance, the growth of external borrowing (excluding grants) slowed considerably in 1978, but remained at about $1.4 billion. 8. Since 1978, there has been relatively little change in the overall balance of payments situation, which continues to require large amounts of borrowing. The trade deficit on goods and non-factor services widened in 1979 as imports began to rise again and the cost of petroleum imports jumped to $710 million from $430 million a year earlier. The total import bill for goods and non-factor services increased from $4.0 billion in 1978 to $4.7 billion in 1979. On the export side, although weather conditions adversely affected several key agricultural export crops, overall export growth in 1979 was reasonably satisfactory at about 5 percent in constant 1969 prices, and workers' remittances continued to rise. The current account deficit of the balance of payments increased by about $250 million to $1.6 billion in 1979, reflecting both the rise in the import bill and a substantial increase in interest payments on the external debt. As in 1978, this deficit required a net external funds inflow of about $1 billion, in addition to $350 million in special grants from Saudi Arabia. Gross borrowing (excluding grants) remained at about $1.4 billion as in 1978, requiring the use of nearly $1 billion in financial credits. In 1980, favorable export prospects and a substantial rise in the price of exported phosphates suggest that the resource gap will decline despite the impact of the most recent petroleum price increases. However, there will again be a substantial increase in debt service costs, so that a gross external inflow of around $1.4 billion would be needed to fill the gap. 9. The budgetary and balance-of-payments constraints have had a serious impact on the levels of investment and economic activity. Annual GDP growth dropped from 7.3 percent in 1973-77 to 3.1 percent in both 1978 and 1979. Gross fixed capital formation was reduced to DH 13.4 billion in 1978, compared to DH 15.4 billion in 1977 (current prices). According to official estimates it dropped further to DH 12.9 billion in 1979 but should recover slightly in 1980. The adverse impact of the retrenchment on employment has probably been substantial. A rapid rate of employment creation had been one of the major achievements of the 1971-77 period. Since then, the growth of employment is estimated to have slowed significantly. To offset this, the Government has initiated programs for municipal and regional investment and for small and medium enterprises in industry, construction and modern services. The rate of inflation, as measured by the cost-of-living index, dropped from 12.5 percent a year in 1977 to 8.3 percent in 1979, as the Government continued to rely on subsidies and controls to moderate the rate of price increases of basic commodities. In addition, domestic inflationary pressures have been kept under control as a result of the Moroccan Treasury borrowing policy, which has generally been to finance the bulk of its deficit abroad in order to avoid putting excessive pressure on the local banking system.  4 - - 4 Economic Development Issues and Prospects 10. Confronted with the need to overcome the large imbalance in external payments, the aim of Government policy since 1978 has been to cut back investment and increase domestic savings until the resource gap is reduced to a size comparable with the level of external borrowing available. Initially, the Government had hoped to achieve this goal by 1980. The difficulties encountered internally in maintaining the necessary degree of financial austerity led to some relaxation in these efforts. It is now apparent that the rapid adjustment originally envisaged may not be feasible. The adjustment process may instead have to be spread over several years into the 1980's. Morocco now seems to face a period of relatively slow growth, during which the Government would seek to further restrain current public expenditure and improve domestic resource mobilization in order to maintain a desirable rate of investment. In the external accounts it needs to accelerate the growth of exports and to minimize net borrowings on commercial terms in order to restrain the growth of debt service and maintain its creditworthiness. 11. While the unexpectedly large increase in petroleum prices in 1979-80 has made the adjustment more difficult, Morocco should benefit over the next few years from quite favorable market prospects for some of its major exports, notably phosphates and phosphate-based intermediate products. Bank projections summarized in Annex I reflect the likely outcome of a continuation of present policies of gradual adjustment, with continued austerity but no major structural reforms. According to this base case scenario, the annual rate of growth would remain in the 4.0-4.5 percent range throughout the 1980's. Efforts to increase domestic savings would bear fruit only slowly. The ratio of gross domestic savings to GDP would rise from 9.5 percent in 1980 to 12.2 percent by 1985 and 14.6 percent by 1990 (in constant prices). Under these curcumstances, it would not be possible to finance a level of gross fixed investment in excess of about 15 percent of GDP (in constant prices) throughout the 1980's and the rate of employment creation would slow down significantly, with the level of employment rising by 2.7 percent a year, against 3.4 percent in 1971-77. Open urban unemployment would thus rise above 10 percent in the short run. On the basis of the GDP growth rates and investment levels envisaged in the base case scenario, it should be possible to keep the overall growth of imports relatively moderate. This, combined with favorable export trends (exports of goods and non-factor services are expected to rise by more than 6 percent a year in the 1980's) should permit a slow reduction in Morocco's external resource gap from about 14 percent of GDP in 1979 to 8 percent in 1985 and 6 percent in 1990 (calculated in current prices). 12. Medium-term prospects could however be considerably more favorable if the next few years were used to initiate a number of far-reaching policy changes designed to overcome the structural weaknesses which are at the root of the present disequilibrium while implementing a larger and more selective investment program. The major policy adjustments that would have to be undertaken in order to achieve these objectives would have to do with deliberate and closely pursued policies with respect to agriculture, energy,  - 5 - export priorities, savings and investment criteria. A dialogue has already begun with the Government on the need to proceed vigorously on each one of these issues, and the Government has recently requested Bank consideration of a structural adjustment loan. In the case where these structural changes would be introduced, preliminary projections suggest that the rate of growth of the economy could go back to 6-7 percent a year, gross fixed investment could rise to 17 percent of GDP by 1985, and the level of employment could increase at 3.4 percent a year during 1980-90, thus keeping pace with labor supply. It would simultaneously be possible to bring the external disequilibrium under control in a few years. Under the structural adjustment scenario, the resource gap would go down to about 5 percent of GDP in 1985 and 2 percent by 1990 (current prices). Gross external capital requirements would rise much more slowly than under the base case scenario. 