Mozambique - Industrial Enterprise Project

 ICRR 10702 Report Number : ICRR10702 ICR Review Operations Evaluation Department 1. Project Data : Date Posted : 07/31/2000 PROJ ID : P001784 OEDID: OEDID : C2081 Appraisal Actual Project Name : Industrial Enterprise US$M ) Project Costs (US$M) 106.8 53.41 Project Country : Mozambique Loan/ US$M ) Loan /Credit (US$M) 50.1 50.4 Sector, Major Sect .: Industrial US$M ) Cofinancing (US$M) Restructuring , Industry L/C Number : C2081 FY ) Board Approval (FY) 90 Partners involved : Closing Date 12/21/1997 12/31/1999 Prepared by : Reviewed by : Group Manager : Group : Michael R. Lav Luis A. Ramirez Ruben Lamdany OEDCR 2. Project Objectives and Components a. Objectives The original objective of the project was to assist in the rehabilitation of selected key enterprises and to establish an institutional framework and approach to enterprise rehabilitation and restructuring . After one year, the project was substantially revised (a management decision without Board approval ) with new objectives to support : (1) the government's new program to privatize a large number of enterprises, and (2) private sector development through the provision of long-term funds and institutional reforms . b. Components The revised loan included a line of credit to provide finance for newly privatized enterprises (US$30.61 million), and technical assistance (US$16.50 million) for the Investment Promotion Center, the Export Promotion Institute, and the National Statistics Institute, and for vehicles and equipment for these agencies (US$2.44 million). The project also provided for the repayment of a PPF for US$ 0.85 million. c. Comments on Project Cost, Financing and Dates The project totaled US$ 53.41 million, of which IDA financed US$50.4 million, and the Government, US $ 3.01 million. The project was approved on December 21, 1989, became effective on August 6, 1990, and closed on December 31, 1999, two years later than originally projected . 3. Achievement of Relevant Objectives : The revised project was instrumental in Mozambique's transformation from a socialist -oriented economy to a market economy. About 1,272 enterprises were privatized under the program supported by the project, covering a range of sectors including food, cement, beverages, construction, and tourism . The Investment Promotion Center, Export Promotion Institute, and the National Statistics Institute were significantly strengthened . 4. Significant Outcomes /Impacts : Although employment dropped in these privatized enterprises, real wages increased by about 60% and the collection rate of sales taxes increased by 38 %. Almost 92 percent by number, and 60 percent by value, of the privatized enterprises were sold to Mozambican nationals . 5. Significant Shortcomings (including non -compliance with safeguard policies ): Repayment on some sub-loans are lagging, and about 40 percent of the US$3 million in payments due at the end of October, 1999, had yet to be recovered as of the Spring of 2000. While PFIs were stepping up collection efforts and increasing provisions, this may signal the need for further institutional and other support to the financial sector . 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev .: Substantial Substantial Sustainability : Likely Likely  Bank Performance : Satisfactory Satisfactory Borrower Perf .: Satisfactory Satisfactory Quality of ICR : Satisfactory 7. Lessons of Broad Applicability : (1) A considerable degree of flexibility was required in the project to support the Government's shift from the original intention of the project (restructuring a few public enterprises ) to the revised objective (privatization of a large number of public enterprises). This flexibility had a high payoff and was clearly worthwhile, although there was a high cost for the Bank in the large number of supervision missions need to support the revised project . (2) In supporting privatization programs in countries which are also transforming their financial sectors and which have limited capacity, the Bank should try to work more proactively to overcome shortcomings in the financial sector 8. Audit Recommended? Yes No 9. Comments on Quality of ICR : The ICR presents well the change in the project's objectives . It also brings to bear some information to give some of the flavor of the transition in the economy supported by this project, although some more quantitative indications of this change would have been useful to better appreciate the overall impact of the project .