Document of FILE-C P The World Bank COPY FOR OFmFCIAL USE ONLY Repwt No. P-2688-MAG REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE DEMOCRATIC REPUBLIC OF MADAGASCAR FOR THE BANKIN'NY INDOSTRIA (BNI) January 10, 1980 Iis doment he a rutulctndtbtlmad may be used by replens only In the pedorace of dtheir oiaW dutes. Its ceen_ts ma not oterwise be disclosed witht World Bank altorlzaetn CURRENCY EQUIVALENTS Calendar 1978 January 1979 Unit - Malagasy Franc (FMG) - Malagasy Franc (FMG) US$1.00 - FMG 225.64 FMG 212.06 FMG I - US$0.004 = US$0.005 FMG 1,000 - US$4.43 = US$4.72 (The Staff Appraisal Report is based on US$1 - FMG 210) FISCAL YEAR January 1 - December 31 ABBREVIATIONS BCIM - Banque pour le Commerce et l'Industrie de Madagascar BDPI - Bureau de Developpement et de Promotion Industriel BFV - Banque Nationale pour le Commerce BNI - Bankin'ny Indostria (Banque Nationale pour le Developpement Industriel - BNI) BNM - Banque Nationale Malagasy de Developpement BTM - Banque Nationale pour le Developpement Rural OCCE - Caisse Centrale de Cooperation Economique -DFC - Development Finance Company KfW - Kreditanstalt fur Wiederaufbau SSE - Small-Scale Enterprise FOR OFFICIAL USE ONLY MADAGASCAR BANKIN'NY INDOSTRIA (BNI) Credit and Project Summary Borrower: Democratic Republic of Madagascar Beneficiary: Bankin'ny Indostria (BNI) Amount: US$5.0 million Terms: Standard Onlending Terms: 1. The Government would onlend US$4.5 million of the proceeds of the credit to BNI at an interest rate of 7.5% per annum plus 0.75% commitment fee for a period substantially in conformity with the aggregate of the amortization schedules of the subloans, except for US$0.5 million for financing artisan/SSE projects, which would be repaid under a fixed amortization schedule. 2. BNI would onlend the proceeds at a minimum rate of 8.5% per annum to its IDA-financed clients. The foreign exchange risk would be borne by all medium and large-scale borrowers. The Government, however, would bear the foreign exchange risk for the small-scale borrowers, who would pay a fee of 1% per annum. 3. The Government would pass on US$0.5 million of the proceeds of the credit to BNI for technical assistance/training/studies within BNI, as a loan without interest but with 0.75% service charge. This amount, for which the Government would also assume the foreign exchange risk, would be repaid under a fixed amortization schedule. Project Description: The project would support the country's growing industrial sector and BNI's crucial role by: (i) providing BNI with part of its foreign exchange requirements to finance its projected lending to artisans/SSEs and medium-scale industrial enterprises during the period September 1979 through December 1981; and (ii) strengthening BNI and providing funds for technical assistance to the institution. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. X ii - Estimated Resource 1979 Requirements: (3 months) 1980 1981 Total -------------US$ million-------- Commitments 2.75 11.48 14.71 28.94 (of which in foreign exchange) 1.83 7.47 8.99 18.29 Local 0.92 4.01 5.72 10.65 Foreign exchange resources: Italian Government - 2.38 2.38 4.76 CCCE 0.95 1.91 1.90 4.76 KfW - 0.48 0.95 1.43 Total 0.95 4.77 5.23 10.95 Gap in foreign exchange (0.88) (2.70) (3.76) (7.34) Financing Plan Local Foreign Total ---------US$ million------- Total Commitments 10.48 18.09 28.57 Resources available for commitment 9/1/79 - - - RESOURCE GAP 10.48 18.09 28.57 To be financed by: Local Currency (BNI profits) 10.48 - 10.48 Foreign Currency CCCE - 4.76 4.76 KfW - 1.43 1.43 Italian Government - 4.76 4.76 IDA 4.50 4.50 Other _- 3.14 3.14 Total 10.48 18.59 29.07 Estimated Disbursement: IDA Fiscal Year 1981 1982 1983 1984 --------US$ million--------- Annual 0.4 1.6 2.2 0.8 Cumulative 0.4 2.0 4.2 5.0 Risks: There are uncertainties about how the sector will evolve in the context of transition toward a system of socialist enterprises. This may create a climate not conducive to private investment, particularly foreign, and may result in somewhat reduced industrial growth. Rate of Return: N.A. Staff Appraisal Report: Report No. 2456a-MAG, dated January 10, 1980. Eastern Africa Projects Department Eastern Africa Region INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE DEMOCRATIC REPUBLIC OF MADAGASCAR FOR THE BANKIN'NY INDOSTRIA (BNI) 1. I submit the following report and recommendation on a proposed development credit to the Democratic Republic of Madagascar for the equiva- lent of US$5.0 million on standard IDA terms to help finance the foreign exchange requirements of the Bankin'ny Indostria (Banque Nationale pour le Developpement Industriel - BNI) for the period 1979-81. US$4.5 million of the proceeds of the credit would be onlent to BNI at an interest rate of 7.5 percent per annum with a 0.75% commitment fee; US$0.5 million for the technical assistance/training/feasibility studies component would be passed on by the Government to BNI as a loan without interest at a service charge of 0.75%. PART I - THE ECONOMY 2. A report entitled "Madagascar - Recent Economic Developments and Future Prospects" was distributed to the Executive Directors on October 24, 1979. A summary of its findings is set out below. Country data sheets are provided in Annex 1. 3. With a population of 8.0 million and a GNP per capita estimated at US$240 in 1977, Madagascar is one of the poorest countries in the world. It is predominantly an agricultural country and 85 percent of its population live in rural areas with a per capita income of about US$120 per annum. In many areas the standard of living is at the subsistence level. Although the country is sparsely populated (an average of 14 inhabitants per square kilo- meter), there is great pressure on cultivable land in some regions. Owing mainly to different ecological conditions, the highlands are more advanced than the coastal areas, and the south is particularly poor with a harsh, arid climate and infertile soils. The east coast is rich agriculturally, but crops are frequently devastated by cyclones. Internal migration is common and has accelerated as improved roads have provided access to new areas. However, poor roads remain a major constraint to development; many of the main highways are not passable during the rainy season in a country where production centers may be as far as 800 kilometers from main points of consumption. Many areas are cut off from the rest of the country for several months each year. 4. Over the past few years the growth of the economy continued to be slow and uneven. Having risen but marginally in 1975, real GDP fell in 1976 by 2.9 percent owing to a slight decline in agricultural production and a steep drop of about 14 percent in manufacturing output. GDP is estimated to have increased by 3.9 percent in 1977; even so, output of goods and services showed only a slight increase over the period since 1974; and, with population - 2 - increasing by about 2.5 percent annually, per capita GDP fell by about 5 percent. Budgetary investment outlays were stepped up considerably after 1975; but the investment rate remained practically unchanged at about 14 percent as the sharp rise in Government capital expenditures was largely offset by a substantial decline in private investment. The savings rate also continued to be fairly stable and fluctuated around 10-11 percent. The resource gap as a consequence has been maintained at a low level. 5. Agricultural production has not recorded any marked growth over the last three or four years. Even over the longer period since 1970 it has increased at an annual rate of only about 1 percent. Despite periodic good crops, paddy production did not keep pace with demand; and production in 1977, estimated at 2.0 million tons, was only about 7 percent higher than in 1970. Groundnut production, after rising significantly in 1976, fell back to 47,000 tons in 1977, while meat production did not register any significant rise. Imports of rice and edible oils have increased to 105,000 tons and 16,000 tons, respectively, and were about three to four times as large in 1977 as in 1970-71. Sugarcane production continued to stagnate as there has been no addition to the refinery capacity for several years. Among other cash and export crops, coffee production, except for a 6 percent drop in 1976, has been rising steadily, reaching some 89,000 tons in 1977. However, raw cotton production, which had been increasing fairly fast, levelled off after 1975 due to shortages of fertilizers and pesticides; vanilla output declined, while pepper showed no noticeable increase. 6. The development of the industrial sector after independence in 1960 was encouraged by promotional measures such as fiscal incentives, protection against competition from imports and provision of institutional term financing. Industrial production now accounts for about 14 percent of GDP. Despite significant diversification of capacity that has taken place, manufacturing is still dominated by food processing, textiles and apparel industries. Together they account for close to 70 percent of the manufacturing output. Among other industries the important ones include tobacco manufactures, chemicals (mainly soap and matches), petroleum refining and production of construction materials. 7. Industrial growth since 1972 has been erratic. Following a marked 9.3 percent rise in 1974 the industrial production index declined again in 1975 and 1976; and despite recovering somewhat in 1977 it remained below the level attained in 1974. Within the manufacturing sector itself, however, performance varied between different industry groups. While the output of processed foods and textiles followed a stagnant or a declining trend after 1974, some of the comparatively minor industries, such as chemicals, tobacco manufactures, rubber and paper products maintained a fairly steady growth. 