13. Comparatively slow economic growth and employment creation up to the early 1970's were accompanied by widening income disparities and a decline in real consumption for poorest households in Morocco. The limited data available indicate that in the 1970's, while disparities have continued to grow, household incomes increased in both urban and rural areas, and the lower income groups shared in the real increase in incomes. In addition, infant mortality has declined and life expectancy has increased since 1960, both significantly. More recently, partly in response to the demands of locally elected assemhlies, the Government has shown more awareness of social problems and greater interest in the issue of basic needs. Social expenditures have been at a high level in recent years, accounting for more than one-third of total budgetary spending and more than one-half of current outlays. However, social indicators still apear to be at low levels in Morocco. This is partly due to institutional weaknesses, including policy evaluation capacity and the lack of a clear definition of target groups and type of services to be provided. The limited effectiveness of past social policies in reaching the lower income groups, especially in rural areas, is increasingly recognized as a major issue, and a new strategy is being prepared in the context of the 1981-85 Development Plan, which would emphasize rural development in rainfed areas, where most of the poorest households in Morocco currently live, and improved mechanisms to deliver services to meet basic needs at an affordable cost, especially in rural areas. An effort is also being made to increase the involvement of local communities in providing basic needs particularly for sites and services for low cost housing, water supply, sewerage and electrification. Although rapid results cannot be expected in any of these areas, it is urgent to proceed with the implementation of these policies in order to better meet the needs of low-income groups, while holding down the budgetary cost of social programs. External Debt and Debt Service 14. Morocco sharply increased external borrowings after 1974. Nearly all of the increase came from Arab and commercial sources. Morocco also drew on the IMF automatic credit facilities in early 1976, and obtained about $70 million in IMF compensatory financing in August 1978. Agreement was reached with the IMF in 1980 for Morocco to draw on the Extended Fund Facility (EFF); the agreement provides for the use of IMF resources in the amount of SDR 810 million over the 1980-83 period. From the low levels of 1974-75, Morocco's  - 6 - external debt rose rapidly to an estimated $6.2 billion (disbursed only) by December 1979. In 1979 debt service amounted to $799 million (21 percent of total exports of goods and services). As a result of recent and projected borrowings, debt and debt service may be expected to fluctuate around 21-22 percent in the early 1980's; it would reach 25 percent by 1985 in the case where no structural adjustments would take place, but would remain at approximately 21 percent under a structural adjustment program. Because of the growing burden of debt service, external debt management has become more restrictive and selective since 1978. If debt service is to stay manageable, Morocco will have to continue this policy over the next few years. Additional commercial borrowing should be limited, and efforts should be continued to seek loans on softer terms. 15. Loan commitments from multilateral and bilateral official sources to Morocco rose from $286 million in 1975 to $296 million in 1976, and to $862 million in 1977, dropping to $434 million in 1978. Major sources of aid were France, Saudi Arabia, the UAE, the U.S., Germany and the Bank Group. At the end of 1979, the Bank Group's share in Morocco's outstanding and disbursed external public debt was 8.4 percent. The share of the Bank Group in debt service was 21 percent in 1976 and declined to 15 percent in 1977, and 8 percent in 1979. By 1985 the Bank Group's shares in debt outstanding and in debt service are expected to be about 10 percent and 11 percent respectively. PART II - BANK GROUP OPERATIONS IN MOROCCO 16. Bank and IDA lending to Morocco has supported 47 projects, financing a total of $1,471.9 million (net of cancellations), of which $986 million has been lent since the beginning of FY1975. IDA credits, totalling $50 million, have been made available for five projects. A Third Window loan for $25 million for the third education project was approved in March 1976. IFC investments have amounted to $42.5 million ($40.4 million after cancellations, terminations, repayments and sales). Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of November 30, 1980, and notes on the execution of ongoing IBRD/IDA projects. In some cases delays in project implementation have been caused by management problems and budgetary constraints; however, overall performance in project execution has been improving and is satisfactory. Total disbursements as of June 30, 1980, amounted to 63 percent of original appraisal forecasts, and 71 percent of revised forecasts. 17. Past Bank Group lending has been concentrated in the agricultural and industrial sectors, which have accounted for 35 and 25 percent respectively of total commitments; the balance is represented by utilities (12 percent), education (11 percent), roads (7 percent), tourism (5 percent), energy (4 percent) and urban development (1 percent). While limited as regards the transfer of resources to Morocco (Bank Group gross disbursements amounted to 2.2 percent of total fixed investment during the 1973-77 Plan period), the main objectives of Bank lending in the early years of Bank operations in Morocco were to foster and strengthen development institutions, provide technical assistance, especially for project preparation, and increase productive capacity, in order to improve the balance of payments.  - 7 - 18. While these objectives remain, over the last few years Bank lending has increasingly focussed on supporting a number of policy objectives: to promote exports and other foreign-exchange earning activities; to reduce imports, particularly of food and energy; to lower unit costs for the delivery of basic services, widen their distribution among regions and increase access by lower-income groups; and to increase employment and improve income distribution. 19. Since FY1975, lending in agriculture has emphasized improvement in the productivity of rainfed agriculture and livestock, which employ over 80 percent of the rural population, primarily small farmers. The Fes-Karia-Tissa Agriculture Project, approved in June 1978, directly addresses these objectives in the favorable cereal producing zone. The Loukkos project, approved in May 1980, extends support of these objectives to a less favorably endowed region and finances investments for agricultural development, erosion control, forestry and livestock. It should have a significant poverty impact and address major issues in developing Morocco's relatively densely populated but poorly endowed mountainous regions. Continued Bank support of rainfed agriculture is expected to be provided through an extensive livestock project in central Morocco and an integrated rural development project in the Khemisset province, both under preparation. A fourth line of credit to CNCA has helped provide credit to small and medium farmers, and a fifth project is under preparation. Increased export earnings are expected to result from a Bank-supported project for fruit and vegetable marketing and production, as well as from a project currently under preparation to improve the efficiency of the coastal fishing industry. 20. As illustrated by the project presented in this report, increased foreign exchange earnings or savings and, more recently, job creation, have been the key objectives of Bank projects in industry and tourism. The ninth loan to the Banque Nationale pour le Developpement Economique (BNDE), planned for presentation to the Board in late FY1981, will incorporate a pilot component for export-oriented industries and a substantial component for small-scale industries to replenish the successful first line of credit for this purpose approved in FY1979; this component is expected to generate increased employment opportunities. Preparation is underway on a project to increase the incomes of artisanal and small-scale miners in southeastern Morocco, a region largely bypassed by previous development efforts. 