8. Over the past few years a number of industrial establishments consid- ered to be of national importance were taken over by the State. Some unprofit- able enterprises facing closure were also nationalized to prevent layoff of workers. In some other cases the State assumed majority control. The important foreign-owned industrial enterprises that were nationalized include the oil refinery (January 1976), the power and water supply company (January 1976) and two sugar firms (December 1976). At present, the State owns, or has acquired majority participation in, all major industrial units employing a thousand or more workers. - 3 - 9. Madagascar's fiscal situation deteriorated considerably after 1975, due to a sudden and sharp rise in current budget expenditure and Government spending on capital development. Current expenditures rose steeply with the rising wage bill of the Government and increasing outlay on maintenance; and the current budget surplus, which used to be substantial, dwindled as revenues failed to keep pace with the growth of expenditures. Furthermore, as Govern- ment intensified its efforts to raise investment levels and stimulate the economy, public investment expenditure rose from 11.2 billion FMG in 1975 to 20.5 billion FMG in 1977. The outlays on the consumer rice subsidy, although they declined in 1976, rose again to 3.6 billion FMG in the subsequent year. The overall Treasury deficit, which more than doubled to 20 billion FMG between 1975 and 1977, was financed increasingly through recourse to Central Bank advances. The budget for 1978 envisaged a 26 percent increase in total outlay as compared to the estimated actual expenditures in 1977, while capital spending was proposed to be raised by nearly 80 percent to 36.4 billion FMG. Revenues also were expected to go up sharply, partly as a result of tax reform measures. The overall deficit, however, might turn out to be somewhat larger than the projected 16.1 billion FMG owing to underestimation of expenditure on personnel and the settlement of payments deferred from 1977, on the one hand, and shortfalls in revenues on the other. Even so, the overall fiscal situation is likely to have shown some improvement in 1978 as compared to the preceding year. The Government is contemplating economies in current expenditure, particularly by paring consumer subsidies, so as to minimize the burden of unproductive outlays in the future. 10. Monetary and credit developments since 1975 have been influenced mainly by the Government's deficit financing needs. Outstanding domestic credit went up by more than 50 percent to 126 billion FMG during 1975-77, due, for the most part, to the steep and continued rise in net claims on Government. As a result, money supply, which had been increasing moderately, rose by 15 percent in 1976 and as much as 25 percent in 1977. Despite this monetary expansion and little growth in the output of goods and services, the annual inflation rate has been moderate -- about 9-10 percent during 1976-77, largely because of increasing demand for cash balances and the consequent accumulation of idle funds. 11. The balance of payments situation which had been deteriorating showed a substantial improvement in 1976, when a surplus of 2 billion FMG was recorded; but the payments surplus in 1977 is now estimated to have been much smaller. The turnaround in the balance of payments situation occurring in 1976 is attributable more to exogenous factors than to any significant im- provement in the structure of the balance of payments. Trade surpluses were recorded in 1976 and 1977 as a result of (a) a sharp rise in prices of exports, particularly coffee, which reversed the continuing deterioration in the terms of trade, and (b) the imposition of more strict quantitative restrictions on imports in 1976. There was a substantial decline in the availability of imports after 1975. On the other hand, the volume of exports dropped sharply in 1976, and continued to fall in 1977, while there was no lasting reduction in the services deficit, nor any sustained rise in capital inflows. 12. The growth and development of the Malagasy economy have over a fairly long period been affected by constraints resulting from shortage of savings, slow growth in markets for major primary exports and low productivity of traditional agriculture. The country, however, is relatively well-endowed with natural resources and has a well-established administrative set-up. With appropriate policies and adequate external capital assistance, medium and long-term prospects for the economy should be favorable. There is consider- able scope for the expansion of agriculture and livestock production. Only about a fifth of the arable land is at present being cultivated, while fer- tilizer consumption, estimated to be some 14,000 tons in 1976, is still rather small. The irrigation potential has as yet been only partially exploited. The outlook for further development of manufacturing based on locally avail- able materials is promising. On the whole, sustained growth at an average annual rate of 4-5 percent appears to be feasible. 13. The Government has been taking far-reaching steps to strengthen national control of the economy. As a part of this process, economic and financial institutions, productive sectors, foreign trade and internal market- ing have undergone extensive reorganization. Inspired by the basic needs approach, the Government has also formulated long-term development objectives which envisage a more egalitarian income distribution and satisfaction of specified minimum consumption requirements of the population by the end of the century. The Government also stresses national self-sufficiency and the eventual establishment of an industrial base large and diversified enough to meet the domestic demand for basic equipment and other essential consumer goods. 14. A Three-Year Plan, which is to be the first of a series of medium- term investment programs designed to attain these long-run development objec- tives, was launched in 1978. The Plan envisages overall expansion of the economy at an average annual rate of 5.5 percent during 1978-80. The rate of investment is projected to rise to 17.1 percent of GDP by 1980 from the Plan estimate of 11.5 percent in 1977. The savings rate is to be stepped up, partly through the mobilization of additional budgetary resources for capital development. But about a quarter of the investment outlays during the Plan period is expected to be financed through external loans and grants. Greater emphasis will be placed on the development of food crops; and household con- sumption is targeted to rise, in real terms, by 3.6 percent per year. The plan accords high priority to manufacturing, particularly basic industry and processing of agricultural raw materials. 15. Madagascar's external public debt, outstanding and disbursed, amounted to US$202.8 million at the end of 1977. Slightly over half of it (US$102.3 million) was owed to the Bank Group, and as much as 37.8 percent to IDA alone. The Bank Group share of debt service in 1977 was 20.8 percent. Among bilateral donors France and the Federal Republic of Germany are the most prominent, each holding about 14 percent of the disbursed debt. Japan and the People's Republic of China rank next in importance (about 5 percent each) followed by the USA (3 percent) and Italy (1.1 percent). Suppliers' credits and commercial borrowing (4.6 percent of the disbursed debt) have been rela- tively unimportant. The Government, in fact, has been generally prudent with regaid, external indebtedness; the outstanding disbursed debt at the end of 1976 thus amc-inted to nearly 11 percent of GNP as compared to the average of 21 percent for low-income countries. Because of relatively limited reliance on external assistance and concessionary terms of most loans and credits, debt service payments have remained small. The estimated debt service ratio of 3.5 percent in 1976 was only marginally higher than in 1970. 16. The Bank Group should be prepared, in appropriate cases, to provide some local cost financing. In terms of performance, Madagascar appears to have performed about as well as other countries at the same level of develop- ment encountering similar constraints. Its current 'iomestic savings rate of 10 - 11 percent compares favorably with the average of 8 percent for countries in the low-income group, indicating that Madagascar has made a reasonable effort to mobilize domestic savings; but its savings fall far short of the country's requirements. The Government's policy of emphasizing self-reliance has contributed further to scarcity of external resources. Despite consid- erable restrictions on imports, the country's balance of payments and reserve position have continued to be weak. PART II - BANK GROUP OPERATIONS IN MADAGASCAR 17. Outstanding IDA credits to Madagascar amount to US$206.51 million and Bank loans total US$31.98 million. About 54 percent of Bank Group lending has been for transport, 14 percent for electric power, 24 percent for agricul- ture and 8 percent for education. IFC's first investment was made in March 1977 with an equity investment of US$290,000 and a loan of US$11.0 million for the expansion of a textile mill; other projects in leather and ferrochrome are under consideration. Annex II contains a summary statement of Bank loans and IDA credits, and of IFC investments as of December 31, 1979, as well as notes on the execution of ongoing projects. 18. The priority given to transport investment recognizes that improve- ment in communications is a precondition for Madagascar's development. Four projects have been for the construction of all-weather highway links between the island's different regions; a fifth highway project for road maintenance was signed on July 30, 1979. There has been a project for improving Mada- gascar's main port of Toamasina and one for modernizing the railway line between Toamasina and the capital, Antananarivo; a second project supporting the railways' modernization efforts was signed on June 25, 1979. Bank Group lending for agriculture consists of two livestock development projects, two irrigation projects and a forestry project. A credit for an agricultural development project in the Mangoky delta was signed on May 17, 1979. A study of the problem of agricultural marketing and meat pricing is being executed with the assistance of an international consultancy firm. Bank Group involve- ment in the utility sector includes the financing by IDA of part of the cost of the large Andekaleka hydroelectric project for which substantial bilateral assistance was secured by the Government. Recently, additional financing of US$10 million was negotiated to help cover a doubling in cost of civil works, which will be submitted to the Executive Directors for their consideration on a date to be determined. - 6 - 19. In the past, problems have arisen in the course of execution of several projects. There were delays in execution, cost overruns and deficiencies in institution building, especially in agriculture. The Morondava Project had to be substantially reduced, and the Government has prepared a plan of action to deal with the remaining problems. The main aspects of this plan include a redefinition of the implementing agency's (SODEMO) responsibilities and financial structure, completion and audit of overdue accounts, and preparation of an investment program and budget for development of the Morondava area. Implementation of the plan of action has started and is being closely monitored by the Government and the Association. Implementation of the Village Livestock Project has improved substantially. The first three highway projects have been completed. The fourth project is still being implemented; the road construction component is nearly completed and the maintenance studies have been completed. However, there has been a delay in the start of the recommended training program for personnel in the Ministry of Public Works on highway main- tenance. Since training local staff is essential, Government has agreed that training consultants will be employed and that construction of training facilities will begin by April 1, 1980. 