21. Projects to improve basic infrastructure and services have concentrated on improving the efficiency of existing investments and extending services to rural and low-income urban groups. A second urban development project is being submitted concurrently to the Executive Directors, and would continue to support the Government's efforts to provide shelter, basic services and employment to low-income urban families. A third highway project approved in FY1980 supported the Government's road maintenance efforts and a fourth project would continue support for maintenance and improve rural access roads. A loan for village electrification approved in FY1979 will help bring power to over a hundred small towns and villages. A third water supply project, to be presented to the Board in late FY1981, will provide access to safe water in small towns and semi-rural areas as well as expanding a pilot component initiated under the second project to provide credit for house connections to low-income urban populations. In addition, a project to strengthen the capacity of local communities to prepare and implement their own development  - 8 - programs and provide financing for such programs through the Communal Infrastructure Fund (FEC) is being prepared. It will not only help to widen the distribution of infrastructure and services but will also support the Government's policy of encouraging administrative decentralization and local participation. 22. Education continues to need attention to ensure Morocco's manpower development. While recent projects have focussed on secondary level technical education and teacher training, attention has also been given to expanding basic education in the rural areas and ensuring a greater orientation in primary schooling towards practical training. This would be complemented by future projects in non-formal education and vocational training. The Government's recent policy supporting primary health care would be tested through a project currently being prepared as a first phase in a nationwide program to reorganize medical and paramedical training, health education, nutrition, environmental sanitation and family planning services, especially in rural areas. 23. In order to reduce the impact of the oil import burden on the Moroccan economy, a project was approved in April 1980 that would contribute to the Government's efforts to accelerate the exploration and development of its petroleum potential. Preparation is also underway of an Engineering Loan to finance studies and a pilot unit to test the potential for commercial extraction of oil from oil shale. 24. The sectoral objectives implied in these projects as well as other objectives relating to price policy, efficiency and composition of the public sector investment program, and measures to mobilize domestic savings, would be reinforced by the policy changes envisaged under the first Structural Adjustment Loan which is planned for consideration by the Executive Directors in FY1981. If the important structural issues believed to underly the present disequilibrium are addressed through this program, it is expected that the medium-term prospects for economic growth and balance of payments stabilization would improve, thus alleviating current resource constraints and permitting a more dynamic and effective project lending program. PART III - THE TOURISM SECTOR 25. Lured by attractive beaches along Morocco's Mediterranean and Atlantic coasts, the architectural monuments of the four imperial cities of Marrakech, Fez, Meknes and Rabat, as well as pre-saharan oases and other natural sceneries, tourists from neighboring Europe and from America have long chosen Morocco as a favorite year-round leisure destination. As late as 1968, however, foreign tourist arrivals only numbered 0.5 million, well behind  - 9 - several countries in the Mediterranean basin which had started developing tourism sooner. In the early seventies, the diversity of Morocco's tourism resources and climatic conditions appealed to rapidly increasing numbers of a heterogeneous tourist clientele, including culturally motivated sightseers as well as year-round beach vacationers; tourist traffic to Morocco is more evenly distributed over the year than in many other Mediterranean countries, despite high seasonal fluctuations in the North of the country. 26. After a lull brought about in 1973-1976 by the oil crisis and political uncertainties, tourist activity resumed robust growth; Morocco is attempting to diversify further its clientele by catering to new categories such as family oriented tourism, and introducing tour operators to cultural tourism, formerly the preserve of individual tourism. In 1979, foreign tourist arrivals reached 1.5 million; tourist accommodation capacity amounted to some 62,000 beds, of which about 50,000 were in classified hotels and vacation villages, and 12,000 in unclassified accommodations catering mostly to local travelers. Average growth of capacity over the past five years has been 6 percent annually, a rate coinciding with the long range trend of demand. 27. Tourism has made a significant contribution to economic activity, mainly in foreign exchange earnings and employment generation. Gross foreign exchange receipts from tourism accounted on average for 15 percent of total earnings from exports of goods and services in 1973-77. In 1977, gross receipts amounted to DH 1.5 billion ($350 million), of which only 10 percent represents derived imports. Regarding employment generation, tourism compares favorably with other growth segments of the Moroccan economy such as manufacturing activities. While in the latter the investment per job created is estimated to cost some $22,500, the comparable statistic for tourism activities is less than $9,000. Except in the North where seasonality is high and yearly hotel occupancy rates are low, tourism investments have consistently shown satisfactory economic rates of return (ERR). 28. The private sector accounted for 76 percent of hotel investments in 1973-77 with the balance split between semi-public and a decreasing pro- portion of public enterprises. Hotel construction is financed through the Credit Immobilier et H6telier (CIH), a publicly controlled development finance company specializing in housing and hotel lending. CIH financed about one half of hotel investments in 1973-77. Through subsidiaries, CIH in the past was also an active promoter in the housing and tourism sectors, although it is progressively withdrawing and divesting itself of its participations in ventures outside its primary lending functions. 29. Morocco has been slow in developing an institutional capability commensurate with the importance of the sector. As recently as 1977, the Ministry of Tourism (MOT) was but a department in the Ministry of Public Works. MOT promotes national tourism abroad, administers the investment incentive system, trains hotel personnel and develops tourism related infrastructure. Administration of the sector has long been hampered by lack of qualified staff as well as insufficient statistics and analysis of tourism demand, cost and benefits, resulting in inadequate regional distribution of  - 10 - investments, lack of targetting of investments for specific segments of the market, and insufficient knowledge of the effects of the incentives system on economic efficiency. 30. A mutual concern to reinforce institutions administering the tour- ism sector and to develop a suitable analytical framework for investment planning and policymaking, has led the Government and the Bank to agree under earlier loans on carrying out a series of actions and studies, among which: (i) the systematic collection of data on hotel occupancies and bednights, which is now institutionalized; (ii) a detailed tourist expenditure survey, including information on tourist motivations and socio-economic backgrounds, for input in marketing and promotional activities; a permanent survey system is also being institutionalized; (iii) regional masterplan studies, to form the basis of investment planning; implementation of some of the regional studies is behind schedule but the summary report should be completed by mid 1981; and (iv) execution by the World Tourism Organization (WTO) under UNDP financing of two out of three phases of a cost and benefit study of tourism investments: the first twc phases arp now completed; they analyze the growth potential of Morocco's tourism s t ane recommend general orientations for its further development; the third phbse, which will be carried out under the proposed project, would study the tourism market in greater detail on a region-by-region category-by-category basis, the costs and benefits of different types of investments, and make recommendations on specific policy changes. 31. Improved sector data and the studies carried out so far have already provided excellent opportunities for constructive exchanges of views between the Government and the Bank on policy issues, and have made important changes possible in the areas of price regulation and investment incentives which are set out below. 32. Until recently, floors (to avoid overlapping of tariffs with other categories) and ceilings were set for tariffs of luxury 5-star hotels, and ceilings for tariffs of other categories. The issue of liberalizing the setting of hotel tariffs was one of the topics of the studies mentioned above. As was recommended, the Government has now indicated that it intends to gradually free hotel tariffs as the cost benefit study is completed, and, as a first step, has just removed all restrictions on tariffs of 5-star hotels as well as increased ceilings for other categories by 10 to 25 percent. 33. Incentives are granted to projects approved by a technical committee within MOT, and are disbursed through CIH. Up to January 1980 they were governed by the Investment Code of 1973 which provided for (i) a ten-year full or partial income tax exemption, depending on the location of the project; (ii) an interest free government advance equivalent to 15 percent of estimated investment cost, excluding land acquisition, for ten years including five years of grace; (iii) various tax reductions, including reduced rates on real estate taxes in the early years of operation, a reduced capital registration tax and a waiver of sales tax on investment inputs; and (iv) a 5 percent interest rebate on hotel loans provided by CIH. Furthermore, MOT subsidized infrastructure investments servicing tourism developments.  - 11 - 34. After an analysis in the studies mentioned above (paragraph 30) of the effect of incentives on the financial profitability of hotel investments, a series of measures were taken to reduce subsidies and tighten their administration in MOT. The Investment Code was changed in January 1980 to provide for a reduction in the interest rebate on CIH loans from 5 to 2 percent; CIH was instructed by MOT to preappraise all projects prior to their submission to the technical committee of MOT, and MOT has decreed that incentives granted a project would lapse if after two years, execution has not started. Also, MOT as a policy now seeks full recovery of infrastructure costs in selling serviced land to hotel promoters, as is being successfully illustrated in loan 1202-MOR for a tourism infrastructure project in the bay of Agadir. Regarding interest rates, CIH's lending rate was progressively raised from 8.75 percent in 1976 to 13 and 15 percent (depending on maturity) in 1980. Taking into account the 15 percent interest-free advance and the 2 percent interest rebate, the effective cost of funds to hotel promoters is of about 8.5 percent, while long term inflation in Morocco is projected at 8 percent. 35. The general prospects for tourism demand in the Mediterranean, investments underway directed towards previously neglected market segments (e.g. family tourism) as well as in regions with insufficient accommodations, coupled with intensified promotional efforts, are all expected to allow further growth of demand for tourism in Morocco between 6 and 9 percent per annum, against a long term historical trend of 6 percent. Taking into account projects approved by CIH and with a financing plan in hand, and the gestation period of hotel projects, the 6 percent growth scenario would entail the financing of some 14,600 additional hotel beds up to 1983. The regional distribution of such an expansion will have to be carefully calibrated, with due consideration given to social, economic and ecological effects. In particular, considering the large number of projects being implemented in the region of Marrakech, the prospects for further expansion of demand and of absorptive capacity in that city are in question; given the appraisal criteria adopted by CIH in the context of the proposed project (paragraph 43) it is unlikely that CIH will approve further projects in the Marrakech region beyond those already in CIH's pipeline. Marrakech's situation will be reassessed as part of the cost-benefit study (paragraph 30). Similarly, lower hotel occupancy rates in the North warrant only limited expansion there, and only in vacation villages. 36. The Bank has extended three lines of credit to CIH in the past, for a total of $48.7 million, and made a $21.0 million loan in FY1976 to finance infrastructure for new tourism development in the bay of Agadir. A Project Performance Audit Report was issued on the first loan to CIH (704-MOR), and its recommendations were taken into account in the succeeding projects. Recommendations included: (i) the strengthening of the sector through the development of effective methods of formulating sector plans and development strategies (paragraphs 30 to 34); (ii) the strengthening of MOT and CIH's institutional capability through improved collection of statistical data, reinforcement of investment analysis and forecasting, and reinforcement of sector administration (paragraphs 30 to 34); and (iii) the strengthening of CIH's financial position through the adoption of a prudent debt/equity ratio and the diversification of sources of foreign capital (paragraphs 51, 52).  - 12 - Implementation of past projects has seen a concomitant improvement in institutional development in the sector and in government policies, although administrative delays set back by about two years the implementation of agreements under previous loans, causing delays in processing the proposed project and a long hiatus in Bank financing of CIH activities. On the other hand, loans to CIH have been disbursed close to or even ahead of schedule. Under the CIH II Loan (848-MOR) of $12.8 million, 56 hotels with 8,800 new beds were financed for a total investment cost of DH 300 million ($75 million), creating some 2,850 new jobs, excluding indirect job creation. Estimated ERR's ranged from 11 to 20 percent. Under the third loan of $25 million, CIH financed 29 hotels with 8,650 beds at a total investment cost of DH 356 million ($89 million). The number of jobs created under that loan (also excluding indirect jobs) is estimated at 2,885 and the ERRs ranged from 8 to 35 percent. CIH has generally exceeded expectations regarding its institutional and operational performance. In addition to its direct objective to finance additional hotel capacity in tourism over the period 1980-1983, this project can therefore be seen as the culmination of a 10-year dialogue between the Bank, the Government and CIH which has resulted in the emergence of CIH as a sound institution and the achievement of substantial sectoral reforms in Morocco. PART IV - THE PROJECT Background 37. Tne proposed loan would be the fourth Bank loan to CIH, and the fifth Bank loan in the tourism sector. In the President's Memorandum of March 1978 on Bank lending for tourism (R78-64), it was recommended that "further lending to local development finance companies whose primary activity is lending for hotels should be discontinued except for a proposed fourth loan to (CIH) in Morocco, which is sufficiently advanced that it would be ready for presentation to the Executive Directors in early FY1980". Expectations of the time required to bring the proposed project to the Board were, however, too optimistic. Delays have been due to the preparation of an ambitious policy package aimed at introducing significant reforms in tourism policy and upgrading the Ministry of Tourism's ability to effectively administer the sector. Given the termination of Bank lending for tourism, it was felt important to exercise maximum influence on policy making, even though this meant that it would not be possible to adhere to a schedule that appeared reasonable when the President's Memorandum on tourism was presented to the Board. 