20. In our future lending to Madagascar, we expect agriculture to absorb a larger share of Bank Group lending, in line with Government strategy stated in its long-term development plan where it is recognized that expansion of agricultural production is a prerequisite for further development of the country. A pipeline of possible projects has been identified in a sector memorandum discussed with the Government in mid-1979; IDA is assisting the Government in preparing an agricultural credit project, two rural development projects, a small-scale irrigation project, a third livestock project and a second forestry project. We will also continue to support infrastructure development through such projects as the Antananarivo Water Supply and Sanitation project (recently negotiated), education, urban development, roads, railways and ports. A petroleum exploration promotion project was appraised in October 1979, and is expected to be submitted to the Executive Directors by May 1980. We expect the Government to seek cofinancing from external lenders for some of the projects, and we intend to assist the Government in its efforts to mobilize new external sources of financing. PART III - INDUSTRY AND BANKING The Industrial Sector 21. Industrial production at Independence (1960) consisted mainly of food and mineral processing for local consumption or export. At present, textiles and food and beverages each account for about one-third of total industrial output. High costs and local transport difficulties, as well as the country's location far from export markets, have hindered development of the industry. Furthermore, industrial enterprises were mostly foreign-owned and as of 1974, the largest 80 industrial enterprises with an estimated 70 to 75 percent of value added in the sector were controlled by French interests. Industrial development has, however, been encouraged by the Government and value added by industry was estimated to have increased by 6 percent per annum in real terms from 1966 to 1971. - 7 - 22. More recently, however, industrial output, which still consists mainly of textiles and processed foods, has been stagnant or has even de- clined; although some of the minor industries--chemicals, tobacco manufac- tures, rubber, paper products--maintained fairly steady growth. The setback to industrial growth in the years since 1975 was caused by a number of factors: strained capacity and aging equipment, due partly to declining private invest- ment, uncertain and inadequate availability of agricultural materials for processing industries, shortages of imported inputs, and, in some cases, even low demand. These factors reflect to some extent the effects of the uncertainty that accompanied the shift to greater Government control from a predominantly free market system. In particular, private investment in industry was discour- aged and maintenance of industrial plant suffered. 23. Recent performance in the sector shows that textiles, paper, cement and chemical industries worked close to capacity in recent years, while capa- city utilization in the food industry, construction materials (other than cement), transport equipment and petroleum products was relatively low. In many industries, though, capacity has already been considerably reduced by plant age and condition. Based on some estimates, investments in industry in real terms in 1976/77 were less than half of those in 1972. Manufacturing employment in 1976 was estimated at 45,000 and the sector contributed about 14% of GDP. 24. The still current Investment Code of 1973 provides investment incentives through tax and other concessions negotiated on a case-by-case basis. Enterprises that are judged to be of particular national economic benefit are eligible for the Code's incentives. Purely domestic commercial enterprises are excluded. The beneficiaries undertake to fulfill a compre- hensive program, including production targets, prices, training, "malgachi- zation" and reinvestment of profits. This Code is presently being revised to provide more explicitly for socialist enterprises, but its main provisions are likely to remain unchanged. 25. In May 1978, the Government promulgated the Charter of Socialist Enterprises, which gave formal ideological and economic meaning to actions that had been previously decreed piecemeal. It includes among the objectives of the Government eventual control of the principal means of production and the nationalization of all mineral wealth. It also advocates reducing Madagascar's heavy dependence on foreign trade. The Charter clarified the new system which is designed to permit the state to determine the overall direc- tion of the economy by means of the enterprises and corporations it controls, while granting the autonomy necessary for efficient management. 26. The Charter of Socialist Enterprises defines as socialist enter- prises those of strategic importance in which the state owns or controls, directly or through the holdings of other state enterprises, 51 percent or more of the shares. Each enterprise is to be managed by a committee composed of representatives of the state, of local institutions (when appropriate), of workers' representatives, and of partners of the state, meaning private investors and organizations belonging to other cooperating countries. In addition, the enterprises will have a managing director nominated by the Prime -8- Minister on the advice of the Managing Committee, and bound by a personal contract to the enterprise. Socialist enterprises are grouped into sectors, the industrial sectors being textiles and leathers; wood and derivative products; foodstuffs; mechanical and electrical industries and the chemical industry. 27. Since most of the large-scale industrial schemes currently under Government consideration will require substantial foreign participation--in terms of financing, management and marketing activities--Madagascar will undoubtedly need to provide flexibility in the Charter's application. The Government's main objective is to control the economic decision-making insti- tutions and define their activities based on national needs and priorities. In view of Madagascar's current dependence upon imports, policies in the industrial sector are mainly geared towards building a domestic industry able to satisfy local needs. Employment creation has priority but is superseded, when necessary, by the need to develop or create strategically important industries which may require more capital-intensive involvement. 28. Small-Scale Industries. In Madagascar, Small-Scale Industries (SSI's) are generally defined as enterprises which employ from 5 to 30 workers and have assets of up to FMG15 million (US$70,000). SSI's are larger than artisan shops and ownership and management can differ. The sector's main activities include food processing, printing, transport, and construction. Production techniques are generally outdated and operators frequently lack required technical and financial know-how. Constraints to SSI development are basically the same as those encountered in the artisan sector. 29. Artisans. Malagasy legislation defines the artisan as a manual worker working alone, with members of his family or with a few helpers. Artisans in Madagascar number about 100,000 i.e., 2.8 percent of the labor force. The sector reportedly provides a substantial amount of the country's consumer goods and tools. There is export potential, particularly for basketry and gemstone crafts. Artisan activity is spread throughout the country but heavily concentrated around the city of Tananarive. Most private artisan workshops are either inside or adjacent to the owner's house while cooperatives are often in makeshift quarters. Most rural artisans perform seasonal work, from May to September; the rest of the year they are farmers. Constraints to artisan development include: difficulty in obtaining local and imported raw materials at reasonable prices; lack of adequate technical and design know-how; difficult access to both the wider domestic and the export markets; and diffi- culty in securing loans for expansion and improvement of work facilities and for working capital. The Government is aware of both the potential of this subsector and its problems and is presently implementing a National Development Plan for the sector on which the Bank Group had the opportunity to comment and offer assistance. Financial Environment 30. Until mid-1975, the banking system in Madagascar consisted of the Central Bank; four commercial banks, partly foreign-owned; and a development bank (Banque Nationale Malagasy de Developpement, BNM) owned by the Malagasy - 9 - Government but with shares held by the French Caisse Centrale de Cooperation Economique (CCCE). In 1975, the Malagasy Government assumed control of the entire banking sector by purchasing CCCE's participation in BNM, by nationaliz- ing the four commercial banks and by appointing Malagasy nationals as managers of the financial institutions. The structure of the banking system, however, remained unchanged until 1977 when BNM and the four commercial banks merged into three sectorally-specialized banks: The National Industrial Development Bank (BNI), the National Bank for Rural Development (BTM), and the National Bank for Commerce (BFV). Despite their sectoral specialization, the three banks compete for deposits and extend credit to borrowers outside their specialized sectors. They often pool resources in consortium loans to meet corporate financing needs. Assets of the three banks at December 31, 1978 were as follows: BNI: FMG60.9 billion; BTM: FMG45.7 billion; and BFV: FMG46.8 billion. 31. Considering the size and stage of development of the economy, the system of financial institutions is well established and has attained a certain degree of sophistication. The banking habit is also developing although the growth of time deposits has been affected by low interest rates. In Madagascar the elasticity of budget revenues is likely to be small even over a longer period of time because of the slow rate of growth of the economy, and interest rate policy should, therefore, be a preferred means of assuring sufficient funds for investment. Furthermore, financial intermediation presents certain advantages from the standpoint of overall financial planning, since it is a more flexible instrument of resource mobilization than fiscal measures. 32. Resource allocation, however, is based increasingly on centralized decisions, with market forces as expressed by interest rate levels and struc- ture playing a secondary role. Interest levels and structure have hardly changed since 1974. The Central Bank's rediscount rate for short-term paper is set at 5.50 percent (except for export bills where the rate is 4 percent). The rediscount rate for medium-term paper stands at 5 percent, except for small business credits of less than FMG5 million on which the rate is 3.75 percent for Malagasy nationals. 33. The Central Bank relies on quantitative and qualitative instruments for credit control and allocation. Quantitative controls consist of overall targets on credit for consumption, production and exports and on monthly rediscount ceilings which are periodically set for each individual bank based on its liquidity position and expected needs. The qualitative instru- ments consist of: (1) advance Central Bank authorization for short-term credit to firms whose total outstanding bank credit exceeds FMG100 million; and (2) minimum ratios according to which banks are mandatorily required to devote 6.5 percent of their demand deposits to finance medium-term loans and 15 percent for short-term credit to Malagasy nationals. 34. On medium-term loans (2-5 years) rediscountable by the Central Bank, the three banks charge to all except small-scale enterprises rates which vary between 6.25 and 7.25 percent, depending upon the risk associated - 10 - with the specific lending operation. Loans to small-scale enterprises vary between 5 and 5.75 percent. The rate on consumer and housing loans is 7.50 percent. Interest rates on deposits range from 0.75 percent to 7.5 percent, depending upon maturity and deposit size. The overall interest rate structure in Madagascar is low, particularly when compared with inflation, which averaged over 7 percent during the past three years and is estimated to have exceeded 10 percent in 1978. The Government is reviewing its interest rate structure. Socialist and agricultural enterprises will, however, probably continue to be favored in resource allocation to stimulate their development. PART IV - THE PROJECT 35. The project proposal was prepared by the Government and the Bankin'ny Indostria (BNI), with assistance from the IDA appraisal mission. The project was appraised in November 1978. Negotiations were held in Washington from October 30 - November 2, 1979. The Government delegation was led by Mr. Leon Rajaobelina, Governor of the Central Bank and BNI was represented by its General Manager, Mr. Alfred Rakotonjanahary. The main features of the Project are outlined in the Credit and Project Summary and the Supplemental Project Data Sheet of this report. A report entitled "Madagascar: Staff Appraisal Report of a First IDA Credit, Bankin'ny Indostria (BNI)", Report No. 2456a-MAG, dated January 10, 1980, is being circulated separately. Background 36. As indicated above, the Bankin'ny Indostria (BNI) was created in January 1977. It took over the term loans and equity portfolio of the former Banque Nationale Malagasy de Developpement (BNM) in the industrial sector and assumed the industrial loan portfolio of the former Banque pour le Commerce et l'Industrie de Madagascar (BCIM), a commercial bank nation- alized in 1976. BNI is primarily responsible for promoting industry and handicraft development through short, medium and long-term loans and equity investments. It also finances individual and collective housing and provides loans for household equipment. Project Objectives and Description 37. The main objectives of the credit are to support the country's growing industrial sector and BNI's crucial role by providing the foreign exchange needed for capital investment and the technical assistance needed for the training of the staff, the institutionalization of its procedures and the setting up of a Promotion Department. The institution-building impact of the proposed credit should thus have a significant impact on the sector as it would strengthen BNI, the main institution responsible for industrial financing in the country. Another objective of the credit will be to provide--on a pilot basis--financial assistance to artisan/small-scale enterprises. - 11 - 38. The proposed project would have the following five compon- ents: (a) Medium and Large Project Financing. US$4.0 million would be allocated to medium industrial, agroindustrial, and tourism projects. (b) Artisan/SSE Financing. US$0.5 million would be allocated to small-scale industrial enter- prises, including transport, defined as those with fixed assets below FMG15 million (about US$70,000) and artisan enterprises. (c) Feasibility Studies. US$0.3 million would be allocated to financing feasibility studies for industrial and tourism projects selected by BNI. (d) Training of BNI's Staff. US$0.1 million would go to finance the training of BNI's staff speci- fically in project promotion and appraisal. (e) Technical Assistance. US$0.1 million would be allocated to the financing of up to two man- years of foreign experts' services to set up BNI's Promotion Department and improve its Project Preparation Department. 39. Projects under study at the end of 1978 consisted of 18 industrial projects totalling more than FMG25 billion (US$119 million) in investments, of which more than FMG17 billion (US$81 million) are in foreign exchange, and requiring possible term/equity financing from BNI of about FMG6.9 billion (US$33 million)--close to 28 percent of total cost. Agro- industry is by far the leading sector, followed by textiles and chemicals. The Government holds controlling interest in the majority of these projects but more than half of them are joint ventures with foreign partners. As in the past, half of the project proposals are new and the rest are extensions and modernizations of existing units. They are regionally well-distributed. 40. The US$0.5 million artisan/SSE component would be a pilot effort and would eventually complement the technical assistance to be offered to artisans under the National Artisan Development Plan. Financing would, however, be available to all artisans regardless of whether or not they are part of the National Plan. At present more than half of SSE's are concen- trated in the Province of Tananarive, but there appears to be some potential for further SSE development in the context of a revival of the country's private sector. BNI will use a simplified appraisal format satisfactory to IDA for these projects. It has been agreed that IDA will review extensively the first five projects submitted under this component to ensure the adequacy of BNI's appraisal, which will be monitored thereafter by IDA supervision missions (Section 2.02(b), draft Development Credit Agreement). - 12 - 41. The component for feasibility studies would supplement BNI's efforts to set up or improve its Promotion and Project Preparation Depart- ments. This should thus benefit both BNI and the overall industrial sector (Section 3.01(ii) and (iv), draft Development Credit Agreement and Section 2.10, draft Project Agreement). Consultants for these studies would be chosen by BNI from among qualified consultants and employed under terms and conditions satisfactory to the Association (Section 2.09, draft Project Agreement). BNI shall complete these studies by December 31, 1982 (Section 2.10, draft Project Agreement). Management and Organization 42. BNI is a socialist enterprise with a share capital of FMG2 billion which is held by the State (85%), the Central Bank (10%) and the Social Security Fund (5%). BNI's Board is chaired by the Minister of Finance and Planning and consists of the General Managers of the Central Bank, the Finance Ministry and the former General Manager of the Ministry of Economy and Commerce. According to the Charter of Socialist Enterprises (ref para- graph 26), BNI's board may be modified to include representatives of BNI staff and management. The Board meets on an ad hoc basis to examine projects submitted by BNI's management or to discuss policy matters. They play an effective role in supporting and guiding BNI management. BNI's General Manager is authorized to approve without Board consultation secured loans up to FMG100 million, unsecured loans up to FMG20 million and equity invest- ments up to FMG20 million. 43. BNI is headed by a Malagasy, the former General Manager of the BNM, assisted by managers formerly with BNM and BCIM. BNI management is competent, experienced, and dynamic. BNI's organization reflects its dual role as a development and a commercial bank and is adequate for the institution. However, BNI's technical capabilities for project preparation and appraisal need to be strengthened. Management is aware of these deficiencies and is correcting them through staff recruitment and training. Policies and Procedures 44. Present policies on industrial medium and long-term loans are adequate, but some matters such as exchange risk on foreign borrowing, overall and individual project exposure and project selection require clarification. During negotiations, a draft General Policy Statement or Rules of Operation, as BNI calls them, was agreed with BNI management and adopted by BNI's Board on December 14, 1979. BNI shall exchange views with the Association on any proposal to modify its Statutes or Rules of Operation (Section 2.08, draft Project Agreement). 