38. The previous line of credit to CIH was fully committed in June 1978, and the loan was fully disbursed in November 1980, slightly ahead of schedule. Appraisal of the proposed project took place in February 1980, and negotiations were held in Washington from November 17 to 21, 1980. The Moroccan delegation was led by Mr. Slimani, President Director General of CIH. A Staff Appraisal Report: "Morocco-Fourth Loan to Credit Immobilier et H6telier (CIH)" (No. 3014-MOR) dated December 18, 1980 is being distributed separately. The main features of the loan and project are summarized in the Loan and Project Summary and in Annex Ill.  - 13 - Project Description 39. The project would consist of (i) tourism development projects, mostly hotels, financed by CIH under loans to be made until end 1983; (ii) a cost benefit study on tourism investments, to be carried out by MOT and CIH with the assistance of consultants; the study would represent the third and last phase of a program of studies, the two first phases of which were carried out under a UNDP project with WTO as executing agency (paragraph 30), and (iii) a training program for CIH staff to improve and computerize further its appraisal of tourism investments. Up to $600,000 of the proposed loan of $100 million would be made available for the cost benefit study if required (the study may be financed under a new UNDP project), and up to $400,000 for training of CIH staff. CIH: Organization and Procedures 40. The Credit Immobilier et Hotelier (CIH) was founded in 1920 as a mortgage bank specializing in housing finance. Since 1960 it has also been practically the sole institutional source of long-term financing for tourism projects in Morocco. CIH operates out of headquarters in Casablanca and has six regional branches. Though it is a private company subject to corporate law, public institutions own a controlling majority of its capital and account for 11 of CIH's 15 board members. The ownership structure is as follows: Caisse de Dep6t et de Gestion (CDG), a public sector financial institution, owns 30 percent of CIH's capital and holds bearer shares as proxy for another 25 percent; 12 insurance companies own 20 percent; commercial banks, 15 percent; and Banque du Maroc (the central bank), 10 percent. 41. The full Board only meets two or three times a year on major policy issues and has delegated many of its powers to an Executive Committee consisting of 6 board members which meets monthly. The Committee examines and approves all tourism loan proposals and all housing loans of more than DR150,000; a Manager's Committee and branch offices approve smaller housing loans. CIH's President Director General, Mr. Othmane Slimani, former Secretary of State of Economic Affairs and a competent career civil servant, chairs the Board and the Executive and Manager's Committees. He is seconded by a Deputy Director General, a General Secretary and three Department Directors, for Credit, Finance and Administration, all of excellent caliber. CIH's professional staff numbered 122 at end 1979 and is of generally good and improving quality. 42. CIH follows sound and conservative financial policies: its statement of policies provides notably that projects financed by CIH must be financially, technically and economically viable; that loans must be secured by adequate guarantees; and that CIH will provide its clients with technical assistance over the whole project cycle. The statement also restricts CIH's equity investments. CIH has agreed not to modify its statement of policies without prior consultation with the Bank (Loan Agreement, Section 3.07). Over the past few years, the main policy direction imparted by the Board was for CIH to divest itself progressively of its equity investments in subsidiaries engaged in tourism or housing promotional activities, and concentrate on its primary functions as a lending institution. This process is well advanced.  - 14 - 43. CIH has over fifty years of experience in the financing of housing construction and has developed standard and effective procedures for this purpose. As for tourism projects, the technical, legal, financial and managerial aspects of projects are adequately covered by CIH's reports. CIH's economic appraisal methodology has evolved and been considerably refined as better sector data became available. With the improved tourism statistical basis noted earlier (paragrah 30) and the introduction of a computer based hotel appraisal model, CIH now uses a sophisticated appraisal methodology and only finances tourism projects meeting a minimum economic rate of return. Both the methodology and the minimum rate of return, currently 12 percent, will be agreed from time to time between CIH and the Bank (Loan Agreement, Section 3.09). Further, under instructions from MOT, CIH now routinely preappraises all tourism projects prior to their submission to the ministry for eligibility under the dispositions of the Investment Code (paragraph 34). 44. CIH's loans for hotel construction carry maturities of up to 18 years, including three years of grace; for hotel equipment, loans are for 10 years, with no grace period. Interest rates are of 13 or 15 percent, respectively for loans of less than 15 years and for 15 years or more. The average maturity of hotel loans is 15-1/2 years, including 2-1/2 years of grace. As the proposed loan would be committed by CIH over the next three years, the combined maturities of the subloans to be financed out of the proposed loan would correspond to an average maturity of 17 years, including 4 years of grace, coinciding with Bank country terms. For administrative convenience, the loan would therefore be made on these fixed terms rather than on the flexible amortization schedules usually applied to DFC loans. 45. CIH starts disbursing its loans once equity funds (usually 15 to 25 percent of total costs) and the Government advance (15 percent) have been fully committed. Disbursements then take place in four main tranches, each time after careful inspection by CIH staff, plus a final 10 percent tranche withheld until completion of the work. Disbursements are suspended when a discrepancy is found between the original plans and project implementation. 46. CIH's supervision of hotel operations has been strengthened with the creation of a new Portfolio Supervision Division under the Financial Department, staffed with six specialists exclusively concerned with collection of loan arrears through legal and other actions. The Hotel Follow-up Division under the Credit Department supervises 117 hotels which are routinely visited and fully reported on at least once a year by five professionals. The quality of CTH's overall supervision, a major weakness at the time of the CIH-III loan, has been significantly upgraded, and performance under Bank agreements in this regard has been good. Operations; Past and Projected 47. Between end 1976 and 1979, CIH approved housing loans totalling DH 1,212 million ($ 303 million), most of them in the medium price range, and hotel loans totalling DH 335 million ($ 84 million). These levels of  - 15 - operations largely surpass expectations at the time of appraisal of the CIH-III loan; commitments and disbursements followed the same pattern. Hotels financed are skewed towards the 4-star category in Marrakech, Agadir and Casablanca where demand was strong. 48. Equity investments grew from DH 67 million ($ 17 million) in 1977 to DH 94 million ($ 24 million) in 25 firms as of September 30, 1980; however one new promotional company founded in 1977, the Morocco-Kuwaiti Development Consortium (CMKD) accounts for 57 percent of CIH's total equity investments. CMKD is owned 50 percent by Kuwaiti interests, 17 percent by CIH, and 33 percent by two other Moroccan banks. CIH is expected to gradually reduce its participation in CMKD as directed by its Board (paragraph 42). The second CIH participation of importance (11 percent of total investments), in the Credit Foncier du Gabon (CREFOGA), is at serious risk. However, CIH has made adequate provisions for losses and its investment in CREFOGA is covered by a full government guarantee. 49. CIH's housing and related lending activities are generally constrained only by resource availability and the processing capacity within CIH itself; demand for housing finance is growing steadily in Morocco, particularly for apartment units. Taking into account CIH's solid experience in housing finance, past trends, projected resources to be mobilized and the inflation of construction costs, CIH expects to commit some DH 2.2 billion ($555 million) over 1980-83, implying an average annual growth rate of 15% p.a., which is reasonable compared with historic trends. CIH is developing plans to extend its activities in the field of low-cost housing for low-income groups. 