45. Essentially, BNI's strategy is to assist the Government in developing Madagascar's industrial base. In that role BNI is already acting as a financial adviser to Government and is expected to be more active in industrial project promotion. BNI management is preparing a strategy paper to be cleared with the responsible Ministries (Finance and Planning, Economy and Commerce). BNI's procedures for project appraisal - 13 - and follow-up needed improvement. A more comprehensive format for appraisal reports and new supervision policies and procedures were reviewed during negotiations and found satisfactory. BNI's present procurement practices are adequate and will be strengthened by the projected expansion of its technical staff. Disbursement procedures are adequate. Operations 46. As of December 31, 1977, well over half of BNI's term portfolio of FMG8.1 billion was in industrial projects, 15 percent in housing, 10 percent in public works, 6 percent in transportation and small percentages in tourism and agriculture. Equity investments of FMG2.4 billion were almost entirely in the industrial sector. The industrial portfolio is well diversified: textiles and agro-industries, wood-working, construction materials, and chemicals and metal-working. The portfolio is well-distributed geographically with 60 percent outside Tananarive. While public enterprises account for 65 percent of the total portfolio, private enterprises account for 60 percent--with substantial foreign participation--of the equity portfolio. During 1977 term credit approvals totalled only FMGO.4 billion and equity investments FMGO.2 billion. However, operations increased substantially in 1978, when term loans totalling FMG2.9 billion and equity investments amounting to FMG500 million were approved. At September 30, 1979, FMG1.8 billion in term loans and equity investments of FMG500 million had been approved. Manufacturing operations represented 70 percent of 1978 approvals and 53 percent of approvals as of September 30, 1979. Financial Position 47. In BNI's summarized balance sheet of for 1977-79, assets at 9/30/79 totalled FMG75.5 billion, of which the loan portfolio represented FMG52.9 billion and the equity portfolio FMG3.7 billion. Capital, reserves and surplus totalled FMG7.2 billion and term borrowings FMG3.6 billion. BNI's debt/equity ratio is thus 0.5:1, a rather low proportion for a combined commercial and development bank, allowing for substantial addi- tional borrowing capacity. Accounts at September 30, 1979 confirm that, overall, BNI's financial position is sound. 48. Total assets are projected to reach about FMG92 billion (US$438 million) by 1982 from the FMG56 billion (US$267 million) at end 1977 while its finances would remain sound. BNI would maintain a satisfactory liquidity position of better than 1:1 and keep its conventional debt to equity ratio constant around 3:1 -- even after practically doubling its outstanding term borrowings throughout the period. BNI is also expected to remain profitable. Administrative expenses are well controlled and likely to be maintained at a reasonable level. Gross profits are expected to be rather high (from 3.7 percent of average total assets in 1978 to 4.2 percent in 1982). At the same time, provision will be made to cover risks in the portfolio -- representing 3.3 percent of total portfolio at the end of the period -- while dividends could continue to be distributed at the 1977 level (42 percent of net profit), representing a substantial return on average equity of 8.9 percent in 1979 to 9.9 percent in 1982. - 14 - 49. Resource Requirements. BNI's resource requirements from September 1979 to December 1981 are expected to amount to FMG6 billion (US$29.0 million), of which the foreign exchange component is estimated at FMG3.8 billion (US$18 million). BNI has started negotiations with some foreign financial institu- tions and expects to sign a FMG1.0 billion (US$4.8 million) tied line of credit from the Italian Government and to renegotiate with KfW an additional line of credit of FMG300 million (US$1.4 million) to be available by 1980. In addition, BNI's term operations could continue being refinanced on a case-by-case basis by the Central Bank and also by CCCE up to about FMG1.0 billion (US$4.8 million). The proposed IDA credit would cover about 24% of BNI's foreign exchange require- ments or 15% of total resource requirements between September 1979 and December 1981. Terms and Conditions 50. The proposed first line of credit to BNI would carry the following terms and conditions: (a) Limit per Project. To avoid the line of credit being used for a few large projects, the IDA funds would be used only to finance projects with total costs up to FMG500 million (US$2.4 million) and the maximum credit granted by BNI to a single project out of the IDA credit would be limited to US$750,000 (Section 2.01(b), draft Project Agreement). These limitations are in line with BNI's definition of medium size enterprises and would, on the average, concen- trate IDA financing on projects with total costs between FMG300 million and FMG450 million (US$1.4 million-US$2.1 million). (b) Onlending Rate. To provide BNI with a 1% spread on the IDA funds, the credit will be onlent by the Government to BNI at 7.5% with a 0.75% commitment fee on the undisbursed amount except for the technical assistance/training/feasibility studies component of US$0.5 million which would be passed on by the Government to BNI at the IDA service charge (Section 3.01(b), draft Development Credit Agreement). The onlending rate by BNI would be a minimum of 8.5% to its IDA-financed clients (Section 2.01(b), draft Project Agreement). There would be a flexible amortization schedule conforming to the aggregate amortization schedule of BNI's subloans, none of which should in principle exceed a maximum of 15 years, for the US$4.0 million component to finance medium/large scale industrial enterprises. The US$0.5 million to finance artisans/SSE projects and the - 15 - US$0.5 million technical assistance component would be repaid under fixed amortization schedules, to be set up in the Subsidiary Loan Agreement to be concluded between the Govern- ment and BNI. (c) Foreign Exchange Risk. The foreign exchange risk would be passed on to all medium and large-scale borrowers. For small- scale enterprises (defined as those with fixed assets below FMG15 million or about US$70,000), the Government would carry the foreign exchange risk at a 1% fee on the outstanding balance (Section 3.05(b), draft Project Agreement and Section 3.03, draft Development Credit Agreement). (d) Economic Analysis of Subprojects. BNI would provide a complete economic analysis, including calculation of the internal finan- cial rate of return on all medium/large scale industrial sub- projects submitted to IDA for financing (Section 2.02(b)(ii), draft Project Agreement). Sub-loans and investments shall be restricted to financing investment projects which, except for small-scale investment projects, will show an economic rate of return of at least 10 percent or such lower rate as the Association may accept (Section 2.01(b), draft Project Agreement). The free limit for projects in all sectors should be US$150,000 and the aggregate free limit US$1.5 million (Section 2.02(b), draft Development Credit Agreement). Reporting and Audit 51. BNI would be required to submit quarterly reports which would in- clude financial statements, resource position, statement of arrears and notes on subprojects encountering serious operational difficulties. BNI would also be required to submit annual audit reports (in accordance with IDA guidelines for audits of DFCs) prepared by qualified accountants acceptable to IDA, along with BNI's annual report. 52. In the past BNI accounts were reviewed by external accountants ("commissaires aux comptes") but were not audited. BNI management has agreed that in the future, the accounts would be audited annually by a qualified CPA firm (Section 3.02, draft Project Agreement). BNI's audited accounts for the fiscal year ending December 31, 1978 have been submitted to IDA. Procurement and Disbursement 53. Procurement for the subprojects financed under the credit would be in accordance with the standard IDA practice for development banks. The proceeds of the proposed credit would be disbursed on BNI subloans as follows: 100% of the foreign cost of imported goods or services for eligible subprojects; 85% of the cost of previously imported equipment which is purchased locally for the subprojects; 70% of the local cost of equipment substantially produced in Madagascar from previously imported components or raw materials; 55% of the cost of construction works included in subprojects and carried out by national contractors; and 100% of foreign expenditures or 80% of local - 16 - expenditures for experts and consultants' services and training of BNI's staff (Section 2.02(a) and (f), draft Development Credit Agreement). The credit component is expected to be fully committed by December 1981 and to be fully disbursed by March 1984. Benefits and Risks 54. While the new Government initially showed relatively little interest in the industrial sector, its attitude has recently changed. The search for foreign partners to launch several industrial projects and Government's request for Bank Group assistance to the sector are examples. An IDA credit would permit the Bank Group to participate in the development of an important part of Madagascar's economy. The credit would finance projects requiring a total investment of about FMG25 billion and create about 6000 jobs even with the pessimistic assumption that past cost per job of about $20,000 is maintained. Employment generation will be considerably larger as BNI moves increasingly into project promotion, mostly SSEs, and if artisan fi- nancing is taken into consideration. 55. Despite the generally positive attitude of the Government, there still remain some uncertainties about how the sector will evolve in the future, particularly in the context of transition toward a system of socialist enterprises. This may create a climate not conducive to private investment, particularly foreign. Although this could result in somewhat reduced indus- trial growth, it should not materially affect utilization of the proposed credit as: (i) its amount is small in comparison with BNI's expected needs; and, (ii) private investment has been given little weight in evaluating BNI's financial needs in the near future. These risks, though, should not detract from the validity of the main objectives of the proposed credit, particularly the strengthening of BNI and IDA support of the overall industrial sector and the artisan/SSE activities. PART V - LEGAL INSTRUMENTS AND AUTHORITY 56. The draft Development Credit Agreement between the Democratic Republic of Madagascar and the Association, the draft Project Agreement between the Association and the National Industrial Development Bank, and the Recommendation of the Committee provided for in Article V, Section l(d) of the Articles of Agreement of the Association are being distributed separately to the Executive Directors. 57. An additional condition of effectiveness is that the Subsidiary Loan Agreement between the Government and BNI shall have been signed (Section 5.01, draft Development Credit Agreement). - 17 - 58. I am satisfied that the proposed IDA Credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 59. I recommend that the Executive Directors approve the proposed credit. Robert S. McNamara President Attachments January 10, 1980 Annex 1 -18 - Page 1 MADAGASCAR - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AyERACES LAND AREA (THOUSANOi SQ. KM.) MADAGASCAR - MOST RECENT ESTIMATE) - TOTAL 587.0 SAME SAME NEXT HIGHER AGRICULTURAL 368.6 MOST RECENT GEOGRAPHIC INCOME INCOME 1960 /b 1970 /b ESTIMATE lb REGION Ic GROUP /d GROUP /e GNP PER CAPITA (USS) 120.0 , 170.0 240.0 261.4 181.9 430.3 ENERGY CCNSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 38.0 71.0 66.0 80.6 83.9 262- POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (MILLIONS) 5.5 6.8 8.0 URBAN POPULATION (PERCENT OF TOTAL) 11.1 14.9 16.4 17.1 16.2 24.6 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 15.0 STATIONARY POPULATION (MILLIONS) 39.0 YEAR STATIONARY POPULATION IS REACHED 2160 POPULATION DENSITY PER SQ. KM. 9.0 12.0 14.0 18.4 49.4 45.3 PER SQ. K11. AGRICULTURAL LAND 15.0 18.0 22.0 50.8 252.0 149.0 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 44.6 44.4 45.0 44.1 43.1 45.2 15-64 YRS. 52.8 52.9 52.0 52.9 53.2 51.9 65 YRS. AND ABOVE 2.6 2.7 3.0 2.8 3.0 2.8 POP'JLATION GROWTH RATE (PERCENT) TOTAL 1.8 2.2 2.5 2.7 2.4 2.7 URBAN 4.0 5.1 4.3 5.7 4.6 4.3 CRUDE BIRTH RATE (PER THOUSAND) 47.0 45.0 45.0 46.3 42.4 39.4 CRUDE DEATH RATE (PER rlOUSAND) 27.0 22.0 19.0 17.2 15.9 11.7 GROSS REPRODUCTION RATE 2.9 3.2 3.0 3.1 2.9 2.7 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. .. .. USERS (PERCENT OF MARRIED WOMEN) .. .. .. .. 12.2 13.2 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 100.0 101.0 96.0 94.3 98.2 99.6 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREXENTS) 104.0 108.0 105.0 89.5 93.3 94.7 PROTEINS (GRAMS PER DAY) 55.0 53.0 5'.0 55.8 52.1 54.3 OF WHICH ANIMAL AND PULSE 17.0/f 17.0 15.6 17.9 13.6 17.4 CHILD (AGES 1-4) MORTALITY RATE 41.0 32.0 27.0 22.3 18.5 11.4 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 37.0 42.0 46.0 47.0 49.3 54.7 INFANT MORTALITY RATE (PER THOUSAND) .. 177.OI .. .. 105.4 68.1 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL 11.0 26.0 20.3 26.3 34.4 URBAN .. 67.0 76.0 53.9 58.5 57.9 RURAL '' 1.0 16.0 10.1 15.8 21.2 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. .. .. 22.5 16.0 40.8 LRBAN * 88.0 62.5 65.1 71.3 RURAL .. .. 9.0 13.9 3.5 27.7 POPULATION PER PHYSICIAN 8800.0 11390.0 10780.0 17424.7 11396.4 6799.4 POPULATION PER NURSING PERSON .. 3760.0 3760.0 2506.6 5552.4 1522.1 POPULATION PER HOSPITAL BED TOTAL 510.0 400.0 410.0 502.3 1417.1 726.5 URBAN . 170.0 220.0 201.4 197.3 272.7 RURAL '' 520.0 510.0 1403.6 2445.9 1404.4 ADMISSIONS PER HOSPITAL BED .. .. .. 23.4 24.8 27.5 HOUSING AVERAGE SIZE OF HOUSEHOLD .OTAL . 5.8 4.7 4.9 5.3 5.4 ERBAN . 5.3 5.0 4.9 4.9 5.1 RLRAL * 5.9 4.7 5.5 0.4 5.5 AVERAGE NJUMBER OF PERSONS PER ROOM TOTAL .. .. .. 'RBAN .. .. .. RURAL .. .. .. ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL *- 5.0 .. URBAN 9. RURAL ANNEX 1 - 19 - Page 2 TABLE 3A MADAGASCAR - SOcI;AL INDICATORS DATA SHEET MADAGASCAR REFERENCE GROUPS (AOJLSTED AVERAGES M- OST RECENT ESTIMATE) SA1E SAME JEXT HIGHER MOST RECENT GEOGRAPHIC INCOME INCOME 1960 /b 1970 /b ESTIMATE lb REGION /c GROUP Id GROUP /e iUACA, ION ADJU5TED ENROLLMENT RATIOS PRIMARY: TOTAL 52.0 83.0 92.0 /h 59.0 62.3 82.7 MALE 58.0 90.0 .. 64.2 79.1 87.3 FEMALE 45.0 77.0 *- 44.2 48.4 75.8 SECONDARY: TOTAL 4.0 11.0 14.0 /h 9.0 16.7 21.4 MALE 5.0 13.0 .. 12.0 22.4 33.0 FEMALE 3.0 8.0 .. 4.4 10.2 15.5 VOCATIONAL ENROL. (B OF SECONDARY) 9.0 9.0 7.0 7.0 5.6 9.8 PUPIL-TEACHER RATIO PRIMARY 70.0 65.0 61.0 42.2 41.0 34.1 SECONDARY 24.0 20.0 24.0 22.9 21.7 23.4 ADULT LITERACY RATE (PERCENT) .. 39.0 50.0/h 20.8 31.2 54.0 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 4.0 6.0 6.4 4.0 2.8 9.3 RADIO RECEIVERS PER THOUSAND POPULATION 15.0 80.0 112.0 44.3 27.2 76.9 TV RECEIVERS PER THOUSAND POPULATION .. 0.5 1.0 2.9 2.4 13.5 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 8.0 8.0 9.0 5.6 5.3 18.3 CINEMA ANNUAL ATTENDANCE PER CAPITA 0.5 0.7 0.4 0.4 1.1 2.5 LABOR FORCE OTAL LABOR FORCE (THOUSANDS) 2960.0 3570.0 3900.0 FEMALE (PERCENT) 46.2 45.7 46.0 31.9 24.8 29.2 AGRICULTURE (PERCENT) 92.8 89.4 86.0 77.6 69.4 62.7 INDUSTRY (PERCENT) 2.5 3.4 5.3 7.9 10.0 11.9 PARTICIPATION RATE (PERCENT) TOTAL 53.7 52.3 51.3 40.8 36.9 37.1 MALE 58.7 57.7 56.6 53.9 52.4 48.8 FEMALE 48.9 47.0 46.0 25.6 18.0 20.4 ECONOMIC DEPENDENCY RATIO 0.9 0.9 0.9 1.2 1.2 1.4 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 41.0/i .. .. .. .. 15.2 HIGHEST 20 PERCENT OF HOUSEHOLDS 60.17T .. .. .. .. 48.2 LOWEST 20 PERCENT OF HOUSEHOLDS 5.27T .. .. .. .. 6.3 LOWEST 40 PERCENT OF HOUSEHOLDS 13.07T .. .. .. .. 16.3 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. 150.0 187.6 99.2 241.3 RURAL .. .. 86.0 96.8 78.9 136.6 ESTIMATED RELATIVE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. 135.0 138.4 91.9 179.7 RURAL .. .. 86.0 71.0 54.8 103.7 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 50.0 34.5 44.1 24.8 RURAL .. .. 50.0 48.7 53.9 37.5 Not available Not applicable. NOTES la The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme values of the indicator and the most populated country in each group. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noced, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1974 and 1977. /c Africa South of Sahara; /d Low Income ($280 or less per capita, 1976); /e Lower Middle Income (S281-550 per capica, 1976); If 1961-63; /g 1965-66; /h 1978; /i Population. January 1980 - 20- mNMx 1 Page 3 Notes : thoogh the dat Caer draw Pro eour... g rlyjudged the net euthbeettas- and reliable, it sheid die be netS that they nay sot be jicere.- clunitl conprbl heeuaa of the tlak of soandeodloed definitin end ceoete Waed by different nutriac ie collecting~ the data. The data are,sostas, usflt reaibe rdera of eagoLtuda, indi.cat trends, and oth-ae-telitise tertui -J.er differenoe between .. cntres. The adjuste , rou- ers.. forJe eac h indicato urn populationaeightud gemfntri mesa, anoldig the entre value of the indicter end the nest popsalutd co rot teh gop Due to Lack of data, grop -vrgee of aL indicators fer Capitl surplus Oi tEport-r end ef indioctora ofeeate eater and eetrete disposel, Heitg, o dietCoibution and Povrt for ether coutry groups are pnpuletie-ssighad gS.etnio -man eIsout e.t.a1tn of the estrene -a1ce end io relat ie aversoceof one ioicetor to noiban. The. averag ardotl efu sesenaid o eentd aice abet uifeere. C.the od.t. efon lodicaor ate tIn anoo the ouste end raferee_ncaarounibIty dte. LAND AREA Othou-ad oq. fI)aoe outeadeoalletn fsnls i-totaL. oban. adi. Total - cTal.. suface or aprisLogflasd are cod islad eten uu Ilre epl crl re.edrra)cre ysesede Atrc.troI-'otoos ecaeo gricuiurl re1o Cdteporarly pee- spoosafso terreapcotive pope1atio.- urEteC disposal lit faPI bt . _ncrt_ ad _Caee. tcrb ae-oreeru.orteaeo pit privis end elailur iseteitCiena. $7N4?ETR Tuf7Tc11~ O - CNP P.,r capita rc-tat- ccrrn market pricee, Pen iete gr eboitiLan - Populationdvddb-bro practIcing phoei- _alculaedh sor -c-vreco -thud on World kshAsia 1 1975-77 basis): cin !ulfet fe ela abo sosetylvl li60. 1910, aud 19771 Oetu. P.Onlatiun per nurptine " gre -" Popuiec dIvIdd by st-ber of pra..ttirig oais end peeLa grdeass nuse, prastloul core.., and e..ietentnus. flOERfY TCNSTI5PTON PER CAPITA - otocaI ooeoptioo of ootseria1 energ (col Pecttn cer heesiCta bed - totai. orbue. end rnel - Pop.Itlaie (sonel, uso tfote. etrinta.naura gac and hodro-,.sool..ar ed~ geteC aubn en.d rresl) dvded by their rep-osiva s f optL bdat sleor oto.it itgrna f oatrqioeon pn vpla; 96, 170avIlbei pubi an,d private ineeral and epeLitaied hoptalasre cod lNOh data h. baiitse oeer.- Hospital- ere Pnulsfcs. - IIm,atl eteftud by PfTPVLoTION 000 VITAL STOTATISTI tCatSn phyiiun.. Enubliielns prvdng priscipally Cuas-diul Totl oociclc vt-oerfctinf- utof ol 1: 1960. 1977,ad croestitod. ulhopals. hvrr,icue oat edml W79-??ota ca Ce ars sot pe-eetly staffed ho . physiciani (Nutb heandtCIra .rco oontotcv : ercot of _Ace) -raiofrbstttl POuttio: sltat aseidifn, eto.) blch offer Is-patient -cedati- end Or fforvy dreocoeo ra ra a lc cotsparahIiCt o dieprovide.'. itdrng fmele faCilitte. ...c..octo. 1960. 19W0 -d 19715 deu. Adeieeion gor hoeite bed - Total1 vuebr of d.Lslis to or dileh-nges Oculatooroectioons foe hospital. divtded by the senbr of bade. foo uc ofasr Dof0 -aCrecpptuiopoetos er hate.d on 19'Stt.5 Popultio ho o r soadtheiL IroLt ad fertility noinio raes rofeco'10 pors--r for s-rta1ity rete.t copri,e of .Ileel -oras, Iseo(hueol .ereons Per ho'. hod total) urban esd rural ososlo lo r opetavc o hlts locre-ccg oich cto cPecpia abuhodcel of g roup ot hdi..dal LbsAr l~ivg quarters .Ouor doof2000 t h rac .odoe fuhs lifiealo-do perese per noon Isl,uht andC rura ocpecnocIosatdulioge. foaioaryTo --utoc .1ia chtioa' Pooeto, hret t ofgro,t Pcres toC Paecricu fortso uilne oa rbn n ua -tt h rr rt Ac ooaI toOn death rate, cod ale he agt Coooe-io-l dtltinogs uitb eeotnicity Is t1cio q-itnsa porre.toat of ctr~~ortrrvAoA omtoort Coltic -lhi e..d .n. afI, frilt rate- toa,ura,ed rura d- telions r-sp-ui-el- clo-aucttoo- ot the cools of coos projected charerat ltic ot th. Adjuated ..ro.t1eet ratio Popoctatoo- tto oa 1-00. andoonrt of dectie of ferotirio re-e primacy ehoel -.total. sale ad fena-1 on ts.saesdfnlee eorott- 02rpi cne- 1coc. -nt of all sees at the pricsar 1-v1 a penruc eag fr cstio- primr :00..ttnao f -uao -o in Oe-hed ' he fnaroh..Saooa Porch- scol epopulations: normally LnLadee uhtldr-v agd h-li veers hut o L. t has see r-uhed. adutdfrdfeetlntoo rmr dcto;fr t.u.trtes cith Pooutuoioo doosooc ocoivLersa d C.to Csole nay ..ced 100 peron cLov can pupils r Per s. loo-'o oo pottocper sr Octi soe - tOO hsctr-sl hbo or abov ohs officiaL soholag. orfo rte. lecondey tbool - octal. sale and f-1tel-Conpoted an ehc: saco-d-s educo- fvo S. lt. ctic Woo Lud _Potod_o u uhos_ b_ aoviottt-oi lard tion require at Dacet four yge of approved priaety ertto:PoC-ide oslo. omen. I vocational, or tarher; tra.inigIaro Is for pupilo usue. liro ?AoAlatucauco 00.0 oconicercec:- Chidon.o . 