50. CIH is expected to finance some 14,600 new hotel beds till 1983 (paragraph 35). The projects in CIH's pipeline consist of 65 hotels to be constructed, hotels to be equipped, renovated or refurnished, as well as restaurants, sporting and other entertainment facilities for tourists in Morocco. They would imply total commitments of DH 730 million ($182 million) till 1983, of which DH 496 million ($124 million) in foreign exchange. The projected annual growth rate of 20 percent for hotel commitments in 1980, and 10 percent p.a. in 1981-1983 compares well with past trends and is conservative. 51. To match the expansion of its activities in both housing and tourism, CIH is having to considerably intensify its efforts to mobilize resources, both domestic and external. Since 1975, CIH has increased its capital from DH 60 million ($15 million) to DR 160 million ($40 million), and significantly increased its domestic bond issues subscribed by CDG and insurance companies. More importantly, as the latter offer limited growth potential, CIH has achieved an excellent record of diversification of its external resources. While in 1975 the Bank was CIH's sole non-Moroccan lender, after four CIH borrowings since then from foreign institutions for $113 million, the Bank now only accounts for 30 percent of CIH's external resources. As agreed with the Bank under previous loans (Loan Agreement, Section 4.10), the terms of CIH's borrowings are generally tailored to the terms of its lending. CIH has agreed as well to maintain a ratio of at least one to one between loan receipts and debt payments (Loan Agreement, Section 4.06a)). To meet its growing resource  - 16 - requirements to end 1983, the expected end of the commitment period of the proposed loan, CIH plans to increase its foreign borrowings other than the proposed loan by t123 million, and is studying new means to tap domestic savings, through the issuance of bonds in small denominations for individual investors and through a savings and loan scheme. The Government would continue to bear the foreign exchange risk of the proposed loan (Guarantee Agreement, Section 3.03). Financial Performance and Portfolio 52. CIH's balance sheets reflect a rough doubling of total assets between 1976 and 1979 from DH 1.1 billion to DH 2.3 billion. This doubling is accounted for mainly by an increase of DH 918 million in outstanding loans. The housing loan portfolio increased its share in the total portfolio from 52 percent to 55 percent. Reflecting the lower risk of the housing portfolio relative to that of the tourism portfolio, the upper limit under which CIH has agreed to maintain its debt/equity ratio is a weighted average of ratios established for the housing (18:1) and the tourism and commercial building (9:1) portfolios (Loan Agreement, Section 4.05). The upper limit calculated as of end 1979 was of 13.8:1, and CIH's actual debt/equity ratio stood at 13.2:1. 53. CIH's profitability has reflected the evolution of the spread between its lending and average borrowing rates, of operating costs and of provisions for losses. Except in 1977 where the spread had narrowed from 3.6 percent to 1.7 percent due to an increase in borrowing costs, net profits have risen steadily, reaching 9.9 percent of equity in 1979. The rapid increase in CIH's lending rates and therefore in the spread (now at 3.5 percent), which will have a growing impact in the next few years, should allow CIH's return on equity to rise to about 14 percent in 1982-1983, despite projected higher borrowing costs and provisions against losses. 54. On September 30, 1980, arrears on housing loans amounted to about 3 percent of housing loans outstanding; generally less than a year old, they are adequately covered by CIH's mortgage securities. CIH has never experienced any significant loss on its housing loans. Arrears on loans for tourism have, however, caused concern in the past, leading to a series of agreed measures under previous loans. They were implemented on schedule and arrears were reduced to a satisfactory level. However, the economic slowdown in Morocco since 1977 caused arrears on hotel loans to increase again. On September 30, 1980, they amounted to 7 percent of the hotel portfolio, including arrears on loans and advances of DH72.5 million to Safir, a former subsidiary which managed and renovated La Mamounia, a prestigious luxury hotel. DH 40 million of the latter were recently converted to a loan by CIH to the Moroccan Railways (ONCF) which owns and now operates La Mamounia, and this amount is therefore no longer at risk. CIH is now attempting to recover the remainder, DH 32.5 million, from Safir. As CIH has already made specific provisions for this case of DH 22.9 million (over and above general provisions), and taking into account the 50 percent tax on income, the maximum effect of a loss on CIH's future net profit would be DH 4.8 million, against a projected net profit of DH 29.3 million in 1981. CIH's DH 40 million loan to ONCF reduces outstanding arrears to 5 percent of the total portfolio, of which Bank staff estimate 1.2 percent are serious. CIH's risk exposure of DH 12 million in  - 17 - such loans is adequately covered by mortgages, government guarantees, and by CIH's general provisions for loans on housing and hotel loans of DH 41 million. Overall, CIH's auditor, Arthur Anderson, estimated at end 1979 that CIH had made ample provisions against losses on its portfolio, and CIH would be creditworthy even in the absence of government guarantees. However, CIH has agreed, as under previous loans, to obtain a full government guarantee in cases where its exposure in a single project exceeds 20 percent of its capital (Loan Agreement, Section 3.06). Technical Assistance and Training 55. As indicated earlier (paragraph 30), the Government has agreed to begin to carry out by June 30, 1981 and to complete by December 31, 1982 (Guarantee Agreement, Section 3.04; Loan Agreement, Section 3.01) the third phase of the cost benefit study on tourism investments. The study would be carried out by integrated teams of Moroccan experts and of consultants under the responsibility of MOT and CIH, so as to provide at the same time useful training to the staff in both institutions. It is estimated that this study will require a total of 77 man-months of consultant services at an estimated cost of $9,000 per man-month. The terms of reference of the studies and the technical assistance needs have been agreed between the Government and the Bank. The studies are expected to substantially enhance MOT and CIH's planning, policy making and project appraisal capability. Similarly, a program of technical assistance will provide CIH staff additional training in the use of appraisal methodologies for tourism projects and assist in their computerization. Loan Administration 56. The proposed loan would help finance (i) tourism projects appraised by CIH according to agreed criteria (paragraph 43) and submitted to the Bank by December 31, 1983 (Loan Agreement, Section 2.03 c) ), and (ii) technical assistance for the cost benefit studies (up to $600,000), and for training of CIH staff (up to $400,000). Up to $25 million of the loan may be utilized for hotel projects which were granted the 5 percent interest rebate before January 1, 1980 (Loan Agreement, Section 2.02 a) iv) ). In addition, these projects would have to have a higher economic rate of return (15 percent versus 12 percent) than other projects, in order to minimize the risk that their higher financial attractiveness may result in uneconomic investments. In view of the improvement in CIH's appraisal capability and the greater experience of its hotel borrowers as well as to compensate for inflation, the free limit above which Bank approval of projects is required would be increased from $800,000 to $1,500,000 (Loan Agreement, Section 2.02 c) ). The Bank's review is expected to extend to projects accounting for about 40 percent of the loan. 57. The loan would be disbursed against (i) equipment, 100 percent of the foreign exchange cost of directly imported items, and 65 percent of the total cost of equipment bought from local suppliers but previously imported or manufactured from imported materials and components; (ii) civil works, from 20 to 37 percent of the total construction cost, depending on the hotel category, representing the estimated foreign exchange content; and (iii) services, 70 percent of total cost (Loan Agreement, Section 2.02 a) ).  - 18 - Project Benefits and Risks 58. The benefits to be derived from the proposed project are several. Net foreign exchange generation of the hotels to be financed is estimated at $128 million in 1980 prices per annum by 1987, when all facilities are expected to become fully operational. Direct and indirect employment resulting from the project is estimated at 21,000 at a minimum. Net fiscal revenues are expected to grow from DH 80 million annually during the 5 to 10 year period of validity of the incentives to DH 149 million afterwards. Sectorwise, the technical assistance provided to MOT and the completion of the various studies should further enhance the analytical framework for investment planning and for policymaking as well as MOT's follow-up capability. Similarly, technical assistance to CIH would further reinforce its project appraisal capacity. There are risks of delays in putting into effect the recommendations of the studies. The gradual but marked improvement in sector policies (paragraphs 30 to 34) illustrates however the administration's commitment to continuous progress. Lastly, there is the risk of reversal of the trends of tourism demand in the Mediterranean basin. However, any adverse effect on tourism activity that may come about because of a general economic downturn in the region are expected to be slight and Moroccan tourism has demonstrated resilience in similar circumstances. PART V - LEGAL INSTRUMENTS AND AUTHORITY 59. The draft Loan Agreement between the Bank and the Credit Immobilier et Hotelier, the draft Guarantee Agreement between the Kingdom of Morocco and the Bank, and the Report of the Committee provided for in Article III Section 4 (iii) of the Articles of Agreement are being distributed to the Executive Directors separately. The special features of the project which are referred to in this text are listed in Section III of Annex III of this report. The draft agreements conform to the normal pattern for loans for development finance companies. 60. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 61. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments December 31, 1980 Washington, D.C.  - 19 - ANNEX I TABLE 3A Page 1 of 6 MOROCCO - SOCIAL INDICATORS DATA SHEET MOROCCO REFERENCE GROUPS (WEIGHTED AVESGES LAND AREA (THOUSAND SO. EMS.) - MOST RECENT ESTIMATE TOTAL 447.Ojc MIDDLE INCOME AGRICULTURAL 203.4 /4 MDST RECENT NORTH AFRICA & MIDDLE INCOME 1960 /b 1970 /b ESTIMATE 7b NORTH EAST LATIN AMERICA & CARIBBEAN GNP PER CAPITA (US$) 190.0 300.0 670.0 698.2 1384.1 ENERGY CONSUNPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 148.0 180.0 285.0 545.0 1055.9 POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (MILLIONS) 11.6 15.0 18.9 URBAN POPULATION (PERCENT OF TOTAL) 29.3 34.6 39.3 45.7 63.4 POPULATION PROJTECTIONS POPULATION IN YEAR 2000 (MILLIONS) 34.0 STATIONARY POPULATION (MILLIONS) 70.0 YEAR STATIONARY POPULATION IS REACHED 2090 POPULATION DENSITY PER SQ. 1M. 26.0 34.0 42.0 40.7 28.1 PER SQ. EM. AGRICULTURAL LAND 59.0 76.0 93.0 598.6 81.7 POPULATION AGE STRUCTURE (PERCENT) 0-11* YP.S. 44.0 47.5 46.5 44.0 41.4 15-64 YRS. . 53.0 48.3 50.1 52.5 54.7 65 YRS. ANt ABOVE 3.0 4.2 3. 4 3.5 - 3.9 POPULATION GROWTH BATE (PERCENT) TOTAL 2.6 2.5 2.9 2.6 2.7 URBAN 6.4 4.2 4. 6 4.5 4.1 CRUDE BIRTH RATE (PER THOUSAND) 52.0 47.0 45.0 41.6 34.8 CRUDE DEATH RATE (PER THOUSAND) 23.0 17.0 13.0 13.7 8.9 GROSS REPRODUCTION RATE 3.474 3.4 3.2 2.9 2.5 FAMILY PLANNING ACCEPTORS, ANNUAL (-HOUSANDS) .. 25.1 78.0 USERS (PERCENT OF MARRIED WOMEN) .. 1.0 5.'* 16.2 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 99.0 98.0 79.0 93.5 106.9 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 96.0 102.0 105.0 103.6 107.4 PROTEINS (GRAMS PER DAY) 62.0 66.0 67.0 69.8 65.6 OF WHICH ANIMAL AND PULSE 13.0 13.0 13.0 17.5 33.7 CHILD (AGES 1-4) MORTALITY RATE 30.0 22.0 17.0 17.5 8.4 HEALTH. LIFE EXPECTANCY AT BIRTH (YEARS) 47.0 52.0 55.0 54.4 63.1 INFANT MORTALITY RATE (PER THOUSAND) .. .. .. .. 66.5 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 51.0 55.0 62.5 65.9 URBAN .. 92.0 100.0 82.9 80.4 RURAL .. 28.0 25.0 45.1 44.0 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 29.0 .. .. 62.3 URBAN .. 75.0 .. .. 79.4 RURAL .. 4.0 .. .. 29.6 POPULATION PER PHYSICIAN 9400.0_d 12650.0 10136.0 4688.7 1849.2 POPULATION PER NtRSING PERSON .. 2820.0 1826.0 1751.5 1227.5 POP'ULATION PER HOSPITAL BED TOTAL 626.1 688.0 774.0 635.5 480.3 URBAN .. 460.0 RURA- .. 2980.0 ADMISSIONS PEB HOSPITAL BE' .. .5 16.5 AVERAGE SIZE OF HO'SEHOLD TOTAL 4.8 _ 5.5 URBAN 4.3 4.9 RURAL 5.1 5.8 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL 2.2 2.4 URBAN 2.1 2.1 RURAL 2.3 2.6 ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 76.0 .. URBAN 85. 4;5 68.4 65.0 RURAL 31.07e ..  - 20 - ANNEX I I Page 2 of 6 MOROCCO - SOCA. TXOICASQRS DATA SEUET MNOCCO RZFRZCE GROUPS 1ErTE A" s - foST IZCZN ZS52MA7 ulp MIDDLE INCOM MST RECENT 8oRTU AFICA 6 MIDDLE INCOME 1960 L 1970 & ZSTIMTZ /b MIDDLE PAST LATTY AMERICA a C& ZAN EDUCATION ADJUSTED ENROLLMENT RATIOS PRIAR: TOTAL 47.0 52.0 68.0 76.4 99.7 MALE 67.0 67.0 86.0 92.2 101.0 FEALE 27.0 36.0 50.0 59.9 99.4 SECONDARy: TOTAL 5.0 13.0 17.0 33.3 34.4 MALE 7.0 18.0 21.0 41.9 33.5 FZEE 12.0 7.0 12.0 24.2 34.7 VOCATIONAL ENROL. ( OP SZCONDARY) .. 2.0 3.0 9.8 38.2 Pu7IL-TACm RATIO PRmRY 43.0 34.0 40.0 39.2 30.5 sEconDLS .. 20.0 21.0 25.1 14.5 AWLT LITZRACY RATE (PERCZNT) 14.0 21.0 28.0 39.7 76.3 CONSUMPTION PASSENGER CARS PER TROUSAND POPCLA-ION 11.0 15.0 19.6 15.2 43.0 RADIO RECEIVERS ER TROUSAND POPULATION 46.0 60.0 83.0 139.6 245.3 TV RECVERS PER T8OUSAID PDLAnToN C0.4 12. 0 29.0 29.0 84.2 NEWSPAPER ("DA=LY GENEAL INTEREST") CIRCULATION PER IMOUSAND POPUlATION 22.0 16.0 21.0 22.2 63.3 CINBAA ANBDAL TrEDANCE PER CAPITA 2.0 .. 1.8 2.8 LABOR FORCE TOTAL LAsR FORCE (TOUSANDS) 3369.7 3951.7 4954.8 FEMALE (PERCENT) 10.6 15.2 16.0 9.6 22.2 A=iICLTURE (PERCENT) 62.0 56.9 53.0 47.0 37.1 INDUSTRY (PERCENT) 13.8 17.4 20.0 23.8 23.5 PARTICIPATION RATE (PERCENT) TOTAL 29.0 26.4 26.1 26.1 31.5 MALE 52.1 45.2 44.4 47.4 48.9 FEMALE 5.9 7.5 7.9 4.7 14.0 ECONOMIC DEPENDENCY RATIO 2.0 1.9 1.9 1.9 1.4 INCOME DISTRIBUTION PERCEBT OF PRIVATE INCOHE RCEIVED By HIGHEST 5 PERCENS OF HOOSEHOLDS 18.0/f 20. ..Lf HIGHEST 20 PIERCEN OP HOUSEROLDS 43.3ki 49.O . L4WSlT 20 PIECE? oP ROUSEROLDS 7.0/f 4.-0/ LOVEST 40 PERCZNT OF aoUSEBOLDS 18s. 0f 12.0tf POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL MUSs PER CAPTA ) URBAN 107.0 157.0 389.0 262.5 ROLRAX 66.0 101.0 238.0 140.4 190.8 ESTIMATED RELATIVZ POVERTY INCOE LEVEL (M5$ PER CAPITA) BAN .. .. 242.0 202.1 474.0 RURAL .. .. 157.0 122.2 332.5 ESTIMATED POPULATION BZLOW ABSOLDTE POVERTY INCOME LEVEL (PERCENT) URBAN 51.0 38.0 28.0 22.1 RURAL 49.0 45.0 45.0 33.1 Not available Not applicable. NOTES /a The group averages for each indictocr are populariom _eight.d arithMetic means. Coverage of cojntries aong the indicators depends on avallability of data and is not uniform. !b Unless otherwise noted, data for 1960 refer to any year becween 1959 snd 1961; for 197C between 1969 and 1971; and for Most Recent Estimace, between 1974. aod 1978. / Excludes iorocian provinces 1i W. Sahara; jd 1962; /e Prick buildings only; /f Consumption expenditures of householdg. April. 1980  .21...ANNEI Page 3 of 6 DFltINITIOfNS OF SOCIAL INDTICATORfS hoe: Alt-ou. shs oeta are Arson from eoueoo generally, judged she moss suthoritanine and re1iabl, it should ale be noise that the may non be ine-- eatinsel. comparabl because f the lack of stcodardiomd oofiiitions and sonoepte u..ed by differet.totee to teleoilo the Asta. The date en, none- tIbs uou sc seeri Ioodr f neeittodo. h.odhat tr-sas andsaroeceerrta- maJor differee sserooede The :Ioferenoc g...upe are ftrho ane, ce rou of toe eubrecs coun try and (2) a oeotry grou.p hint .-meches higf.ee average Inooe tbh the coaucr- grop of~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~g teubetourofopsfripalSrlsiloprmmgnanhrcddelnmNrth Africa ccl Middle last" is chosen ba....e of strnge lee-,tlofteousie na ou halfacs fo th. -r. .,h.a.I,tat fodtasor SIe-e oooteag of ....tocam amon she Ind idoo depenIds ontheoil lioo aeta end io non ucfoen. anuococ mus ho...erisad hr raaa - ng-s of ons idctorto cootte- )T_cn nrge are o... oe t toprino the value tonal - To-Ia curia I aces .. uic3 land area and icleod cater,ntuoce; o o a-o-mtr tu.ontvlv: -gl.U . Esia te lt___...______________- d__ - -or f p act cin ProclcId o kgloltural er dmoes r tampoeril onpfa- al Oul e -use fercoc, ooonororide oe 'P Par d.p.t. -i-t. -tolasor0e hnoca bd tsa. rhe..e ur -Poultin toal tSP .t C ...t (COt) I..h - typrcpt Wccirld Bas Aturnent9ea6bk ..i..s ..- unbar,adrrl lo yscrepcl obro opslhd oulased by7 saedonnucmebda hn ak ca 1 7)-f6 beau); 1960, ailhonpuicnd otnaegsr) e -h-pniclas heepitaenn- byEm es nepysn ctehIichc..mn peonidlg primolpally ...ctadial ENEGYc CONSUMPTION PEt CAPITo - Aaae_ cesmnooo nsnc.a.mear_ oltar anmo otIdd.fonIhsptas boliesnen,r imI nieds hea.lth afdmaia and lgnins pcoalsum senra1 gas ead hydro, ea-e n gohna as- a ara oo. emnnlyaafdh ptiisfo by.d Ri.14 a 1It med da assieant eritiny an..g..of.m qlalo e aia;lh,17. dlP sc. .ldefe, etc.) mbioh eff en bo-p.tari ...n aoondetbe ad pnevide a POPULATIOt AND VITA). STATISTICS tompnneln lod. " orII, run) ocunl end. nedra and h.aptar lfo nemeses Maa euain id-Ican felin)- un of July 1; lSt PO.ad1T urcin ne- hmctlbe tona1nab r.1of . adicoaato r di ohae Urlban Pelanon rer-t of total) -ato. of sebam no tena1 populcti.. r os;..dyi. y a.-. . Afaocr dai_coon o f urban ara a ffect omparubiliny of done HOUSItNG encconries; ig6I. 19)1, esd 199dana.unastisonsshlfrcnaenomei)- tend unbas. and ereri Popuasio II c year 2O0P - C,rne..n popolacioc pro5ento_ are bae ... 1980 Im their man eas A bcrden or lodger may or mar moo be i Jddin coca) ... p tuair ho age and eec cad tbeir mcrta1lit'.a etln ae. ncboobl e sneia upes Projeoion oramenra fo connliny eass oepnie of tree lnelsaeor- rerae sabe of nrmonc er mo - neal. uben.lndtroal - ntrig cog.lIf ceetn t c birti. increasiag hind ountoros Pe ept oe bAyr.. of b p Info pe roo. I,, luba,adrupacupr snenoa lon,a Ifnl 10 tncar canlesae 7. ar. h ...slaoe.rcentnt .nlligcclV.nepcmos trunana Etc coocr isnier.amucoc oe ottbh o in - omb... ccocs ofbauln erc"-Pio-, Anloa 00relcrciyc lrrtoanenc ooc_lauior-lcc sncoa)Psp-.uoccosr cs,iV noart.s.cco tin crt:. uts i ocua cc oo den), eni. at Alo theago souccuatre mains oooecaoc. Thus in echuened ash amer forullico rates decline no Admusned tnrollmert cation~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-r.ji~ I... chureocoeen loeD f u c ne rerouaton sne oey achacsnaion Praar eceol- ons., alemaafealetems ote., dal en isal of onn eplsa isef accly Te satonrypeplain msc sssmelmcs o al gesatnb pimay en a pasetaecOS sasaiv masmce s bc eas fr Pt?c-c prjoa br- nrmiao sepplnon piayabelceppltisonral ioee bldc gdhl inne er 00,sd h et o eainoffnnlnynnen epso-rer ut dosdfr ifrn entso rmry crso pnien; O nano )eral. aeamnrios aich aoi~~~~~~~~~~~~~~Vara dcto nnionmyeoe O ecn Per c. a. Ohdyna poalauon ar quae hleesar lythsoanea ofpr.idetesn_yl roatioal,on eacer tain_a osisonine sr opi .tonl area usullyof 1 t 1fear.of..s ooreeeodco oouce see gesel Poultlv rondO ts .i rcrsn -. hada -Th Au -a grwh- rates of. send mid-j p imar sod annndoo -nn d-irV ided 1t-1:,a ! ... noon.~_ ...lcun it r lShnPilead190-at. bbcobes f acbet t-h lsboafa d15-hO.Pa 19.. k-Utt end190-7. s-pnoncge ffena aut poua Co - ag d - bSear an onc.V - popoPri-;d..f,237, adf090 dse.ooys Iprto CrdP en. ot(o oh -snd c-- Ana bs... per --c1- nb4so o edpet --esesneor Cae oc shoc rnd rontolanion t- Psesnnromrs ae pou Anio 1900,t1) , cd1T na aesaigle ht ih esn;scoe maeoe ers c Iren te.droductiaj hans-Aer5gesombe ofhid- deg-1rasema oill baninnlicyvba oIl ocy racs; uoalty 196psC ureago aed 19 or. l9G 9G n 97 rodao ognr:pbltpnsemn fppaaioccoe si Peat> P:aocino-oooetsorn, ~~~~ A rul )hceads - Aeccuar l runbsc c!b. oc pto- cered psuedrer In. ocnre s nyer bceganalno.ai e ohitd-ocro "ocoe une upoe Sntotlial plc1970pr7goa. dhunt,efct daafo.eca eatma .o be bl toposi sine macst. PCr Irt" Plcioiotcecrt fsriaoofPrenaso areroone abi..h. icnes.'-dl --a- Fd1 .r dV 1t9O 017170UTtTdIt7tenectne Cir-laon or the...Idpsuandionulcen S. bone .b. pri ea. ....l Rtfoscr f l foo cmonies.i Pof_ ioen ue es n fe o 'icas to denote prma- l noh pecodin general nelc... ft -- oeidne tor o-, calndro-Iti Paro h.oooe corec-V,...r nrouy od fag. sugf, arnen toi ho 'd idly'i.npmrea.es.ou imes ucoccad of eugon)chiharnedible aol contin,i 19nt,oh e.g.cofee Rd Gn .. Annua Aspndoc th er- CePnita ) -a cAr-lceaP e nbc membra at rd Per crona upooof ca .rse f..rcPit cf recrt ann f-4 Gepocedn iron - en..dmoies It. dI hfrd .a ecepoeqitlct f ottod uplos ralaleinooctt ernain 200 PP. pe do. Anil- l sI o ne- ofnparuiea dwmognucpout.iprsl oa Laeffont dthouLanfI -t iaosoios-Y t boln =Pseoos, imIodiegt qusoctuiseused c soo proosnuag and oeme in dcceibcien.tequio- leinistos ihrarhos oan1eio are.ottnopbnaia; 190. 190 ae eecctsceroeenimasel hnP)hadc hsiigolsosfc ot,ct- 1) dana. h..- noId l o oo erE rdbt upl f td oeoofdshoo h- so lenooti,ete d c e erecaeoftis abrfot. 90 quoneo.ts fr allocuntIneeilihdb tO rvddc iucu90ad17 dany . I ahuonc O rn fcco rcd.pn s n irom fsiu en _eticotipaIe haVtsd (proect) ~ - .o..l rma .. and feae- PtrcicIp...uon no acn: hiccasd.h avrag fcbl she d.t.o i rroe . Qc tha - tic 19b. 1d9i7, and it7 den.. T m r L' ectiatnrtsrfon lhhl-d)~ ~ ~ ~~~~~~~~~a.d .V , i9)G- ant 1d data.ll,,-.r Agg-s... P-d-ti., f .:dt, I ..ou ar ft,o rattIul buroan rtvel ory ccuato art ...e o.ica oyc"'th-I,l' ec)' aa Ioo ....ocanttro yaic- asco pap l -sooude 11 sa-fic on PPt"uan-t rt;ont 00 huso.- c.u u-co pro .I .tnldoo fn If It I'll -', -"' - ci.trl Parooot ot.or crd o.zot-oot>tEL- tBtvt rrOtRCE Par Ayi,.11. X _ ti pr.d. rt. .- -T.t.1oLrbr . otzvrth...oordv.to- oE. nCooe -t _t ..taOotOOd0f 00 obO' .ot,plAt'o;tbottct ;7 ror. h- -ttd d diV., 'r .... .S, ..4 1.....;tcx.to por: -crd-tvlib'orti001 - qoorroo rrOt t. ".r. -i-d by FAC b...d pbcyoocvrtertto-o.rr. o tutorooclgn: nlc ooo a uId c _6o tooli-oo rur.dtrO to, t-o rcsotuo- Itt hto tF 1 ot pooorut) -aFeo 1a 0b00f- . -lo Psarta ronfoo rt qtr beon Ir.not to) OO fO tP.to .ofeo s.r r ctnuoo 0 ctvartco orel coosideeoaa baeg rtsin esnbeacs fnishue rsa r persoalpacrmaIf th tomet.. irban facl is derne iron thVrra td ~ ~ ~ vn~fa ooaic e boue PovRenbasLvlioo f-ra curul- hunb tr.of people (natal,gorbat, and rora ) earned boncdneta diapseal en pencecna5se of sheirrespec tire pooulacoena. tonoena Ate Oaenomic seA Seciel bate flinision posa ma, t inclue .on ....ouo ted dItoca,P PntoanAuC -raasmhn, toanemic amalysi am Poeeinaheenm ofbaen nt,c aAwos-cne r morbro ysae r h aeo'Ari.19- pie pect,uesaod cimilaronsnallecuons. lt. h:-.,.I I,,, rt,,r,l,t-  - 22 - Population 18.9 (mid-1978) ANNEX I GNP Per Capita: 670 (1978) Page 4 of 6 MOROCCO - ECONOMIC INDICATORS Amount (million IISt nt Annuial Growth Rates (%) current prices) Actual Projected Indicator 1978 1975 1976 1977 1978 1979e/ 1980 1981 1982 1983 1984 1985 NATIONAL ACCOUNTS Gross domestic product a/ 12426 9.3 11.8 6.0 3.1 3.1 3.5 2.9 4.0 4.4 4.4 4, Agriculture 2248 -8.6 10.6 -13.4 18.2 -6.0 4.0 2.4 2.4 2.4 7.4 7.4 Industry 4010 13.8 10.0 11.3 -0.7 4.8 3.0 3.0 4.4 5.1 5.5 5.5 Services 6168 12.8 13.2 8.3 2.0 4.7 3.3 3.0 4.2 4.S 4. 4.3 Consumption 11138 9.8 11.7 2.0 7.4 3.0 5.2 ?.9 2.8 3.7 4.1 4.1 Gross investment 2976 24.0 20.1 11.0 -23.1 -1.2 -14.8 -1.1 2.4 6.7 4.7 6.8 Exports of GNFS 2167 -16.0 6.3 9.8 3.8 5.5 6.0 5.4 5.5 6.1 59* 6.4 Imports of GNFS 3990 24.1 23.8 13.5 -16.1 -1.1 -4.7 1.4 -1.2 4.3 4.6 -.5 Gross national savings 1753 21.2 13.9 20.6 -16.6 11.5 -5.8 -2.3 6.5 1.7 4.6 ;.6 PRICES CDP deflator (1969 = 100) . 148.7 150.9 161.3 173.0 187.3 Exchange rate (US$ per DH) . .247 .226 .222 .240 .256 Share of GDP at Market Prices (%) Average Annual Tncrease (7) (at constant 1969 prices) (at constant 1969 prices) 1960 1970 1975 1980 1985 1990 1960-70 1970-75 1975-80 1980-85 1985-90 Gross domestic groduct 4.0 4.9 5.5 4.2 4.5 Agriculture