4 ..- . er: . cork lo-age 2 to 1 yors of ae .orn.p...n u ...ocar- -aar lI.. esLudad. pee popultlo- 19 -0 Oad 1977 data, technical, iod-otrial, or other pregrena ohichp .. rts isodapenuntl enra Pouair_uouh r _creo - boa -O .sua growt-7h raee of total depa.-ets of scodar. ttroe poplatooofo r 9 f-6. 1960-T0. 1od960-15. spodog evels serpoouto 1950,10 19Qoud71900 =data.dCofOifdd'TI hnr nrno rapt otleprIdi Neoperience persth age- satIng lossr tha eihtpr "n: ...ludnsenhuabceeC. hearse and militar 19f -ad 197-). Radiopar.. retiogr fter. cho 1an e tuuli - oil types ufd r-niore o.l (anilo otove- uoetosaOA 1-1 Iohouanu ar tnha .u.. e. of hracooceeaIpbIcptdoas fppltin tldsolnnn 1,11'. ,I '175 ~~~~~~~~~~~~Rdies aud- is Pyars thecreisraio of lT l sto ua lo effect. .4 901 uhf NiTTh1Tlfh2L22 h.. -.1circulation fear chouli npa ulahiond -" Ihonsthaiereg -iro...e- oo,ou 1 prducoon ofall fod cusdifoc. prodctonec lude-e oedil a re-ai-n vce prnri' to c--nn genra soe. t is coLi sdt ree av Ic00 etoda yer he i. ocsdOtesooerprverffodsts da ata ifIt appar etr le- four tin oPaabek - r Of,. ouora f veted of ucat uhich ace )ehi.an c. obtrlhcucri-t 7Vsn ra..si-a Ipaottoodane eroasia cry-sar-gaci-d onr theCenber tf ti-ckat o..tfe udooae 0 oe:. Agoes rdcinNfst.octy ol duio Lethevar Ism dotahi- l tu driv-i ctensanhobl forounta ccc 1 ofCatores Otott of tnu9 rnes a -0 Confutedf fryl~iCe. pp", id r.ic. ", oer-s1 ottcotd 0r 000 cooed cooi p -u-tgla vievd for sot ifai f ite tl ppnala lao fooI0.enna. ftuu aorfr -,lgtc gtao tcdtftohoclhin h of p epdaibo, cod a niwiog ife-. ar peronnndgehofhtotalrlaboriforo esoot -orcase at fooskold cll.d lnduar I Erieonf-ah o foo Lsnc. 'construction, . renucocs aedil Per-ita co spplo of foode pet -day. ret spyt of foo -c deflod ars coos- iyury erufo al f. vd ottpi-s oLiahleso by t:100 Parovide fo PWUnDORiCieso aeI-ret ne.osa n ee-Prliaino 11,bl~~ -ppli- prt,.'~~~~P-. anti.tt .rate arehu..nd as totl, tee,an fpnel labo it'orns or aiot odpuee prt-,kof Netob1 pgres shudh n.nlpoen 9O 90ad17 at.Teeat1,' etcialsestf ,ra e,f aicalipotic d uo -FAO ra ford tir h oold.- pradpoted hor Fg-1so struc.ture of1 th . poplaton and logti trnd c- fin- fatrot 'a, itoh hId'Lyd oo ofn. rxfnsncinl oroe -edaieooti uroco ccotsdrot ool upyo food Econonecidsendency rat(p-.tio - a- rato o pouaion ndar IS hed i. end coat to Chl fct -:_ d iotl to tac cos chu azod: r ti na death per Phao- pc . ISr-OtIg00 -11.-f- OcPetAyl-tpl.'fcPru at d peoo foot lof tot.le. - tfP1.ri y df.t1.br - -.lIrir, '_b1l.h.d bporeoo.ricnnt70Dercet. oorst lfperrnWtdod oureo 4 pooen cot _OOOt fvooPt0A.,.L pe-riA-naorrr pfacr ofy life20orair- pertg.f 1 .dfel.pptt 00 a.ir'' - 960 9l- co pr "' -Jua.I rO..'eiR960 19700 CRO 95i,PSh..C 1.' r'",~f.L'r'`. .lC oro "cra orot'oooooed -ooa dah o cLvt cde folao aslt coeth nco p.lte-sel f1-no taitaf-.dhAr and rotva <000 i0 heThtrdtn -crony F.. allc: potov - total.iaha.. avd rua f-d r ioab a.dequa.te die kptos npseotiu ton-foo .d rei 5net 5 so cod on oar of .o ot"oooro''o~f attrtrtoeppttoc.p''oeiocsooeccov rL_etidrodforao O0"-1 000o,O Octt codo datao stvoe h,,dt'i-do -iAse,o rt oehr 00bf ioe I.oin r0d _e V _. - '.:o"tdorotson yrd"Oosc.tcc'oo 's ilf' .f- -.Lr, -d, o .-r '-ho uvtbo.-oocrder. - tsoi clesd od roforfot o oor- - 21 - ANNEX 1 Page 4 ECONOMIC .NDICATORS GROSS NATIONAL PRODUCT IN 1977 Annual Rates of Growth US$ Mln % 1970-75 1972-77 GNP at Market Prices 1,772.3 100.0 0.9 0.4 Gross Domestic Investment 282.9 16.0 -1.0 -3.0 Gross Domestic Saving 233.7 13.2 27.5 36.1 Current Account Balance -33.5 -1.9 - - Exports of Goods, NFS 402.6 22.7 3.1 -1.3 Imports of Goods, IFS 451.8 25.5 -0.9 -7.0 OUTPUT LAB0UR FORCE AND 1/ 2/ PRODUCTIVITY IN 1976 Value Added Labour Force VA Per Worker US$ Mln % Mln % US$ _ Agriculture 633.0 38.0 3.36 84.0 188.4 45.0 Industry 318.0 19.0 0.20 5.0 1,590.0 378.0 Services 654.0 39.0 y Unallocated 69.0 3/ 4.0 f 0.42 11.0 1,721.0 409.0 1,674.0 100.0 3.98 100.0 420.6 100.0 GOVERNMENT FINANCE Central Government FMG Bln % of GDP 1978 1977 1975-77 Current Receipts 86.5 15.3 14.8 Current Expenditure 90.7 17.6 15.6 Current Surplus -4.2 -2.3 -0.7 Capital Expenditures 33.1 4.6 4.2 External Assistance (net) 4.6 4/ 1.0 1.2 MONEY, CREDIT AND PRICES 1975 1976 1977 (Billion FMG Outstanding at the End of the Period) Money and Quasy Money 86.9 100.6 121.6 Bank Credit to Public Sector 12.4 19.4 28.5 Bank Credit to Private and Para-Public Sectors 78.4 82.2 95.9 (Percentages or Index Numbers) Money and Quasy Money as Z of GDP 22.8 25.0 27.4 GDP deflator (1975-100) 100.0 108.2 115.3 Annual percentage changes in: GDP deflator * 3.2 8.2 6.6 Bank Credit to Public Sector 148.0 56.5 46.9 Bank Credit to Private and Para-Public Sectors 2.1 4.8 16.7 NOTE: All conversions to dollars in this table are at the average exchange rate prevailing during the period covered. 1/ At market prices. 2/ Total labour force; unemployed workers are allocated to sector of their normal occupation. 3/ Import duties 4/ 1977 provisional. January 1980 - 22 - ANNEX 1 TRADE PAUPTS AND CAPITAL FI7WS Page 5 (U5 on) BAAIANCE OF PAYMENTS 1975 1976 1977 MERCHA.'DISE EXPORTS (AVERAGE 1975-17) US$ mba 2 Export of Goods, NFS 392.9 341.9 402.6 Coffee 122.4 37.8 imports of Goods, NFS 482.5 401.3 451.8 Vanilla 19.0 5.9 Resource Cap -89.6 -59.4 -49.2 Cloves 43.7 13.5 Meat and Meat Products 5.3 1.6 Irteest Paymzents -4.2 -4.6 .-4.9 Fish and shellfish 3.6 1.1 Wcrkers Remittances (net) -29.4 -26.5 -24.4 Sugar 12.6 3.9 Othar Factor Payments (net) -9.1 -0.1 - Petroleum Products 22.1 6.8 Net Transfers 48.9 50.3 45.0 All other Commodities 95.1 29.4 Balance on Current Account -83.4 -40.3 -33.5 Total 323.8 100.0 Direct Foreign Investment 4.5 1.4 2.8 EXTERSAI.L DEBT, DECEKER 31, 1978 Me: MLT Borrowing: US$ Xln Disbursements 42.1 20.4 22.0 Amortization -8.4 -8.5 -8.3 Public Debt, including Guaranteed 259 Subtocal 33.7 11.9 13.7 Son-Guaranteed Private Debt Ca;i:al Grants 33.6 26.4 20.0 Total Outstanding & Disbursed 259 Ctber Capital (net) I/ -15.6 -4.0 -2.6 !=crease in Reserves (-) 2.4 2/ 1e=o items DEBT SFRVICE RATIO FOR 1978 Transactions with I" 9.7 1.6 1.6 Orcss-!eserves 35.6 42.2 68.9 Public Debt, including Guaranteed 4.1 Net Reserves 3/ S7.2 57.8 56.9 Non-Guaranteed Private Debt Total Outstanding & Disbursed 4.1 RATT OF EXCANGE IBRD/IDA LENDING, JAN. 1, 1980 (US$ Mill.) 1975 1976 1977 1978 Outstanding & Disbursed 27.08 103.31 S11.0O.FM2I214.32 USSl.O.FMG23B.98 USSl.0O.OMG245.67 USS:.OO.FMG225.64 Undisbursed 4.90 103.20 tMCl.OO.US$0.0047 FHG1.00JS0.0042 FMCl.00.US$0.0041 FMGl.OOIUS$O.OO44 Outstanding including Undisbursed 31.98 206.5L *.DF and staff estimates. i/ nhcludes errors and ormissions, SDt allocations and other private short term capital. 2; Estimated ratio of debt service to exports of goods and non-factor services. 3/ Met foreign assets of the banking sytem. January 1980 - 23 - ANNEX II Page 1 THE STATUS OF BANK GROUP OPERATIONS IN THE DEMOCRATIC REPUBLIC OF MADAGASCAR A. Statement of Bank Loans and IDA Credits (as of December 31, 1979) 2! Loan or US$ Million Credit (net of cancellations) Number Year Borrower Purpose Bank IDA Undisbursed Seven Credits and four Loans have been fully disbursed 25.83 64.25 - 322-MAG 1972 Irrigation 15.30 2.60 506-MAG 1974 Livestock II 9.60 7.11 1065-MAG 1974 Forestry 6.75 4.36 641-MAG 1976 Highways IV 22.00 12.13 663-MAG 1976 Education II 14.00 1/ 13.73 817-MAG 1978 Andekaleka Hydroelectric 33.00 28.95 881-MAG 1979 Mangoky 12.00 3/ 12.00 903-MAG 1979 Railways II 13.00 3/ 13.00 938-MAG 1979 Highways V 24.00 3/ 24.00 TOTAL 32.58 207.15 117.96 of which has been repaid .60 .64 - .08 TOTAL now outstanding 31.98 206.51 117.88 Amount sold of which has been repaid - - TOTAL now held by Bank and IDA 31.98 206.51 TOTAL Undisbursed 4.36 113.65 117.88 B. Statement of IFC Investments (as of December 31, 1979) Loan Equity Total (US$ Million) 1977 Sotema - Textile Mill at Majunga 11.0 0.29 11.29 1/ Including a Norwegian grant participation of US$7.0 million. 2/ Prior to exchange adjustments. 3/ Not yet effective. - 24 - ANNEX II Page 2 C. PROJECTS IN EXECUTION I/ Credit No. 322-MAG: Morondava Irrigation and Rural Development Project; US$15.3 million credit of June 30, 1972; Date of Effectiveness: April 30, 1973; Closing Date: December 31, 1981. Initially, the project was to rehabilitate and extend, in the Morondava area, existing irrigation systems, and develop 9,300 ha (4,700 ha for smallholder rice, 2,700 ha for a tobacco state farm and 1,900 ha for a cotton state farm); village development, roads, schools and health facilities were included. The project as revised and substantially reduced in February 1976 will complete major civil works envisaged at appraisal, implement on- farm development works on 2,500 ha of rice areas, establish an applied research station, and provide agricultural support services, roads and health facilities. Major civil works (including construction of a diversion weir at Dabara, rehabilitation of the Dabara Canal and the North Canal, construction of secondary irrigation and drainage canals, and construction of the 8.1 km road between Mahabo and Ankilivalo) are almost completed and work has been satisfactory. However, SODEMO, the agency responsible for on-farm development and agricultural services, faces serious management and financial problems and as a result, on-farm development and construction works have lagged behind schedule and agricultural production is poorly organized, with a small area cultivated and very low yields. The Government and IDA have agreed on a plan of action to clarify SODEMO's responsibilities and financial plan and to improve overall management, but this will require careful monitoring in the coming months. The closing date was recently extended to allow SODEMO time to carry out the project as it has been revised and to permit land development, which has just begun. Credit No. 506-MAG: Village Livestock and Rural Development Project: US$9.6 million credit of August 21, 1974; Date of Effectiveness: June 17, 1975; Closing Date: December 31, 1980. The project encountered serious problems in the three years follow- ing credit signature, and, principally because of legal and organizational difficulties, little progress was made. Following significant changes in institutional and management arrangements, the Credit Agreement was exten- sively amended; the Amended Agreement became effective September 1, 1977. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered and the action taken to remedy them. They should be read in this sense, and with the under- standing that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. - 25 - ANNEX II Page 3 The project's situation is much improved. FAFIFAMA, the principal project implementing agency, is now well-established and operational, with a full staff complement. Implementation of the project's most important component - the development of veterinary and livestock services for village producers - is proceeding well. Pasture improvement experiments are being undertaken. Schools and health centers are being constructed, and the Ministry of Health is preparing a utilization plan for the health centers. The develop- ment of water points and road improvement continue satisfactorily. Cooperation with fokonolona institutions in all aspects of FAFIFAMA's work is excellent. In the middle west, OMBY continues to provide machine services to villages surrounding the ranches established under the IBRD-financed Beef Cattle Development Project. The pilot pig program and ODEMO cattle share fattening programs have barely begun, with action limited to construction of some buildings. Financing and administration arrangements have been worked out however, and the share fattening program should get underway shortly. The pig program would be launched in early 1980 with cooperatives and on the basis of breeding pigs to be imported. The study of cattle marketing and meat prices has been completed and is being reviewed; so are the evaluation of the current project and the preparation report of the second phase. Loan No. 1065-MAG: Mangoro Forestry Project; US$6.75 million loan and Credit No. 525-MAG US$6.75 million credit both of December 23, 1974; Date of Effectiveness: July 8, 1975; Closing Date: December 31. 1980 The project assists in the planting of 35,000 ha of pine plantations as part of an overall planting program of 96,000 ha, which it is proposed will eventually supply a future pulp mill to provide pulp for export. The planting program is progressing according to the schedule and cost estimates are in line with forecasts, despite a reorganization of the project which entails more building and infrastructure than originally estimated, and the need for more intensive soil preparation than foreseen at appraisal. Technical diffi- culties which occurred at the early stages of the project have been resolved. Credit No. 641-MAG: Fourth Highways Project; US$22.0 million credit of June 23, 1976; Date of Effectiveness: August 19, 1976; Closing Date: December 31, 1980 The project assists the Government in the construction of two major roads with a view to reducing transport costs and providing access to areas with a high agricultural potential. It also includes training and strengthen- ing of the country's road maintenance organization. Project implementation is satisfactory. However, start of the training program for personnel in the Ministry of Public Works on highway maintenance has been delayed. Credit No. 663-MAG: Second Education Project; US$14.0 million credit of December 10, 1976; Date of Effectiveness: August 15, 1977; Closing Date: December 31, 1981 The project is designed to assist the Government in decentralizing educational control and to improve the quality of basic education. It in- cludes five Regional Education Centres and vehicles for school inspectorate, one Teaching Materials Production Centre and funds for textbook development, technical assistance and fellowships. - 26 - ANNEX II Page 4 Architectural design work on all project institutions is now com- plete. Detailed operational planning for the Teaching Materials Production Centre is being carried out. The two key technical advisors for this Centre, provided by ORT (Organisation for Rehabilitation through Training) arrived in Madagascar during September 1977. Architectural work has generally been well executed although this has taken much longer than expected. Work on the major project components, the Regional Education Centres, was completed about 14 months behind the appraisal schedule, although with ORT assistance, the plan- ning schedule for the Teaching Materials Production Centre has been maintained. The project is presently about one year behind schedule due to cum- bersome Government approval/decision procedures, and the Government's recent proposals for the "socialisation" of the construction industry has introduced a further element of uncertainty which may adversely affect project imple- mentation. Serious delays have also been encountered on: the preparation of an educational sector survey; the establishment of task forces for educa- tion evaluation; proposals for decentralization of education; and textbook production. Norway requested 50 percent participation in the project, and an agreement to that effect was signed on December 16, 1977. The US$7.0 million of IDA monies thus saved was used for other projects in Madagascar. Credit No. 817-MAG: Andekaleka Hydroelectric Project; US$33.0 million credit of June 19, 1978; Terminal Date of Effec- tiveness: May 30, 1979; Closing Date: December 31, 1983. The project would meet the growth in electricity demand until 1992 in the Antananarivo area and provide for the strengthening of JIRAMA, Madagascar's national electricity and water corporation. It includes a concrete diversion dam and an intake structure; a 4-km tunnel, underground power house, tailrace and access tunnels; two turbines and two generators; electrical and mechanical equipment; a transmission line to Antananarivo; engineering services; preliminary investigation and design for a storage reservoir; and technical assistance and training for JIRAMA Staff. Contracts have been awarded for the civil works and all major equipment and supplies. Total project costs are about 20% higher than estimated at appraisal. However, even at the higher cost, the Project is still the least cost solution for the supply of power in Madagascar. A supplementary credit of US$10 million was negotiated in November 1980, and will be distributed to the Executive Directors for their consideration on a date to be determined. - 27 - ANNEX II Page 5 Credit No. 881-MAG: Mangoky Agricultural Development Project; US$12.0 million credit of March 6, 1979; Terminal Date of Effectiveness: April 1, 1980; Closing Date: June 30, 1983. The Project would support the development of about 3,700 ha for production of rice and cotton, to be farmed by about 3,200 families. It would complete an irrigation system serving about 10,000 ha in the Lower Mangoky Valley which has been under development since the early 1960s. These invest- ments are based on a long-term master plan for the region which aims ultimately to bring about 100,000 ha of land into production. The Project will be imple- mented over a five-year period and would comprise: development of irrigation and drainage networks, and road infrastructure for 3,300 ha including pro- duction of concrete canal segments; improvement of water supply for about 400 ha of traditional rice fields; consultant services for design and supervision; applied agricultural research; social infrastructure; training and project preparation for agriculture and rural development projects. IFAD is financing for completion of the documentation. The terminal date of effectiveness was extended to April 1, 1980 to enable the Borrower to meet effectiveness conditions. Credit No. 938-MAG: Fifth Highway Project; US$24.0 million credit of June 21, 1979; Terminal Date of Effectiveness: April 1, 1980; Closing Date: June 30, 1983. The Project would prevent further deterioration of the paved high- way network, thus reducing transport cost and avoiding early and costly reconstruction works. It would also increase the maintenance capacity of the Ministry of Public Works and provide for an all-weather road connection between the regional district of Antomboka and the capital, Antananarivo. Co-financing will be provided by a European Economic Community Special Action Account credit of US$10 million. The Credit was signed on July 30, 1979. The terminal date of effectiveness was extended to April 1, 1980 to allow receipt of the legal opinion. Credit No. 903-MAG: Second Railways Project; US$13.0 million credit of May 8, 1979; Terminal Date of Effectiveness: April 1, 1980; Closing Date: June 30, 1984 The objectives of the Project are to help RNCFM to renew and modernize its facilities, improve the reliability and efficiency of its operations and improve its financial management and accounting methods. The Caisse Centrale de Cooperation Economique (CCCE) provided US$20.5 million in cofinancing. The terminal date of effectiveness was extended to April 1, 1980 to allow for signature of the subsidiary loan agreement between the borrower and the Railways (RNCFM). - 28 - ANNEX III MADAGASCAR NATIONAL INDUSTRIAL DEVELOPMENT BANK (BNI) Supplementary Project Data Sheet Section I: Timetable of Key Events (a) Bank reconnaissance/identification mission: November 1977 Initial discussion of a possible line of credit for BNI: June 1978 (b) Time taken to prepare project: 12 months (c) Appraisal mission: November 1978 (d) Negotiations: October 1979 (e) Planned date of Effectiveness: June 1980 Section II. Special IDA Implementation Actions: None Section III. Special Conditions of the Project: - The IDA funds would be used only to finance projects with total costs up to FMG500 million (US$2.4 million) and the maximum credit granted by BNI to a single project with the IDA credit would be limited to US$750,000 (para 50); - The foreign exchange risk will be passed on to all medium and large-scale borrowers. For small-scale enterprises (defined as those with fixed assets below FMG15 million or about US$70,000) the Government will carry the foreign exchange risk at a 1% fee (para 51); - A special condition of effectiveness is that the Subsidiary Loan Agreement between the Government and BNI shall have been signed (para 57).
Группа Всемирного банка · Memorandum & Recommendation of the President
Madagascar - Bankin'ny Indostria (BNI) Project
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Memorandum & Recommendation of the President
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Мадагаскар
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Всемирный банк